We have a history of losses and have a substantial accumulated deficit, which raise substantial doubt about our ability to continue as a going concern. The report of our auditors on our audited consolidated financial statements for the years ended December 31, 2017 and 2016, as well as for prior years, contains an explanatory paragraph raising substantial doubt about our ability to continue as a going concern. Our significant losses since inception and accumulated deficit of $40,085,981 as of December 31, 2017, raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

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

We currently have limited financing to meet our operating expenses. We will require additional financing in the future to cover our operating costs. If we are unable to obtain additional financing or to generate significant revenues from sales of the AsepticSure^® system, we may be required to file for bankruptcy or liquidate. We have financed our operations since inception primarily by the sale of our Common Stock in small private placements to accredited investors and drawdowns under a prior equity line of credit. There is no assurance we will successfully accomplish our objectives or that necessary additional financing will be obtained in a timely manner or on terms that are acceptable to us. On January 31, 2018, we entered into certain financing arrangements that we believe will provide financing sufficient to fund our operations for the immediate future. However, there can be no assurance that we will be successful in accessing all of the capital contractually allocated under that arrangement due to limitations on our authorized capital, the market price of our Common Stock, volume limitations and other conditions imposed upon us, and many of which are outside our control.

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

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

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

Our commercial success will also depend in part, on our ability to avoid infringing patents issued to others or breaching any technology licenses upon which our products and services are based. It is uncertain whether any third-party patents will require us to alter our products or processes, obtain licenses or cease certain activities. In addition, if patents have been issued to others, which contain competitive or conflicting claims and such claims are ultimately determined to be valid, we may be required to obtain licenses to those patents or to develop or obtain alternative technology. If any licenses are required, there can be no assurance we will be able to obtain necessary licenses on commercially favorable terms, if at all. The breach of an existing license or the failure to obtain a license to any technology that we may require in order to commercialize our products may have a material adverse impact on our business, results of operations and financial condition. Litigation in those events or to enforce patents licensed or issued to us or to determine the scope or validity of third-party proprietary rights would be costly and time consuming. If competitors prepare and file patent applications in the United States that claim technology also claimed by us, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in substantial costs, even if the eventual outcome is favorable to us. An adverse outcome could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require that we stop using such technology. We also rely on secrecy to protect portions of our technology for which patent protection has not yet been pursued or which is not believed to be appropriate or obtainable in addition to any information of a confidential and proprietary nature relating to us, including but not limited to our know-how, trade secrets, methods of operation, names and information relating to existing or potential vendors or suppliers and customer names and addresses.

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

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

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

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

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

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

We are subject to extensive regulatory requirements and must receive and maintain regulatory clearance or approval for the AsepticSure^® system. Failure to receive or to maintain, or delays in receiving, clearance or approvals may adversely affect our results of operations and financial condition. Our operations are subject to extensive regulation in the United States and in other countries where we do business. In the United States, the United States Food and Drug Administration (“FDA”), the United States Environmental Protection Agency (“EPA”) and other governmental authorities regulate the development, manufacture, sale, and distribution of the AsepticSure^® system. Government regulations include detailed inspection of, and controls over, research and development, clinical investigations, product approvals and manufacturing, marketing and promotion, sampling, distribution, record-keeping, storage, and disposal practices. In Europe, the AsepticSure^® system is regulated primarily by country and community regulations of those countries within the European Economic Area where we do business and the system must conform to the requirements of those authorities. Failure to receive or to maintain, or delays in receiving, clearance or approvals may adversely affect our results of operations and financial condition.

Compliance with applicable regulations is a significant expense for us. Past, current or future regulations, their interpretation, or their application could have a material adverse impact on our operations. Also, additional governmental regulation may be passed that could prevent, delay, revoke, or result in the rejection of regulatory clearance of our products. We cannot predict the effect on our operations resulting from current or future governmental regulation or the interpretation or application of these regulations.

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

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

There is only a volatile, limited market for our Common Stock. Recent history relating to the market prices of public companies indicates that, from time to time, there may be periods of extreme volatility in the market price of securities because of factors unrelated to the operating performance of, or announcements concerning, the issuers of the affected stock, and this is especially true for stock quoted on the OTCQB. During the year ended December 31, 2017, prices for our Common Stock ranged from a high of $0.15 to a low of $0.03 per share. See “Market for Common Stock and Other Related Stockholder Matters” on page 14.15 . General market price declines, market volatility, especially for low priced securities, or factors related to the general economy or to our business in the future could adversely affect the price of the Common Stock. With the low price of our Common Stock, any issuance of shares of Common Stock by us would be dilutive to existing stockholders, thereby limiting the nature of future equity placements.

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

The requirements of being a public company may strain our resources and divert management’s attention. We also are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act, and other applicable securities rules and regulations. Compliance with these rules and regulations has increased and likely will continue to increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results. In addition, complying with public disclosure rules makes our business more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be materially adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results.

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

 

The elimination of personal liability against our directors and officers under Nevada law and the existence of indemnification rights held by our directors, officers and employees may result in substantial expenses. Our Amended Articles of Incorporation and our Amended and Restated Bylaws eliminate the personal liability of our directors and officers to us and our stockholders for damages for breach of fiduciary duty as a director or officer to the extent permissible under Nevada law. Further, our Amended Articles of Incorporation and our Amended and Restated Bylaws and individual indemnification agreements we have entered with certain of our directors and executive officers provide that we are obligated to indemnify each of our directors or officers to the fullest extent authorized by the Nevada law and, subject to certain conditions, advance the expenses incurred by them in defending any action, suit or proceeding prior to its final disposition. Those indemnification obligations could expose us to substantial expenditures to cover the cost of settlement or damage awards against our directors or officers, which we may be unable to afford. Further, those provisions and resulting costs may discourage us or our stockholders from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties, even if such actions might otherwise benefit our stockholders.

 

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

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

 

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

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our Common Stock and cause a decline in the market value of our stock. Disclosure must also be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

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

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

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

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

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

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

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

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

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

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

Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this prospectus. You can identify these statements by the fact that they do not relate strictly to historic or current facts. We use words like “anticipates,” “approximately,” “predicts,” “projects,” “continues,” “ongoing,” “believes,” “could,” “estimates,” “expects,” “future,” “intends,” “may,” “plans,” “potential,” “should,” “will,” “would” and similar expressions and the negative of such expressions to mean that the statements are forward-looking. Although we believe that our plans, intentions and expectations are reasonable, we may not achieve our plans, intentions or expectations. Given these uncertainties, you should not place undue reliance on these forward-looking statements. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. In addition, you should note that our past financial and operational performance is not necessarily indicative of future financial and operational performance. Examples of forward-looking statements include, among others, statements we make regarding:

The selling stockholders are selling all of the shares of our Common Stock covered by this prospectus for their own accounts. Accordingly, we will not receive any proceeds from the resale of the Common Stock. However, we will receive proceeds from any sale of the Common Stock under the Equity Purchase Agreement to the Investors. We intend to use the net proceeds received from such sales for working capital and general corporate needs.

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

Our Common Stock is quoted on the OTCQB under the symbol MZEI. The following table sets forth the range of the high and low bid quotations for the Common Stock for quarterly periods of the past two years, as reported by the OTCQB (see www.otcmarkets.com). The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions. 

We have had only minimal revenues and we have never declared dividends or paid cash dividends on our Common Stock. In the future, if we become profitable, our Board of Directors has stated its intention to declare a dividend on our Common Stock from our surplus earnings. See “Dividend Policy,” on page 12.15 .

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

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

For the year ended December 31, 2017, we had no sales, compared to sales of $237,000 for the year ended December 31, 2016. Related cost of goods sold totaled $0 and $203,460 for the years ended December 31, 2017 and 2016, respectively. We anticipate only minor increases in our sales, if any, until such time as we receive regulatory clearance from the FDA to market and commercialize the AsepticSure^® system in the United States as a means of decreasing infection risk or hospital acquired infections.

General and administrative expenses for 2017 were $1,909,046, compared to $2,068,391 for 2016. The key expenses include payroll and consulting fees, professional and legal fees, and stock-based compensation expense recorded as a result of option grants and stock awards to directors, officers, employees and consultants in 2017. We anticipate our general and administrative expenses will increase in 2018 resulting from an increase in professional and legal services as we secure additional financing and as we prepare for and hold an annual meeting of stockholders.

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

 

Warrants to purchase our Common Stock that do not meet the requirements for classification as equity, in accordance with the Derivatives and Hedging Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), are classified as liabilities. We record these derivative financial instruments as liabilities in our balance sheet at an estimate of fair value. We record changes in fair value of such instruments as non-cash gains or losses in the consolidated statements of operations. In October 2016, we recorded a warrant liability of $938,051 related to the issuance of warrants for up to $1,000,000, for which the number of shares was to be determined based on a 20-day average stock price prior to the date of exercise with the exercise price discounted to the market at 40%. As of December 31, 2017, we recorded a gain of $294,655 from the change in the fair value of the warrant liability. The warrants expired, unexercised, on January 30, 2018.

Notes payable totaled $362,223 as of December 31, 2017, and $372,332 as of December 31, 2016. Interest expense on these obligations totaled $33,799 for 2017, and $33,850 for 2016. The interest rates on this debt ranged from 5.1% to 12.00% per annum.

Notes payable – related parties totaled $1,634,578 as of December 31, 2017, and $1,617,881 as of December 31, 2016. We made the first payments due under the notes in the first quarter of 2017, but have been in default under both notes since April 2017. As a result, interest is now accruing on the unpaid obligations under these notes at an annual rate of 5%. Interest on these obligations totaled $55,889 for 2017 and $0 for 2016. 

As of December 31, 2017, our working capital deficit was $4,667,093, compared to $4,126,861 as of December 31, 2016. The total stockholders’ deficit as of December 31, 2017 was $4,546,654, compared to $4,046,145 as of December 31, 2016.

During 2017, we generated no revenue from the sale of our AsepticSure^® system. Accordingly, we will continue to require additional financing to fund operations and to undertake our new business plans, to further additional testing required for FDA approval, and to market the AsepticSure^® system. We believe we will need approximately $1,500,000 during the next 12 months for continued production manufacturing, research, development, and marketing activities, as well as for general corporate purposes.

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

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

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

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

For a discussion of recently issued and adopted accounting pronouncements, please see Note 1 to the audited consolidated financial statements included elsewhere in this prospectus. We do not believe the adoption of recently issued accounting pronouncements will have a significant impact on our results of operations, financial position or cash flow.

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

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

We are a global provider of disinfection solutions. We invented the AsepticSure^® system to provide a superior means of disinfecting non-porous surfaces in numerous settings, including hospitals, other healthcare facilities and non-hospital/healthcare facilities. The AsepticSure^® system utilizes hydrogen peroxide vapor and ozone in a patented process that achieves a six-log reduction across a broad array of bacterial and viral pathogens.

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

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

The AsepticSure^® system is a portable, affordable disinfection system that can be easily operated by trained maintenance staff. Each AsepticSure^® system consists of a primary unit that generates hydrogen peroxide mist and ozone (the “disinfectant generator”), two ozone scrubbers and a dehumidifier. The disinfectant unit is placed in the center of the room to be cleaned. Vents and doors are then sealed with an easily and cleanly removable adhesive tape product. The disinfectant unit is activated from outside of the room through a remote wireless interface. The room is filled with a unique and patented ozone-based gas formula to specific humidity and charge strength. Following the charge period and subsequent treatment period, the disinfectant unit is remotely turned off and the ozone scrubbers restore the atmosphere inside the room to applicable safety standards. The turnaround time for re-use of rooms up to 4,000 cubic feet in size is 80 to 90 minutes. This includes the decontamination of all room contents.

The disinfection action of the AsepticSure^® system is achieved through a patented process involving the interaction of low-dose hydrogen peroxide (H₂O₂) and ozone (O₃) at a specific relative humidity for a fixed period of time. Ozone is a gas composed of three oxygen atoms (O₃) in an unstable and highly reactive form. Ozone naturally tends to seek its normal state, exhibiting a short half-life as it reverts to oxygen (O₂) fairly rapidly. There are many uses of ozone as a disinfecting agent. Although ozone does react with organic matter, it leaves no residue in water or on a treated product. Ozone also does not form any toxic byproducts. The interaction of hydrogen peroxide and ozone creates a compound known as Trioxidane (H₂O₃). Trioxidane is so efficient in killing bacteria at low concentrations that all equipment may remain in the room during the disinfection process as material compatibility testing across a broad range of metals, plastics, textiles and electronic circuit boards has shown no damage following 20 separate disinfection runs.

In October 2017, the AsepticSure^® system was “CE” Mark certified in the EU and its member states. In June 2017, we received full electrical safety approval for all models of the AsepticSure^® system. The approval means that the AsepticSure^® system has achieved full compliance with the applicable international safety standards that provide a baseline requirement that must be met in order to pursue marketing in all jurisdictions, including Canada, the United States, South America, the EU, Asia, and the Middle East. Although we will be required to apply for a separate approval in each country, compliance with the international safety standards will greatly facilitate this process.

In August 2016, Cogmedix Inc., our contract manufacturer (“Cogmedix”), obtained company and establishment numbers from the EPA to serve as a manufacturer for the AsepticSure^® System. Cogmedix already held FDA medical device manufacturing status. EPA Registration allows Cogmedix to ship AsepticSure^® systems to hospitals and other users in the United States.

The EPA has also granted a registration number for the specific hydrogen peroxide catalyst used in the AsepticSure^® system. The AsepticSure Oxidative Catalyst is EPA approved for use in hospitals, clinics, food industry, sporting venues, and hotels to disinfect hard, non-porous surfaces at a 1.4% concentration.

Our research team has demonstrated that even a 3-log (99.9%) bactericidal kill is not enough to stop bactericidal regeneration. Yet a 3-log kill exceeds the results of most current cleaning practices and technologies. In our laboratories, we have demonstrated that the remaining 0.1% of bacteria following a 3-log kill begin to regenerate in a few hours and in five days will return to full strength. That is the reason most current cleaning methods and systems have failed to break the reinfection cycle in health care facilities.

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

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

We believe that the AsepticSure^® system has application in a wide variety of settings, including medical facilities (hospitals, clinics, physician’s offices, outpatient surgical centers, long-term care facilities), bio-safety labs, athletic facilities (gyms and locker rooms) and sports equipment, mortuaries, bio-defense and response to pandemics, building remediation, tissue labs, and clean rooms. These potential markets are discussed in greater detail below.

Medical Facilities. We believe that medical facilities, including hospitals, clinics, physician’s offices, outpatient surgical centers, and long-term care facilities, represent the primary market for the AsepticSure^® system. The need to replace equipment periodically – the rate of replacement for typical steam, heat or chemical sterilizers is between 8 and 11 years – makes this an attractive market.

Bio-safety Labs, Tissue and Cleanrooms. Bio-safety labs, tissue and blood labs and cleanrooms seek to reduce the risk of the transmission of infectious agents or materials from culture to culture and from culture to personnel. We believe that the use of the AsepticSure^® system as a routine disinfection process in all biosafety levels and microbiological practices may reduce the risk of such transmission, while also reducing potential negative effects that can result from other decontamination products, such as high-concentration vaporized hydrogen peroxide, formaldehyde, glutaraldehyde and titanium dioxide, including blistering of paints, corrosion of metals, lengthy exposure times and potential carcinogenic exposure. There are many requirements and restrictions on the type of decontamination agents such labs may use to prevent these risks and remediate adverse incidents. We also believe that the AsepticSure^® system can aid in all biosafety levels and microbiological practices, on all safety equipment, transfer hoods, isolation chambers, animal cages and other equipment, as well as help prevent the risks associated with handling infectious microorganisms.

Athletic Facilities and Sports Equipment. Transmission of infectious diseases in athletic facilities and by sports equipment is an increasingly recognized serious problem that is underappreciated by operators of the facilities and athletes. An October 2015 article published on Forbes.com [Stone, MRSA: How You Can Avoid NFL Player Daniel Fells’ Plight At The Gym (October 13, 2015) https://www.forbes.com/sites/judystone/2015/10/13/how-you-can-avoid-daniel-fells-mrsa-plight/#304555361974] highlights the risk of contracting infectious diseases faced by athletes at all levels of sport. The article explored the plight of Daniel Fells, then a 32-year-old New York Giants tight end, who contracted a serious MRSA infection after receiving a cortisone shot for an ankle injury. Fells had five surgeries to address the infection, which was feared to be career-ending. The article also states that a number of prominent NFL players have had MRSA infections, including members of the Cleveland Browns, Washington Redskins and Los Angeles Rams. The Tampa Bay Buccaneers had an outbreak among three players and faced a lawsuit from former kicker Lawrence Tynes, who claimed that unsanitary conditions at the team’s facilities caused him to become infected with MRSA, which required multiple surgeries and six weeks of intravenous antibiotics to cure. Tynes contended that the infection ended his career, costing him over $20 million in anticipated future earnings. It also notes that a college player at Lycoming College died from an MRSA infection in 2003 and that several prominent NBA players have also had difficult infections.

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

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

Bio-defense and Response to Pandemics. The AsepticSure^® system has received patents in the United States and the EU for its effectiveness as a means of eliminating B. subtilis, a well-accepted surrogate for Anthrax. See “— Intellectual Property”. In 19 separate tests involving 38 samples, the system demonstrated 100% reduction in B. subtilis spores. Furthermore, the National Research Council – Canada (NRC Human Health Therapeutics Portfolio) demonstrated the efficacy of the AsepticSure^® system against Adenovirus (PTG3602) and a Coronavirus known as transmissible gastroenteritis virus (“TGEV”) (ATCC # VR-763), which is a surrogate for other coronaviruses such as Middle East Respiratory Syndrome-Coronavirus (“MERS-CoV”) and Sudden Acute Respiratory Syndrome Coronavirus (“SARS-CoV”). In two tests with the Adenovirus, involving 24 samples, the AsepticSure^® system demonstrated the ability to eliminate 100% of the organism. In five tests against TGEV, involving 45 samples, the AsepticSure^® system eliminated 100% of the organism. We believe that these tests provide scientific evidence supporting our belief that the AsepticSure^® system is an effective means of eliminating the Ebola virus because filoviridae such as the Ebola virus are more susceptible to disinfection compared to coronavirus and adenovirus. Therefore, we intend to market the AsepticSure^® system as a means of combating pandemic infections and bioterrorism.

Building Remediation. We believe that the remediation of buildings that are contaminated with mold, smoke, the residual effects from water damage, including bacterial contamination, and methamphetamine is a potentially a large market for the AsepticSure^® system. As there are over 20,000 certified professional building remediators in the United States, we intend to target this market. Validation that we conducted in New Zealand has demonstrated the effectiveness of the AsepticSure^® system as a means of decontaminating buildings that have been used in the illegal production of methamphetamines. The New Zealand study involved the use of one AsepticSure^® machine to treat two separate 200-milligram samples of homogenized methamphetamine hydrochloride and a blank sample in a sealed two-by-three meter room. After treatment, the samples and blanks were rinsed and dissolved in approximately two milliliters of ethanol and analyzed by gas chromatography mass spectrometry along with a positive control. No additional compounds were detected in the methamphetamine hydrochloride samples after treatment with the AsepticSure^® system. An independent testing laboratory in New Zealand, the Institute of Environmental Science and Research Limited, determined that no residual chemicals remained following the treatment of methamphetamine hydrochloride with the AsepticSure^® system. In addition, research conducted at our BSL2 facility in Canada has also demonstrated high levels of efficacy (100% kill at 5 and 6 logs) for a broad variety of molds, including the ubiquitous black mold (Aspergillus fumigates) found throughout the United States and of particular concern in Texas, Florida and Puerto Rico, following recent hurricanes.

We are attempting to establish a network of distributors to market the AsepticSure^® system outside the United States. To date, we have entered into distributorship agreements with respect to Canada (Contamination Control Company), South America (GYD S.A. dba “BioAsepsis”; territories: Argentina, Chile, Brazil, Colombia and Peru), New Zealand/Australia (Aseptic Systems Ltd.) and the Nordic Region (Aglon a/s; territories: Norway, Sweden, Finland, Denmark and Iceland). These distributors have not yet contributed meaningfully to our operating results. We are in discussions with other potential distributors for other jurisdictions.

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

We own the following patents:

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

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

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

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

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

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

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

The infection-control industry is extremely competitive. Our competitors include companies that market hydrogen-peroxide-based products, such as TOMI Environmental Solutions, Inc., Steris Corporation, Bioquell, Inc., Sanosil Ltd and The Clorox Company, various companies that market ultra-violet light disinfection systems and companies that market chemical-based disinfection systems. Many of our competitors have longer operating histories, greater name recognition, larger installed customer bases and substantially greater financial and marketing resources than we have. We believe that the principal factors affecting competition in our markets include name recognition and the ability to receive referrals based on client confidence in the disinfection system or service. Apart from governmental regulatory activities, there are no significant barriers of entry that could keep potential competitors from offering disinfection systems that compete with the AsepticSure^® system. Our ability to compete successfully in the industry will depend, in large part, upon our ability to market and sell our indoor decontamination and infectious disease control products and services. There can be no assurance that we will be able to compete successfully in the remediation industry, or that future competition will not have a material adverse effect on our business, operating results and financial condition.

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

Our principal executive offices are located in leased premises at 350 E. Michigan Avenue, Suite 500, Kalamazoo, Michigan. Effective July 1, 2009, we entered into a lease agreement and established our own certified laboratory located at Innovation Park, Queen’s University, Kingston, Ontario, Canada. Our laboratory space was doubled in size during January 2010, in order to conduct full-size room testing (mock-trials). We estimate that our current facilities are sufficient to meet our needs until we begin to have revenues from operations. The lease term is June 2016 through June 2018 with a lease payment of $3,550 Canadian Dollars plus the applicable goods and services tax.

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

The following table contains information concerning our directors and executive officers as of the date of this prospectus.

 

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

David A. Esposito became a director in February 2014 and currently serves as the Chairman of our Board. From March 1, 2017 through September 18, 2017, he served as Interim Chief Executive Officer. Mr. Esposito is the President and CEO of Armune BioScience, Inc., an early stage medical diagnostics company focused on developing and commercializing unique technology for diagnostic and prognostic tests for prostate, lung, and breast cancers. Mr. Esposito also is a director of Allergenis, Inc., an early stage allergy diagnostics company. From 2011 to 2013, Mr. Esposito was Vice President, Commercial Operations, at Thermo Fisher Scientific. Before joining Thermo Fisher Scientific, he was President and General Manager of Phadia US Inc., a specialty diagnostics company, from 2009 until its acquisition by Thermo Fisher Scientific in 2011. He was employed in various positions by Merck & Co., Inc. from 1996 to 2009, including stints as Executive Director of the Respiratory Marketing Team (2006-2007), New Commercial Model (2007-2008), and US Commercial Strategy (2008-2009). He was a combat infantry officer (Lt., US Army Infantry, 101st Airborne Division) from 1990-1993 and served in Operation Desert Storm in 1991, where he was awarded the Bronze Star Medal for combat action in Iraq. He received a BS degree in civil engineering at the United States Military Academy (West Point), and an MBA from Syracuse University. He also completed an executive education program, Competitive Marketing Strategy Program, at The Wharton School (University of Pennsylvania). Mr. Esposito chairs our Audit Committee and is a member of the Compensation Committee.

 

David A. Dodd became a director and Chief Executive Officer in September 2017. Since March 2010, Mr. Dodd has been a member and, since January 2011, chairman of the Board of Directors of GeoVax Labs, Inc. (OTC: GOVX), a publicly-traded vaccine development company. From April 2013 to July 2017, he also served as President and Chief Executive Officer, and as a member of the Board of Directors, of Aeterna Zentaris Inc. (Nasdaq: AEZS), a publicly-traded drug development company. He was Chairman of the Board of Directors of Aeterna Zentaris Inc. from May 2014 to May 2016. Mr. Dodd continues to serve as a member of the Board of Directors of Aeterna Zentaris Inc. He is also the Chief Executive Officer of RiversEdge BioVentures, an investment and advisory firm focused on the life sciences and pharmaceuticals industries, which he founded in 2009. From December 2007 to June 2009, Mr. Dodd was President, Chief Executive Officer and Chairman of BioReliance Corporation, a privately-owned organization that provided biological safety testing, viral clearance testing, genetic and mammalian technology testing and laboratory animal diagnostic services testing. From October 2006 to April 2009, he served as non-executive chairman of Stem Cell Sciences Plc., a publicly-traded research products company. Before that, Mr. Dodd served as President, Chief Executive Officer and Director of Serologicals Corporation (Nasdaq: SERO) before it was sold to Millipore Corporation in July 2006 for $1.5 billion. For five years prior to his employment by Serologicals Corporation, Mr. Dodd served as President and Chief Executive Officer of Solvay Pharmaceuticals, Inc. and Chairman of its subsidiary Unimed Pharmaceuticals, Inc. He has more than 35 years of executive experience in the healthcare industry.

 

Dr. Michael E. Shannon M.A., M.Sc., M.D., became a director on August 18, 2008, President in 2011, and Chief Scientific Officer in 2018. He also serves as Director of Medical Affairs since 2002. In October 2008 we appointed him President of the CFGH. Dr. Shannon received his medical degree from Queen’s University in Canada, which included advanced training in surgery and sports medicine. He also holds post-graduate degrees in neurochemistry and physiology. He has been actively engaged in applied medical research within these areas for over 28 years. He served in the Canadian Forces for 31 years, retiring at the rank of Commodore (Brigadier General equivalent) as Deputy Surgeon General for Canada. During the first Gulf War, Dr. Shannon served as the senior medical liaison officer for all of the Canadian forces. In 1996, he assumed responsibilities within Health Canada for re-organizing the Canadian blood system. Working with both the provincial and federal governments, he oversaw the development of a new corporate entity dedicated exclusively to the management of blood services in Canada. He was then appointed Director General for the Laboratory Centre for Disease Control, a position he held for three years. In December 2000, Dr. Shannon left the Canadian federal government to pursue a new career in industry. In that capacity, he simultaneously directed a phase III clinical trial in Canada, the United States and Great Britain for an artificial blood substitute product. Following completion of that work, he was asked to accept a special assignment with the Canadian Federal Government Auditor General’s office to conduct a cost benefit analysis of all government sponsored pharmacare programs and make recommendations directly to the Parliament of Canada. His assignment and presentation to Parliament was completed in November 2004. Dr. Shannon then served on a special assignment to the Canadian Public Health Agency (Centers for Disease Control equivalent in the United States) as Senior Medical Advisor. His responsibility was to direct the rebuilding of the Emergency Medical Response Capacity for Canada. In this regard and under his direction, the largest emergency medical response exercise in the history of the country, involving the overnight construction of a mobile hospital, hundreds of doctors and thousands of patients, was successfully held in Toronto in December 2007. Dr. Shannon has been actively engaged in medical bio-oxidative (O₃) based research since 1987 and was directly responsible for the first human clinical trial to have ever been approved in North America which examined the efficacy of O₃ delivered via minor autohemotherapy in the treatment of AIDS. He was also responsible for several primate studies utilizing O₃ involving scientists from various departments within the Canadian Federal Government, as well as senior investigators from the Company and Cornell University.

Vincent C. Caponi became a director in October 2014. Mr. Caponi retired from a distinguished career with Ascension Health in June 2017, and now serves as an independent consultant for the Ascension Health system. He served as President and CEO of St. Vincent Medical Center in Bridgeport, CT from July 2016 to July 2017. Until July 2013, Mr. Caponi served as the Chief Executive Officer of St. Vincent Health, growing the ministry to a 22-hospital system serving central and southern Indiana. St. Vincent Health is one of Indiana’s largest employers. Ascension Health of St. Louis, Missouri – the sponsor of St. Vincent Health – is the nation’s largest Catholic non-profit health system with 130 hospitals located in 28 states. Mr. Caponi is the former Executive Board Chair for St. Vincent Health (2013-2015) and Executive Board Chair for Ascension Texas (2014-2016). Mr. Caponi also served as the special representative for Ascension Health in the Cayman Islands at Health City Cayman Island hospital, a joint venture between Ascension Health and Narayana Health, India. In the first quarter of 2016, Mr. Caponi served as the Interim CEO for Ascension Wisconsin and now is a special advisor for that ministry. Mr. Caponi is the Chairman of our Compensation Committee and serves on our Audit Committee.

 

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

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

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

 

The Board of Directors is elected by and is accountable to the stockholders. The Board establishes policy and provides strategic direction, oversight, and control of the Company. The Board met 12 times during the year ended December 31, 2017. The Board met six times in 2016. All directors participated in at least 80 percent of the meetings held by the Board, with the exception of Mr. Caponi, who participated in 58 percent of the meetings.

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

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

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

Compensation Committee. The Compensation Committee of the Board of Directors (the “Compensation Committee”) includes Mr. Caponi as Chairman, with Mr. Esposito and Mr. Meyer as additional members. Mr. Caponi and Mr. Meyer are considered “outside directors” as defined by Section 162(m) of the Internal Revenue Code; all of the members of the Compensation Committee currently are non-employee directors as defined by the applicable regulations promulgated by the SEC under the Exchange Act. The Compensation Committee’s responsibilities include: (i) reviewing and recommending to the full Board of Directors the salaries, bonuses, and other forms of compensation and benefit plans for management and (ii) administering our equity compensation plans. The duties of the Compensation Committee as the administrator of those plans include, but are not limited to, determining those persons who are eligible to receive awards, establishing terms of awards, authorizing grants of awards, and interpreting the provisions of the equity compensation plans and grants that are made under those plans. The Compensation Committee met one time in 2017.

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

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

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

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

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

The following Summary Compensation Table shows compensation paid for each of the past two years to each person who served as our Chief Executive Officer (our principal executive officer) during 2017 and our two other most highly compensated executive officers other than the Chief Executive Officer who were serving as executive officers at the end of our last completed fiscal year, December 31, 2017 (“Named Executive Officers”).

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

For purposes of the agreements, the following definitions apply:

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

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

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

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

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

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

The following table summarizes compensation paid to the non-employee members of our Board of Directors during the year ended December 31, 2017.

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

The following table sets forth certain information as of April 2, 2018 (the “Table Date”) regarding the number of shares of Common Stock beneficially owned by (i) each of our Named Executive Officers and directors; and (ii) all officers and directors as a group. We are not aware of any person who beneficially owns five percent or more of our Common Stock as of the Table Date.

Unless otherwise indicated, each owner in the table has sole voting and investment power over the shares of Common Stock indicated. Beneficial ownership is determined in accordance with the Rule 13d-3 promulgated under the Exchange Act and includes voting or investment power with respect to shares beneficially owned.

The following summary includes a description of material provisions of our capital stock.

We are authorized to issue 500,000,000 shares of Common Stock $0.001 par value per share, and 50,000,000 shares of preferred stock par value $0.00001 per share (“Preferred Stock”). As of April 2, 2018, 415,191,788 shares of Common Stock were issued and outstanding. We have not designated or issued any series or shares of Preferred Stock, and no Preferred Stock is issued or outstanding.

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

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

This prospectus covers the resale by the selling stockholders of 14,059,041 shares of our Common Stock which may be issued by us to the selling stockholders under the Purchase Agreement and an additional 4,087,193 shares of our Common Stock that were issued to each selling stockholder as Commitment Shares under the Purchase Agreement. The selling stockholders are “underwriters” within the meaning of the Securities Act in connection with their resale of our Common Stock pursuant to this prospectus. The selling stockholders have not had any position or office, or other material relationship with us or any of our affiliates over the past three years. The following table sets forth certain information regarding the beneficial ownership of shares of Common Stock by the selling stockholders as of April 2, 2018 and the number of shares of Common Stock being offered pursuant to this prospectus.

The selling stockholders may, from time to time, sell any or all of shares of our Common Stock covered hereby on the OTCQB Marketplace operated by the OTC Markets Group, Inc., or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. The selling stockholders may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices or at negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, provided such amounts are in compliance with FINRA Rule 2121. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of Common Stock will be paid by the selling stockholders and/or the purchasers.

Each of the selling stockholders is an underwriter within the meaning of the Securities Act and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Because the Investors are underwriters within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act.

On January 31, 2018, L2 and SBI entered into a Trading Agreement (the “Trading Agreement”), as amended and restated on February 11, 2018, pursuant to which each of L2 and SBI agreed, as parties to the Trading Agreement, to establish a plan for the orderly trading of the shares of Common Stock acquired from us under the Purchase Agreement and the Securities Purchase Agreements. Among other things, the plan to be established under the Trading Agreement will require that (i) the shares of Common Stock acquired under the Purchase Agreement and the Securities Purchase Agreements be held by a designated brokerage firm for the account of L2 and SBI pursuant to an account agreement, (ii) the parties will direct such broker to execute trades of such shares, from time to time, one order in each instance (each, an “Order”); (iii) upon the execution of any Order, any and all proceeds resulting from the same shall be distributed 50% to L2 and 50% to SBI. Pursuant to the Trading Agreement, all broker, legal or other administrative expenses incurred in connection with activities contemplated by the Trading Agreement will be shared equally by L2 and SBI. The selling stockholders have advised us that they will use an unaffiliated broker-dealer to effectuate all resales of our Common Stock. To our knowledge, the selling stockholders have not entered into any agreement, arrangement or understanding with any particular broker-dealer or market maker with respect to the shares of Common Stock offered hereby, nor do we know the identity of the broker-dealers or market makers that may participate in the resale of the shares.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the Common Stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale.

Although the selling stockholders have agreed not to enter into any “short sales” of our Common Stock, sales after delivery of a put notice of a number of shares reasonably expected to be purchased under a put notice shall not be deemed a “short sale.” Accordingly, the selling stockholders may enter into arrangements they deem appropriate with respect to sales of shares of our Common Stock after they receive a put notice under the Purchase Agreement so long as such sales or arrangements do not involve more than the number of put shares reasonably expected to be purchased by them under such put notice.

Under the securities laws of some states, the shares of Common Stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of Common Stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

The selling stockholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. There can be no assurance that the selling stockholders will sell any or all of the shares of Common Stock registered pursuant to the registration statement, of which this prospectus forms a part.

We have agreed to indemnify the selling stockholders and their controlling persons against certain liabilities, including liabilities under the Securities Act. We estimate that the expenses of the offering to be borne by us will be approximately $50,609. We will not receive any proceeds from the resale of any of the shares of our Common Stock by the selling stockholders. We would, however, receive proceeds from the sale of our Common Stock to the selling stockholders under the Purchase Agreement.

At any time a particular offer of the shares of our Common Stock is made by the selling stockholders, a revised prospectus or prospectus supplement, if required, will be distributed. Such prospectus supplement or post-effective amendment will be filed with the SEC to reflect the disclosure of any required additional information with respect to the distribution of the shares of Common Stock. We may suspend the sale of shares by the selling stockholders pursuant to this prospectus for certain periods of time for certain reasons, including if the prospectus is required to be supplemented or amended to include additional material information.

The audited consolidated financial statements of Medizone International, Inc., as of December 31, 2017 and December 31, 2016 were audited by Tanner LLC, an independent registered public accounting firm, to the extent set forth in its report and are included herein in reliance upon the authority of this firm as experts in accounting and auditing.

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

No expert named in the registration statement of which this prospectus forms a part as having prepared or certified any part thereof (or is named as having prepared or certified a report or valuation for use in connection with such registration statement) or counsel named in this prospectus as having given an opinion upon the validity of the securities being offered pursuant to this prospectus or upon other legal matters in connection with the registration or offering such securities was employed for such purpose on a contingency basis. Also at the time of such preparation, certification or opinion or at any time thereafter, through the date of effectiveness of such registration statement or that part of such registration statement to which such preparation, certification or opinion relates, no such person had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in our company or any of its parents or subsidiaries. Nor was any such person connected with our company or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer or employee.

Statements contained in this prospectus as to the contents of any contract or other document that we have filed as an exhibit to the registration statement are qualified in their entirety by reference to the exhibits for a complete statement of their terms and conditions.

The representations, warranties and covenants made by us in any agreement that is filed as an exhibit to the registration statement of which this prospectus is a part were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were made as of an earlier date. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state of our affairs.

Pursuant to our articles of incorporation and bylaws, we may indemnify an officer or director who is made a party to any proceeding, because of his or her position as such, to the fullest extent authorized by the corporation laws of the State of Nevada, as the same exists or may hereafter be amended. In certain cases, we may advance expenses incurred in defending any such proceeding.

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

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

 

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

 

Our Amended and Restated Bylaws (“Bylaws”) provide that, we shall indemnify our directors and officers to the fullest extent permitted by law in the state of Nevada and that we pay the expenses (including attorneys’ fees) incurred by any officer, director, employee or agent in defending such action, provided that the director or officer undertakes to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation.

 

We have also entered into employment agreements with certain of our executive officers that include the following form of indemnification provision:

In October 2016, we issued an aggregate of 20,000,000 shares of Common Stock at $0.05 per share pursuant to the exercise of warrants for aggregate cash consideration of $1,000,000. The shares were issued in a private transaction with the holder of the warrants, who is our distributor for certain territories in South America. There were no underwriters involved. The proceeds were used for general operating expenses and to pay for the development of the AsepticSure^® system. The sale was made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(a)(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors, and the exemptions provided under Regulation D and Rule 506 under the Securities Act for private and limited offers and sales of securities made to accredited investors.

On October 21, 2016, in connection with the amendment and restatement of a distribution agreement for certain territories in South America, we granted warrants (the “New Warrants”) for the purchase of shares of Common Stock for a total purchase price of $1,000,000 to our distributor for such territories. The New Warrants expired on January 30, 2018.

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 250,000 restricted shares of Common Stock to a third-party consultant pursuant to 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 30, 2017, we issued an aggregate of 8,333,334 shares of Common Stock at $0.06 per share as part of a private offering. The private offering raised gross proceeds of $500,000. There were no underwriters involved. The proceeds were used for general operating expenses and to pay for the development of the AsepticSure^® system. The sales were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(a)(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors, and the exemptions provided under Regulation D and Rule 506 under the Securities Act for private and limited offers and sales of securities made to accredited investors.

During the three months ended December 31, 2017, we issued 3,500,000 shares of Common Stock at $0.05 per share as part of a private offering. The private offering raised gross proceeds of $175,000. There were no underwriters involved. The proceeds were used for general operating expenses and to pay for the development of the AsepticSure^® system. The sales were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(a)(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors, and the exemptions provided under Regulation D and Rule 506 under the Securities Act for private and limited offers and sales of securities made to accredited investors.