As filed with the Securities and Exchange Commission on March 8, 2012                                                                                                                                                        

File No. 333-171524

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

POST-EFFECTIVE AMENDMENT NO. 2

TO

REGISTRATION STATEMENT

ON FORM S-1

UNDER

THE SECURITIES ACT OF 1933

Medizone International, Inc.

(Exact name of registrant as specified in its charter)

Nevada	5122	87-0412648
(State or other jurisdiction of incorporation)	(Primary Standard Industrial Classification Code Number)	(IRS Employer Identification No.)

	Edwin G. Marshall
	Chief Executive Officer
	Medizone International, Inc.
4000 Bridgeway	4000 Bridgeway
Suite 401	Suite 401
Sausalito, California 94965	Sausalito, California 94965
(415) 331-0303	(415) 331-0303
(Name, address and telephone number of of registrant’s principal executive offices)	(Name, address and telephone number of agent for service)

Copies to:

Kevin R. Pinegar, Esq.

C. Parkinson Lloyd, Esq.

Durham Jones & Pinegar, P.C.

111 East Broadway, Suite 900

Salt Lake City, Utah 84111

Telephone: (801) 415-3000

Facsimile: (801) 415-3500

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  þ

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” ”accelerated filer,” and ”smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer  o (Do not check if a smaller reporting company) Smaller reporting company  þ

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

The information in this prospectus is not complete and may be changed.  These securities may not be sold until the registration statement filed with the Securities and Exchange Commission of which this prospectus is a part becomes effective.  This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, Dated March 8, 2012

MEDIZONE INTERNATIONAL, INC.

66,666,667 Shares

Common Stock

This prospectus relates to the resale of up to 66,666,667 shares of our Common Stock, $0.001 par value per share (“Common Stock”) by Mammoth Corporation (“Mammoth” or the “Selling Stockholder”), which are shares that we will issue to Mammoth pursuant to an equity financing facility (the “Equity Line”) established pursuant to the terms of the Common Stock Purchase Agreement (“Stock Purchase Agreement”) described in this prospectus. The resale of such shares by Mammoth pursuant to this prospectus is referred to herein as the “Offering.”

The Stock Purchase Agreement with Mammoth provides that Mammoth is committed to purchase up to $10,000,000 of our Common Stock. We may draw on the Equity Line from time to time, as and when we determine appropriate in accordance with the terms and conditions of the Stock Purchase Agreement.

Mammoth is an “underwriter” within the meaning of the Securities Act of 1933 (“Securities Act”) in connection with the resale of our Common Stock under the Stock Purchase Agreement. No other underwriter or person has been engaged to facilitate the sale of our Common Stock in this Offering. This Offering will terminate 24 months after the registration statement to which this prospectus is made a part is declared effective by the Securities and Exchange Commission (“SEC”). Mammoth will pay us 75 percent of the lowest closing bid price of our Common Stock of the five consecutive trading day period preceding the date we give notice of the exercise of our put option under the Stock Purchase Agreement (“Draw Down Notice”).

We will not receive any proceeds from the sale of these shares of Common Stock offered by the Selling Stockholder. However, we will receive proceeds from the sale of our Common Stock to Mammoth under the Stock Purchase Agreement. Those proceeds will be used for working capital and general corporate purposes. We will bear all costs associated with this registration.

Our Common Stock is quoted on the Over-the-Counter (“OTC”) Bulletin Board under the symbol “MZEI.OB.” The shares of our Common Stock registered hereunder are being offered for sale by the Selling Stockholder at prices established on the OTC Bulletin Board during the term of this Offering. On February 28, 2012, the closing bid price of our Common Stock was $0.20 per share. These prices will fluctuate based on the demand for our Common Stock. Nevertheless, Mammoth does not have to sell the shares in transactions reported on the OTC Bulletin Board, and may offer its shares through any type of public or private transaction.

Investing in our Common Stock involves a high degree of risk. You should purchase shares only if you can afford a complete loss. See “Risk Factors” beginning on page 7.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is __________ __, 2012.

TABLE OF CONTENTS

	Page
PROSPECTUS SUMMARY	3
RISK FACTORS	7
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	12
USE OF PROCEEDS	13
DIVIDEND POLICY	13
MARKET FOR COMMON STOCK AND OTHER RELATED STOCKHOLDER MATTERS	13
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	14
OUR BUSINESS	16
OUR PROPERTY	24
LEGAL PROCEEDINGS	24
MANAGEMENT	25
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	30
DESCRIPTION OF SECURITIES	30
SELLING STOCKHOLDER	31
PLAN OF DISTRIBUTION	35
EXPERTS	36
LEGAL MATTERS	36
INDEMNIFICATION OF DIRECTORS AND OFFICERS	36
AVAILABLE INFORMATION	37
INDEX TO FINANCIAL STATEMENTS	38

You should rely only on information contained in this prospectus.  We have not authorized anyone to provide you with information that is different from that contained in this prospectus.  The Selling Stockholder is not offering to sell or seeking offers to buy shares of common stock in jurisdictions where offers and sales are not permitted.  The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.  We are responsible for updating this prospectus to ensure that all material information is included and will update this prospectus to the extent required by law.

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision.  Before investing in the securities offered hereby, you should read the entire prospectus, including our consolidated financial statements and related notes included in this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  In this prospectus, the terms “Medizone,” “the Company,” “we,” “us,” and “our” refer to Medizone International, Inc., a Nevada corporation.

Development of Our Business

Medizone was incorporated in 1986 and is a development stage company.  Prior to 2008 we were dedicated to (i) seeking regulatory approval of a precise mixture of ozone and oxygen, and our process of inactivating lipid-enveloped viruses for the intended purpose of decontaminating blood and blood products and assisting in the treatment of certain diseases; (ii) developing or acquiring the related technology and equipment for the medical application of our products, including a drug production and delivery system; and, (iii) applying our novel technology to the problem of nosocomial infections world-wide. 

Early in 2008, we began to consider other applications of our core technologies and new technologies with lower development costs with the objective of moving us to revenue production in the shortest period of time.  This new direction included re-positioning the Company to pursue an initiative in the field of hospital disinfection. Following laboratory results with Bacillus subtilis, an internationally recognized surrogate for anthrax, that produced 7 log reductions (sterilization), we have expanded our research and business plan to include bio-terrorism countermeasures as well as hospital disinfection and critical infrastructure decontamination.

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

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

In addition to the hospital disinfection system, we employ an ozone-destruct unit which is used following disinfection of the treated infrastructure to reverse the O3 gas in the space, and turn it back into O2 in a short period of time.  We have initially targeted the treatment of a typically sized surgical suite including disinfection followed by ozone destruct to habitable standards in ninety minutes or less.  This short turn-around period is considered of great importance relative to commercialization of the technology.

Risks Associated With Our Business

Our ability to execute our strategy and capitalize on our competitive strengths is subject to a number of risks more fully discussed in the “Risk Factors” section immediately following this summary. Before you invest in our shares, you should carefully consider all of the information in this prospectus, including matters set forth under the heading “Risk Factors,” such as:

·   our history of losses and the fact that we are a development stage company with significant accumulated deficits, and we can expect losses to continue for the foreseeable future;

·   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;

·   the commercialization of our technology;

·   technological advances by our competitors;

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·   changes to regulatory requirements relating to environmental approvals for the treatment of infectious medical waste, capital needs to fund any delays or extensions of development programs;

·   delays in the manufacture of new and existing products by us or third party contractors;

·   market acceptance of our technology and related system;

·   the loss of any key employees;

·   delays in obtaining federal, state or local regulatory clearance for new installations and operations;

·   changes in governmental regulations; and

·   availability of capital on terms satisfactory to us.

Company Information

We are organized in the State of Nevada. Effective January 1, 2012, our principal executive offices are located in leased premises at 4000 Bridgeway, Suite 401, Sausalito, California.  The lease has a term of one year, through December 31, 2012.  Our telephone number is (415) 331-0303.  We maintain a website at http://medizoneint.com. The URL of our website is included herein as an inactive textual reference.  Information contained on, or accessible through, our website is not a part of, and is not incorporated by reference into, this prospectus or the registration statement of which it is a part.

The Offering
Common Stock offered by Selling Stockholder	66,666,667 shares of Common Stock.  No shares of Common Stock are offered by us under this prospectus.
Common Stock outstanding before the Offering	279,598,038  shares of Common Stock as of February 28, 2012.
Common Stock outstanding after the Offering (1)	339,981,838 shares of Common Stock, assuming the issuance and resale of all of the remaining shares of Common Stock covered by the registration statement of which this prospectus forms a part.
Terms of the Offering	The Selling Stockholder will determine when and how it will sell the Common Stock offered in this prospectus.
Termination of the Offering	This Offering will terminate 24 months after the registration statement to which this prospectus is made a part is declared effective by the SEC pursuant to the Stock Purchase Agreement.
Use of Proceeds	We will not receive any proceeds from the sale of the shares of Common Stock offered by the Selling Stockholder. However, we will receive proceeds from sales of our Common Stock to Mammoth under the Stock Purchase Agreement. The proceeds from the sale of shares to Mammoth will be used for working capital and general corporate purposes. See, “Use of Proceeds” on page 15.
Risk Factors	The Common Stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See, “Risk Factors” beginning on page 9.
OTC Bulletin Board Symbol	MZEI.OB

(1) The number of shares of Common Stock to be outstanding after the Offering excludes 7,750,000 shares issuable upon the exercise of stock options at a weighted average price of $0.17 per share, outstanding as of December 31, 2011.

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The Stock Purchase Agreement

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

This prospectus, and the registration statement of which it is a part, registers the re-sale by Mammoth of 66,666,667 shares of our Common Stock, $0.001 par value per share, which we may require Mammoth to purchase pursuant to the terms of the Stock Purchase Agreement.

As of February 28, 2012, there were 279,598,038 shares of our Common Stock outstanding (231,622,108 shares held by non-affiliates) which includes 6,282,867 of the 66,666,667 shares offered by Mammoth pursuant to this prospectus which had been issued as of February 28, 2012.  Up to 60,383,800 remaining shares are offered hereby consisting of shares that we may sell to Mammoth.  If all of the 60,383,800 remaining shares offered by Mammoth hereby were issued and outstanding as of February 28, 2012, such shares would represent approximately 18 percent of the total Common Stock outstanding or approximately 21 percent of the non-affiliate shares of Common Stock outstanding, as of February 28, 2012.  Additionally, the 60,383,800 remaining shares represent approximately 22 percent of the shares of our Common Stock issued and outstanding as of February 28, 2012, and approximately 26 percent of shares currently held by non-affiliates (not including the 60,383,800 remaining shares).

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

Each Draw Down Notice must specify the lowest purchase price during the Draw Down Pricing Period at which we will sell the shares to Mammoth, which shall not be less than 75 percent of the lowest closing bid price during the Draw Down Pricing Period. The Draw Down Notice will also include the aggregate dollar amount of the Draw Down, which will not be less than $25,000 and not more than $500,000 in any Draw Down Notice.  There must be a minimum of 15 trading days between each Draw Down Notice.  Regardless of the maximum amount indicated in the Draw Down Notice, Mammoth will not be obligated to purchase shares under any Draw Down Notice in an amount which, when added to the number of shares of Common Stock then beneficially owned by Mammoth, will result in Mammoth owning more than 4.9 percent of the outstanding shares of our Common Stock.

In making sales of our Common Stock to Mammoth under the Stock Purchase Agreement, we are relying on an exemption from the registration requirements of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder. The transaction involves a private offering, Mammoth has represented that it is an “accredited investor” and Mammoth has access to information about us and its investment in our securities.

In connection with the Stock Purchase Agreement, we granted registration rights to Mammoth, and agreed to register the resale of shares issued to Mammoth in connection with Draw Downs made in connection with the Stock Purchase Agreement.  Accordingly, we have filed this registration statement and prospectus to cover the resale by Mammoth of up to 66,666,667 shares of our Common Stock under the Stock Purchase Agreement.

As of December 28, 2010, the market price of our Common Stock was $0.20 per share.  Using the formula set forth above to determine the purchase price under the Stock Purchase Agreement, we registered the resale of that number of shares of Common Stock that would allow us to make Draw Downs for the full $10,000,000 available to us under the Equity Line.  However, in the event that the market price for our shares declines, the number of shares of Common Stock covered by this registration statement will not change, and as such, we may not be able to access the full $10,000,000 without filing additional registration statements to register the resale of additional shares of Common Stock.  We are not permitted to make Draw Downs under the Stock Purchase Agreement at any time there is not an effective registration statement registering the resale of shares of Common Stock by Mammoth.

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Although we have registered the number of shares of Common Stock that would be issuable assuming the immediate Draw Down of the full $10,000,000 under the Stock Purchase Agreement, the provisions of the Stock Purchase Agreement limit the size and frequency of each Draw Down.  In addition, the Stock Purchase Agreement limits the percentage of beneficial ownership of our Common Stock by Mammoth at any given time, as explained above and elsewhere in this prospectus.  Any shares of Common Stock remaining unissued to Mammoth at the expiration of the Stock Purchase Agreement will be removed from registration and will not be offered for sale under this prospectus.

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

Pursuant to the Stock Purchase Agreement, we may make draws during the 24 months following the original effective date of the prospectus (March 1, 2011), with a minimum amount of $25,000 and a maximum amount of $500,000 per Draw Down, but we are not obligated to draw the full $10,000,000.  If we draw less than the full amount, we will put fewer shares of Common Stock to Mammoth, which will result in less dilution to our existing stockholders.

Neither the Stock Purchase Agreement nor any rights or obligations of Mammoth under the Stock Purchase Agreement may be assigned or transferred to any other person without our express written consent.

As of February 28, 2012, the Company had submitted five Draw Down Notices in the aggregate amount of approximately $1,035,616, as follows:

Draw Down Notice Date	Shares Issued		Proceeds to Company
February 2011		582,065	$	59,000
April 2011		1,583,771	$	261,322
May 2011		2,066,096	$	396,690
September 2011		1,147,846	$	169,594
January 2012		903,089	$	149,010
Totals		6,282,867	$	1,035,616

Assuming the Selling Shareholder sells or has sold into the market all of the shares issued in connection with the Draw Down Notices listed above, the Selling Stockholder may sell up to an additional 60,383,800 pursuant to this Prospectus.

There are substantial risks to investors as a result of the issuance of shares of our Common Stock under the Stock Purchase Agreement. These risks include dilution of stockholders, significant decline in our stock price and our inability to draw sufficient funds when needed.  See, “Risk Factors,” following this section.

Mammoth will periodically purchase our shares of Common Stock under the Stock Purchase Agreement and will, in turn, sell such shares to investors in the market at the market price. This may cause our stock price to decline, which will require us to issue increasing numbers of shares of Common Stock to Mammoth to raise the same amount of funds, as our stock price declines.

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RISK FACTORS

The shares of our Common Stock being offered for resale by the Selling Stockholder are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested therein. Before purchasing any of these securities, you should carefully consider the following factors relating to our business and prospects. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, the trading price of our Common Stock could decline, and you may lose all or part of your investment. 

Risks Related to Our Business

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

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

We currently have limited financing to meet our current operating expenses. We will require additional financing in the future to cover our future operating costs.  If we are unable to obtain additional financing, we may be required to take out bankruptcy or liquidate the Company.  We have financed our operations since inception by the sale of Common Stock in small private placements to accredited investors.  There is no assurance we will successfully accomplish our objectives or that additional financing will be obtained.

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

Our reliance on patented technology may limit the scope of our protection and may increase the cost of doing business if we are required to enforce our rights under existing and future patents.Our success will depend, in large part, on our ability to obtain and enforce patents, maintain our trade secrets and operate without infringing on the proprietary rights of others, both in the United States and in other countries. The patent positions of companies can be uncertain to some extent and involve complex legal and factual questions, and, therefore, the scope and enforceability of claims allowed in patents are not systematically predictable with absolute accuracy. Our license rights depend in part upon the breadth and scope of protection provided by the patents and the validity of the patents. Any failure to maintain the issued patents could adversely affect our business. We intend to file additional patent applications (both United States 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.

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

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

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

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

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

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

Our proposed business may subject us to the potential for product liability claims.  Although we intend to insure for this liability, the claims might in some cases exceed the amount of coverage available to us.  The testing, marketing and sale of medical or clinical products and other products using our technology involve unavoidable risks.  The use of any of our potential products in clinical or other tests or as a result of the sale of our products, or the use of our technology in products, may expose us to potential liability resulting from the use of such products.  That liability may result from claims made directly by consumers or by regulatory agencies, companies or others selling such products. We currently have limited clinical trial insurance and no product liability insurance coverage.  We anticipate obtaining and maintaining appropriate insurance coverage as products become ready to be commercialized.  There can be no assurance we will be able to obtain this insurance or, if we can obtain insurance, that the insurance can be acquired at a reasonable cost or in sufficient amounts to protect us against potential liability.  The obligation to pay any product liability claim in excess of insurance coverage or the recall of any products incorporating our technology could have a material adverse effect on our business, financial condition and future prospects.

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

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

Market Risks

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

We have never paid dividends, and there can be no assurance that we will pay dividends in the future. We have never declared any cash dividends on our Common Stock; however, 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 in the foreseeable future.  As a result, until such time, if ever, that dividends are declared with respect to our Common Stock, an investor would only realize income from his investment in our shares if there is a rise in the market price of our Common Stock, which is uncertain and unpredictable.  See, “Dividend Policy,” on page 15.

Mammoth will pay less than the then-prevailing market price for our Common Stock.  The Common Stock to be issued to Mammoth pursuant to the Stock Purchase Agreement will be purchased at a 25 percent discount to the lowest closing bid price of the Common Stock on any trading day during the five consecutive trading days immediately preceding the date of our notice to Mammoth of our election to put shares pursuant to the Stock Purchase Agreement. Mammoth has a financial incentive to sell our Common Stock immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price. If Mammoth sells the shares, the price of our Common Stock could decrease. If our stock price decreases, Mammoth may have a further incentive to sell the shares of our Common Stock that it holds. These sales may have a further impact on our stock price.

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

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

Holders of our Common Stock are subject to the risk of additional and substantial dilution to their interests as a result of the issuances of Common Stock in connection with the Stock Purchase Agreement.  The following table describes the number of shares of Common Stock that would be issuable, assuming that the full amount available under the Stock Purchase Agreement as of February 28, 2012, namely $8,964,384 had been put to Mammoth (irrespective of the availability of registered shares), and further assuming that the applicable conversion price at the time of such put were the following amounts:

Hypothetical Purchase Price Under Stock Purchase Agreement		Shares issuable upon Draw Downs aggregating $8,964,384
$	0.05		179,287,680
$	0.10		89,643,840
$	0.15		59,762,560
$	0.20		44,821,920
$	0.25		35,857,536

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

For example, if the Company were to draw down an aggregate of $5,000,000 under the Stock Purchase Agreement, and the applicable purchase price paid to us by Mammoth were $0.15, the number of shares issuable to Mammoth would be approximately 33,333,333 shares.  As of February 28, 2012, we had 279,598,038 shares of Common Stock issued and outstanding.  An issuance of 33,333,333 shares would constitute an increase in the issued and outstanding Common Stock of approximately 11 percent.  By way of information, during 2011, our stock price has ranged from $0.37 to $0.12 per share.

As of February 28, 2012, the Company had submitted five Draw Down Notices in the aggregate amount of approximately $1,035,616.  Assuming the Selling Shareholder sells or has sold into the market all of the shares issued in connection with the five Draw Down Notices issued through February 28, 2012, the Selling Stockholder may sell up to an additional 60,383,800 pursuant to this Prospectus.

If all of the 60,383,800 remaining shares offered by Mammoth hereby were issued and outstanding as of February 28, 2012, such shares would represent approximately 22 percent of the total Common Stock outstanding or approximately 26 percent of the non-affiliate shares of Common Stock outstanding as of February 28, 2012.

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

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

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

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

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

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

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

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

·   that 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.

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

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

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

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

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

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

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

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

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Information included or incorporated by reference in this prospectus may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Forward-looking statements are based upon our current assumptions, expectations and beliefs concerning future developments and their potential effect on our business. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology, although the absence of these words does not necessarily mean that a statement is not forward-looking. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements.

Factors that might cause or contribute to such differences include, but are not limited to, those discussed in “Risk Factors” contained in this prospectus. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus, to conform these statements to actual results, or to changes in our expectations. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus.

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USE OF PROCEEDS

The Selling Stockholder is selling all of the shares of our Common Stock covered by this prospectus for its own account.  Accordingly, we will not receive any proceeds from the resale of the Common Stock.  However, we will receive proceeds from any sale of the Common Stock under the Stock Purchase Agreement to Mammoth.  We intend to use the net proceeds received from such sales for working capital and general corporate needs.

DIVIDEND POLICY

As a development stage company, we have had only minimal revenues and we have never declared dividends or paid cash dividends on our Common Stock.  In the future, if we become profitable, our Board of Directors has stated its intention to declare a dividend on our Common Stock from our surplus earnings.  There is no assurance that we will ever become profitable or that we will have surplus earnings from which a dividend can be paid.  The declaration of dividends will be at the discretion of the Board of Directors and will depend upon our earnings, financial position, general economic conditions and other pertinent factors.

MARKET FOR COMMON STOCK AND OTHER RELATED STOCKHOLDER MATTERS

Market Information

Our Common Stock is listed on the OTC Bulletin Board market and trades under the symbol MZEI.OB.

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

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

Holders

As of February 28, 2012, there were approximately 2,600 holders of record of the Common Stock and 279,598,038 shares of Common Stock outstanding.

Dividend Policy

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

Transfer Agent and Registrar

The transfer agent and registrar for the Common Stock is American Stock Transfer & Trust Company, 6201 15th Avenue, Brooklyn, NY 11219.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

You should read the following discussion together with our consolidated financial statements and the related notes which have been included in this prospectus. This discussion contains forward-looking statements about our business. Our actual results may differ materially from those we currently anticipate as a result of the factors we describe under “Risk Factors” beginning on page 9, and elsewhere in this prospectus.

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

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

We were incorporated in January 1986.  We are a development stage company primarily engaged in research into the medical uses of ozone.  Our current work is in the field of hospital sterilization, not human therapies.  We have not generated, and cannot predict when or if we will generate, revenues or sufficient cash flow to fund continuing or planned operations.  If we fail to obtain additional funding, we will be forced to suspend or permanently cease operations, and may need to seek protection under U.S. bankruptcy laws.

During the year ended December 31, 2011, we had a net loss of $1,940,217, compared to a net loss during the year ended December 31, 2010 of $2,756,126.  The primary reason for the significant decrease in the net loss from the prior year is the result of certain issuances of restricted common stock and options issued to directors, officers, employees and consultants during 2010, as discussed below.  Our primary expense is payroll and consulting fees, research and development costs, office expenses, together with interest expense and additional expense recorded as a result of restricted common stock issuances and options granted by the Company.

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

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

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

Liquidity and Capital Resources

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

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As a development stage company, we have had no revenues. We will continue to require additional financing to fund operations and to continue to fund the research necessary to undertake our new business plans, to further the ongoing testing as previously described, and then to market a system for hospital and medical sterilization.  As discussed above, we entered into the Stock Purchase Agreement with Mammoth, in November 2010, and established the Equity Line.  We do not anticipate needing to draw the full amount of the Equity Line to implement our business plan and to develop and market our location sterilization technologies.  We believe that we will need approximately $3,000,000 during the next twelve months for continued research, development, marketing, and related activities, as well as for general corporate purposes, including final product development and initiation of sales.  Pursuant to the Stock Purchase Agreement, the frequency and amounts of draws are within our control.  We are not obligated to make any draws, and we may draw any amount up to the full amount of the Equity Line, in our discretion.  We do not plan to draw more funds (and correspondingly put more shares to Mammoth) under the Equity Line than is necessary to implement our business plan.

Also, during 2011, we raised a total of $1,545,905 through the sale of 12,679,778 shares of common stock at prices ranging from $0.08 to $0.192 per share, which funds have been used to keep us current in our reporting obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and to pay certain other corporate obligations including the initial costs of development for our hospital sterilization system.  Subsequent to December 31, 2011, through the date of this report, we have raised a total of $814,310 through the sale of 7,556,089 shares of common stock at prices ranging from $0.10 to $0.165 per share.  In addition, if we were to need additional resources outside the Equity Line, we believe we would be able to raise additional funds from some of the same investors who have purchased shares in previous years, although there is no guarantee that these investors will purchase additional shares.

Our audited consolidated financial statements included in this Annual Report have been prepared on the assumption that the Company will continue as a going concern. Since inception, it has been necessary to rely upon financing from the sale of our equity securities to sustain operations as indicated above. Additional financing will be required if we are to continue as a going concern.  If we do not obtain additional financing in the near future, either through the Stock Purchase Agreement or otherwise, we may be required to curtail or discontinue operations or possibly to seek protection under the bankruptcy laws.

Critical Accounting Policies and Estimates

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

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

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

Recent Accounting Pronouncements

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

Off-Balance Sheet Arrangements

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

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Outlook

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

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

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

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

OUR BUSINESS

Introduction

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

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

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Research and Development Activity

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

Early in 2008, we began to consider other applications of our core technologies and new technologies with lower development costs with the objective of moving us to revenue production in the shortest period of time.  This new direction included re-positioning the Company to pursue an initiative in the field of hospital disinfection. Following laboratory results with Bacillus subtilis, an internationally recognized surrogate for anthrax, that produced 7 log reductions (sterilization), we have expanded our research and business plan to include bio-terrorism countermeasures as well as hospital disinfection and critical infrastructure de-contamination.

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

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

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

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

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

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

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

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

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

We expect our unique ozone generating technologies will play a vital role in addressing what public health officials and surgeons world-wide are beginning to recognize as “the silent epidemic” (American Academy of Orthopedic Surgeons, May 2008, copy on file with the Company (“AAOS Study”)), a reference to MRSA (Methicillin-resistant Staphylococcus aureus) infection.  This is a strain of Staphylococcus aureus bacteria (“staph”) that is resistant to the broad-spectrum antibiotics commonly used to treat it. MRSA can be fatal.  According to the AAOS Study, “the number of hospital admissions for MRSA has exploded in the past decade. By 2005, admissions were triple the number in 2000 and 10-fold higher than in 1995.

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In 2005, in the United States, 368,600 hospital admissions for MRSA — including 94,000 invasive infections — resulted in 18,650 deaths.  The number of MRSA fatalities in 2005 surpassed the number of fatalities from hurricane Katrina and AIDS combined and is substantially higher than fatalities at the peak of the U.S. polio epidemic.”  Indeed, biological contamination of medical treatment areas such as hospitals and chronic care facilities has recently been identified by several world renowned public health institutions, including the Centers for Disease Control or “CDC” (CDC Report, 17 Oct, 2007, copy on file with the Company), as one of the greatest threats to public health and safety in the industrial world. This concern was reflected in an article published in the journal Science (18 July 2008, Vol. 321, pp 356-361, copy on file with the Company) which estimated that hospital-based infections in 2006 accounted for almost 100,000 deaths in the United States.  We expect that current data, if available, would indicate that deaths in the United States from hospital-acquired MRSA infections now exceed 100,000 per year.

In response to this situation, we have developed a prototype of a highly portable, low-cost, ozone-based technology (“AsepticSure™”) specifically for the purpose of decontaminating and sterilizing hospital surgical suites, emergency rooms, and intensive care units. Since this technology is not considered a medical treatment or a diagnostic device, its development pathway is not subject to a stringent and expensive regulatory review process.  We anticipate that the development pathway will be based on independent peer-reviewed science and engineering excellence.  Our team is also developing a variant of AsepticSure™ for governmental use with bio-terrorism countermeasures.

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

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

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

In connection with our trials described above, we also designed and produced a development prototype which has demonstrated that it can reach both the charge time and saturation requirements of its design criteria.  In January 2010, we started mock-up trials for both public (hospital) and government (bio-terrorism countermeasures) applications of our system. Results obtained during early February 2010 demonstrated that every full-scale test run completed in our hospital room mock-up facility had resulted in the total elimination of all bacteria present in the room. Additional testing was designed to confirm in a more realistic hospital setting these laboratory findings indicating extremely high antibacterial efficacy for our novel technology (6-7.2 log reductions) against the primary causative agents of hospital acquired infections (HAIs), sometimes referred to as “Super Bugs.”  We completed multiple runs with very high concentrations of MRSA, VRE and E. coli samples that were distributed throughout the test room.  In every instance, the AsepticSure™ system produced greater than 6 log (99.9999%) reductions, which by definition, is sterilization.  We have now systematically collected empirically verifiable scientific data on all of the remaining causative agents of HAIs.  We have also disinfected Bacillus subtilis, the recognized surrogate for anthrax in full-sized room settings to a sterilization standard of >6 log, which we interpret as a positive indicator that AsepticSure™ could play a vital role in the government arena of bio-terrorism countermeasures.  

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

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In addition to the hospital disinfection system, we employ an ozone-destruct unit which is used following disinfection of the treated infrastructure to reverse the O3 gas in the space, and turn it back into O2 in a short period of time.  We have initially targeted the treatment of a typically sized surgical suite including disinfection followed by ozone destruct to habitable standards in ninety minutes or less.  This short turn-around period is considered of great importance relative to commercialization of the technology.  

In addition, work completed by the Company at Queen’s University demonstrated that the AsepticSure™ system can reliably eliminate in excess of 7 logs (99.99999%) reductions of Listeria monocytogenes and Salmonella typhium with 30-minute exposure to our unique and patented gas mixture, which provides an additional application of the AsepticSure™ technology, beyond that of hospital acquired infections for the food processing industry.

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

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

Recent Developments

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

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

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

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

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

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

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International Recognition of AsepticSure™

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

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

Canadian Foundation for Global Health – Consolidated Variable Interest Entity

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

The CFGH may not contract for research or other services on our behalf without our prior approval.  In addition, our understanding with the CFGH provides that all intellectual property, including but not limited to, scientific results, patents and trademarks that are derived from work done on our behalf or at our request by CFGH or parties contracted by CFGH with our prior approval will be our sole and exclusive property.

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

We follow the accounting standard which requires a variable interest entity (“VIE”) to be consolidated by a company if that company absorbs a majority of the VIE’s expected losses and/or receives a majority of the entity’s expected residual returns as a result of holding variable interests, which are the ownership, contractual, or other financial interests in the entity. In addition, a legal entity is considered to be a VIE, if it does not have sufficient equity at risk to finance its own activities without relying on financial support from other parties.  If the legal entity is a VIE, then the reporting entity determined to be the primary beneficiary of the VIE must consolidate it.  We have determined that CFGH meets the requirements of a VIE, effective upon the first advance to CFGH on February 12, 2009.  Accordingly, the financial position and operations of CFGH are being consolidated with our financial results and in our consolidated financial statements included within this annual report.

Medizone Canada Limited

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

Government Regulation

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

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

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

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

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

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

Intellectual Property

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

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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.

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

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

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

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

On July 7, 2010, we filed an international patent application (PCT/CA 2010/000998) under the auspices of the Patent Co-operation Treaty (“PCT”) to secure international patent protection for our AsepticSure™ technology.  The international patent application consolidates the two previously filed patent applications described above and expands the technical evidence, both laboratory scale and practical scale, supporting the effectiveness of the technology in clearing healthcare and other critical infrastructure of bacterial infections such as C. difficile, E. coli, Pseudomonas aeruginosa, MRSA and VRE down to complete sterilization standards. After the international patent application has been searched and examined by the International Patent Office authorities, we can register it in any or all countries of the world that have ratified the PCT (over 120 countries, which include all major industrialized countries except Taiwan), and secure grant of patents on the application in countries of our choice.

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

An additional U.S. provisional patent application (US 61/380.758) was filed covering the use of AsepticSure™ in food processing plants and related facilities for the sterilization of food-borne pathogens such as Listeria, Salmonella, and other human harmful, food-poisoning-causing bacteria.

Also during September 2010, we filed a U.S. provisional patent application (US 61/380.825) covering the use of AsepticSure™ for disinfecting sports equipment and training facilities included those associated with professional, college and high school level teams.  Recent investigations indicate a broad range of bacteria at high concentration actually resides within unclean sports equipment which tend to be covered in mucus, sweat, dead skin, and occasionally blood; ideal culture media for bacteria, fungi and mold.

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

During late September 2010, we filed a fourth U.S. provisional patent application (61/384495) involving “Advanced Oxidative Sterilization Processes.”  In conjunction with this filing, we are now exploring a new development in the field of oxidative chemistry which we estimate will have a significant impact on our future technology and the ease with which we can effectively decontaminate hospitals, chronic care facilities, veterinary facilities, hotels, cruise ships, sports facilities and the equipment thereon.  Our research to date demonstrates that the combination of modest levels of ozone and low concentrations of peroxide, properly delivered at the right temperature and humidity, will reliably eliminate bacteria loads of at least 6 logs (sterilization standard) on a broad range of surface materials. Research is now underway at our laboratories on a parallel track with our hospital beta-testing program to evaluate the merits of a multifactorial decontamination system which appears to further increase the potency of our AsepticSure™ technology, while dramatically reducing the exposure time, both of which are believed to have significant implications for certain applications. Research has confirmed that combining low concentrations of ozone and hydrogen peroxide produces a unique highly potent free radical in the polyoxide family known as Trioxidane.  It is this combination when introduced into a contaminated space at a specific humidity and temperature that generates green killing power unique to AsepticSure™.  The degradation products of this process are water and oxygen, so AsepticSure can be highly efficacious yet friendly to the environment.  This advanced process is protected in both our granted patent and our patent applications.

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

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

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

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

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

Advances in Patent Protection for AsepticSure™

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

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

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Competition

The market for hospital disinfection in which we intend to do business is extremely competitive. We are aware of one company, for example, that has commenced research into the use of ozone as a sterilization product for the food industry that might eventually compete with us in the sterilization market for hospitals and other medical infrastructure. Other companies, foundations, research laboratories or institutions may also be conducting similar investigations into the use of ozone for this application of which we are not aware.  Unless patent protection is obtainable, we should expect significant competition once we have proven the science. There is no assurance that patents will issue under our applications.

Employees

As of December 31, 2011, we had four employees (of which three are full-time employees) and a number of outside consultants and experts engaged in product development, government relations and science.  As of February 28, 2012, the total number of people involved in the AsepticSure™ research, development and manufacturing program as either employees, consultants, contractors or business support on either a full time or part time basis exceeded 20.

OUR PROPERTY

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

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

LEGAL PROCEEDINGS

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

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

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MANAGEMENT

Directors and Executive Officers

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

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

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

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

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

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

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

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

Meetings of the Board of Directors

The Board of Directors is elected by and is accountable to the stockholders.  The Board establishes policy and provides strategic direction, oversight, and control of the Company.  The Board met four times during the year ended December 31, 2010, and five times in 2011.  As of February 28, 2012, the Board had met once during 2012.  All directors participated in at least 80 percent of the meetings held by the Board.  The Board has no standing audit, compensation, nominating or other committees.  

Code of Ethics

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

Board Leadership Structure

We have chosen to combine the positions of Chief Executive Officer (principal executive officer) and Chairman of the Board of Directors.  We are a development stage company, and at this early stage it is more efficient to have the leadership of the Board of Directors combined with the principal executive officer of the Company.  Our primary activities at this stage of our development include obtaining financing and developing a plan for bringing our technology to market.  Given our limited resources, we believe these functions are most efficiently supervised by having one person intimately familiar with both the operational aspects as well as the strategic aspects of the Company’s business plan. 

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Board’s Role in Risk Oversight

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

The Board of Directors and Committees

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

Audit Committee

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

Compensation Committee

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

Nominating and Corporate Governance Committee

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

Executive Compensation

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

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Summary Compensation Table

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

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

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

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

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

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

Director Compensation

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

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

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

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

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

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

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

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

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

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

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

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

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

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Related Persons

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

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

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

Director Independence

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

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

DESCRIPTION OF SECURITIES

General

The following summary includes a description of material provisions of the Company’s capital stock.

Authorized and Outstanding Securities

The Company is authorized to issue 395,000,000 shares of Common Stock $0.001 par value per share, and 50,000,000 shares of Preferred Stock par value $0.00001 per share. As of February 28, 2012, there were issued and outstanding:

·   279,598,038 shares of Common Stock, and

·   7,750,000 shares issuable pursuant to options for the purchase of Common Stock.

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Common Stock

Holders of the Common Stock are entitled to receive ratably, from funds legally available for the payment thereof, dividends when and as declared by resolution of the Board of Directors, subject to any preferential dividend rights which may be granted to holders of any Preferred Stock authorized and issued by the Board of Directors. No dividends have ever been declared by the Board of Directors on the Common Stock. Holders of the Common Stock do not have cumulative voting rights and are entitled to one vote per share on all matters to be voted upon by stockholders with the result that if the holders of more than 50 percent of the shares of Common Stock voted they could elect all of the directors. The Common Stock is not entitled to preemptive rights and is not subject to redemption, including sinking fund provisions, or conversion. Upon the liquidation, dissolution or winding up of the Company, the assets, if any, legally available for distribution to stockholders, are distributable ratably among the holders of the Common Stock after payment of all classes or series of our Preferred Stock. All outstanding shares of the Common Stock are validly issued, fully-paid and nonassessable. The rights, preferences and privileges of holders of the Common Stock are subject to the preferential rights of all classes or series of Preferred Stock currently outstanding or issued in the future.

Preferred Stock

The Board of Directors has the authority, without further action by the stockholders, to issue from time to time, the Preferred Stock in one or more series and to fix the number of shares, designations, preferences, powers, and relative, participating, optional or other special rights and the qualifications or restrictions thereof. The preferences, powers, rights and restrictions of different series of Preferred Stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and other matters. The issuance of Preferred Stock could decrease the amount of any future earnings and assets available for distribution to holders of the Common Stock or affect adversely the rights and powers, including voting rights, of the holders of Common Stock. Additionally, the issuance of Preferred Stock with voting and/or conversion rights may adversely affect the voting power of the holders of the Common Stock, including the loss of voting control to others. There are presently no shares of Preferred Stock issued and outstanding.

SELLING STOCKHOLDER

Committed Equity Line Financing Facility with Mammoth Corporation

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

From time to time over the term of the Stock Purchase Agreement, and in our sole discretion, we may present Mammoth with Draw Down Notices requiring Mammoth to purchase a specified dollar amount of shares of our Common Stock at a purchase price based on the price per share over five consecutive trading days (the “Draw Down Pricing Period”), with the total dollar amount of each Draw Down subject to certain agreed-upon limitations described elsewhere in this prospectus, based on the market price of our Common Stock at the time of the Draw Down (which may not be waived or modified). We are allowed to present Mammoth with Draw Down Notices during the term of the Stock Purchase Agreement up to the maximum offering of $10,000,000, with only one such Draw Down Notice allowed per Draw Down Pricing Period and a minimum of fifteen trading days required between each Draw Down Notice.

Once presented with a Draw Down Notice, Mammoth is required to purchase the shares. The per share purchase price for these shares equals 75 percent of the lowest closing bid price of the Company’s Common Stock (as reported by the Market or quotation service on which the Company’s shares trade) during the Draw Down Pricing Period. The obligations of Mammoth under the Stock Purchase Agreement to purchase shares of our Common Stock may not be transferred to any other party.

Mammoth has agreed that during the term of the Stock Purchase Agreement, neither Mammoth nor any of its affiliates will, directly or indirectly, engage in any short sales involving our securities or grant any option to purchase, or acquire any right to dispose of or otherwise dispose for value of, any shares of our Common Stock or any securities convertible into or exercisable or exchangeable for any shares of our Common Stock, provided that Mammoth will not be prohibited from engaging in certain transactions relating to any of the shares of our Common Stock that it owns or that it is obligated to purchase under a pending Draw Down Notice.

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The Stock Purchase Agreement contains customary representations, warranties and covenants by, among and for the benefit of the parties. Before Mammoth is obligated to purchase any shares of our Common Stock pursuant to a Draw Down Notice, certain conditions specified in the Stock Purchase Agreement, none of which are in Mammoth’s control, must be satisfied, including the following:

• Each of our representations and warranties in the Stock Purchase Agreement must be true and correct in all material respects.

• We must have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required to be performed, satisfied or complied with by us.

• The registration statement of which this prospectus forms a part must be effective under the Securities Act.

• We must not have knowledge of any event that could reasonably be expected to have the effect of causing the suspension of the effectiveness of the registration statement of which this prospectus forms a part or the prohibition or suspension of the use of this prospectus.

• Trading in securities generally as reported on the principal market for our shares shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported on the principal market unless the general suspension or limitation shall have been terminated prior to the delivery of such Draw Down Notice.

• No action, suit or proceeding before any arbitrator or any governmental authority shall have been commenced, and no investigation by any governmental authority shall have been threatened, against Mammoth or the Company or any subsidiary, or any of the officers, directors or affiliates of the Company or any subsidiary seeking to restrain, prevent or change the transactions contemplated by the Stock Purchase Agreement, or seeking damages in connection with such transactions.

• No material adverse effect and no consolidation event (as defined in the Stock Purchase Agreement) where the successor entity has not agreed to perform the Company’s obligations shall have occurred.

There is no guarantee that we will be able to meet the foregoing conditions or any of the other conditions in the Stock Purchase Agreement or that we will be able to draw down any portion of the amounts available under the Equity Line with Mammoth.

The Stock Purchase Agreement may be terminated at any time by the mutual written consent of the parties. Unless earlier terminated, the Stock Purchase Agreement will terminate automatically on the 24-month anniversary of the effective date of the registration statement of which this prospectus forms a part (which term may not be extended by the parties). We may terminate the Stock Purchase Agreement on one trading day’s prior written notice to Mammoth, subject to certain conditions. Mammoth may terminate the Stock Purchase Agreement effective upon one trading day’s prior written notice to us if Mammoth has cancelled more than three Draw Downs for failure by the Company or its transfer agent to make timely delivery of the Draw Down Shares.

The Stock Purchase Agreement provides that no termination of the Stock Purchase Agreement will limit, alter, modify, change or otherwise affect any of the parties’ rights or obligations with respect to any pending Draw Down Notice, and that the parties must fully perform their respective obligations with respect to any such pending Draw Down Notice under the Stock Purchase Agreement, provided all of the conditions to the settlement thereof are timely satisfied. The Stock Purchase Agreement also provides for indemnification of Mammoth and its affiliates in the event that Mammoth incurs losses, liabilities, obligations, claims, contingencies, damages, costs and expenses related to a breach by us of any of our representations and warranties under the Stock Purchase Agreement or the other related transaction documents or any action instituted against Mammoth or its affiliates due to the transactions contemplated by the Stock Purchase Agreement or other transaction documents, subject to certain limitations.

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We agreed to pay up to $5,000 of reasonable attorneys’ fees and expenses (exclusive of disbursements and out-of-pocket expenses) incurred by Mammoth in connection with the preparation, negotiation, execution and delivery of the Stock Purchase Agreement and related transaction documentation. Further, if we issue a Draw Down Notice and fail to deliver the shares to Mammoth on the applicable settlement date, and such failure continues for 10 trading days, we agreed to pay Mammoth, in addition to all other remedies available to Mammoth under the Stock Purchase Agreement, an amount in cash equal to $100 for each $5,000 of the Draw Down Amount for the first ten (10) days such delivery is late, and $350 for each $5,000 of the Draw Down Amount for each trading day beyond 10 trading days that such delivery is late.

In connection with the Stock Purchase Agreement, on November 17, 2010, we also entered into a registration rights agreement with Mammoth, which we refer to in this prospectus as the Registration Rights Agreement, pursuant to which we granted to Mammoth certain registration rights related to the shares issuable under the Stock Purchase Agreement. Pursuant to the Registration Rights Agreement, we have filed with the SEC a registration statement, of which this prospectus is a part, relating to the Selling Stockholder’s resale of any shares of Common Stock purchased by it under the Stock Purchase Agreement. The effectiveness of this registration statement is a condition precedent to our ability to sell Common Stock to Mammoth under the Stock Purchase Agreement.

The foregoing description of the Stock Purchase Agreement and the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Stock Purchase Agreement and the Registration Rights Agreement, copies of which have been filed or incorporated by reference as exhibits to the registration statement of which this prospectus is a part.

As of February 28, 2012, the Company had submitted five Draw Down Notices in the aggregate amount of approximately $1,035,616, as follows:

Draw Down Notice Date	Shares Issued		Proceeds to Company
February 2011		582,065	$	59,000
April 2011		1,583,771	$	261,322
May 2011		2,066,096	$	396,690
September 2011		1,147,846	$	169,594
January 12		903,089	$	149,010
Totals		6,282,867	$	1,035,616

Assuming the Selling Shareholder sells into the market the shares issued in connection with the Draw Down Notices listed above, the Selling Stockholder may sell up to an additional 60,383,800 shares pursuant to this Prospectus.

We are relying on an exemption from the registration requirements of the Securities Act for the private placement of our securities under the Stock Purchase Agreement to Mammoth, pursuant to Section 4(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder. The transaction does not involve a public offering, Mammoth is an “accredited investor,” and has access to information about us and its investment.

There are substantial risks to investors as a result of the issuance of shares of our Common Stock under the Stock Purchase Agreement. These risks include dilution of stockholders, significant decline in our stock price and our ability to draw sufficient funds under the Stock Purchase Agreement when needed.

Mammoth will periodically purchase shares of our Common Stock under the Stock Purchase Agreement and will in turn, sell such shares to investors in the market at the prevailing market price. This may cause our stock price to decline, which will require us to issue increasing numbers of shares to Mammoth to raise the same amount of funds, as our stock price declines.

Mammoth and any participating broker-dealers are “underwriters” within the meaning of the Securities Act. All expenses incurred with respect to the registration of the Common Stock will be borne by us, but we will not be obligated to pay any underwriting fees, discounts, commission or other expenses incurred by the Selling Stockholder in connection with the sale of such shares.

33

Neither the Selling Stockholder nor any of its associates or affiliates has held any position, office, or other material relationship with us in the past three years.

The following table sets forth the name of the Selling Stockholder, the number of shares of Common Stock beneficially owned by the Selling Stockholder as of the date hereof and the number of shares of Common Stock being offered by the Selling Stockholder. The shares being offered hereby are being registered to permit public secondary trading, and the Selling Stockholder may offer all or part of the shares for resale from time to time. However, the Selling Stockholder is under no obligation to sell all or any portion of such shares nor is the Selling Stockholder obligated to sell any shares immediately upon effectiveness of the registration statement of which this prospectus is a part. All information with respect to share ownership has been furnished by the Selling Stockholder. The “Number of Shares Beneficially Owned After the Offering” column assumes the sale of all shares offered hereunder.

Name of Selling Stockholder	Shares of Common Stock Owned by Selling Stock-holder Prior to Offering		Shares of Common Stock Issued or Issuable to Selling Stockholder In Connection with Offering			Percentage of Common Stock Issued or Issuable to Selling Stockholder In Connection with the Offering (1)			Number of Shares of Common Stock Registered Hereunder (2)		Number of Shares of Common Stock Owned After Offering			Percentage of Common Stock Beneficially Owned After the Offering
Mammoth Corporation		0		66,666,667	(3)		100	%		66,666,667		0	(4)		0	% (4)

_____________

(1) Mammoth is prohibited by the terms of the Stock Purchase Agreement from purchasing shares of Common Stock under the Stock Purchase Agreement to the extent that such purchase of shares would result in Mammoth beneficially owning more than 4.9 percent of the then outstanding shares of our Common Stock following such purchase.  Prior to our putting shares to Mammoth in connection with the Stock Purchase Agreement, to the best of our knowledge Mammoth held no shares of our Common Stock.  The percentages set forth are not determinative of Mammoth’s beneficial ownership of our Common Stock pursuant to Rule 13d-3 or any other provision under the Exchange Act.

(2) The registration statement of which this prospectus is a part covers up to 66,666,667 shares of Common Stock issuable under the Stock Purchase Agreement.  Because the specific circumstances of the issuances under the Stock Purchase Agreement are unascertainable at this time, the precise total number of shares of our Common Stock offered by the Selling Stockholder under this registration statement cannot be fixed at this time, but cannot exceed 66,666,667 unless we file additional registration statements registering the resale of the additional shares of Common Stock.  The amount set forth represents the number of shares of our Common Stock that would be issuable, and hence offered in part hereby, assuming a put of the full $10,000,000 under the Equity Line under the Stock Purchase Agreement as of December 31, 2010.  The actual number of shares of our Common Stock offered hereby may differ according to the actual number of shares issued to Mammoth pursuant to the Stock Purchase Agreement.

(3) Includes:

6,282,867 shares issued to the Selling Stockholder in connection with Draw Down Notices submitted through February 28, 2012; and

60,383,800 shares of Common Stock issuable upon a hypothetical put of the remaining $8,964,384 available under the Stock Purchase Agreement as of February 28, 2012.  This registration statement registers only up to 66,666,667 shares of Common Stock issuable under the Stock Purchase Agreement.  Accordingly, we could not issue shares of Common Stock in excess of 66,666,667 unless we filed additional registration statements registering the resale of the additional shares of Common Stock.  For more information, please see the Risk Factors section, specifically the risk factors on pages 12 to 13 of this prospectus.

(4) Assumes a hypothetical Draw Down of the remaining $8,964,384 available under the Stock Purchase Agreement as of February 28, 2012, and the sale by Mammoth of all shares of Common Stock put to it in connection with that hypothetical Draw Down.  There is no assurance that Mammoth will sell any or all of the shares of Common Stock offered hereby.  However, Mammoth is contractually prohibited from holding shares, and we are contractually prohibited from putting shares to Mammoth that would cause Mammoth to hold shares, in excess of 4.9 percent of the then-issued and shares of our Common Stock.  The number of shares of Common Stock and the percentage indicated in the table may change based on Mammoth’s decision to sell or hold the shares.

34

PLAN OF DISTRIBUTION

This prospectus relates to the resale of up to 66,666,667 shares issued pursuant to the Stock Purchase Agreement held by the Selling Stockholder.

The Selling Stockholder and any of its pledges, donees, assignees and other successors-in-interest may, from time to time, sell any or all of their shares of our Common Stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Stockholder may use any one or more of the following methods when selling shares:

·   ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

·   block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

·   purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

·   an exchange distribution in accordance with the rules of the applicable exchange;

·   privately negotiated transactions;

·   broker-dealers may agree with the Selling Stockholder to sell a specified number of such shares at a stipulated price per share;

·   through the writing of options on the shares;

·   a combination of any such methods of sale; and

·   any other method permitted pursuant to applicable law.

The Selling Stockholder or its pledges, donees, transferees or other successors in interest, may also sell the shares directly to market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Stockholder and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal or both, which compensation as to a particular broker-dealer might be in excess of customary commissions. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk. It is possible that the Selling Stockholder will attempt to sell shares of Common Stock in block transactions to market makers or other purchasers at a price per share which may be below the then market price. The Selling Stockholder cannot assure that all or any of the shares offered in this prospectus will be issued to, or sold by, the Selling Stockholder. In addition, the Selling Stockholder and any brokers, dealers, or agents, upon effecting the sale of any of the shares offered in this prospectus, are “underwriters” as that term is defined under the Securities Act or the Exchange Act, or the rules and regulations under such acts. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by the Selling Stockholder. The Selling Stockholder may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.

The Selling Stockholder may from time to time pledge or grant a security interest in some or all of the shares of Common Stock owned by it and, if it defaults in the performance of its secured obligations, the pledgee or secured parties may offer and sell the shares of Common Stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or any other applicable provision of the Securities Act amending the list of Selling Stockholder to include the pledgee, transferee or other successors in interest as a Selling Stockholder under this prospectus.

35

The Selling Stockholder also may transfer the shares of Common Stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of Common Stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of Selling Stockholder to include the pledgee, transferee or other successors in interest as a Selling Stockholder under this prospectus.

As noted above, Mammoth is an “underwriter” within the meaning of the Securities Act in connection with the sale of our Common Stock under this prospectus. We will pay all expenses incident to the registration, offering and sale of the shares of our Common Stock to the public hereunder other than commissions, fees and discounts of underwriters, brokers, dealers and agents. If any of these other expenses exists, we expect Mammoth to pay these expenses.

The Selling Stockholder acquired the securities offered hereby in the ordinary course of business and has advised us that it has not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of its shares of Common Stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of Common Stock by the Selling Stockholder. We will file a supplement to this prospectus if the Selling Stockholder enters into a material arrangement with a broker-dealer for sale of Common Stock being registered. If the Selling Stockholder uses this prospectus for any sale of the shares of Common Stock, it will be subject to the prospectus delivery requirements of the Securities Act.

Pursuant to a requirement by the Financial Industry Regulatory Authority, or FINRA, the maximum commission or discount to be received by any FINRA member or independent broker/dealer may not be greater than eight percent of the gross proceeds received by us for the sale of any securities being registered pursuant to SEC Rule 415 under the Securities Act.

The anti-manipulation rules of Regulation M under the Exchange Act, may apply to sales of our Common Stock and activities of the Selling Stockholder. The Selling Stockholder will act independently of us in making decisions with respect to the timing, manner and size of each sale.

We have agreed to indemnify Mammoth and its controlling persons against certain liabilities, including liabilities under the Securities Act. We estimate that the expenses of the offering to be borne by us will be approximately $45,000. We will not receive any proceeds from the resale of any of the shares of our Common Stock by Mammoth. We would, however, receive proceeds from the sale of our Common Stock under the Stock Purchase Agreement.

EXPERTS

The audited consolidated financial statements of Medizone International, Inc., as of December 31, 2010 and 2011, were audited by HJ Associates & Consultants, LLP, an independent registered public accounting firm, to the extent set forth in its report and are included herein in reliance upon the authority of this firm as experts in accounting and auditing.

LEGAL MATTERS

The validity of our Common Stock offered hereby will be passed upon for us by Durham Jones & Pinegar, P.C., Salt Lake City, Utah.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Nevada Revised Statutes provide that a director or officer is not individually liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his capacity as a director or officer unless it is proven that his act or failure to act constituted a breach of his fiduciary duties as a director or officer and his breach of those duties involved intentional misconduct, fraud or a knowing violation of law.  The Articles of Incorporation or an amendment thereto may, however, provide for greater individual liability.  Furthermore, directors may be jointly and severally liable for the payment of certain distributions in violation of Chapter 78 of the Nevada Revised Statutes.

36

This provision is intended to afford to directors and officers protection against, and to limit their potential liability for, monetary damages resulting from suits alleging a breach of the duty of care by a director or officer.  As a consequence of this provision, stockholders of our Company will be unable to recover monetary damages against directors or officers for action taken by them that may constitute negligence or gross negligence in performance of their duties unless such conduct meets the requirements of Nevada law to impose such liability.  The provision, however, does not alter the applicable standards governing a director’s or officer’s fiduciary duty and does not eliminate or limit the right of our company or any stockholder to obtain an injunction or any other type of non-monetary relief in the event of a breach of fiduciary duty.

The Nevada Revised Statutes also provide that under certain circumstances, a corporation may indemnify any person for amounts incurred in connection with a pending, threatened or completed action, suit or proceeding in which he is, or is threatened to be made, a party by reason of his being a director, officer, employee or agent of the corporation or serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, if such person (a) is not liable for a breach of fiduciary duty involving intentional misconduct, fraud or a knowing violation of law or such greater standard imposed by the corporation’s articles of incorporation; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.  

Additionally, a corporation may indemnify a director, officer, employee or agent with respect to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor, if such person (a) is not liable for a breach of fiduciary duty involving intentional misconduct, fraud or a knowing violation of law or such greater standard imposed by the corporation’s articles of incorporation; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, however, indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court to be liable to the corporation or for amounts paid in settlement to the corporation, unless the court determines that the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.  To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim, issue or matter therein, the corporation shall indemnify him against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with the defense.

Our bylaws provide, among other things, that a director, officer, employee or agent of the Company will be indemnified against all expense, liability, and loss (including attorneys’ fees, judgments, fines, taxes, penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered in connection with any threatened, pending, or completed action suit, or proceeding, whether civil, criminal, administrative, or investigative provided that he or she either is not liable pursuant to Nevada Revised Statutes 78.138 (relating to liability of directors and officers to the corporation in certain instances) or acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

AVAILABLE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the Common Stock offered hereby. This prospectus, which constitutes part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedule thereto, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information regarding our Common Stock and our Company, please review the registration statement, including exhibits, schedules and reports filed as a part thereof.  We are also subject to the informational requirements of the Exchange Act which requires us to file reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information along with the registration statement, including the exhibits and schedules thereto, may be inspected at public reference facilities of the SEC at 100 F Street N.E, Washington D.C. 20549. Copies of such material can be obtained from the Public Reference Section of the SEC at prescribed rates. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. Because we file documents electronically with the SEC, you may also obtain this information by visiting the SEC’s Internet website at http://www.sec.gov.

37

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	PAGE
Report of Independent Registered Public Accounting Firm	39
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 2011 and 2010	40
Consolidated Statements of Operations and Other Comprehensive Loss, for the years ended December 31, 2011 and 2010 and from Inception on January 31, 1986 through December 31, 2011	41
Consolidated Statements of Stockholders’ Equity (Deficit) December 31, 2011 and 2010	42
Consolidated Statements of Cash Flows, for the years ended December 31, 2011 and 2010 and from Inception on January 31, 1986 through December 31, 2011	55
Notes to the Consolidated Financial Statements	56

38

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Medizone International, Inc. and Subsidiaries

(A Development Stage Company)

Sausalito, California

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

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

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

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

/s/HJ Associates & Consultants, LLP

HJ Associates & Consultants, LLP

Salt Lake City, Utah

February 28, 2012

39

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Balance Sheets

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

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

40

MEDIZONE INTERNATIONAL, INC., AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Operations and Other Comprehensive Loss

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

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

41

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity (Deficit)

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

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

42

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

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

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

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

43

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

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

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

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

44

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

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

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

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

45

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

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

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

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

46

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

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

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

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

47

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

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

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

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

48

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

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

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

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

49

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

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

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

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

50

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

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

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

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

51

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

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

 

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

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

52

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

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

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

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

53

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

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

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

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

54

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Cash Flows

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

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

55

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 1 -        ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.      Organization

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

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

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

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

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

56

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

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

a.      Organization (Continued)

Accounting standards require a VIE to be consolidated by a company if that company absorbs a majority of the VIE’s expected losses and/or receives a majority of the entity’s expected residual returns as a result of holding variable interests, which are the ownership, contractual, or other financial interests in the entity.  In addition, a legal entity is considered to be a VIE, if it does not have sufficient equity at risk to finance its own activities without relying on financial support from other parties.  If the legal entity is a VIE, then the reporting entity determined to be the primary beneficiary of the VIE must consolidate it.  The Company determined that CFGH meets the requirements of a VIE, effective upon the first advance to CFGH on February 12, 2009.  Accordingly, the financial condition and operations of CFGH are being consolidated with Medizone as of and for the periods ended December 31, 2011 and 2010.

b.      Formation of Joint Venture

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

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

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

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

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

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

57

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

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

b.      Formation of Joint Venture (Continued)

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

c.      Business Activities

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

d.      Accounting Methods

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

e.      Cash and Cash Equivalents

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

f.      Basic Loss Per Share

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

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

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

58

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

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

g.      Property and Equipment

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

h.      Provision for Taxes

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

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

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

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

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

59

MEDIZONE INTERNATIONAL, INC. AND UBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

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

h.      Provision for Taxes (Continued)

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

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

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

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

i.      Principles of Consolidation

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

All material intercompany accounts and transactions have been eliminated.

j.      Estimates

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

k.      Advertising

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

60

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

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

l.      Stock Warrants and Options

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

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

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

m.      Trademark and Patents

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

n.      Revenue Recognition Policy

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

o.      Fair Value of Financial Instruments

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

p.      Recent Accounting Pronouncements

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

61

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

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

q. Concentration of Credit Risk

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

NOTE 2 -        PROPERTY AND EQUIPMENT

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

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

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

NOTE 3 -        TRADEMARK AND PATENTS

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

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

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

62

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 4 -        ACCRUED EXPENSES AND ACCRUED EXPENSES – RELATED PARTIES

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

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

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

NOTE 5 -        COMMITMENTS AND CONTINGENCIES

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

Litigation

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

Contingent Liabilities

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

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

Operating Leases

In 2009, the Company entered into a lease agreement and established its own certified laboratory located at Innovation Park, Queen’s University in Kingston, Ontario, Canada, which will provide a primary research and development platform for the Company as it proceeds towards commercialization of its products.  The initial lease term expired on June 30, 2011, but has been extended to June 30, 2012, with a monthly lease payment increasing from $1,300 to $1,350 Canadian Dollars (“CD”) plus the applicable Goods and Services Tax (“GST”).  

63

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 5 -        COMMITMENTS AND CONTINGENCIES

Operating Leases (Continued)

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

NOTE 6 -        EQUITY TRANSACTIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

64

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

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

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

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

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

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

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

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

65

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

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

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

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

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

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

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

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

66

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

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

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

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

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

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

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

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

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

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

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

67

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

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

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

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

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

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

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

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

68

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

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

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

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

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

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

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

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

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

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

Common Stock for Cash – 2010

In January and February 2010, the Company issued an aggregate of 500,000 shares of common stock for cash proceeds totaling $125,000, or $0.25 per share.  The shares were issued in private transactions to accredited investors not otherwise affiliated with the Company.  There were no underwriters involved.

69

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

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

In July and August 2010, the Company issued an aggregate of 5,266,666 shares of common stock for cash proceeds totaling $632,000, at $0.12 per share.  These shares were issued in private transactions to accredited investors not otherwise affiliated with the Company.  There were no underwriters involved.

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

Restricted Stock for Services – 2010

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

In March 2010, the Company issued 250,000 shares of common stock to a consulting firm for investor relation services valued at $47,500, or $0.19 per share, which represented the market value of the shares on the date that the Board authorized the issuance of the shares.  The consulting agreement was based on a term through June 30, 2010, the shares vested in equal increments, and the consulting expense was recognized over the same period during 2010.  

In April 2010, the Company issued 120,000 shares of common stock in lieu of outstanding consulting fees valued at $22,800, or $0.19 per share, which represented the market value of the shares on the date that the Board authorized the issuance of the shares.  These shares had no vesting requirements.

Also, in April 2010, the Company issued 588,235 shares of common stock in satisfaction of a one-year contract with an investment firm to assist the Company in raising required capital, valued at $100,000, or $0.17 per share, which represented the market value of the shares on the date that the Board authorized the issuance of the shares.  The Company recognized this as a stock issuance cost at the date of issuance and such shares had no vesting requirements.

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

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

70

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

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

In August 2010, the Company issued 118,839 shares of common stock in lieu of outstanding consulting fees valued at $32,086, or $0.27 per share, which represented the market value of the shares on the date that the Board authorized the issuance of the shares.  An additional 1,000,000 shares of common stock were approved and issued to this same consultant in September 2010, as bonus compensation for extending his consulting agreement.  These shares were valued at $270,000, or $0.27 per share, which represented the market value of the shares on the date that the Board authorized the issuance of the shares.  

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

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

These sales and grants were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors, and the exemptions provided under Regulation D and Rule 506 under the Securities Act for private and limited offers and sales of securities made to accredited investors.  

Common Stock for Cash – 2011

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

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

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

71

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

Common Stock for Cash – 2011

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

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

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

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

Recapitalization

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

Stock Purchase Agreement

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

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

72

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

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

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

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

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

ADA Innovations

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

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

73

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

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

NOTE 7 -        COMMON STOCK WARRANTS AND OPTIONS

Warrants

All outstanding warrants were either exercised or expired unexercised prior to the year ended December 31, 2009, thus there are no warrants outstanding as of December 31, 2011 and 2010.  In June 2009, and various dates over the past several years, the Company’s Board agreed to extend the expiration date on certain outstanding warrants to purchase common stock to August 19, 2009.  The Company estimates the fair value of each stock award or expiration extension at the grant date or extension date by using the Black-Scholes option pricing model, which model requires the use of exercise behavior data and the use of a number of assumptions including volatility of the Company’s stock price, the weighted average risk-free interest rate, and the weighted average expected life of the warrants.

Because the Company does not pay dividends, the dividend rate variable in the Black-Scholes model is zero.  Under the provisions of this accounting standard, additional expense of $105,393 was recorded for the year ended December 31, 2009, under the Black-Scholes option pricing model for these warrant extensions.

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

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

74

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 7 -        COMMON STOCK WARRANTS AND OPTIONS (Continued)

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

Options

On August 26, 2009, the Company granted a total of 1,000,000 options to a Company director with an exercise price of $0.10 per share, exercisable for up to five years.  On the same date, the Company granted an additional 1,500,000 options to an outside consultant for services rendered, with an exercise price of $0.10 per share, exercisable for up to five years, but including vesting provisions as follows: i) 500,000 of the options vested immediately on the date of grant, ii) 500,000 options will vest on the date certified by the Company as the date the Company’s hospital sterilization program completes its beta-testing, and iii) the remaining 500,000 options will vest on the date certified by the Company as the date that the Company’s process has been commercialized and a minimum of fifty units or devices have been sold to third parties by the Company.  As of December 31, 2011 and 2010, 1,000,000 of the 1,500,000 options granted to this consultant had not yet vested.  

In March 2010, the Company granted 250,000 options to an individual for research and development consulting services to be rendered through September 2010.  The options have an exercise price of $0.19 per share, and are exercisable for up to five years.  The value of these options granted, totaling $46,094, was recognized during 2010.

In July 2010, the Company granted a total of 3,500,000 options to certain board members and employees of the Company as additional compensation for work performed.  These options are exercisable at $0.20 per share, are exercisable for five years, but do not vest until the Company has achieved commercial sales.  As of December 31, 2011 and 2010, none of these options had vested.  The value of these options granted, totaling $710,577, will be recorded in the future once the Company has achieved commercial sales.

Also, in July 2010, the Company granted 1,000,000 options to a director of the Company in lieu of an actual stock grant for his services as a board member (see Note 6 for additional discussion on common shares issued to other board members for board service).  These options are exercisable at $0.20 per share, are exercisable for five years, and had no vesting provisions.  The value of these options granted, totaling $203,022, was recognized as board compensation during July 2010.

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

In September 2010, the Company granted 250,000 options to an outside consultant in connection with extending his consulting agreement with the Company through September 2011.  These options are exercisable at $0.275 per share, are exercisable for five years, but do not vest until the Company has achieved commercialization and sales of the AsepticSure™ product.  As of December 31, 2011 and 2010, none of these options had vested.  The value of these options granted, totaling $65,067, will be recorded in the future once the Company has achieved the required commercial sales.

75

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 7 -        COMMON STOCK WARRANTS AND OPTIONS (Continued)

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

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

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

Risk-free interest rate	2.43%
Expected life	5 years
Expected volatility	176.45%
Dividend yield	0.00%

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

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

As previously discussed, the Company estimates the fair value of each stock award by using the Black-Scholes option pricing model, which model requires the use of exercise behavior data and the use of a number of assumptions including volatility of the Company’s stock price, the weighted average risk-free interest rate, and the weighted average expected life of the options. Because the Company does not pay dividends, the dividend rate variable in the Black-Scholes model is zero.  Under the provisions of this accounting standard, additional expense of $33,403 and $249,115 was recorded for the years ended December 31, 2011 and 2010, respectively, under the Black-Scholes option pricing model.  An additional amount of $67,465 has been capitalized as patent costs during 2010, as previously mentioned, which costs will be amortized over the expected useful life of the patents.  An additional expense of $873,042 will be expensed in the future as the additional vesting requirements are met.

NOTE 8 -        PROTOTYPE AGREEMENT

In June 2010, the Company entered into a six-month “Prototype Evaluation Agreement” (“Prototype Agreement”) with a company to produce a prototype AsepticSure™ system apparatus prior to August 24, 2010 and a second prototype apparatus prior to September 24, 2010.  As additional consideration for the assistance provided by this company pursuant to this Prototype Agreement, the Company has agreed to issue 1,000,000 shares of common stock upon the Company’s acceptance of the completed prototype apparatuses, with any required changes agreed to, as being ready for regular production.  This did not happen, however, prior to December 31, 2010, thus no shares have been issued and the Prototype Agreement was not renewed.

76

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

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

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

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

NOTE 10 -      NOTES PAYABLE

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

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

The aggregate principal maturities of notes payable are as follows:

Year Ended December 31,	Amount
2012	$	283,249

77

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 11 -      DEBT FORGIVENESS

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

NOTE 12 -      GOING CONCERN

The Company’s consolidated financial statements are prepared using US GAAP applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  The Company has incurred significant losses from its inception through December 31, 2011, which have resulted in an accumulated deficit of $26,741,298 at December 31, 2011.  The Company has funds sufficient to cover its operating costs for the next few months, has a working capital deficit of approximately $3,264,298, and has relied exclusively on debt and equity financing.  Accordingly, there is substantial doubt about its ability to continue as a going concern.

Continuation of the Company as a going concern is dependent upon obtaining additional capital and ultimately, upon the Company’s attaining profitable operations.  The Company will require a substantial amount of additional funds to complete the development of its products, hospital beta testing, commercialization, and to fund additional losses, until revenues are sufficient to cover the Company’s operating expenses. If the Company were unsuccessful in any of the additional funding noted below, it will most likely be forced to substantially reduce or cease operations.

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

Also, during 2011, the Company raised a total of $1,545,906 through the sale of 12,679,778 shares of common stock at prices ranging from $0.08 to $0.192 per share, which funds have been used to keep the Company current in its reporting obligations under the Exchange Act and to pay certain other corporate obligations including the initial costs of development for its hospital sterilization system.  Subsequent to December 31, 2011, through the date of this report, the Company raised a total of $814,310 through the sale of 7,556,089 shares of common stock at prices ranging from $0.10 to $0.165 per share.  In addition, if the Company were to need additional resources outside the Equity Line, the Company believes the Company would be able to raise additional funds from some of the same investors who have purchased shares from 2009 to 2012, although there is no guarantee that these investors will purchase additional shares.  However, these investors have verbally committed to continue to fund the Company’s projects on a monthly basis, as needed as apparent to subsequent investments made as noted above and below in Note 14.

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

78

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 13 –     CUSTOMER DEPOSITS

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

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

NOTE 14 –     SUBSEQUENT EVENTS

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

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

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

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

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

79

MEDIZONE INTERNATIONAL, INC.

66,666,667

SHARES

COMMON STOCK

____________________

PROSPECTUS

___________________

MARCH 8, 2012

Dealer Prospectus Delivery Obligation.  Until __________, 2012 [a date which is 90 days from the effective date of this Post-effective Amendment], all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus.  This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Part II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.  Other Expenses of Issuance and Distribution

The following is an estimate of the expenses that will be incurred by the Company in connection with the issuance and distribution of the securities being registered.

SEC Registration Fee	$	1,548
Accounting Fees and Expenses*	$	8,200
Legal Fees and Expenses*	$	50,000
Blue Sky Fees and Expenses*	$	15,000
Printing and Engraving*	$	3,000
Miscellaneous*	$	5,000
Total Estimated Expenses*	$	82,748

* Estimated

Item 14.  Indemnification of Directors and Officers

Section 78.138 of the Nevada Revised Statutes provides that a director or officer is not individually liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his capacity as a director or officer unless it is proven that (1) his act or failure to act constituted a breach of his fiduciary duties as a director or officer and (2) his breach of those duties involved intentional misconduct, fraud or a knowing violation of law.

This provision is intended to afford to directors and officers protection against, and to limit their potential liability for, monetary damages resulting from suits alleging a breach of the duty of care by a director or officer.  As a consequence of this provision, stockholders of our company will be unable to recover monetary damages against directors or officers for action taken by them that may constitute negligence or gross negligence in performance of their duties unless such conduct falls within one of the foregoing exceptions.  The provision, however, does not alter the applicable standards governing a director’s or officer’s fiduciary duty and does not eliminate or limit the right of our company or any stockholder to obtain an injunction or any other type of non-monetary relief in the event of a breach of fiduciary duty.

Item 15.  Recent Sales of Unregistered Securities

Year Ended December 31, 2009

In February and March, 2009, we issued an aggregate of 6,666,668 shares of Common Stock for cash proceeds totaling $200,000, or $0.03 per share.  The shares were issued in private transactions to two accredited investors not otherwise affiliated with the Company.  There were no underwriters involved.  The proceeds were used for general operating expenses and to pay for the development of the AsepticSure™ hospital sterilization system.

These sales were made without registration under the Securities Act of 1933, as amended (“Securities Act”), in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors, and the exemptions provided under Regulation D and Rule 506 under the Securities Act for private and limited offers and sales of securities made to accredited investors.  

II-1

On various dates during the months of April, May and June, 2009, we sold 20,933,331 shares of Common Stock for cash proceeds received totaling $568,000, at prices ranging from $0.02 to $0.03 per share.  These shares were sold in private transactions to twenty-one accredited investors who are otherwise unrelated to the Company.  No agent or broker was used in connection with the offer or sale of these securities.  The proceeds from these sales were used to pay general administrative expenses and for research and development.

Also during the year ended December 31, 2009, we issued 1,953,497 shares of Common Stock to five different outside consultants, valued at $102,350 or prices ranging from $0.036 to $0.10 per share, the market value of the shares on the date that the shares were approved to be issued.  $81,139 of the $102,350 consulting expense was recognized during the year ended December 31, 2009, with the remaining $21,211 recorded as deferred consulting fees, to be recognized monthly over the remaining term of the agreements.

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

During August 2009, we issued a total of 5,126,265 shares of Common Stock to two separate Company directors as the result of a cashless exercise of a total of 6,487,408 outstanding stock options.  The stock options were exercisable at prices ranging from $0.02 to $0.05 per share, but included a cashless provision of exercise.  Therefore, no cash proceeds were received us as a result of this stock issuance.  Each of these directors is an accredited investor for purposes of Section 4(2) and Regulation D under the Securities Act.  The shares issued were restricted shares and the certificates representing such shares were marked with an appropriate restrictive legend indicating that the transfer or sale of such securities was restricted in the absence of registration or an exemption from registration available to the sellers under the Securities Act.

We issued 6,191,066 shares of Common Stock for cash proceeds received during October, November and December 2009 totaling $495,040, at prices ranging from $0.06 to $0.25 per share.  These shares were issued in private transactions to twenty accredited investors not otherwise affiliated with the Company.  There were no underwriters involved.  The proceeds were used for general operating expenses and to pay for the development of the AsepticSure™ hospital sterilization system.

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

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

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

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

Effective December 14, 2009, our Board of Directors approved the issuance of a total of 312,500 restricted shares of Common Stock to Solwin Investments Limited (Solwin), a New Zealand corporation controlled by Richard Solomon, a director of the Company, pursuant to a Termination Agreement.  The shares were valued at $0.40 per share, which represented an approximate 4.0% premium over the market value of the shares on the date of the agreement.  The shares were issued as full consideration for the early termination of the Licensing Agreement and the Managing Agent Agreement, and to retain all rights and licenses originally granted to Medizone New Zealand, Limited (MNZ), a New Zealand corporation.  Also as part of the Termination Agreement, we assigned our ownership rights and shares in MNZ back to Solwin.  

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

II-2

Year Ended December 31, 2010

In January and February, 2010, we issued an aggregate of 500,000 shares of common stock for cash proceeds totaling $125,000, or $0.25 per share.  There were no underwriters involved.  These shares were issued in private transactions to a total of four accredited investors not otherwise affiliated with the Company without registration in reliance on exemptions from registration, including the exemption under Section 4(2) of the Securities Act.  

In April, May and June 2010, we issued an additional 3,622,777 shares of common stock for cash proceeds totaling $441,400, at prices ranging from $0.12 to $0.18 per share.  We also paid stock offering costs to an investment firm of $10,000 who assisted us in raising these funds.  These shares were issued in private transactions to a total of 13 accredited investors not otherwise affiliated with the Company without registration in reliance on exemptions from registration, including the exemption under Section 4(2) of the Securities Act.  

In July and August 2010, we issued an additional 5,266,666 shares of common stock for cash proceeds totaling $632,000, at $0.12 per share.  These shares were issued in private transactions to a total of 21 accredited investors not otherwise affiliated with the Company.  All of these proceeds received were used for general operating expenses and to pay for the development of the AsepticSure™ hospital sterilization system.  These sales were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors.

During February 2010, we issued a total of 137,000 restricted shares of common stock to two consultants for consulting, marketing, and web support services valued at a total of $39,730, or $0.29 per share, which represented the market value of the shares on the date that our Board of Directors authorized the issuance of the shares.  Both consulting agreements were based on a five-month term through June 30, 2010, the shares vested in equal increments, and the consulting expense was recognized over the same period during 2010.  These grants were made without registration under the Securities Act, in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2).

On March 29, 2010, we issued a total of 250,000 restricted shares of common stock to a consulting firm for investor relation services valued at $47,500, or $0.19 per share, which represented the market value of the shares on the date that the Board of Directors authorized the issuance of the shares.  The consulting agreement is for the period of April 1, 2010 through June 30, 2010.  This grant was made without registration under the Securities Act, in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2).

On April 9, 2010, we issued a total of 588,235 restricted shares of common stock in satisfaction of a one-year contract with an investment firm to assist the Company in raising required capital, valued at $100,000, or $0.17 per share, which represented the market value of the shares on the date that the Board of Directors authorized the issuance of the shares.  This grant was made without registration under the Securities Act, in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2).

On April 12, 2010, we issued 120,000 restricted shares of common stock in lieu of outstanding consulting fees totaling $22,800, or $0.19 per share, which represented the market value of the shares on the date that the Board of Directors authorized the issuance of the shares. This grant was made without registration under the Securities Act, in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2).

On July 8, 2010, we issued 135,000 restricted shares of common stock to an investor relations company pursuant to a one-year agreement through July 15, 2011.  The shares were valued at $25,650, or $0.19 per share, which represented the market value of the shares on the date that the Board of Directors authorized the issuance of shares.  The shares vest in equal increments and the expense is being recorded over the period of the agreement. This grant was made without registration under the Securities Act, in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2).

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

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On August 26, 2010, we issued a total of 225,000 restricted shares of common stock to two consultants for consulting, marketing, and web support services valued at a total of $60,750, or $0.27 per share, which represented the market value of the shares on the date that our Board of Directors authorized the issuance of the shares.  The first agreement was for the period of July 15, 2010 through March 31, 2011.  The second agreement was for the period of August 26, 2010 through August 26, 2011. For both agreements, the shares vest in equal increments and the consulting expense is recognized over the period of the contracts.  These grants were made without registration under the Securities Act, in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act.

Also on August 26, 2010, we issued 118,839 restricted shares of common stock in lieu of outstanding consulting fees totaling $32,086, or $0.27 per share, which represented the market value of the shares on the date that the Board of Directors authorized the issuance of the shares.  An additional 1,000,000 restricted shares of common stock were approved and issued to this same consultant on September 1, 2010, as bonus compensation for extending his consulting agreement through September 1, 2011.  These shares were valued at $270,000, or $0.27 per share, which represented the market value of the shares on the date that the Board of Directors authorized the issuance of the shares.  

In October and December 2010, we issued an aggregate of 1,472,222 shares of common stock for cash proceeds totaling $185,000, at prices ranging from $0.12 to $0.18 per share.  The shares were issued in private transactions to accredited investors not otherwise affiliated with the Company.  There were no underwriters involved. These sales and issuances of shares for services rendered were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors.   

In November 2010, we issued 125,000 shares of common stock to an individual, as a performance bonus for research and development consulting services rendered as of the date of issuance, valued at $31,250, or $0.25 per share, which represented the market value of the shares on the date that the Board authorized the issuance of the shares.  The recognized this expense at the date of issuance and such shares had no vesting requirements. These issuances of shares for services rendered were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made solely to accredited investors.

 In December 2010, we issued 100,000 shares of common stock to an individual, as part of a web services and media representation consulting agreement, valued at a total cost of $18,000, or $0.18 per share, which represented the market value of the shares on the date that the Board authorized the issuance of the shares.  The consulting agreement is for the year of 2011, the shares vest in equal increments, and such expense will be recognized over the period of such agreement. These issuances of shares for services rendered were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made solely to accredited investors.

Year Ended December 31, 2011

During February 2011, the Company issued 582,065 shares of common stock to Mammoth, an accredited investor (as part of the Equity Line), for cash proceeds of $59,000 (net of $4,300 of stock issuance costs) at a price of $0.10875 per share.  There were no underwriters involved.  These sales were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors.

During March 2011, the Company sold an aggregate of 1,000,000 restricted shares of common stock that were subscribed for as of March 31, 2011 and issued in April 2011.  The purchasers of these shares were two accredited investors, not otherwise affiliated with the Company.  The Company received cash proceeds of $120,000, or $0.12 per share in connection with these sales.  There were no underwriters involved.  These sales were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors.

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During April and May 2011, the Company issued 3,649,867 shares of common stock to Mammoth (as part of the Equity Line) for cash proceeds of $658,012.  The sales were made pursuant to two separate “Draw Down Notices” issued by the Company under the Stock Purchase Agreement. The first notice was effective May 18, 2011, for 1,583,771 shares and proceeds of $261,322, or approximately $0.165 per share.  The second notice was effective June 16, 2011, for 2,066,096 shares and proceeds of $396,690, or approximately $0.192 per share.  There were no underwriters involved.  These sales were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors.

During April, May and June 2011, the Company sold an aggregate of 4,625,000 restricted shares of common stock, to accredited investors, not otherwise affiliated with the Company, for cash proceeds of $370,000 at a price of $0.08 per share.  There were no underwriters involved.  These sales were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors.

During June 2011, the Company entered into a transaction, with an accredited investor not otherwise affiliated with the Company, for 125,000 restricted shares of common stock that were subscribed for as of June 30, 2011 and issued in July 2011, for cash proceeds of $10,000 at a price of $0.08 per share.  There were no underwriters involved.  These sales were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors.

During September 2011, the Company issued 1,147,846 shares of common stock to Mammoth (as part of the Equity Line) for cash proceeds of $169,594, at a price of $0.14775 per share.  There were no underwriters involved.  These sales were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors.

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

Subsequent to Year Ended December 31, 2011

During January and February 2012, the Company sold an aggregate of 6,653,000 restricted shares of common stock, to approximately 30 accredited investors, for cash proceeds of $665,300 at a price of $0.10 per share.  There were no underwriters involved.  These sales were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors.

During January 2012, the Company issued 903,089 shares of common stock to Mammoth (as part of the Equity Line) for cash proceeds of $149,010, at a price of $0.165 per share.  There were no underwriters involved.  These sales were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors.

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Item 16.  Exhibits and Financial Statement Schedules

The following is a complete list of Exhibits filed as part of this Registration Statement:

(a)  Exhibits

Exhibit No.	Description
2	Agreement and Plan of Reorganization, March 12, 1986 (1)
3(i)(a)	Articles of Incorporation (1)
3(i)(b)	Articles of Amendment to Articles of Incorporation (2)
3(i)(c)	Articles of Amendment to Articles of Incorporation (3)
3(ii)	Bylaws (1)
5	Opinion re Legality (9)
10(a)	Letter of Understanding (4)
10(b)	Termination of Joint Venture (5)
10(c)	Stock Purchase Agreement (6)
21	Subsidiaries of Registrant (9)
23(a)+	Consent of HJ Associates & Consultants, LLP
23(b)	Consent of Durham Jones & Pinegar, P.C. (7)
24	Power of Attorney (8)

101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	XBRL Taxonomy Extension Definition Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase

+ Filed herewith.

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

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

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

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

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

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

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

(7) Included in Exhibit 5, above.

(8) See page II-7.

(9) Previously filed as exhibit to Registration Statement on Form S-1, effective on January 27, 2011.

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Item 17.  Undertakings

The undersigned Registrant hereby undertakes:

(1)  To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.

(2)  That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3)  To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4)  That, for the purpose of determining liability under the Securities Act to any purchaser:

(i) If the undersigned Registrant is relying on Rule 430B:

(A) Each prospectus filed by the Registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus.  As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.  Provided however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or

(ii) If the undersigned Registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.  Provided however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

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(5)  That, for the purpose of determining liability of the undersigned Registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.

(6)  Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.  In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

(7)  The undersigned Registrant hereby undertakes that:

(i) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as a part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(ii) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Post-Effective Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Sausalito, California, on the date(s) indicated below.

	MEDIZONE INTERNATIONAL, INC.
Date:            March 7, 2012	By:	/s/ Edwin G. Marshall
		Edwin G. Marshall
		Chief Executive Officer
Date:            March 8, 2012	By:	/s/ Tommy E. Auger
		Thomas (“Tommy”) E. Auger
		Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 1 has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Edwin G. Marshall
Edwin G. Marshall	Chief Executive Officer (Principal Executive Officer) and Director	3/7/12
/s/ Tommy E. Auger
Thomas (“Tommy”) E. Auger	Chief Financial Officer (Principal Financial and Accounting Officer)	3/8/12
/s/ Daniel D. Hoyt*
Daniel D. Hoyt	Director	3/8/12
/s/ Michael E. Shannon
Michael E. Shannon	President, Director, Director of Medical Affairs	3/8/12
/s/ Richard G. Solomon
Richard G. Solomon	Director	3/8/12
*By:
/s/ Edwin G. Marshall
Edwin G. Marshall, As Attorney-in-Fact

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