0001185185-17-002274.txt : 20171108 0001185185-17-002274.hdr.sgml : 20171108 20171108171313 ACCESSION NUMBER: 0001185185-17-002274 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 45 CONFORMED PERIOD OF REPORT: 20170930 FILED AS OF DATE: 20171108 DATE AS OF CHANGE: 20171108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDIZONE INTERNATIONAL INC CENTRAL INDEX KEY: 0000753772 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 870412648 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-93277-D FILM NUMBER: 171187491 BUSINESS ADDRESS: STREET 1: 350 EAST MICHIGAN AVENUE STREET 2: SUITE 500 CITY: KALAMAZOO STATE: MI ZIP: 49007 BUSINESS PHONE: (269) 202-5020 MAIL ADDRESS: STREET 1: 350 EAST MICHIGAN AVENUE STREET 2: SUITE 500 CITY: KALAMAZOO STATE: MI ZIP: 49007 FORMER COMPANY: FORMER CONFORMED NAME: MADISON FUNDING INC DATE OF NAME CHANGE: 19860413 10-Q 1 medizone10q093017.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549 
 

 
FORM 10-Q
 

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

For the quarterly period ended September 30, 2017

or

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

For the transition period from __________ to ____________

Commission File Number: 2-93277-D
 
MEDIZONE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
87-0412648
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
350 E. Michigan Ave., Suite #500, Kalamazoo, MI 49007
(Address of principal executive offices, Zip Code)
 
(269) 202-5020
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No
 
As of November 8, 2017, the registrant had 406,517,402 shares of common stock issued and outstanding.


MEDIZONE INTERNATIONAL, INC.
FORM 10-Q
TABLE OF CONTENTS
September 30, 2017
 
 
 
Page No.
Part I — Financial Information
 
 
 
 
Item 1.
 
 
 
 
 
3
 
 
 
 
4
 
 
 
 
5
 
 
 
 
6
 
 
 
Item 2.
13
 
 
 
Item 3.
17
 
 
 
Item 4.
17
 
 
 
Part II — Other Information
 
 
 
 
Item 1.
18
 
 
 
Item 2.
18
 
 
 
Item 3.
18
 
 
 
Item 4.
18
 
 
 
Item 5.
18
 
 
 
Item 6.
18
 
 
 
19


PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE
Condensed Consolidated Balance Sheets

ASSETS
 
   
 
 
September 30, 2017
(Unaudited)
   
December 31, 2016
 
Current assets:
           
Cash
 
$
60,521
   
$
398,290
 
Inventory
   
311,691
     
109,573
 
Prepaid expenses
   
37,722
     
81,666
 
Total current assets
   
409,934
     
589,529
 
Other assets:
               
Trademark and patents, net
   
126,011
     
151,444
 
Lease deposit
   
2,847
     
4,272
 
Total other assets
   
128,858
     
155,716
 
Total assets
 
$
538,792
   
$
745,245
 
 
               
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
               
                 
Accounts payable
 
$
661,771
   
$
459,654
 
Accounts payable – related parties
   
19,704
     
-
 
Accrued expenses
   
622,620
     
592,621
 
Accrued expenses – related parties
   
681,044
     
538,887
 
Other payables
   
224,852
     
224,852
 
Notes payable
   
368,419
     
297,332
 
Notes payable – related parties
   
1,624,881
     
1,617,881
 
Warrant liability
   
700,512
     
985,163
 
Total current liabilities
   
4,903,803
     
4,716,390
 
Notes payable, net of current portion
   
-
     
75,000
 
Total liabilities
   
4,903,803
     
4,791,390
 
Commitments and contingencies (Note 7)
               
 
               
Stockholders’ deficit:
               
               Preferred stock, $0.00001 par value:
               50,000,000 authorized; no shares outstanding
   
-
     
-
 
              Common stock, $0.001 par value:
                500,000,000 authorized; 404,517,402 and 393,934,068 shares issued and
                   outstanding, respectively
   
404,517
     
393,934
 
Additional paid-in capital
   
34,977,174
     
33,680,146
 
Accumulated other comprehensive loss
   
(52,398
)
   
(48,043
)
Accumulated deficit
   
(39,694,304
)
   
(38,072,182
)
Total stockholders’ deficit
   
(4,365,011
)
   
(4,046,145
)
Total liabilities and stockholders’ deficit
 
$
538,792
   
$
745,245
 

(1)
The condensed consolidated balance sheet as of December 31, 2016 has been prepared using information from the audited consolidated balance sheet as of that date.

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


MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

 
 
For the Three Months Ended
September 30,
   
For the Nine Months Ended
September 30,
 
 
 
2017
   
2016
   
2017
   
2016
 
 
                       
Revenues
 
$
-
   
$
237,000
   
$
-
   
$
237,000
 
Operating Expenses:
                               
Cost of revenues
   
-
     
200,326
     
-
     
200,326
 
General and administrative
   
335,326
     
363,209
     
1,603,869
     
858,455
 
Research and development
   
48,226
     
75,332
     
196,932
     
343,368
 
Depreciation and amortization
   
14,606
     
14,152
     
43,370
     
41,966
 
Total operating expenses
   
398,158
     
653,019
     
1,844,171
     
1,444,115
 
Loss from operations
   
(398,158
)
   
(416,019
)
   
(1,844,171
)
   
(1,207,115
)
Other income (expense):
                               
Gain on remeasurement of warrant liability
   
54,982
     
-
     
284,651
     
-
 
Interest expense
   
(27,079
)
   
(8,504
)
   
(62,627
)
   
(25,634
)
Interest income
   
6
     
2
     
25
     
66
 
Net loss
   
(370,249
)
   
(424,521
)
   
(1,622,122
)
   
(1,232,683
)
Other comprehensive loss on foreign currency translation
   
(2,163
)
   
(4,021
)
   
(4,355
)
   
(5,507
)
Total comprehensive loss
 
$
(372,412
)
 
$
(428,542
)
 
$
(1,626,477
)
 
$
(1,238,190
)
Basic and diluted net loss per common share
 
$
(0.00
)
 
$
(0.00
)
 
$
(0.00
)
 
$
(0.00
)
 
                               
Weighted average number of common shares outstanding
   
401,673,199
     
371,151,459
     
398,041,211
     
370,333,703
 

The accompanying notes are an integral part of these condensed consolidated financial statements. 
MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 
 
For the Nine Months Ended
September 30,
 
 
 
2017
   
2016
 
Cash flows from operating activities:
           
Net loss
 
$
(1,622,122
)
 
$
(1,232,683
)
  Adjustments to reconcile net loss to net cash
   used in operating activities:
               
Stock-based compensation
   
807,610
     
48,000
 
Depreciation and amortization
   
43,370
     
41,966
 
Gain on remeasurement of warrant liability
   
(284,651
)
   
-
 
Changes in operating assets and liabilities:
               
     Inventory
   
(202,118
)
   
171,491
 
     Prepaid expenses
   
82,085
     
35,815
 
     Lease deposit
   
1,425
     
-
 
     Accounts payable and accounts payable – related parties
   
221,821
     
49,637
 
     Accrued expenses and accrued expenses – related parties
   
172,156
     
97,866
 
Net cash used in operating activities
   
(780,424
)
   
(787,908
)
                 
Cash flows from investing activities:
               
Cost of registering patents
   
(17,936
)
   
(17,941
)
Net cash used in investing activities
   
(17,936
)
   
(17,941
)
 
               
Cash flows from financing activities:
               
Principal payments on notes payable and notes payable – related parties
   
(35,054
)
   
(56,534
)
Issuance of common stock for cash
   
500,000
     
160,000
 
Net cash provided by financing activities
   
464,946
     
103,466
 
Effects of foreign currency exchange rates on cash
   
(4,355
)
   
(5,507
)
Net decrease in cash
   
(337,769
)
   
(707,890
)
Cash as of beginning of the period
   
398,290
     
745,078
 
Cash as of end of the period
 
$
60,521
   
$
37,188
 
 
               
Supplemental cash flow information:
               
   Cash paid for interest
 
$
12,549
   
$
8,246
 
Supplemental disclosure of non-cash financing activities:
               
  Settlement of accounts payable and accrued expenses with notes payable – related parties
   
-
     
1,617,881
 
  Financing of insurance premiums
   
38,141
     
66,755
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE
Notes to the Condensed Consolidated Financial Statements (Unaudited)

NOTE 1     BASIS OF PRESENTATION

The financial information of Medizone International, Inc., a Nevada corporation (“Medizone), the Canadian Foundation of Global Health (“CFGH”) based in Ottawa, Canada, considered to be a variable interest entity (“VIE”) as described below, and Medizone Canada, Inc. a wholly owned subsidiary, (collectively, the “Company”), included herein is unaudited and has been prepared consistent with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all information and notes required by US GAAP for complete financial statements. These notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. In the opinion of management, these financial statements contain all adjustments (consisting solely of normal recurring adjustments) which are necessary for a fair presentation of results for the interim periods presented. The results of operations for the three and nine months ended September 30, 2017, are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.

NOTE 2     CANADIAN FOUNDATION FOR GLOBAL HEALTH

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

Accounting standards require a VIE to be consolidated by a company if that company absorbs a majority of the VIE’s expected losses and/or receives a majority of the VIE’s expected residual returns as a result of holding variable interests, which are the ownership, contractual, or other financial interests in the VIE. In addition, a legal entity may be 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 its financial statements with those of the VIE. Medizone determined that CFGH met the requirements of a VIE effective upon the first advance to CFGH on February 12, 2009. After eliminations, the operations and equity of the non-controlling interest is not material to the consolidated financial statements. Accordingly, the financial statements of CFGH have been consolidated with Medizone for all periods presented.

NOTE 3     BASIC AND DILUTED NET LOSS PER COMMON SHARE

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

 
 
For the Three Months Ended
 
 
 
September 30,
 
 
 
2017
   
2016
 
 
           
Numerator: Net loss
 
$
(370,249
)
 
$
(424,521
)
Denominator: Weighted average number of common shares outstanding
   
401,673,199
     
371,151,459
 
Basic and diluted net loss per common share
 
$
(0.00
)
 
$
(0.00
)

 
 
For the Nine Months Ended
 
 
 
September 30,
 
 
 
2017
   
2016
 
 
           
Numerator: Net loss
 
$
(1,622,122
)
 
$
(1,232,683
)
Denominator: Weighted average number of common shares outstanding
   
398,041,211
     
370,333,703
 
Basic and diluted net loss per common share
 
$
(0.00
)
 
$
(0.00
)


MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE
Notes to the Condensed Consolidated Financial Statements (Unaudited)

NOTE 3     BASIC AND DILUTED NET LOSS PER COMMON SHARE (Continued)

Common stock equivalents, consisting of options to purchase 20,315,000 shares and warrants to purchase up to $1,000,000 of common stock, with the number of shares determined based on a 40% discount of the 20-day average stock price prior to the date of exercise, and a warrant to purchase 750,000 shares of common stock at a specified price have not been included in the calculation as their effect is antidilutive for the periods presented.

NOTE 4     GOING CONCERN

The Company’s condensed consolidated financial statements are prepared assuming the Company is a going concern and contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred significant recurring losses from its inception through September 30, 2017, which have resulted in an accumulated deficit of $39,694,304 as of September 30, 2017. The Company has minimal cash, has a working capital deficit of $4,493,869, and a total stockholders’ deficit of $4,365,011 as of September 30, 2017. The Company has relied almost exclusively on debt and equity financing to sustain its operations. Accordingly, there is a substantial doubt about the Company’s 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 substantial additional funds to continue to develop its products, manufacture products, and fund additional losses, until revenues are sufficient to cover the Company’s operating expenses. If the Company is unsuccessful in obtaining the necessary additional funding, it will most likely be forced to substantially reduce or cease its operations or seek protection under U.S. bankruptcy laws.

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

During the nine months ended September 30, 2017, the Company raised gross cash proceeds totaling $500,000 through the sale of 8,333,334 shares of common stock at a price of $0.06 per share in a private offering to accredited investors, which included the Company’s Chairman and Interim CEO and an independent director.

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

NOTE 5     INVENTORY

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

NOTE 6     WARRANT LIABILITY

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

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE
Notes to the Condensed Consolidated Financial Statements (Unaudited)

NOTE 6     WARRANT LIABILITY (Continued)

In October 2016, the Company issued warrants to purchase from the Company up to $1,000,000 in common stock with the number of shares determined based on a 40% discount to the 20-day average stock price prior to the date of exercise. The warrants are exercisable between January 31, 2017 and January 30, 2018, at which point the outstanding warrants expire. Since the exercise price of the warrant is yet to be determined, the Company recorded a common stock warrant liability of $937,951 on the warrant’s issuance date and remeasured it at fair value on December 31, 2016 at $985,163. The warrant liability is remeasured at fair value at each quarter end until the warrant liability expires.

The estimate was calculated using the following inputs:
  
Input
 
September 30, 2017
 
Risk-free interest rate
 
 
1.06
%
Expected life
4 months
 
Expected volatility
 
 
74.10
%
Dividend yield
 
 
0.00
%
Stock price
 
$
0.06
 


As of September 30, 2017, the Company recorded a decrease in the warrant liability of $284,651 resulting from the fluctuation in the Company’s stock price. The warrant liability was $700,512 as of September 30, 2017.

NOTE 7      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 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 recorded the original default judgment in the amount of $143,000, plus fees totaling $21,308, as of September 30, 2017 and December 31, 2016, in accounts payable. The Company intends to contest the judgment if and when it is able to do so in the future.

Related Party Agreements

In July 2016, the Company converted $228,109 of accounts payable – related parties, and $1,389,772 of accrued expenses – related parties into three promissory notes payable – related parties aggregating to $1,617,881. The amounts converted represent accrued expenses and accrued wages prior to 2009 owed to certain officers and executives of the Company.

On February 28, 2017, the Company entered into separation and release agreements (Separation Agreements) with its former Chairman and CEO, Edwin Marshall, and its former Director of Operations, Dr. Jill Marshall. The Separation Agreements include principal payment schedules for the promissory notes issued to these individuals in 2016 as described in the previous paragraph and modify the terms of common stock option awards granted to them under the Company’s 2014 Equity Incentive Plan by increasing the exercise period of the grants from three months to three years following termination. The Company is currently in default with the terms of the promissory notes and is accruing interest at 5% per annum on the outstanding balance, with any payments made to be applied towards interest first.

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE
Notes to the Condensed Consolidated Financial Statements (Unaudited)

NOTE 7      COMMITMENTS AND CONTINGENCIES (Continued)

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

On September 15, 2017, the Company entered into an employment agreement with David Dodd confirming his appointment as the Company’s CEO and a member of the Board. The agreement states the terms of his employment and compensation which consists of: (1) an annual base salary of $250,000; (2) an initial target bonus of up to 65% of annual base salary based on targets established by the Board of Directors; (3) a signing bonus of 1,000,000 shares of restricted stock upon transition as CEO and an additional 1,000,000 shares of restricted stock that will best upon successful commercialization of AsepticSure in the US market; and (4) benefits as offered to other executive employees.

The Company also agreed to a change of control provision that will pay severance compensation to Mr. Dodd in the event his employment is terminated by the Company without cause or by Mr. Dodd for good reason, as defined in the agreement.

Other Payables

As of September 30, 2017, and December 31, 2016, the Company had $224,852 of past due payables for which the Company has not received statements or demands for payment for over 19 years. Although management of the Company does not believe that the amounts will be required to be paid, the amounts are recorded as other payables until such time as the Company is certain that no liability exists and until the statute of limitations has expired.

Operating Leases

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

The Company has a lease arrangement for office space in Kalamazoo, Michigan. Monthly payments are approximately $1,000 and the lease expires in February of 2018. The Company previously had a month-to-month lease for office space located in California, with monthly payments of approximately $2,556. In February 2017, the Company gave 60-days’ notice that the lease would be terminated as of April 30, 2017 and has no further obligation under the lease.

NOTE 8     EQUITY TRANSACTIONS

Recapitalization

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

Common Stock Issuances

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

During May 2017, the Company issued 250,000 restricted shares of common stock to a consultant. The fair value of the shares on the date of the grant was $17,500, or $0.07 per share. The Company recorded compensation expense of $17,500 in connection with the issuance of the shares.


MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE
Notes to the Condensed Consolidated Financial Statements (Unaudited)

NOTE 8     EQUITY TRANSACTIONS (Continued)

Common Stock Issuances (continued)

During the nine months ended September 30, 2017, the Company issued and sold 8,333,334 restricted shares of common stock at a price of $0.06 per share to accredited investors, which included the Company’s Chairman and Interim CEO, and an independent director, for net proceeds of $500,000 as part of a private offering. The market price of the Company’s common stock on the dates of these transactions ranged from $0.06 to $0.10 per share.

Common Stock Options and Awards

The Company recognizes stock-based compensation expense for grants of stock option awards, stock awards, restricted stock units and restricted stock under the Company’s Incentive Plan to employees and nonemployee members of the Company’s Board of Directors. In addition, the Company grants stock options to nonemployee consultants from time to time in consideration for services performed for the Company.

The Company’s 2016 Equity Incentive Award Plan (the “2016 Plan”) was approved on December 15, 2016 by the stockholders. The 2016 Plan replaces the Company’s 2008 Equity Incentive Plan (the “2008 Plan”), 2009 Incentive Stock Plan (the “2009 Plan”), 2012 Equity Incentive Award Plan (the “2012 Plan”), and the 2014 Equity Incentive Plan (the “2014 Plan” and, together with the 2008, 2009, and 2012 Plans, the “Prior Plans”). Options and awards previously granted under the Prior Plans that have not yet expired by their terms will remain outstanding until their expiration dates. Following adoption of the 2016 Plan, the Company no longer makes any grants or awards under the Prior Plans. The 2016 Plan replaces all previous plans and reserves a total of 10,000,000 shares of common stock for awards granted under the 2016 Plan. Under the 2016 Plan, as of September 30, 2017, the Company had granted options, net of forfeitures, for the purchase of a total of 6,650,000 shares, had awarded 2,000,000 shares with an additional 1,000,000 shares to be awarded upon achievement of certain performance milestones, leaving 350,00 options available for future grants or awards.
 
The Company estimates the fair value of each stock option 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 expected life of the options. Because the Company does not pay dividends, the dividend rate variable used in the Black-Scholes option-pricing model is zero. For the three months ended September 30, 2017 and 2016, the Company recorded stock-based compensation of $89,549 and $0, respectively. For the nine months ended September 30, 2017 and 2016, the Company recorded stock-based compensation of $807,610 and $48,000, respectively, of which $494,086, relates to options granted to employees, directors and consultants. Upon the appointment of Mr. Esposito as Interim CEO and subsequently, Mr. Dodd as CEO, the Company incurred one-time charges in aggregate of $210,000 resulting from two separate stock awards of 1,000,000 shares of common stock each. Additionally, the Company recorded a one-time charge of $89,064 relating to the modification of vesting relating to 750,000 options issued in 2014 to Mr. Esposito upon his appointment as Interim CEO. The Company also recorded a one-time charge of $14,460 of stock-based compensation expense for the modification relating to the extension of exercisability from three weeks to three years upon retirement related to Mr. Marshall and Dr. Marshall’s stock options. In June 2017, Mr. Hoyt retired from the Board and was offered the same extension of exercisability related to his options, as that was provided to Mr. Marshall and Dr. Marshall. As the stock price on the date of modification of Mr. Hoyt’s options was significantly lower than the option’s exercise price, no additional expense was recorded as the result of this modification. An additional 1,000,000 shares of common stock has been reserved as a performance award to Mr. Dodd as part of his appointment to CEO, contingent upon meeting certain performance milestones. No expense has yet been recorded in conjunction with this award as the milestones have not been met as of September 30, 2017. As of September 30, 2017, the Company had outstanding unvested options for a total of 575,000 shares with related unrecognized expense of approximately $44,000. The Company will recognize this expense over the service period or when the achievement of the required milestones becomes probable.
 
During 2017, the Company estimated the fair value of the stock options at the date of each grant based on the following weighted average assumptions:

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

 


MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE
Notes to the Condensed Consolidated Financial Statements (Unaudited)

NOTE 8     EQUITY TRANSACTIONS (Continued)

Common Stock Options and Awards (Continued)

The following is a summary of the status of the Company’s outstanding options as of September 30, 2017 and changes during the nine months then ended:
 
 
 
Number of Shares
   
Weighted Average
Exercise Price
   
Weighted Average Remaining Contractual Term (Years)
   
Aggregate Intrinsic Value
 
 
                       
As of December 31, 2016
   
20,715,000
   
$
0.143
     
2.08
   
$
261,220
 
Granted
   
6,900,000
     
0.097
                 
Expired and canceled
   
(7,300,000
)
   
0.206
                 
Exercised
   
-
     
-
                 
As of September 30, 2017
   
20,315,000
     
0.105
     
3.69
     
-
 
Exercisable
   
19,740,000
     
0.105
     
3.65
     
-
 

Warrants

During October 2016, the Company issued warrants to purchase up to $1,000,000 in common stock with the number of shares determined based on a 20-day average stock price prior to the date of exercise with the exercise prices discounted 40%. The warrants are exercisable between January 31, 2017 and January 30, 2018, at which point the outstanding warrants expire (see Note 6).

During May 2017, the Company issued a warrant to purchase up to 750,000 shares of common stock at an exercise price of $0.10 per share to a third-party consultant. The warrant will vest when certain milestones are achieved and will expire three years from the date of issuance.

NOTE 9    RECENT ACCOUNTING PRONOUNCEMENTS

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

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), simplifying the presentation of deferred income taxes on the balance sheet by requiring companies to classify everything as either a non-current asset or non-current liability. ASU No. 2015-17 is effective for annual and interim reporting periods beginning after December 15, 2016 and was adopted by the Company in the quarter ended March 31, 2017. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows.

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

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE
Notes to the Condensed Consolidated Financial Statements (Unaudited)

NOTE 9     RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU No. 2016-09 is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows, and forfeitures. ASU No. 2016-09 is effective for years ending after December 31, 2016, and was adopted by the Company in the quarter ended March 31, 2017. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows.

In October 2016, the FASB issued ASU No. 2016-17, Interests held Through Related Parties That are Under Common Control. ASU No. 2016-17 clarifies the consolidation process for the primary beneficiary of a Variable Interest Entity (VIE) should that related party have indirect interests under common control with the reporting entity. ASU No. 2016-17 is effective for years ending after December 31, 2016 and was adopted by the Company in the quarter ended March 31, 2017. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. ASU No. 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2019, with early adoption permitted for interim periods after January 1, 2017. The Company is currently assessing the potential impact ASU No. 2017-04 will have on the Company’s consolidated results of operations, financial position and cash flows.

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718). ASU No. 2017-09 provides clarity and reduces the diversity in practice and complexity in determining when additional expense should be recorded resulting from a modification to stock-based grants and awards. ASU No. 2017-09 is effective for annual periods beginning after December 15, 2017. Early adoption is permitted for interim periods. The Company is currently assessing the potential impact ASU No. 2017-09 will have on the Company’s consolidated results of operations, financial position and cash flows.
 
NOTE 10 SUBSEQUENT EVENTS

In October 2017, the Company agreed as part of a Supply and License Agreement to issue a warrant to acquire 1,000,000 shares of the Company’s common stock at $0.10 per share.  The warrants are vested immediately and have a five-year term.

Between October 1, 2017 and November 8, 2017, the Company sold 2,000,000 shares of common stock in a private offering to the CEO, who is considered to be an accredited investor (the “Fall 2017 Private Offering”), at a price of $0.05 per share, for gross proceeds of $100,000.


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

Introduction

Medizone International, Inc., a Nevada corporation (collectively with our variable interest entity or “VIE” Canadian Foundation for Global Health or “CFGH”, and our subsidiary Medizone Canada, Inc., “Medizone,” the “Company,” “we,” “us,” or “our”) is engaged in conducting research into the use of ozone in the disinfection of surgical and other medical treatment facilities and in other applications. During 2012, we began to sell our first generation patented ozone disinfection system, AsepticSure® and have been primarily focused in the field of hospital disinfection, rather than human therapies. With recent clearance from the US Environmental Protection Agency (“EPA”), we are prepared to introduce our third and latest technology commercially for use in disinfection and treatment of athletic facilities, sports equipment, preparation rooms in mortuary facilities, and remediation of buildings and hazardous cleanup sites. We are also working on obtaining appropriate clearance of our technology from the US Food and Drug Administration (“FDA”). We cannot predict when or if we will generate sufficient cash flows from operating activities to fund continuing or planned operations. If we fail to obtain additional funding, we will be forced to suspend or permanently cease operations, and may need to seek protection under U.S. bankruptcy laws.

Recent Developments

As previously reported, we submitted a 513(g) request to the FDA on May 17, 2017. We received a written response to the Company’s 513(g) from the FDA on August 22, 2017.  The FDA recommended that the Company proceed to market through the de novo classification pathway given its novel technology compared to other FDA-regulated disinfection systems. We have been in regular communication with the agency since that time and we plan to file a pre-submission packet in the fourth quarter of 2017 to continue the process of working towards securing a 510K clearance for AsepticSure. Our legal counsel, Hogan Lovells US LLP, is leading the communications with the FDA.

On August 28, 2017, Dwayne Montgomery informed the Board of his decision to resign from his position as a member of the Board and as the Chair of the Audit Committee. Mr. Montgomery’s resignation was due to personal health concerns and he also advised the Board that his decision was not based on any disagreement with the Company on any matter relating to the Company’s operations, policies or practice. Further details can be found in a Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission (“Commission”) on August 28, 2017.

On September 18, 2017, David A. Dodd was appointed as Chief Executive Officer and a member of our Board of Directors. Mr. Dodd’s business and other background and qualifications to serve as Chief Executive Officer and as a director are contained in a Current Report on Form 8-K filed by the Company with the Commission on September 19, 2017. David Esposito, the former Interim CEO, continues as Chairman of the Board.

During the nine months ended September 30, 2017, we sold 8,333,334 shares of common stock in a private offering to accredited investors (the “Spring 2017 Private Offering”) for gross proceeds of $500,000. Investors in the Spring 2017 Private Offering included our Chairman and Interim CEO and one of the Company’s independent directors, who invested a total of $410,000. The purchase price of the restricted shares was $0.06 per share. The terms of the Spring 2017 Private Offering for all investors, including the insiders, included a purchase price at a discount of up to 40% to the market price of the common stock on the date the offering terms were approved by the Board. The participation of insiders of the Company in the Spring 2017 Private Offering was approved by the disinterested members of the Board.

On October 16, 2017, we announced that we have received approval to use CE Marking on the AsepticSure® System for distribution in the European Union and its member states. CE Marking on a product is a manufacturer’s declaration that the product complies with the essential requirements of the relevant European health, safety and environmental protection legislation. Further details can be found in a Current Report on Form 8-K filed by the Company with the Commission on October 16, 2017.
 
Between October 1st and November 8th, 2017, we sold 2,000,000 shares of common stock in a private offering to our CEO, who is considered to be an accredited investor (the “Fall 2017 Private Offering”) for gross proceed of $100,000. The purchase price of the restricted shares was $0.05 per share which was the close price on the date of the investment. The participation of insiders of the Company in the Fall 2017 Private Offering was approved by the disinterested members of the Board.

In October 2017, we announced that we had entered into an exclusive Product Supply and License agreement with Innovasource, a leading manufacturer of cleaning, deodorizing and disinfecting products.

On November 1, 2017, Philip A. Theodore was appointed as Executive Vice President, Operations and Administration, General Counsel and Corporate Secretary. Mr. Theodore’s business and other background and qualifications to serve as the Executive Vice President Operations and Administration are contained in a Current Report on Form 8-K filed by the Company with the Commission on November 3, 2017.


Results of Operations

Three Months Ended September 30, 2017 and 2016

During the three months ended September 30, 2017, we continued our primary focus of identifying strategic and financial partners while we seek to expand our commercial operations in key markets around the world. Our distributors outside of the US continue to make progress in demonstrating the efficacy of AsepticSure in hospitals and in building remediation. In the US, we continue to make commercial progress with our sales channel partners in meeting with potential customers in various segments including healthcare, athletic facilities, building construction and funeral homes.

For the three months ended September 30, 2017, we had a net loss of $370,249, compared with a net loss of $424,521 for the three months ended September 30, 2016. Our primary expenses are payroll and consulting fees, research and development costs, stock-based compensation expense, office expenses, and interest expense. The decrease in net loss for the three months ended September 30, 2017, compared to the corresponding three months of 2016 was primarily due to the completion of a significant portion of our research and development work in 2016 in preparation for supporting an expansion of our commercial strategy of our AsepticSure product.

For the three months ended September 30, 2017 and 2016, we had revenue of $0 and $237,000, respectively. For the three months ended September 30, 2017 and 2016, cost of revenue was $0 and $200,326, respectively. The decrease in revenue and the associated cost of revenue decreased in 2017 was due to a lack of sales.

For the three months ended September 30, 2017 and 2016, we incurred $335,326 and $363,209, respectively, in general and administrative expenses. The majority of these expenses were payroll, consulting fees and professional fees. The decrease for the three months ended September 30, 2017, compared to the corresponding period of 2016 was primarily due to professional and legal fees associated with preparation and notification of the annual shareholder’s meeting in 2016. The Company does not currently have a shareholder meeting planned for 2017.

For the three months ended September 30, 2017 and 2016, we incurred $48,226 and $75,332, respectively, in research and development expenses. Research and development expenses include consulting fees, interface development costs, prototypes, and research-stage ozone generator and instrument development cost. The decrease for the three months ended September 30, 2017, compared to the corresponding period of 2016 was primarily due to the completion of a significant portion of our research and development work in 2016 in preparation for supporting an expansion of our commercial strategy in 2017.

Nine Months Ended September 30, 2017 and 2016

For the nine months ended September 30, 2017, we had a net loss of $1,622,122, compared with a net loss of $1,232,683 for the nine months ended September 30, 2016. The primary of these expenses were payroll and consulting fees, research and development costs, stock-based compensation expense, office expenses, and interest expense. The increase in net loss for the nine months ended September 30, 2017, compared to the corresponding nine months of 2016 was primarily due to stock-based compensation expense related to stock option grants and stock awards to our employees, directors and consultants, offset by a decrease in revenues and in research and development expenses as we advance towards commercialization of our AsepticSure product.

For the nine months ended September 30, 2017 and 2016, we had revenue of $0 and $237,000, respectively. For the nine months ended September 30, 2017 and 2016, cost of revenue was $0 and $200,326, respectively. The decrease in revenue and the associated cost of revenue decreased in 2017 was due to a lack of sales.

For the nine months ended September 30, 2017 and 2016, we incurred $1,603,869 and $858,455, respectively, in general and administrative expenses. The majority of these expenses were payroll, consulting fees and professional fees. The increase for the nine months ended September 30, 2017, compared to the corresponding period of 2016 was primarily due to stock-based compensation expense of $807,610, related to stock option grants and stock awards to our employees, directors and consultants.

For the nine months ended September 30, 2017 and 2016, we incurred $196,932 and $343,368, respectively, in research and development expenses. Research and development expenses include consulting fees, interface development costs, prototypes, and research-stage ozone generator and instrument development costs. The decrease for the nine months ended September 30, 2017, compared to the corresponding period of 2016 was primarily due to the completion of a significant portion of our research and development work in 2016 in preparation for supporting an expansion of our commercial strategy in 2017.


Principal amounts owed on notes payable totaled $368,419 and $297,332 as of September 30, 2017 and December 31, 2016, respectively. Principal amounts owed on notes payable, net of current portion totaled $75,000 as of December 31, 2016. Interest expense on these obligations for the nine months ended September 30, 2017 and 2016, was $24,350 and $25,634, respectively. The annual interest rates on notes payable ranged from 4.88% to 12.00%.

Principal amounts owed on notes payable – related parties totaled $1,624,881 and $1,617,881 as of September 30, 2017 and December 2016, respectively. We failed to make principal payments under two promissory notes owed to former executives of the Company beginning in April 2017. Under the terms of these notes, the obligations of the Company under the notes from the date of this default will bear interest until paid in full at the annual rate of 5%. As a result, we recorded interest expense of $18,697 and $37,191 during the three and nine months ended September 30, 2017, respectively.

Liquidity and Capital Resources

As of September 30, 2017, our working capital deficiency was $4,493,869, compared to a working capital deficiency of $4,126,861 as of December 31, 2016. As of September 30, 2017, we had $60,521 of available cash. During the nine months ended September 30, 2017, we issued 8,333,334 common shares at $0.06 per share for proceeds of $500,000.

We have incurred significant losses from inception through September 30, 2017, which have resulted in an accumulated deficit of $39,694,304. The stockholders’ deficit as of September 30, 2017 was $4,365,011, compared to $4,046,145 as of December 31, 2016. This change is due to proceeds from the sale of restricted shares of common stock being less than the net loss for the nine months ended September 30, 2017. We will continue to require additional financing to fund operations and to continue to test and market our disinfection system. We believe we will require funding of approximately $1,500,000 over the next 12 months, based on current operations, for: (1) continued production manufacturing and related activities; (2) research, development, and marketing activities; and (3) limited general corporate purposes.  

We anticipate that we will be able to raise additional funds, as needed, from certain of the accredited investors who have purchased shares during previous years, although we have no agreements at this time with any of these investors to purchase our securities, and there can be no assurance that these investors will purchase additional shares.

Going Concern

The ability of the Company to continue as a going concern is dependent on successfully accomplishing the plan described in the preceding paragraphs and eventually attaining profitable operations. The condensed 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.

Our unaudited condensed interim consolidated financial statements included in this report on Form 10-Q have been prepared with the assumption that we will continue as a going concern. There is substantial doubt that we will be able to continue as a going concern. Through the date of this report on Form 10-Q, we have relied almost exclusively upon financing from the sale of our equity securities to sustain operations. Additional financing will be required if we are to continue as a going concern. If we do not obtain additional financing in the near term, we will be required to curtail or discontinue operations, or seek protection under U.S. bankruptcy laws. Even if additional financing becomes available, there can be no assurance that it will be on terms favorable to us. In any event, this additional financing will likely result in immediate and possibly substantial dilution to existing stockholders.

Forward-Looking Statements and Risks

The statements contained in this report on Form 10-Q that are not historical are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements discuss our expectations, hopes, beliefs, anticipations, commitments, intentions and strategies regarding the future. They may be identified by the use of the words or phrases that include “believes,” “expects,” “anticipates,” “should,” “plans,” “estimates,” and “potential,” among others. Forward-looking statements include, but are not limited to, statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding our financial performance, revenue and expense levels in the future and the sufficiency of existing liquidity to fund future operations and capital spending needs. Actual results could differ materially from the anticipated results or other expectations expressed in such forward-looking statements for the reasons detailed in our Annual Report on Form 10-K for the year ended December 31, 2016.

We believe that many of the risks discussed in our previously issued SEC filings are part of doing business in the industry in which we operate and will likely be present in all periods reported. The fact that certain risks are endemic to the industry does not lessen their significance. The forward-looking statements contained in this report are made as of the date of this report and we assume no obligation to update them or to update the reasons why actual results could differ from those projected in such forward-looking statements.


Among others, risks and uncertainties that may affect our business, financial condition, performance, development, and results of operations include:

·
Rigorous government scrutiny and regulation of our products and planned products;
·
Potential effects of adverse publicity regarding ozone and related technologies or industries;
·
Failure to sustain or manage growth including the failure to continue to develop new products; and
·
The potential inability to obtain needed financing or to obtain funding on terms favorable to us.

Critical Accounting Policies and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”). The preparation of such statements requires our management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an on-going basis, we evaluate these estimates, including those related to intangible assets, expenses, and income taxes. We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying values of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions. 

Our inventory consists of our AsepticSure® product and is valued on a specific identification basis. We purchase our inventory as a finished product from unrelated manufacturing companies. We write off 100% of the cost of inventory that we specifically identify and consider obsolete or excessive to fulfill future sales estimates. No inventory was considered obsolete or excessive as of September 30, 2017.

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

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

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), simplifying the presentation of deferred income taxes on the balance sheet by requiring companies to classify everything as either a non-current asset or non-current liability. ASU No. 2015-17 is effective for annual and interim reporting period beginning after December 15, 2016, and we adopted this standard in the quarter ended March 31, 2017. The effect of this guidance was immaterial to our consolidated results of operations, financial position and cash flows.

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


In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU No. 2016-09 is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU No. 2016-09 is effective for years ending after December 31, 2016, and was adopted by us in the quarter ended March 31, 2017. The impact of this guidance was immaterial to our results of operations, financial position and cash flows.

In October 2016, the FASB issued ASU No. 2016-17, Interests held Through Related Parties That are Under Common Control. ASU No. 2016-17 clarifies the consolidation process for the primary beneficiary of a Variable Interest Entity (VIE) should that related party have indirect interests under common control with a reporting entity. ASU No. 2016-17 is effective for years ending after December 31, 2016, and was adopted by us in the quarter ended March 31, 2017. The effect of this guidance was immaterial to our results of operations, financial position and cash flows.

In January 2017, the FASB issued ASU No 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. ASU No. 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill charge. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2019, with early adoption permitted for interim periods after January 1, 2017. We are currently assessing the potential impact ASU No. 2017-04 will have on our consolidated results of operations, financial position and cash flows.

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

None.

Item 4.  Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of September 30, 2017, our disclosure controls and procedures were not effective due to the material weakness discussed below.

A material weakness is a deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.

During the period ended September 30, 2017, the Company identified an omission in the recording of a common stock award of 250,000 shares to a third party consultant. Management has evaluated that the material weakness set forth above and concluded that it did not have a material impact on the most recent previously filed 10-Q or on the nine months ended September 30, 2017. The Company is committed to improving the Company’s financial control capability. To the extent reasonably possible given our limited resources, we intend to address this weakness by increasing our controls surrounding all related equity issuances and financial reporting. We will continue to monitor and evaluate the effectiveness of our internal control, processes and procedures over financial reporting on an ongoing basis and are committed to taking further actions and implementing additional enhancements or improvements, as necessary and as resources allow.

Changes in Internal Control over Financial Reporting

Except as noted above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15 (f) and 15d- 15 (f) under the Exchange Act) during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

There were no material developments during the quarter ended September 30, 2017 relative to the legal matters we have previously disclosed.

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

In March 2017, we awarded our Chairman and Interim CEO 1,000,000 restricted shares of common stock as part of an employment agreement. The shares had a fair market value of $150,000 on the date of issuance.

In May 2017, we awarded a third-party consultant 250,000 restricted common shares as part of a consulting agreement. The shares had a fair market value of $17,500 on the date of the issuance. Additionally, the consultant received a warrant to purchase up to 750,000 shares of common stock at an exercise price of $0.10 per share.

In September 2017, we awarded our newly appointed CEO 1,000,000 restricted shares of common stock as part of an employment agreement. The shares had a fair market value of $60,000 on the date of issuance.

During the nine months ended September 2017, the Company issued an aggregate of 8,333,334 common shares at $0.06, per share as part of a private offering for gross proceeds of $500,000. The shares were issued without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon exemptions from registration for securities offered and sold to accredited investors in transactions under Section 4(a)(2) of the Securities Act and regulations promulgated thereunder.

Item 3.  Defaults Upon Senior Securities.

In February 2017, we entered into Separation and Termination Agreements with Edwin Marshall and Dr. Jill Marshall, former executive officers of the Company. Under the terms of these agreements, we and the Marshalls agreed to the modification of the terms of certain promissory notes previously issued by the Company to Mr. Marshall and Dr. Marshall for payment of earned and unpaid compensation. As modified, these notes required monthly principal payments to Mr. Marshall of $14,000 and to Dr. Marshall of $6,900. The notes were not to bear interest, except in the event of default. We made the first payments under the notes, but have been in default under both notes since April 2017 and owe principal payments for six months to Mr. Marshall totaling $84,000 and to Dr. Marshall totaling $41,400 for the months beginning April 2017 through September 2017. As a result, interest is now accruing on the unpaid obligations of these notes at an annual rate of 5% until the notes are paid in full.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

None.

Item 6.  Exhibits

Exhibit 31.1   
 
 
Exhibit 31.2     
 
 
Exhibit 32.1 
 
 
Exhibit 32.2 
 
 
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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MEDIZONE INTERNATIONAL, INC.
(Registrant)
 
 
/s/ David A. Dodd                                      
David A. Dodd, Chief Executive Officer (Principal Executive Officer)

/s/ Stephanie L. Sorensen                            
Stephanie L. Sorensen, Chief Financial Officer
(Principal Financial and Accounting Officer)

November 8, 2017
19
 
EX-31 2 ex31-1.htm EX-31.1

Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, David A. Dodd, certify that:

(1)           I have reviewed this quarterly report on Form 10-Q of Medizone International, Inc.;

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

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

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

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

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

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

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

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

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

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

Date: November 8, 2017

/s/ David A. Dodd                                              
David A. Dodd
Chief Executive Officer (Principal Executive Officer)

EX-31.2 3 ex31-2.htm EX-31.2
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Stephanie L. Sorensen, certify that:

(1)           I have reviewed this quarterly report on Form 10-Q of Medizone International, Inc.;

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

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

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

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

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

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

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

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

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

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

Date: November 8, 2017

/s/ Stephanie L. Sorensen                                                           
Stephanie L. Sorensen
Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1 4 ex32-1.htm EX-32.1
Exhibit 32.1
Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code

I, David A. Dodd, the Chief Executive Officer of Medizone International, Inc. (“Medizone”), certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(i)           the accompanying Form 10-Q of Medizone for the quarter ended September 30, 2017 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii)           the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Medizone.
 
/s/ David A. Dodd                                     
David A. Dodd
Chief Executive Officer (Principal Executive Officer)

November 8, 2017

EX-32.2 5 ex32-2.htm EX-32.2
Exhibit 32.2
 
Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code

I, Stephanie L. Sorensen, the Chief Financial Officer of Medizone International, Inc. (“Medizone”), certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(i)           the accompanying Form 10-Q of Medizone for the quarter ended September 30, 2017 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii)           the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Medizone.


/s/ Stephanie L. Sorensen                                  
Stephanie L. Sorensen
Chief Financial Officer
(Principal Financial and Accounting Officer)
 
November 8, 2017

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BORDER-BOTTOM: #000000 2px solid; TEXT-ALIGN: left; WIDTH: 1%; " valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; BORDER-BOTTOM: #000000 2px solid; TEXT-ALIGN: right; WIDTH: 11%; " valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">401,673,199</div> </td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; TEXT-ALIGN: left; WIDTH: 1%; white-space: nowrap;" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; TEXT-ALIGN: right; WIDTH: 1%; " valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; BORDER-BOTTOM: #000000 2px solid; TEXT-ALIGN: left; WIDTH: 1%; " valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; BORDER-BOTTOM: #000000 2px solid; TEXT-ALIGN: right; WIDTH: 11%; " valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">371,151,459</div> </td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; TEXT-ALIGN: left; WIDTH: 1%; white-space: nowrap;" valign="bottom">&#160;</td> </tr> <tr> <td style="VERTICAL-ALIGN: bottom; WIDTH: 47%; BACKGROUND-COLOR: #cceeff" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">Basic and diluted net loss per common share</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: right; WIDTH: 1%; BACKGROUND-COLOR: #cceeff" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: left; WIDTH: 1%; BACKGROUND-COLOR: #cceeff" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">$</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: right; WIDTH: 11%; BACKGROUND-COLOR: #cceeff" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">(0.00</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: left; WIDTH: 1%; BACKGROUND-COLOR: #cceeff; white-space: nowrap;" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">)</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: right; WIDTH: 1%; BACKGROUND-COLOR: #cceeff" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: left; WIDTH: 1%; BACKGROUND-COLOR: #cceeff" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">$</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: right; WIDTH: 11%; BACKGROUND-COLOR: #cceeff" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">(0.00</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: left; WIDTH: 1%; BACKGROUND-COLOR: #cceeff; white-space: nowrap;" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">)</div> </td> </tr> </table><br/><table id="z13a80a0fe0da429688b2b31529d987df" style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; WIDTH: 75%; margin-left: auto; margin-right: auto;" cellspacing="0" cellpadding="0"> <tr> <td style="VERTICAL-ALIGN: bottom; WIDTH: 47%" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: left">&#160;</div> </td> <td style="VERTICAL-ALIGN: bottom; WIDTH: 1%" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom" valign="bottom" colspan="6"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-WEIGHT: bold; TEXT-ALIGN: center">For the Nine Months Ended</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: left; WIDTH: 1%; white-space: nowrap;" valign="bottom">&#160;</td> </tr> <tr> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; WIDTH: 47%" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: left">&#160;</div> </td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; WIDTH: 1%" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; BORDER-BOTTOM: #000000 2px solid" valign="bottom" colspan="6"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-WEIGHT: bold; TEXT-ALIGN: center">September 30,</div> </td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; TEXT-ALIGN: left; WIDTH: 1%; white-space: nowrap;" valign="bottom">&#160;</td> </tr> <tr> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; WIDTH: 47%" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: left">&#160;</div> </td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; WIDTH: 1%" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; BORDER-BOTTOM: #000000 2px solid" valign="bottom" colspan="2"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-WEIGHT: bold; TEXT-ALIGN: center">2017</div> </td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; TEXT-ALIGN: left; WIDTH: 1%; white-space: nowrap;" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; WIDTH: 1%" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; BORDER-BOTTOM: #000000 2px solid" valign="bottom" colspan="2"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; 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WIDTH: 1%; BACKGROUND-COLOR: #cceeff" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: left; WIDTH: 1%; BACKGROUND-COLOR: #cceeff" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">$</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: right; WIDTH: 11%; BACKGROUND-COLOR: #cceeff" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">(0.00</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: left; WIDTH: 1%; BACKGROUND-COLOR: #cceeff; white-space: nowrap;" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">)</div> </td> </tr> </table><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">Common stock equivalents, consisting of options to purchase 20,315,000 shares and warrants to purchase up to $1,000,000 of common stock, with the number of shares determined based on a 40% discount of the 20-day average stock price prior to the date of exercise, and a warrant to purchase 750,000 shares of common stock at a specified price have not been included in the calculation as their effect is antidilutive for the periods presented.</div><br/></div> 20315000 warrants to purchase up to $1,000,000 of common stock, with the number of shares determined based on a 40% discount of the 20-day average stock price prior to the date of exercise 750000 <div style="font-family: 'Times New Roman', Times, serif; 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PADDING-BOTTOM: 2px; WIDTH: 47%" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: left">&#160;</div> </td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; WIDTH: 1%" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; BORDER-BOTTOM: #000000 2px solid" valign="bottom" colspan="6"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-WEIGHT: bold; TEXT-ALIGN: center">September 30,</div> </td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; TEXT-ALIGN: left; WIDTH: 1%; white-space: nowrap;" valign="bottom">&#160;</td> </tr> <tr> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; WIDTH: 47%" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: left">&#160;</div> </td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; WIDTH: 1%" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; BORDER-BOTTOM: #000000 2px solid" valign="bottom" colspan="2"> <div style="FONT-SIZE: 10pt; 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TEXT-ALIGN: left; WIDTH: 1%; white-space: nowrap;" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; WIDTH: 1%" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom" valign="bottom" colspan="2">&#160;</td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: left; WIDTH: 1%; white-space: nowrap;" valign="bottom">&#160;</td> </tr> <tr> <td style="VERTICAL-ALIGN: bottom; WIDTH: 47%; BACKGROUND-COLOR: #cceeff" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">Numerator: Net loss</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: right; WIDTH: 1%; BACKGROUND-COLOR: #cceeff" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: left; WIDTH: 1%; BACKGROUND-COLOR: #cceeff" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">$</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: right; WIDTH: 11%; BACKGROUND-COLOR: #cceeff" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">(370,249</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: left; WIDTH: 1%; BACKGROUND-COLOR: #cceeff; white-space: nowrap;" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">)</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: right; WIDTH: 1%; BACKGROUND-COLOR: #cceeff" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: left; WIDTH: 1%; BACKGROUND-COLOR: #cceeff" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">$</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: right; WIDTH: 11%; BACKGROUND-COLOR: #cceeff" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">(424,521</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: left; WIDTH: 1%; BACKGROUND-COLOR: #cceeff; white-space: nowrap;" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">)</div> </td> </tr> <tr> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; WIDTH: 47%; " valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: left; MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt">Denominator: Weighted average number of common shares&#160;outstanding</div> </td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; TEXT-ALIGN: right; WIDTH: 1%; " valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; BORDER-BOTTOM: #000000 2px solid; TEXT-ALIGN: left; WIDTH: 1%; " valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; BORDER-BOTTOM: #000000 2px solid; TEXT-ALIGN: right; WIDTH: 11%; " valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif">401,673,199</div> </td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; TEXT-ALIGN: left; WIDTH: 1%; white-space: nowrap;" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; TEXT-ALIGN: right; WIDTH: 1%; " valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; 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FONT-FAMILY: 'Times New Roman', Times, serif">)</div> </td> </tr> </table><table id="z13a80a0fe0da429688b2b31529d987df" style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; WIDTH: 75%; margin-left: auto; margin-right: auto;" cellspacing="0" cellpadding="0"> <tr> <td style="VERTICAL-ALIGN: bottom; WIDTH: 47%" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: left">&#160;</div> </td> <td style="VERTICAL-ALIGN: bottom; WIDTH: 1%" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom" valign="bottom" colspan="6"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-WEIGHT: bold; TEXT-ALIGN: center">For the Nine Months Ended</div> </td> <td style="VERTICAL-ALIGN: bottom; TEXT-ALIGN: left; WIDTH: 1%; white-space: nowrap;" valign="bottom">&#160;</td> </tr> <tr> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; WIDTH: 47%" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: left">&#160;</div> </td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; WIDTH: 1%" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; BORDER-BOTTOM: #000000 2px solid" valign="bottom" colspan="6"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-WEIGHT: bold; TEXT-ALIGN: center">September 30,</div> </td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; TEXT-ALIGN: left; WIDTH: 1%; white-space: nowrap;" valign="bottom">&#160;</td> </tr> <tr> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; WIDTH: 47%" valign="bottom"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: left">&#160;</div> </td> <td style="VERTICAL-ALIGN: bottom; PADDING-BOTTOM: 2px; WIDTH: 1%" valign="bottom">&#160;</td> <td style="VERTICAL-ALIGN: bottom; BORDER-BOTTOM: #000000 2px solid" valign="bottom" colspan="2"> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-WEIGHT: bold; 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FONT-FAMILY: 'Times New Roman', Times, serif">)</div> </td> </tr> </table></div> <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; "> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-WEIGHT: bold; TEXT-ALIGN: justify">NOTE 4&#160;&#160;&#160;&#160; GOING CONCERN</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">The Company&#x2019;s condensed consolidated financial statements are prepared assuming the Company is a going concern and contemplates the realization of assets and liquidation of liabilities in the normal course of business. 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This liability is to be remeasured at fair value at each reporting period, with the changes in fair value recognized as gain (loss) on remeasurement of warranty liability. The fair value of the warrants to purchase common stock is estimated using the Black-Scholes valuation model. The significant assumptions used in estimating the fair value of warrant liabilities include the exercise price, volatility of the stock underlying the warrant, risk-free interest rate, estimated fair value of the stock underlying the warrant and the estimated life of the warrant.</div><br/><div style="MARGIN-BOTTOM: 0.1pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify; MARGIN-LEFT: 0.1pt; MARGIN-RIGHT: 0.1pt">In October 2016, the Company issued warrants to purchase from the Company up to $1,000,000 in common stock with the number of shares determined based on a 40% discount to the 20-day average stock price prior to the date of exercise. 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font-size: 10pt; "> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-WEIGHT: bold">NOTE 7</font>&#160;&#160;&#160;&#160;&#160;&#160;<font style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-WEIGHT: bold">COMMITMENTS AND CONTINGENCIES</font></div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">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&#x2019;s consolidated financial position, results of operations, or cash flows.</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify"><font style="text-decoration:underline">Litigation</font></div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-STYLE: italic">Rakas vs. Medizone International, Inc</font>. - 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.&#160;The Company, however, did not have the funds to pay the settlement and the plaintiff moved the court to enter a default judgment of $143,000 in January 2002.&#160;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.&#160;The Company has been unable to post the required bond amount as of the date of this report.&#160;Therefore, the Company recorded the original default judgment in the amount of $143,000, plus fees totaling $21,308, as of&#160;September 30, 2017 and December 31, 2016, in accounts payable.&#160;The Company intends to contest the judgment if and when it is able to do so in the future.</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify"><font style="text-decoration:underline">Related Party Agreements</font></div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">In July 2016, the Company converted $228,109 of accounts payable &#x2013; related parties, and $1,389,772 of accrued expenses &#x2013; related parties into three promissory notes payable &#x2013; related parties aggregating to $1,617,881. The amounts converted represent accrued expenses and accrued wages prior to 2009 owed to certain officers and executives of the Company.</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">On February 28, 2017, the Company entered into separation and release agreements (Separation Agreements) with its former Chairman and CEO, Edwin Marshall, and its former Director of Operations, Dr. Jill Marshall. The Separation Agreements include principal payment schedules for the promissory notes issued to these individuals in 2016 as described in the previous paragraph and modify the terms of common stock option awards granted to them under the Company&#x2019;s 2014 Equity Incentive Plan by increasing the exercise period of the grants from three months to three years following termination. The Company is currently in default with the terms of the promissory notes and is accruing interest at 5% per annum on the outstanding balance, with any payments made to be applied towards interest first.<br /> </div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">On March 1, 2017, the Company entered into an employment agreement with David Esposito to fill the position of Chairman and Interim CEO. The agreement stated the terms of his employment and compensation. Mr. Esposito&#x2019;s compensation consisted of: (1) an annual base salary of $225,000; (2) a potential target bonus of up to 50% of base salary based on performance goals determined by the Board of Directors of the Company (&#x201c;Board&#x201d;); (3) equity awards, and (4) standard employee benefits, including vacation. Mr. Esposito stepped down from his position as Interim CEO upon the appointment of David Dodd as the Company&#x2019;s CEO effective September 18, 2017. 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The agreement states the terms of his employment and compensation which consists of: (1) an annual base salary of $250,000; (2) an initial target bonus of up to 65% of annual base salary based on targets established by the Board of Directors; (3) a signing bonus of 1,000,000 shares of restricted stock upon transition as CEO and an additional 1,000,000 shares of restricted stock that will best upon successful commercialization of AsepticSure in the US market; and (4) benefits as offered to other executive employees.</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">The Company also agreed to a change of control provision that will pay severance compensation to Mr. Dodd in the event his employment is terminated by the Company without cause or by Mr. Dodd for good reason, as defined in the agreement.</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify"><font style="text-decoration:underline">Other Payables</font></div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">As of September 30, 2017, and December 31, 2016, the Company had $224,852 of past due payables for which the Company has not received statements or demands for payment for over 19 years. 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Monthly payments are approximately $1,000 and the lease expires in February of 2018. The Company previously had a month-to-month lease for office space located in California, with monthly payments of approximately $2,556. 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The Company filed an amendment to modify its Articles of Incorporation with the State of Nevada on January 4, 2017, which was approved by the Secretary of State on January 24, 2017.</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify"><font style="text-decoration:underline">Common Stock Issuances</font></div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">During January 2016, the Company issued 500,000 restricted shares of common stock to a consultant. The fair value of the shares on the date of grant was $48,000, or $0.096 per share. The Company recorded compensation expense of $48,000 in connection with the issuance of the shares.</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">During May 2017, the Company issued 250,000 restricted shares of common stock to a consultant. The fair value of the shares on the date of the grant was $17,500, or $0.07 per share. The Company recorded compensation expense of $17,500 in connection with the issuance of the shares.</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">During the nine months ended September 30, 2017, the Company issued and sold 8,333,334 restricted shares of common stock at a price of $0.06 per share to accredited investors, which included the Company&#x2019;s Chairman and Interim CEO, and an independent director, for net proceeds of $500,000 as part of a private offering. 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Following adoption of the 2016 Plan, the Company no longer makes any grants or awards under the Prior Plans. The 2016 Plan replaces all previous plans and reserves a total of 10,000,000 shares of common stock for awards granted under the 2016 Plan. 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The Company also recorded a one-time charge of $14,460 of stock-based compensation expense for the modification relating to the extension of exercisability from three weeks to three years upon retirement related to Mr. Marshall and Dr. Marshall&#x2019;s stock options. In June 2017, Mr. Hoyt retired from the Board and was offered the same extension of exercisability related to his options, as that was provided to Mr. Marshall and Dr. Marshall. As the stock price on the date of modification of Mr. Hoyt&#x2019;s options was significantly lower than the option&#x2019;s exercise price, no additional expense was recorded as the result of this modification. An additional 1,000,000 shares of common stock has been reserved as a performance award to Mr. Dodd as part of his appointment to CEO, contingent upon meeting certain performance milestones. No expense has yet been recorded in conjunction with this award as the milestones have not been met as of September 30, 2017. 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The core principle of ASU No. 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU No. 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process that are required under existing US GAAP. The standard is effective for annual reporting periods beginning after December 15, 2017, and interim periods therein. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">In November 2015, the FASB issued ASU 2015-17, <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-STYLE: italic">Income Taxes (Topic 740)</font>, simplifying the presentation of deferred income taxes on the balance sheet by requiring companies to classify everything as either a non-current asset or non-current liability. ASU No. 2015-17 is effective for annual and interim reporting periods beginning after December&#160;15, 2016 and was adopted by the Company in the quarter ended March 31, 2017. The effect of this guidance was immaterial to the Company&#x2019;s consolidated results of operations, financial position and cash flows.</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">In February 2016, the FASB released ASU No. 2016-02, <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-STYLE: italic">Leases (Topic 842)</font>, to bring transparency to lessee balance sheets. ASU No. 2016-02 will require organizations that lease assets (lessees) to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU No. 2016-02 will apply to both types of leases&#x37e; capital (or finance) leases and operating leases. Previously, US GAAP has required only capital leases to be recognized on lessee balance sheets. ASU No. 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early application is permitted. The Company is assessing the impact of ASU No. 2016-02 may have on its future financial position, results of operations and liquidity.</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">In March 2016, the FASB issued ASU No. 2016-09, <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-STYLE: italic">Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting</font>. ASU No. 2016-09 is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows, and forfeitures. ASU No. 2016-09 is effective for years ending after December 31, 2016, and was adopted by the Company in the quarter ended March 31, 2017. The effect of this guidance was immaterial to the Company&#x2019;s consolidated results of operations, financial position and cash flows.</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">In October 2016, the FASB issued ASU No. 2016-17, <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-STYLE: italic">Interests held Through Related Parties That are Under Common Control</font>. ASU No. 2016-17 clarifies the consolidation process for the primary beneficiary of a Variable Interest Entity (VIE) should that related party have indirect interests under common control with the reporting entity. ASU No. 2016-17 is effective for years ending after December 31, 2016 and was adopted by the Company in the quarter ended March 31, 2017. The effect of this guidance was immaterial to the Company&#x2019;s consolidated results of operations, financial position and cash flows.</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">In January 2017, the FASB issued ASU No. 2017-04, <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-STYLE: italic">Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment&#x201d;</font>.<font style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-STYLE: italic">&#160;</font>ASU No. 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2019, with early adoption permitted for interim periods after January 1, 2017. The Company is currently assessing the potential impact ASU No. 2017-04 will have on the Company&#x2019;s consolidated results of operations, financial position and cash flows.</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; TEXT-ALIGN: justify">In May 2017, the FASB issued ASU No. 2017-09, <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-STYLE: italic">Compensation - Stock Compensation (Topic 718)</font>. ASU No. 2017-09 provides clarity and reduces the diversity in practice and complexity in determining when additional expense should be recorded resulting from a modification to stock-based grants and awards. ASU No. 2017-09 is effective for annual periods beginning after December 15, 2017. Early adoption is permitted for interim periods. The Company is currently assessing the potential impact ASU No. 2017-09 will have on the Company&#x2019;s consolidated results of operations, financial position and cash flows.</div><br/></div> <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; "> <div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; FONT-WEIGHT: bold; TEXT-ALIGN: justify">NOTE 10 SUBSEQUENT EVENTS</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; COLOR: #000000; TEXT-ALIGN: justify; LINE-HEIGHT: 11.4pt">In October 2017, the Company agreed as part of a Supply and License Agreement to issue a warrant to acquire 1,000,000 shares of the Company&#x2019;s common stock at $0.10 per share.&#160; The warrants are vested immediately and have a five-year term.</div><br/><div style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman', Times, serif; COLOR: #000000; TEXT-ALIGN: justify">Between October 1, 2017 and November 8, 2017, the Company sold 2,000,000 shares of common stock in a private offering to the CEO, who is considered to be an accredited investor (the &#x201c;Fall 2017 Private Offering&#x201d;), at a price of $0.05 per share, for gross proceeds of $100,000.</div><br/></div> 1000000 0.10 2000000 0.05 100000 EX-101.SCH 7 mzei-20170930.xsd XBRL TAXONOMY EXTENSION SCHEMA 001 - 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Document And Entity Information - shares
9 Months Ended
Sep. 30, 2017
Nov. 08, 2017
Document and Entity Information [Abstract]    
Entity Registrant Name Medizone International Inc  
Document Type 10-Q  
Current Fiscal Year End Date --12-31  
Entity Common Stock, Shares Outstanding   406,517,402
Amendment Flag false  
Entity Central Index Key 0000753772  
Entity Current Reporting Status Yes  
Entity Voluntary Filers No  
Entity Filer Category Smaller Reporting Company  
Entity Well-known Seasoned Issuer No  
Document Period End Date Sep. 30, 2017  
Document Fiscal Year Focus 2017  
Document Fiscal Period Focus Q3  
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Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
Sep. 30, 2017
Dec. 31, 2016
[1]
Current assets:    
Cash $ 60,521 $ 398,290
Inventory 311,691 109,573
Prepaid expenses 37,722 81,666
Total current assets 409,934 589,529
Other assets:    
Trademark and patents, net 126,011 151,444
Lease deposit 2,847 4,272
Total other assets 128,858 155,716
Total assets 538,792 745,245
LIABILITIES AND STOCKHOLDERS’ DEFICIT    
Accounts payable 661,771 459,654
Accounts payable – related parties 19,704 0
Accrued expenses 622,620 592,621
Accrued expenses – related parties 681,044 538,887
Other payables 224,852 224,852
Notes payable 368,419 297,332
Notes payable – related parties 1,624,881 1,617,881
Warrant liability 700,512 985,163
Total current liabilities 4,903,803 4,716,390
Notes payable, net of current portion 0 75,000
Total liabilities 4,903,803 4,791,390
Commitments and contingencies (Note 7)
Stockholders’ deficit:    
Preferred stock, $0.00001 par value: 50,000,000 authorized; no shares outstanding 0 0
Common stock, $0.001 par value: 500,000,000 authorized; 404,517,402 and 393,934,068 shares issued and outstanding, respectively 404,517 393,934
Additional paid-in capital 34,977,174 33,680,146
Accumulated other comprehensive loss (52,398) (48,043)
Accumulated deficit (39,694,304) (38,072,182)
Total stockholders’ deficit (4,365,011) (4,046,145)
Total liabilities and stockholders’ deficit $ 538,792 $ 745,245
[1] The condensed consolidated balance sheet as of December 31, 2016 has been prepared using information from the audited consolidated balance sheet as of that date.
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Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - $ / shares
Sep. 30, 2017
Dec. 31, 2016
[1]
Preferred stock, shares authorized 50,000,000 50,000,000
Preferred stock, par value (in Dollars per share) $ 0.00001 $ 0.00001
Preferred stock, shares outstanding 0 0
Common stock, shares authorized 500,000,000 500,000,000
Common stock, par value (in Dollars per share) $ 0.001 $ 0.001
Common stock, shares outstanding 404,517,402 393,934,068
Common stock, shares issued 404,517,402 393,934,068
[1] The condensed consolidated balance sheet as of December 31, 2016 has been prepared using information from the audited consolidated balance sheet as of that date.
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Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Revenues $ 0 $ 237,000 $ 0 $ 237,000
Operating Expenses:        
Cost of revenues 0 200,326 0 200,326
General and administrative 335,326 363,209 1,603,869 858,455
Research and development 48,226 75,332 196,932 343,368
Depreciation and amortization 14,606 14,152 43,370 41,966
Total operating expenses 398,158 653,019 1,844,171 1,444,115
Loss from operations (398,158) (416,019) (1,844,171) (1,207,115)
Other income (expense):        
Gain on remeasurement of warrant liability 54,982 0 284,651 0
Interest expense (27,079) (8,504) (62,627) (25,634)
Interest income 6 2 25 66
Net loss (370,249) (424,521) (1,622,122) (1,232,683)
Other comprehensive loss on foreign currency translation (2,163) (4,021) (4,355) (5,507)
Total comprehensive loss $ (372,412) $ (428,542) $ (1,626,477) $ (1,238,190)
Basic and diluted net loss per common share (in Dollars per share) $ 0.00 $ 0.00 $ 0.00 $ 0.00
Weighted average number of common shares outstanding (in Shares) 401,673,199 371,151,459 398,041,211 370,333,703
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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Cash flows from operating activities:    
Net loss $ (1,622,122) $ (1,232,683)
Adjustments to reconcile net loss to net cash used in operating activities:    
Stock-based compensation 807,610 48,000
Depreciation and amortization 43,370 41,966
Gain on remeasurement of warrant liability (284,651) 0
Changes in operating assets and liabilities:    
Inventory (202,118) 171,491
Prepaid expenses 82,085 35,815
Lease deposit 1,425 0
Accounts payable and accounts payable – related parties 221,821 49,637
Accrued expenses and accrued expenses – related parties 172,156 97,866
Net cash used in operating activities (780,424) (787,908)
Cash flows from investing activities:    
Cost of registering patents (17,936) (17,941)
Net cash used in investing activities (17,936) (17,941)
Cash flows from financing activities:    
Principal payments on notes payable and notes payable – related parties (35,054) (56,534)
Issuance of common stock for cash 500,000 160,000
Net cash provided by financing activities 464,946 103,466
Effects of foreign currency exchange rates on cash (4,355) (5,507)
Net decrease in cash (337,769) (707,890)
Cash as of beginning of the period 398,290 [1] 745,078
Cash as of end of the period 60,521 37,188
Supplemental cash flow information:    
Cash paid for interest 12,549 8,246
Settlement of accounts payable and accrued expenses with notes payable – related parties 0 1,617,881
Financing of insurance premiums $ 38,141 $ 66,755
[1] The condensed consolidated balance sheet as of December 31, 2016 has been prepared using information from the audited consolidated balance sheet as of that date.
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NOTE 1 BASIS OF PRESENTATION
9 Months Ended
Sep. 30, 2017
Disclosure Text Block [Abstract]  
Business Description and Basis of Presentation [Text Block]
NOTE 1     BASIS OF PRESENTATION

The financial information of Medizone International, Inc., a Nevada corporation (“Medizone), the Canadian Foundation of Global Health (“CFGH”) based in Ottawa, Canada, considered to be a variable interest entity (“VIE”) as described below, and Medizone Canada, Inc. a wholly owned subsidiary, (collectively, the “Company”), included herein is unaudited and has been prepared consistent with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all information and notes required by US GAAP for complete financial statements. These notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. In the opinion of management, these financial statements contain all adjustments (consisting solely of normal recurring adjustments) which are necessary for a fair presentation of results for the interim periods presented. The results of operations for the three and nine months ended September 30, 2017, are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.

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NOTE 2 CANADIAN FOUNDATION FOR GLOBAL HEALTH
9 Months Ended
Sep. 30, 2017
Disclosure Text Block [Abstract]  
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]
NOTE 2     CANADIAN FOUNDATION FOR GLOBAL HEALTH

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

Accounting standards require a VIE to be consolidated by a company if that company absorbs a majority of the VIE’s expected losses and/or receives a majority of the VIE’s expected residual returns as a result of holding variable interests, which are the ownership, contractual, or other financial interests in the VIE. In addition, a legal entity may be 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 its financial statements with those of the VIE. Medizone determined that CFGH met the requirements of a VIE effective upon the first advance to CFGH on February 12, 2009. After eliminations, the operations and equity of the non-controlling interest is not material to the consolidated financial statements. Accordingly, the financial statements of CFGH have been consolidated with Medizone for all periods presented.

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NOTE 3 BASIC AND DILUTED NET LOSS PER COMMON SHARE
9 Months Ended
Sep. 30, 2017
Earnings Per Share [Abstract]  
Earnings Per Share [Text Block]
NOTE 3     BASIC AND DILUTED NET LOSS PER COMMON SHARE

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

 
 
For the Three Months Ended
 
 
 
September 30,
 
 
 
2017
   
2016
 
 
           
Numerator: Net loss
 
$
(370,249
)
 
$
(424,521
)
Denominator: Weighted average number of common shares outstanding
   
401,673,199
     
371,151,459
 
Basic and diluted net loss per common share
 
$
(0.00
)
 
$
(0.00
)

 
 
For the Nine Months Ended
 
 
 
September 30,
 
 
 
2017
   
2016
 
 
           
Numerator: Net loss
 
$
(1,622,122
)
 
$
(1,232,683
)
Denominator: Weighted average number of common shares outstanding
   
398,041,211
     
370,333,703
 
Basic and diluted net loss per common share
 
$
(0.00
)
 
$
(0.00
)

Common stock equivalents, consisting of options to purchase 20,315,000 shares and warrants to purchase up to $1,000,000 of common stock, with the number of shares determined based on a 40% discount of the 20-day average stock price prior to the date of exercise, and a warrant to purchase 750,000 shares of common stock at a specified price have not been included in the calculation as their effect is antidilutive for the periods presented.

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NOTE 4 GOING CONCERN
9 Months Ended
Sep. 30, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Substantial Doubt about Going Concern [Text Block]
NOTE 4     GOING CONCERN

The Company’s condensed consolidated financial statements are prepared assuming the Company is a going concern and contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred significant recurring losses from its inception through September 30, 2017, which have resulted in an accumulated deficit of $39,694,304 as of September 30, 2017. The Company has minimal cash, has a working capital deficit of $4,493,869, and a total stockholders’ deficit of $4,365,011 as of September 30, 2017. The Company has relied almost exclusively on debt and equity financing to sustain its operations. Accordingly, there is a substantial doubt about the Company’s 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 substantial additional funds to continue to develop its products, manufacture products, and fund additional losses, until revenues are sufficient to cover the Company’s operating expenses. If the Company is unsuccessful in obtaining the necessary additional funding, it will most likely be forced to substantially reduce or cease its operations or seek protection under U.S. bankruptcy laws.

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

During the nine months ended September 30, 2017, the Company raised gross cash proceeds totaling $500,000 through the sale of 8,333,334 shares of common stock at a price of $0.06 per share in a private offering to accredited investors, which included the Company’s Chairman and Interim CEO and an independent director.

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

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NOTE 5 INVENTORY
9 Months Ended
Sep. 30, 2017
Inventory Disclosure [Abstract]  
Inventory Disclosure [Text Block]
NOTE 5     INVENTORY

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

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NOTE 6 WARRANT LIABILITY
9 Months Ended
Sep. 30, 2017
Disclosure Text Block [Abstract]  
Derivatives and Fair Value [Text Block]
NOTE 6     WARRANT LIABILITY

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

In October 2016, the Company issued warrants to purchase from the Company up to $1,000,000 in common stock with the number of shares determined based on a 40% discount to the 20-day average stock price prior to the date of exercise. The warrants are exercisable between January 31, 2017 and January 30, 2018, at which point the outstanding warrants expire. Since the exercise price of the warrant is yet to be determined, the Company recorded a common stock warrant liability of $937,951 on the warrant’s issuance date and remeasured it at fair value on December 31, 2016 at $985,163. The warrant liability is remeasured at fair value at each quarter end until the warrant liability expires.

The estimate was calculated using the following inputs:

Input
 
September 30, 2017
 
Risk-free interest rate
 
 
1.06
%
Expected life
4 months
 
Expected volatility
 
 
74.10
%
Dividend yield
 
 
0.00
%
Stock price
 
$
0.06
 

As of September 30, 2017, the Company recorded a decrease in the warrant liability of $284,651 resulting from the fluctuation in the Company’s stock price. The warrant liability was $700,512 as of September 30, 2017.

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NOTE 7 COMMITMENTS AND CONTINGENCIES
9 Months Ended
Sep. 30, 2017
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Disclosure [Text Block]
NOTE 7      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 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 recorded the original default judgment in the amount of $143,000, plus fees totaling $21,308, as of September 30, 2017 and December 31, 2016, in accounts payable. The Company intends to contest the judgment if and when it is able to do so in the future.

Related Party Agreements

In July 2016, the Company converted $228,109 of accounts payable – related parties, and $1,389,772 of accrued expenses – related parties into three promissory notes payable – related parties aggregating to $1,617,881. The amounts converted represent accrued expenses and accrued wages prior to 2009 owed to certain officers and executives of the Company.

On February 28, 2017, the Company entered into separation and release agreements (Separation Agreements) with its former Chairman and CEO, Edwin Marshall, and its former Director of Operations, Dr. Jill Marshall. The Separation Agreements include principal payment schedules for the promissory notes issued to these individuals in 2016 as described in the previous paragraph and modify the terms of common stock option awards granted to them under the Company’s 2014 Equity Incentive Plan by increasing the exercise period of the grants from three months to three years following termination. The Company is currently in default with the terms of the promissory notes and is accruing interest at 5% per annum on the outstanding balance, with any payments made to be applied towards interest first.

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

On September 15, 2017, the Company entered into an employment agreement with David Dodd confirming his appointment as the Company’s CEO and a member of the Board. The agreement states the terms of his employment and compensation which consists of: (1) an annual base salary of $250,000; (2) an initial target bonus of up to 65% of annual base salary based on targets established by the Board of Directors; (3) a signing bonus of 1,000,000 shares of restricted stock upon transition as CEO and an additional 1,000,000 shares of restricted stock that will best upon successful commercialization of AsepticSure in the US market; and (4) benefits as offered to other executive employees.

The Company also agreed to a change of control provision that will pay severance compensation to Mr. Dodd in the event his employment is terminated by the Company without cause or by Mr. Dodd for good reason, as defined in the agreement.

Other Payables

As of September 30, 2017, and December 31, 2016, the Company had $224,852 of past due payables for which the Company has not received statements or demands for payment for over 19 years. Although management of the Company does not believe that the amounts will be required to be paid, the amounts are recorded as other payables until such time as the Company is certain that no liability exists and until the statute of limitations has expired.

Operating Leases

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

The Company has a lease arrangement for office space in Kalamazoo, Michigan. Monthly payments are approximately $1,000 and the lease expires in February of 2018. The Company previously had a month-to-month lease for office space located in California, with monthly payments of approximately $2,556. In February 2017, the Company gave 60-days’ notice that the lease would be terminated as of April 30, 2017 and has no further obligation under the lease.

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 8 EQUITY TRANSACTIONS
9 Months Ended
Sep. 30, 2017
Disclosure Text Block Supplement [Abstract]  
Shareholders' Equity and Share-based Payments [Text Block]
NOTE 8     EQUITY TRANSACTIONS

Recapitalization

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

Common Stock Issuances

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

During May 2017, the Company issued 250,000 restricted shares of common stock to a consultant. The fair value of the shares on the date of the grant was $17,500, or $0.07 per share. The Company recorded compensation expense of $17,500 in connection with the issuance of the shares.

During the nine months ended September 30, 2017, the Company issued and sold 8,333,334 restricted shares of common stock at a price of $0.06 per share to accredited investors, which included the Company’s Chairman and Interim CEO, and an independent director, for net proceeds of $500,000 as part of a private offering. The market price of the Company’s common stock on the dates of these transactions ranged from $0.06 to $0.10 per share.

Common Stock Options and Awards

The Company recognizes stock-based compensation expense for grants of stock option awards, stock awards, restricted stock units and restricted stock under the Company’s Incentive Plan to employees and nonemployee members of the Company’s Board of Directors. In addition, the Company grants stock options to nonemployee consultants from time to time in consideration for services performed for the Company.

The Company’s 2016 Equity Incentive Award Plan (the “2016 Plan”) was approved on December 15, 2016 by the stockholders. The 2016 Plan replaces the Company’s 2008 Equity Incentive Plan (the “2008 Plan”), 2009 Incentive Stock Plan (the “2009 Plan”), 2012 Equity Incentive Award Plan (the “2012 Plan”), and the 2014 Equity Incentive Plan (the “2014 Plan” and, together with the 2008, 2009, and 2012 Plans, the “Prior Plans”). Options and awards previously granted under the Prior Plans that have not yet expired by their terms will remain outstanding until their expiration dates. Following adoption of the 2016 Plan, the Company no longer makes any grants or awards under the Prior Plans. The 2016 Plan replaces all previous plans and reserves a total of 10,000,000 shares of common stock for awards granted under the 2016 Plan. Under the 2016 Plan, as of September 30, 2017, the Company had granted options, net of forfeitures, for the purchase of a total of 6,650,000 shares, had awarded 2,000,000 shares with an additional 1,000,000 shares to be awarded upon achievement of certain performance milestones, leaving 350,00 options available for future grants or awards.

The Company estimates the fair value of each stock option 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 expected life of the options. Because the Company does not pay dividends, the dividend rate variable used in the Black-Scholes option-pricing model is zero. For the three months ended September 30, 2017 and 2016, the Company recorded stock-based compensation of $89,549 and $0, respectively. For the nine months ended September 30, 2017 and 2016, the Company recorded stock-based compensation of $807,610 and $48,000, respectively, of which $494,086, relates to options granted to employees, directors and consultants. Upon the appointment of Mr. Esposito as Interim CEO and subsequently, Mr. Dodd as CEO, the Company incurred one-time charges in aggregate of $210,000 resulting from two separate stock awards of 1,000,000 shares of common stock each. Additionally, the Company recorded a one-time charge of $89,064 relating to the modification of vesting relating to 750,000 options issued in 2014 to Mr. Esposito upon his appointment as Interim CEO. The Company also recorded a one-time charge of $14,460 of stock-based compensation expense for the modification relating to the extension of exercisability from three weeks to three years upon retirement related to Mr. Marshall and Dr. Marshall’s stock options. In June 2017, Mr. Hoyt retired from the Board and was offered the same extension of exercisability related to his options, as that was provided to Mr. Marshall and Dr. Marshall. As the stock price on the date of modification of Mr. Hoyt’s options was significantly lower than the option’s exercise price, no additional expense was recorded as the result of this modification. An additional 1,000,000 shares of common stock has been reserved as a performance award to Mr. Dodd as part of his appointment to CEO, contingent upon meeting certain performance milestones. No expense has yet been recorded in conjunction with this award as the milestones have not been met as of September 30, 2017. As of September 30, 2017, the Company had outstanding unvested options for a total of 575,000 shares with related unrecognized expense of approximately $44,000. The Company will recognize this expense over the service period or when the achievement of the required milestones becomes probable.

During 2017, the Company estimated the fair value of the stock options at the date of each grant based on the following weighted average assumptions:

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

The following is a summary of the status of the Company’s outstanding options as of September 30, 2017 and changes during the nine months then ended:

 
 
Number of Shares
   
Weighted Average
Exercise Price
   
Weighted Average Remaining Contractual Term (Years)
   
Aggregate Intrinsic Value
 
 
                       
As of December 31, 2016
   
20,715,000
   
$
0.143
     
2.08
   
$
261,220
 
Granted
   
6,900,000
     
0.097
                 
Expired and canceled
   
(7,300,000
)
   
0.206
                 
Exercised
   
-
     
-
                 
As of September 30, 2017
   
20,315,000
     
0.105
     
3.69
     
-
 
Exercisable
   
19,740,000
     
0.105
     
3.65
     
-
 

Warrants

During October 2016, the Company issued warrants to purchase up to $1,000,000 in common stock with the number of shares determined based on a 20-day average stock price prior to the date of exercise with the exercise prices discounted 40%. The warrants are exercisable between January 31, 2017 and January 30, 2018, at which point the outstanding warrants expire (see Note 6).

During May 2017, the Company issued a warrant to purchase up to 750,000 shares of common stock at an exercise price of $0.10 per share to a third-party consultant. The warrant will vest when certain milestones are achieved and will expire three years from the date of issuance.

XML 25 R14.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 9 RECENT ACCOUNTING PRONOUNCEMENTS
9 Months Ended
Sep. 30, 2017
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]  
New Accounting Pronouncements and Changes in Accounting Principles [Text Block]
NOTE 9    RECENT ACCOUNTING PRONOUNCEMENTS

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

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), simplifying the presentation of deferred income taxes on the balance sheet by requiring companies to classify everything as either a non-current asset or non-current liability. ASU No. 2015-17 is effective for annual and interim reporting periods beginning after December 15, 2016 and was adopted by the Company in the quarter ended March 31, 2017. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows.

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

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU No. 2016-09 is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows, and forfeitures. ASU No. 2016-09 is effective for years ending after December 31, 2016, and was adopted by the Company in the quarter ended March 31, 2017. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows.

In October 2016, the FASB issued ASU No. 2016-17, Interests held Through Related Parties That are Under Common Control. ASU No. 2016-17 clarifies the consolidation process for the primary beneficiary of a Variable Interest Entity (VIE) should that related party have indirect interests under common control with the reporting entity. ASU No. 2016-17 is effective for years ending after December 31, 2016 and was adopted by the Company in the quarter ended March 31, 2017. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. ASU No. 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2019, with early adoption permitted for interim periods after January 1, 2017. The Company is currently assessing the potential impact ASU No. 2017-04 will have on the Company’s consolidated results of operations, financial position and cash flows.

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

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 10 SUBSEQUENT EVENTS
9 Months Ended
Sep. 30, 2017
Subsequent Events [Abstract]  
Subsequent Events [Text Block]
NOTE 10 SUBSEQUENT EVENTS

In October 2017, the Company agreed as part of a Supply and License Agreement to issue a warrant to acquire 1,000,000 shares of the Company’s common stock at $0.10 per share.  The warrants are vested immediately and have a five-year term.

Between October 1, 2017 and November 8, 2017, the Company sold 2,000,000 shares of common stock in a private offering to the CEO, who is considered to be an accredited investor (the “Fall 2017 Private Offering”), at a price of $0.05 per share, for gross proceeds of $100,000.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 3 BASIC AND DILUTED NET LOSS PER COMMON SHARE (Tables)
9 Months Ended
Sep. 30, 2017
Earnings Per Share [Abstract]  
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
The computations of basic and diluted net loss per common share are based on the weighted average number of common shares outstanding during the periods as follows:

 
 
For the Three Months Ended
 
 
 
September 30,
 
 
 
2017
   
2016
 
 
           
Numerator: Net loss
 
$
(370,249
)
 
$
(424,521
)
Denominator: Weighted average number of common shares outstanding
   
401,673,199
     
371,151,459
 
Basic and diluted net loss per common share
 
$
(0.00
)
 
$
(0.00
)
 
 
For the Nine Months Ended
 
 
 
September 30,
 
 
 
2017
   
2016
 
 
           
Numerator: Net loss
 
$
(1,622,122
)
 
$
(1,232,683
)
Denominator: Weighted average number of common shares outstanding
   
398,041,211
     
370,333,703
 
Basic and diluted net loss per common share
 
$
(0.00
)
 
$
(0.00
)
XML 28 R17.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 6 WARRANT LIABILITY (Tables)
9 Months Ended
Sep. 30, 2017
Disclosure Text Block [Abstract]  
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Table Text Block]
The estimate was calculated using the following inputs:

Input
 
September 30, 2017
 
Risk-free interest rate
 
 
1.06
%
Expected life
4 months
 
Expected volatility
 
 
74.10
%
Dividend yield
 
 
0.00
%
Stock price
 
$
0.06
 
XML 29 R18.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 8 EQUITY TRANSACTIONS (Tables)
9 Months Ended
Sep. 30, 2017
Disclosure Text Block Supplement [Abstract]  
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]
During 2017, the Company estimated the fair value of the stock options at the date of each grant based on the following weighted average assumptions:

Risk-free interest rate
1.36% to 1.99
%
Expected life
5 years
 
Expected volatility
 
98.38% to 101.86
%
Dividend yield
 
 
0.00
%
Share-based Compensation, Stock Options, Activity [Table Text Block]
The following is a summary of the status of the Company’s outstanding options as of September 30, 2017 and changes during the nine months then ended:

 
 
Number of Shares
   
Weighted Average
Exercise Price
   
Weighted Average Remaining Contractual Term (Years)
   
Aggregate Intrinsic Value
 
 
                       
As of December 31, 2016
   
20,715,000
   
$
0.143
     
2.08
   
$
261,220
 
Granted
   
6,900,000
     
0.097
                 
Expired and canceled
   
(7,300,000
)
   
0.206
                 
Exercised
   
-
     
-
                 
As of September 30, 2017
   
20,315,000
     
0.105
     
3.69
     
-
 
Exercisable
   
19,740,000
     
0.105
     
3.65
     
-
 
XML 30 R19.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 3 BASIC AND DILUTED NET LOSS PER COMMON SHARE (Details)
9 Months Ended
Sep. 30, 2017
shares
Employee Stock Option [Member]  
NOTE 3 BASIC AND DILUTED NET LOSS PER COMMON SHARE (Details) [Line Items]  
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 20,315,000
Warrant [Member]  
NOTE 3 BASIC AND DILUTED NET LOSS PER COMMON SHARE (Details) [Line Items]  
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 750,000
Antidilutive Securities Excluded from Computation of Earnings Per Share, Description warrants to purchase up to $1,000,000 of common stock, with the number of shares determined based on a 40% discount of the 20-day average stock price prior to the date of exercise
XML 31 R20.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 3 BASIC AND DILUTED NET LOSS PER COMMON SHARE (Details) - Schedule of Earnings Per Share, Basic and Diluted - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Schedule of Earnings Per Share, Basic and Diluted [Abstract]        
Numerator: Net loss $ (370,249) $ (424,521) $ (1,622,122) $ (1,232,683)
Denominator: Weighted average number of common shares outstanding 401,673,199 371,151,459 398,041,211 370,333,703
Basic and diluted net loss per common share $ 0.00 $ 0.00 $ 0.00 $ 0.00
XML 32 R21.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 4 GOING CONCERN (Details) - USD ($)
9 Months Ended
Sep. 30, 2017
May 31, 2017
Dec. 31, 2016
[1]
Jan. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]        
Retained Earnings (Accumulated Deficit) $ (39,694,304)   $ (38,072,182)  
Working capital (deficit) (4,493,869)      
Stockholders' Equity Attributable to Parent $ (4,365,011)   $ (4,046,145)  
Substantial Doubt about Going Concern, Conditions or Events The Company believes that it will need approximately $1,500,000 during the next 12 months for continued product manufacturing, research, development and marketing activities, as well as for limited general corporate purposes.      
Proceeds from Issuance or Sale of Equity $ 500,000      
Stock Issued During Period, Shares, New Issues (in Shares) 8,333,334      
Shares Issued, Price Per Share (in Dollars per share) $ 0.06 $ 0.07   $ 0.096
[1] The condensed consolidated balance sheet as of December 31, 2016 has been prepared using information from the audited consolidated balance sheet as of that date.
XML 33 R22.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 5 INVENTORY (Details)
1 Months Ended
Dec. 31, 2016
USD ($)
Inventory Disclosure [Abstract]  
Number of Units Returned 5
Unit, Discount Rate $ 25,000
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 6 WARRANT LIABILITY (Details) - USD ($)
3 Months Ended 9 Months Ended
Oct. 21, 2016
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Dec. 31, 2016
[1]
Disclosure Text Block [Abstract]            
Warrant, Description In October 2016, the Company issued warrants to purchase from the Company up to $1,000,000 in common stock with the number of shares determined based on a 40% discount to the 20-day average stock price prior to the date of exercise.          
Common Stock Equivalents, Value $ 1,000,000          
Derivative Liability, Current $ 937,951 $ 700,512   $ 700,512   $ 985,163
Derivative, Gain (Loss) on Derivative, Net   $ 54,982 $ 0 $ 284,651 $ 0  
[1] The condensed consolidated balance sheet as of December 31, 2016 has been prepared using information from the audited consolidated balance sheet as of that date.
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 6 WARRANT LIABILITY (Details) - Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques
9 Months Ended
Sep. 30, 2017
$ / shares
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Abstract]  
Risk-free interest rate 1.06%
Expected life 4 months
Expected volatility 74.10%
Dividend yield 0.00%
Stock price (in Dollars per share) $ 0.06
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details)
1 Months Ended 9 Months Ended 12 Months Ended
Sep. 15, 2017
USD ($)
shares
Mar. 01, 2017
USD ($)
Feb. 28, 2017
May 08, 2002
USD ($)
Jul. 31, 2016
USD ($)
Sep. 30, 2017
USD ($)
shares
Sep. 30, 2017
CAD
shares
Dec. 31, 2002
USD ($)
Dec. 31, 2001
USD ($)
Jun. 30, 2017
USD ($)
Dec. 31, 2016
USD ($)
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Accounts Payable, Current           $ 661,771         $ 459,654 [1]
Number of Notes         3            
Debt Instrument, Face Amount         $ 1,617,881            
Debt Instrument, Interest Rate, Stated Percentage           5.00%          
Employment Agreement, Base Salary   $ 225,000                  
Employment Agreement, Bonus Terms   a potential target bonus of up to 50% of base salary based on performance goals determined by the Board of Directors of the Company (“Board”)                  
Employee-related Liabilities, Current           $ 123,750          
Accounts Payable, Other, Current           $ 224,852         224,852 [1]
Rakas Litigation [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Loss Contingency, Damages Sought, Value       $ 25,000              
Ontario, Canada [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Lease Expiration Date           Jun. 29, 2018 Jun. 29, 2018        
California [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Lease Expiration Date           Apr. 30, 2017 Apr. 30, 2017        
Description of Lessee Leasing Arrangements, Operating Leases           In February 2017, the Company gave 60-days’ notice that the lease would be terminated as of April 30, 2017 and has no further obligation under the lease In February 2017, the Company gave 60-days’ notice that the lease would be terminated as of April 30, 2017 and has no further obligation under the lease        
Minimum [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period     3 months                
Maximum [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period     3 years                
Accounts Payable- Related Party [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Debt Conversion, Converted Instrument, Amount         228,109            
Accrued Expenses - Related Parties [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Debt Conversion, Converted Instrument, Amount         $ 1,389,772            
Settlement Amount, September 2001 [Member] | Rakas Litigation [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Litigation Settlement, Amount Awarded to Other Party                 $ 25,000    
Default Judgement [Member] | Rakas Litigation [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Accounts Payable, Current                   $ 143,000 143,000
Default Judgement [Member] | Settlement Amount, January 2002 [Member] | Rakas Litigation [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Loss Contingency, Damages Sought, Value               $ 143,000      
Litigation Fees [Member] | Rakas Litigation [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Accounts Payable, Current                   $ 21,308 $ 21,308
Building [Member] | Ontario, Canada [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Operating Leases, Rent Expense, Minimum Rentals | CAD             CAD 3,550        
Building [Member] | Kalamazoo, Michigan [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Operating Leases, Rent Expense, Minimum Rentals           $ 1,000          
Building [Member] | California [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Operating Leases, Rent Expense, Minimum Rentals           $ 2,556          
Chief Executive Officer [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Employment Agreement, Base Salary $ 250,000                    
Employment Agreement, Bonus Terms an initial target bonus of up to 65% of annual base salary based on targets established by the Board of Directors                    
Stock Issued During Period, Shares, Restricted Stock Award, Gross (in Shares) | shares           1,000,000 1,000,000        
Chief Executive Officer [Member] | Share-based Compensation Award, Tranche One [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Stock Issued During Period, Shares, Restricted Stock Award, Gross (in Shares) | shares 1,000,000                    
Chief Executive Officer [Member] | Share-based Compensation Award, Tranche Two [Member]                      
NOTE 7 COMMITMENTS AND CONTINGENCIES (Details) [Line Items]                      
Stock Issued During Period, Shares, Restricted Stock Award, Gross (in Shares) | shares 1,000,000                    
[1] The condensed consolidated balance sheet as of December 31, 2016 has been prepared using information from the audited consolidated balance sheet as of that date.
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 8 EQUITY TRANSACTIONS (Details) - USD ($)
1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
May 31, 2017
Oct. 31, 2016
Jan. 31, 2016
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Dec. 31, 2016
Dec. 15, 2016
Dec. 14, 2016
Dec. 31, 2015
NOTE 8 EQUITY TRANSACTIONS (Details) [Line Items]                      
Common Stock, Shares Authorized       500,000,000   500,000,000   500,000,000 [1] 500,000,000 395,000,000  
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures     500,000                
Stock Issued During Period, Value, Restricted Stock Award, Net of Forfeitures (in Dollars)     $ 48,000                
Shares Issued, Price Per Share (in Dollars per share) $ 0.07   $ 0.096 $ 0.06   $ 0.06          
Share-based Compensation (in Dollars) $ 17,500   $ 48,000     $ 807,610 $ 48,000        
Stock Issued During Period, Shares, Issued for Services 250,000                    
Stock Issued During Period, Value, Issued for Services (in Dollars) $ 17,500                    
Stock Issued During Period, Shares, New Issues           8,333,334          
Proceeds from Issuance of Common Stock (in Dollars)           $ 500,000 160,000        
Share Price (in Dollars per share)       $ 0.06   $ 0.06          
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized                 10,000,000    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures           6,650,000          
Stock Issued During Period, Shares, Share-based Compensation, Gross           1,000,000          
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant       350   350          
Allocated Share-based Compensation Expense (in Dollars)       $ 89,549 $ 0 $ 807,610 $ 48,000        
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross           6,900,000          
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number               20,315,000     20,715,000
Class of Warrant or Rights, Granted 750,000 1,000,000                  
Warrant, Description of Warrant   number of shares determined based on a 20-day average stock price prior to the date of exercise with the exercise prices discounted 40%                  
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per share) $ 0.10                    
Warrant Term           3 years          
Performance Milestones [Member]                      
NOTE 8 EQUITY TRANSACTIONS (Details) [Line Items]                      
Stock Issued During Period, Shares, Share-based Compensation, Gross           2,000,000          
Minimum [Member]                      
NOTE 8 EQUITY TRANSACTIONS (Details) [Line Items]                      
Share Price (in Dollars per share)       $ 0.06   $ 0.06          
Warrants, Expiration Date   January 31, 2017                  
Maximum [Member]                      
NOTE 8 EQUITY TRANSACTIONS (Details) [Line Items]                      
Share Price (in Dollars per share)       $ 0.10   $ 0.10          
Warrants, Expiration Date   January 30, 2018                  
Chief Executive Officer [Member]                      
NOTE 8 EQUITY TRANSACTIONS (Details) [Line Items]                      
Allocated Share-based Compensation Expense (in Dollars)           $ 210,000          
Stock Issued During Period, Shares, Restricted Stock Award, Gross           1,000,000          
Chief Executive Officer [Member] | Performance Milestones [Member]                      
NOTE 8 EQUITY TRANSACTIONS (Details) [Line Items]                      
Stock Issued During Period, Shares, Share-based Compensation, Gross           1,000,000          
Chief Executive Officer [Member] | Modification of Vesting Options [Member]                      
NOTE 8 EQUITY TRANSACTIONS (Details) [Line Items]                      
Adjustments to Additional Paid in Capital, Share-based Compensation, Stock Options, Requisite Service Period Recognition (in Dollars)           $ 89,064          
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross           750,000          
Chief Executive Officer [Member] | Modification of Exercisability of Options [Member]                      
NOTE 8 EQUITY TRANSACTIONS (Details) [Line Items]                      
Adjustments to Additional Paid in Capital, Share-based Compensation, Stock Options, Requisite Service Period Recognition (in Dollars)           $ 14,460          
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period           3 years   21 days      
Employee Stock Option [Member]                      
NOTE 8 EQUITY TRANSACTIONS (Details) [Line Items]                      
Allocated Share-based Compensation Expense (in Dollars)           $ 494,086          
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number       575,000   575,000          
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options (in Dollars)       $ 44,000   $ 44,000          
[1] The condensed consolidated balance sheet as of December 31, 2016 has been prepared using information from the audited consolidated balance sheet as of that date.
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 8 EQUITY TRANSACTIONS (Details) - Schedule of Fair Value Assumptions of Stock Options
9 Months Ended
Sep. 30, 2017
NOTE 8 EQUITY TRANSACTIONS (Details) - Schedule of Fair Value Assumptions of Stock Options [Line Items]  
Expected life 5 years
Dividend yield 0.00%
Minimum [Member]  
NOTE 8 EQUITY TRANSACTIONS (Details) - Schedule of Fair Value Assumptions of Stock Options [Line Items]  
Risk-free interest rate 1.36%
Expected volatility 98.38%
Maximum [Member]  
NOTE 8 EQUITY TRANSACTIONS (Details) - Schedule of Fair Value Assumptions of Stock Options [Line Items]  
Risk-free interest rate 1.99%
Expected volatility 101.86%
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 8 EQUITY TRANSACTIONS (Details) - Schedule of Share-Based Compensation, Stock Options, Activity - USD ($)
9 Months Ended 12 Months Ended
Sep. 30, 2017
Dec. 31, 2016
Schedule of Share-Based Compensation, Stock Options, Activity [Abstract]    
Number of Shares, Balance 20,315,000 20,715,000
Weighted Average Exercise Price, Balance $ 0.105 $ 0.143
Weighted Average Remaining Contractual Term, Balance 3 years 251 days 2 years 29 days
Aggregate Intrinsic Value, Balance   $ 261,220
Number of Shares, Exercisable 19,740,000  
Weighted Average Exercise Price, Exercisable $ 0.105  
Weighted Average Remaining Contractual Term, Exercisable 3 years 237 days  
Number of Shares, Granted 6,900,000  
Weighted Average Exercise Price, Granted $ 0.097  
Number of Shares, Expired and Canceled (7,300,000)  
Weighted Average Exercise Price, Expired and Canceled $ 0.206  
Number of Shares, Exercised 0  
Weighted Average Exercise Price, Exercised $ 0  
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTE 10 SUBSEQUENT EVENTS (Details) - USD ($)
1 Months Ended 9 Months Ended
Nov. 08, 2017
Oct. 31, 2017
May 31, 2017
Oct. 31, 2016
Sep. 30, 2017
Jan. 31, 2016
NOTE 10 SUBSEQUENT EVENTS (Details) [Line Items]            
Class of Warrant or Rights, Granted     750,000 1,000,000    
Class of Warrant or Right, Exercise Price of Warrants or Rights     $ 0.10      
Stock Issued During Period, Shares, New Issues         8,333,334  
Shares Issued, Price Per Share     $ 0.07   $ 0.06 $ 0.096
Proceeds from Issuance or Sale of Equity         $ 500,000  
Subsequent Event [Member]            
NOTE 10 SUBSEQUENT EVENTS (Details) [Line Items]            
Class of Warrant or Rights, Granted   1,000,000        
Class of Warrant or Right, Exercise Price of Warrants or Rights   $ 0.10        
Stock Issued During Period, Shares, New Issues 2,000,000          
Shares Issued, Price Per Share $ 0.05          
Proceeds from Issuance or Sale of Equity $ 100,000          
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