UNITED STATES SECURITIES AND EXCHANGE COMMISSION

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
	For the fiscal year ended December 31, 2017
	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)

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

49007
(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~~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, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” ~~and~~ “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☑ Emerging growth company ☐

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

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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, ~~2016~~2017, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $1730,~~201~~499,~~024~~200 computed by reference to the ~~close~~last sales price of the common stock on such date of $0.0508 per share.

There were ~~394~~415,~~934~~191,~~068~~788 shares of the registrant’s common stock outstanding as of March 2220, ~~2017~~2018.

~~Documents~~DOCUMENTS ~~incorporated~~INCORPORATED byBY ~~reference. None~~ REFERENCE

None

MEDIZONE INTERNATIONAL, INC.

FORM 10-K

For the year ended December 31, ~~2016~~2017

TABLE OF CONTENTS

		Page
Part I
Item 1	Business	3
Special Note Regarding Forward-Looking Statements		1
Item 1A	Risk Factors	8
Item 1	Business	2
Item 1B	Unresolved Staff Comments	12
Item 1A	Risk Factors	9
Item 2	Properties	12
Item 1B	Unresolved Staff Comments	16
Item 3	Legal Proceedings	12
Item 2	Properties	16
Item 4	Mine Safety Disclosures	13
Item 3	Legal Proceedings	16
Item 4	Mine Safety Disclosures	16
Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	1417
Item 6	Selected Financial Data	1518
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1518
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	1821
Item 8	Financial Statements and Supplementary Data	1821
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	1821
Item 9A	Controls and Procedures	1821
Item 9B	Other Information	1922
Part III
Item 10	Directors, Executive Officers and Corporate Governance	2023
Item 11	Executive Compensation	2428
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	2533
Item 13	Certain Relationships and Related Transactions, and Director Independence	2634
Item 14	Principal Accounting Fees and Services	2734
Part IV
Item 15	Exhibits, Financial Statement Schedules	2936
Signatures		3138
Index to Consolidated Financial Statements		39
Report of Independent Registered Public Accounting Firm		F-1

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, in Section 27A of the Securities Act of 1933, as amended (~~including~~the ~~documents~~“Securities ~~incorporated~~Act”) byand ~~reference~~Section ~~herein~~21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). ~~contains~~These forward-looking statements are based on our management’s current beliefs, expectations 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,” “approximately,” “predicts,” “projects,” “continues,” “ongoing,” “believes,” “could,” “estimates,” “expects,” “future,” “intends,” “may,” “plans,” “potential,” “should,” “will,” “would” and similar expressions and the negative of such 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. WeExamples ~~undertake~~of ~~no obligation to update any~~ forward-looking statements ~~after the date of this Annual Report on Form 10-K~~include, ~~whether~~among ~~as a result of new information~~others, ~~future~~statements ~~events,~~we ormake ~~otherwise, except as required by applicable law.~~regarding:

·	Expected operating results, such as revenue growth and earnings;

·	Current or future volatility in the credit markets and future market conditions;

·	Our belief regarding expectations of necessary levels of liquidity to fund our business operations during the next 12 months;

·	Strategy for commercialization, product development, regulatory compliance, market penetration, market position, financial results and reserves; and

·	Strategy for risk management.

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.

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PART I

Throughout this Annual Report on Form 10-K, unless expressly indicated or the context requires otherwise, we use the terms “Medizone,” the “Company,” “we,” “us,” and “our” to refer to Medizone International, Inc., a Nevada corporation, and, where appropriate, ~~its~~our affiliate, the Canadian Foundation of Global Health, which is a non-profit variable-interest entity, and our wholly-owned subsidiary, Medizone Canada, Inc., a corporation formed under the Canada Business Corporation Act. In addition, unless indicated otherwise, references to “dollars” and “$” are to United States dollars. Throughout this Annual Report on Form 10-K, we use the acronyms “FDA” and “EPA” to refer to the United States Food and Drug Administration and the United States Environmental Protection Agency, respectively.

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~~We ~~International,~~are ~~Inc.~~a ~~was~~global ~~incorporated~~provider ~~in January 1986. Our focus is in the field~~ of ~~hospital~~ disinfection solutions. ~~During~~We ~~the~~invented ~~year ended December 31, 2012, we generated our first significant revenues from~~ the ~~sale of our~~ AsepticSure® ~~hospital disinfection~~ system. Weto ~~cannot~~provide ~~predict~~a ~~when~~superior ormeans ifof wedisinfecting ~~will~~non-porous ~~generate~~surfaces ~~sufficient~~in ~~cash~~numerous ~~flows~~settings, ~~from~~including ~~operating~~hospitals, ~~activities~~other tohealthcare ~~fund~~facilities ~~continuing~~and ornon-hospital/healthcare ~~planned operations~~facilities. IfThe weAsepticSure® ~~fail~~system toutilizes ~~obtain~~hydrogen ~~additional~~peroxide ~~funding,~~vapor weand ~~will~~ozone bein ~~forced~~a topatented ~~suspend~~process orthat ~~permanently~~achieves ~~cease~~a ~~operations,~~six-log ~~and~~reduction across ~~may~~a ~~need~~broad toarray ~~seek~~of ~~protection~~bacterial ~~under~~and ~~U.S.~~viral ~~bankruptcy laws~~pathogens.

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

OnNote ~~February 22, 2017, Edwin G. Marshall, our Chief Executive Officer~~ and ~~Chairman~~Warrant 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.Financing

On January 31, 2018, we entered into identical securities purchase agreements (the “Securities Purchase Agreements”) with two specialized investment firms, L2 Capital, LLC (“L2”) and SBI Investments LLC, 2014-1 (“SBI” and, with L2, collectively, the “Investors”), pursuant to which we issued identical unsecured convertible promissory notes (collectively, the “Notes”) in the aggregate principal amount of $305,000. The ~~Board~~Notes accrue interest at a rate of ~~Directors~~8% ~~appointed~~per ~~David~~annum. APrincipal and accrued interest are payable at maturity six months from the date of issue. ~~Esposito~~The asNotes ~~Chairman~~were ~~and~~issued ~~Interim~~with ~~Chief~~an ~~Executive~~original ~~Officer~~issue ~~effective~~discount ~~March~~of 1$35,000. ~~2017~~We also paid $20,000 from the proceeds of the Notes to the Investors to reimburse them for their legal fees in connection with the preparation of the Notes and the related loan and investment transaction documentation. MrAccordingly, the net proceeds we received from these Notes was $250,000. ~~Esposito~~The ~~has~~Notes ~~been~~are aconvertible ~~director~~at any time at the option of the ~~Company~~Investors ~~since~~into ~~2014~~shares of common stock at a conversion price of $0.05 Heper ~~currently~~share, ~~serves~~subject asto ~~President~~adjustment ~~and~~upon ~~CEO~~the occurrence of ~~Armune~~certain ~~BioScience~~events of default with respect to the Notes; provided, ~~Inc.~~however, that in no event shall an ~~early~~Investor ~~stage~~be ~~medical~~entitled ~~diagnostics~~to ~~company~~convert ~~focused~~any onportion ~~developing~~of ~~and~~a ~~commercializing~~Note ~~unique~~in ~~technology~~excess ~~for~~of ~~diagnostic~~that ~~and~~portion ~~prognostic~~of ~~tests~~the ~~for~~Note ~~prostate~~that, ~~lung~~after giving effect to the conversion, such Investor (together with such Investor’s affiliates, and ~~breast~~any ~~cancers~~persons acting as a group together with such Investor or any of such Investor’s affiliates) would beneficially own in excess of 4.99% As(or ~~Interim~~9.99% ~~CEO~~if elected by the Investor) of ~~Medizone~~the number of shares of the common stock outstanding immediately after giving effect to the conversion. An Investor, Mrupon 61 days prior notice to us, may increase the beneficial ownership limitation provisions applicable to its conversion of the Note from 4.99% ~~Esposito~~to ~~will~~9.99% ~~lead~~of the ~~search~~number ~~for~~of ~~individuals~~shares ~~with~~of ~~experience~~the ~~commercializing~~common ~~healthcare~~stock ~~products~~outstanding immediately after giving effect to ~~focus~~the conversion. We may prepay the ~~Company’s~~amount ~~efforts~~outstanding under either Note at any time by making a payment to ~~raise~~the ~~capital~~holder ~~for~~of ~~operations~~an ~~and~~amount in cash equal to ~~build~~130% ~~out~~multiplied by the ~~Company’s~~total ~~sales~~outstanding ~~efforts~~amount inowed under the ~~United~~Note ~~States~~at ~~market~~such time of repayment. The Investor may convert the Note in whole or in part at any time within 10 days after it has been called for redemption.

In connection with the Securities Purchase Agreements, we also issued to each Investor a warrant (collectively, the “Warrants”) to purchase 2,833,168 shares of common stock. The Warrants are immediately exercisable for five years at an exercise price per share of $0.04169 (which is a price equal to 110% multiplied by the closing bid price of our common stock on the issuance date, which was $0.0379 per share). The Warrants include a cashless net exercise provision whereby the holder can elect to receive shares equal to the value of the Warrants minus the fair market value of shares being surrendered to pay for the exercise. The Warrants also contain customary anti-dilution provisions.

Equity Line Financing Arrangement

Also on January 31, 2018, we entered into that certain Equity Purchase Agreement with the Investors, which was subsequently amended on March 16, 2018 (as amended, the “Purchase Agreement”), pursuant to which the Investors committed to purchase in the aggregate, up to $10,000,000 of value of our common stock (the “Equity Line”). In consideration of their commitment under the Purchase Agreement, on January 31, 2018, we issued to each Investor 4,087,193 shares of common stock (the “Commitment Shares”) as a commitment fee. Pursuant to the Purchase Agreement, provided certain conditions are met, we have the right, but not the obligation, to direct the Investors to purchase shares of our common stock (the “Put Shares”) (i) in a minimum amount of not less than $20,000 and (ii) in a maximum amount of $1,000,000, provided that the number of Put Shares shall not exceed 300% of the average daily trading volume in the 10 trading days immediately preceding a Put Notice (as defined below). This arrangement is sometimes referred to as an “Equity Line.”

Table of Contents

At any time, and from time to time during the term of the Purchase Agreement (the “Commitment Period”), we may deliver a notice to the Investors requiring them to purchase shares (each such notice, a “Put Notice”). We will also deliver the Put Shares to the Investors via Deposit and Withdrawal at Custodian or “DWAC” within one trading day of the Put Notice. The purchase price for the Put Shares is 85% of the lowest traded price (as reported by Bloomberg Finance L.P.) during the five trading days immediately following the date the Investors receive the Put Shares associated with the applicable Put Notice (the “Valuation Period”); provided, however, that if the market price of our common stock during the Valuation Period is less than $0.01 per share, then the purchase price for the Put Shares will be 80% of the market price of our common stock during the Valuation Period. The closing of a Put Notice shall occur within one trading day following the end of the respective Valuation Period, at which time (i) the Investors shall deliver the investment amount to us by wire transfer of immediately available funds and (ii) the Investors shall return surplus Put Shares if the value of the Put Shares delivered to the Investors causes us to exceed the maximum commitment amount under the Purchase Agreement. Under the terms of the Purchase Agreement, we may not deliver another Put Notice to the Investors within seven trading days of a prior Put Notice.

Our right to issue and sell Put Shares to the Investors is subject to the satisfaction of certain conditions, including, but not limited to, (i) an effective registration statement for resale of the Put Shares and the Commitment Shares, (ii) the accuracy of our representations and warranties, (iii) our performance of our obligations under the Purchase Agreement in all material respects, (iv) no suspension of trading or delisting of our common stock, (v) limitation of each Investor’s beneficial ownership to no more than 9.99% of our outstanding common stock, (vi) our maintaining our DWAC-eligible status, and (vii) our maintaining a sufficient number of authorized shares of common stock in reserve.

The obligation of the Investors to purchase common stock from us will expire (the “Commitment Period”) on the earlier of (i) the date on which the Investors shall have purchased $10,000,000 value of shares of common stock from us pursuant to the Equity Line, (ii) January 31, 2021, or (iii) upon our provision of written notice to the Investors that we elect to terminate the Purchase Agreement. Neither of the Investors, nor any affiliate of either of the Investors acting on its behalf or pursuant to any understanding with it, will execute any short sales during the period from the date hereof to the end of the Commitment Period.

In connection with the Purchase Agreement, we also entered into a Registration Rights Agreement requiring us to prepare and file a registration statement registering the resale of the Commitment Shares and the shares of common stock to be issued to the Investors under the Purchase Agreement (collectively the “Registrable Shares”), to use commercially reasonable efforts to cause such registration statement to become effective, and to keep such registration statement effective until the later of (i) the date as of which the Investors may sell all the Registrable Shares owned by them without restriction under Rule 144 promulgated under the Securities Act, or (ii) the date they have sold all the Registrable Shares and no “Available Amount” remains under the Purchase Agreement. In accordance with the Registration Rights Agreement, on February 12, 2018, we filed a registration statement on Form S-1 with the Securities and Exchange Commission (“SEC”) to register the resale by the Investors of up to 14,059,041 shares that may be issued and sold to the Investors under the Equity Line and 8,174,386 Commitment Shares, or approximately 5.6% of our shares of common stock, assuming all such shares were issued and outstanding.

The foregoing description of the terms of the Securities Purchase Agreements, the Notes, the Warrants, the Purchase Agreement and the Registration Rights Agreement is not complete and is subject to and qualified in its entirety to the agreements and instruments themselves. We have previously filed Current Reports on Form 8-K and included copies of these agreements as exhibits to those reports, copies of which can be viewed on our corporate website.

The Disinfection Problem

Hospital-acquired infections (“HAIs”), also referred to as nosocomial infections, are a significant global problem. In the United States, such infections are a leading cause of death, accounting for approximately 100,000 deaths annually. According to the United States Centers for Disease Control and Prevention (the “CDC”), the nosocomial infection rate for U.S. hospital admissions is approximately five to ten percent. In the European Union (“EU”), HAIs cause 37,000 deaths annually but contribute to an additional 110,000 deaths and impose direct costs on the healthcare system of approximately $10.5 billion annually. There are an estimated 4.1 million cases of nosocomial infections in the EU each year. In the developed world, nosocomial infections are estimated to affect patients at a rate of 3.5% to 12% of hospital admissions. Approximately 20% to 30% of these infections are considered preventable through intensive hygiene and control programs, while the other 70% to 80% are preventable through more involved measures, including hospital architecture, hospital air sanitation and use of disposable equipment and supplies.

In the hospital setting, a few bacterial and viral pathogens account for almost all the nosocomial infections. The species include the following: Acinetobacter baumannii, Clostridium difficile (“C. difficile”), Staphylococcus aureus and methicillin-resistant Staphylococcus aureus (“MRSA”), Escherichia coli (“E. coli”), Salmonella, Shigella, Campylobacter, Pseudomonas aeruginosa, Stenatrophomonas maltophilia, Tuberculosis, vancomycin-resistant Enterococcus (“VRE”), Legionnaires’ Disease, Noroviruses, and Rotaviruses. A recent CDC report identified 18 superbugs as “urgent, serious, and concerning threats” to the population, including carbapenem-resistant Enterobacteriaceae, drug-resistant Neisseria gonorrhea and multi-drug resistant Acinetobacter. Infections caused by the same bacterial and viral pathogens that result in HAIs are also prevalent in settings outside hospitals.

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~~Our~~The ~~Business~~AsepticSure® Solution

The AsepticSure® system is ~~the~~a ~~name~~portable, affordable disinfection system that can be easily operated by trained maintenance staff. Each AsepticSure® system consists of ~~our~~a ~~patented,~~primary ~~United~~unit ~~States~~that ~~Environmental~~generates ~~Protection~~hydrogen ~~Agency~~peroxide mist and ozone (the “~~EPA~~disinfectant generator”), ~~registered~~two ~~(Reg.~~ozone ~~No.~~scrubbers ~~90607-3)~~and ~~ozone~~a dehumidifier. The disinfectant ~~formula~~unit ~~used~~is ~~for~~placed ~~disinfection~~in ofthe ~~non-porous~~center ~~surfaces~~of inthe ~~hospitals,~~room ~~clinics,~~to ~~hotels,~~be ~~sporting~~cleaned. ~~venues~~Vents and indoors ~~the~~are ~~food~~then ~~industry,~~sealed ~~long-term~~with ~~care~~an ~~facilities,~~easily and ~~other~~cleanly ~~critical~~removable ~~infrastructures~~adhesive tape product. InThe disinfectant unit is activated from outside of the ~~AsepticSure~~room ~~system,~~through ~~oxygen~~a ~~atoms~~remote ~~are~~wireless ~~misted~~interface. ~~into~~The ~~the~~room ~~environment~~is filled with a ~~hydrogen~~unique ~~peroxide~~and ~~vapor,~~patented ~~creating~~ozone-based ~~Trioxidane~~gas formula to specific humidity and charge strength. Following the charge period and subsequent treatment period, the disinfectant unit is remotely turned off and ~~successfully~~the ~~achieving~~ozone ~~high~~scrubbers ~~rates~~restore the atmosphere inside the room to applicable safety standards. The turnaround time for re-use of ~~bactericidal~~rooms ~~kill~~up ~~inside~~to an4,000 ~~enclosed~~cubic ~~space~~feet ~~without~~in ~~any~~size ~~residual~~is ~~damage~~80 to 90 minutes. This includes the decontamination of all room contents.

~~Prior~~The todisinfection ~~2008,~~action ~~our~~of ~~research~~the ~~and~~AsepticSure® ~~development~~system ~~activity~~is ~~had~~achieved ~~been~~through ~~dedicated~~a topatented process involving the interaction of low-dose hydrogen peroxide (iH2O2) ~~seeking~~and ~~regulatory~~ozone ~~approval~~(O3) ofat a ~~precise~~specific ~~mixture~~relative humidity for a fixed period of ~~ozone~~time. ~~and~~Ozone is a gas composed of three oxygen, atoms (O3) in an unstable and ~~the~~highly ~~process~~reactive ofform. ~~inactivating~~Ozone ~~lipid~~naturally tends to seek its normal state, exhibiting a short half-~~enveloped~~life ~~viruses~~as ~~for~~it ~~the~~reverts ~~intended~~to ~~purpose~~oxygen (O2) fairly rapidly. There are many uses of ~~decontaminating~~ozone ~~blood~~as ~~and~~a ~~blood~~disinfecting ~~products~~agent. ~~and~~Although ~~assisting~~ozone does react with organic matter, it leaves no residue in ~~the~~water ~~treatment~~or on a treated product. Ozone also does not form any toxic byproducts. The interaction of ~~certain~~hydrogen ~~diseases;~~peroxide and ozone creates a compound known as Trioxidane (iiH2O3). ~~developing~~Trioxidane oris ~~acquiring~~so ~~the~~efficient ~~related~~in ~~technology~~killing ~~and~~bacteria at low concentrations that all equipment ~~for~~may remain in the ~~medical~~room ~~application~~during ofthe ~~our~~disinfection ~~products,~~process ~~including~~as material compatibility testing across a ~~drug~~broad ~~production~~range ~~and~~of ~~delivery~~metals, ~~system;~~plastics, textiles and, ~~(iii)~~electronic ~~applying~~circuit ~~our~~boards ~~novel~~has ~~technology~~shown tono ~~the~~damage ~~problem~~following of20 ~~nosocomial~~separate ~~infections~~disinfection ~~world-wide~~runs.

~~Early~~In inOctober ~~2008~~2017, wethe ~~began~~AsepticSure® tosystem ~~consider~~was ~~other~~“CE” ~~applications~~Mark ofcertified ~~our~~in ~~core~~the ~~technologies~~EU and ~~new~~its ~~technologies~~member ~~with~~states. ~~lower~~In ~~development~~June ~~costs~~2017, ~~with~~we ~~the~~received ~~objective~~full ofelectrical ~~moving~~safety usapproval tofor ~~revenue~~all ~~production~~models inof the ~~shortest~~AsepticSure® ~~period~~system. ofThe ~~time.~~approval ~~This~~means ~~new~~that ~~direction~~the ~~included~~AsepticSure® ~~re-positioning~~system has achieved full compliance with the ~~Company~~applicable tointernational ~~pursue~~safety anstandards ~~initiative~~that inprovide ~~the~~a ~~field~~baseline ofrequirement ~~hospital~~that ~~disinfection.~~must ~~After~~be ~~achieving~~met ~~laboratory~~in ~~results~~order ~~using~~to ~~ozone~~pursue onmarketing ~~Bacillus~~in ~~subtilis~~all jurisdictions, anincluding ~~internationally~~Canada, ~~recognized~~the ~~surrogate~~United ~~for~~States, ~~anthrax~~South America, ~~that~~the ~~produced~~EU, 7Asia, ~~log~~and ~~reductions~~the ~~(sterilization),~~Middle East. Although we ~~expanded~~will ~~our~~be ~~research~~required ~~and~~to ~~business~~apply ~~plan~~for toa ~~include~~separate ~~bio-terrorism~~approval ~~countermeasures~~in aseach ~~well~~country, ascompliance ~~hospital~~with ~~disinfection~~the ~~and~~international ~~critical~~safety ~~infrastructure~~standards ~~de-contamination~~will greatly facilitate this process. In August 2016, Cogmedix Inc., our contract manufacturer (“~~Log~~Cogmedix”), ~~stands~~obtained ~~for~~company ~~logarithm,~~and ~~which~~establishment isnumbers from the ~~exponent~~EPA ofto ~~10.~~serve ~~Log~~as ~~reduction~~a ~~stands~~manufacturer for athe ~~10-fold~~AsepticSure® ~~(one~~system. ~~decimal)~~Cogmedix oralready ~~90%~~held ~~reduction~~FDA inmedical ~~numbers~~device ofmanufacturing ~~live bacteria~~status. ~~For~~EPA ~~example,~~registration aallows ~~“5-log~~Cogmedix ~~reduction”~~to ~~means~~ship ~~lowering~~AsepticSure® ~~the~~systems ~~number~~to ofhospitals ~~microorganisms~~and byother ~~100,000-fold,~~users ~~that~~in ~~is,~~the ifUnited aStates. ~~surface~~The EPA has ~~100,000~~also ~~pathogenic~~granted ~~microbes~~a onregistration ~~it,~~number afor ~~5-log~~the ~~reduction~~specific ~~would~~hydrogen ~~reduce~~peroxide ~~the~~catalyst ~~number~~used ofin ~~microorganisms~~the toAsepticSure® ~~one~~system. AThe ~~6-log~~AsepticSure ~~reduction~~Oxidative ~~means~~Catalyst ~~the~~is ~~number~~EPA ofapproved ~~pathogenic~~for ~~microorganisms~~use isin 1hospitals,~~000~~ clinics,~~000~~ ~~times~~food ~~smaller~~industry, sporting venues, and ahotels ~~7-log~~to ~~reduction~~disinfect ~~means~~hard, ~~the~~non-porous ~~number~~surfaces isat ~~10,000,000~~a ~~times~~1.4% ~~smaller~~concentration.

~~Standards~~We ~~for~~tested ~~disinfection~~the ~~and~~AsepticSure® ~~sterilization~~system ~~refer~~against tomany ~~log~~of ~~reduction.~~the ~~“Disinfection”~~bacterial isand ~~considered~~viral topathogens ~~involve~~that amost ~~bio-burden~~frequently ~~reduction~~cause ~~of 99~~HAIs.~~99%~~ ~~(4-logs)~~The ~~and~~table upbelow tosets ~~99.999%~~forth ~~(5-log~~the ~~reduction)~~names ~~or destruction~~ of ~~999,990~~such ~~out~~species ~~of 1~~and,~~000,000~~ ~~organisms,~~information ~~leaving~~about ~~behind~~the ~~very~~results ~~few,~~of ~~but~~our ~~still~~testing ~~some,~~of ~~viable organisms. Sterilization is~~ the ~~statistical~~efficacy ~~destruction~~ of ~~all~~the ~~microorganisms~~AsepticSure® ~~and~~system ~~their spores. It is defined~~ as ~~6 log or~~ a ~~99.9999%~~means ~~reduction.~~of ~~Statistically,~~controlling ~~this definition is accepted as zero viable organisms surviving~~them.

~~Ozone~~The isefficacy adata ~~gas~~in ~~composed~~the oftable ~~three~~below ~~oxygen~~refer ~~atoms~~to ~~(O3)~~“log inreduction”. an“Log” ~~unstable~~stands ~~and~~for ~~highly~~logarithm, ~~reactive~~which ~~form.~~is ~~Ozone~~the ~~naturally~~exponent ~~tends~~of to10. ~~seek~~Log ~~its~~reduction ~~normal~~stands ~~state,~~for ~~exhibiting~~ a ~~short half~~10-~~life~~fold as(one itdecimal) ~~reverts~~or ~~back~~90% toreduction ~~oxygen~~in ~~(O2)~~numbers ~~fairly~~of ~~rapidly~~live bacteria. ~~There~~For ~~are~~example, ~~many~~a ~~uses~~“5-log ofreduction” ~~ozone~~means aslowering athe ~~disinfecting~~number ~~agent.~~of ~~Although~~microorganisms ~~ozone~~by ~~does~~100,000-fold, ~~react~~that ~~with organic matter~~is, itif ~~leaves~~a nosurface ~~residue~~has in100,000 ~~water~~pathogenic ormicrobes on it, a ~~treated~~5-log ~~product.~~reduction ~~Ozone~~would ~~also~~reduce ~~does~~the ~~not~~number ~~form~~of ~~any~~microorganisms ~~toxic~~to ~~byproducts~~one. ~~When~~A ~~used~~6-log inreduction ~~water,~~means nothe ~~change~~number inof ~~color~~pathogenic ormicroorganisms ~~flavor~~is ~~results~~1,000,000 ~~from~~times ~~ozone~~smaller ~~treatment,~~and ~~unlike~~a ~~chlorine~~7-log ~~treatment.~~reduction ~~Ozone~~means ~~can~~the benumber ~~generated~~is ~~onsite~~10,000,000 ~~from~~times ~~ambient~~smaller. ~~air~~Disinfection oris ~~from~~considered ~~oxygen.~~to ~~Each~~involve ~~method~~a ~~has~~bio-burden ~~its~~reduction ~~advantages~~of 99.99% (4-logs) and ~~unique~~up ~~challenges~~to 99.999% It(5-log ~~has~~reduction) ~~been~~or ~~demonstrated~~destruction ~~that~~of ~~ozone~~999,990 ~~can~~out beof ~~economically~~1,000,000 ~~produced~~organisms, ~~and~~leaving isbehind ~~effectively~~very ~~used~~few, asbut anstill ~~agent~~some, inviable ~~food~~organisms. ~~processing~~Sterilization ~~and~~is ~~equipment~~the ~~sanitizing,~~statistical ~~and~~destruction inof ~~water~~all ~~treatment~~microorganisms ~~facilities~~and ~~globally~~their spores. ~~Ozone~~It ~~technology~~ is ~~replacing~~defined ~~conventional~~as ~~sanitation~~6-log ~~techniques~~or ~~such~~a as99.9999% ~~chlorine,~~reduction. ~~steam~~Statistically, orthis ~~hot~~definition ~~water~~is accepted as zero viable organisms surviving.

WeOur ~~developed~~research ~~AsepticSure,~~team ahas ~~highly~~demonstrated ~~portable,~~that ~~low-cost,~~even ~~ozone~~a 3-~~based~~log ~~technology~~(99.9%) ~~specifically~~bactericidal ~~for~~kill ~~the~~is ~~purpose~~not ofenough ~~decontaminating~~to ~~and~~stop ~~sterilizing~~bactericidal ~~hospital~~regeneration. ~~surgical~~Yet ~~suites,~~a ~~emergency~~3-log ~~rooms,~~kill ~~intensive~~exceeds ~~care~~the ~~units~~results ~~and~~of ~~other~~most ~~enclosed~~current ~~spaces~~cleaning ~~such~~practices asand ~~gym~~technologies. ~~locker~~In ~~rooms,~~our laboratories, ~~and~~we ~~veterinary~~have ~~clinics.~~demonstrated ~~Since~~that ~~this~~the ~~technology~~remaining is0.1% ~~not~~of ~~considered~~bacteria following a ~~medical~~3-log ~~treatment~~kill orbegin ato ~~diagnostic~~regenerate ~~device,~~in ~~its~~a ~~development~~few ~~pathway~~hours isand ~~not~~in ~~subject~~five todays awill ~~stringent~~return ~~and~~to ~~expensive~~full ~~regulatory review process~~strength. WeThat ~~anticipate~~is ~~that~~ the ~~development~~reason ~~pathway~~most ~~will~~current becleaning ~~based~~methods ~~on independent peer-reviewed science~~ and ~~engineering~~systems ~~excellence.~~have ~~Our~~failed ~~team~~to isbreak ~~also~~the ~~developing~~reinfection acycle ~~variant~~in ofhealth ~~AsepticSure~~care ~~for governmental use with bio-terrorism countermeasures~~facilities.

~~AsepticSure~~Effect ~~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~~AsepticSureÒ ofSystem ~~low-dose~~on ~~hydrogen~~Specified 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.Bacteria

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.

Organism		Log₁₀ Reduction
MRSA		6.43
VRE		6.08
E. coli		6.02
C. difficile		5.75
B. Subtilis		6.37

~~The~~Source: ~~AsepticSure~~Zoutman, ~~difference~~Shannon ~~was~~& ~~first demonstrated outside the laboratory at Belleville General Hospital in Ontario~~Mandel, ~~Canada~~Effectiveness ~~during the summer~~ of ~~2013 when~~ a ~~ward~~novel ~~that~~ozone-based ~~had~~system ~~been~~for ~~contaminated with an MRSA outbreak was quarantined. Following a single AsepticSure cleaning,~~ the ~~ward~~rapid ~~was~~high-level ~~free~~disinfection of ~~MRSA.~~health ~~More~~care ~~significantly,~~spaces ~~for~~and ~~more than six months thereafter~~surfaces, ~~the~~Am ~~ward~~J ~~reported~~Infect noControl ~~additional~~2001 ~~cases~~at of5 ~~MRSA~~(table ~~infection~~3). ~~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.~~

Note: All decontamination testing with the AsepticSure^Ò system was conducted using bacteria or bacterial spores suspended in approved biofilms to simulate real world situations involving spills of human waste, which are often difficult for normal cleaning agents to penetrate.

Table of Contents

The efficacy of the AsepticSure® ~~Solution~~system 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 a MRSA outbreak was quarantined. Historically, the hospital reported that the ward had averaged one to two new MRSA cases per month. Following a single AsepticSure® cleaning, the hospital determined that the ward was free of MRSA and remained so for 11 months. In May 2014, at the Infection Prevention and Control Association of Canada (“IPAC”) Annual Scientific Meeting in Halifax, Nova Scotia, Canada, we reported that each of the rooms disinfected with the AsepticSure® system at Belleville in June 2013 described above had gone a full year without another case of MRSA.

~~The~~In ~~AsepticSure~~January ~~hospital~~2015, ~~disinfection~~a ~~system~~senior isofficial aat ~~portable,~~Quinte ~~affordable~~Health Care, ~~easily~~a ~~operated~~four hospital Canadian health care system (“QHC”), informed Medizone that ~~can~~following bethe ~~used~~use byof ~~trained~~the ~~maintenance~~AsepticSure® ~~staff~~system to treat the MRSA outbreak at Belleville and a C. ~~The~~difficile ~~unit~~outbreak isat ~~placed~~QHC’s inTrenton Memorial Hospital, the ~~center~~hospitals reported no further cases of ~~the~~illness ~~room~~related to beMRSA ~~cleaned~~or C. ~~Vents~~difficile, ~~and~~citing ~~doors~~the ~~are~~use ~~then~~of ~~sealed~~the ~~with~~AsepticSure® ansystem ~~easily~~as ~~and~~a ~~cleanly~~significant ~~removable~~factor. ~~3M-tape~~We ~~product~~reported at the IPAC meeting in Victoria, B.C. ~~The~~in ~~system~~June is2015, ~~turned~~that onthere ~~from~~had ~~outside~~been no further cases of ~~the~~C. ~~room~~difficile ~~through~~at aTrenton ~~remote~~Memorial ~~wireless~~Hospital ~~computer~~as ~~interface~~of the meeting date. ~~The~~We ~~room~~believe isthat ~~filled~~this ~~with~~extraordinary ademonstration ~~unique~~of ~~and~~disinfection ~~patented~~efficacy ~~gas~~by ~~formula~~the ~~that~~AsepticSure® issystem ~~ozone-based~~underscores tothe ~~specific~~importance ~~humidity~~of ~~and~~obtaining ~~charge~~100% ~~strength~~kill of infective pathogens in health care settings if the re-infection cycle is to be broken.

~~Following~~The ~~the~~Market ~~charge~~for ~~period,~~Disinfection ~~the~~Products ~~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.Services

~~The~~We ~~turnaround~~believe ~~time~~that ~~for~~the ~~re-use~~AsepticSure® ofsystem ~~rooms~~has upapplication toin 4a wide variety of settings,~~000~~ ~~cubic~~including ~~feet~~medical infacilities ~~size~~(hospitals, isclinics, 80physician’s tooffices, 90outpatient ~~minutes.~~surgical ~~This~~centers, ~~includes~~long-term ~~the~~care ~~decontamination~~facilities), ofbio-safety ~~carpets~~labs, ~~drapes~~athletic facilities (gyms and ~~medical~~locker rooms) and sports equipment, ~~all~~mortuaries, bio-defense and response to ~~the~~pandemics, 6building ~~log~~remediation, ~~standard~~tissue –labs, ~~the~~and ~~Gold~~clean ~~Standard~~rooms. ~~benchmark~~Each byof ~~which~~these ~~all~~potential ~~disinfection~~markets ~~technologies~~is ~~are~~discussed ~~measured~~in greater detail below.

InMedical ~~early~~Facilities. ~~November~~We ofbelieve ~~2014,~~that ~~our~~medical ~~engineering~~facilities, ~~team~~including ~~began~~hospitals, ~~development~~clinics, ofphysician’s aoffices, ~~new~~outpatient ~~ozone~~surgical ~~generator~~centers, ~~utilizing~~and along-term ~~revolutionary~~care UVfacilities, ~~bulb~~represent ~~that~~the ~~was~~primary ~~proving~~market tofor ~~generate~~the ~~ozone~~AsepticSure® ~~more efficiently~~system. ~~Following~~The ~~experimental~~need ~~proof of concept work using different generator sizes and designs, we arrived at what proved~~ to bereplace ~~our~~equipment ~~next~~periodically ~~generation~~– ~~ozone~~the ~~generator.~~rate ~~The~~of ~~new~~replacement ~~design~~for ~~produced~~typical ~~twice the ozone output per generator~~steam, ~~while~~heat ~~requiring~~or ~~less~~chemical ~~electrical~~sterilizers ~~power.~~is ~~The~~between ~~new~~8 ~~generator~~and ~~was~~11 ~~also~~years ~~designed~~– asmakes athis ~~‘plug~~an ~~and~~attractive ~~play’~~market ~~replacement~~in ~~for~~ our ~~current generators, allowing current systems to be upgraded~~view.

InBio-safety ~~2015~~Labs, weTissue ~~had~~and ~~completed~~Cleanrooms. ~~our~~Bio-safety ~~testing~~labs, tissue and blood labs and cleanrooms seek to reduce the risk of athe ~~fully~~transmission ~~functioning~~of ~~prototype~~infectious ~~system~~agents or materials from culture to culture and from culture to personnel. We believe that the use of the AsepticSure® ~~using~~system ~~this~~as ~~new~~a ~~technology~~routine disinfection process in ~~both~~all ~~laboratory~~biosafety levels and ~~hospital~~microbiological ~~environments.~~practices ~~The~~may ~~prototype~~reduce ~~was~~the ~~able~~risk toof ~~consistently~~such ~~output~~transmission, ~~more~~while ~~than~~also ~~twice~~reducing aspotential ~~much~~negative ~~ozone~~effects asthat ~~the~~can ~~previous~~result ~~system~~from other decontamination products, ~~which~~such ~~equates~~as tohigh-concentration ~~being~~vaporized ~~able~~hydrogen toperoxide, ~~treat~~formaldehyde, ~~twice~~glutaraldehyde ~~the~~and ~~space~~titanium ~~with~~dioxide, aincluding ~~single~~blistering ~~system~~of paints, ~~where~~corrosion ~~two~~of ~~systems~~metals, ~~might~~lengthy ~~have~~exposure ~~been~~times ~~required~~and ~~before~~potential carcinogenic exposure. OrThere inare many requirements and restrictions on the ~~same~~type ~~size~~of ~~space,~~decontamination ~~room~~agents ~~turn~~such ~~time~~labs ismay ~~significantly~~use ~~decreased~~to prevent these risks and remediate adverse incidents. ~~Like~~We ~~our~~also ~~previous~~believe ~~systems,~~that ~~this~~the AsepticSure® system ~~was~~can ~~modular~~aid in ~~design~~all biosafety levels and upmicrobiological topractices, ~~four~~on ~~systems~~all ~~may~~safety beequipment, ~~operated~~transfer athoods, ~~one~~isolation ~~time~~chambers, animal cages and other equipment, as well as help prevent the risks associated with handling infectious microorganisms.

~~Beginning~~Athletic Facilities and Sports Equipment. Transmission of infectious diseases in ~~2016,~~athletic wefacilities ~~transitioned~~and ~~all~~by ~~new~~sports ~~systems~~equipment tois an increasingly recognized serious problem that is underappreciated by operators of the ~~Generation~~facilities ~~III~~and athletes. ~~While~~An ~~the~~October ~~new~~2015 ~~generators~~article ~~are~~published ~~the~~on ~~most~~Forbes.com ~~significant~~[Stone, ~~upgrade~~MRSA: toHow ~~Generation~~You ~~III~~Can Avoid NFL Player Daniel Fells’ Plight At The Gym (October 13, ~~many~~2015) ~~other~~https://www.forbes.com/sites/judystone/2015/10/13/how-you-can-avoid-daniel-fells-mrsa-plight/#304555361974] ~~improvements~~highlights ~~and~~the ~~refinements~~risk ~~are~~of ~~included~~contracting infectious diseases faced by athletes at all levels of sport. ~~There~~The isarticle explored the plight of Daniel Fells, then a ~~new~~32-year-old ~~touch~~New ~~screen~~York Giants tight end, who contracted a serious MRSA infection after receiving a cortisone shot for ~~the~~an ~~control~~ankle ~~panel~~injury. ~~and~~Fells ~~updated~~had ~~software~~five ~~operating~~surgeries ~~system;~~to address the ~~remote~~infection, ~~wireless~~which ~~computer~~was ~~control~~feared ~~system~~to ~~has~~be ~~been~~career-ending. ~~replaced~~The ~~with~~article also states that a ~~modern~~number ~~tablet~~of prominent NFL players have had MRSA infections, ~~which~~including ~~allows~~members ~~more~~of ~~flexibility~~the inCleveland ~~operation;~~Browns, Washington Redskins and Los Angeles Rams. The Tampa Bay Buccaneers had an outbreak among three players and faced a ~~hard~~lawsuit ~~wire~~from ~~port~~former ~~has~~kicker ~~been~~Lawrence ~~added~~Tynes, ~~for~~who ~~those~~claimed ~~rare~~that ~~circumstances~~unsanitary ~~when~~conditions ~~you~~at ~~might~~the ~~prefer~~team’s facilities caused him to ~~not~~become ~~operate~~infected ~~through~~with ~~wireless~~MRSA, ~~communication~~which ~~for~~required ~~fear~~multiple surgeries and six weeks of ~~possibly~~intravenous ~~upsetting~~antibiotics ~~critical~~to ~~wireless~~cure. ~~devices~~Tynes ~~operating~~contended inthat the ~~same~~infection ~~area~~ended his career, ~~such~~costing ashim onover $20 million in anticipated future earnings. It also notes that a ~~critical~~college ~~coronary~~player ~~care~~at ~~unit;~~Lycoming ~~there~~College ~~are~~died ~~now~~from ~~dual~~an ~~humidity~~MRSA ~~sensors~~infection in 2003 and that ~~cross~~several ~~check~~prominent ~~each~~NBA ~~other,~~players ~~adding~~have toalso ~~reliability~~had difficult infections.

~~Developing~~To evaluate the ~~Market~~risk of infectious disease transmission by athletic equipment, our research staff assessed the risk of microbiological contamination in routinely used sports equipment, in this case ice hockey equipment, by taking samples from the surface of the equipment. The samples, which were plated and incubated in our research laboratory, showed significant bacterial growth on all sports equipment items, with no one organism being predominant. The equipment was then placed in a treatment room with one AsepticSure® machine where it was treated for 60 minutes at a relative humidity of 90%, with an 80-ppm concentration of ozone and a concentration of hydrogen peroxide at 1.4%. Post-treatment assessment showed no bacterial growth on all locations sampled after 24 hours. Based on the success of this test, we intend to market routine cleaning of athletic facilities and sports equipment using the AsepticSure® system as a means of reducing the transmission of infectious disease among athletes.

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.

Table of Contents

~~Regulatory~~Mortuaries. ~~Affairs~~There are more than 20,000 mortuaries, employing over 100,000 people, in the United States. The mortuary industry in the United States generates approximately $16 billion of revenues annually. The preparation rooms operated by mortuaries present major opportunities for disease transmission and contamination. We believe that mortuaries represent a major disinfecting/decontamination need and, as a result, are an attractive market for application of the AsepticSure® technology. In 2017, we assessed the risk of disease transmission in a mortuary in Ontario, Canada. At the beginning of the assessment, samples were collected from various locations in the mortuary’s preparation room. We plated and incubated the samples in our research laboratory. The pre-treatment assessment showed significant bacterial growth in multiple locations, with no single organism being predominant. We treated the preparation room with two AsepticSure® machines for 60 minutes. The relative humidity in the preparation room was set at 90%, the ozone concentration was set at 80 ppm and the concentration of hydrogen peroxide was 1.4%. Following treatment, we collected samples from the same areas that we sampled before treatment. The post-treatment assessment showed no growth in all locations assessed after 24 hours, while one bacterial colony was present at one of the sample locations after 48 hours. Based on our assessment, we concluded that a high level of microbial load was present in the preparation room before it was treated with the AsepticSure® system and that the single treatment virtually eliminated this microbial load. As a result, we intend to market routine cleaning of preparation rooms using the AsepticSure® system to mortuary operators as a means of reducing the risk of transmission of infectious diseases to mortuary workers.

WeBio-defense ~~have~~and Response to Pandemics. The AsepticSure® system has received ~~approval~~patents byin the ~~regulating~~United ~~bodies~~States and the EU for its effectiveness as a means of ~~Canada~~eliminating B. subtilis, ~~New~~a ~~Zealand~~well-accepted surrogate for Anthrax. In 19 separate tests involving 38 samples, ~~Chile~~the ~~and~~system demonstrated 100% reduction in B. subtilis spores. Furthermore, the ~~EPA~~National ~~for~~Research ~~AsepticSure~~Council to– ~~commence~~Canada ~~commercialization~~(NRC Human Health Therapeutics Portfolio) demonstrated the efficacy of ~~our~~the AsepticSure® ~~product~~system against Adenovirus (PTG3602) and ~~are~~a ~~pursuing~~Coronavirus ~~approval~~known as transmissible gastroenteritis virus (“TGEV”) (ATCC # VR-763), which is a surrogate for other coronaviruses such as Middle East Respiratory Syndrome-Coronavirus (“MERS-CoV”) and Sudden Acute Respiratory Syndrome Coronavirus (“SARS-CoV”). In two tests with the ~~assistance~~Adenovirus, ofinvolving ~~our~~24 ~~distributors~~samples, bythe AsepticSure® system demonstrated the ~~appropriate~~ability ~~authorities~~to ineliminate ~~other~~100% ~~countries~~of the organism. ~~The~~In ~~manufacturing~~five ~~and~~tests ~~marketing~~against TGEV, involving 45 samples, the AsepticSure® system eliminated 100% of the organism. We believe that these tests provide scientific evidence supporting our belief that the AsepticSure® system is ~~subject~~an toeffective means of eliminating the ~~standards~~Ebola ofvirus ~~Good~~because ~~Manufacturing~~filoviridae ~~Practices~~such as the Ebola virus are more susceptible to disinfection compared to coronavirus and adenovirus. WeTherefore, ~~have~~we ~~not~~intend ~~had~~to ~~any~~market ~~difficulty~~the orAsepticSure® ~~unreasonable~~system ~~expense~~as ina ~~meeting~~means ~~these~~of ~~standards~~combating pandemic infections and bioterrorism.

~~The~~Building ~~regulatory~~Remediation. ~~environment~~We believe that the remediation of buildings that are contaminated with mold, ~~especially~~smoke, inthe residual effects from water damage, including bacterial contamination, and methamphetamine is a potentially a large market for the UAsepticSure® system.S. ~~market~~As there are over 20,000 ~~continues~~certified professional building remediators in the United States, we intend to betarget ~~dynamic~~this market. Validation that we conducted in New Zealand has demonstrated the ~~areas~~effectiveness of ~~infection~~the ~~control~~AsepticSure® system as ~~there~~a ismeans of decontaminating buildings that have been used in the illegal production of methamphetamines. The New Zealand study involved the use of one AsepticSure® machine to treat two separate 200-milligram samples of homogenized methamphetamine hydrochloride and a ~~significant~~blank ~~financial~~sample in a sealed two-by-three meter room. After treatment, the samples and ~~patient~~blanks ~~health~~were ~~burden~~rinsed ~~which~~and ~~regulators~~dissolved ~~continue~~in toapproximately ~~consider~~two milliliters of ethanol and analyzed by gas chromatography mass spectrometry along with a positive control. No additional compounds were detected in the ~~option~~methamphetamine hydrochloride samples after treatment with the AsepticSure® system. An independent testing laboratory in New Zealand, the Institute of ~~exercising~~Environmental ~~greater~~Science ~~oversight~~and toResearch ~~manage~~Limited, ~~risks~~determined ~~given~~that no residual chemicals remained following the ~~inability~~treatment of ~~current~~methamphetamine ~~interventions~~hydrochloride towith ~~make~~the ~~meaningful~~AsepticSure® ~~progress~~system. onIn ~~reducing~~addition, ~~infection~~research ~~rates~~conducted at our BSL2 facility in Canada has also demonstrated high levels of efficacy (100% kill at 5 and 6 logs) for a broad variety of molds, including the ubiquitous black mold (Aspergillus fumigates) found throughout the United States and of particular concern in Texas, Florida and Puerto Rico, following recent hurricanes.

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.Distributors

We are ~~also~~attempting ~~seeking~~to ~~certification~~establish ~~from~~a ~~the~~network ~~U.S.~~of ~~Food~~distributors ~~and~~to ~~Drug~~market ~~Administration~~the ~~(“FDA”) that~~ AsepticSure® ~~should~~system ~~not~~outside bethe ~~deemed~~United toStates. beTo adate, ~~medical~~we ~~device~~have byentered ~~the~~into ~~FDA.~~distributorship Weagreements dowith ~~not~~respect ~~anticipate~~to ~~these~~Canada ~~additional~~(Contamination ~~steps~~Control ~~will~~Company), ~~adversely~~South ~~impact~~America ~~our~~(GYD ~~business plan for 2017~~S.A. Asdba of“BioAsepsis”; ~~the~~territories: ~~filing~~Argentina, ofChile, ~~this report~~Brazil, weColombia ~~have~~and ~~not~~Peru), ~~received~~New ~~official~~Zealand/Australia ~~notification~~(Aseptic ofSystems ~~the~~Ltd.) ~~status~~and ~~of AsepticSure from~~ the ~~FDA.~~Nordic WeRegion ~~remain~~(Aglon ~~actively~~a/s; ~~engaged~~territories: inNorway, ~~the~~Sweden, ~~evolving~~Finland, ~~regulatory~~Denmark ~~process~~and ofIceland). ~~both~~These ~~the~~distributors ~~EPA~~have ~~and~~not ~~the~~yet ~~FDA~~contributed ~~and~~meaningfully doto ~~not~~our ~~anticipate~~operating ~~any~~results. ~~adverse~~We ~~regulatory~~are ~~impact~~in todiscussions ~~our~~with ~~current~~other ~~business~~potential ~~planning~~distributors ~~assumptions~~ for ~~2017~~other jurisdictions.

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~~Our success depends in part upon our ability to obtain and maintain proprietary protection for our products and technologies. We protect our technology and products by, among other means, obtaining United States and foreign patents. There can be no assurance, however, that any patent will provide adequate protection for the technology, system, product, service or process it covers. In addition, the process of obtaining and protecting patents can be long and expensive. We also rely upon trade secrets, technical know-how, and continuing technological innovation to develop and maintain our competitive position.

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.

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Trade Secrets

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

Patents

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.

·	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)

Canada:

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

·	Patent No. 2846256 – Sports Equipment and Facility Disinfection

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.

Regulation

Our business is subject to various degrees of governmental regulation in the countries in which we and our distributors operate. In the United States, the FDA, the EPA and other governmental authorities regulate the development, manufacture, sale, and distribution of the AsepticSure^® system. Government regulations include detailed inspection of, and controls over, research and development, clinical investigations, product approvals and manufacturing, marketing and promotion, sampling, distribution, record-keeping, storage, and disposal practices.

Compliance with applicable regulations is a significant expense for us. Past, current or future regulations, their interpretation, or their application could have a material adverse impact on our operations. Also, additional governmental regulation may be passed that could prevent, delay, revoke, or result in the rejection of regulatory clearance of our products. We cannot predict the effect on our operations resulting from current or future governmental regulation or the interpretation or application of these regulations. For more information about the risks we face regarding regulatory requirements, see “Risk Factors”.

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We were required to register the AsepticSure^®system with the EPA because it is considered to be a pesticide applicator within the meaning of the Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”). FIFRA defines as a pesticide any substance or mixture of substances intended for preventing, destroying, repelling or mitigating any pest. A pest is defined by FIFRA to include any virus, bacteria or other microorganisms (except those organisms on or in living man or animals). However, 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 medical device. In other words, the EPA would have jurisdiction over viruses, bacteria or other microorganisms on inanimate surfaces as long as the surfaces are not considered semi-critical or critical medical devices. The FDA asserts jurisdiction over products intended for use on critical or semi-critical medical devices.

In November 2016, we received EPA registration of the AsepticSure^® system for use as a disinfectant for animal pathogenic bacteria on hard nonporous surfaces in food processing plant premises, food processing equipment, hospital premises, hotels, motels, and sports venues (stadiums). This registration permits us to market and sell the AsepticSure^®system as a general-purpose disinfectant.

The FDA regulates medical devices in the United States. The scope of the FDA’s authority extends to the labeling of and the promotion materials used in connection with medical devices. The FDA has taken the position that the AsepticSure^®system is a medical device that is subject to pre-market approval utilizing the de novo 510(k) process because there is no predicate device that is substantially equivalent to the AsepticSure^® system considering its unique method of action. During discussions with the FDA in January 2018, we obtained a clear understanding of the additional testing that we will need to conduct and the additional data that we will need to submit to the FDA to support our de novo application. We are now in the process of conducting the testing and gathering the data with a view toward making a submission to the FDA prior to the end of the third quarter of fiscal 2018.

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

Competition

The ~~market~~infection-control ~~for~~industry ~~hospital disinfection~~ is ~~very~~extremely competitive. ~~There~~Our ~~are~~competitors ~~numerous~~include ~~technologies~~companies that ~~are~~market ~~competing~~hydrogen-peroxide-based inproducts, asuch ~~similar~~as ~~market~~TOMI ~~segment~~Environmental asSolutions, ~~AsepticSure~~Inc., ~~Ultra-violet~~Steris ~~light~~Corporation, ~~hydrogen~~Bioquell, ~~peroxide vapors~~Inc., ~~ozone~~Sanosil ~~based~~Ltd ~~technologies~~and inThe ~~addition~~Clorox toCompany, ~~improvements~~various incompanies ~~traditional~~that ~~cleaning~~market ~~methods~~ultra-violet ~~continue~~light todisinfection ~~make~~systems ~~this~~and companies that market ~~competitive~~chemical-based ~~and~~disinfection asystems. ~~driver~~Many of ~~innovation.~~our ~~Companies~~competitors ~~that~~have ~~market~~longer ~~hydrogen~~operating ~~peroxide~~histories, ~~based~~greater ~~products~~name recognition, ~~include~~larger ~~TOMI~~installed ~~Environmental~~customer ~~Solutions,~~bases ~~Inc.,~~and ~~Steris~~substantially ~~Corporation,~~greater ~~Bioquell,~~financial ~~Inc.~~ and ~~Sanosil~~marketing ~~Ltd~~resources than we have. ~~Other~~We ~~companies,~~believe ~~foundations,~~that ~~research~~the ~~laboratories~~principal orfactors ~~institutions~~affecting ~~may~~competition ~~also~~in beour ~~conducting~~markets ~~similar~~include ~~investigations~~name ~~into~~recognition and the ~~use~~ability ofto ~~ozone~~receive ~~for~~referrals ~~this~~based ~~application~~on ofclient ~~which~~confidence wein ~~are~~the ~~not~~disinfection ~~aware.~~system ~~These~~or ~~competitors~~service. ~~may~~Apart ~~have~~from ~~longer~~government ~~operating~~regulatory ~~histories~~activities, ~~greater~~there ~~name~~are ~~recognition,~~no ~~larger~~significant ~~installed~~barriers ~~customer~~of ~~bases,~~entry ~~and~~that ~~substantially~~could ~~greater~~keep ~~financial~~potential ~~and~~competitors ~~marketing~~from ~~resources~~offering ~~than~~disinfection ~~Medizone~~systems that compete with the AsepticSure® system. Our ability to compete successfully in ~~our~~the industry will depend, ~~among~~in ~~other~~large ~~things~~part, upon our ability to market and sell our ~~disinfectant~~indoor ~~system~~decontamination and ~~related~~infectious disease control products and services. There can be no assurance that we will be able to compete successfully in the remediation industry, or that future competition will not have a material adverse effect on our business, operating results ~~or operations,~~ and financial condition.

Employees

As of December 31, ~~2016~~2017, we had ~~two~~seven full-time employees and two part-time employees. Our employees are involved in research and development and administrative activities. Our relationship with our employees is good.

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~~website, 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.

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WeItem ~~currently have limited financing to meet our operating expenses~~1A. WeRisk 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.Factors

~~Our~~Certain ~~net~~factors ~~operating~~may ~~losses~~have ~~and~~a ~~our~~material ~~lack~~adverse ofeffect ~~revenues~~on ~~will~~our ~~require~~business, ~~that~~financial wecondition, ~~finance~~and ~~our~~results of operations. ~~through~~You ~~the~~should ~~sale~~consider ofcarefully ~~our~~the ~~securities~~risks ~~for~~and ~~the~~uncertainties ~~foreseeable~~described ~~future.~~below, Wein ~~will~~addition ~~require~~to ~~substantial~~other ~~additional~~information ~~capital~~contained toin ~~meet~~this ~~our~~Annual ~~obligations~~Report ~~and~~on toForm ~~commercialize~~10-K, ~~our~~including ~~technology.~~those ~~The~~discussed ~~lack~~in of“Management’s ~~assets~~Discussion and ~~borrowing~~Analysis ~~capacity~~of ~~makes~~Financial itCondition ~~most~~and ~~likely~~Results ~~that~~of ~~funding~~Operations,” ifand ~~obtained,~~our ~~will~~consolidated befinancial ~~through~~statements ~~sales~~and ofthe ~~common~~accompanying ~~stock~~notes orfor ~~other~~the ~~securities.~~period ~~The~~covered ~~sale~~by ofthis ~~equity~~report. ~~securities~~If orany of ~~securities~~the ~~that~~following ~~are~~risks ~~convertible~~actually tooccurs, our ~~common~~business, ~~stock~~financial ~~will~~condition, ~~result~~results inof ~~possible~~operations, ~~significant~~and ~~dilution~~future toprospects ~~our~~could ~~stockholders~~be materially and ~~may~~ adversely ~~affect~~affected. In such a case, the trading ~~prices~~price of our common stock. Nocould ~~assurances~~decline, ~~can~~and beyou ~~given~~could ~~that~~lose weall ~~will~~or bepart ~~able~~of toyour ~~obtain~~investment. ~~sufficient~~Additional ~~additional~~risks ~~capital~~and touncertainties ~~continue~~not ~~our~~presently ~~intended~~known ~~research~~to ~~program,~~us or that ~~any~~we ~~additional~~currently ~~financing~~deem ~~will~~immaterial bealso ~~sufficient~~may toimpair ~~satisfy~~ our ~~ongoing~~business ~~administrative~~operations and ~~operating~~financial ~~expenses for any significant period of time~~condition.

~~General~~Risks ~~economic~~Related ~~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~~Financial ~~flows may be adversely affected by delayed payments or underpayments by our customers.~~Condition

We ~~currently~~ have a ~~limited~~history ~~sales,~~of ~~marketing~~losses and ~~distribution~~have ~~organization.~~a Ifsubstantial weaccumulated ~~are unable to develop our sales~~deficit, ~~marketing~~which ~~and~~raise ~~distribution~~substantial ~~capability~~doubt onabout our ~~own~~ability orto ~~through~~continue ~~collaborations~~as ~~with~~a ~~marketing~~going ~~partners, we will not be successful in commercializing our products~~concern. The Wereport ~~intend~~of ~~to establish~~ our ~~sales~~auditors ~~and~~on ~~marketing organization with technical expertise and supporting distribution capabilities to commercialize~~ our ~~products~~consolidated ~~and~~financial ~~product~~statements ~~candidates,~~for ~~which will be expensive and time-consuming. Any failure or delay in~~ the ~~development~~years ofended ~~our~~December ~~internal sales~~31, ~~marketing~~2017 and ~~distribution~~2016, ~~capabilities~~as ~~would~~well ~~adversely~~as ~~impact~~for ~~the~~prior 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 industryyears, ~~but~~contains ~~there~~an ~~can~~explanatory beparagraph noraising ~~assurance~~substantial ~~that~~doubt weabout ~~will~~our beability ~~able~~ to ~~build~~continue as a ~~successful~~going ~~sales~~concern. ~~and~~Our ~~marketing~~significant ~~infrastructure~~losses orsince ~~enter~~inception ~~into independent contractor~~ and ~~distribution~~accumulated ~~agreements~~deficit onof ~~terms acceptable to us or at all. To the extent that we enter into co-promotion or other licensing arrangements~~$40, ~~our product revenue is likely to be lower than if we directly marketed or sold our products. In addition~~085,981 ~~any~~as ~~revenue we receive would depend in whole or in part upon the efforts~~ of ~~such~~December ~~third~~31, ~~parties~~2017, ~~which~~raise ~~may~~substantial ~~not~~doubt beabout ~~successful and are generally not within~~ our ~~control.~~ability ~~If we are unable~~ to ~~enter~~continue ~~into~~as ~~such~~a ~~arrangements~~going onconcern. ~~acceptable~~The ~~terms~~financial orstatements atdo ~~all,~~not weinclude ~~may~~any ~~not~~adjustments berelating ~~able~~ to ~~successfully~~the ~~commercialize~~recoverability ~~our disinfection system. If we are not successful in commercializing our existing~~ and ~~future~~classification ~~products,~~of ~~either~~asset oncarrying ~~our~~amounts ~~own~~ or ~~through~~the ~~collaborations~~amount ~~with~~and ~~one~~classification orof ~~more~~liabilities ~~third~~that ~~parties,~~might ~~our~~result ~~future~~from ~~product~~the ~~revenue~~outcome ~~will~~of ~~suffer~~this ~~and we may incur significant additional losses~~uncertainty.

~~Our~~We ~~reliance~~expect onlosses ~~patented~~to ~~technology~~continue ~~may~~for ~~limit~~ the ~~scope~~foreseeable ~~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~~No ~~success~~assurance 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~~given tothat 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~~business ~~and~~activities ~~the~~will ~~validity~~ever ofgenerate ~~those~~substantial ~~patents~~revenues. ~~Any~~Even ~~failure~~with funding to ~~maintain~~continue ~~the issued patents also could adversely affect~~ our ~~business.~~research ~~We intend to file additional patent applications (both U.S.~~ and ~~foreign),~~development ~~when appropriate~~activities, ~~relating~~we expect to ~~our~~continue ~~technologies, improvements~~ to ~~the~~incur ~~technologies~~substantial ~~and~~losses 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~~foreseeable ~~granted under patents will provide us with adequate proprietary protection or competitive advantages~~future.

~~Our~~We ~~commercial~~currently ~~success~~have ~~will~~limited ~~also~~financing ~~depend in part, on our ability~~ to ~~avoid~~meet ~~infringing patents issued to others or breaching any technology licenses upon which~~ our ~~products~~operating ~~and services are based~~expenses. ItWe iswill ~~uncertain~~require ~~whether~~additional ~~any~~financing ~~third-party~~in ~~patents~~the ~~will~~future ~~require us~~ to ~~alter~~cover our ~~products~~operating ~~or processes, obtain licenses or cease certain activities~~costs. InIf ~~addition,~~we ifare ~~patents~~unable ~~have been issued~~ to ~~others,~~obtain ~~which~~additional ~~contain~~financing ~~competitive~~ or ~~conflicting~~to ~~claims~~generate ~~and~~significant ~~such~~revenues ~~claims~~from ~~are~~sales ~~ultimately~~of ~~determined~~the toAsepticSure® ~~be valid~~system, we may be required to ~~obtain~~file ~~licenses~~for tobankruptcy ~~those patents~~ or toliquidate. ~~develop~~We orhave ~~obtain~~financed ~~alternative~~our ~~technology.~~operations Ifsince ~~any~~inception ~~licenses~~primarily ~~are~~by ~~required,~~the ~~there~~sale ~~can~~of beour nocommon ~~assurance~~stock wein ~~will~~small beprivate ~~able~~placements to ~~obtain~~accredited ~~necessary~~investors ~~licenses~~and ondrawdowns ~~commercially~~under ~~favorable~~a ~~terms,~~prior ifequity atline ~~all. The breach~~ of ancredit. ~~existing~~There ~~license~~is orno ~~the~~assurance ~~failure~~we towill ~~obtain~~successfully aaccomplish ~~license~~our toobjectives ~~any~~or ~~technology~~ that wenecessary ~~may~~additional ~~require~~financing inwill ~~order~~be toobtained ~~commercialize~~in ~~our products may have~~ a ~~material~~timely ~~adverse~~manner ~~impact~~or on ~~our~~terms ~~business,~~that ~~results~~are ofacceptable ~~operations~~to ~~and financial condition~~us. ~~Litigation~~On inJanuary ~~those~~31, ~~events~~2018, orwe toentered ~~enforce~~into ~~patents~~certain ~~licensed~~financing orarrangements ~~issued~~that towe usbelieve orwill toprovide ~~determine~~financing ~~the~~sufficient ~~scope~~to orfund ~~validity~~our ofoperations ~~third-party~~for ~~proprietary~~the ~~rights~~immediate ~~would~~future. beHowever, ~~costly~~there ~~and~~is ~~time~~no ~~consuming.~~assurance Ifwe ~~competitors~~will ~~prepare~~be ~~and~~successful ~~file~~in ~~patent~~accessing ~~applications~~all inof the ~~United~~capital ~~States~~contractually ~~that~~allocated ~~claim~~under ~~technology~~that ~~also~~arrangement ~~claimed~~due ~~by us, we may have~~ to ~~participate~~limitations inon ~~interference~~our ~~proceedings~~authorized ~~declared~~capital, by the ~~PTO~~market toprice ~~determine priority~~ of ~~invention,~~our ~~which~~common ~~could result in substantial costs~~stock, ~~even~~volume iflimitations ~~the~~and ~~eventual~~other ~~outcome~~conditions isimposed ~~favorable~~upon to us. Anand ~~adverse~~conditions ~~outcome~~and ~~could~~circumstances, ~~subject~~many usof towhich ~~significant~~are ~~liabilities~~outside toour ~~third~~control. ~~parties,~~See ~~require~~“Risk ~~disputed~~Factors ~~rights~~– Risks Related to beour ~~licensed~~Financing ~~from~~Arrangements” ~~third~~below ~~parties~~for ora ~~require~~discussion ~~that~~of wethe ~~stop~~risks ~~using~~associated with such ~~technology~~financing arrangements.

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 our common stock or other securities. The sale of equity securities or of securities that are convertible into our common stock will result in possible significant dilution to our stockholders and may adversely affect the trading price of our common stock. No assurances can be given that we will be able to obtain sufficient additional capital to continue our research and development programs and our efforts to commercialize the AsepticSure^®system, or that any additional financing will be sufficient to satisfy our ongoing administrative and operating expenses for any significant period of time.

Our substantial debt could adversely affect our financial health and prevent us from fulfilling our obligations. We have substantial debt and, as a result, significant debt service obligations in addition to the new financing transactions recently entered into that are described elsewhere in this Annual Report. We have failed to make payments on several of our existing debt obligations to former officers and other creditors. Our substantial debt could:

·	make it more difficult for us to satisfy our obligations with respect to our obligations under the Notes with the Investors;

·	increase our vulnerability to general adverse economic and industry conditions, including interest rate fluctuations;

·	require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, and other general corporate purposes;

·	limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive covenants in our debt agreements, and

·	place us at a competitive disadvantage compared to our competitors that have less debt.

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WeSome ~~also~~of ~~rely~~these ondebt ~~secrecy~~instruments tohave ~~protect~~high ~~portions~~interest ofrates. ~~our~~In ~~technology~~addition, ~~for~~in ~~which~~the ~~patent~~event ~~protection~~of ~~has~~default, ~~not~~the ~~yet~~interest ~~been~~rates ~~pursued~~may orincrease ~~which~~under isthese ~~not~~obligations. ~~believed~~If we are unable to bemake ~~appropriate~~debt payments or ~~obtainable~~comply inwith ~~addition~~the toother ~~any~~provisions ~~information~~ of aour ~~confidential~~debt ~~and~~instruments, ~~proprietary~~our ~~nature~~creditors ~~relating~~may tobe ~~us,~~permitted ~~including~~under ~~but~~certain ~~not~~circumstances ~~limited~~ to ~~our~~accelerate ~~know-how,~~the ~~trade~~maturity ~~secrets,~~of ~~methods~~the ofindebtedness ~~operation,~~owed ~~names~~to them and ~~information~~exercise ~~relating~~other toremedies ~~existing~~provided orfor ~~potential~~in ~~vendors~~those orinstruments ~~suppliers~~ and ~~customer~~under ~~names~~applicable ~~and addresses~~law.

Risks Related to our Business

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 the AsepticSure^® 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 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 United States Patent and Trademark Office to determine priority of invention, which could result in substantial costs, even if the eventual outcome is favorable to us. An adverse outcome could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require that we stop using such technology. We also rely on secrecy to protect portions of our technology for which patent protection has not yet been pursued or which is not believed to be appropriate or obtainable in addition to any information of a confidential and proprietary nature relating to us, including but not limited to our know-how, trade secrets, methods of operation, names and information relating to existing or potential vendors or suppliers and customer names and addresses.

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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~~sufficient ~~enough~~ to cause ~~users~~customers 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~~proven 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 the 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 that 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.

10Certain senior management employees have entered into potentially costly severance arrangements with us if terminated after a change in control. We have entered into agreements with executive officers that provide for significant severance payments in the event such employee’s employment with us is terminated within 12 months of a change in control (as defined in the severance agreement) either by the employee for good reason (as defined in the severance agreement) or by us for any reason other than cause (as defined in the severance agreement), death or disability. A change in control under these agreements includes any transaction or series of related transactions as a result of which less than fifty percent (50%) of the combined voting power of the then-outstanding securities immediately after such transaction are held in the aggregate by the holders of our voting stock immediately prior to such transaction; any person has become the beneficial owner of securities representing 30% or more of our voting stock; or within any 12-month period, the directors at the beginning of the period cease to constitute at least a majority thereof. These agreements would make it costly for us to terminate certain of our senior management employees and such costs may also discourage potential acquisition proposals, which may negatively affect our stock price.

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We do not own manufacturing capability. We currently must rely on third parties to manufacture the ~~devices~~AsepticSure® ~~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~~are subject to extensive regulatory requirements and must receive and maintain regulatory clearance or approval for the AsepticSure® system. Failure to receive or to maintain, or delays in areceiving, ~~heavily~~clearance ~~regulated~~or ~~industry~~approvals may adversely affect our results of operations and financial condition. Our operations are subject to extensive regulation in the United States and in other countries where we do business. In the United States, the ~~federal~~FDA, ~~government~~the isEPA ~~responsible~~and ~~for~~other ~~helping~~governmental ~~all~~authorities ~~Americans~~regulate ~~receive~~the development, manufacture, sale, and distribution of the ~~best~~AsepticSure® system. Government regulations include detailed inspection of, and ~~safest~~controls ~~care~~over, research and development, clinical investigations, product approvals and manufacturing, marketing and promotion, sampling, distribution, record-keeping, storage, and disposal practices. ~~The~~In ~~Federal~~Europe, ~~government~~the ~~can~~AsepticSure® ~~change~~system ~~policy~~is ~~quickly~~regulated inprimarily by country and community regulations of those countries within the ~~interest~~European Economic Area where we do business and the system must conform to the requirements of ~~patient~~those ~~care~~authorities. WeFailure ~~need~~to receive or to bemaintain, ~~prepared~~or ~~for~~delays ~~all~~in ~~potential~~receiving, ~~regulatory~~clearance ~~scenarios~~or inapprovals ~~the~~may ~~major~~adversely ~~markets~~affect our results of ~~the~~operations ~~world~~and financial condition.

Regulatory agencies may refuse to grant approval or clearance, or review and disagree with our interpretation of approvals or clearances, or with our decision that regulatory approval is not required or has been maintained. Regulatory submissions may require the provision of additional data and may be time consuming and costly, and their outcome is uncertain. Regulatory agencies may also change policies, adopt additional regulations, or revise existing regulations, each of which could prevent or delay approval or clearance of devices, or could impact our ability to market a previously cleared, approved or unregulated device. Our failure to comply with the regulatory requirements of the FDA, the EPA or other applicable regulatory requirements in the United States or elsewhere might subject us to administratively or judicially imposed sanctions. These sanctions could include, among others, warning letters, fines, civil penalties, criminal penalties, injunctions, debarment, product seizure or detention, product recalls and total or partial suspension of production, sale and/or promotion. The failure to receive or to maintain, or delays in the receipt of, relevant United States or international qualifications could have a material adverse effect on our business, results of operation or financial condition.

Our business and operations would suffer in the event of cybersecurity or other system failures. Despite the implementation of security measures, our internal computer systems and those of any third parties with which we partner are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any cybersecurity or system failure, accident or breach to date, if an event were to occur, it could result in a material disruption of our operations, substantial costs to rectify or correct the failure, if possible, and potentially violation of privacy laws applicable to our operations. If any disruption or security breach resulted in a loss of or damage to our data or applications or inappropriate disclosure of confidential or protected information, we could incur liability, further development of our proprietary systems and technology could be delayed, and our business operations could be disrupted, subject to restriction or forced to terminate, any of which could severely harm our business and prospects.

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.

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Market Risks

There is only a volatile, limited market for our common stock. Recent history relating to the market prices of public companies indicates that, from time to time, there may be periods of extreme volatility in the market price of securities because of factors unrelated to the operating performance of, or announcements concerning, the issuers of the affected stock, and this is especially true for stock ~~traded~~quoted on ~~the~~The ~~Over-the-Counter~~OTC ~~Bulletin~~Marketplace ~~Board~~or (“OTCQB”).” During the year ended December 31, ~~2016~~2017, our common stock traded on the OTCQB at prices ranging from a high closing price of $0.15 to a low of $0.0403 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~~issuance ~~placement~~of shares of common stock 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~~controls 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 to incur expenses for SOX compliance on an ongoing basis. If we identify material weaknesses in our internal ~~control~~controls over financial reporting, or if we are unable to comply with the requirements of Section 404 in a timely manner or to assert that our internal ~~control~~controls over financial reporting isare 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 Wall Street Reform and Consumer Protection 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~~materially adversely affected, 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.

11Our 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. Our 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.

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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.13

~~FINRA~~Table 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.Contents

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

The trading market for our common stock is limited and investors may have difficulty selling their shares. Our common stock is quoted on the OTCQB. The OTCQB is a relatively unorganized, inter-dealer, over-the-counter market that provides significantly less liquidity than other markets. Purchasers of our common stock therefore may have difficulty selling their shares should they desire to do so.

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

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

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

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

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

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

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

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

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

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

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

FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell shares of our common 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 may have an adverse effect on the market for our shares.

Risks Related to our Financing Arrangements

We may be unable to repay our convertible promissory Notes when they mature. On January 31, 2018, we issued the Notes in the aggregate principal amount of $305,000. The Notes accrue interest (payable at maturity with the principal) at a rate of 8% per annum, six months from the issue date. There is no assurance that we will be able to repay the Notes when they mature. If we fail to pay the principal of and interest on the Notes when due, the interest rate increases to a default rate of 24% per annum until paid, plus a 40% penalty is added to the outstanding balance of the Note and other penalties as set forth in the Note. In such event, or in other event of default as defined in the Notes, we will likely be required to seek protection under applicable bankruptcy laws.

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Resales of shares purchased by the Investors under the Purchase Agreement may cause the market price of our common stock to decline. Pursuant to the Purchase Agreement, we have the right, but not the obligation, to direct the Investors to purchase shares of common stock having a value in the aggregate of up to $10,000,000 at a price that is steeply discounted to the lowest traded price of our common stock during the five trading days immediately following the date we deliver the Put Shares to the Investors under a Put Notice. The Investors will have the financial incentive to sell the shares of common stock issuable under the Purchase Agreement in advance of or upon receiving such shares and to realize the profit equal to the difference between the discounted price and the current market price of the shares. This may cause the market price of our common stock to decline. Following their purchase of the Put Shares, the Investors may offer and resell the shares of common stock received in connection with puts under the Equity Line at a price and time determined by them. The timing of sales and the price at which the shares are sold by the Investors could have an adverse effect upon the public market for our common stock. Although the Investors are statutory underwriters, there is no independent or third-party underwriter involved in the offering of the shares held by or to be received by the Investors under the Equity Line, and there can be no guarantee that the disposition of those shares will be completed in a manner that is not disruptive to the market for our common stock. We may be unable to continue to make draws or put shares to the Investors under the Equity Line if the trading volume in our stock is not sufficient to allow the Investors to sell the shares put to them.

Puts under the Purchase Agreement may cause dilution to existing stockholders. Existing stockholders likely will experience increased dilution with decreases in market value of common stock in relation to our issuances of shares under the Equity Line, which could have a material adverse impact on the value of their shares. The formula for determining the number of shares of common stock to be issued under the Equity Line is based, in part, on the market price of the common stock and is equal to the lowest closing bid price of our common stock over the five trading days after the Put Notice is tendered by us to the Investors. As a result, the lower the market price of our common stock at and around the time we put shares under the Equity Line, the more shares of our common stock the Investors receive. Any increase in the number of shares of our common stock issued upon puts of shares as a result of decreases in the prevailing market price would compound the risks of dilution. The Investors may resell some, if not all, of the shares that we issue to them under the Purchase Agreement and such sales could cause the market price of our common stock to decline significantly. To the extent of any such decline, any subsequent puts would require us to issue and sell a greater number of Put Shares to raise the maximum amount contractually committed under the Equity Line. Under these circumstances, our existing stockholders will experience greater dilution. The effect of this dilution may, in turn, cause the price of our common stock to decrease further, both because of the downward pressure on the stock price that would be caused by a large number of sales of our shares into the public market by the Investors, and because our existing stockholders may disagree with a decision to sell shares under the Equity Line at a time when our stock price is low, and may in response decide to sell additional shares, further decreasing our stock price

There is an increased potential for short sales of our common stock due to the sale of shares pursuant to the Purchase Agreement, which could materially affect the market price of our common stock. Downward pressure on the market price of our common stock that likely will result from resales of the common stock issued pursuant to the Purchase Agreement could encourage short sales of common stock by market participants other than the Investors. Generally, short selling means selling a security not owned by the seller. The seller is committed to eventually purchase the security previously sold. Short sales are used to capitalize on an expected decline in the security’s price – typically, investors who sell short believe that the price of the stock will fall, and anticipate selling at a price higher than the price at which they will buy the stock. Significant amounts of such short selling could place further downward pressure on the market price of our common stock.

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

Although we are restricted from selling shares under the Purchase Agreement to the Investors if the purchase of such shares would result in the purchaser owning more than 9.99% of our issued and outstanding shares of common stock following such issuance, such restriction does not prevent the Investors from selling a large number of shares, resulting in substantial dilution to the value of shares held by existing stockholders. We are prohibited from selling shares to the Investors pursuant to the Purchase Agreement if the sale of shares would result in that Investor holding more than 9.99% of the then-outstanding shares of common stock. This restriction, however, does not prevent the Investor from selling shares of common stock previously received pursuant to the Purchase Agreement, and then receiving additional shares of common stock in connection with a subsequent Put Notice. In this way, an Investor could acquire and sell more than 9.99% of the outstanding common stock in a relatively short time frame while never holding more than 9.99% at one time.

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Because the purchase price paid by the Investors for the shares issued under the Purchase Agreement is based on a discount to the market price of our common stock, if the market price declines, we may be unable to continue to sell shares of our common stock pursuant to the Purchase Agreement without registering additional shares, which would impose additional costs in connection with the Purchase Agreement. If the market price of our common stock declines, the number of shares of common stock issuable in connection with the Purchase Agreement will increase. Accordingly, the shares registered for resale under the registration statement filed by us may be insufficient to permit us to issue additional shares in connection with the Purchase Agreement. In such an event, we would be required to, and would, file additional registration statements to cover the resale of additional shares issuable pursuant to the Purchase Agreement. The filing of the additional registration statement would impose additional costs on us in connection with the Purchase Agreement.

There is no guarantee that we will satisfy the conditions to the Purchase Agreement. Although the Purchase Agreement provides that we can require the Investors to purchase, at our discretion, up to $10,000,000 worth of shares of common stock in the aggregate, our ability to put shares to them and to obtain funds when requested is limited by the terms and conditions of the Purchase Agreement, including restrictions on when we may exercise our put rights, restrictions on the amount we may put at any one time, which is determined in part by the trading volume of our common stock, and a limitation on our ability to put shares to the extent that it would cause the purchaser of the shares to beneficially own more than 9.99% of the outstanding shares of our common stock.

We may not have access to the full amount available under the Purchase Agreement if we are unable to register the shares under the Securities Act. Our ability to sell shares under the Purchase Agreement requires that a registration statement be declared effective and continue to be effective registering the resale of shares issuable under the Purchase Agreement. The registration statement filed by us under the Registration Rights Agreement registers the resale of 22,233,427 shares of our common stock issuable under the Equity Line. Our ability to sell any additional shares under the Purchase Agreement will be contingent on our ability to prepare and to file one or more additional registration statements registering the resale of such additional shares. These registration statements (and any post-effective amendments thereto) may be subject to review and comment by the staff of the SEC, and will require the consent of our independent registered public accounting firm. Therefore, the timing of effectiveness of these registration statements (and any post-effective amendments thereto) cannot be assured. Even if we are successful in causing one or more registration statements registering the resale of some or all of the shares issuable under the Purchase Agreement to be declared effective by the SEC in a timely manner, we may not be able to sell the shares unless certain other conditions are met. For example, we might have to increase the number of our authorized shares in order to issue the shares under the Equity Line. Increasing the number of our authorized shares will require board and stockholder approval. Accordingly, because our ability to access any amounts under the Purchase Agreement is subject to a number of conditions, there is no guarantee that we will be able to access all $10,000,000 of the proceeds available contractually under that agreement.

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 49007. ~~Also~~Effective July 1, 2009, we ~~lease~~entered into a lease agreement and established our own certified laboratory located at Innovation Park, Queen’s University, in Kingston, Ontario, Canada,. ~~which~~Our ~~has~~laboratory ~~provided~~space awas ~~primary~~doubled ~~research~~in ~~and~~size ~~development~~during ~~platform~~January as2010 wein ~~proceed~~order ~~toward~~to ~~commercialization~~conduct offull-size room testing (mock-trials). We estimate that our ~~products~~current facilities are sufficient to meet our needs until we begin to have revenues from operations. 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 various lawsuits and legal proceedings that may arise in the ordinary course of business. ~~Litigation~~However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may have an adverse effect on our business, financial ~~condition~~conditions, or operating results. We are not aware of any legal proceedings or claims that will have, individually or in the aggregate, a material adverse 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~~quoted on the OTCQB ~~market~~ under the symbol MZEI.

The following table sets forth the range of the high and low bid quotations of ~~the~~our common stock for the ~~past~~quarterly ~~two~~periods ~~years~~of in the ~~OTCQB~~past ~~market~~two years, 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
Fiscal Year 2016	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
Fiscal Year 2017	High		Low
First Quarter Ended March 31	$	0.15	$	0.08
Second Quarter Ended June 30	$	0.11	$	0.06
Third Quarter Ended September 30	$	0.10	$	0.06
Fourth Quarter Ended December 31	$	0.06	$	0.03

Holders

As of December 31, ~~2016~~2017, wethere ~~had~~were approximately 2,~~300~~247 holders of record of our common stock and ~~393~~408,~~934~~317,~~068~~402 shares of our 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~~2017.

Securities Authorized for Issuance Under Equity Compensation Plans

The table below provides certain information as of December 31, ~~2016~~2017, with respect to compensation plans (including individual compensation arrangements) under which our 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 the 2014 Equity Incentive Plan (collectively, the “Prior Plans”). ~~The~~On ~~table~~December ~~does~~15, ~~not~~2016, ~~include~~our ~~warrants~~stockholders toapproved ~~purchase~~the up2016 Equity Incentive Award Plan (the “2016 Plan”), pursuant to $1which 10,000,000 shares of common stock, ~~with~~were ~~the~~reserved ~~exercise~~for ~~price~~awards issuable to bemanagement, ~~determined~~employees, atdirectors ~~the~~and ~~time~~consultants. ofUpon ~~exercise~~the ~~based~~approval onof athe ~~twenty-day~~2016 ~~trading average~~Plan, ~~that~~the ~~were~~Prior ~~issued~~Plans inwere ~~connection~~terminated; ~~with~~no aadditional ~~distribution~~equity ~~agreement,~~awards ~~described~~or ~~below~~grants ~~under~~will ~~the~~be ~~heading~~made ~~“Recent~~under ~~Sales~~any of ~~Unregistered~~the ~~Securities”~~Prior Plans.

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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		6,400,000	0	$	0.097	0		-	0
Equity compensation plans not approved by security holders		11,687,500	~~20,715,000~~	$	$0.105	~~0.14~~		-	~~10,000,000~~	~~(1)~~
Total		18,087,500	~~20,715,000~~	$	$0.102	~~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~~Annual Report on Form 10-K 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~~us. ~~Company~~See Item 1. – Business – Recent Developments for a description of unregistered sales of our common stock that occurred after December 31, 2017.

InDuring ~~October~~the ~~2016~~year ended December 31, 2017, we issued an11,833,334 ~~aggregate~~shares of ~~20,000,000~~ common ~~shares~~stock at prices ranging between $0.05 and $0.06 per share ~~pursuant~~as topart ~~the~~of ~~exercise~~two ofseparate ~~warrants,~~private ~~for~~offerings. ~~aggregate~~The ~~cash~~private ~~consideration~~offerings raised gross proceeds of $1675,000~~,000~~. There were no underwriters involved. The ~~shares~~proceeds were ~~issued~~used for general operating expenses and to pay for the development of the AsepticSure® system. The sales were made without registration under the Securities Act in reliance upon exemptions from registration, ~~for~~including, ~~securities~~without ~~sold~~limitation, inthe ~~transactions~~exemption provided under Section 4(a)(2) of the Securities Act for private and ~~regulations~~limited ~~promulgated~~offers ~~thereunder~~and sales of securities made to accredited investors, and the exemptions provided under Regulation D and Rule 506 under the Securities Act for private and limited offers and sales of securities.

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.”

15Introduction

We are a global provider of disinfection solutions. We invented the AsepticSure^® system to provide a superior means of disinfection of non-porous surfaces in numerous settings, including hospitals, other healthcare facilities and non-hospital healthcare facilities. The AsepticSure^® system utilizes hydrogen peroxide vapor and ozone in a patented process that achieves a six-log reduction across a broad array of bacterial and viral pathogens. With recent clearance from the EPA, we began to introduce the AsepticSure^® system for use in disinfection and treatment of athletic facilities, sports equipment, preparation rooms in mortuary facilities, and remediation of buildings and hazardous cleanup sites. We are in discussions with the FDA to obtain appropriate clearance of the AsepticSure^® system for broader commercialization.

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Results of Operations

Year Ended December 31, ~~2016~~2017 Compared to Year Ended December 31, ~~2015~~ 2016

For the year ended December 31, ~~2016~~2017, we had a net loss of $2,~~673~~013,~~836~~799, compared to a net loss for ~~2015~~2016 of $2,~~035~~673,~~922~~836. For the year ended December 31, ~~2016~~2017, we had a total comprehensive loss of $2,~~684~~020,~~911~~620, compared to a total comprehensive loss for ~~2015~~2016 of $2,~~014~~684,~~719~~911. The primary reasons for the ~~increase~~decrease in net loss are: (1) one-time non-cash ~~expense~~expenses incurred in ~~connection~~2016 ~~with~~relating ~~warrants issued~~ to ~~purchase~~the upgrant toof $1options,~~000,000~~ of common stock toand awarrants ~~distributor~~to ~~under~~collaborator anpartners; ~~amended distribution agreement,~~ and (2) ~~higher~~a ~~legal~~reduction ~~costs, primarily~~ in ~~connection~~legal ~~with~~costs. ~~the~~The ~~Company’s~~decrease ~~annual~~in ~~meeting~~net ofloss ~~stockholders.~~was ~~The increase is~~ offset, in part, by ~~significantly~~an ~~decreased~~increase in stock-based compensation expense inrelated ~~2016 compared~~ to ~~expense~~option ingrants ~~2015~~and ~~related~~stock toawards ~~options granted~~ to directors, officers, employees, and consultants in 2017. Our primary expenses are payroll ~~and consulting fees~~, ~~research~~stock-based ~~and development expenses~~compensation, ~~office expenses,~~ interest expense ~~and~~on ~~compensation~~outstanding ~~expense~~notes ~~recorded~~payable, asresearch aand ~~result~~development ofexpenses, ~~our~~and ~~granting~~professional ofand ~~stock~~legal ~~options~~fees. Net loss per common share was ($0.01) in ~~2016~~2017 and ~~2015~~2016.

For the year ended December 31, ~~2016~~2017, we had sales of $~~237,000~~0 compared to sales of $~~197~~237,000 for the year ended December 31, ~~2015~~2016. Related cost of goods sold totaled $~~203,460~~0 and $~~114~~203,~~811~~460 for the years ended December 31, ~~2016~~2017 and ~~2015~~2016, respectively. We anticipate ~~that~~only asminor weincreases ~~commence~~in our ~~commercial~~sales, ~~launch~~if ofany, ~~AsepticSure~~until insuch ~~the~~time ~~United~~as ~~States~~we inreceive ~~late~~regulatory ~~2017,~~clearance ~~our~~from ~~revenues~~the ~~will~~FDA ~~increase.~~to Inmarket ~~2015,~~and wecommercialize ~~recognized~~the ~~revenue~~AsepticSure® ~~for~~system ~~previously~~in ~~received~~the ~~deposits~~United ~~from~~States ~~customers~~as ~~totaling~~a ~~$30,000~~means ~~for~~of ~~units~~decreasing ~~delivered~~infection inrisk ~~2015~~or hospital acquired infections.

General and administrative expenses for ~~2016~~2017 were $21,~~068~~909,~~391~~046, compared to $12,~~737~~068,~~175~~391 for ~~2015~~2016. The key expenses include payroll and consulting fees, professional ~~fees,~~and ~~director~~legal fees, and stock-based compensation expense recorded as a result of ~~granting~~option ~~stock~~grants 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~~awards ~~expense in 2016 for options granted~~ to directors, officers, employees and consultants in ~~comparison to 2015~~2017. ~~The~~We ~~remaining~~anticipate our general and administrative expenses ~~include~~will ~~rent,~~increase ~~office~~in ~~expenses~~2018 ~~and~~due ~~travel~~to ~~expenses.~~an Weincrease ~~anticipate~~in ~~that~~professional ~~our general~~ and ~~administrative~~legal ~~expenses~~services ~~will~~as ~~increase~~we insecure ~~late~~additional ~~2017~~financing and as we prepare for and ~~implement~~hold ~~the~~an ~~commercial~~annual ~~launch~~meeting of ~~AsepticSure in the United States~~stockholders.

Research and development expenses for ~~2016~~2017 were $~~501~~257,~~734~~312, compared to $~~299~~501,~~649~~734 ~~for~~in ~~2015~~2016. The ~~increase~~decrease from the prior year was primarily due to one-time consulting and engineering costs related to the upgrading of AsepticSure® units during 2016. Research and development ~~expenses~~costs include payroll, consultant fees, ~~interface~~ development costs, ~~prototypes,~~ and ~~research stage ozone generator and instrument development~~supplies. We anticipate our research and development ~~expenses~~costs will ~~remain~~increase ~~approximately~~marginally as we conduct additional testing related to our submission to the ~~same~~FDA infor ~~2017~~510(k) clearance.

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~~was to be determined based on a 20-day average stock price prior to the date of exercise; ~~with~~ the exercise price was to be discounted atto market by 40%. As of December 31, ~~2016~~2017, we recorded a ~~loss~~gain ~~on the warrant liability~~ of $47294,655 ~~212.~~from Athe ~~loss on~~ change in ~~warrant~~the ~~liability~~fair ~~represents~~value anof ~~increase in~~ the ~~amount of our~~ warrant liability ~~during that year~~. The warrants ~~expire~~expired on January 30, 2018.

Notes payable totaled $~~372~~362,~~332~~223 as of December 31, ~~2016~~2017, and $372,~~396~~332 as of December 31, ~~2015~~2016. Interest expense on these obligations totaled $33,~~850~~797 for ~~2016~~2017 and $2733,~~872~~850 for ~~2015~~2016. The interest rates on this debt ranged from 45.881% to 12.00% per annum.

WeNotes ~~anticipate~~payable ~~that~~– ~~our~~related ~~revenues,~~parties ~~related~~totaled ~~cost~~$1,634,578 as of ~~goods~~December ~~sold~~31, 2017, and ~~general~~$1,617,881 ~~and~~as ~~administrative~~of ~~expenses~~December ~~(including~~31, ~~selling~~2016. ~~expenses)~~We ~~will~~made ~~increase~~the infirst ~~2017~~payments asdue weunder ~~launch~~these notes in the ~~AsepticSure~~first ~~product~~quarter of 2017, but have been in ~~the~~default Uunder both notes since April 2017.~~S.,~~ ~~while~~As ~~research~~a ~~and~~result, ~~development~~interest ~~expenses~~is ~~remain~~now ~~approximately~~accruing on the ~~same~~unpaid obligations of these notes at an annual rate of 5%. Interest on these obligations totaled $55,888 for 2017 and $0 for 2016.

Liquidity and Capital Resources

As of December 31, ~~2016~~2017, our working capital ~~deficiency~~deficit was $4,~~126~~667,~~861~~093 compared to $24,~~675~~126,~~007~~861 as of December 31, ~~2015~~2016. The total stockholders’ deficit as of December 31, ~~2016~~2017, was $4,~~046~~546,~~145~~654 compared to $24,~~569~~046,~~234~~145 as of December 31, ~~2015~~2016.

During ~~2016~~2017, we generated ~~minimal~~no ~~sales~~revenue from the sale of ~~our~~the AsepticSure® ~~disinfection~~ system. WeAccordingly, we will continue to require additional financing to fund operations and to undertake our new business plans, to further ~~the~~additional ~~ongoing~~ testing required for FDA approval, and to market ~~our~~the ~~hospital~~AsepticSure® ~~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~~2017, we raised a total of $~~160~~675,000 through the sale of 411,~~000~~833,~~000~~334 shares of common stock at a ~~price~~weighted ofaverage ~~$0.04~~price ~~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 $~~0.0506 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 to 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~~some warrants to acquire shares of our 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 warrants is estimated using the Black-Scholes valuation model. The significant assumptions used in estimating the fair value of our common stock warrant liabilities include the exercise price, volatility of the stock underlying the ~~warrant~~common stock warrants, risk-free interest rate, estimated fair value of the stock underlying the ~~warrant~~common stock warrants and the estimated life of the ~~warrant~~common stock warrants.

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

InFor ~~May~~information ~~2014,~~with ~~the~~respect ~~Financial~~to ~~Accounting~~recent ~~Standards~~accounting ~~Board~~pronouncements ~~(FASB)~~and ~~issued~~the ~~Accounting~~impact ~~Standards~~of ~~Update~~these ~~(ASU)~~pronouncements ~~No.~~on ~~2014-09,~~our ~~Revenue~~consolidated ~~from~~financial ~~Contracts with Customers~~statements, ~~which~~see ~~supersedes~~Note 1 ~~nearly~~“Organization ~~all~~and ~~existing~~Summary ~~revenue recognition guidance under US GAAP. The core principle~~ of ~~ASU~~Significant ~~No.~~Accounting ~~2014-09~~Policies—Recent isAccounting toPronouncements” ~~recognize revenues when promised goods or services are transferred to customers~~ in ~~an amount that reflects~~ the ~~consideration~~notes to ~~which~~consolidated anfinancial ~~entity expects to be entitled for those goods or services~~statements. ~~ASU~~ ~~No.~~Based ~~2014-09~~on ~~defines~~our acontinuing ~~five-step~~review ~~process~~of ~~to achieve this core principle and, in doing so, more judgment and estimates may be required within~~ the ~~revenue~~recent ~~recognition~~accounting ~~process than are required under existing US GAAP. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15~~pronouncements, ~~2017,~~nothing ~~and~~has ~~interim~~been ~~periods~~identified ~~therein. Early~~to ~~adoption~~cause isus ~~permitted~~to ~~only~~believe ~~as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within~~ that ~~reporting~~our ~~period.~~future ~~We are assessing the impact~~trends, ~~if any, of implementing this guidance on our consolidated~~ financial ~~position~~condition, or results of operations ~~and~~will ~~liquidity~~be impacted.

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~~hedging ~~and development services with us~~activities.

Going Concern

~~The~~Our ~~accompanying~~consolidated financial statements ~~have~~are ~~been~~ prepared in ~~conformity~~accordance with US GAAP, which ~~contemplates~~assumes ~~continuation~~an ofentity ~~the~~is ~~Company as~~ a going concern. ~~Our~~and ~~history~~contemplates ofthe ~~recurring~~realization ~~losses,~~of ~~significant~~assets ~~accumulated~~and ~~deficit,~~the ~~negative~~settlement ~~working~~of ~~capital~~liabilities ~~and deficit~~ in ~~stockholders’~~the ~~equity~~normal ~~and~~course ~~the~~of ~~potential~~business. ~~inability~~We ~~for~~have usincurred tosignificant ~~make~~recurring alosses ~~profit~~ from ~~selling~~ our ~~products~~inception ~~and~~through ~~services~~December ~~raise~~31, ~~substantial~~2017, ~~doubt~~which ~~about~~have ~~our~~resulted ~~ability~~in toan ~~continue~~accumulated asdeficit aof ~~going concern. Since inception~~$40,085,981 itas ~~has~~of ~~been~~December ~~necessary~~31, ~~for~~2017. We ushave tominimal ~~rely~~cash, ~~upon~~have ~~financing~~a ~~from~~working ~~the~~capital ~~sale~~deficit of ~~our~~$4,667,093, ~~equity~~and ~~securities~~a tototal ~~sustain~~stockholders’ ~~operations.~~deficit ~~Additional~~of ~~financing~~$4,546,654 ~~will~~as beof ~~required~~December if31, we2017. We ~~are~~have torelied ~~continue~~almost asexclusively aon ~~going~~debt ~~concern.~~and Ifequity ~~we do not obtain additional~~ financing into ~~the~~sustain ~~near~~our ~~future~~operations. Accordingly, wethere ~~may~~is besubstantial ~~required~~doubt toabout ~~curtail~~our orability ~~discontinue operations or~~ to ~~seek~~continue ~~protection~~as ~~under~~a ~~the~~going ~~bankruptcy laws~~concern.

Our continuation as a going concern is dependent upon obtaining additional capital and ultimately, upon our attaining profitable operations. We will require substantial additional funds to create a commercial organization to continue to develop our products, product manufacturing, and to fund additional losses, until revenues are sufficient to cover our operating expenses. If we are unsuccessful in obtaining the necessary additional funding, we will most likely be forced to substantially reduce or cease operations.

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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 34F-1 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~~2017, regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.

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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~~our ~~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.

·	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 our management and directors; and

·	Provide reasonable assurance regarding the prevention or timely detection of any unauthorized acquisition, use or disposition of our 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~~During ~~management,~~the ~~including~~period ~~our~~ended ~~Principal~~September ~~Executive~~30, ~~Officer~~2017, we identified and ~~our~~disclosed ~~Principal~~a ~~Financial~~material ~~Officer,~~weakness ~~assessed~~resulting ~~the~~from ~~effectiveness~~an ofomission in the ~~Company’s~~recording ~~internal~~of ~~control~~a ~~over~~common ~~financial~~stock ~~reporting~~award as of ~~December 31~~250,000 ~~2016.~~shares Into ~~making~~a ~~this~~third-party ~~assessment~~consultant, ~~management~~which ~~used~~did ~~the~~not ~~criteria~~have ~~that~~a ~~have~~material ~~been~~impact ~~set~~on ~~forth~~our byconsolidated ~~the~~financial ~~Committee~~statements. ofHowever; ~~Sponsoring~~to ~~Organizations~~remediate the cause of the ~~Treadway~~material ~~Commission~~weakness, ~~(COSO)~~we inenhanced ~~Internal~~our ~~Control-Integrated~~internal ~~Framework~~control ~~(1992).~~procedures ~~Based~~to onadd ~~its~~additional ~~assessment,~~structure ~~using~~surrounding ~~those~~the ~~criteria,~~granting ~~management~~and ~~concluded~~recording ~~that,~~of asequity issuances. As of December 31, ~~2016~~2017, ~~the~~we ~~Company’s~~considered ~~internal~~the ~~control~~material ~~over~~weakness ~~financial~~to ~~reporting~~be ~~was effective~~remediated.

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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, 2017. 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, 2017, 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~~Except as noted above, there were no changes in our internal controls over financial reporting that occurred during the quarter ended December 31, ~~2016~~2017, 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~~sets forth biographical information ~~concerning~~regarding our ~~directors and~~ executive officers and directors as of ~~December~~March 3113, ~~2016~~2018:

Name	Age	Position
Edwin G. Marshall	74	Chairman of the Board, Chief Executive Officer
David A. Esposito	49	Chairman of the Board
Michael E. Shannon	69	Director, President, and Director of Medical Affairs, President of CFGH
David A. Dodd	68	Director, Chief Executive Officer
Daniel D. Hoyt	77	Director
Michael E. Shannon	70	Director, President
David A. Esposito	48	Director
Vincent C. Caponi	67	Director
Vincent C. Caponi	66	Director
Stephen F. Meyer	59	Director
Stephanie L. Sorensen	4748	Chief Financial Officer
Philip A. Theodore	64	Executive Vice President, Operations and Administration, General Counsel and Corporate Secretary
Jude P. Dinges	59	Executive Vice President, Chief Commercial Officer

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

~~Edwin~~David GA. ~~Marshall~~ Esposito became a director in February 2014 and currently serves as the Chairman of ~~the~~our Board. inFrom ~~June~~March ~~1997.~~1, He2017 ~~was~~through ~~appointed~~September ~~Chief~~18, ~~Executive~~2017, ~~Officer~~he inserved ~~April~~as ~~1998~~our Interim Chief Executive Officer. Mr. ~~Marshall~~Esposito ~~attended~~is the ~~College~~President and CEO of ~~Marin~~Armune BioScience, ~~with~~Inc., aan ~~double~~early ~~major~~stage inmedical ~~business~~diagnostics company focused on developing and ~~fire~~commercializing ~~science~~unique technology for diagnostic and prognostic tests for prostate, lung, and breast cancers. Mr. Esposito also is a director of Allergenis, Inc., an early stage allergy diagnostics company. From ~~1964~~2011 to ~~1978~~2013, Mr. ~~Marshall~~Esposito ~~worked~~was inVice ~~the~~President, ~~fire~~Commercial ~~service~~Operations, inat aThermo ~~city~~Fisher ~~with~~Scientific. aBefore ~~major~~joining ~~chemical~~Thermo ~~industrial~~Fisher ~~complex~~Scientific, ~~leaving~~he ~~with~~was ~~the~~President ~~rank~~and General Manager of ~~Captain~~Phadia US Inc., a specialty diagnostics company, from 2009 until its acquisition by Thermo Fisher Scientific in 2011. He ~~then~~was ~~pursued~~employed in various ~~business~~positions ~~interests~~by Merck & Co., Inc. from 1996 to 2009, including ~~ownership~~stints as Executive Director of athe ~~real~~Respiratory ~~estate~~Marketing ~~brokerage~~Team ~~firm~~(2006-2007), New Commercial Model (2007-2008), and ~~part~~US Commercial Strategy (2008-~~ownership~~2009). ofHe was a ~~number~~combat ofinfantry ~~other~~officer ~~small~~(Lt., ~~businesses~~US Army Infantry, 101st Airborne Division) from 1990-1993 and served in ~~other~~Operation ~~fields~~Desert Storm in 1991, where he was awarded the Bronze Star Medal for combat action in Iraq. He ~~has~~received ~~been~~ a ~~private~~BS ~~investor~~degree in ~~real~~civil ~~estate,~~engineering ~~precious~~at ~~metals~~the United States Military Academy (West Point), and ~~stocks~~an ~~since~~MBA ~~1973~~from Syracuse University. OnHe ~~February~~also 28completed an executive education program, ~~2017~~Competitive Marketing Strategy Program, at The Wharton School (University of Pennsylvania). Mr. ~~Marshall~~Esposito ~~resigned~~chairs ~~from~~our ~~his~~Audit ~~roles~~Committee and ~~responsibilities~~is asa ~~Chairman~~member of the Compensation Committee. Mr. Esposito’s qualifications to serve on the Board ~~and~~of ~~Chief~~Directors ~~Executive~~include ~~Officer~~his extensive industry experience.

~~Dr.~~David ~~Michael E. Shannon M.~~A., ~~M.Sc.,~~Dodd ~~M.D.,~~ became a director ~~on August 18, 2008~~ and ~~President~~our ofChief ~~the~~Executive ~~Company~~Officer in ~~2011~~September 2017. HeSince ~~also~~March ~~serves~~2010, asMr. ~~Director~~Dodd ofhas ~~Medical~~been ~~Affairs~~a ~~since~~member ~~2002~~ and inultimately ~~October~~chairman ~~2008~~(from ~~was~~January ~~appointed~~2011) ~~President~~ of ~~CFGH.~~the ~~Dr.~~Board ~~Shannon~~of ~~received~~Directors ~~his~~of ~~medical~~GeoVax ~~degree from Queen’s University in Canada~~Labs, ~~which included advanced training in surgery and sports medicine~~Inc., Hea ~~also holds post~~publicly-~~graduate~~traded ~~degrees~~(OTC: inGOVX) ~~neurochemistry~~vaccine ~~and~~development ~~physiology~~company. He ~~has~~remains ~~been~~in ~~actively~~the ~~engaged~~role inof ~~applied~~Chairman ~~medical~~of ~~research~~GeoVax. ~~within~~From ~~these~~April ~~areas~~2013 ~~for~~to ~~over~~July 282017, ~~years.~~he Healso served inas ~~the~~President ~~Canadian~~and ~~Forces~~Chief ~~for~~Executive 31Officer, ~~years~~and ~~retiring~~as ata ~~the~~member ~~rank~~ of ~~Commodore~~the ~~(Brigadier~~Board ~~General~~of ~~equivalent)~~Directors, asof ~~Deputy~~Aeterna ~~Surgeon~~Zentaris ~~General for Canada~~Inc. ~~During the first Gulf War~~, ~~Dr.~~a ~~Shannon~~publicly-traded ~~served~~(Nasdaq: asAEZS) ~~the~~drug ~~senior~~development ~~medical~~company. ~~liaison~~He ~~officer~~was ~~for~~Chairman ~~all~~ of the ~~Canadian~~Board ~~forces.~~of InDirectors ~~1996~~of heAeterna ~~assumed~~Zentaris ~~responsibilities~~Inc. ~~within~~from ~~Health~~May ~~Canada~~2014 ~~for~~to ~~re-organizing~~May ~~the~~2016. ~~Canadian blood system~~Mr. ~~Working~~Dodd ~~with~~continues ~~both~~to ~~the~~serve ~~provincial~~as ~~and~~a ~~federal~~member ~~governments,~~of ~~he oversaw~~ the ~~development~~Board of aDirectors ~~new~~of ~~corporate~~Aeterna ~~entity~~Zentaris ~~dedicated~~Inc. ~~exclusively~~He tois also the ~~management~~Chief ofExecutive ~~blood~~Officer ~~services~~of inRiversEdge ~~Canada.~~BioVentures, Hean ~~was~~investment ~~then~~and ~~appointed~~advisory ~~Director~~firm ~~General~~focused ~~for~~on the ~~Laboratory~~life ~~Centre~~sciences ~~for~~and ~~Disease~~pharmaceuticals ~~Control~~industries, awhich ~~position~~ he ~~held~~founded ~~for~~in ~~three years~~2009. InFrom December ~~2000,~~2007 ~~Dr. Shannon left the Canadian federal government~~ to ~~pursue~~June a2009, ~~new career in industry~~Mr. InDodd ~~that~~was ~~capacity~~President, heChief ~~simultaneously~~Executive ~~directed~~Officer ~~a phase III clinical trial in Canada, the United States~~ and ~~Great~~Chairman ~~Britain for an artificial blood substitute product. Following completion~~ of ~~that~~BioReliance ~~work~~Corporation, ~~he was asked to accept~~ a ~~special~~privately-owned ~~assignment~~organization ~~with~~that ~~the~~provided ~~Canadian~~biological ~~Federal~~safety ~~Government~~testing, ~~Auditor~~viral ~~General’s~~clearance ~~office~~testing, ~~his~~genetic ~~assignment~~and ~~being~~mammalian totechnology ~~conduct~~testing aand ~~cost~~laboratory ~~benefit~~animal ~~analysis~~diagnostic ofservices ~~all~~testing. ~~government~~From ~~sponsored~~October ~~pharmacare~~2006 ~~programs~~to ~~and~~April ~~make~~2009, ~~recommendations~~he ~~directly~~served toas ~~the~~non-executive ~~Parliament~~chairman of ~~Canada.~~Stem ~~His~~Cell ~~assignment~~Sciences ~~and~~Plc., ~~presentation~~a topublicly-traded ~~Parliament~~research ~~was~~products ~~completed~~company. inBefore ~~November~~that, ~~2004~~Mr. ~~Dr.~~Dodd ~~Shannon then~~ served onas aPresident, ~~special~~Chief ~~assignment~~Executive toOfficer ~~the~~and ~~Canadian~~Director ~~Public~~of ~~Health~~Serologicals ~~Agency~~Corporation (~~Centers~~Nasdaq: ~~for Disease Control equivalent in the United States~~SERO) asbefore ~~Senior~~it ~~Medical Advisor. His responsibility~~ was sold to ~~direct~~Millipore ~~the~~Corporation ~~rebuilding~~in ofJuly ~~the~~2006 ~~Emergency Medical Response Capacity~~ for ~~Canada~~$1.5 Inbillion. ~~this~~For ~~regard~~five ~~and~~years ~~under~~prior to his ~~direction,~~employment ~~the~~by ~~largest~~Serologicals ~~emergency~~Corporation, ~~medical~~Mr. Dodd ~~response~~served ~~exercise~~as inPresident ~~the~~and ~~history~~Chief ofExecutive ~~the~~Officer ~~country, involving the overnight construction~~ of aSolvay ~~mobile hospital~~Pharmaceuticals, ~~hundreds~~Inc. ~~of doctors~~ and ~~thousands~~Chairman of ~~patients,~~its ~~was~~subsidiary ~~successfully~~Unimed ~~held~~Pharmaceuticals, ~~in Toronto in December 2007~~Inc. ~~Dr.~~He ~~Shannon~~ has ~~been~~more ~~actively~~than ~~engaged~~35 inyears ~~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 O3executive ~~delivered~~experience ~~via minor autohemotherapy~~ in the ~~treatment~~healthcare ~~of AIDS~~industry. HeOur ~~was~~Board ~~also~~believes ~~responsible~~that ~~for~~Mr. ~~several~~Dodd’s ~~primate~~extensive ~~studies~~industry ~~utilizing~~experience O3qualifies ~~involving~~him ~~scientists~~to ~~from~~serve ~~various~~as ~~departments~~a ~~within~~director ~~the Canadian Federal Government,~~ as well as ~~senior~~an ~~investigators~~executive ~~from~~officer of the Company ~~and Cornell University~~.

Daniel D. Hoyt became 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.23

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~~David~~Dr. Michael E. Shannon M.A., ~~Esposito~~M.Sc., M.D., became a director inon ~~February~~August ~~2014.~~18, ~~Mr.~~2008 ~~Esposito~~and isPresident of the ~~President~~Company in 2011. He also serves as Director of Medical Affairs since 2002 and ~~CEO~~in October 2008 was appointed President of ~~Armune~~the ~~BioScience~~Canadian Foundation for Global Health, ~~Inc~~a not-for-profit association founded by the Company., anDr. ~~early~~Shannon ~~stage~~received his medical ~~diagnostics~~degree ~~company~~from ~~focused~~Queen’s onUniversity ~~developing~~in Canada, which included advanced training in surgery and ~~commercializing~~sports ~~unique~~medicine. ~~technology~~He ~~for~~also ~~diagnostic~~holds post-graduate degrees in neurochemistry and ~~prognostic~~physiology. ~~tests~~He has been actively engaged in applied medical research within these areas for ~~prostate,~~over ~~lung~~28 years. He served in the Canadian Forces for 31 years, ~~and~~retiring ~~breast~~at ~~cancers~~the rank of Commodore (Brigadier General equivalent) as Deputy Surgeon General for Canada. ~~From~~During ~~2011~~the tofirst ~~2013~~Gulf War, MrDr. ~~Esposito~~Shannon ~~was~~served ~~Vice~~as ~~President,~~the ~~Commercial~~senior ~~Operations,~~medical atliaison ~~Thermo~~officer ~~Fisher~~for ~~Scientific.~~all ~~Before~~of ~~joining~~the ~~Thermo~~Canadian ~~Fisher~~forces. ~~Scientific~~In 1996, he ~~was~~assumed ~~President~~responsibilities ~~and~~within ~~General~~Health ~~Manager~~Canada offor ~~Phadia~~re-organizing USthe ~~Inc~~Canadian blood system. Working with both the provincial and federal governments, ahe ~~specialty~~oversaw ~~diagnostics~~the ~~company~~development ~~from~~of ~~2009~~a ~~until~~new ~~its~~corporate ~~acquisition~~entity bydedicated ~~Thermo~~exclusively ~~Fisher~~to ~~Scientific~~the management of blood services in ~~2011~~Canada. He was ~~employed~~then inappointed ~~various~~Director ~~positions~~General byfor ~~Merck~~the &Laboratory CoCentre for Disease Control, a position he held for three years. In December 2000, ~~Inc~~Dr. ~~from~~Shannon ~~1993~~left the Canadian federal government to ~~2009~~pursue a new career in industry. In that capacity, ~~including~~he ~~stints~~simultaneously asdirected ~~Executive~~a ~~Director~~phase ofIII clinical trial in Canada, the ~~Respiratory~~United ~~Marketing~~States ~~Team~~and ~~(2006-2007),~~Great ~~New~~Britain ~~Commercial~~for ~~Model~~an ~~(2007-2008)~~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 to conduct a cost benefit analysis of all government sponsored pharmacare programs and USmake ~~Commercial~~recommendations ~~Strategy~~directly ~~(2008-2009)~~to the Parliament of Canada. HeHis assignment and presentation to Parliament was completed in November 2004. Dr. Shannon then served on a ~~combat~~special ~~infantry~~assignment ~~officer~~to the Canadian Public Health Agency (LtCenters 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, USthe ~~Army~~largest ~~Infantry~~emergency medical response exercise in the history of the country, ~~101st~~involving ~~Airborne~~the ~~Division)~~overnight ~~from~~construction ~~1990-1993~~of a mobile hospital, hundreds of doctors and ~~served~~thousands of patients, was successfully held in ~~Operation~~Toronto ~~Desert~~in ~~Storm~~December 2007. Dr. Shannon has been actively engaged in ~~1991,~~medical ~~where~~bio-oxidative he(O3) ~~was~~based ~~awarded~~research ~~the~~since ~~Bronze~~1987 ~~Star~~and ~~Medal~~was directly responsible for ~~combat~~the ~~action~~first inhuman ~~Iraq.~~clinical Hetrial ~~received~~to ahave BSever ~~degree~~been approved in ~~civil~~North ~~engineering~~America atwhich examined the ~~United~~efficacy ~~States~~of ~~Military~~O3 ~~Academy~~delivered ~~(West~~via ~~Point),~~minor ~~and~~autohemotherapy anin ~~MBA~~the ~~from~~treatment ~~Syracuse~~of ~~University~~AIDS. He was also ~~completed~~responsible anfor ~~executive~~several ~~education~~primate ~~program,~~studies ~~Competitive~~utilizing ~~Marketing~~O3 ~~Strategy~~involving ~~Program~~scientists from various departments within the Canadian Federal Government, atas ~~The~~well ~~Wharton~~as ~~School~~senior ~~(University~~investigators offrom ~~Pennsylvania).~~the OnCompany ~~March~~and 1,Cornell ~~2017,~~University. MrDr. ~~Esposito~~Shannon’s ~~was~~qualifications ~~appointed~~to ~~Chairman~~serve as a member of the Board of Directors include his extensive medical research and ~~Interim~~related ~~CEO,~~experience ~~replacing~~and ~~Mr.~~other ~~Marshall~~accomplishments noted above.

Vincent C. Caponi became a director in October 2014. Mr. Caponi currently is retired from Ascension Health and serves as an independent consultant for the system. He served as President and CEO of St. Vincent Medical Center in Bridgeport, CT. from July 2016 to July 2017. 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~~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~~our Audit Committee. Our Board believes that Mr. Caponi’s extensive executive experience in the healthcare industry qualifies him to serve on our Board.

Stephen F. Meyer became a director in May 2017. From December 2010 until the company’s merger with Hill-Rom, Inc. in October 2015, Mr. Meyer was the President and Chief Executive Officer of Welch Allyn, Inc., a privately-held developer, manufacturer and marketer of frontline care devices and diagnostic solutions, headquartered in Skaneateles Falls, New York. He joined Welch Allyn in 1981 as a sales representative in Detroit, Michigan. Mr. Meyer held a series of executive and senior leadership roles in a variety of areas from international sales and marketing to product development, operations, and general management. As President and CEO, Mr. Meyer navigated Welch Allyn during a time of substantial industry change, developing and executing a new strategy, restructuring the business, engaging more deeply with customers, and becoming more acquisitive. Mr. Meyer is an executive advisor to Beecken Petty O’Keefe & Company, a private equity management firm that focuses on the healthcare industry, is a member of the board of directors of Paragon Medical, Inc. and SRC Ventures, Inc., and is an advisor to Medical Distribution Solutions, Inc., a leading publicity and content company in the health care business and is an advisor to the founder of Vitls, an early-stage company focused on remote patient monitoring. He also is a founder and the managing director of River Marsh Capital, LLC, a firm investing primarily in healthcare developments which enhance and improve health, and providing corporate advisory services to companies, private equity, and venture firms. He is a past board member of TIDI Medical Products LLC, a past board member and chair of MedTech (Central New York’s Medical Technology Association), a past board member and president of the Health Industry Manufacturers Marketing Council, a past board member of AdvaMed and Medical Device Manufacturers Association, and past board member of AAFP’s Foundation. Mr. Meyer received a Bachelor of Science in Biology from Alma College and earned a Master’s of Business Administration from the William E. Simon Graduate School of Business at the University of Rochester, New York. In addition to the achievements noted above, our Board believes that Mr. Meyer’s experience in marketing and product development in the healthcare industry qualify him to serve as a member of our Board of Directors.

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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.

Philip A. Theodore joined us as our Executive Vice President, Chief Administrative Officer, Chief Operations Operation Officer, General Counsel and Corporate Secretary effective as of November 1, 2017. Mr. Theodore is a graduate of the University of Cincinnati College of Law, and holds a B.A. (Political Science) from the University of Tennessee at Chattanooga. Before joining Medizone, he served as Senior Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary with Aeterna Zentaris, Inc. from October 2014 through July 2017. Prior to joining Aeterna Zentaris, he served as Vice President, General Counsel and Corporate Secretary of Zep Inc. from July 2010 through September 2014; as Senior Vice President and General Counsel of John H. Harland Company, from September 2006 to September 2007; and as Vice President, General Counsel and Corporate Secretary of Serologicals Corporation from 2004 through August 2006. Mr. Theodore was a partner in the corporate practice of King & Spalding, LLP, an Atlanta-based law firm, from 1986 through 2003.

Jude P. Dinges joined us as our Executive Vice President, Chief Commercial Officer effective as of January 30, 2018. Mr. Dinges began his career nearly 30 years ago as a professional sales representative at Bristol Laboratories and later at Merck & Co., where he was promoted to positions with increased responsibilities in training, sales, management, marketing and market development. While at Merck, Mr. Dinges won multiple awards, including the President’s Achievement Award in 2001, awarded to one of 32 Business Directors each year. He received the Change Agent Award for his market development prelaunch business planning and contributions to sales force execution, while launching the blockbuster brands Cozaar^®, Fosamax^®, Singulair^®, Maxalt^®, Vioxx^®, and Vytorin^®. He was recognized with a Career Achievement Award for his consistent top performance as a Senior/Executive Business Director. Mr. Dinges joined Novartis Pharmaceuticals in 2006 and led his region to top performance in the launch of Tekturna^® while balancing a broad antihypertensive portfolio across several Novartis divisions. His region also led the nation in market share for Exelon^® and Exelon Patch^®. In 2008, Mr. Dinges became the Respiratory & Infectious Disease Specialty Medicines Director. In 2009, Mr. Dinges joined Amgen Inc. as Executive Director of Region Sales, Bone Health Business Unit. Mr. Dinges led his region team to a highly successful launch of monoclonal antibody, Prolia^®, across the southeastern United States and Puerto Rico. Most recently Mr. Dinges served as Senior Vice President, Chief Commercial Officer of Aeterna Zentaris, Inc.

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~~12 times during the year ended December 31, ~~2016~~2017. All directors participated in ~~all~~at least 80 percent of the meetings held by the Board, ofwith ~~Directors.~~the ~~The~~exception ~~Board~~ of ~~Directors~~Mr. ~~has an audit and a compensation committee~~Caponi, ~~but~~who ~~has~~participated ~~not~~in ~~yet~~58 ~~established~~percent aof ~~nominating~~the ~~or other committees~~meetings.

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://www.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~~Involvement ~~Board~~in ofCertain ~~Directors~~Legal ~~and Committees~~Proceedings

~~The~~No ~~Board~~director, ofperson ~~Directors~~nominated ~~has~~to ~~determined~~become ~~that~~a asdirector, executive officer, promoter or control person of ~~December~~our ~~31,~~company ~~2016~~has, ~~Mr.~~during ~~Hoyt,~~the ~~Mr.~~last ~~Esposito~~ten ~~and~~years: ~~Mr.~~(i) ~~Caponi~~been ~~were~~convicted ~~independent~~in ~~directors~~or asis ~~defined~~currently bysubject ~~the~~to ~~rules~~a ofpending ~~the~~criminal ~~NASDAQ~~proceeding ~~Stock~~(excluding ~~Market,~~traffic asviolations ~~discussed~~and ~~below.~~other Inminor ~~conjunction~~offenses); ~~with~~(ii) ~~Mr.~~been ~~Esposito’s~~a ~~appointment~~party asto ~~our~~a ~~Chairman~~civil proceeding of a judicial or administrative body of competent jurisdiction and ~~Interim~~as ~~Chief~~a ~~Executive~~result ~~Officer~~of onsuch ~~March~~proceeding 1,was ~~2107~~or is subject to a judgment, ~~Mr.~~decree ~~Esposito~~or isfinal noorder ~~longer~~enjoining ~~considered~~future anviolations ~~independent~~of, ~~director~~or ~~and~~prohibiting isor nomandating ~~longer~~activities ~~eligible~~subject to ~~serve~~any onfederal ~~the~~or ~~committees~~state ofsecurities ~~the~~or ~~Board.~~banking ~~Our~~or ~~common~~commodities ~~stock~~laws isincluding, ~~currently~~without ~~traded~~limitation, onin ~~the~~any ~~OTCQB.~~way ~~This~~limiting ~~market~~involvement ~~does~~in ~~not~~any ~~impose~~business ~~definitions~~activity, or ~~standards~~finding ~~relating~~any violation with respect to ~~director~~such ~~independence~~law, nor (iii) any bankruptcy petition been filed by or against the ~~composition~~business of ~~committees~~which ~~with~~such ~~independent~~person ~~directors.~~was Wean ~~have~~executive ~~not~~officer ~~appointed~~or a ~~“lead~~general ~~independent~~partner, ~~director~~whether at the time of the bankruptcy or for the two years prior thereto.”

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Director Independence

Our common stock is currently quoted on the OTCQB, which does not impose standards relating to director independence or the makeup of committees with independent directors, or provide definitions of independence. In accordance with the rules of the SEC, we determine the independence of our directors by reference to the rules of the Nasdaq Stock Market (“Nasdaq”). In accordance with such rules, we have three independent directors, Mr. Esposito, Mr. Caponi and Mr. Meyer. There were no transactions, relationships or arrangements not disclosed under the caption “Transactions with Related Persons” in Part III, Item 13 of this report that were considered by the Board of Directors under the applicable independence definitions in determining that Messrs. Esposito, Caponi, and Meyer, are independent.

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~~Esposito ~~and~~(Chairman), Mr. ~~Caponi.~~Meyer ~~Until~~and ~~March 1, 2017,~~ Mr. ~~Esposito was also a member and was the Chairman of the Audit Committee~~Caponi. The Board has determined that Mr. Meyer and Mr. Caponi isare each considered to be 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~~authority ~~Committee~~and responsibilities of the ~~Board~~Audit ofCommittee ~~Directors~~are ~~(the~~set ~~“Compensation~~forth ~~Committee”)~~in ~~includes~~a ascharter ~~members~~adopted ~~Mr.~~by ~~Hoyt~~the Board of Directors and ~~Mr.~~include: ~~Esposito.~~(i) ~~Until~~appointing ~~March~~our 1,independent ~~2017,~~registered ~~Mr.~~public ~~Caponi~~accounting ~~was~~firm, ~~also~~(ii) areviewing, ~~member~~approving and ~~Chairman~~monitoring of the ~~Compensation~~scope ~~Committee.~~and ~~During~~cost ~~2016~~of ~~(and~~any asproposed ofaudit ~~the~~and ~~date~~non-audit ofservices ~~this~~that ~~report)~~are provided by, ~~all~~as ~~members~~well ofas the ~~Compensation~~qualifications ~~Committee~~and ~~are~~independence ~~outside~~of, ~~directors~~the asindependent ~~defined~~registered bypublic ~~Rule~~accounting ~~162~~firm, (miii) ofreviewing and monitoring with the ~~Internal~~independent ~~Revenue~~registered ~~Code~~public ~~and~~accounting ~~are~~firm, ~~non-employee~~and ~~directors~~any asinternal ~~defined~~audit bystaff, the ~~applicable~~results ~~regulations~~of ~~promulgated~~audits, byany recommendations from the ~~SEC~~independent ~~under~~registered ~~the~~public ~~Exchange~~accounting ~~Act.~~firm ~~The~~and ~~Compensation~~the ~~Committee~~status of management’s ~~responsibilities~~actions ~~include:~~for ~~(i)~~implementing ~~reviewing~~such ~~and~~recommendations, ~~recommending~~as towell as the ~~full~~quality ~~Board~~and adequacy of ~~Directors~~our ~~the~~internal ~~salaries,~~financial ~~bonuses,~~controls and ~~other~~any ~~forms~~internal ofaudit ~~compensation~~staff, ~~and~~(iv) ~~benefit~~reviewing ~~plans~~and ~~for~~monitoring ~~management~~our annual and ~~(ii)~~quarterly ~~administering~~financial ~~our~~statements ~~equity~~and ~~compensation~~the ~~plans.~~status ~~The~~of ~~duties~~material ofpending ~~the~~litigation ~~Compensation~~and ~~Committee~~regulatory asproceedings; ~~the~~and ~~administrator~~(v) ofperiodically ~~those~~discussing ~~plans~~with ~~include,~~the ~~but~~independent ~~are~~registered ~~not~~public ~~limited~~accounting ~~to,~~firm ~~determining~~auditor ~~those~~all ~~persons~~significant ~~who~~relationships ~~are~~that ~~eligible~~may toaffect ~~receive~~the ~~awards~~auditor’s independence, ~~establishing~~reviewing ~~terms~~the ofCompany’s ~~all~~financial ~~awards,~~results ~~authorizing~~with ~~officers~~management ofand the ~~Company~~independent auditors prior to ~~execute~~the ~~grants~~release of ~~awards~~quarterly and annual financial information, and ~~interpreting~~preparing ~~the~~and ~~provisions~~issuing ofto the ~~equity~~Board ~~compensation~~of ~~plans~~Directors ~~and~~annually ~~grants~~a ~~that~~summary ~~are~~report ~~made~~suitable ~~under~~for ~~those~~submission ~~plans~~to the stockholders. The ~~Compensation~~Audit Committee met once as a committee in ~~2016~~2017.

AsAudit ~~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.Report

~~Risk~~The ~~Oversight~~Audit ~~and~~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 consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 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 consolidated financial statements.

~~Our~~The ~~Board~~Audit Committee is responsible for reviewing, approving and managing the engagement of ~~Directors~~the isCompany’s ~~actively~~independent ~~involved~~registered inpublic accounting firm, including the ~~oversight~~scope, extent and ~~management~~procedures of the ~~material~~annual ~~risks~~audit ~~that~~and ~~could~~compensation ~~affect~~to be paid therefor, and all other matters the ~~Company.~~Audit ~~Historically~~Committee deems appropriate, ~~our~~including the Company’s independent registered public accounting firm’s accountability to the Board of Directors ~~has~~and ~~carried~~the ~~out~~Audit Committee. The Audit Committee Chairman 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 US GAAP, its ~~risk~~judgment ~~oversight~~as to the quality, not just the acceptability, of the Company’s accounting principles and ~~management~~such ~~responsibilities~~other matters as are required to be discussed with the Audit Committee by ~~monitoring~~the ~~risk~~standards ~~directly~~of asthe aPublic ~~full~~Company ~~board.~~Accounting ~~The~~Oversight Board’s ~~direct~~(“PCAOB”), ~~role~~including inPCAOB ~~our~~Auditing ~~risk~~Standard ~~management~~No. ~~process~~16, Communications ~~includes~~With ~~receiving~~Audit ~~regular~~Committees, ~~reports~~the ~~from~~rules ~~our~~of ~~executive~~the ~~officers~~Securities and Exchange Commission (SEC) and other ~~members~~applicable regulations, and discussed and reviewed the results of ~~senior~~the ~~management~~Company’s onindependent ~~areas~~registered public accounting firm’s examination of ~~material~~the ~~risk~~financial tostatements. In addition, the Audit Committee Chairman discussed with the Company’s independent registered public accounting firm the independent registered public accounting firm’s independence from management and the Company, including ~~operational,~~the ~~strategic,~~matters ~~financial,~~in ~~legal~~the written disclosures and ~~regulatory~~the ~~risks~~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.

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. 26

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 ~~THE AUDIT COMMITTEE~~Audit OFCommittee ~~THE~~Chairman ~~BOARD~~discussed OFwith ~~DIRECTORS~~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 required. The Audit Committee Chairman 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~~In ~~audit~~reliance ~~committee~~on ~~oversees~~ the ~~Company’s~~reviews ~~financial~~and ~~reporting~~discussions ~~process~~referred onto ~~behalf~~above, of the ~~Board~~Audit ofCommittee ~~Directors.~~recommended ~~Management~~to ~~has~~ the ~~primary~~Board ~~responsibility~~of ~~for~~Directors ~~the financial statements~~ (and the ~~reporting~~Board ~~process, including the systems~~ of ~~internal~~Directors ~~control~~has ~~over~~approved) ~~financial~~that ~~reporting and disclosure controls and procedures. In fulfilling its oversight responsibilities,~~ the ~~audit committee reviewed the~~ audited financial statements be included in ~~the~~this ~~Company’s~~ Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 ~~with~~for ~~management,~~filing ~~including~~with athe ~~discussion~~SEC. ofThe ~~the~~Audit ~~quality,~~Committee ~~not~~has ~~just~~also ~~the~~retained ~~acceptability,~~Tanner ofLLC as the ~~accounting~~Company’s ~~principles,~~independent ~~the~~registered ~~reasonableness~~public ofaccounting ~~significant~~firm ~~judgments,~~for ~~and~~ the ~~clarity~~fiscal ofyear ~~disclosures~~ending inDecember ~~the~~31, ~~financial statements~~2018.

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~~Stephen DF. ~~Hoyt~~Meyer

23Compensation Committee. The Compensation Committee of the Board of Directors (the “Compensation Committee”) includes Mr. Caponi as the Chairman, with Mr. Meyer and Mr. Esposito as additional members. Mr. Caponi and Mr. Meyer are considered “outside directors” as defined by Section 162(m) of the Internal Revenue Code; all members 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 awards, authorizing 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 2017.

Nominating and Governance Committee. 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 us. 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 our material risk, 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 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 our Chief Financial Officer and the our independent registered public accounting firm.

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

Board Committee Charters

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Item 11. Executive Compensation

The following ~~table~~Summary ~~sets~~Compensation ~~forth~~Table ~~all~~shows the total compensation paid in the last two completed fiscal years to each person who served as aour Chief Executive Officer (our principal executive officer) orduring ~~principal~~2017 ~~financial~~ and ~~accounting~~to ~~officer~~our ~~(collectively,~~two ~~the~~other ~~“Named~~most ~~Executive~~highly ~~Officers”)~~compensated ~~during~~executive ~~2015~~officers ~~and~~other ~~2016,~~than ~~including~~the ~~any~~Chief ~~other~~Executive ~~executive~~Officer ~~officer~~ who ~~received~~were ~~more~~serving ~~than~~as ~~$100,000~~executive inofficers ~~annual~~as ~~compensation~~of ~~from~~December ~~the~~31, ~~Company~~2017 (“Named Executive Officers”).

Summary Compensation Table

Name and principal position	Year	Salary ($)		Stock awards ($)	Option ~~Awards~~awards ($)		Other ($)	Total ($)
(a)	(b)	(c)		(d)	(e)		(f)	(fg)
Edwin G. Marshall (1)	2016		$	195,000		$	—		$	195,000
Edwin G. Marshall (1) Former Chairman and Chief Executive Officer	2017	32,500		-	74,147		-	106,647
Chairman and Chief Executive Officer	2015		$	195,000		$	113,640		$	308,640
	2016	195,000		-	-		-	195,000
Michael E. Shannon (2)	2016		$	175,922		$	—		$	175,922
David A. Esposito(2) Chairman and Former Interim Chief Executive Officer	2017	123,750		150,000	74,147		6,800	354,697
President and Director of Medical Affairs	2015		$	190,187		$	113,640		$	303,827
	2016	-		-	-		-	-
David A. Dodd(3) Chief Executive Officer	2017	72,197		60,000	-		-	132,197
	2016	-		-	-			-
Michael E. Shannon (4) President	2017	184,704		-	74,147		-	258,851
	2016	175,922		-	-		-	175,922
Stephanie L. Sorensen(5) Chief Financial Officer	2017	60,000		-	18,537		-	78,537
	2016	15,000		-	-		-	15,000

	(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(1) On ~~July~~February ~~2016~~28, we2017, ~~entered~~Mr. ~~into~~Marshall ~~employment~~retired ~~agreements~~from ~~with~~his ~~our~~position as Chairman of the Board and Chief Executive Officer. Upon termination, Mr. Marshall entered into a Separation and ~~our~~Release ~~Director~~Agreement of(the ~~Operations.~~“Ed InMarshall ~~October~~Severance ~~2016~~Agreement”), wewhich ~~entered~~sets ~~into~~forth ana ~~employment~~payment ~~agreement~~schedule related to certain promissory notes previously issued to Mr. Marshall with respect to unpaid cash compensation owing to him for prior periods and certain modifications to equity awards granted to him previously under our ~~Chief~~2014 ~~Financial~~Equity ~~Officer~~Incentive Plan. ~~The~~Among ~~terms~~other things, the changes modify the exercise period of ~~all~~the ~~agreements~~grants ~~list~~from ~~salary~~three weeks to three years following the termination of his employment. We are currently in arrears in our obligations under the Ed Marshall Severance Agreement, ~~benefits~~as ~~and~~well ~~provisions~~as ~~for~~under a ~~change~~similar ofagreement ~~control~~entered into with his wife, Dr. Jill Marshall, whose employment also terminated in February 2017.

On(2) Mr. ~~February~~Esposito 28is Chairman of our Board of Directors. He became interim Chief Executive Officer on March 1, 2017, upon the retirement of Mr. Marshall. ~~resigned~~In ~~from~~connection ~~his~~with ~~position~~Mr. Esposito’s appointment as ~~Chairman~~Interim ofChief Executive Officer, we entered into an employment agreement that provided for the ~~Board~~payment of an annual base salary of $225,000 and eligibility for a target bonus equal to 50% of his base salary based on performance goals established by our Board. The amount of salary shown in the table is the amount of salary that was accrued but not paid to Mr. Esposito during the portion of 2017 that he served as Interim Chief Executive Officer. ~~and~~Mr. DrEsposito agreed to serve without payment until our cash position improves. ~~Marshall~~Mr. ~~resigned~~Esposito asalso ~~Director~~received a stock award of ~~Operations.~~1,000,000 Inshares ~~connection~~of ~~with~~our ~~these~~common ~~resignations~~stock upon his appointment and was eligible to receive an additional 1,000,000 shares of common stock upon the commercialization of the AsepticSure® system in the United States. Mr. ~~Marshall~~Esposito ~~and~~stepped Drdown as CEO when Mr. ~~Marshall~~Dodd ~~entered~~was ~~into~~appointed ~~Separation~~in ~~and~~September ~~Release~~2017, ~~Agreements~~at which ~~terminated~~time ~~their~~this ~~respective~~award ~~employment agreements~~expired. In ~~The~~February ~~Separation~~2017, while he was serving as a director of our Board and ~~Release~~prior ~~Agreements~~to ~~address~~his appointment as the ~~payment~~Interim ~~schedule~~CEO, ~~related~~he toreceived ~~certain~~a ~~promissory~~fully ~~notes~~vested stock option grant to purchase 1,000,000 ~~issued~~shares of common stock pursuant to our 2016 Equity Incentive Plan. Mr. ~~and~~Esposito Drvoluntarily surrendered this option on February 14, 2018. ~~Marshall~~Between March 1, and ~~the~~August ~~changes~~31, in2017, ~~awards~~Mr. ~~granted~~Esposito ~~under~~purchased 6,333,334 shares at $0.06 per share for cash in our ~~2014~~private ~~Equity~~placement ~~Incentive~~to ~~Plan,~~accredited ~~modifying~~investors on terms of the ~~exercise~~offering ~~period~~provided to unaffiliated investors. The market price of our common stock during the ~~grants~~offering ~~from~~fluctuated ~~three~~between ~~weeks~~$0.06 and $0.10. The total discount to ~~three~~market ~~years~~of ~~following~~$6,800 ~~termination~~is shown as other compensation in the table in column (f). Mr. Esposito’s participation in the offering was approved by disinterested members of the Board of Directors.

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.28

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(3) Mr. Dodd became Chief Executive Officer on September 18, 2017. At the time of his employment, we entered into a written employment agreement with Mr. Dodd that provides an initial base salary of $250,000 per year and an annual performance bonus with an initial target of 65% of annual base salary, payable upon achievement of targets established by the Board of Directors, including targets related to operating capital levels; commercialization of the AsepticSure^® system in the United States; and building and scaling commercial operations, including recruiting of experienced personnel to lead commercialization in the U.S. market. We also entered into a change of control agreement with Mr. Dodd, pursuant to which he will receive severance compensation in the event his employment is terminated without cause or for good reason (as defined in the agreement) following a change of control. The amount of salary shown in the table is the amount of salary that was accrued but not paid to Mr. Dodd during the portion of 2017 that he served as our Chief Executive Officer. Mr. Dodd has agreed to serve without receiving cash compensation until our financial condition will permit us to make cash salary payments to him. Pursuant to his employment agreement with us, Mr. Dodd was granted 1,000,000 restricted shares of common stock that vest on March 18, 2018, and 1,000,000 restricted shares of common stock to will vest immediately upon the commercialization of the AsepticSure^® system in the United States; provided, however, that all such shares of restricted stock will vest immediately in the event of a change of control. On January 3, 2018, Mr. Dodd voluntarily surrendered all rights to the 1,000,000 shares scheduled to vest on March 18, 2018.

(4) Dr. Shannon receives a base salary paid in Canadian Dollars of $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 indicated. The average exchange rates were .769601 and .7330075 for 2017 and 2016, respectively. Column (e) represents compensation paid to Dr. Shannon in the form of stock options granted as compensation for Dr. Shannon’s service as a member of our Board of Directors (see “Director Compensation”), valued using the Black-Scholes option pricing model.

(5) Ms. Sorensen became Chief Financial Officer on October 1, 2016. We entered into an employment agreement with Ms. Sorensen that provides for an initial base salary of $60,000 per year. We also entered into a change of control agreement with Ms. Sorensen, pursuant to which she will receive severance compensation in the event her employment is terminated without cause or for good reason (as defined in the agreement) following a change of control. On February 2, 2017, Ms. Sorensen was granted an option to purchase 250,000 shares of common stock. Ms. Sorensen voluntarily surrendered this option on January 3, 2018.

Change of Control Agreements

We have entered into agreements (the “Change of Control Agreements”) with Messrs. Dodd, Dinges, Shannon, Theodore and Ms. Sorensen. The Change of Control Agreements provide that if the employment of any of these executives is terminated by the executive for “Good Reason” (as defined in the agreement) or by us without “Cause” (as defined in the executive’s employment agreement), other than on the account of the executive’s death or disability, in each case within 12 months following a “Change of Control” (as defined in the agreement), the executive will be entitled to receive severance payments (the “Severance Pay”).

For purposes of the agreements, the following definitions apply:

·	“Change of Control” means the occurrence of any of the following:

(i)

one person (or more than one person acting as a group) acquires ownership of our stock that, together with the stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of our stock; provided that, a Change of Control shall not occur if any person (or more than one person acting as a group) owns more than 50% of the total fair market value or total voting power of our stock and acquires additional stock;

(ii)	one person (or more than one person acting as a group) acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition) ownership of our stock possessing 30% or more of the total voting power of our stock;

(iii)

a majority of the members of our Board of Directors are replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of our Board of Directors before the date of such appointment or election; or

(iv)	the complete liquidation of us or the sale or other disposition by us of all or substantially all of our assets.

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· “Good Reason” means any of the following events if effected by us without the executive’s consent within 12 months of the Change of Control:

(i)	a change in the executive’s position that materially diminishes his or her duties, responsibilities, or authority;

(ii)	a material diminution of the executive’s base salary;

(iii)

any requirement that the executive relocate or any assignment of duties that would be materially adverse to the maintenance of the principal residence the executive had immediately prior to the Change of Control;

(iv)	our material breach of the executive’s employment or Change of Control Agreement; or

(v)	our failure to secure the written assumption of our material obligations under executive’s employment or Change of Control Agreement from any successor to us.

If the Change of Control is one of the events specified in paragraphs (i), (ii) or (iii) of the definition of Change of Control above that values us at more than $100 million, the Severance Pay payable to the executive will equal three times the executive’s annual base salary and target bonus in effect on the date of the Change of Control.

If the Change of Control is one of the events specified in paragraphs (i), (ii) or (iii) of the definition of Change of Control that values us at less than $100 million, but more than $75 million, the Severance Pay will equal two times the executive’s annual base salary and target bonus in effect on the date of the Change of Control.

If the Change of Control is one of the events specified in paragraphs (i), (ii) or (iii) of the definition of Change of Control that values us at less than $75 million, but more than $50 million, the Severance Pay will equal one times the executive’s annual base salary and target bonus in effect on the date of the Change of Control.

If the Change of Control is the event specified in paragraph (iv) of the definition of Change of Control, the Severance Pay will equal one times the executive’s annual base salary and target bonus in effect on the date of the Change of Control.

In addition to the Severance Pay, we are obligated to provide group medical continuation coverage under our group medical plan for the executive, his or her spouse and his or her eligible dependents for 18 months following the date of his or her termination of employment following the Change of Control; provided that the executive is eligible for COBRA and has elected continuation coverage under the applicable rules. In lieu of providing such coverage, we may pay to the executive an amount equal to the cost of such group medical continuation coverage, which amount shall be calculated using the applicable COBRA premium rates in effect for the month in which the termination of employment following a Change of Control occurs.

The Severance Pay and the cost of group medical continuation coverage (if we elect to pay the cost of such coverage to the executive) will be paid to the executive in a lump sum within 90 days. The vesting and exercisability of each option and any other equity award granted to the executive by us (or of any property received by the executive in exchange for such options in a Change of Control) will be automatically accelerated in full upon the termination of his or her employment following a Change of Control.

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~~us ~~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~~2017, and that such filings were timely except ~~for~~as ~~Ms. Sorensen’s Form 3, which has since been filed.~~follows:

24· Mr. Philip A. Theodore, an executive officer, was late filing his initial report of beneficial ownership of shares on Form 3 and he was late filing a Form 4 to report his acquisition of 1,000,000 shares of stock on November 30, 2017, which was filed on December 5, 2017.

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~~Outstanding~~· ~~Equity~~Mr. ~~Awards~~Stephen asMeyer, a director, was late filing his initial report of ~~Fiscal~~beneficial ~~Year-End~~ownership ~~2016~~of shares on Form 3, which was filed on May 29, 2017; was late filing a Form 4 to report the grant of 500,000 options to purchase common stock on May 19, 2017, which was filed on May 30, 2017; and was late filing a Form 4 to report the acquisition of 500,000 shares of common stock on June 6, 2017, which was ultimately filed on June 13, 2017.

~~The~~· ~~following~~Mr. ~~table~~Daniel ~~summarizes~~Hoyt, ~~the~~a ~~outstanding~~former ~~equity~~director, ~~awards~~filed ~~held~~a byForm ~~our~~4 ~~Named~~on ~~Executive~~June ~~Officers~~20, as2017. This report was late and/or reported transactions involving dispositions of ~~December~~our 31common stock that occurred while Mr. Hoyt was a director for which no Form 4 had previously been filed, ~~2016~~including gifts and sales, as follows:

	Option Awards
Date of Transaction	Nature of Transaction	Number of Shares
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 ($)			Option expiration date
04/23/2014	Sale	74,432
(a)	(b)		(c)		(d)		(e)			(f)
11/17/2016	Gift	500,000
Edwin G. Marshall
02/23/2017	Gift	500,000
Principal Executive Officer		1,000,000		—		—		$	0.23	2/21/17
05/16/2017	Sale	46,500
		250,000		—		—		$	0.163	4/30/19
05/18/2017	Sale	53,500
		1,500,000		—		—		$	0.087	8/18/20
05/26/2017	Sale	48,800
Michael E. Shannon
06/01/2017	Sale	24,000
President		1,000,000		—		—		$	0.23	2/21/17
06/02/2017	Sale	30,860
		250,000		—		—		$	0.163	4/30/19
06/05/2017	Sale	96,340
		1,000,000		—		—		$	0.13	8/15/19
06/14/2017	Sale	78,100
		1,500,000		—		—		$	0.087	8/18/20
06/15/2017	Sale	121,900
06/15/2017	Sale	400,000
06/16/2017	Sale	236,500

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Outstanding Equity Awards

The following table summarizes the outstanding equity awards held by our Named Executive Officers as of December 31, 2017:

	Option Awards									Stock 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 ($)		Option expiration date	Number of shares or units of stock that have not vested (#)		Market value of shares or units of stock that have not vested ($)		Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)		Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)
Edwin G. Marshall Former Chairman and Chief Executive Officer		250,000 1,500,000 1,000,000		-- -- --		-- -- --		0.163 0.0877 0.10	4/30/2019 2/28/2020 2/28/2020		-- -- --		-- -- --		-- -- --		-- -- --
David A. Esposito Chairman and Interim Chief Executive Officer⁽¹⁾		1,000,000 750,000 1,000,000		-- -- --		-- -- --		0.1095 0.0877 0.10	2/26/2019 8/18/2020 2/2/2027		-- -- --		-- -- --		-- -- --		-- -- --
David A. Dodd Chief Executive Officer⁽²⁾		--		--		--		--	--		--		--		1,000,000		40,000
Michael E. Shannon President ⁽³⁾		650,000 1,500,000 1,000,000		-- -- --		-- -- --		0.13 0.0877 0.10	8/15/2019 8/18/2020 2/2/2027		-- -- --		-- -- --		-- -- --		-- -- --
Stephanie Sorensen Chief Financial Officer		--		--		--		--	--		--		--		--		--

(1) Mr. Esposito voluntarily surrendered all of his outstanding options on February 14, 2018.

(2) Does not include the restricted stock award for 1,000,000 shares that will vest upon certain performance conditions

(3) Mr. Shannon voluntarily surrendered his option for 650,000 shares on March 1, 2018.

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Director Compensation

~~Our~~The ~~directors~~following ~~did~~table ~~not~~summarizes ~~receive~~compensation ~~any~~paid ~~form~~to the non-employee members of ~~compensation~~our Board of Directors during the year ended December 31, ~~2016~~2017.

Director Compensation Table

Name	Fees earned or paid in cash ($)		Stock awards ($)		Option awards ($)		Non-equity incentive plan compensation ($)		Nonqualified deferred compensation earnings ($)		All other compensation ($)		Total ($)
(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)
Vincent C. Caponi (1)		--		--		74,147		--		--		--		74,147
Stephen F. Meyer (2)		--		--		11,205		--		--		--		11,250
Dwayne Montgomery (3)		--		--		18,644		--		--		--		18,644
Daniel Hoyt (4)		--		--		74,147		--		--		--		74,147

___________

(1) As of December 31, 2017, Mr. Caponi had options to purchase 2,750,000 shares of common stock. Mr. Caponi voluntarily surrendered all of his outstanding options on February 16, 2018.

(2) As of December 31, 2017, Mr. Meyer had options to purchase 500,000 shares of common stock.

(3) Mr. Montgomery resigned from our Board of Directors effective August 31, 2017. His vested options were forfeited on November 29, 2017.

(4) Mr. Hoyt retired from our Board of Directors on June 21, 2017. As a result, his vested options will expire upon the earlier of three years from his retirement date or the termination date stated in the grant documents. As of December 31, 2017, Mr. Hoyt had options to purchase 2,500,000 shares of common stock. On February 19, 2018, Mr. Hoyt voluntarily surrendered options to purchase 500,000 shares of common stock.

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

The following ~~tables~~table ~~contain~~sets forth certain information as of March 2220, ~~2017~~2018 (the “Table Date”) ~~with~~regarding ~~respect~~the tonumber ~~beneficial ownership~~ of shares of ~~our~~ common stock, ~~for~~beneficially ~~(1)~~owned ~~all~~by ~~persons known to be holders of more than 5% of our voting securities based solely on the Company’s review of SEC filings,~~ (2i) each ~~director, (3) each Named Executive Officer in the Summary Compensation Table~~ of ~~this~~our ~~report~~named ~~holding~~executive ~~office~~officers onand ~~the~~directors; ~~Table Date,~~ and (4ii) all ~~executive~~ officers and directors as a group. AsWe are not aware of ~~the~~any ~~Table~~person ~~Date,~~who ~~394,934,068~~beneficially ~~shares~~owns offive ~~the~~percent ~~Company’s~~or more of our common stock ~~were~~as ~~issued~~of ~~and~~the ~~outstanding~~Table Date.

~~Except~~Unless as otherwise ~~noted~~indicated, ~~the~~each ~~persons~~owner ~~named~~ in the table ~~have~~has sole voting and ~~dispositive~~investment power over the shares of common stock indicated. Beneficial ownership is determined in accordance with ~~respect~~the toRule ~~all~~13d-3 ~~shares~~promulgated ~~beneficially~~under ~~owned,~~the ~~subject~~Exchange toAct ~~community~~and ~~property~~includes ~~laws~~voting ~~where~~or ~~applicable~~investment power with respect to shares beneficially owned.

Title of class	Name and Address of beneficial owner (1)	Amount and nature of beneficial ownership		Percentage of class (2)
Common Stock	~~Edwin~~Vincent GC. ~~Marshall~~Caponi, ~~Former Chairman and Chief Executive Officer (2)~~Director		~~16,226,951~~-		~~4.1~~-	%
Common Stock	David A. ~~Esposito~~Dodd, ~~(Chairman~~Director and ~~Interim~~ Chief Executive Officer (3)		62,~~940~~000,000		~~1.7~~*	%
Common Stock	~~Michael~~David EA. ~~Shannon~~Esposito, ~~Director~~Chairman ~~and~~of ~~President~~the Board(4)		69,~~239~~773,~~000~~334		12.639	%
Common Stock	~~Daniel~~Stephen DF. ~~Hoyt~~Meyer, Director (5)		10750,~~149,888~~000		~~2.6~~*	%
Common Stock	~~Vincent~~Michael CE. ~~Caponi~~Shannon, Director and President(6)		23,~~750~~388,~~000~~048		*
Common Stock	Stephanie L. Sorensen, Chief Financial Officer ~~(7)~~		~~250,000~~-		*-
Common Stock	All Officers and Directors as a Group (68 persons) ~~(8)~~		4216,~~555~~911,~~839~~382		104.305	%

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

25* Less than one percent of the issued and outstanding common stock, based on 415,191,788 shares of common stock outstanding as of March 20, 2018.

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

(2) Based on a total of 415,191,788 shares outstanding and 2,750,000 vested options as of March 20, 2018.

(3) Includes 2,000,000 shares owned by Mr. Dodd.

(4) Includes 9,773,334 shares owned by Mr. Esposito.

(5) Includes 500,000 shares owned by River Marsh Capital, LLC, of which Mr. Meyer is a managing partner, and 250,000 shares that are subject to vested options.

(6) Includes 888,048 shares owned by Mr. Shannon and 2,500,000 shares subject to vested options.

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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~~Persons

WeOn ~~settled~~July ~~accrued~~6, ~~and~~2016, ~~unpaid~~we ~~compensation~~issued promissory notes to Mr. Edwin Marshall, our former Chairman and Chief Executive Officer, ~~for~~Dr. ~~periods~~Jill ~~prior~~Marshall, toMr. ~~December~~Marshall’s ~~31,~~wife ~~2009~~and ~~through~~our ~~the~~former ~~issuance~~Director of aOperations, ~~promissory~~and ~~note~~Dr. WeMichael ~~also~~Shannon, ~~settled~~our ~~accrued~~President and ~~unpaid~~a ~~compensation~~member ~~and~~of ~~accrued~~our ~~expenses~~Board ~~for~~of ~~those~~Directors. ~~prior~~The ~~periods~~principal amounts of the promissory notes issued to Mr. Marshall~~’s wife~~, Dr. ~~Jill~~ Marshall and Dr. Shannon were $1,065,189; ~~our~~$444,583 ~~former~~and ~~Director~~$111,109, respectively. The promissory notes were issued in settlement of ~~Operations~~our liability to these three individuals for accrued and unpaid compensation owed for periods prior to December 31, ~~through~~2009. Payment of the ~~issuance~~amounts owning under the terms of athe ~~promissory~~notes ~~note.~~is ~~See~~due ~~“Executive~~upon ~~Compensation.”~~the ~~Except~~earlier asto ~~disclosed~~occur ~~herein,~~of we(a) ~~have~~a ~~not~~change ~~entered~~in ~~into~~control ~~any~~of ~~other~~the ~~transactions~~Company ~~with~~(as ~~related~~defined ~~persons~~in ~~during~~the notes), (b) the ~~last~~executive’s ~~two~~death ~~completed~~or ~~fiscal~~(c) ~~years~~the ~~that~~executive’s ~~resulted~~disability as (defined in ~~indebtedness~~the notes or ~~otherwise~~in ~~involved~~the ~~amounts~~respective executive’s written employment agreement). In addition, in ~~excess~~the case of the ~~lesser~~notes ofpayable ~~$120,000~~to orMr. ~~one~~Marshall ~~percent~~and Dr. Marshall, payment of the ~~average~~notes ofwould ~~our~~be ~~total~~triggered ~~assets~~by asthe ofCompany’s ~~year-end~~failure ~~for~~to pay the ~~last~~executive’s ~~two~~base ~~years~~salary in accordance with the terms and conditions of the executive’s employment agreement because of disability.

In February 2017, Mr. Marshall and Dr. Marshall resigned from their positions with us and their employment was terminated. At that time, we entered into the Ed Marshall Severance Agreement and a similar severance agreement with Dr. Marshall (collectively, the “Marshall Severance Agreements”). Under the terms of the Marshall Severance Agreements, we agreed to the modification of the promissory notes we previously issued to the Marshalls (collectively, the “Marshall Notes”) to require monthly principal payments to Mr. Marshall of $14,000 and to Dr. Marshall of $6,900 and to waive interest except in the event of a default. We made the first payments under the Marshall Notes, but have been in default under the Marshall Notes since April 2017, and as of December 31, 2017, we owed principal payments for approximately nine months totaling $122,500 to Mr. Marshall and to Dr. Marshall totaling $55,900. In addition, under the terms of the Marshall Notes, as a result of our default, the Marshall Notes now accrue interest until payment of the default amounts at the rate of 5% of the total amount of the Marshall Notes.

During the year ended December 31, 2017, four directors and officers of the Company participated in two separate private placements undertaken by us in which they collectively purchased 10,333,334 shares of our common stock at a price ranging from $0.05 to $0.06 per share. One of these offerings was made at a discount to the market price of the common stock on the same terms offered to non-affiliated investors. The participation of Mr. Esposito in such offering was approved by the disinterested members of the Board of Directors.

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.

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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~~2017, 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~~2017, 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.

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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~~our affiliate for ~~2016~~2017 and ~~2015~~2016. Tanner did not perform any financial information systems design and implementation services for ~~the Company~~us.

The following table summarizes the audit fees (which include quarterly reviews and periodic filings) paid to Tanner for the years ended December 31, ~~2016~~2017 and ~~2015~~2016. The table also includes tax compliance fees paid to Tanner for the years indicated.

	Years Ended December 31,
	2016		2015
	2017		2016
Audit Fees	$	4133,~~342~~000	$	3041,~~947~~342
Audit Related Fees		—--		—--
Tax Fees		2,600		2,~~300~~600
All Other Fees		—--		—--
Total Fees	$	4335,~~942~~600	$	3343,~~247~~942

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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

1.	The following Audited Financial Statements are filed as part of this report:

~~(b)~~Report ~~The following exhibits are filed as part~~ of ~~this~~Independent ~~report~~Registered orPublic ~~incorporated~~Accounting ~~herein by reference.~~Firm

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)

Consolidated Balance Sheets as of December 31, 2017 and 2016

29Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2017 and 2016

Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2017 and 2016

Consolidated Statements of Cash Flows for the Years Ended December 31, 2017 and 2016

Notes to Consolidated Financial Statements

2. 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 effect 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	Executive Employment Agreement with Stephanie L. Sorensen dated October 1, 2016 (6)
10.5	Change of Control Addendum, dated as of November 1, 2017, to Executive Employment Agreement with Stephanie L. Sorensen dated October 1, 2016 (7)
10.6	2016 Equity Incentive Award Plan (8)
10.7	Employment Agreement between Medizone International, Inc. and David A. Dodd, dated September 15, 2017 (9)
10.8	Change of Control Addendum to Employment Agreement between Medizone International and David A. Dodd dated September 19, 2017 (9)
10.9	Employment Agreement between Medizone International, Inc. and Philip A. Theodore, dated as of November 1, 2017 (7)
10.10	Change of Control Addendum to Employment Agreement between Medizone International, Inc. and Philip A. Theodore dated November 1, 2017 (7)
10.11	Amended and Restated Distribution Agreement dated as of October 21, 2016 (10)
10.12*	Change of Control Addendum to Employment Agreement between Medizone International Inc. and Michael E. Shannon dated November 10, 2017
10.13	Form of New Warrants (10)
10.14	Securities Purchase Agreement, dated January 31, 2018, by and between Medizone International, Inc. and L2 Capital LLC (11)
10.15	Securities Purchase Agreement, dated January 31, 2018, by and between Medizone International, Inc. and SBI Investments LLC, 2014-1(12)
10.16	Convertible Promissory Note, dated January 31, 2018, made by Medizone International, Inc. in favor of L2 Capital, LLC (13)
10.17	Convertible Promissory Note, dated January 31, 2018, made by Medizone International, Inc. in favor of SBI Investments LLC, 2014-1 (14)
10.18	Common Stock Purchase Warrant, dated January 31, 2018, by and between Medizone International, Inc. and L2 Capital, LLC (15)

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31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
10.19	Common Stock Purchase Warrant, dated January 31, 2018, by and between Medizone International, Inc. and SBI Investments LLC, 2014-1 (16)
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
10.20	Equity Purchase Agreement, dated January 31, 2018, by and between Medizone International, Inc. and L2 Capital, LLC and SBI Investments LLC, 2014-1 (17)
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
10.21	Registration Rights Agreement, dated January 31, 2018, by and between Medizone International, Inc. and L2 Capital, LLC and SBI Investments LLC, 2014-1(18)
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
10.22	Trading Agreement, dated January 31, 2018, as amended and restated on February 11, 2018, by and between L2 Capital, LLC and SBI Investments LLC, 2014-1
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.
10.23*	Amendment to Equity Purchase Agreement, dated March 16, 2018, by and among Medizone International, Inc. and L2 Capital, LLC and SBI Investments LLC, 2014-1
	(2)	Incorporated by reference to Annual Report on Form 10-KSB for period ended December 31, 1986.
21*	Subsidiaries of Registrant
	(3)	Incorporated by reference to Quarterly Report on Form 10-Q for period ended September 30, 2009.
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	(4)	Incorporated by reference to Current Report on Form 8-K filed February 27, 2017.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	(5)	Incorporated by reference to Current Report on Form 8-K filed February 28, 2017.
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
	(6)	Incorporated by reference to Current Report on Form 8-K filed October 7, 2016.
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
	(7)	Incorporated by reference to Current Report on Form 8-K filed October 27, 2016.
101.INS*	XBRL Instance Document
	(8)	Incorporated by reference to the Company's Definitive Proxy filed on Form 14A on August 4, 2016.
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

30* Filed herewith.

(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 on 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 on November 3, 2017.

(8) Incorporated by reference to the Company’s Definitive Proxy Statement filed on Form 14A on August 4, 2016.

(9) Incorporated by reference to Current Report on Form 8-K filed on September 19, 2017.

(10) Incorporated by reference to Current Report on Form 8-K filed on October 27, 2016.

(11) Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on February 5, 2018.

(12) Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on February 5, 2018.

(13) Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on February 5, 2018.

(14) Incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed on February 5, 2018.

(15) Incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K filed on February 5, 2018.

(16) Incorporated by reference to Exhibit 10.6 to Current Report on Form 8-K filed on February 5, 2018.

(17) Incorporated by reference to Exhibit 10.7 to Current Report on Form 8-K filed on February 5, 2018.

(18) Incorporated by reference to Exhibit 10.8 to Current Report on Form 8-K filed on February 5, 2018.

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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
Dated: March 20, 2018	By:	/s/ David A. Dodd
		David A. Esposito, Chief Executive Officer
		David A. Dodd, 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~~Chairman ~~Chief~~of ~~Executive~~the ~~Officer~~Board ~~(Principal~~of ~~Executive Officer) and Director~~Directors	March 2220, ~~2017~~2018
David A. Esposito
/s/ Michael E. Shannon	President and Director	March 22, 2017
/s/ David A. Dodd	Chief Executive Officer and Director	March 20, 2018
David A. Dodd
/s/ Michael E. Shannon	President and Director	March 20, 2018
Michael E. Shannon
/s/ Daniel D. Hoyt	Director	March 22, 2017
/s/ Stephen F. Meyer	Director	March 20, 2018
Daniel D. Hoyt
Stephen F. Meyer
/s/ Vincent C. Caponi	Director	March 2220, ~~2017~~2018
Vincent C. Caponi
/s/ Stephanie L. Sorensen	Chief Financial Officer (Principal Accounting and Financial Officer)	March 2220, ~~2017~~2018
Stephanie L. Sorensen

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	33F-1
Consolidated Balance Sheets as of December 31, 2016 and 2015	34
Consolidated Balance Sheets as of December 31, 2017 and 2016	F-2
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2016 and 2015	35
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2017 and 2016	F-3
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2016 and 2015	36
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2017 and 2016	F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2015	37
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017 and 2016	F-5
Notes to the Consolidated Financial Statements	38F-6

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Medizone International, Inc.

WeOpinion ~~have~~on ~~audited~~ the ~~accompanying~~Consolidated ~~consolidated~~Financial 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.Statements

We ~~conducted~~have ~~our~~audited ~~audits~~the inaccompanying ~~accordance~~consolidated ~~with~~balance ~~the~~sheets ~~standards~~ of ~~the~~Medizone ~~Public~~International, ~~Company~~Inc., ~~Accounting~~subsidiary ~~Oversight~~and ~~Board~~affiliate, (~~United~~collectively, ~~States~~the Company). ~~Those~~as ~~standards~~of ~~require~~December ~~that~~31, we2017 ~~plan~~ and ~~perform~~2016, ~~the~~and ~~audits to obtain reasonable assurance about whether~~ the ~~financial~~related consolidated statements ~~are free~~ of ~~material~~comprehensive ~~misstatement.~~loss, ~~The~~stockholders’ ~~Company~~deficit, isand ~~not~~cash ~~required~~flows tofor ~~have,~~the ~~nor~~years ~~were~~then ~~we engaged to perform~~ended, anand ~~audit~~notes ofto ~~its~~the ~~internal~~consolidated ~~control over~~ financial ~~reporting. Our~~statements ~~audits~~(collectively ~~included~~referred ~~consideration~~to ofas ~~internal~~the ~~control~~“consolidated ~~over~~ financial ~~reporting~~statements”). asIn aour ~~basis~~opinion, ~~for~~the ~~designing~~consolidated ~~audit~~financial ~~procedures~~statements ~~that~~referred ~~are~~to ~~appropriate~~above inpresent ~~the circumstances~~fairly, ~~but~~in ~~not~~all ~~for~~material ~~the~~aspects, ~~purpose of expressing an opinion on~~ the ~~effectiveness~~financial position of the Company's ~~internal~~as ~~control~~of ~~over~~December ~~financial reporting. Accordingly~~31, we2017 ~~express~~and ~~no such opinion. An audit also includes examining~~2016, onand athe ~~test~~results ~~basis,~~of ~~evidence~~their ~~supporting~~operations ~~the amounts~~ and ~~disclosures~~their incash ~~the~~flows ~~financial~~for ~~statements,~~each ~~assessing~~of the ~~accounting~~years ~~principles~~then ~~used and significant estimates made by management~~ended, asin ~~well~~conformity aswith ~~evaluating the overall financial statement presentation~~U. WeS. ~~believe~~generally ~~that~~accepted ~~our~~accounting ~~audits provide a reasonable basis for our opinion~~principles.

InThe ~~our~~accompanying ~~opinion, the~~ consolidated financial statements ~~referred~~have tobeen ~~above~~prepared ~~present~~assuming ~~fairly,~~the Company will continue as a going concern. As discussed in ~~all~~Note ~~material~~13 ~~respects,~~to the consolidated financial ~~position~~statements, ofthe 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~~2017. ~~and~~These ~~2015~~matters, ~~and~~among others, raise substantial doubt about the ~~consolidated~~Company’s ~~results~~ability ofto ~~its~~continue ~~operations~~as ~~and~~a ~~its~~going ~~cash~~concern. ~~flows~~Management’s ~~for~~plans ~~each~~in ofregard ~~the~~to ~~years~~these matters are described in ~~the~~Note ~~two-year~~12. ~~period~~The ~~ended~~consolidated ~~December~~financial ~~31,~~statements ~~2016~~do innot ~~conformity~~include ~~with~~any ~~U.S.~~adjustments ~~generally~~that ~~accepted~~might ~~accounting~~result ~~principles~~from the outcome of this uncertainty.

~~The~~Basis ~~accompanying~~for 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.Opinion

~~Tanner~~These ~~LLC~~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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

~~March~~We 22conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud. The Company is not required to have, ~~2017~~nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.

33Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since December 3, 2012.

/s/ Tanner LLC

Salt Lake City, Utah

March 20, 2018

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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Consolidated Balance Sheets

ASSETS
	December 31,
	2016			2015
	2017			2016
Current assets:
Cash	$	~~398~~29,~~290~~623		$	~~745~~398,~~078~~290
Inventory		~~109~~290,~~573~~057			~~277~~109,~~823~~573
Prepaid expenses		8123,~~666~~303			3181,~~986~~666
Total current assets		~~589~~342,~~529~~983			1589,~~054,887~~529
Property and equipment, net		-			415
Other assets:
Trademark and patents, net		~~151~~117,~~444~~616			~~176~~151,~~086~~444
Lease deposit		42,~~272~~823			4,272
Total other assets		~~155~~120,~~716~~439			~~180~~155,~~358~~716
Total assets	$	~~745~~463,~~245~~422		$	1745,~~235,660~~245
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	~~459~~637,~~654~~557		$	~~491~~459,~~044~~654
Accounts payable – related parties		-40,415			~~233,109~~-
Accrued expenses		~~592~~630,~~621~~899			~~554~~592,~~834~~621
Accrued expenses – related parties		~~538~~780,~~887~~044			1538,~~928,659~~887
Other payables		224,852			224,852
Notes payable		~~297~~362,~~332~~223			297,~~396~~332
Notes payable – related parties		1,~~617~~643,~~881~~578			-1,617,881
Warrant liability		~~985~~690,~~163~~508			-985,163
Total current liabilities		45,~~716~~010,~~390~~076			34,~~729~~716,~~894~~390
Notes payable, net of current portion		~~75,000~~-			75,000
Total liabilities		45,~~791~~010,~~390~~076			34,~~804~~791,~~894~~390
Commitments and contingencies (Notes 5, 10 and 13)
Commitments and contingencies (Notes 5,6,10 and 12)
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
Common stock, $0.001 par value: 500,000,000 authorized; 408,317,402 and 393,934,068 shares issued and outstanding, respectively		408,317			393,934
Additional paid-in capital		3335,~~680~~185,~~146~~874			3233,~~496~~680,~~646~~146
Accumulated other comprehensive loss		(4854,~~043~~864	)		(3648,~~968~~043	)
Accumulated deficit		(3840,~~072~~085,~~182~~981	)		(3538,~~398~~072,~~346~~182	)
Total stockholders’ deficit		(4,~~046~~546,~~145~~654	)		(24,~~569~~046,~~234~~145	)
Total liabilities and stockholders’ deficit	$	~~745~~463,~~245~~422		$	1745,~~235,660~~245

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

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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Consolidated Statements of Comprehensive Loss

	For the Years Ended December 31,
	2016			2015
	2017			2016
Revenues	$	~~237,000~~-		$	~~197~~237,000
Operating expenses:
Cost of revenues		~~203,460~~-			~~114~~203,~~811~~460
General and administrative		21,~~068~~909,~~391~~046			12,~~737~~068,~~175~~391
Research and development		~~501~~257,~~734~~312			~~299~~501,~~649~~734
Depreciation and amortization		5652,~~311~~442			5356,~~442~~311
Total operating expenses		2,~~829~~218,~~896~~800			2,~~205~~829,~~077~~896
Loss from operations		(2,~~592~~218,~~896~~800	)		(2,~~008~~592,~~077~~896	)
Loss on warrant liability		(47,212	)		-
Gain (loss) on warrant liability		294,655			(47,212	)
Interest expense		(3389,~~850~~685	)		(2733,~~872~~850	)
Interest income		~~122~~31			27122
Net loss		(2,~~673~~013,~~836~~799	)		(2,~~035~~673,~~922~~836	)
Other comprehensive loss:
Gain (loss) on foreign currency translation		(11,075	)		21,130
Loss on foreign currency translation		(6,821	)		(11,075	)
Total comprehensive loss	$	(2,~~684~~020,~~911~~620	)	$	(2,~~014~~684,~~792~~911	)
Basic and diluted net loss per common share	$	(0.01	)	$	(0.01	)
Weighted average number of common shares outstanding		~~375~~400,~~118~~207,~~494~~813			~~355~~375,~~464~~118,~~753~~494

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

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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY 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	)
Balance, December 31, 2015		369,434,068	$	369,434	$	32,496,646	$	(36,968	)	$	(35,398,346	)	$	(2,569,234	)
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
Common stock 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	)
Common stock issued for services at $0.07 per share		250,000		250		17,250		-			-			17,500
Common stock issued for cash ranging from $0.05 to $0.06 per share		11,833,334		11,833		663,167		-			-			675,000
Restricted stock awards		2,300,000		2,300		225,700		-			-			228,000
Warrant to purchase common stock issued for services		-		-		33,960		-			-			33,960
Stock based compensation		-		-		565,651		-			-			565,651
Loss on foreign currency translation		-		-		-		(6,821	)		-			(6,821	)
Net loss		-		-		-		-			(2,013,799	)		(2,013,799	)
Balance, December 31, 2017		408,317,402	$	408,317	$	35,185,874	$	(54,864	)		(40,085,981	)	$	(4,546,654	)

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

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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Consolidated Statements of Cash Flows

	For the Years Ended December 31,
	2016			2015
	2017			2016
Cash flows from operating activities:
Net loss	$	(2,~~673~~013,~~836~~799	)	$	(2,~~035~~673,~~922~~836	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		56,311			53,442
Stock-based compensation		565,651			-
Stock-based compensation		48,000			791,390
Stock issued for compensation		228,000			-
Fair value of warrants issued for services		937,951			-
Depreciation and amortization		52,442			56,311
Change in warrant liability		47,212			-
Fair value of warrants issued for services		33,960			937,951
Stock issued for services		17,500			48,000
Change in warrant liability		(294,655	)		47,212
Changes in operating assets and liabilities:
Inventory		~~168~~(180,~~250~~484	)		~~(12~~168,~~589~~250	)
Prepaid expenses		1796,~~075~~503			9517,~~127~~075
Customer deposits		-			(30,000	)
Lease deposits		1,449			-
Accounts payable and accounts payable – related parties		~~(36~~218,~~389~~318	)		20(36,~~898~~389	)
Accrued expenses and accrued expenses – related parties		37279,~~787~~435			3837,~~400~~787
Net cash used in operating activities		(1995,~~397,639~~680	)		(1,~~079~~397,~~254~~639	)
Cash flows from investing activities:
Expenditures for trademark and patents		(3118,~~255~~613	)		(2131,~~041~~255	)
Net cash used in investing activities		(3118,~~255~~613	)		(2131,~~041~~255	)
Cash flows from financing activities:
Principal payments on notes payable		(6622,~~819~~553	)		(6766,~~253~~819	)
Issuance of notes payable		-			75,000
Issuance of common stock for cash		675,000			1,160,000
Issuance of common stock for cash		1,160,000			1,676,000
Net cash provided by financing activities		652,447			1,093,181
Net cash provided by financing activities		1,093,181			1,683,747
Effects of foreign currency exchanges rates on cash		(6,821	)		(11,075	)
Effects of foreign currency exchanges rates on cash		(11,075	)		21,130
Net decrease in cash		(368,667	)		(346,788	)
Net (decrease) increase in cash		(346,788	)		604,582
Cash as of beginning of the year		398,290			745,078
Cash as of beginning of the year		745,078			140,496
Cash as of end of the year	$	29,623		$	398,290
Cash as of end of the year	$	398,290		$	745,078
Supplemental disclosure of cash flow information:
Supplemental cash flow information:
Cash paid for interest	$	5,728		$	12,956
Cash paid for interest	$	12,956		$	1,126
Supplemental disclosure of non-cash financing activities:
Financing of insurance premiums	$	6638,~~755~~141		$	66,~~408~~755
Settlement of accounts payable and accrued expenses with notes payable – related party	$	~~1,617,881~~-		$	-1,617,881

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

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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, ~~2016~~2017 and ~~2015~~2016

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Organization

The consolidated financial statements presented are those of Medizone International, Inc. (“Medizone”), Medizone Canada, Inc., a wholly owned subsidiary, and the Canadian Foundation for Global Health (“CFGH”) (“Affiliate”), 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.~~US 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, 2017 and 2016. The noncontrolling interest portion of net assets and ~~2015~~net loss not attributable, directly or indirectly, to Medizone International, Inc. is considered immaterial.

b. Business Activities

The Company’s ~~objective~~ is toa ~~pursue~~global anprovider ~~initiative~~of indisinfection systems. The Company invented the ~~field~~AsepticSure® ofsystem ~~hospital~~to ~~disinfection.~~provide ~~The~~a ~~Company~~superior ~~has~~means ~~developed~~of andisinfecting ~~ozone~~non-~~based~~porous ~~technology,~~surfaces ~~specifically~~in ~~for~~a ~~the~~variety ~~purpose~~ of ~~decontaminating~~settings including hospitals, other healthcare facilities, and ~~disinfecting~~non- hospital/healthcare ~~surgical~~facilities. ~~suites,~~The ~~emergency~~AsepticSure® ~~rooms,~~system utilizes hydrogen peroxide vapor and ~~intensive~~ozone ~~care~~in ~~units~~a patented process.

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,~~	For the Years Ended December 31,
	2016				2015
		2017				2016
Numerator (net loss)		$	(2,~~673~~013,~~836~~799	)		$	(2,~~035~~673,~~922~~836	)
Denominator (weighted average number of common shares outstanding)			375,118,494				355,464,753
Denominator (weighted average number of common shares outstanding – basic and diluted)			400,207,813				375,118,494
Basic and diluted net loss per common share		$	(0.01	)		$	(0.01	)

~~Common~~As of December 31, 2017, common stock equivalents, consisting of 2018,~~715~~087,~~000~~500 options, warrants to purchase 1,750,000 shares of common stock, 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~~year ~~presented~~ended December 31, 2017. As of December 31, 2016, 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 to be determined based on similar terms as in 2017, have not been included in the calculation, as the effect is antidilutive for the year ended December 31, 2016.

~~d. Property and Equipment~~F-6

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.

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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, ~~2016~~2017 and ~~2015~~2016

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

d. Property and Equipment

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~~2017, the Company had NOL carryforwards of approximately $1214,~~451~~087,000 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~~2017 and ~~2015~~2016 comprised the following:

	2016			2015
	2017			2016
Net operating loss carryforwards	$	43,~~959~~514,~~900~~700		$	4,~~408~~959,~~800~~900
Related-party accruals		1,564,700			1,165,900
Related party accruals		980,100			1,564,700
Valuation allowance		(64,~~524~~494,~~600~~800	)		(56,~~574~~524,~~700~~600	)
	$	-		$	-

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~~2017 and ~~2015~~2016 due to the following:

	2016			2015
	2017			2016
Income tax benefit based on U.S. statutory rate of 34%	$	(~~909~~684,~~100~~700	)	$	(~~692~~909,~~200~~100	)
Stock issued for expenses		-			269,100
Effect of change in deferred tax rates (39.834% to 24.95%)		2,681,404			-
Other		~~(40~~33,~~800~~096	)		94(40,~~000~~800	)
Change in valuation allowance		~~949~~(2,~~900~~029,800	)		~~329~~949,~~100~~900
	$	-		$	-

The Company had no uncertain income tax positions as of December 31, 2017, and 2016. The Company files income tax returns in the U.S. federal, California and ~~2015~~Michigan jurisdictions. With few exceptions, the Company is no longer subject to US federal, state and local tax examinations for years before 2014.

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-7

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.

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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, ~~2016~~2017 and ~~2015~~2016

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

e. Provision for Income Taxes (continued)

On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted. The Tax Act makes broad and complex changes to the US tax code that will affect our fiscal year ending December 31 2018, including, but not limited to (1) reducing the US federal corporate tax rate from 35 percent to 21 percent; (2) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (3) requiring a current inclusion in US federal taxable income of certain earnings of controlled foreign corporations; (4) creating a new limitation on deductible interest expense; (5) revising the rules that limit the deductibility of compensation to certain highly compensated executives, and (6) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Company is continuing to gather information and to analyze aspects of the Tax Act, which could potentially affect the estimated impact on the deferred tax balances.

As a result of changes made by the Tax Act, Section 162(m) will limit the deduction of compensation, including performance-based compensation, in excess of $1 million paid to anyone who, for tax years beginning after January 1, 2018, serves as the Chief Executive Officer or Chief Financial Officer, or who is among the three most highly compensated executive officers for any fiscal year. The only exception to this rule is for compensation that is paid pursuant to a binding written contract in effect on November 2, 2017 that would have otherwise been deductible under the prior Section 162(m) rules. Accordingly, any compensation paid in the future pursuant to new compensation arrangements entered into after November 2, 2017, even if performance-based, will count towards the $1 million fiscal year deduction limit if paid to a covered executive. The Company estimates that there will not be a material impact during the current quarter or fiscal year, as the law is effective for tax years beginning after January 1, 2018. The Company has evaluated its binding contracts entered into prior to November 2, 2017 and believes there will be no material impact on the Company’s balance sheet. The Company is still analyzing certain aspects of the Act and refining calculations, which could potentially affect the impact of the Company’s deferred tax asset and this provision.

f. Principles of Consolidation

The consolidated financial statements include the accounts of Medizone and the accounts of Medizone Canada, Inc., a wholly-owned subsidiary incorporated in Canada, and CFGH, a VIE. All material intercompany accounts and transactions have been eliminated.

g. Estimates

The preparation of consolidated 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~~2017 and ~~2015~~2016.

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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

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

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~~certain 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~~warrant 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~~system 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~~2017, and ~~2015~~2016.

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.

40F-9

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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, ~~2016~~2017 and ~~2015~~2016

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.~~

·	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~~implementation isof ~~assessing~~this ~~the~~guidance ~~impact,~~is ifnot ~~any,~~expected ofto ~~implementing~~have ~~this~~a ~~guidance~~material impact on the Company’s consolidated financial position, results of operations and liquidity.

In ~~August~~November ~~2014~~2015, the FASB issued ASU ~~No. 2014~~2015-1517, ~~Disclosure~~Income ofTaxes ~~Uncertainties~~(Topic ~~about~~740), ansimplifying ~~Entity’s~~the ~~Ability~~presentation toof ~~Continue~~deferred asincome ataxes ~~Going~~on ~~Concern. ASU~~the ~~No.~~balance ~~2014-15~~sheet ~~sets~~by ~~forth~~requiring ~~management’s~~companies ~~responsibility~~ to ~~evaluate,~~classify ~~each~~all ~~reporting~~deferred ~~period,~~taxes ~~whether~~as ~~there~~either isa ~~substantial~~non-current ~~doubt~~asset ~~about~~or ~~the~~a ~~entity’s~~non-current ~~ability~~liability. toASU ~~continue~~No. as2015-17 ais ~~going~~effective ~~concern,~~for ~~and~~annual ifreporting ~~so,~~periods tobeginning ~~provide~~after ~~related~~December ~~footnote~~15, ~~disclosures. ASU~~2016, ~~2014-15~~and isinterim ~~effective~~periods ~~for~~within annual ~~reporting~~ periods ending after December 15, 2016. The implementation of this guidance had no impact on the ~~presentation of the~~ Company’s consolidated financial ~~statements~~statement presentation.

In ~~November~~February ~~2015~~2016, the FASB ~~issued~~released ASU ~~2015~~No. 2016-1702, ~~Income~~Leases ~~Taxes~~ (Topic ~~740~~842), ~~simplifying~~to ~~the~~bring ~~presentation~~transparency ofto ~~deferred~~lessee ~~income~~balance ~~taxes~~sheets. ASU No. 2016-02 will require organizations that lease assets (lessees) to recognize assets and liabilities on the balance sheet byfor ~~requiring~~the ~~companies~~rights toand ~~classify~~obligations ~~all~~created ~~deferred~~by ~~taxes~~all asleases ~~either~~with aterms ~~non-current~~of ~~asset~~more orthan a12 ~~non-current liability~~months. ASU No. ~~2015~~2016-1702 iswill ~~effective~~apply ~~for~~to ~~annual~~both ~~reporting~~types ~~periods~~of ~~beginning~~leases; ~~after~~capital ~~December~~(or 15finance) 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 ~~annual~~those ~~periods~~fiscal ~~ending~~years, beginning after December 15, ~~2016~~2018. Early application is permitted. The Company is assessing the impact, ifof ~~any,~~ASU ofNo. ~~implementing~~2016-02 ~~this~~will ~~guidance~~have on ~~the~~its ~~Company’s~~future consolidated financial ~~statement~~position, ~~presentation~~results of operations and liquidity.

In ~~February~~March 2016, the FASB ~~released~~issued ASU No. 2016-0209, ~~Leases~~Compensation ~~(Topic~~- ~~842),~~Stock toCompensation: ~~bring~~Improvements ~~transparency~~ to ~~lessee~~Employee ~~balance~~Share-Based ~~sheets~~Payment Accounting. ASU No. 2016-0209 ~~will~~is ~~require~~intended ~~organizations that lease assets (lessees)~~ to ~~recognize~~simplify ~~assets~~several ~~and~~areas ~~liabilities~~of onaccounting ~~the balance sheet~~ for ~~the~~share-based ~~rights~~compensation ~~and~~arrangements, ~~obligations~~including ~~created~~the byincome ~~all~~tax ~~leases~~impact, ~~with~~classification ~~terms~~in ofthe ~~more~~statement ~~than 12 months. ASU No. 2016-02 will apply to both types~~ of ~~leases;~~cash ~~capital~~flows, ~~(or finance) leases~~ and ~~operating leases~~forfeitures. ~~Previously, US GAAP has required only capital leases to be recognized on lessee balance sheets.~~ ASU No. 2016-0209 is effective for fiscal years, and interim periods within those ~~fiscal~~ years, beginning after December 15, ~~2018~~2016. ~~Early application is permitted.~~ The ~~Company~~implementation ~~is assessing the impact~~ of ~~ASU~~this ~~No.~~guidance ~~2016-02~~did ~~will~~not have ona ~~its~~material ~~future~~impact ~~financial~~on ~~position,~~the ~~results~~Company’s ofconsolidated ~~operations~~financial ~~and~~statement ~~liquidity~~presentation.

In ~~March~~October 2016, the FASB issued ASU No. 2016-0917, ~~Compensation~~Interests -held ~~Stock~~Through ~~Compensation:~~Related ~~Improvements~~Parties toThat ~~Employee~~are ~~Share-Based~~Under ~~Payment~~Common ~~Accounting~~Control. ASU No. 2016-0917 isclarifies ~~intended~~the toconsolidation ~~simplify~~process ~~several~~for ~~areas~~the ofprimary ~~accounting~~beneficiary ~~for~~of ~~share-based~~a ~~compensation~~VIE ~~arrangements,~~should ~~including~~that ~~the~~related ~~income~~party ~~tax~~have ~~impact,~~indirect ~~classification~~interests inunder ~~the~~common ~~statement~~control ofwith ~~cash~~the ~~flows,~~reporting ~~and forfeitures~~entity. ASU No. 2016-0917 is effective for ~~fiscal~~ years, ~~and~~ending ~~interim periods within those years beginning~~ after December 1531, 2016. The ~~Company~~implementation isof ~~assessing~~this ~~the~~guidance ~~impact~~did ofnot ~~ASU~~have ~~No.~~a ~~2016-09 on~~material ~~its~~impact ~~future~~on ~~financial~~the ~~position,~~Company’s ~~results~~consolidated offinancial ~~operations~~statement ~~and liquidity~~presentation.

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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, ~~2016~~2017 and ~~2015~~2016

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

o. Recent Accounting Pronouncements (continued)

In ~~October~~January ~~2016~~2017, the FASB issued ASU No. ~~2016~~2017-1704, ~~Interests~~Intangibles-Goodwill ~~held~~and ~~Through~~Other ~~Related~~(Topic ~~Parties~~350): ~~That~~Simplifying ~~are~~the ~~Under~~Test ~~Common~~for ~~Control~~Goodwill Impairment. ASU No. ~~2016~~2017-1704 ~~clarifies~~eliminates the ~~consolidation~~requirement ~~process~~to ~~for~~calculate the ~~primary~~implied ~~beneficiary~~fair value of goodwill to measure a ~~Variable~~goodwill ~~Interest~~charge. ~~Entity~~The ~~(VIE)~~guidance ~~should~~is ~~that~~effective ~~related~~for ~~party~~annual ~~have~~and ~~indirect~~interim ~~interests~~periods ~~under~~of ~~common~~public ~~control~~entities ~~with~~beginning ~~the~~after ~~reporting~~December ~~entity.~~15, ~~ASU~~2019, ~~No.~~with ~~2016-17~~early isadoption ~~effective~~permitted for ~~years~~interim ~~ending~~periods after ~~December~~January 311, ~~2016,~~2017. ~~and~~The ~~the~~ Company is currently assessing the potential impact ~~that~~ ASU No. ~~2016~~2017-1704 ~~may~~will have on its consolidated results of operations, financial ~~statements~~position and cash flows.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718). ASU No. 2017-09 provides clarity and reduces the diversity of practice and complexity in determining when additional expense should be recorded resulting from a modification to stock-based grants and awards. ASU No. 2017-09 is effective for annual periods beginning after December 15, 2017. Early adoption is permitted for interim periods. The Company is currently assessing the potential impact ASU No. 2017-09 will have on its consolidation results of operations, financial position and cash flows.

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~~2017, the Company ~~had~~did ~~approximately~~not ~~$229,000~~have of cash balances that exceeded ~~U.S.~~US 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~~INVENTORY

~~Property~~In December 2016, the Company terminated a Distribution and ~~equipment~~License ~~consist~~Agreement with a distributor due to a lack of market development by the ~~following~~distributor. asIn connection with the termination, the Company negotiated the return of ~~December~~five 31disinfection units on or before January 17, ~~2016~~2017 ~~and~~paying ~~2015:~~the distributor $25,000 per unit. The units were upgraded with the Company’s current technology to support the ongoing expansion of the Company’s commercial strategy.

	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~~2017 and ~~2015~~2016:

	2016			2015
	2017			2016
Patent costs	$	~~415~~433,~~251~~865		$	~~383~~415,~~997~~251
Trademark		770			770
		416,021			384,767
		434,635			416,021
Accumulated amortization		(~~264~~317,~~577~~019	)		(~~208~~264,~~681~~577	)
Trademark and patents, net	$	~~151~~117,~~444~~616		$	~~176~~151,~~086~~444

Amortization expense for the years ended December 31, ~~2016~~2017 and ~~2015~~2016, was $5552,~~896~~442 and $5355,~~027~~896, respectively. The future amortization as of December 31, ~~2016~~2017, is as follows: ~~2017~~2018-$5141,~~331~~409; ~~2018~~2019-$3827,~~750~~745; ~~2019~~2020-$2520,~~086~~203; ~~2020~~2021-$1712,~~543~~956; ~~2021~~2022-$108,~~297~~412 and thereafter-$86,~~437~~891.

NOTE 4 - ACCOUNTS PAYABLE – RELATED PARTIES

As of December 31, ~~2016~~2017, and ~~2015~~2016, the Company owed $040,415 and $~~233,109~~0 to ~~consultants,~~directors ~~who~~and ~~were~~officers ~~also~~for ~~stockholders,~~various ~~for~~administrative ~~services~~and travel related expenses. In July 2016, the Company converted $228,109 of accounts payable – related parties into notes payable – related parties (see Note 8).

~~NOTE 5~~ F- ~~ACCRUED EXPENSES~~11

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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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, ~~2016~~2017 and ~~2015~~2016

NOTE 5 - ACCRUED EXPENSES

Accrued expenses consist of the following as of December 31, 2017 and 2016:

	2017		2016
Accrued interest	$	577,978	$	549,909
Other accruals		52,921		42,712
Total	$	630,899	$	592,621

Accrued interest pertains to notes payable (see Note 7). Other accruals consist of legal and advisory fees, estimated taxes and product warranties.

NOTE 6 - ACCRUED EXPENSES – RELATED PARTIES

Accrued expenses – related parties consist of the following as of December 31, ~~2016~~2017 and ~~2015~~2016:

	2016		2015
	2017		2016
Accrued payroll and consulting – related parties	$	~~422~~648,~~334~~167	$	1422,~~812,106~~334
Accrued payroll taxes – related parties		~~116~~131,~~553~~877		116,553
Total	$	~~538~~780,~~887~~044	$	1538,~~928,659~~887

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

Accrued payroll and consulting fees increased during 2017, as the Company’s Interim CEO, current CEO, and Executive Vice President, Administration and Operations have deferred their salaries until such time as a significant financing has occurred.

NOTE 7 - NOTES PAYABLE

Notes payable consist of the following as of December 31, ~~2016~~2017 and ~~2015~~2016:

	2016			2015
	2017			2016
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
Unsecured notes payable to a financing company, payable in nine monthly installments, interest ranging from 5.1% to 7.3%, maturing in April, July and October 2018.		6,732			16,841
Total notes payable		~~372~~362,~~332~~223			372,~~396~~332
Less notes payable current portion		(~~297~~362,~~332~~223	)		(297,~~396~~332	)
Total notes payable long term, net of current portion	$	~~75,000~~-		$	75,000

~~NOTE 8~~ F- ~~NOTES PAYABLE – RELATED PARTIES~~12

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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, ~~2016~~2017 and ~~2015~~2016

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 5% per annum. During 2017, the Company made total payments towards the principal of $23,202 The Company is currently in default with the terms of the promissory notes and is accruing interest at 5% per annum on the outstanding balance, with any payments made to be applied towards interest first. As of December 31, 2017, the Company owes $48,899 in accrued interest related to these notes (see Note 10).

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~~purchase 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~~warrant 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~~warrants and the estimated life of the ~~warrant~~warrants.

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

Input	~~October~~December 2131, ~~2016~~2017				December 31, 2016
Risk-free interest rate		1.28	~~.66~~%	%		.85	85%	%
Expected life in years	1 ~~year~~month				1 year
Dividend yield		—	—			—	—
Volatility		136.3	~~108.2~~%	%		120.0	~~120.0~~%	%
Stock price	$	$0.04	~~0.08~~		$	$0.11	~~0.11~~

AsFor ofthe year ended December 31, ~~2016~~2017, the Company recorded ana ~~increase~~decrease of $47294,~~212~~655 in the warrant liability, ~~which~~for ~~resulted~~a ~~from~~total anliability ~~increase in the Company’s stock price at the end~~ of ~~the year~~$690,508. ~~for~~The awarrants ~~total~~expired ~~liability~~on ofJanuary ~~$985~~30,~~163~~ 2018.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Litigation

The Company ismay be 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~~2017 and ~~2015~~2016. The Company intends to contest the ~~judgment~~claim if and when it is able to do so in the future.

~~Other Payables~~F-13

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

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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, ~~2016~~2017 and ~~2015~~2016

NOTE 10 - COMMITMENTS AND CONTINGENCIES (~~continued~~Continued)

~~The~~Related ~~Company~~Party 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.Agreements

In ~~December~~July 2016, the Company ~~terminated~~issued anotes ~~Distribution~~to its former CEO Edwin Marshall, former Director of Operations, Jill Marshall, and ~~License~~Michael ~~Agreement~~Shannon, ~~with~~President aof ~~distributor~~CFGH ~~due~~that towere ~~lack~~in settlement of ~~market~~$228,109 ~~development~~of accounts payable – related parties, and $1,389,772 of accrued expenses – related parties into three promissory notes payable – related parties aggregating to $1,617,881. The principal amounts of the promissory notes issued were $1,065,189; $444,583 and $111,109, respectively. The promissory notes were issued in settlement of our liability to these three individuals for accrued and unpaid compensation owed for periods prior to December 31, 2009. Payment of the amounts owning under the terms of the notes is due upon the earlier to occur of (a) a change in control of the Company (as defined in the notes), (b) the executive’s ~~product~~death byor (c) the ~~distributor~~executive’s disability as (defined in the notes or in the respective executive’s written employment agreement). In ~~connection~~addition, ~~with~~in the ~~termination~~case ~~agreement~~of the notes payable to our former executives, payment of the notes would be triggered by the Company’s ~~negotiated~~failure to pay the ~~return~~executive’s ofbase ~~five~~salary ~~disinfection~~in ~~units~~accordance onwith orthe ~~before~~terms ~~January~~and ~~17,~~conditions ~~2017~~of ~~for~~the ~~$25,000~~executive’s ~~per~~employment ~~unit~~agreement because of disability.

In February 2017, Mr. Marshall and Dr. Marshall resigned from their positions with us and their employment was terminated. At that time, we entered into the Ed Marshall Severance Agreement and a similar severance agreement with Dr. Marshall (collectively, the “Marshall Severance Agreements”). Under the terms of the Marshall Severance Agreements, we agreed to the modification of the promissory notes we previously issued to the Marshalls (collectively, the “Marshall Notes”) to require monthly principal payments to Mr. Marshall of $14,000 and to Dr. Marshall of $6,900 and to waive interest except in the event of a default. We made the first payments under the Marshall Notes, but have been in default under the Marshall Notes since April 2017, and as of December 31, 2017, we owed principal of owe principal payments for approximately nine months totaling $122,500 to Mr. Marshall and to Dr. Marshall totaling $58,600. In addition, under the terms of the Marshall Notes, as a result of our default, the Marshall Notes now accrue default until payment of the default amounts at the rate of 5% of the total amount of the notes.

On March 1, 2017, the Company entered into an employment agreement with David Esposito to fill the position of Chairman and Interim CEO. The agreement stated the terms of his employment and compensation. Mr. Esposito’s compensation consisted of: (1) an annual base salary of $225,000; (2) a potential target bonus of up to 50% of base salary based on performance goals determined by the Board of Directors of the Company; (3) equity awards, and (4) standard employee benefits, including vacation. Mr. Esposito stepped down from his position as Interim CEO upon the appointment of David Dodd as the Company’s CEO effective September 18, 2017. As of September 30, 2017, the Company has accrued wages to Mr. Esposito of $123,750. Mr. Esposito remains as the Company’s Chairman of the Board of Directors.

On September 15, 2017, the Company entered into an employment agreement with David Dodd as the Company’s CEO and a member of the Board of Directors of the Company. The agreement states the terms of his employment and compensation which consists of: (1) an annual base salary of $250,000; (2) an initial target bonus of up to 65% of annual base salary based on targets established by the Board of Directors; (3) a signing bonus of 1,000,000 shares of restricted stock; (4) an additional 1,000,000 shares of restricted stock that will vest upon successful commercialization of the AsepticSure^® system in the US market; and (5) benefits as offered to other executive employees. Mr. Dodd voluntarily surrendered the 1,000,000 restricted shares he received as a signing bonus on January 2, 2018. The Company also agreed to a change of control agreement that will pay severance compensation to Mr. Dodd in the event his employment is terminated by the Company without cause or by Mr. Dodd for good reason, as defined in the agreement.

On November 1, 2017, the Company entered into an employment agreement with Philip Theodore as the Company’s Executive Vice President, Operations and Administration. The agreement states the terms of his employment and compensation which consists of (1) an annual base salary of $175,000; (2) an initial target bonus of up to 45% of his annual base salary based on targets established by the Board of Directors; (3) a signing bonus of 300,000 shares of restricted stock upon his appointment; (4) an additional 300,000 shares of restricted stock that will vest upon successful commercialization of the AsepticSure^® system in the US market; and (5) benefits as offered to other executive employees. Mr. Theodore voluntarily surrendered the 300,000 restricted shares he received as a signing bonus upon his appointment on January 3, 2018. The Company also agreed to a change of control agreement that will pay severance compensation to Mr. Theodore in the event that his employment is terminated by the Company without cause or by Mr. Theodore for good reason, as defined in the agreement.

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Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)

Related Party Agreements (Continued)

In November 2017, the Company entered into change of control agreements with Michael Shannon, President of CFGH and Stephanie Sorensen, the Company’s Chief Financial Officer, with similar terms with the change of control agreements entered into with Mr. Dodd and Mr. Theodore.

Supply and License Agreement

On October 26, 2017, the Company entered into a supply and license agreement with Innovasource, LLC, (“Innovasource”) a leading manufacturer of cleaning, deodorizing and disinfecting products. Innovasource has agreed to supply the Company with its custom-formulated disinfectant product and has granted the Company an exclusive, non-transferable limited license to use its intellectual property in the marketing and sale of the AsepticSure^® system in the US. The supply agreement has a five-year term that automatically renews for two-year terms unless either party provides notice of non-renewal prior to the expiration of the current term.

Distribution and License Agreements

In December 2016, the Company terminated a Distribution and License Agreement with a distributor due to lack of market development by the distributor. On October 25, 2017, the Company entered into an exclusive distribution agreement with Aglon a/s for the countries of Norway, Sweden, Finland, Denmark, and Iceland.

Other Payables

As of December 31, 2017, and 2016, 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. The statute of limitations relating to these payables has passed. 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 future minimum lease payments due under this agreement are $21,300 CD plus the applicable goods and services tax. The Company has a month-to-month cancelable lease for office space located in Michigan, with monthly payments of approximately $1,000.

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

On December 15, 2016, the Company’s stockholders approved the Board of Directors’ recommendation to increase the number of authorized shares of common stock from 395,000,000 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 Secretary of State on January 24, 2017.

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.

OnCommon ~~December~~Stock 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.Issuances

45During January 2016, the Company issued 500,000 restricted shares of common stock to a consultant. The fair value of the shares on the date of grant was $48,000, or $0.096 per share. The Company recorded compensation expense of $48,000 in connection with the issuance of the shares.

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Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, ~~2016~~2017 and ~~2015~~2016

NOTE 1211 - ~~COMMON~~EQUITY ~~STOCK~~TRANSACTIONS ~~OPTIONS~~(Continued)

InCommon ~~May~~Stock ~~2012,~~Issuances 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. (continued)

InDuring ~~August~~May ~~2013~~2017, the Company ~~granted~~issued ~~options for the purchase of~~ 250,000 restricted shares of common stock to a consultant. ~~These~~The ~~options~~fair ~~are~~value ~~exercisable~~of atthe ~~$0.10~~shares ~~per~~on ~~share for five years from~~ the date of the grant ~~with~~was 50$17,~~000 options vesting immediately and the other 200~~500,~~000~~ ~~options~~or ~~vesting~~$0.07 ~~upon~~per ~~the achievement of certain milestones, which were met in 2015~~share. The Company ~~recognized~~recorded ~~the~~compensation ~~remaining~~ expense of $17,~~659~~500 ~~during~~in ~~the~~connection ~~year~~with ~~ended~~the ~~December~~issuance ~~31,~~of ~~2015~~the shares.

OnDuring ~~February~~the 26year ended December 31, ~~2014~~2017, the Company granted tothree aof ~~new~~its ~~director~~executives ~~options~~and ~~for~~officers ~~the~~a ~~purchase~~total of 2,~~000~~300,000 restricted shares of common stock, ~~with~~upon antheir ~~exercise~~appointment ~~price~~to oftheir $0positions.~~1095~~ ~~per~~The ~~share.~~aggregate Ofvalue ~~these~~of ~~options,~~the ~~1,000,000~~shares ~~vested~~on ~~February~~their ~~26,~~dates ~~2015~~of ~~and~~grant ~~the~~was ~~remaining 1~~$228,000,~~000~~ ~~options~~with ~~will~~values ~~vest~~ranging ~~upon~~from ~~the successful achievement of certain milestones~~$0.06 ~~Unvested~~to ~~options vest immediately in the event of a change in control of the Company~~$0.15 ~~The~~per ~~options are exercisable for five years~~share. The Company ~~recognized~~recorded ~~$16,017~~compensation ~~during~~expense ~~the~~of ~~year ended December 31~~$228,000 ~~2015~~ in connection with the ~~options~~issuance ~~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~~shares.

OnDuring ~~February~~the 26year ended December 31, ~~2014~~2017, the Company ~~granted~~issued ~~options~~and tosold ~~six~~11,833,334 ~~consultants~~restricted ~~and~~shares ~~service~~of ~~providers~~common stock for ~~the~~net ~~purchase~~proceeds of ~~a total of 250~~$675,000 ~~shares~~and ~~of common stock at~~ an ~~exercise~~average price of $0.~~1095~~06 per share. ~~Options~~as ~~for~~part ~~200,000~~of ~~shares~~a ~~vested~~private ~~immediately~~offering ~~upon~~to ~~grant~~accredited ~~and~~investors, ~~options~~which ~~for~~included the ~~remaining~~Company’s ~~50,000~~Chairman ~~shares~~and ~~vested~~Interim ~~January 9~~CEO, ~~2015.~~its ~~The~~current ~~options~~CEO, ~~are~~Executive ~~exercisable~~Vice ~~for~~President, ~~five~~Administration ~~years.~~and ~~The~~Operations, ~~grant~~Executive ~~date~~Vice ~~fair value of these options was $24~~President,~~023.~~ ~~The~~Chief ~~Company~~Commercial ~~recognized~~Officer ~~expense~~and ofan ~~$800~~independent ~~during the year ended December 31, 2015~~director.

OnCommon ~~May~~Stock ~~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.~~Awards

OnThe ~~October 7, 2014, the~~ Company ~~granted~~recognizes tostock-based acompensation ~~new~~expense ~~board member options~~ for ~~the~~grants ~~purchase~~ of ~~1,000,000~~stock ~~shares~~option ofawards, ~~common~~ stock awards, ~~with~~restricted anstock ~~exercise~~units ~~price~~and ofrestricted ~~$0.16~~stock ~~per~~under ~~share.~~the ~~These~~Company’s ~~options~~Incentive ~~vested~~Plan ~~October~~to 7,employees ~~2015.~~and ~~The~~nonemployee ~~options~~members ~~are~~of ~~exercisable~~the ~~for~~Company’s ~~five~~Board ~~years~~of Directors. ~~The~~In ~~grant~~addition, ~~date~~the ~~fair~~Company ~~value~~grants ofstock ~~the~~ options ~~was~~to ~~$140,178.~~nonemployee ~~The~~consultants ~~Company~~from ~~recognized~~time ~~$105,133~~to ~~during~~time ~~the~~in ~~year~~consideration ~~ended~~for ~~December~~services ~~31,~~performed ~~2015~~for the Company.

OnThe Company’s 2016 Equity Incentive Award Plan (the “2016 Plan”) was approved on December 415, ~~2014,~~2016 by the stockholders to replace the Company’s ~~granted~~2008 ~~options~~Equity toIncentive ~~four~~Plan, ~~consultants~~2009 ~~for~~Incentive ~~the~~Stock ~~purchase~~Plan, of2012 ~~140~~Equity Incentive Award Plan,~~000~~ ~~shares~~and ofthe ~~common~~2014 ~~stock~~Equity atIncentive anPlan ~~exercise~~(collectively, ~~price~~the of“Prior $0Plans”).11 ~~per~~Options ~~share.~~and ~~The~~awards ~~required~~previously ~~milestones~~granted under the Prior Plans that have ~~been~~not ~~met~~yet ~~and~~expired ~~the~~by ~~shares~~their ~~are~~terms ~~fully~~will ~~vested~~remain outstanding until their expiration dates. ~~The~~Following ~~options~~adoption ~~are~~of ~~exercisable~~the ~~for~~2016 ~~five~~Plan, ~~years~~the Company no longer made any grants or awards under the Prior Plans. The 2016 Plan reserves a total ~~value~~of 10,000,000 shares of ~~these~~common ~~options~~stock atfor awards. Awards under the 2016 Plan expire 10 years from the date of grant. ~~was~~Under ~~$13~~the 2016 Plan,~~461~~ as of December 31, ~~which~~2017, the Company ~~recognized~~had asgranted anoptions, ~~expense~~net ~~during~~of forfeitures, for the ~~year~~purchase ~~ended~~of ~~December~~a 31total of 6,400,000 ~~2015~~shares, had awarded 2,300,000 fully vested restricted shares, and an additional 1,300,000 shares to vest upon achievement of certain performance milestones. No shares are available for future grants or awards under the 2016 Plan.

InThe ~~August~~Company ~~2015~~estimates the fair value of each stock option award by using the Black-Scholes option-pricing model, which model requires the ~~Company~~use ~~granted~~of ~~options~~exercise ~~for~~behavior data and the ~~purchase~~use of a ~~total~~number of ~~7,150,000~~assumptions ~~shares~~including volatility of ~~common~~the Company’s stock ~~for~~price, ~~services~~the ~~rendered,~~weighted asaverage ~~follows: 6,000,000~~risk-free ~~shares~~interest ~~total~~rate, toand ~~five~~the ~~directors~~expected life of the options. Because the Company does not pay dividends, ~~650~~the dividend rate variable used in the Black-Scholes option-pricing model is zero. Under the provisions of ASU 2016-09,~~000~~ ~~shares~~the ~~total~~Company has elected to ~~four~~recognize ~~consultants,~~forfeitures ~~and~~as ~~500,000~~they ~~shares~~occur to andetermine ~~employee~~the amount of ~~the~~compensation ~~Company~~cost to be recognized in each period. ~~All~~For ~~options~~the ~~vested~~year ~~upon~~ended ~~grant~~December 31, ~~have~~2017 anand ~~exercise~~2016, ~~price~~the Company recorded stock-based compensation of $565,651 $ and $0~~.088~~, ~~per~~respectively, ~~share~~of which $89,064 ~~and~~related ~~are~~to ~~exercisable~~the ~~for~~modification upof vesting relating to ~~five~~750,000 ~~years.~~options ~~The~~issued ~~total~~in ~~value~~2014 to Mr. Esposito. As of ~~these~~December ~~options~~31, at2017, the ~~date~~Company had outstanding unvested options for a total of ~~grant~~325,000 ~~was~~shares with related unrecognized expense of approximately $~~541~~19,~~687,~~760 ~~which~~and ~~the~~weighted average remaining life of 7.59 years. The Company ~~recognized~~will asrecognize anthis expense ~~during~~over the ~~year~~service ~~ended~~period ~~December~~or ~~31,~~when ~~2015~~the achievement of the required milestones becomes probable.

InDuring ~~August 2015~~2017, the Company ~~granted~~estimated ~~options to a consultant for~~ the ~~purchase~~fair ofvalue ~~a total~~ of ~~250,000~~the ~~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 each grant ~~was~~based ~~$18,991,~~on ~~which~~ the ~~Company~~following ~~recognized~~weighted asaverage ~~an expense during the year ended December 31, 2015.~~assumptions:

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.

Risk-free interest rate	1.36% to 1.99		%
Expected life	5 years
Expected volatility	98.38% to 101.86		%
Dividend yield		0.00	%

46F-16

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, ~~2016~~2017 and ~~2015~~2016

NOTE 1211 - ~~COMMON~~EQUITY ~~STOCK~~TRANSACTIONS ~~OPTIONS~~ (~~continued~~Continued)

~~The~~Common 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~~Options ~~(“2009 Plan”), 2012 Equity Incentive Award Plan (“2012 Plan”),~~ and ~~the~~Awards ~~2014 Equity Incentive Plan~~ (~~“2014 Plan” and, together with the 2008, 2009 and 2012 Plans, the “Prior Plans”~~continued). 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~~following ~~estimates~~is ~~the~~a ~~fair~~summary ~~value~~ of ~~each stock award by using~~ the ~~Black-Scholes~~status ~~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~~outstanding ~~price, the weighted average risk-free interest rate, and the weighted average expected life of the~~ options. ~~Because~~as ~~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~~2017 and ~~2015,~~changes ~~respectively.~~during ~~Excluding options whose performance condition is not yet deemed probable as of December 31, 2016,~~ the ~~Company~~year ~~had~~then ~~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.~~ended:

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:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value

As of December 31, 2016		20,715,000		$	0.143		2.08	$	261,220
Granted		6,900,000			0.097
Forfeited		(7,550,000	)		0.202
Surrendered		(1,977,500	)		0.128
As of December 31, 2017		18,087,500			0.102		3.72		-
Exercisable		17,762,500			0.103		3.79		-

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

No shares are expected to vest within the next 60 days. In December 2017, former and current directors, officers, employees and consultants voluntarily surrendered 1,977,500 shares in an effort to reduce the number of shares reserved resulting in an increase in shares available to be used for additional financing efforts. As of December 31, 2017, the aggregate intrinsic value of the outstanding vested options was $0. No shares were exercised in 2017.

~~The~~A ~~Company~~summary ~~estimated the fair value~~ of ~~the~~unvested stock ~~options~~option activity for ~~2016 at~~ the ~~date~~year ofended ~~the~~December ~~grant~~31, ~~based~~2017 onis ~~the~~presented ~~following weighted average assumptions~~below:

Risk-free interest rate		1.85	%
	Number of Shares			Weighted Average Grant Date Fair Value
Expected life	5 years
Non-vested balance as of December 31, 2016		1,075,000		$	0.11
Expected volatility		130.34	%
Awarded		1,000,000			0.08
Dividend yield		0.00	%
Vested		(250,000	)		0.06
Forfeited		(500,000	)		0.10
Surrendered		(1,000,000	)		0.1095
Non-vested balance as of December 31, 2017		325,000			0.08

~~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:~~Warrants

	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

During 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 were exercisable between January 31, 2017 and January 30, 2018. The warrants expired on January 30, 2018.

AsDuring ofMay ~~December 31~~2017, ~~2016,~~ the ~~aggregate~~Company ~~intrinsic~~issued ~~value~~a warrant to purchase up to 750,000 shares of ~~the~~common ~~outstanding~~stock ~~vested~~at ~~options~~an ~~was~~exercise price of $~~1,597,426~~0.10 Noper ~~shares~~share ~~were~~to ~~exercised~~a inthird-party ~~2016~~consultant. The warrant will vest when certain milestones are achieved and will expire three years from the date of issuance.

47During October 2017, the Company issued a warrant to purchase up to 1,000,000 shares of common stock at an exercise price of $0.10 per share to a supplier. The warrant immediately vested and will expire five years from the date of issuance. The Company recorded expense of $33,960 resulting from the issuance of this warrant.

F-17

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, ~~2016~~2017 and ~~2015~~2016

NOTE 1312 - 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~~2017, which have resulted in an accumulated deficit of $3840,~~072~~085,~~182~~981 as of December 31, ~~2016~~2017. The Company has minimal cash, has a working capital deficit of $4,~~126~~667,~~861~~093, and a total stockholders’ deficit of $4,~~046~~546,~~145~~654 as of December 31, ~~2016~~2017. 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 create a commercial organization to continue to develop its products, obtain FDA approval, 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~~commercial ~~manufacturing~~operations, research, ~~development,~~ and ~~marketing activities~~development, as well as for general corporate purposes.

During ~~2016~~2017, the Company raised a total of $~~160~~675,000 through the sale of 411,~~000~~833,~~000~~334 shares of common stock at aan average price of $0.0406 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.

On January 31, 2018, the Company raised net proceeds of $250,000 from the sale of identical unsecured convertible promissory notes and secured an equity credit line for up to $10,000,000 shares of common stock pursuant to certain terms of the agreement being met and sufficient shares outstanding available for sale (see Note 13).

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 1413 - 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~~January 230, ~~2017~~2018, the Company entered into an employment agreement with Jude Dinges as the Company’s Executive Vice President – Chief Commercial Officer. The agreement states the terms of his employment and compensation which consists of (1) an annual base salary of $175,000; (2) an initial target bonus of up to 45% of his annual base salary based on targets established by the Board of Directors; ~~granted~~(3) a ~~total~~signing bonus of 5300,~~700,~~000 restricted shares of common stock ~~options~~vesting toupon ~~officers,~~successful ~~directors~~commercialization of the AsepticSure® system in the US market; and (4) benefits as offered to other executive employees. The Company also agreed to a change of control provision that will pay severance compensation to Mr. Dinges in the event that he is terminated by the Company without cause or by Mr. Dinges for good reason, as defined in the agreement.

On ~~February~~January 2831, ~~2017~~2018, the Company ~~entered~~raised ~~into~~net ~~separation~~proceeds ~~and~~of ~~release~~$250,000 ~~agreements~~from the sale of identical unsecured convertible promissory notes in the aggregate principal amount of $305,000 to two specialized investment firms. The notes accrue interest (~~Separation~~payable ~~Agreements~~at maturity of the notes) ~~with~~at ~~our~~a ~~former~~rate ~~Chairman~~of 8% per annum and ~~CEO~~mature six months from the issue date. The notes were issued with original issue discount of $35,000, ~~Edwin~~and ~~Marshall~~$20,000 was subtracted from the proceeds to reimburse the investors for their legal fees and ~~our~~other ~~former~~transaction ~~Director~~expenses in connection with the preparation of ~~Operation,~~the ~~Dr.~~notes ~~Jill~~and ~~Marshall~~the related transaction documentation. ~~The~~Accordingly, ~~Separation~~the ~~Agreements~~net ~~include~~proceeds ~~principal~~the ~~payment~~Company ~~schedules~~received for ~~promissory~~each ~~notes~~note ~~issued~~was $125,000. If we fail to ~~these~~pay ~~individuals~~the principal of and ~~modify~~interest on the ~~terms~~Notes when due, the interest rate increases to a default rate of ~~common~~24% ~~stock~~per ~~option~~annum ~~awards~~until ~~granted~~paid, plus a 40% penalty is added to ~~them~~the ~~under~~outstanding balance of the ~~2014~~Note ~~Equity~~and ~~Incentive~~other ~~Plan~~penalties byas ~~increasing~~set forth in the ~~exercise~~Note. ~~period~~The notes are convertible at any time at the option of the ~~grants~~investors ~~from~~into ~~three~~shares ~~weeks~~of common stock at a conversion price of $0.05 per share, subject to ~~three~~adjustment ~~years~~upon ~~following~~the ~~termination~~occurrence of certain events of default with respect to the notes.

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.F-18

48Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

NOTE 13 - SUBSEQUENT EVENTS (Continued)

Also, on January 31, 2018, the Company entered into an equity purchase agreement (the “Equity Purchase Agreement”) with the Investors, which was subsequently amended on March 16, 2018 (as amended, the “Purchase Agreement”), pursuant to which the investors committed to purchase in the aggregate up to $10,000,000 of value of common stock. In consideration of their commitment under the Purchase Agreement, on January 31, 2018, the Company issued to each Investor 4,087,193 shares of common stock (the “Commitment Shares”) as a commitment fee. The Company’s right to issue and sell shares of common stock under the Equity Purchase Agreement to the investors is subject to the satisfaction of certain conditions, including, but not limited to, an effective registration statement for resale of such shares by the investors. On February 12, 2018, the Company filed a Registration Statement with the Securities and Exchange Commission on Form S-1 to register 22,233,427 shares of common stock that may be issued under the Equity Purchase Agreement for resale by the investors. The Securities and Exchange Commission is reviewing the Registration Statement.

Between January 1 and March 13, 2018, the Company’s former and current directors, executives, employees and consultants voluntarily surrendered restricted stock awards for a total of 1,300,000 shares of common stock and stock option grants for the purchase of a total of 7,280,000 shares to increase the number of shares available for financing transactions under the Equity Purchase Agreement.

F-19

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