UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   Form 10-KSB

(Mark One)
 X       Annual report under section 13 or 15(d) of the Securities Exchange Act
---      of 1934 for the fiscal year ended December 31, 2001

__       Transition report under section 13 or 15(d) of the Securities Exchange
         Act of 1934 for the transition period ended ______________

Commission File Number: 2-93277-D

                          MEDIZONE INTERNATIONAL, INC.
                 (Name of small business issuer in its charter)

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

144 Buena Vista, P.O. Box 742, Stinson Beach, California              94970
(Address of principal executive offices)                            (Zip code)

Issuer's telephone number (415) 868-0300

Securities registered pursuant to Section 12(b) of the Act:  None
Securities registered pursuant to Section 12(g) of the Act:  None

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that Medizone was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No __

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. Yes __ No X

The issuer is in the development stage and had no revenues for its most recent
fiscal year.

The aggregate market value of voting common stock held by non-affiliates of the
issuer was $13,825,084 on March 27, 2002 based on the average bid and asked
prices of such stock as reported in the OTC Electronic Bulletin Board and the
"pink sheets" of the National Daily Quotation Bureau.

On March 27, 2002, Medizone had 156,338,019 shares of common stock, par value
$.001 per share issued and outstanding.


                     Transitional Small Business Disclosure
                               Format (Check one):
                                   Yes __ No X
                                             -



<PAGE>





<TABLE>
<CAPTION>
                                TABLE OF CONTENTS


PART I
                                                                                                       Page


<S>                                                                                                       <C>
Item 1.  Description of Business                                                                          1

Item 2.  Properties                                                                                       12

Item 3.  Legal Proceedings                                                                                12

PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters                            13

Item 6.  Management's Discussion and Analysis or Plan of Operation                                        14

Item 7.  Financial Statements                                                                             14

PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
              Compliance with Section 16(a) of the Exchange Act
14

Item 10. Executive Compensation                                                                           15

Item 11. Security Ownership of Certain Beneficial Owners and Management                                   15

Item 12. Certain Relationships and Related Transactions                                                   16

Item 13. Exhibits and Reports on Form 8-K                                                                 16

Signatures                                                                                                20

Exhibits Index                                                                                            21

Financial Statements and Schedules                                                                        F-1
</TABLE>





<PAGE>




                                     PART I



Item 1.           Description of Business


General


         Medizone International, Inc., a Nevada corporation ("Medizone")
organized in 1986, is a development stage company. To date the principal
business of Medizone has been limited to (i) seeking regulatory approval for its
drug, a precise mixture of ozone and oxygen called MEDIZONE(R) (sometimes
referred to in this report as the "Drug"), and its process of inactivating lipid
enveloped viruses for the intended purpose of decontaminating blood and blood
products and assisting in the treatment of certain diseases; and (ii) developing
or acquiring the related technology and equipment for the medical application of
its products, including its drug production and delivery system (the "Medizone
Technology").


         The Drug is intended to be used as a therapeutic drug in humans to
inactivate certain viruses, and thereby afford a treatment for certain viral
diseases including Human Immunodeficiency Virus (the AIDS-related virus),
Hepatitis B, Hepatitis C, Epstein-Barr, herpes and cytomegalovirus), and to
decontaminate blood and blood products.


Patents


         Medizone owns three key patents. The first is a United States process
patent (U.S. Patent No. 4,632,980) entitled, "Ozone Decontamination of Blood and
Blood  Products"  ("Patent No. 1"). The second patent is a related United States
equipment  patent  (U.S.  Patent No.  5,052,382)  entitled  "Approaches  for the
Control  Generation  and  Administration  of Ozone"  ("Patent No. 2"). The third
patent (U.S. Serial Number 09/126,504)  External Application of Ozone/Oxygen For
External  Applications  is a  process  patent  for  the  treatment  of  external
afflictions.  This patent also  describes  equipment  evolutions  and  treatment
envelope design for external medical applications ("Patent No. 3").


         Patent No. 1, which covers a procedure for ozone decontamination of
blood and blood products through the treatment of blood and blood components, is
Medizone's principal asset. It was purchased together with rights to other
ozone-related inventions from Immunologics Limited Partnership, L.P. ("ILP") in
1987, for 6,000,000 shares of common stock (the "Patent Purchase Agreement").
John M. Kells, the general partner of ILP, was Chairman of Medizone's Board of
Directors from November 1992 through September 1993.


         The Patent Purchase Agreement requires Medizone to pay to ILP an annual
royalty equal to 3% of the net receipts (defined as net receipts after all
credits, returns and customary deductions, and exclusive of all taxes) received
by Medizone from the sale of any product, device, or apparatus embodying Patent
No. 1. The method covered by Patent No. 1 is the principal use of ozone under
study by Medizone and is the method incorporated in its regulatory applications.
In June 1990, pursuant to Medizone's request for re-examination of Patent No. 1,
the U.S. Patent Office issued a re-examination certificate, confirming the
patentability of the claims covered by Patent No. 1. This patent will expire in
2003, subject to extension based upon the length of time required to bring it to
commercial fruition. Medizone has been granted foreign patents based on Patent
No. 1 in Canada, the European Community, Australia, Malaysia, Hong Kong and
Japan. Applications are pending in Singapore. The foreign patents began to be
issued in 1990 and will expire in most cases 17 years after their respective
dates of issuance.


         Patent No. 2, which covers an apparatus for the controlled generation,
monitoring  and dosage of the Drug was  developed  by a  consultant  engineer to
Medizone and issued and assigned to Medizone in 1991. Patent No. 2 was developed
to  provide  the  physical  means to deploy  Patent  No. 1. The  foreign  patent
coverage of Patent No. 2 parallels the coverage of Patent No. 1.


         Patent No. 3, was issued to Medizone on March 14, 2000, as U.S. Patent
No.   09/126,504  for  External   Application  of  Ozone/Oxygen  for  Pathogenic
Conditions.  Medizone  believes  that this  patent  will  strengthen  Medizone's



                                       1
<PAGE>

existing  patents as it addresses  advanced  developments  with ozone generating
equipment.  The  patent  additionally  describes  the  equipment  and  protocols
necessary to treat external wounds, burns and ulcerations.


         On May 24, 2000, Medizone received recorded assignment of U.S.
Provisional Patent Application no. 60/206,660 for Method and Apparatus for Ozone
Decontamination of Biological Liquids. This application deals with protocols for
biological  liquid  decontamination  as  well  as  the  devices  for  conducting
decontamination.


Research and Development


         Medizone does not own laboratories or other clinical research or
testing facilities. Medizone's research and development activities to date have
been conducted under contract by outside laboratories and clinicians.


Pre-clinical Studies


         Pre-clinical Studies are non-human studies of the Drug and related
equipment. Since 1988, Medizone sponsored and was the beneficiary of research to
(1) determine whether the use of ozone, either alone or with other modalities,
is efficacious in the treatment of certain diseases and (2) establish additional
scientific evidence that ozone, through the use of the patents or applications
of scientific methodologies of a similar nature can decontaminate blood or lipid
enveloped viruses and thereby significantly diminish the degree of transfusion
related disease.


         Pre-clinical projects sponsored by Medizone include: (1) studies to
test ozone's ability to inactivate HIV, conducted at the State University of New
York Health Science Center at Syracuse; (2) a pilot animal study of the
potential toxicity of ozone, conducted by the Arnold & Marie Schwartz College of
Pharmacy and Health Science at Long Island University; and (3) studies
investigating the effects of ozone/oxygen admixtures on human peripheral blood,
including whole blood, serum and plasma, conducted by the Blood Bank of Mt.
Sinai Medical Center, New York City.


         In 1990, the Canadian Blood Forces Program (under the aegis of the
Canadian Department of Defense and Agriculture and the Canadian Red Cross)
requested that Medizone add the Medizone Technology to the other proprietary
technology being investigated as an experimental arm of an ozone-based blood
sterilization investigative program. The program was an attempt to develop an
effective technology for sterilizing whole blood and blood products. This
program, which was to study the Medizone Technology as it relates to the
inactivation of Simian Immunodeficiency Virus ("SIV"), included a live primate
model. The program continued until 1994, completing two out of the three
proposed stages, when the funding of the Canadian Blood Forces Program was
discontinued. Medizone's management learned in late 1997 that the program
suffered difficulties with the ozone/bioserum interface that was used in the
study, which resulted in an inconsistent, difficult to accurately measure,
dosage of ozone. As a result, from a regulatory perspective the study yielded
results that could not be used due to the inability to specifically identify
dosage. From a practical standpoint, Medizone views this study of the Drug as a
success, in that the treated simians never became ill through the entire course
of the trial period, while the control group all died within a 14-day period.


Governmental Regulation


         The Drug, the Medizone Technology and related products are regulated
under the Food, Drug and Cosmetic Act and related regulations (the "FDC Act") by
the Food and Drug Administration (the "FDA"). The FDA exercises broad and
extensive authority in regulating the development, production, importation,
distribution and promotion of "new drug" products and "investigational devices"
under the FDC Act and regulations.


         Because ozone generation for purposes of interfacing with blood and
blood products is regarded as a new drug delivery, Medizone is precluded from
selling or distributing the Drug or the Medizone Technology until after FDA
approval has been granted. To obtain FDA approval Medizone will be required to
submit medical and scientific evidence sufficient to demonstrate that the Drug
and the Medizone Technology have been successfully used in pre-clinical studies
followed by well-controlled clinical studies using human volunteer subjects. The
FDA will not grant a new drug application ("NDA") unless it contains sufficient
medical evidence and data to permit a body of qualified and experienced
scientists to conclude that the new drug product is safe and effective for its


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recommended and proposed medical uses. Historically, the FDA has had a bias
against treating humans with ozone, citing issues of safety.


         To initiate Phase I of human clinical studies required as part of a
NDA, an applicant must submit to the FDA an application for an Investigational
New Drug Exemption ("IND"), which contains adequate information to satisfy the
FDA that human clinical studies can be conducted without exposing the volunteer
human subjects to an unreasonable risk of illness or injury. Medizone submitted
an IND application to the FDA on October 6, 1985, and requested FDA approval to
commence human clinical trials using ozone-oxygen to inactivate HIV. The FDA
deemed the IND application to be incomplete and required Medizone to conduct
additional animal studies prior to commencing a large animal study followed by
human trials. In September 1994, the FDA inactivated Medizone's IND. Medizone
has no present plans to commence a large animal study, which would require, as a
precursor, additional small animal and laboratory work. Accordingly, there can
be no assurance that Medizone's IND application will ever be re-opened. Until an
NDA has been granted to Medizone, it may not distribute ozone-generating devices
in the United States, except to researchers who agree to follow FDA guidelines,
and provided the devices are labeled as "Investigational Devices."


         Because ozone has been used to treat humans in Europe for at least 30
years, the European Union (the "EU") and other regions of the world outside of
North America are more accepting than the United States of human clinical trials
of ozone therapies. Management believes Medizone should pursue foreign Phase I
human toxicity trials, as well as early stage phase II efficacy trials in these
regions of the world. The results anticipated from the next planned blind Phase
I/II human safety and efficacy trials investigating hepatitis C are expected to
contribute to satisfying regulatory requirements in the United States, Canada
and other countries.


         It is Medizone's intention to pursue future trials in Canada and other
countries as soon as funding allows. Medizone believes trials successfully
completed in Canada should be acceptable to both the United States FDA and the
regulatory agencies of the European Union, due to recent harmonization of
regulatory requirements between Health Canada and the FDA.


Clinical Studies


Human Pilot Trial - Hepatitis C


         Beginning in 1998 and concluding in 2000, Medizone received patient
data for 40  participants  in a  developmental  human pilot trial  investigating
ozone treatment of hepatitis C. William Hitt,  Ph.D.,  M.D., at his clinic,  The
William Hitt Center, in Tijuana,  Mexico, conducted this trial during the normal
course  of  practice.  Dr.  Hitt is a former  member  of the  Medizone  board of
directors.  This trial was not conducted as a blind study as required by the FDA
and the results can serve only as anecdotal information.


         Dr. Hitt provided the following data to Medizone. In his developmental
ozone trial, Dr. Hitt treated patients using major autohemotherapy, a blood
therapy treatment protocol, on an outpatient basis. The average treatment period
was 30 days. Dr. Hitt conducted viral load testing (detecting the levels of the
virus present), as well as standardized SGOT and SGPT tests of liver enzyme
levels before the start of the treatment, immediately following treatment, and
six months after treatment without any further medical intervention during the
post-treatment period. Dr. Hitt reported that no adverse side effects were
observed or reported in any of the participants. According to Dr. Hitt, SGOT and
SGPT scores returned to normal ranges and viral load reductions averaged 5 log
or 99.9% reduction. Dr. Hitt's data indicates that in the six-month
post-treatment follow up testing, 38 of the 40 patients tested at inactive viral
levels for hepatitis C virus. Two of the patients reportedly had increased viral
levels at the end of the treatment test period; however, even those patients
enjoyed significantly reduced viral load levels when compared to pre-treatment
test results. Dr. Hitt's trials were not conducted as a blind study as required
by the FDA and the Company regards these results only as anecdotal information.
Further studies are needed to verify the effectiveness of the science.


Future Blind Trials - Hepatitis C


         Medizone entered into a research agreement with the national research
center of a foreign country outside of North America to proceed with a Phase
I/II human hepatitis C trial. The protocols for the proposed testing are
designed with the intention of producing a peer-reviewed, journal-published
article on Medizone's ozone therapy for the hepatitis C virus. The trial will be


                                       3
<PAGE>

blind and the data produced will be shared by the country of origin and
laboratories in Canada. This proposed trial is considered a major step toward
the company's goal to conduct similar tests in Canada and eventually with the
United States FDA. The proposal anticipates substantial collaborative efforts by
the parties to share information with appropriate regulatory bodies in both
countries. While the company has continued development work to proceed with this
trail, additional funding will be required to start the trial and see it through
to completion.


Instrument Development


         Medizone has entered into an agreement with Biozone Corporation
("Biozone") under which Biozone was granted worldwide manufacturing rights for
Medizone Ozone Generating Equipment. Medizone has exclusive worldwide marketing
rights for Biozone manufactured equipment intended for scientific research and
medical applications, to be marketed under the Medizone label. Biozone expects
to relocate to Nevada in the future as an integrated part of our proposed future
manufacturing facility to be located in Reno, Nevada. We have agreed with
Biozone that it may retain the right to market its other industrial
applications, such as water treatment plants. Once Medizone has obtained
regulatory approvals for its technology and protocols and is in production mode,
Biozone will phase out its other business to concentrate on its work with
Medizone.


         In the future the company intends to build a manufacturing and shipping
center in Reno, Nevada. Nevada was chosen as a location for this facility due to
the availability of human resources, land, general demographics, location and
tax considerations. As an interim step in preparation for a transition from a
research and development stage company to a company that anticipates future
worldwide sales, Medizone plans to build a smaller development facility on the
outskirts of the San Francisco Bay Area. This facility is intended to provide a
location in which to finalize product development and production line design
prior to making the larger commitment to build a full scale manufacturing plant.
The company will require additional funding to complete the development facility
as well as the manufacturing plant.


International Activities


Medizone Canada Limited


         To maximize research opportunities and the potential market for its
products, Medizone intends to establish subsidiary or affiliated corporations in
other countries. The organization of these subsidiaries may initially require
Medizone to incur significant expenses; thereafter, it is intended that the
subsidiaries would be responsible for organizing research programs and
generating possible sources of financing, from which Medizone would benefit
directly or indirectly. It is anticipated that Medizone would also enter into
license agreements with all subsidiary companies.


         In June 1998, Medizone sold its majority interest in Medizone Canada
Limited, a Utah corporation ("MCL") for $125,000 cash, debt assumed of $8,417
less fees of $25,000, in a private transaction which resulted in a gain of
$108,417 for the year ended December 31, 1998. Medizone retained ownership of
all of the issued and outstanding stock of MCL Medizone Canada, Ltd., a Canadian
corporation ("MedCan"). MedCan was a participant in the Canadian Blood Forces
Program's SIV Study.


         The Canadian government requires that a Canadian entity must perform
research accepted under the auspices of Health Canada. Therefore, future
research in Canada will be pursued through MedCan. Future staffing of MedCan
will be with Canadian citizens and MedCan will be operated from Canada. Medizone
also intends to form a not for profit foundation. The future business of the
non-profit entity will be to assist in research and aid the economically
underdeveloped third world countries in the acquisition of Medizone equipment,
training of doctors, and funding of programs for the treatment of hepatitis and
aids, at discounted prices in those countries. The company believes that if its
research continues to prove successful, the future participation of the World
Health Organization and the World Bank might be available to help bring the
company's science to these developing regions of the world through matching
funds and grant programs. The majority of the company's future customer base is
located in the developing regions of the world.


                                       4
<PAGE>

Medizone New Zealand Limited


         On June 22, 1995, Medizone entered into a series of contracts that
resulted in the formation of a joint venture subsidiary incorporated in New
Zealand, Medizone New Zealand Limited ("MNZ"). MNZ is owned equally by Medizone
and Solwin Investments Limited ("Solwin"), a New Zealand corporation, which is
an affiliate of Richard G. Solomon ("Solomon"), a director of Medizone. MNZ is a
research and development stage company formed to obtain regulatory approval for
the distribution of Medizone's patented technology in New Zealand, Australia,
South East Asia and the South Pacific Islands.


         Under these agreements Medizone purchased 100% of MNZ from Solomon and
sold 50% of MNZ to Solwin for $150,000, of which $50,000 was loaned by Medizone
to MNZ on a demand basis and repaid on October 26, 1995. On October 26, 1995,
Medizone loaned MNZ $50,000 on a demand basis, which has not been repaid as of
the date of this report. Medizone and MNZ also entered into a Licensing
Agreement (the "Licensing Agreement") and a Managing Agent Agreement (the
"Managing Agent Agreement").


         Under the Licensing Agreement, Medizone granted an exclusive license to
MNZ for Patent No. 1 and Patent No. 2 and Medizone's trademark in New Zealand.
MNZ has agreed to apply for corresponding patent protection for these patents in
New Zealand and to use its best effort to exploit the rights granted in the
Licensing Agreement. The Licensing Agreement will terminate on the expiration
date of the last patent obtained in New Zealand, or, if no patents are obtained,
on June 22, 2010. Medizone will receive a guaranteed minimum royalty, in an
amount to be agreed to by Medizone and MNZ, commencing in the third year after
all necessary regulatory approvals requisite to the license, use or distribution
of Medizone's proprietary technology have been obtained in New Zealand. If
Medizone and MNZ are unable to agree upon the amount of the guaranteed minimum
royalty, Medizone may terminate the Licensing Agreement. Commencing on the first
sale to a user by MNZ, Medizone will receive a sales royalty of MNZ's gross
annual sales under the Licensing Agreement.


         Under the Managing Agent Agreement, MNZ will act as Medizone's agent to
find licensees of the Medizone Technology in Australia, New Zealand, the South
Pacific Islands and Southeast Asia (including the Philippines, Indonesia and
Vietnam). Licensing fees will be divided between Medizone and MNZ on a sliding
scale as set forth below:


<TABLE>
<CAPTION>
                                                              Medizone                  MNZ

<S>                                                             <C>                     <C>
Initial license                                                 50%                     50%
Subsequent license fees up to $500,000                          50%                     50%
Subsequent license fees between $500,000 and $750,000           75%                     25%
Subsequent license fees in excess of $750,000                   85%                     15%
</TABLE>


         MNZ and Medizone will also divide any net royalties paid to Medizone
under any license entered into pursuant to the Managing Agent Agreement, with
MNZ receiving 10% and Medizone receiving 90% of the net royalties under those
licenses.


The Managing Agent Agreement expires on the termination or expiration of the
last of the licenses obtained under the agreement, subject to earlier
termination by Medizone under certain circumstances. The company's management
has had informal discussions with the management of Medizone New Zealand, Ltd.
about Medizone acquiring the rights of Medizone New Zealand, Ltd. in the future.
Negotiations have not yet progressed to a formal stage.


Competition


         The market in which Medizone intends to do business is extremely
competitive. Medizone is aware of several companies that have commenced research
into the use of ozone as a virucide in the treatment of HIV and other diseases,
or that have announced the intention to do so. Other companies, foundations,
research laboratories or institutions may also be conducting similar
investigations into the use of ozone as a virucide or as a decontaminant for
blood or blood products.


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<PAGE>

Employees


         As of December 31, 2001, Medizone had two full time employees and four
part time employees acting in a consulting or outside services capacity, such as
our outside CFO. A staff expansion is planned following the infusion of
additional operating capital and key people have already been identified.


Status of Medizone's Research


         Medizone has entered into a research agreement with a multinational
research partner interested in the possibility of viral deactivation of serum
products by using ozone. Serum products are used to make a media base that is
then used in the manufacture of vaccines for humans and animals. Under the terms
of the agreement, if the research proves successful, Medizone will enter into a
license agreement for the use of the technology in the viral deactivation of
commercial vats of serum product. That trial progressed satisfactorily through
the first stages and has since been halted while product development of the
gas-serum interface system progresses to the next stage. The new interface
development is nearly complete and we expect that the veterinarian research
program will begin again in the second half of 2002 assuming the availability of
additional funding. The next hepatitis C trial is also scheduled to start as
soon as we complete our preparations. The lack of funding, however, has placed
this project on hold and there is no assurance that we will be able to complete
it as originally planned.


Risk Factors


         Medizone's business is in the development stage and is subject to a
number of risks, including, but not limited to the following:


         Medizone's consolidated financial statements are prepared using
generally accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. Medizone has historically incurred significant
losses, which have resulted in an accumulated deficit of $17,046,202 at December
31, 2001. These losses and this significant deficit raise substantial doubt
about Medizone's ability to continue as a going concern. The accompanying
audited consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result from the outcome
of this uncertainty.


         We are a development stage company with significant accumulated
deficits and we can expect our losses to continue for the foreseeable future.
Medizone has not generated any revenues from operations. No assurance can be
given that its business activities will ever generate revenues. Medizone has
experienced substantial losses throughout its history. Losses can be expected to
continue for the foreseeable future.


         We do not have sufficient financing to meet our operating expenses. If
we are unable to obtain financing, we may be required to take out bankruptcy or
liquidate the company. During 2001 and in the first quarter of 2002, the company
sold a small amount of its common stock in private placements to accredited
investors. The company pursued and continues to pursue funding opportunities,
however to date no significant financing transactions have been completed.


         Our net operating losses and our lack of revenues will require that we
finance our operations through the sale of our securities for the foreseeable
future. The sale of equity securities or of securities that are convertible to
our common stock will result in possibly significant dilution to our
shareholders and may adversely affect the trading prices of our common stock.
Medizone has funded its development activities to date primarily from the sale
of its common stock. Medizone does not have adequate financing at this time and
will require substantial additional capital to meet its obligations, which will
most likely be obtained through sales of its common stock or other securities.
No assurances can be given that Medizone will be able to obtain sufficient
additional capital for it to continue its research program, or that any
additional financing will be sufficient to satisfy Medizone's administrative and
operating expenses for any significant period of time.


         Our future funding needs will require significant additional capital,
which is not immediately available to us. If we fail to obtain financing at
levels required to pay for the testing and additional development of our


                                       6

<PAGE>

technology, we could be required to scale back or to even cease operations. The
identification, development and commercialization of Medizone's products and
technology will require a commitment of substantial funds to conduct research
and development activities, including possible pre-clinical and clinical
studies, to create and expand distribution and marketing capabilities and to
acquire and expand manufacturing capacity. Medizone's actual capital
requirements will depend on many factors, including but not limited to, the
costs and timing of Medizone's research and development activities, the number
and type of clinical or other tests Medizone may be required to conduct in
seeking approval of its products from governmental or other agencies, the
success of Medizone's development efforts, the cost and timing of establishing
or expanding Medizone's sales and marketing and/or manufacturing activities, the
extent to which Medizone's products (if any) gain market acceptance, Medizone's
ability to establish and maintain collaborative relationships, competing
technological and market developments, the progress of Medizone's
commercialization efforts and the commercialization efforts of Medizone's
marketing partners, the costs involved in preparing, filing, prosecuting,
maintaining and enforcing and defending patent claims and other intellectual
property rights, developments related to regulatory issues, and other factors.
Medizone continues to seek opportunities to raise funds through public or
private financings, collaborative relationships or other arrangements.
Collaborative arrangements, if necessary to raise additional funds, may require
Medizone to relinquish its rights to certain of its technologies, products or
marketing territories. Medizone's failure to raise capital when needed could
also have a material adverse effect on Medizone's business, financial condition
and results of operations. There can be no assurance that any such financing, if
required, will be available on terms satisfactory to Medizone, if at all.


         Our business is subject to substantial government regulation, which
causes us to incur significant expense and which results in substantial delay in
the approval of our products for marketing in the United States and in other
jurisdictions. If we do not receive the required approvals, we will be required
to scale back or limit or even to cease operations. The research, development,
manufacture and marketing of Medizone's products which constitute medical
devices or products will be extensively regulated by a number of governmental
agencies, including the United States Food & Drug Administration. The FDA
requires governmental clearance of all medical devices and drugs before they can
be marketed in the United States. Similar approvals are required from other
regulatory bodies in virtually every foreign country. The regulatory processes
established by these government agencies are lengthy, expensive, and uncertain
and may require extensive and expensive clinical trials. There can be no
assurance that any future products developed by Medizone and which are subject
to the FDA's authority will prove to be safe and effective and meet all of the
applicable regulatory requirements necessary to be marketed. The results
Medizone obtains from its testing activities could be susceptible to varied
interpretations, which could delay, limit or prevent required regulatory
approvals. In addition, Medizone may encounter delays or denials of approval
based on a number of factors, including future legislation, administrative
action or changes in FDA policy made during the period of product development
and FDA regulatory review. Medizone may encounter similar delays in foreign
countries. Furthermore, approval may entail ongoing requirements for, among
other things, post-marketing studies. Even if a product developer obtains
regulatory approval, a marketed product, its manufacturer and its manufacturing
facility are subject to on-going regulation and inspections. Discovery of
previously unknown problems with a product, manufacturer or facility could
result in FDA sanctions, restrictions on a product or manufacturer, or an order
to withdraw and/or recall a specific product from the market. There can also be
no assurance that changes in the legal or regulatory framework or other
subsequent developments will not result in limitation, suspension or revocation
of regulatory approvals granted to Medizone. Any such events, were they to
occur, could have a material adverse effect on Medizone's business, financial
condition and results of operations.


         Medizone may also be required to comply with FDA regulations for
manufacturing practices, which mandate procedures for extensive control and
documentation of product design, control and validation of the manufacturing
process and overall product quality. Foreign regulatory agencies have similar
manufacturing standards. Any third parties manufacturing Medizone's products or
supplying materials or components for such products may also be subject to these
manufacturing practices and mandatory procedures. If Medizone, its management or
its third party manufacturers fail to comply with applicable regulations
regarding these manufacturing practices, it could be subject to a number of
sanctions, including fines, injunctions, civil penalties, delays, suspensions or
withdrawals of market approval, seizures or recalls of product, operating
restrictions and, in some cases, criminal prosecutions.



                                       7

<PAGE>

         Medizone's products may also be subject to regulation, inspection and
licensing by other governmental agencies, including the Environmental Protection
Agency, state agencies similar to the FDA and EPA and the Occupational Health
and Safety Administration. In addition, if Medizone engages in contract
sterilization services, Medizone's products and operations may be subject to the
infection control or other requirements of the Joint Commission on Accreditation
of Health Care Organizations, the Center for Disease Control, the Association
for Advancement of Medical Instrumentation and other federal and state agencies
that have established or maintain testing methods or sterilization process
monitoring.


         Although we expect to conduct clinical tests and trials of our
technology, the outcome of such tests and trials is uncertain and cannot be
guaranteed. If our tests and trials are not acceptable to the governing
authorities, we will not obtain the approvals required to market our products in
the United States and other jurisdictions where such trials are required.
Certain of Medizone's products may constitute medical devices within the meaning
of the Food, Drug and Cosmetic Act and, therefore, may be subject to the FDA's
regulations governing medical devices. Products regulated as medical devices may
not be commercially distributed in the United States unless they have been
cleared or approved by the FDA, or unless they are otherwise exempted from the
FDA's regulations. Currently, there are two methods for obtaining FDA approval
or clearance of medical devices. Devices deemed to pose less risk are placed in
class I (general controls) or class II (general and special controls) and
qualify for 510(k) notification, a procedure under ss.510(k) of the FDA Act. In
order for a device to qualify under that procedure, the manufacturer must, among
other things, establish that the product is substantially equivalent in intended
use, safety and effectiveness to another legally marketed class I or class II
device or to a "pre-amendment" class III device for which the FDA has not called
for preliminary market approval or PMA. Medical class III is the class reserved
for devices deemed by the FDA to pose the greatest risk. Manufacturers of class
III devices must file a PMA. PMA applications generally require a much more
complex submission than a 510(k) notification and typically require a showing
that the device is safe and effective based on extensive and costly clinical and
other testing. There can be no assurance that any product developed by Medizone,
which is deemed to be a medical device for FDA Act purposes will qualify for
approval under the 510(k) notification process, or that any such products will
be deemed to be safe and effective if required to be qualified under a PMA.


         The time required to obtain FDA approval is uncertain, and frequently
takes several years or more, if approval is ever granted. There can be no
assurance that any future products developed or identified by Medizone alone or
in conjunction with others will prove to be safe and efficacious in any required
clinical trials, or that they will meet the applicable regulatory requirements
necessary for their marketing, including the receipt of a marketing clearance,
should such be required. Further, if regulatory approval is granted that
approval would generally be limited to the uses for which the product has been
demonstrated through clinical studies and other means to be safe and effective.
Furthermore, approval may entail ongoing requirements for, among other things,
post-marketing studies. Even if regulatory approval is obtained a marketed
product, its manufacturer and its manufacturing facilities and pertinent
operations are subject to extensive regulation and periodic inspections. The
regulatory requirements pertinent to medical device manufacturing and related
activities are stringently applied and enforced by the FDA and similar
governmental agencies in other countries.


         If Medizone is required to conduct clinical or other testing or trials
of its products, any such testing will need to be made in compliance with
regulations promulgated by the FDA under the authority granted it under the FDA
Act. In other countries, governmental agencies similar to the FDA also regulate
the sale of medical devices and products, generally in a manner similar to the
FDA's regulation of those products. Sales of any products to Europe also require
a "CE" mark, which shows that the product has been manufactured in accordance
with required standards. Medizone's sterilization technology has not been
approved for use in connection with or as part of any device, and there can be
no assurance that Medizone will not encounter problems in the conduct of any
clinical trials or tests it is required to complete which will cause the FDA, or
any other regulatory agencies to delay or suspend the tests or otherwise not
approve the sale of Medizone's products. If any of Medizone's products under
development are not shown to be safe and effective in any required clinical
trials, the resulting delays in developing other products or conducting related
pre-clinical testing and clinical trials, as well as the need for financing to
complete any such testing and trials, could have a material adverse effect on
Medizone's business, financial condition and results of operations.


                                       8

<PAGE>

         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. Medizone's success will
depend, in large part, on its ability to obtain and enforce patents, maintain
its trade secrets and operate without infringing on the proprietary rights of
others, both in the United States and in other countries. The patent positions
of companies can be uncertain to some extent and involve complex legal and
factual questions, and, therefore, the scope and enforceability of claims
allowed in patents are not systematically predictable with absolute accuracy.
Medizone's license rights depend in part upon the breadth and scope of
protection provided by the patents and the validity of the patents. Any failure
to maintain the issued patents could adversely affect Medizone's business.
Medizone intends to file additional patent applications (both United States and
foreign), when appropriate, relating to its technologies, improvements to its
technologies and for specific products it develops. There can be no assurance
that any issued patents or pending patent applications of Medizone will not be
challenged, invalidated or circumvented. There can also be no assurance that the
rights granted thereunder will provide proprietary protection or competitive
advantages to Medizone.


         The commercial success of Medizone will also depend, in part, on
Medizone not infringing patents issued to others and not breaching any
technology licenses upon which Medizone's products and services are based. It is
uncertain whether any third party patents will require Medizone to alter its
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, Medizone 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 Medizone
will be able to obtain any such licenses on commercially favorable terms, if at
all. Medizone's breach of an existing license or its failure to obtain a license
to any technology that it may require in order to commercialize its products may
have a material adverse impact on Medizone's business, results of operations and
financial condition. Further, litigation, which could result in substantial
costs to Medizone, may also be necessary to enforce patents licensed or issued
to Medizone or to determine the scope or validity of third party proprietary
rights. If competitors of Medizone prepare and file patent applications in the
United States that claim technology also claimed by Medizone, Medizone may have
to participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine priority of invention, which could result in
substantial cost to Medizone, even if the eventual outcome is favorable to
Medizone. An adverse outcome could subject Medizone to significant liabilities
to third-parties, require disputed rights to be licensed from third-parties or
require Medizone to cease using such technology.


         Medizone also relies on secrecy to protect portions of its 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 Medizone, including but not limited to its
know-how, trade secrets, methods of operation, names and information relating to
Medizone's vendors or suppliers and customer names and addresses. This
technology includes technology that Medizone acquired from two parties in
connection with, but separate from, the patented technology from Biozone, a
portion of which Medizone has acquired and a portion of which it has obtained a
license to use. There can be no assurance that Medizone's undivided ownership
and/or license rights in such technology are enforceable.


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


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


                                       9

<PAGE>

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


         Medizone faces competition based on product efficacy, safety, the
timing and scope of regulatory approvals, availability of supply, marketing and
sales capability, reimbursement coverage, price and patent position. There can
be no assurance Medizone's competitors will not develop more effective or more
affordable products, or achieve earlier patent protection or product
commercialization than Medizone.


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


         Our business activities may involve the use and storage of hazardous
substances that are subject to government restrictions and regulation,
increasing our potential liability to third parties and the cost of doing
business in order to comply with applicable regulations. Medizone's research and
development activities, and the application of Medizone's technology, may
involve the controlled use of materials, substances or electro-magnetic
radiation that may, if used or employed improperly, prove hazardous. Medizone
believes, however, that its technology employs such potentially hazardous or
toxic materials and substances in a manner that minimizes their adverse effects.
Further, where such hazards are employed, Medizone intends to utilize
appropriate detection equipment and take appropriate countermeasures in design,
or in the test lab environment.


         We have only a limited staff and if we are to succeed in implementing
our business plan we will need to engage and retain trained and qualified staff.
There is no assurance that we will succeed in attracting the personnel needed to
meet our needs. Medizone is dependent on the principal members of its scientific
and management staff. In addition, Medizone anticipates that it will rely upon
consultants and advisors to assist it in formulating its research and
development strategies and operations. Retaining and attracting qualified
personnel, consultants and advisors will be critical to Medizone's success. In
order to pursue its product development and marketing plans, Medizone will be
required to hire additional qualified scientific personnel, as well as personnel
with expertise in clinical testing, governmental regulation, manufacturing and
marketing. Expansion of product development and marketing are also expected to
require the addition of management personnel and the development of additional
expertise by existing management personnel. Medizone faces competition for
qualified individuals from numerous medical and clinical companies, universities
and other research institutions. There can be no assurance Medizone will be able
to attract and retain such individuals on acceptable terms, when needed, and to
the degree required.


         Medizone anticipates that any clinical development or other approval
tests in which it participates will be augmented by agreements with universities
and/or medical institutions or other personnel. It is likely that Medizone's


                                       10

<PAGE>

academic collaborators will not be employees of Medizone. As a result, Medizone
will have limited control over their activities and can expect that only limited
amounts of their time will be dedicated to Medizone's activities. Medizone's
academic collaborators may have relationships with other commercial entities,
some of which could compete with Medizone.


         We do not own our manufacturing capability and must rely on third
parties to manufacture the devices required for our technology. This arrangement
results in a certain loss of control over the manufacturing process and may
result in problems relating to quality control and warranty issues. Although we
plan to build or acquire our own manufacturing facility in the future, at this
time we have no manufacturing capability or capacity to produce any products
utilizing its sterilization technology, including any products to be used in any
required clinical or other tests. Medizone initially intends to develop
relationships with other companies to manufacture those components and/or
products, with Medizone being primarily in the role of specification developer
and final assembly manufacturer for selected products only. The two products
currently being developed by Medizone 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 Medizone's and business, financial condition, or results of
operations. Medizone's 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
Medizone's 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 Medizone's manufacturing processes would be successful, or that manufacturing
or quality problems will not arise as Medizone initiates production of any
products it might develop.


         In addition, some or all of Medizone's potential products, or products
in which Medizone's sterilization technology may be incorporated, may be
required to be manufactured in accordance with current FDA or other governmental
agency manufacturing regulations. If the manufacturing facilities cannot pass a
plant inspection by the FDA, the manufacturer's ability to manufacture the
products will be adversely affected. There can be no assurance Medizone can
successfully acquire manufacturing capacity on a profitable basis, or contract
with another party on terms acceptable to Medizone, if at all.


         You should consider this cautionary warning concerning forward-looking
statements in this report. Certain statements in this report constitute
"forward-looking statements" within the meaning of the rules and regulations
promulgated by the Securities and Exchange Commission. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of Medizone, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. These risks, uncertainties and other factors include, among other
things, Medizone's unprofitability and the continuing uncertainty of its
profitability, Medizone's ability to develop and introduce new products,
Medizone's lack of sales, marketing and distribution experience and anticipated
dependence on third parties for such matters, the risks associated with
obtaining governmental approval of Medizone's products, the highly competitive
industry in which Medizone intends to operate and the rapid pace of
technological change within those industries, the uncertainty of patent and
proprietary technology protection and Medizone's reliance on such patent and
proprietary technology (including reliance on technology licensed from third
parties), changes in or failure to comply with governmental regulation, the
uncertainty of third party reimbursement for Medizone's products, Medizone's
dependence on key employees, general economic and business conditions and other
factors referenced above.


Item 2.  Properties


         Medizone's offices are located at 144 Buena Vista Ave., Stinson Beach,
California. The offices are located temporarily in the home of Medizone's CEO,
Edwin Marshall. When financial resources permit, Medizone intends to remain in
the San Francisco Bay Area and lease office space that will allow for additional
staffing. Medizone pays $200 a month for a storage area for the company's
archives and pays or reimburses all telephone and related expenses incurred by
or for Medizone. The company has not been charged rent for this temporary office
space.


                                       11

<PAGE>

Item 3.  Legal Proceedings


         The company is a party to the following litigation matters.


         Rakas vs. Medizone International, Inc. A former consultant brought this
action in the Supreme Court of New York, Westchester County, (Index No.
08798/00), claiming the company had failed to pay consulting fees under a
consulting agreement. The company denies that it owes any fees to the
consultant. There has been no action in this matter since June 2001, when the
parties exchanged proposed settlement terms.


         Killian vs. Medizone International, Inc., Civil No. C014525, in the
United States District Court, Northern District of California. This action was
brought by five individuals who alleged that they were patients of Dr. William
Hitt in Mexico and that they were defrauded and injured by Hitt as a result of
treatments received there. Four of the plaintiffs are unknown to the company.
Other defendants named in the complaint are Dr. Hitt, Jane Hitt, The Hitt
Clinic, and Jill Marshall. The company and Mrs. Marshall deny all of the
allegations and also deny any liability for any injury or harm these persons may
have suffered. The company and Mrs. Marshall filed an answer to the complaint on
February 22, 2002. On March 26, 2002, plaintiff's counsel and counsel for the
company met and conferred to discuss alternative dispute resolution
alternatives, discovery and initial disclosure. A Case Management Conference is
scheduled for April 22, 2002.


         Bottomly vs. Medizone International, Inc., Civil No. 020900403, (Third
Judicial District Court for Salt Lake County). Nathaniel and Ross Bottomly and
Jeff Pace, who claim to be shareholders of Medizone, brought this action. Other
defendants named in the complaint are Ed and Jill Marshall. The plaintiffs
allege that the company and the Marshalls have mismanaged the company's
finances. The company and the Marshalls deny any wrongdoing and will vigorously
defend themselves against the claims of these plaintiffs. The company and the
Marshalls filed an answer with the court on February 25, 2002. On April 12, 2002
the company also file a Schedule 14 A with the Securities and Exchange
Commission, responding to the allegations of the Bottomlys and Pace in proxy
solicitation materials they have circulated.


         The company believes the allegations made by the plaintiffs are false
and distort the company's previous disclosures in the company's SEC filings. The
company filed its own lawsuit against the Bottomlys and Pace on April 5, 2002.
The company's complaint alleges that the defendants have violated federal laws
by using materially misleading and false statements to solicit the vote of
shareholders to replace the company's current management. In addition to the
Bottomlys and Pace, defendants to the company's lawsuit include Advocates of
Medizone, an unincorporated entity founded by these individual defendants, and
John Does 1 through 25. The complaint was filed in the United States District
Court Northern District of California.


                                     Part II


Item 5.           Market for Registrant's Common Equity and Related Stockholder
                  Matters


         Medizone's shares are traded in the over-the-counter market, with price
quotes listed on the OTC Electronic Bulletin Board under the trading symbol
"MZEI," and in the "pink sheets" published by the National Quotation Bureau.


         The following table summarizes data from the National Quotation Bureau,
indicating the high and low bid prices for a share of Medizone's common stock
during each of the four calendar quarters of fiscal 2001 and 2000. These prices
reflect inter-dealer prices without retail markup, markdown or commission, are
not necessarily representative of actual transactions, or of the value of
Medizone's securities, and are, in all likelihood, not based upon any recognized
criteria of securities valuation as used in the investment banking community.


                                                                Bid Price

                  Year              Calendar Period           High     Low
                  ----              ---------------           ----     ---
                  2001              First Quarter             $0.20    $0.13
                                    Second Quarter            $0.47    $0.13
                                    Third Quarter             $0.31    $0.13
                                    Fourth Quarter            $0.21    $0.06


                                       12
<PAGE>


                  2000              First Quarter             $0.80    $0.16
                                    Second Quarter            $0.66    $0.27
                                    Third Quarter             $0.52    $0.30
                                    Fourth Quarter            $0.41    $0.14


         As of March 27, 2002, there were approximately 3,500 holders of record
of Medizone's common stock, and approximately 4,500 beneficial owners.


         Medizone has never paid cash dividends on its common stock. Payment of
cash dividends is subject to the discretion of the Board of Directors and is
dependent upon various factors, including Medizone's earnings, capital needs and
general financial condition. Medizone does not believe that it has any immediate
prospect of earnings. However, Medizone anticipates that in the foreseeable
future, it will follow a policy of retaining earnings, if any, to finance
research and development.


Recent Sales of Unregistered Securities


         On February 16, 2001, Medizone sold 500,000 shares of common stock to
an accredited investor at a price of $0.20 per share, or gross proceeds of
$100,000. The company also issued warrants to the investor to purchase an
additional 1,000,000 shares of stock at $0.20 per share. The warrants expire in
February 2003.


         On March 21, 2001, the company sold 200,000 shares of common stock to
an accredited investor at $0.15 per share, or gross proceeds of $30,000. The
company also issued warrants to the investor to purchase 400,000 shares of stock
at $0.15 per share, exercisable over a two-year term. These warrants expire in
March 2003.


         On April 6, 2001, the company sold 166,666 shares of common stock to an
accredited investor at $0.15 per share, or gross proceeds of $24,985. The
company also issued warrants to this investor to purchase 166,666 shares at
$0.15 per share. These warrants expire in April 2003.


         On April 19, 2001, the company sold 555,555 shares of common stock to
an accredited investor at $0.18 per share, or gross proceeds of $99,996. The
company also issued warrants to this investor to purchase 555,555 shares of
common stock at $0.18 per share. These warrants expire in April 2003.


Item 6.           Management's Discussion and Analysis or Plan of Operation


Results of Operations


         From its inception in January 1986, Medizone has been a development
stage company primarily engaged in research into the medical uses of ozone.
Medizone has not generated, and cannot predict when or if it will generate,
revenues or sufficient cash flow to fund its continuing operations.


         Medizone has had no sales. In January 2000, Medizone received payment
of $415,869 under an order of restitution entered against its former President
and CEO, Joseph Latino.


         The company spent $67,333 for research and development in 2001,
compared to $170,000 in 2000. Since inception Medizone has spent a total of
$2,645,186 for research and development related to its ozone technology and
related apparatus.


         General and administrative expenses were $620,708 in 2001, compared to
$787,610 in 2000. These expenses include professional fees, payroll, insurance
costs and travel expenses. The company's lack of cash has prevented the company
from paying all accrued salary and other expenses during 2001.


         Notes payable totaled $303,491 in 2001, compared to $280,491 in 2000.
Interest expense on these obligations totaled $23,262 in 2001, compared to
$22,439 in 2000. The applicable interest rates on this debt ranged from 0% to
10% percent per annum.


                                       13

<PAGE>

Liquidity and Capital Resources


         At December 31, 2001, Medizone had a working capital deficiency of
$1,435,644 compared to a working capital deficiency of $989,548 at December 31,
2000. The company's stockholder's deficit at December 31, 2001 was $1,435,644,
compared to a stockholders' deficiency of $974,571 the previous year.


         Medizone will continue to require additional funding to enable it to
fund research necessary to make the appropriate regulatory application and
continue operations. It is expected that these funds will be generated by the
sale of Medizone's securities.


         Given the company's current negative cash flows, it will be difficult
for it to continue as a going concern without an influx of capital. While
management has continued to aggressively pursue potential financing
opportunities, those efforts have to date produced only minimal results.


         The company's audited financial statements included in this annual
report on Form 10-KSB have been prepared on the assumption that we will continue
as a going concern. To date it has been necessary to rely upon financing from
the sale of our equity securities to sustain operations. Additional financing
will be required if we are to continue as a going concern. If additional
financing cannot be obtained, we may be required to discontinue operations. Even
if additional financing is available there can be no assurance that it will be
on terms favorable to us. In any event, this additional financing will result in
immediate and possibly substantial dilution to existing shareholders.


         In 2000, the company announced that it had received a commitment for
$20,000,000 in funding from the Groundell Trust, an Asian-Pacific Island
philanthropic investment group. The investor committed to make the investment on
the initial $10,000,000 at a price of $5.00 per common share. The second tranche
of funding, also for $10,000,000, was to be based on the company's stock
performance in 2001. The investor informed the company that the funds to be
invested under its commitment letter were to be provided by a portion of an
anticipated commission payment payable to the investor upon closing of a series
of very large and complicated multi-national financing transactions and that the
investor believed those transactions would close within six weeks of the
delivery of its commitment to the company. Because of the sensitive nature of
the transactions that were (and continue to be) in process, the investor
required the company, as a condition to the receipt of the commitment, to keep
any additional details of their transaction entirely confidential. The investor
approved the contents of a press release describing the transaction that was
distributed by the company.


         To date the financing transactions that are to provide the source of
funds for the investor's purchase of shares in the company have not closed. Over
the course of the past two years, the investor has repeatedly confirmed its
commitment to invest a total of $20,000,000 in the company by the purchase of
common stock. Due to the passage of the time beyond the date originally
contemplated for the payment of the second tranche of the financing, the
investor has verbally agreed to invest the full $20,000,000 in a single closing.
The investor has continued to assure the company that the transactions continue
to progress toward closing, but has also indicated that the final closing of the
transactions has been delayed by a series of events outside the control of the
numerous parties to the transactions, including the terrorist attacks on the
United States in September 2001.


         The company's management remains in close contact with the investor.
Although there can be no assurance that the investment will be made as
committed, management believes it will close eventually under the terms. The
commitment letter is attached to this report as an exhibit. The company has
advised the investor that it will accept the funds upon execution of a written
subscription agreement at the time the funds are delivered.


         The company continues to seek funding from other sources, including
sources that have been introduced from time to time by shareholders and
affiliates of the company. However, with the exception of the sales of
securities described in this report, these efforts have not been successful.


Forward-Looking Statements and Risks


         The statements contained in this Report on Form 10-QSB that are not
purely historical are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 and Section 21E of the


                                       14

<PAGE>

Securities Exchange Act. These statements regard the company's expectations,
hopes, beliefs, anticipations, commitments, intentions and strategies regarding
the future. They may be identified by the use of the words or phrases
"believes," "expects," "anticipates," "should," "plans," "estimates," and
"potential," among others. Forward-looking statements include, but are not
limited to, statements contained in Management's Discussion and Analysis or Plan
of Operation regarding financial performance, revenue and expense levels in the
future and the sufficiency of existing assets to fund future operations and
capital spending needs. Actual results could differ materially from the
anticipated results or other expectations expressed in such forward-looking
statements for the reasons detailed in the this report under the headings
"Description of Business" and "Risk Factors." The fact that some of the risk
factors may be the same or similar to past reports filed with the Securities and
Exchange Commission means only that the risks are present in multiple periods.
The company believes that many of the risks detailed here are part of doing
business in the industry in which it intends to operate and compete and will
likely be present in all periods reported. The fact that certain risks are
endemic to the industry does not lessen their significance. The forward-looking
statements contained in this report are made as of the date of this report and
the company assumes no obligation to update them or to update the reasons why
actual results could differ from those projected in such forward-looking
statements.


Recent Developments


         Subsequent to December 31, 2001, the company sold 1,000,000 shares of
common stock to an accredited investor at $0.10 per share, or gross proceeds of
$100,000. We also granted the investor warrants to purchase 1,000,000 shares of
stock at $0.10 per share, exercisable over a two-year term. The company also
issued 677,368 shares of common stock in April 2002, valued at $67,737, in lieu
of debt repayment and services rendered.


                                    Part III


Item 9.  Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act


         The following table contains information concerning the directors and
executive officers of Medizone as of December 31, 2001.


Name                       Age      Position


Edwin G. Marshall          59       Chairman of the Board, CEO


Richard G. Solomon         59       Director


Jill C. Marshall           50       Chief Operating Officer, Corporate Secretary





         Edwin G. Marshall became Chairman of the Board & Chief Executive
Officer in April 1998 and has been with Medizone since June 1997. Mr. Marshall
attended Santa Rosa Junior College and the College of Marin, studying fire
science and business administration. From 1964 to 1978, Mr. Marshall worked in
the fire service in a city with a major chemical industrial complex, leaving
with the rank of Captain. A private investor since 1973, he went to work in the
real estate business in 1978. From 1978 until 1995, Mr. Marshall pursued various
business pursuits. Since 1992 he has concentrated on his own investments, and
since 1997 devoted substantially all of his time to management responsibilities
with Medizone.


         Richard Garrett Solomon, Director and Executive Officer of Medizone New
Zealand  Limited,  a partially owned  subsidiary of Medizone.  Mr. Solomon first
invested in Medizone in 1992. In 1995, Mr. Solomon and Medizone  formed Medizone
New Zealand as a 50/50-owned  joint venture.  Between  January 1996 and February
1997, Mr. Solomon was a director of Medizone. He was reappointed to the board of
directors  in May 2000.  Mr.  Solomon  received a Bachelor  of  Commerce  degree
(University  of  Otago),  Diploma  of  Business  and  Industrial  Administration
(University  of  Auckland),  and he is an Associate  Chartered  Accountant.  Mr.
Solomon's career has been in business and investment.  For 20 years he developed


                                       15

<PAGE>

and operated a private hospital operating company, Haven Care Hospitals Limited.
He was a long-standing  board member and president of the New Zealand  Hospitals
Association  and he was  instrumental  in the  establishment  of the New Zealand
Council of Healthcare Standards, Inc.


         Jill C. Marshall, NMD has been the Chief Operating Officer, Corporate
Secretary, and Director of Investor Relations of Medizone since April 1998. Dr.
Marshall is the recipient of a Doctor of Naturopathic Medicine degree from The
Southern College of Naturopathic Medicine and a Bachelor of Arts degree from
California State University at Long Beach, where she majored in Sociology and
Health Education. She brings a successful background in Naturopathic healing,
teaching, sales training and marketing to Medizone with 20 years experience
working in corporate environments. Dr. Marshall's previous sales and marketing
clients include: Foundation Health, Plus Financial, Principal Financial Group,
Paul Revere Companies, Discovery Toys, Lotus Development, Pacific Bell, PG&E and
Blue Shield of California. Dr. Marshall is the wife of Ed Marshall, Medizone's
CEO.


Item 10.          Executive Compensation

         The following Summary Compensation Table shows compensation paid by the
Company to the Chief Executive Officer of the Company for each of the past 2
years. No officer of the Company was paid more than $100,000 during 1999.

                           Summary Compensation Table

                                                                     Long-Term
                                                                    Compensation
                                      Annual Compensation             Awards
                      ----------------------------------------------------------
Name and Principal
Position              Year     Salary           Bonus             Options (#)
--------------------------------------------------------------------------------
Edwin G. Marshall     2001     $170,000 (1)     $   0                 0
Chairman and CEO      2000     $ 99,166 (2)     $   0                 0
                      1999     $      0 (3)     $   0                 0


(1)      Of the amount indicated, a total of $42,500 was paid in cash.  The
         remaining amount has been accrued, but has not been paid to Mr.
         Marshall due to the lack of funds.

(2)      The board of directors established the CEO's annual compensation
         package in 2000 to be $170,000. However, cash flow has never provided
         sufficient funds to pay the total accrued salary. The company remains
         indebted to the CEO for the payment of accrued salary in the amount of
         $70,834.


(3)      In January 2000, the board of directors authorized the issuance of
         750,000 shares of common stock, valued at $.175 per share, as payment
         of compensation for calendar year 1999. The value of the shares was
         based on the closing price of Medizone's common stock as reported by
         the OTC Bulletin Board on the dates of issue.


         Medizone has no employment agreements with any employee at this time.


         Medizone's board of directors does not have a compensation committee.
The board of directors determines matters concerning the compensation of
executive officers. When the resources of the company allow, it is anticipated
that directors will be paid an annual fee and a fee for attendance at meetings
of the board and meetings of committees of the board. Due to the resignation in
December of Gerard V. Sunnen as a director of the company, a vacancy was
created. The remaining members of the board appointed Daniel D. Hoyt a
businessman from Indianapolis, Indiana to fill that vacancy on April 2, 2002.
Mr. Hoyt is a shareholder of Medizone. He is a graduate of Indiana University,
where he received a Bachelor of Science degree in Business Administration. Over
the past 25 years he has become a highly recognized leader in the life insurance
industry. Mr. Hoyt's clients have ranged from large public companies to small
private businesses. In recent years he has spent most of his time in public
speaking and relationship building in the insurance industry. His previous work
experience includes seven years with Merrill Lynch as well as serving as the
Chief Executive for the Chamber of Commerce in three Indiana communities. Mr.


                                       16

<PAGE>

Hoyt currently serves as the Chairman of the Board of Biological Systems, Inc.,
a privately held corporation involved with bio-cleansing remediation systems for
animal fats and oil-based materials.


Item 11.          Security Ownership of Certain Beneficial Owners and Management


         The following table contains information as of April 9, 2002, regarding
beneficial stock ownership of (1) all persons known to Medizone to be beneficial
owners of more than 5% of the outstanding common stock, (2) each director and
each person who served at any time during fiscal year 2001 as CEO of Medizone,
and (3) officers and directors of Medizone at April 9, 2002, as a group. Each of
the persons in the table below has sole voting and dispositive power as to all
of the shares shown as beneficially owned by them except as otherwise indicated.


<TABLE>
<CAPTION>
                                                 Number of Shares          Percent of
Name and Address                                 Beneficially Owned        Outstanding Shares
                                                 ------------------        ------------------

<S>                                                 <C>                       <C>
Edwin G. Marshall                                   12,059,241(1)              7.6%
Chairman of the Board,
Chief Executive Officer
P.O. Box 742
Stinson Beach, CA 94970

Richard G. Solomon                                    7,130,001(2)             4.5%
Board Member, Medizone International
Director, Medizone New Zealand, Ltd.
77 Seaview Road
Remuera, Auckland 1005
New Zealand

Daniel D. Hoyt                                         3,000,000(3)            1.9%
1 American Square, Suite 1610
Indianapolis, IN 82040

Jill C. Marshall, ND                                  12,059,241(4)            7.6%
Chief Operating Officer,
Corporate Secretary
P.O. Box 742
Stinson Beach, CA 94970

All Officers and Directors
as a Group  (5 persons):                              22,189,242(5)           14.1%
</TABLE>



         (1) Amount indicated includes (i) 920,000 shares owned of record by
Jill Marshall, Mr. Marshall's wife and the COO, (ii) 4,936,507 shares owned of
record by Sand Dollar, a limited partnership of which Mr. Marshall is the
general partner, (iii) 6,129,366 shares owned directly by Mr. Marshall, (iv)
52,868 shares held by Edwin and Jill Marshall as joint tenants and (v) 20,500
shares held in street name.

         (2) Amount indicated includes combined holdings of Mr. Solomon
individually, members of his immediate family, and Solwin Investments Ltd.

         (3) Includes warrants to purchase 1,150,000 shares of common stock at
prices  ranging  from $0.15 to $0.20 per share,  and  1,850,000  shares owned of
record.


                                       17

<PAGE>


         (4) Amount indicated includes (i) 920,000 shares owned of record, (ii)
4,936,507  shares  owned by Sand  Dollar,  of which her  husband is the  general
partner,  (iii) 6,129,366 shares owned by Mrs. Marshall's  husband,  (iv) 52,869
shares held by Edwin Marshall and Jill Marshall as joint tenants and (iv) 20,500
shares held in street name.


         (5) Based on a total of 157,015,387 shares outstanding; duplicate
entries omitted.


Compliance with Section 16(a) of The Exchange Act


         Section 16(a) of the Securities Exchange Act of 1934 requires the
company's officers and directors, and persons who beneficially own more than 10%
of a registered class of the company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and shareholders owning more than 10% of the shares are
required by regulation of the Securities and Exchange Commission to furnish the
company with copies of all forms filed by them under Section 16(a). The company
is not aware of any transactions in its common stock by or on behalf of any
director, executive officer or 10%-holder, which would require the filing of any
report pursuant to Section 16(a) during the fiscal year ended December 31, 2001,
that was not timely filed with the Commission.


Item 12. Certain Relationships and Related Transactions


The Sand Dollar Solution


         The Sand Dollar Solution ("Sand Dollar") is a limited partnership. Mr.
Marshall, the company's CEO and Chairman is the general partner of Sand Dollar.
In 1999, Sand Dollar exercised warrants to purchase a total of 936,507 shares of
common stock at $.07 per share, or a total of $65,555.


         In January 2000, Sand Dollar exercised warrants to purchase 3,142,857
shares of common stock at $.07 per share, or a total of $220,000. In April 2000,
warrants held by Sand Dollar for the purchase of 37,682,540 shares of common
stock at prices ranging from $0.07 per share to $0.15 per share expired. In May
2001, warrants held by an affiliate of Sand Dollar for the purchase of
25,000,000 shares at $0.20 per share expired.


         The shares issued upon exercise of the Sand Dollar warrants were not
registered under the Securities Act of 1933 in reliance upon exemptions from
registration, including those created by the safe harbor provisions of
Regulation D under the Act for offerings made solely to accredited investors.
The shares are "restricted shares" as that term is defined under the Act and the
transfer and sale of the shares is therefore subject to the limitations and
restrictions imposed by the federal and state securities laws applicable to
shares issued in private or non-public sales of securities.


Item 13.          Exhibits and Reports on Form 8-K

(a)       Exhibits


         Number            Description


         2                 Agreement and Plan of Reorganization dated March 12,
                           1986 (2)


         3.1               Articles of Incorporation of Company (2)


         3.2               Bylaws (2)


         3.3               Articles of Amendment to Company's Articles of
                           Incorporation (3)


         10.1              Patent Agreement, dated February 26, 1987. (3)


         10.2              Assignment of Distributor  Agreement by Terrence O.
                           McGrath to Medizone Delaware,  dated February 4,
                           1986,  and  Distributor  Agreement  between  Terrence
                           O.  McGrath and Dr. J. Hansler GmbH, dated September
                           25, 1985 (3)


                                       18

<PAGE>


         10.3              Letter  confirmation  and  Protocol,  dated June 2,
                           1986,  with regard to research to be conducted by the
                           State University of New York at Syracuse (2)


         10.4              Consulting Agreement between P.J. Watrous & Co., Inc.
                           and Medizone (2)


         10.5              Consulting Agreement between Jeffrey Freed, MD, PC
                           and Medizone (2)


         10.6              Consulting Agreement between Joseph Latino and
                           Medizone (2)


         10.7              Consulting Agreement between Susan Golden, RN and
                           Medizone (2)


         10.8              Stock Option of Joseph Latino (2)


         10.9              Stock Option of Jeffrey Freed (2)


         10.10             Stock Option of Susan Golden (2)


         10.11             Stock Option of Hubert Weinberg (2)


         10.12             Agreement dated June 16, 1987, between Company and
                           Oliver Grace (5)


         10.13             Agreement dated June 26, 1987, between Company and
                           John Grace (5)


         10.14             Agreement dated June 26, 1987, between Company and
                           Oliver Grace (5)


         10.15             Agreement  dated June 30, 1987,  by and among Company
                           and John C. Black,  Dr. Gerard V. Sunnen and Dr.
                           Priyakant S. Doshi (5)


         10.16             License Agreement with MCL Medizone Canada Ltd. dated
                           November 18, 1987 (5)

         10.17             Agreement dated October 1988 by and among
                           Immunologics,  Limited  Partnership,  John M. Kells,
                           Y. C. Zee, David C. Bolton and Medizone
                           International, Inc. (6)


         10.18             Form of Stock Purchase  Agreement  between Company
                           and individuals who purchased shares from Company (7)


         10.19             Letter agreement between Company and Rebus Oil Co.,
                           Ltd. dated July 28, 1992 (8)


         10.20             Letter of  understanding  between  Company and the
                           RMB Group of Boston  dated August 10, 1992 (8)


         10.21             Agreement between Company and Rebus Oil Company,
                           Ltd., dated as of October 20, 1992 (9)


         10.22             Letter  agreement  among Messrs.  McGrath,  Watrous,
                           Melera,  Chou,  Kells,  Handel and Pealer, dated as
                           of November 10, 1992 (9)


         10.23             Loan agreement with Messrs. McGrath and Watrous dated
                           as of November 16, 1992 (9)


         10.24             Settlement agreement with former consultant dated
                           February 12, 1993 (9)


         10.25             Consulting Agreement with Joseph S. Latino dated as
                           of January 1, 1993 (9)


         10.26             Consulting Agreement with Arthur P. Bergeron dated as
                           of January 1, 1993 (9)


         10.27             Employment Agreement with Katherine M. Kalinowski
                           dated as of January 1, 1993 (9)


         10.28             Consulting Agreement with Roger Shelley dated as of
                           January 1, 1993 (9)


         10.29             Consulting Agreement with Jeannette Arsenault dated
                           as of January 1, 1993 (9)


         10.30             Loan  Agreements  between  Company  and John  Kells,
                           George  Handel  and  John  Pealer, executed as of
                           June 11, 1993 (and promissory notes) (9)


         10.31             Promissory  Note to Joseph S. Latino  dated as of
                           October 26, 1993 and  Acceptance  Form dated as of
                           November 26, 1993 (9)


         10.32             Letter  Agreement  dated March 23,  1993  between
                           Company  and the  Italian  Scientific  Society (10)


         10.33             Contract between Company and Capmed USA (10)


         10.34             Agreement made as of May 18, 1994, among Medizone
                           International,  Inc., Medizone Canada Ltd., John M.
                           Kells, George Handel, John Pealer,  Joseph S. Latino,
                           Terrence O. McGrath and Philip J. Watrous (11)


         10.35             Agreement made as of January 1, 1995,  between
                           Medizone International, Inc.and Joseph S. Latino (11)


         10.36             Agreement  made as of January 1, 1995 between
                           Medizone  International,  Inc. and Arthur  P.
                           Bergeron (11)


         10.37             Agreement made as of January 1, 1995 between Medizone
                           International, Inc. and Giacomo C. DiGiorgio, MD (11)


         10.38             Lease  Agreement  between  Medizone  International,
                           Inc. and Benabi  Realty,  made on September 27, 1991,
                           as extended, January 17, 1995 (11)


         10.39             Agreement  for Sale and  Purchase of Shares in
                           Medizone  New  Zealand  Limited  between  Richard G.
                           Solomon and Medizone International, Inc., dated June
                           22, 1995 (12)


         10.40             Shareholders'  Agreement  relating to Medizone  New
                           Zealand  Limited  between and among Solwin
                           Investments  Limited,  Medizone  International,  Inc.
                           and  Medizone New Zealand Limited, dated June 22,
                           1995 (12)


         10.41             Licensing  Agreement between Medizone  International,
                           Inc. and MNZ, dated June 22, 1995 (12)


         10.42             Managing Agent Agreement between Medizone
                           International,  Inc. and Medizone New Zealand
                           Limited, dated June 22, 1995 (12)


         10.43             Lease Agreement  between  Medizone  International,
                           Inc. and Linmar L.P.,  dated January 17, 1996 (13)


         10.44             Agreement  between Medizone  International,  Inc. and
                           Multiossigen  S.r.l.,  dated as of September 13,
                           1996 (14)


         10.45             Agreement between Medizone  International,  Inc. and
                           JRH Biosciences,  Inc., dated April 17, 1997 (15)

         10.46             Lease Agreement between Medizone  International Inc.
                           and Eagle Overlook,  L.C., made on September 23, 1997
                           (16)

         10.47             Funding commitment letter from Groundell Trust.


         16                Letter re: change in certifying accountants (17)





(1)      Incorporated by reference to Medizone's annual report on form 10-K for
         the year ended December 31, 1998.


(2)      Incorporated  by  reference  to  Medizone's   registration   statement
         on  Form  S-18  (Registration  No. 2-93277-D), effective May 14, 1985.


(3)      Incorporated  by  reference to  Medizone's  annual  report on Form 10-K
         for the period ended  December 31, 1986.


(4)      Incorporated by reference to Medizone's current report on Form 8-K,
         filed March 13, 1987.


(5)      Incorporated  by  reference to  Medizone's  annual  report on Form 10-K
         for the period ended  December 31, 1987.


(6)      Incorporated  by  reference to  Medizone's  annual  report on Form 10-K
         for the period ended  December 31, 1988.


(7)      Incorporated  by  reference to  Medizone's  annual  report on Form 10-K
         for the period ended  December 31, 1989.


(8)      Incorporated  by  reference to  Medizone's  annual  report on Form 10-K
         for the period ended  December 31, 1990.


(9)      Incorporated  by  reference to  Medizone's  annual  report on Form 10-K
         for the period ended  December 31, 1992.


(10)     Incorporated by reference to Medizone's current annual report on Form
         8-K dated September 8, 1993.


(11)     Incorporated  by  reference to  Medizone's  annual  report on Form 10-K
         for the period ended  December 31, 1994.


(12)     Incorporated by reference to Medizone's current annual report on Form
         8-K, dated June 22, 1995.


(13)     Incorporated  by  reference to  Medizone's  annual  report on Form 10-K
         for the period ended  December 31, 1995.


(14)     Incorporated by reference to Medizone's current report on Form 8-K,
         dated October 17, 1996.


(15)     Incorporated by reference to Medizone's current report on Form 8-K,
         dated May 5, 1997.


(16)     Incorporated by reference to Medizone's current report on Form 8-K
         dated September 24, 1997.

(b)      Reports on Form 8-K.

         None.


                                       21

<PAGE>


                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                               MEDIZONE INTERNATIONAL, INC.


                               By:   /s/ Edwin G. Marshall
                                   -----------------------------------
                               Edwin G. Marshall
                               Chairman of the Board and Chief Executive Officer

                               By: /s/ Steve Hanni
                                  ------------------------------------
                               Acting Principal Accounting Officer

Date: April 12, 2002

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities shown
and on the date indicated.


Date: April 12, 2002              /s/ Edwin G. Marshall
                                --------------------------------------

                                Edwin G. Marshall, Chief Executive Officer
                                and Director


Date: April 12, 2002              /s/ Richard Solomon
                                --------------------------------------
                                Richard Solomon, Director



<PAGE>


                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)

                        CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2001





<PAGE>






                                 C O N T E N T S


Independent Auditors' Report............................................. 3

Consolidated Balance Sheet............................................... 4

Consolidated Statements of Operations.................................... 5

Consolidated Statements of Stockholders' Equity (Deficit)................ 6

Consolidated Statements of Cash Flows....................................15

Notes to the Consolidated Financial Statements...........................17


<PAGE>









                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
Medizone International, Inc. and Subsidiaries
(A Development Stage Company)
Stinson Beach, California

We have audited the accompanying consolidated balance sheet of Medizone
International, Inc. and Subsidiaries (a development stage company) as of

December  31,  2001,  and the related  consolidated  statements  of  operations,
stockholders' equity (deficit),  and cash flows for the years ended December 31,
2001 and 2000 and from inception on January 31, 1986 through  December 31, 2001.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Medizone International, Inc. and Subsidiaries (a development stage company) as
of December 31, 2001, and the consolidated results of their operations and their
cash flows for the years ended  December 31, 2001 and 2000 and from inception on
January 31, 1986 through  December  31,  2001,  in  conformity  with  accounting
principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 9 to the
consolidated financial statements, the Company has incurred significant losses
which have resulted in an accumulated deficit and a deficit in stockholders'
equity, raising substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 9. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.




HJ Associates & Consultants, LLP
Salt Lake City, Utah
April 15, 2002




<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                           Consolidated Balance Sheet


                                     ASSETS

                                                          December 31,
                                                                 2001

CURRENT ASSETS

   Cash and cash equivalents                              $                -
                                                          ------------------

     Total Current Assets                                                  -
                                                          ------------------

PROPERTY AND EQUIPMENT (Net) (Notes 1 and 2)                          10,226
                                                          ------------------

OTHER ASSETS

   Receivable from affiliate, net (Note 1)                                 -
                                                          ------------------

     Total Other Assets                                                    -
                                                          ------------------

     TOTAL ASSETS                                         $           10,226
                                                          ==================

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 ----------------------------------------------

CURRENT LIABILITIES

<TABLE>
<CAPTION>
<S>                                                                           <C>
   Bank overdraft                                                             $                8
   Accounts payable                                                                      397,722
   Due to shareholders (Note 8)                                                              855
   Accrued expenses (Note 3)                                                             743,794
   Notes payable (Note 6)                                                                303,491
                                                                              ------------------

     Total Current Liabilities                                                         1,445,870
                                                                              ------------------

     Total Liabilities                                                                 1,445,870
                                                                              ------------------

COMMITMENTS AND CONTINGENCIES (Note 4)

STOCKHOLDERS' EQUITY (DEFICIT)

   Common stock; 250,000,000 shares authorized of $0.001 par value,
    155,338,019 shares issued and outstanding                                            155,338
   Additional paid-in capital                                                         15,455,220
   Deficit accumulated during the development stage                                  (17,046,202)
                                                                              ------------------

     Total Stockholders' Equity (Deficit)                                             (1,435,644)
                                                                              ------------------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                     $           10,226
                                                                              ==================

</TABLE>


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


                                        4

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                      Consolidated Statements of Operations


<TABLE>
<CAPTION>
                                                                                                         From
                                                                                                     Inception on
                                                                                                      January 31,
                                                                       For the Years Ended           1986 Through
                                                                             December 31,            December 31,
                                                               ---------------------------------
                                                                       2001              2000             2001
                                                               ---------------   ---------------  ----------------

<S>                                                            <C>               <C>              <C>
REVENUE                                                        $             -   $             -  $        133,349
                                                               ---------------   ---------------  ----------------

EXPENSES

   Cost of sales                                                             -                 -           103,790
   Research and development                                             67,333           170,000         2,645,186
   General and administrative                                          620,708           787,610        12,737,190
   Expense on extension of warrants (Note 5)                                 -         1,743,468         1,866,857
   Bad debt expense                                                          -                 -            48,947
   Depreciation and amortization                                         4,751             5,621            37,770
                                                               ---------------   ---------------  ----------------

     Total Expenses                                                    692,792         2,706,699        17,439,740
                                                               ---------------   ---------------  ----------------

     Loss from Operations                                             (692,792)       (2,706,699)      (17,306,391)
                                                               ---------------   ---------------  ----------------

OTHER INCOME (EXPENSE)

   Minority interest in loss                                                 -                 -            26,091
   Other income                                                              -                 -            19,780
   Gain on sale of Subsidiaries (Note 1)                                       -                 -           208,417
   Interest expense                                                    (23,262)          (22,439)         (888,837)
                                                               ---------------   ---------------  ----------------

     Total Other Income (Expense)                                      (23,262)          (22,439)         (634,549)
                                                               ---------------   ---------------  ----------------

LOSS BEFORE EXTRAORDINARY ITEMS                                       (716,054)       (2,729,138)      (17,940,940)
                                                               ---------------   ---------------  ----------------

EXTRAORDINARY ITEMS

   Lawsuit settlement (Note 4)                                               -           415,000           415,000
   Debt forgiveness (Note 4)                                                 -           127,000           479,738
                                                               ---------------   ---------------  ----------------

     Total Extraordinary Items                                               -           542,000           894,738
                                                               ---------------   ---------------  ----------------

NET LOSS                                                       $      (716,054)  $    (2,187,138) $    (17,046,202)
                                                               ===============   ===============  ================

BASIC INCOME (LOSS) PER SHARE

   Loss before extraordinary items                             $         (0.00)  $         (0.02)
   Extraordinary items                                                    0.00              0.00
                                                               ---------------   ---------------

     Basic Income (Loss) Per Share                             $         (0.00)  $         (0.02)
                                                               ===============   ===============

WEIGHTED AVERAGE NUMBER
 OF SHARES OUTSTANDING                                             155,052,479       154,371,805
                                                               ===============   ===============
</TABLE>



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


                                        5

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
            Consolidated Statements of Stockholders' Equity (Deficit)

<TABLE>
<CAPTION>
                                                                                                                        Deficit
                                                                                                                      Accumulated
                                                                 Common Stock                         Additional      During the
                                             ---------------------------------------------------        Paid-in       Development
                                                   Shares           Amount         Subscribed           Capital          Stage
                                             ----------------  ---------------   ---------------  ----------------  ---------------

<S>                                                <C>         <C>               <C>              <C>               <C>
Balance, January 31, 1986 (inception)                       -  $             -   $             -  $               - $             -

Initial capitalization of Medizone -
 Nevada at $0.03 per share                          5,500,000            5,500                 -           150,128                -

Common shares issued in acquisition
 of Medizone - Delaware (Note 1)                   37,500,000           37,500                 -           (37,500)               -

Common stock issued for services
 rendered in July 1986 at $0.10
 per share                                             50,000               50                 -             4,950                -

Common stock issued in conversion
 of warrants during 1986 at $0.10
 per share                                          7,814,600            7,815                 -           773,645                -

Stock issuance costs                                        -                -                 -          (105,312)               -

Net loss for the year ended
 December 31, 1986                                          -                -                 -                 -         (796,068)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 1986                         50,864,600           50,865                 -           785,911         (796,068)

Common stock issued upon exercise
 of warrants in January 1987 at $0.10
 per share                                              2,600                2                 -               257                -

Common stock issued for patent in
 March 1987 at $0.69 per share                      1,000,000            1,000                 -           692,750                -

Common stock issued for cash in
 June 1987 at an average price of
 $0.16 per share                                      950,000              950                 -           149,050                -

Common stock issued for services
 in June and July 1987 at an
 average price of $0.12 per share                     203,167              203                 -            24,314                -

Common stock issued through
 exercise of options in August 1987
 at $1.75 per share                                   250,000              250                 -           437,250                -

Net loss for the year ended
 December 31, 1987                                          -                -                 -                 -       (2,749,400)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 1987                         53,270,367  $        53,270   $             -  $      2,089,532  $    (3,545,468)
                                             ----------------  ---------------   ---------------  ----------------  ---------------
</TABLE>



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


                                        6

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
      Consolidated Statements of Stockholders' Equity (Deficit) (Continued)


<TABLE>
<CAPTION>
                                                                                                                        Deficit
                                                                                                                      Accumulated
                                                                       Common Stock                    Additional      During the
                                             ---------------------------------------------------        Paid-in       Development
                                                   Shares           Amount         Subscribed           Capital          Stage
                                             ----------------  ---------------   ---------------  ----------------  ---------------

<S>                                                <C>         <C>               <C>              <C>               <C>
Balance, December 31, 1987                         53,270,367  $        53,270   $             -  $      2,089,532  $    (3,545,468)

Common stock issued through exercise
 of options in January 1988 at $0.50
 per share                                            200,000              200                 -            99,800                -

Common stock issued for cash in
 September 1988 at $0.08 per share                  1,000,000            1,000                 -            79,000                -

Common stock issued for services
 at an average price of $0.23
 per share                                             35,000               35                 -             7,965                -

Additional capital contributed                              -                -                 -           174,126                -

Net loss for the year ended
 December 31, 1988                                          -                -                 -                 -         (714,347)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 1988                         54,505,367           54,505                 -         2,450,423       (4,259,815)

Common stock issued for services
 at an average price of $0.18 per
 share                                                261,889              262                 -            46,363                -

Common stock issued for cash at
 an average price of $0.05 per share                5,790,000            5,790                 -           285,710                -

Common stock issued for services
 and in lieu of outstanding debt at
 an average price of $0.12 per share                4,749,532            4,750                 -           578,978                -

Common stock issued upon exercise
 of options at $0.16 per share                        375,000              375                 -            59,125                -

Net loss for the year ended
 December 31, 1989                                          -                -                 -                 -         (862,051)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 1989                         65,681,788  $        65,682   $             -  $      3,420,599  $    (5,121,866)
                                             ----------------  ---------------   ---------------  ----------------  ---------------
</TABLE>

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


                                        7

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
      Consolidated Statements of Stockholders' Equity (Deficit) (Continued)


<TABLE>
<CAPTION>
                                                                                                                        Deficit
                                                                                                                      Accumulated
                                                                       Common Stock                   Additional      During the
                                             ---------------------------------------------------       Paid-in        Development
                                                   Shares           Amount         Subscribed           Capital          Stage
                                             ----------------  ---------------   ---------------  ----------------  ---------------

<S>                                                <C>         <C>               <C>              <C>               <C>
Balance, December 31, 1989                         65,681,788  $        65,682   $             -  $      3,420,599  $    (5,121,866)

Common stock issued for services
 at $0.10 per share                                   880,000              880                 -            87,120                -

Common stock issued for cash at an
 average price of $0.04 per share                   4,250,000            4,250                 -           175,250                -

Common stock issued for services
 and in lieu of outstanding debt at
 an average price of $0.06 per share                2,422,727            2,423                 -           137,577                -

Additional capital contributed                              -                -                 -           100,000                -

Net loss for the year ended
 December 31, 1990                                          -                -                 -                 -         (606,309)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 1990                         73,234,515           73,235                 -         3,920,546       (5,728,175)

Common stock issued for cash at an
 average price of $0.07 per share                   4,366,667            4,366                 -           305,634                -

Common stock issued for services
 at an average price of $0.17 per
 share                                                425,000              425                 -            72,075                -

Common stock issued through
 exercise of options at an average
 price of $0.45 per share                             450,000              450                 -           204,050                -

Additional capital contributed                              -                -                 -             5,000                -

Net loss for the year ended
 December 31, 1991                                          -                -                 -                 -       (1,220,152)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 1991                         78,476,182  $        78,476   $             -  $      4,507,305  $    (6,948,327)
                                             ----------------  ---------------   ---------------  ----------------  ---------------
</TABLE>

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


                                        8

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
      Consolidated Statements of Stockholders' Equity (Deficit) (Continued)


<TABLE>
<CAPTION>
                                                                                                                        Deficit
                                                                                                                      Accumulated
                                                                       Common Stock                    Additional      During the
                                             ---------------------------------------------------         Paid-in      Development
                                                   Shares           Amount         Subscribed           Capital          Stage
                                             ----------------  ---------------   ---------------  ----------------  ---------------

<S>                                                <C>         <C>               <C>              <C>               <C>
Balance, December 31, 1991                         78,476,182  $        78,476   $             -  $      4,507,305  $    (6,948,327)

Common stock issued for services
 at $0.20 per share                                   151,500              152                 -            30,148                -

Common stock issued in lieu of
 debt at $0.15 per share                              250,000              250                 -            37,250                -

Common stock issued for cash at
 an average price of $0.16 per share                2,702,335            2,702                 -           427,648                -

Common stock issued through
 exercise of options at $0.50
 per share                                            250,000              250                 -           124,750                -

Additional capital contributed                              -                -                 -            81,100                -

Net loss for the year ended
 December 31, 1992                                          -                -                 -                 -         (649,941)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 1992                         81,830,017           81,830                 -         5,208,201       (7,598,268)

Common stock issued for services
 at an average price of $0.10
 per share                                          5,347,219            5,347                 -           542,859                -

Common stock issued for cash at
 an average price of $0.18 per share                1,471,666            1,472                 -           269,528                -

Common shares subscribed for
 at $0.10 per share                                         -                -             2,619           259,296                -

Net loss for the year ended
 December 31, 1993                                          -                -                 -                 -       (1,598,342)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 1993                         88,648,902  $        88,649   $         2,619  $      6,279,884  $    (9,196,610)
                                             ----------------  ---------------   ---------------  ----------------  ---------------
</TABLE>

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


                                        9

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
      Consolidated Statements of Stockholders' Equity (Deficit) (Continued)


<TABLE>
<CAPTION>
                                                                                                                        Deficit
                                                                                                                      Accumulated
                                                                       Common Stock                   Additional       During the
                                             ---------------------------------------------------        Paid-in       Development
                                                   Shares           Amount         Subscribed           Capital          Stage
                                             ----------------  ---------------   ---------------  ----------------  ---------------

<S>                                               <C>          <C>               <C>              <C>               <C>
Balance, December 31, 1993                         88,648,902  $        88,649   $         2,619  $      6,279,884  $    (9,196,610)

Common stock issued for services
 at $0.10 per share                                 1,431,590            1,431                 -           141,727                -

Common shares subscribed for at
 $0.10 per share                                            -                -             9,552           945,682                -

Common shares subscribed for as
 cancellations of indebtedness at
 $0.10 per share                                            -                -               417            41,234                -

Common shares subscribed for as
 cancellation of indebtedness at
 $0.18 per share                                            -                -            11,250         2,022,379                -

Issuance of subscribed stock                       10,384,900           10,385           (10,385)                -                -

Issuance of shares in recognition
 of disparity in purchase price in
 offering                                           1,125,834            1,126                 -            (1,126)               -

Prior period adjustment                                     -                -                 -                 -          219,422

Net loss for the year ended
 December 31, 1994                                          -                -                 -                 -       (1,126,315)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 1994                        101,591,226  $       101,591   $        13,453  $      9,429,780  $   (10,103,503)
                                             ----------------  ---------------   ---------------  ----------------  ---------------
</TABLE>

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


                                       10

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
      Consolidated Statements of Stockholders' Equity (Deficit) (Continued)


<TABLE>
<CAPTION>
                                                                                                                        Deficit
                                                                                                                      Accumulated
                                                                       Common Stock                    Additional      During the
                                             ---------------------------------------------------        Paid-in       Development
                                                   Shares           Amount         Subscribed           Capital          Stage
                                             ----------------  ---------------   ---------------  ----------------  ---------------

<S>                                               <C>          <C>               <C>              <C>               <C>
Balance, December 31, 1994                        101,591,226  $       101,591   $        13,453  $      9,429,780  $   (10,103,503)

Redeemable common shares
 converted to common stock                            200,000              200                 -            39,800                -

Common stock issued for services
 at $0.10 per share                                 2,050,000            2,050                 -           202,950                -

Issuance of subscribed stock                       17,524,860           17,524           (17,524)                -                -

Cancellation of common shares                      (1,242,727)          (1,242)                -           (70,563)               -

Common shares subscribed for at
 $0.10 per share                                            -                -             9,118           902,707                -

Prior period adjustment                                     -                -                 -                 -           71,806

Additional capital contributed                              -                -                 -            50,000                -

Net loss for the year ended
 December 31, 1995                                          -                -                 -                 -       (1,081,027)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 1995                        120,123,359          120,123             5,047        10,554,674      (11,112,724)

Common stock issued for cash
 at $0.10 per share                                   100,000              100                 -             9,900                -

Common stock issued for services
 at $0.10 per share                                 1,415,875            1,416                 -           140,171                -

Issuance of subscribed stock                        8,412,379            8,413            (8,413)                -                -

Common shares subscribed for
 at $0.11 per share                                         -                -             6,456           718,991                -

Net loss for the year ended
 December 31, 1996                                          -                -                 -                 -       (1,329,395)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 1996                        130,051,613  $       130,052   $         3,090  $     11,423,736  $   (12,442,119)
                                             ----------------  ---------------   ---------------  ----------------  ---------------
</TABLE>

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


                                       11

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
      Consolidated Statements of Stockholders' Equity (Deficit) (Continued)


<TABLE>
<CAPTION>
                                                                                                               Deficit
                                                                                                                      Accumulated
                                                                       Common Stock                  Additional        During the
                                             ---------------------------------------------------      Paid-in         Development
                                                   Shares           Amount         Subscribed         Capital            Stage
                                             ----------------  ---------------   ---------------  ----------------  ---------------

<S>                                               <C>          <C>               <C>              <C>               <C>
Balance, December 31, 1996                        130,051,613  $       130,052   $         3,090  $     11,423,736  $   (12,442,119)

Issuance of subscribed stock                        3,089,680            3,090            (3,090)                -                -

Common shares subscribed for
 at $0.07 per share                                         -                -             5,714           394,287                -

Common stock issued for services
 at $0.10 per share                                 3,746,336            3,746                 -           370,886                -

Net loss for the year ended
 December 31, 1997                                          -                -                 -                 -         (775,559)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 1997                        136,887,629          136,888             5,714        12,188,909      (13,217,678)

Common stock issued through
 exercise of warrants at $0.07
 per share                                            857,142              857                 -            59,143                -

Common stock issued in lieu of
 debt at $0.05 per share                              864,747              865                 -            42,372                -

Issuance of subscribed stock                        5,714,286            5,714            (5,714)                -                -

Cancellation of common shares                        (630,000)            (630)                -               630                -

Common stock issued for services
 at $0.05 per share                                 3,465,000            3,465                 -           169,786                -

Common stock issued for services
 at $0.09 per share                                   750,000              750                 -            63,785                -

Common stock issued in lieu of
 debt at $0.09 per share                              967,630              967                 -            82,214                -

Common stock issued for services
 at $0.08 per share                                    50,000               50                 -             3,700                -

Net loss for the year ended
 December 31, 1998                                          -                -                 -                 -         (565,761)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 1998                        148,926,434  $       148,926   $             -  $     12,610,539  $   (13,783,439)
                                             ----------------  ---------------   ---------------  ----------------  ---------------
</TABLE>



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


                                       12

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
      Consolidated Statements of Stockholders' Equity (Deficit) (Continued)

<TABLE>
<CAPTION>

                                                                                                                       Deficit
                                                                                                                     Accumulated
                                                                       Common Stock                   Additional     During the
                                             ---------------------------------------------------        Paid-in      Development
                                                   Shares           Amount         Subscribed           Capital         Stage
                                             ----------------  ---------------   ---------------  ----------------  ---------------

<S>                                               <C>          <C>               <C>              <C>               <C>
Balance, December 31, 1998                        148,926,434  $       148,926   $             -  $     12,610,539  $   (13,783,439)

Common stock issued for services
 at $0.07 per share                                    25,000               25                 -             1,725                -

Common stock issued through exercise
 of warrants at $0.07 per share                       936,507              937                 -            64,618                -

Additional expense for extension of
 warrants below market value                                -                -                 -           123,389                -

Net loss for the year ended
 December 31, 1999                                          -                -                 -                 -         (359,571)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 1999                        149,887,941          149,888                 -        12,800,271      (14,143,010)

Common stock issued through
 exercise of warrants at $0.07 per share            3,142,857            3,143                 -           216,857                -

Common stock issued for debt at
 $0.11 per share                                    2,020,000            2,020                 -           220,180                -

Common stock issued for debt at
 $0.147 per share                                      95,000               95                 -            13,905                -

Common stock issued for services
 at $0.175 per share                                  350,000              350                 -            60,900                -

Common stock issued for debt at
 $0.20 per share                                       20,000               20                 -             3,980                -

Common stock issued for debt at
 $0.55 per share                                      100,000              100                 -            54,900                -

Cancellation of common stock                       (2,000,000)          (2,000)                -             2,000                -

Common stock issued for services
 at $0.285 per share                                  300,000              300                 -            85,200                -

Additional expense for extension of
 warrants below market value                                -                -                 -         1,743,468                -

Net loss for the year ended
 December 31, 2000                                          -                -                 -                 -       (2,187,138)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 2000                        153,915,798  $       153,916   $             -  $     15,201,661  $   (16,330,148)
                                             ----------------  ---------------   ---------------  ----------------  ---------------
</TABLE>



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


                                       13

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
      Consolidated Statements of Stockholders' Equity (Deficit) (Continued)


<TABLE>
<CAPTION>
                                                                                                                        Deficit
                                                                                                                      Accumulated
                                                                       Common Stock                   Additional       During the
                                             ---------------------------------------------------       Paid-in        Development
                                                   Shares           Amount         Subscribed          Capital           Stage
                                             ----------------  ---------------   ---------------  ----------------  ---------------

<S>                                               <C>          <C>               <C>              <C>               <C>
Balance, December 31, 2000                        153,915,798  $       153,916   $             -  $     15,201,661  $   (16,330,148)

Common stock and warrants issued
 for cash at $0.20 per share                          500,000              500                 -            99,500                -

Common stock and warrants issued
 for cash at $0.15 per share                          200,000              200                 -            29,800                -

Common stock and warrants issued
 for cash at $0.15 per share                          166,666              167                 -            24,818                -

Common stock and warrants issued
 for cash at $0.18 per share                          555,555              555                 -            99,441                -

Net loss for the year ended
 December 31, 2001                                          -                -                 -                 -         (716,054)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 2001                        155,338,019  $       155,338   $             -  $     15,455,220  $   (17,046,202)
                                             ================  ===============   ===============  ================  ===============

</TABLE>




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


                                       14

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                        From
                                                                                                     Inception on
                                                                       For the Years Ended           January 31,
                                                                             December 31,            1986 Through
                                                               ---------------------------------     December 31,
                                                                       2001              2000           2001
                                                               ---------------   ---------------  ----------------

CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                            <C>               <C>              <C>
   Net loss                                                    $      (716,054)  $    (2,187,138) $    (17,046,202)
   Adjustments to reconcile net loss to net cash
    used by operating activities:
     Depreciation and amortization                                       4,751             5,621            37,770
     Stock issued for services                                               -           146,750         3,015,916
     Expense for extension of warrants below market
      value                                                                  -         1,743,468         1,866,857
     Bad debt expense                                                        -                 -            48,947
     Minority interest in loss                                               -                 -           (26,091)
     Loss on disposal of assets                                              -                 -           693,752
     Gain on settlement of debt                                              -          (127,000 )        (188,510)
     Gain on lawsuit settlement                                              -          (415,000)         (415,000)
   Changes in assets and liabilities:
     (Increase) in prepaid expenses
      and deposits                                                           -                 -           (48,947)
     Increase in accounts payable                                       57,948            23,604           772,802
     Increase in accrued expenses                                      372,143           187,606         1,146,816
                                                               ---------------   ---------------  ----------------

       Net Cash Used by Operating Activities                          (281,212)         (622,089)      (10,141,890)
                                                               ---------------   ---------------  ----------------

CASH FLOWS FROM INVESTING ACTIVITIES

   Organization costs                                                        -                 -            (8,904)
   Purchase of fixed assets                                                  -           (14,931)          (39,090)
                                                               ---------------   ---------------  ----------------

       Net Cash Used by Investing Activities                                 -           (14,931)          (47,994)
                                                               ---------------   ---------------  ----------------

CASH FLOWS FROM FINANCING ACTIVITIES

   Bank overdraft                                                            8                 -                 8
   Proceeds from lawsuit settlement                                          -           415,000           415,000
   Principle payments on notes payable                                       -                 -          (192,774)
   Cash received from notes payable and related
      party payable                                                     23,855                 -         1,130,373
   Capital contributions                                                     -                 -           421,847
   Stock issuance costs                                                      -                 -          (105,312)
   Increase in minority interest                                             -                 -            14,470
   Issuance of common stock for cash                                   254,981           220,000         8,506,272
                                                               ---------------   ---------------  ----------------

       Net Cash Provided by Financing Activities                       278,844           635,000        10,189,884
                                                               ---------------    --------------   ---------------

NET (DECREASE) IN CASH                                                  (2,368)           (2,020)                -

CASH AT BEGINNING OF PERIOD                                              2,368             4,388                 -
                                                               ---------------   ---------------  ----------------

CASH AT END OF PERIOD                                          $             -   $         2,368  $              -
                                                               ===============   ===============  ================
</TABLE>

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


                                       15

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                Consolidated Statements of Cash Flows (Continued)


<TABLE>
<CAPTION>
                                                                                                        From
                                                                                                    Inception on
                                                                       For the Years Ended          January 31,
                                                                             December 31,           1986 Through
                                                               ---------------------------------    December 31,
                                                                       2001              2000           2001
                                                               ---------------   ---------------  ----------------

SUPPLEMENTAL CASH FLOW INFORMATION

CASH PAID FOR:

<S>                                                            <C>               <C>              <C>
   Interest                                                    $             -   $             -  $         26,483
   Income taxes                                                $             -   $             -  $              -

NON-CASH FINANCING ACTIVITIES

   Stock issued for services                                   $             -   $       146,750  $      3,015,916
   Stock issued for conversion of debt                         $             -   $       295,200  $      4,071,493
   Stock issued for license agreement and patent               $             -   $             -  $        693,752
</TABLE>

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


                                       16

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


NOTE 1 -      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

              a.  Organization

              The consolidated financial statements presented are those of
              Medizone International, Inc. (Medizone-Nevada) and its
              wholly-owned subsidiaries, Medizone International, Inc.
              (Medizone-Delaware) and Medizone Canada, Ltd. (MedCan).
              Collectively, they are referred to herein as the "Company".
              Medizone-Nevada was incorporated under the name of Madison
              Funding, Inc. on August 27, 1984 under the laws of the State of
              Nevada for the purpose of investing in, acquiring, operating and
              disposing of businesses or assets of any nature. Effective March
              26, 1986, Medizone-Nevada issued 37,500,000 shares of its common
              stock in exchange for the issued and outstanding common stock of
              Medizone-Delaware.

              Medizone-Delaware was incorporated on January 31, 1986 under the
              state laws of Delaware. Medizone-Delaware was organized to seek
              regulatory approval for a MEDIZONE (R) drug, a precise mixture of
              ozone and oxygen for the purpose of inactivating lipid enveloped
              viruses for the intended purpose of decontaminating blood and
              blood products and assisting in the treatment of certain diseases.
              It is also trying to develop or acquire the related technology and
              equipment for the medical application of the products, including
              the drug production and delivery system.

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

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

                                       17

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


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

              a.  Organization (Continued)

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

              b.  Formation of Joint Venture

              On June 22, 1995, the Company entered into a series of contracts
              which resulted in the formation of a joint venture subsidiary
              incorporated in New Zealand, Medizone New Zealand Limited (MNZ).
              MNZ, a privately held corporation equally owned by the Company and
              Solwin Investments Limited (Solwin), a New Zealand corporation, is
              a research and development stage company whose objective is to
              obtain regulatory approval for the distribution of the Company's
              patented technology in New Zealand, Australia, South East Asia and
              the South Pacific Islands.

              Pursuant to the contracts, the Company purchased 100% of MNZ from
              Richard G. Solomon (Solomon), a New Zealand citizen, who became a
              director of the Company in January 1996 and who caused the
              formation of MNZ on June 22, 1995. Contemporaneously with this
              transaction, the Company sold 50% of MNZ to Solwin, a corporation
              owned by Solomon, for $150,000, of which $50,000 was thereupon
              loaned by the Company to MNZ on a demand basis (see Note 1(i)).

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

              Pursuant to the Licensing Agreement, the Company granted an
              exclusive license to MNZ for its process and equipment patents and
              trademark in New Zealand. MNZ has agreed to apply for
              corresponding patent protection for the patents in New Zealand and
              to use its best effort to exploit the rights granted in the
              agreement. The License Agreement will terminate on the date of the
              expiration of the last to expire of any patent obtained in New
              Zealand, or, if no such patents are obtained, on June 22, 2010.
              The Company is to receive a guaranteed minimum royalty (the
              Guaranteed Minimum Royalty) in an amount to be agreed to by the
              Company and MNZ, commencing in the third year after all necessary
              regulatory approvals requisite to the license, use or distribution
              of the Company's proprietary technology have been obtained in New
              Zealand. If the Company and MNZ are unable to agree upon the
              amount of the Guaranteed Minimum Royalty, the Company may
              terminate the license on thirty days notice. Commencing on the
              first sale to a user by MNZ, the Company will receive a sales
              royalty in an amount equal to 10% of MNZ's gross annual sales
              under the License Agreement.

                                       18

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


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

              b.  Formation of Joint Venture (Continued)

              Pursuant to the Managing Agent Agreement, MNZ will act as the
              Company's agent in the finding of other licensees of the Company's
              patents and trademark in the following countries: Australia
              (including Australia and New Zealand), the South Pacific Islands
              and South East Asia (including the Philippines, Indonesia and
              Vietnam). Licensing fees obtained as a result of the Managing
              Agent Agreement will be divided between the Company and MNZ on a
              sliding scale as set forth below:

<TABLE>
<CAPTION>
                                                                                Medizone           Medizone
                                                                             International,      New Zealand
                                                                                  Inc.             Limited
                                                                            ------------------  ------------------

<S>                                                                               <C>                 <C>
              Initial license                                                     50%                 50%

              Subsequent license fees up to $500,000                              50%                 50%

              Subsequent license fees between $500,000
                and $750,000                                                      75%                 25%

              Subsequent license fees in excess of $750,000                       85%                 15%
</TABLE>

              MNZ and the Company will also divide any net royalties paid to the
              Company pursuant to any license obtained pursuant to the Managing
              Agent Agreement, with MNZ being paid 10% of the net royalties and
              the Company receiving 90% of the net royalties.

              The Managing Agent Agreement will expire on the termination or
              expiration of the last of the licenses obtained pursuant thereto,
              subject to earlier termination by the Company upon an occurrence
              of certain events.

              Pursuant to Emerging  Issued Task Force  Statement No. 89-7,  the
              Company recognized a $100,000 gain on the sale of MNZ to Solwin.

              The investment in the joint venture has been recorded under the
              equity method of accounting as the Company does not have ultimate
              control of the joint venture. The investment is recorded at $-0-
              as of December 31, 2001.

              c.  Business Activities

              The Company's objective is to gain regulatory approval for the
              medical uses of ozone to inactivate certain viruses and to assist
              in the treatment of certain diseases and to develop, promote and
              distribute ozone-generating equipment and related products for
              medical applications.

                                       19

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


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

              c.  Business Activities (Continued)

              By letter agreement with the Italian Scientific Society for
              Oxygen-Ozone Therapy (ISSOT) in Bergamo, Italy, dated March 23,
              1993, the Company entered into a collaborative arrangement to
              research and examine the efficacy of ozone therapy and the
              Company's technology in the treatment of various blood-related
              human diseases. The research is to be conducted by ISSOT in Italy,
              under the direction of a research group assembled by the Italian
              Ministry of Health.

              On May 16, 1994, the Company announced that human trials were to
              commence at the University of Naples ("Naples"). However, after
              the termination of the Company's former President, the Company's
              inquiry into the conduct of its operations during the former
              President's tenure, that disclosed that human clinical trials of
              the Company's ozone therapy on patients infected with either
              Acquired Immunodeficiency Syndrome (AIDS) or Hepatitis B (chronic
              active) had not been authorized by Naples or commenced at that
              institution. The Company also learned that the Italian Ministry of
              Health had not issued approvals for human clinical trials to
              commence at certain sites as previously disclosed. While the
              ethics committees at certain university hospitals have stated
              their approval for the Company to conduct Phase II trials, they
              would require the Company to have either completed a large animal
              study and Phase I human clinical trials or to have these
              requirements waived. The Company has never performed a large
              animal study or Phase I human clinical trials and does not possess
              the necessary data with respect to its ozone therapy to commence
              Phase II study. However, there does exist a broad use and
              understanding of ozone therapy throughout Europe and there have
              been numerous scientific articles published in European medical
              journals describing the use of ozone on humans.

                                       20

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


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

              c.  Business Activities (Continued)

              The Company has held discussions with an Italian Contract Research
              Organization (the ICRO) with a view to having the ICRO act as an
              intermediary on behalf of the Company with the Italian Ministry of
              Health and prepare a written submission to the Italian Ministry of
              Health regarding the data in the public domain on ozone therapy
              with a view to having the Italian Ministry of Health accept this
              material as proof of safety, toxicity and tolerance of the use of
              the Company's ozone technology on humans in lieu of having the
              Company perform a large animal study and possibly even Phase I
              human clinical trials. The ICRO would also design a research
              program and protocols for human clinical trials which would meet
              the standards of the European Union (EU) and Food and Drug
              Administration (FDA), monitor the clinical terms and collect and
              prepare analyses of the data produced by the trials. The Company
              will not be able to enter into a formal contract with the ICRO
              unless it obtains additional funding. If the Italian Ministry of
              Health does not accept the published evidence on the use of ozone
              therapy on humans, the Company will be required to perform its own
              Phase I human clinical trials and possible a large animal study.
              In late 1997, the Company entered into discussions with Italian
              and Belgian clinicians with regard to them performing Phase I
              human clinical trials. However, assuming the Italian Ministry of
              Health did not grant the Company's request for waiver, no formal
              agreements with these clinicians would be signed and the studies
              would not begin until the Company obtains additional funding. The
              Company estimates that it would require an infusion of
              approximately $1.5 million to advance the above-described research
              initiatives through the completion of a Phase III human clinical
              trials and submission of the data for approval to the Italian
              Ministry of Health.

              d.  Accounting Methods

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

              e.  Cash and Cash Equivalents

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

              f.  Basic Loss Per Share

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


                                       21

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


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

              f.  Basic Loss Per Share (Continued)
<TABLE>
<CAPTION>
                                                                                   For the Years Ended
                                                                                          December 31,
                                                                            --------------------------------------
                                                                                    2001                2000
                                                                            ------------------  ------------------
              Numerator
<S>                                                                         <C>                 <C>
                    - Loss before extraordinary items                       $         (716,054) $       (2,729,138)
                    - Extraordinary items                                                    -             542,000

              Denominator (weighted average number
               of shares outstanding)                                              155,052,479         154,371,805

              Basic Income (loss) per share
                    - Before extraordinary items                            $            (0.00) $            (0.02)
                    - Extraordinary items                                                 0.00                0.00
                                                                            ------------------  ------------------

              Basic Income (Loss) Per Share                                 $            (0.00) $            (0.02)
                                                                            ==================  ==================
</TABLE>

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

              g.  Newly Issued Accounting Pronouncements

              SFAS No.'s 141 and 142 - In June 2001, the Financial Accounting
              Standards Board (FASB) adopted Statement of Financial Accounting
              Standards SFAS No. 141, "Business Combinations," and SFAS No. 142,
              "Goodwill and Other Intangible Assets." SFAS No. 141 is effective
              as to any business combination occurring after June 30, 2001, and
              certain transition provisions that affect accounting for business
              combinations prior to June 30, 2001 are effective as of the date
              that SFAS No. 142 is applied in its entirety, which will be
              January 1, 2002 for the Company. SFAS No. 142 is effective,
              generally, in fiscal years beginning after December 15, 2001,
              which will be the fiscal year ending December 31, 2002 for the
              Company.

              SFAS No. 141 provides standards for accounting for business
              combinations. Among other things, it requires that only the
              purchase method of accounting be used and that certain intangible
              assets acquired in a business combination (i.e. those that result
              from contractual or other legal rights or are separable) be
              recorded as an asset apart from goodwill. The transition
              provisions require that an assessment be made of previous business
              combinations and, if appropriate, reclassifications be made to or
              from goodwill to adjust the recording of intangible assets such
              that the criteria for recording intangible assets apart from
              goodwill is applied to the previous business combinations.



                                       22

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


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

              g.  Newly Issued Accounting Pronouncements (Continued)

              SFAS No. 142 provides, among other things, that goodwill and
              intangible assets with indeterminate lives shall not be amortized.
              Goodwill shall be assigned to a reporting unit and annually
              assessed for impairment. Intangible assets with determinate lives
              shall be amortized over their estimated useful lives, with the
              useful lives reassessed continuously, and shall be assessed for
              impairment under the provisions of SFAS No. 121, "Accounting for
              the Impairment of Long-Lived Assets and for Long-Lived Assets to
              be Disposed Of." Goodwill is also assessed for impairment on an
              interim basis when events and circumstances warrant.

              While the Company has not completed the process of determining the
              effect of these new accounting pronouncements on its consolidated
              financial statements, the Company currently expects that there
              will be no reclassification in connection with the transition
              provisions of SFAS No. 141 based on clarifications of the
              transition provisions issued by the FASB in October 2001.

              SFAS No. 143 - On August 16, 2001, the FASB issued SFAS No. 143,
              "Accounting for Asset Retirement Obligations," which is effective
              for fiscal years beginning after June 15, 2002. It requires that
              obligations associated with the retirement of a tangible long-
              lived asset be recorded as a liability when those obligations are
              incurred, with the amount of the liability initially measured at
              fair value. Upon initially recognizing a liability for an accrued
              retirement obligation, an entity must capitalize the cost by
              recognizing an increase in the carrying amount of the related
              long-lived asset. Over time, the liability is accreted to its
              present value each period, and the capitalized cost is depreciated
              over the useful life of the related asset. Upon settlement of the
              liability an entity either settles the obligation for its recorded
              amount or incurs a gain or loss upon settlement. While the Company
              has not completed the process of determining the effect of this
              new accounting pronouncement on its consolidated financial
              statements, the Company currently expects that the effect of SFAS
              No. 143 on the Company's consolidated financial statements, when
              it becomes effective, will not be significant.

              SFAS No. 144 - On October 3, 2001, the Financial Accounting
              Standards Board issued SFAS No. 144, "Accounting for the
              Impairment or Disposal of Long-Lived Assets" which is effective
              for financial statements issued for fiscal years beginning after
              December 15, 2001 and, generally, its provisions are to be applied
              prospectively. SFAS 144 supercedes SFAS Statement No. 121 (FAS
              121), "Accounting for the Impairment of Long-Lived Assets and for
              Long-Lived Assets to Be Disposed Of." SFAS 144 applies to all
              long-lived assets (including discontinued operations) and
              consequently amends Accounting Principles Board Opinion No. 30
              (APB 30), "Reporting Results of Operations - Reporting the Effects
              of Disposal of a Segment of a Business."

                                       23

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


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

              g.  Newly Issued Accounting Pronouncements (Continued)

              SFAS 144 develops one accounting model (based on the model in SFAS
              121) for long- lived assets that are to be disposed of by sale, as
              well as addresses the principal implementation issues. SFAS 144
              requires that long-lived assets that are to be disposed of by sale
              be measured at the lower of book value or fair value less cost to
              sell. That requirement eliminates the requirement of APB 30 that
              discontinued operations be measured at net realizable value or
              that entities include under "discontinued operations" in the
              financial statements amounts for operating losses that have not
              yet occurred. Additionally, SFAS 144 expands the scope of
              discontinued operations to include all components of an entity
              with operations that (1) can be distinguished from the rest of the
              entity and (2) will be eliminated from the ongoing operations of
              the entity in a disposal transaction.

              While the Company has not completed the process of determining the
              effect of this new accounting pronouncement on its consolidated
              financial statements, the Company currently expects that the
              effect of SFAS No. 144 on the Company's consolidated financial
              statements, when it becomes effective, will not be significant.

              h.  Property and Equipment

              Property and equipment is recorded at cost. Major additions and
              improvement are capitalized. The cost and related accumulated
              depreciation of equipment retired or sold are removed from the
              accounts and any differences between the undepreciated amount and
              the proceeds from the sale are recorded as gain or loss on sale of
              equipment. Depreciation is computed using the straight-line method
              over a period of five years.

              i.  Receivable from Affiliate

              The Company loaned $50,000 in 1996 to MNZ, the joint venture
              company, on a demand basis. MNZ currently has minimal assets and
              operations. Management has recorded an allowance for the full
              amount of the loan as of December 31, 2001.

              j.  Provision for Taxes

              Deferred taxes are provided on a liability method whereby deferred
              tax assets are recognized for deductible temporary differences and
              operating loss and tax credit carryforwards and deferred tax
              liabilities are recognized for taxable temporary differences.
              Temporary differences are the differences between the reported
              amounts of assets and liabilities and their tax bases.



                                       24

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


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

              j.  Provision for Taxes

              At December 31, 2001, the Company had net operating loss
              carryforwards of $12,500,000 that may be offset against future
              taxable income and expire in years 2006 through 2021. If
              substantial changes in the Company's ownership should occur, there
              would also be an annual limitation of the amount of the NOL
              carryforwards which could be utilized. No tax benefit had been
              reported in the consolidated financial statements as, in the
              opinion of management, it is more likely than not that some
              portion or all of the deferred tax assets will not be realized and
              the carryforwards will expire unused. The tax benefits of the loss
              carryforwards are offset by a valuation allowance of the same
              amount. Deferred tax assets and liabilities are adjusted for the
              effects of changes in tax laws and rates on the date of enactment.

              The income tax benefit differs from the amount computed at the
              federal statutory rates as follows:
<TABLE>
<CAPTION>
                                                                                   For the Years Ended
                                                                                          December 31,
                                                                            --------------------------------------
                                                                                    2001                2000
                                                                            ------------------  ------------------

<S>                                                                         <C>                 <C>
              Income tax benefit at statutory rate                          $          268,000  $          831,000
              Change in valuation allowance                                           (268,000)           (831,000)
                                                                            ------------------  ------------------

                                                                            $                -  $                -
                                                                            ==================  ==================

              Deferred tax assets at December 31, 2001 and 2000 are comprised of
the following:

                                                                                    2001                2000
                                                                            ------------------  ------------------

              Net operating loss carryforwards                              $        4,750,000  $        4,482,000
              Valuation allowance                                                   (4,750,000)         (4,482,000)
                                                                            ------------------  ------------------

                                                                            $                -  $                -
                                                                            ==================  ==================
</TABLE>

              k.  Principles of Consolidation

              The consolidated financial statements include those of Medizone
              International, Inc. (Medizone-Nevada) and its wholly-owned
              subsidiaries, Medizone International, Inc. (Medizone-Delaware) and
              Medizone Canada, Ltd (MedCan).

              All material intercompany accounts and transactions have been
eliminated.



                                       25

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000

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

              l.  Estimates

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

              m.  Advertising

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

              n.  Stock Options and Warrants

              The Company applies Accounting Principles Board ("APB") 25,
              "Accounting for Stock Issued to Employees," and related
              interpretations in accounting for all stock option plans. Under
              APB 25, compensation cost is recognized for stock options and
              warrants granted to employees when the option/warrant price is
              less than the market price of the underlying common stock on the
              date of grant.

              FASB Statement 123, "Accounting for Stock-Based Compensation"
              ("SFAS No. 123") requires the Company to provide proforma
              information regarding net income and net income per share as if
              compensation costs for the Company's stock option plans and other
              stock awards had been determined in accordance with the fair value
              based method prescribed in SFAS No. 123. The Company estimates the
              fair value of each stock award at the grant date by using the
              Black-Scholes option pricing model.

              Under the provisions of SFAS No. 123, the Company's net loss for
              the years ended December 31, 2001 and 2000 would have been
              unchanged from the reported net loss.

              However, under the provisions of SFAS No. 123, the Company
              recorded additional expense of $-0- and $1,743,468 for the years
              ended December 31, 2001 and 2000 as a result of warrants granted
              to non-employees based upon the Black-Scholes pricing model. Under
              the Black-Scholes method, the U.S. Treasury rate was used as the
              risk- free interest rate, the expected life of the warrants was 3
              months to one year, the volatility used was based upon the
              historical price per share of shares sold, and there were no
              expected dividends.

              o.  Patents

              In March 1987, the Company acquired a patent from Immunologics
              Limited Partnership (Immunologics) in exchange for 1,000,000
              shares of the Company's common stock. In 1988, Immunologics
              purchased for $25,000, 5,000,000 shares of the Company's common
              stock from the former Chairman and Chief Executive Officer of the
              Company.

                                       26

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


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

              o.  Patents (Continued)

              The patent covers a procedure for "ozone decontamination of blood
              and blood products" through the treatment of stored blood and
              blood components. The Board of Directors assigned a value of
              approximately $700,000 to the patent based upon the fair market
              value of the stock on the date of acquisition together with
              related legal costs. The Company charged the cost of the patent to
              research and development expense at acquisition because the
              technologies covered by the patent have not been approved by the
              FDA. Additionally, the Company agreed to pay the seller a royalty
              fee equal to 3% of the net receipts received by the Company in
              connection with the sale of any product, device or apparatus which
              embodies the patent. The Company's management considers the
              acquisition and retention of the patent to be material in its
              development and prospects. In 1992, the General Partner of
              Immunologics became chairman of the Company's Board of Directors
              and subsequently resigned from the Company's Board of Directors in
              September 1993.

              p.  Revenue Recognition Policy

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

NOTE 2 -      PROPERTY AND EQUIPMENT

              Property and equipment consists of the following at December 31,
2001:

<TABLE>
<CAPTION>
<S>                                                                                             <C>
              Office equipment                                                                  $           19,249
              Furniture                                                                                      6,307
                                                                                                ------------------

                                                                                                            25,556
              Accumulated depreciation                                                                     (15,330)
                                                                                                ------------------

              Net property and equipment                                                        $           10,226
                                                                                                ==================
</TABLE>

              Depreciation expense for the years ended December 31, 2001 and
              2000 was $4,751 and $5,621, respectively.

NOTE 3 -      ACCRUED EXPENSES

              Accrued expenses consist of the following at December 31, 2001:

<TABLE>
<CAPTION>
<S>                                                                                             <C>
              Accrued payroll                                                                   $          531,500
              Accrued interest                                                                             194,746
              Accrued payroll taxes                                                                         17,548
                                                                                                ------------------

                            Total                                                               $          743,794
                                                                                                ==================
</TABLE>

                                       27

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


NOTE 4 -      COMMITMENTS AND CONTINGENCIES

              The Company retains an investor relations firm to act as the
              Company's liaison with the brokerage community. The agreement was
              originally for a period of one year, but has been extended by the
              parties for additional one year periods. It receives a monthly
              payment of $2,000, plus expenses. As additional compensation in
              1996, it received 250,000 shares of the Company's common stock,
              restricted under the federal securities laws.

              On December 3, 1999, the Company filed a complaint in the Third
              District Court of Salt Lake County, Utah against its former Chief
              Financial Officer. Among other things, the complaint filed by the
              Company sought a declaration from the Court regarding the
              enforceability of the former officer's employment contract, the
              right of the Company to terminate his employment and other relief.
              A settlement was agreed upon, under the terms of which the Company
              agreed to withdraw its compliant with prejudice and the former
              officer waived any further claim for wages or other compensation
              under his employment agreement. In addition, the former officer
              consented to the cancellation of 2,000,000 shares of common stock
              issued to him in prior years. On April 6, 2000, the Company
              settled this matter by paying its former Chief Financial Officer
              $35,000 and the Company received the 2,000,000 shares of common
              stock back for cancellation. The Company recognized a $127,000
              gain on settlement of debt due to the fact that at the time of
              settlement, the Company had accrued $162,000 of debt to the former
              Chief Financial Officer.

              In January of 2000, the Company received $415,000 from its former
              President and Chief Executive Officer who was under an order of
              restitution from the State of New York.

              In  addition,  the  Board of  Directors  approved  the  following
              salaries for its key officers during 1999 to commence  January 1,
              2000: 1) $170,000 a year for the Company's  C.E.O., 2) $170,000 a
              year for the Company's President and Director of Research, and 3)
              $95,000 a year for the Company's C.O.O. and Corporate Secretary.

              The Company is also party to litigation matters as follows:

              Killian et al.  vs.  Medizone  International,  Inc.  et al.  This
              action was brought by five  plaintiffs who alleged that they were
              patients  of a former  director of the Company and that they were
              defrauded  and  injured  as a result of certain  treatments.  The
              Company has denied the allegations and has filed an answer to the
              complaint. The outcome of the case cannot currently be determined
              and no accrual has been recorded as of December 31, 2001.

              Rakas vs. Medizone International, Inc. A former consultant brought
              this action  against the Company  claiming the Company had failed
              to pay consulting fees under a consulting agreement.  The Company
              denies the  allegations but has recorded an accrual of $25,000 at
              December 31, 2001 based upon initial proposed  settlement  terms.
              There has been no action in this matter since June 2001.



                                       28

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


NOTE 4 -      COMMITMENTS AND CONTINGENCIES (Continued)

              Bottomly  et al. vs.  Medizone  International,  Inc.  et al. This
              action  was  brought  by  certain  individuals  who  claim  to be
              shareholders  of the  Company,  who have alleged that the current
              officers  and  directors  of  the  Company  have  mismanaged  the
              Company's finances. The Company denies any wrongdoing and intends
              on vigorously contesting the case. The outcome of the case cannot
              currently be  determined  and no accrual has been  recorded as of
              December 31, 2001.

NOTE 5 -      ISSUANCE OF COMMON STOCK AND WARRANTS

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

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

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

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

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

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

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

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

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

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



                                       29

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000

NOTE 5 -      ISSUANCE OF COMMON STOCK AND WARRANTS (Continued)

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

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

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

              During 1990, the following equity transactions occurred: The
              Company issued 4,250,000 shares to individuals in private
              transactions for aggregate proceeds of $179,500; the Company
              satisfied obligations totaling $125,000 to the former vice
              president, secretary and treasurer as well as director by issuing
              2,272,727 shares of common stock at $0.55 per share; the Company
              satisfied an outstanding account payable to an unrelated
              individual totaling $15,000 by the issuance of 150,000 shares of
              common stock at $0.10 per share; and the Company issued to an
              employee and four other unrelated persons as compensation or
              payment a total of 880,000 shares of common stock to which it
              ascribed a value of $88,000.

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

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

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

                                       30

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


NOTE 5 -      ISSUANCE OF COMMON STOCK AND WARRANTS (Continued)

              During 1994, the following equity transactions occurred: The
              Company issued a total of 1,431,590 shares of common stock for
              services; the Company issued a total of 1,125,834 shares of common
              stock to certain prior purchasers of common stock in recognition
              of disparity in purchase in contemporaneous offerings. Also during
              1994, a total of $680,040 was received in cash for 6,800,499
              shares subscribed as a result of the offering. Subsequent to the
              offering, an additional $316,860 was received in cash from foreign
              investors subscribing to 3,168,600 shares of common stock. On
              December 28, 1994, the Company settled a dispute regarding the
              validity of notes payable to former management in the amount of
              $2,033,628 by agreeing to issue 11,250,000 common shares (recorded
              as shares subscribed) in satisfaction of the total amount of the
              debt.

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

              During 1995, the following equity transactions occurred: The
              Company issued a total of 2,050,000 shares of common stock for
              services. $911,825 was received from investors subscribing to
              9,118,260 shares of common stock. Also, 7,524,860 common shares,
              previously recorded as shares subscribed, were issued, and
              1,242,727 were retired in accordance with the settlement agreement
              with former management. 200,000 of redeemable shares were
              converted into common stock. The Company sold shares of its New
              Zealand subsidiary for aggregate proceeds of $150,000.

              During 1996, the Company received stock subscription agreements
              for the purchase of 7,254,470 shares of its common stock, together
              with proceeds totaling $725,447 from sales of its securities to
              non-United States investors, outside of the United States pursuant
              to Regulation S promulgated under the Securities Act of 1993.
              Approximately $635,447 of these proceeds were from the sale of the
              Company's common stock at a per share price of $0.10 (including
              $37,500 for 375,000 shares from Richard G. Solomon, at the time a
              director of the Company). The remaining $90,000 were from the sale
              of 900,000 units, each unit consisting of one share of the
              Company's common stock at a per share price of $0.10 to a director
              pursuant to the non-public offering exemption from registration
              under the Securities Act. In May 1996, the Company issued 600,000
              shares of its common stock to employees and 250,000 shares of its
              common stock to its public relations consultant as additional
              compensation. The Company also issued 565,875 shares of its common
              stock to various consultants for services rendered.

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



                                       31

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


NOTE 5 -      ISSUANCE OF COMMON STOCK AND WARRANTS (Continued)

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

              During 1999, the Company issued 25,000 shares of its common stock
              to an individual for services rendered valued at $1,750. In
              addition, the Company issued 936,507 shares of its common stock
              through the exercise of outstanding warrants at $0.07 per share
              for a total of $65,555.

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

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

              As of December 31, 2001, the following warrants were outstanding:

<TABLE>
<CAPTION>
                    Warrants                          Exercise Price                      Termination Dates
              ----------------------               ---------------------                  -----------------
<S>                          <C>                   <C>                                    <C>
                             750,000               $       0.20                           February 7, 2003
                             250,000               $       0.20                           February 16, 2003
                             400,000               $       0.15                           March 26, 2003
                             166,666               $       0.15                           April 6, 2003
                             555,555               $       0.18                           April 19, 2003
</TABLE>



                                       32

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000

<TABLE>
<CAPTION>
NOTE 6 -      NOTES PAYABLE

              Notes payable consisted of the following at December 31, 2001:

              Notes payable to ten stockholders, due on demand, plus interest at
               10% per annum (in arrears). The Company is obligated to accept
               the rate at face value plus accrued interest as partial payment
               for shares the lenders may purchase from the Company upon
               exercise of the lenders' option to
<S>                                                                                             <C>
               acquire shares from the Company.                                                 $           60,815

              Notes payable to directors totaling $28,000 and a note payable to
               a third party in the amount of $9,000, due on April 22, 1995
               (principal and accrued interest in arrears as of report date),
               plus interest ranging from 8% to 9% per annum. Each lender has
               the right to convert any portion of the principal and interest
               into common stock at a price per share equal to the price per
               share under the most recent private
               placement transaction.                                                                       37,000

              Notes payable to directors and a family member of a director, due
               at various dates in 1995, 1996 and 1997 (principal and accrued
               interest in arrears as of report date), plus interest at 8% per
               annum. The Company has the right to repay the loans with
               restricted stock
               at $0.10 per share if alternative financings do not occur.                                  182,676

              Note payable due to a shareholder who subsequently
               became a member of the Board of Directors, non-interest
               bearing, unsecured, due on demand.                                                           23,000
                                                                                                ------------------

              Total Notes Payable                                                                          303,491

              Less: Current Portion                                                                       (303,491)
                                                                                                ------------------

              Long-Term Notes Payable                                                           $                -
                                                                                                ==================
</TABLE>

              The aggregate principal maturities of notes payable are as
follows:

<TABLE>
<CAPTION>
                                     Year Ended
                                    December 31,           Amount
                                    ------------      ------------------------------------------
<S>                                       <C>                                                   <C>
                                          2002                                                  $          303,491
                                          2003                                                                   -
                                          2004                                                                   -
                                          2005                                                                   -
                                          2006                                                                   -
                                          2007 and thereafter                                                    -
                                                                                                ------------------

                                          Total                                                 $          303,491
                                                                                                ==================
</TABLE>

                                       33

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


NOTE 7 -      STOCK OPTIONS

              All options are exercisable for a period of three years beginning
              on the date of grant. Compensation expense, measured as to the
              excess of the estimated fair value over the exercise price, was
              accrued over the service period. If, on the date of exercise, the
              estimated fair value of a share of the Company's common stock
              exceeded the exercise price, the exercise price was decreased by a
              like amount (but not below the par value of $0.001). At the end of
              each fiscal period, total accrued compensation was recorded as the
              difference between the adjusted exercise price and the fair market
              value at the end of the period for all exercisable shares. The
              total accrued compensation was adjusted each year for changes in
              the fair market value of the Company's stock and for option
              exercises and cancellations. The shares issued in connection with
              the exercise of the options were restricted shares to be held for
              investment purposes only.

              In 1995, as part of their employment agreements, the Company's
              president and chief executive officer, and vice-president and
              chief financial officer and treasurer were granted options to
              purchase an aggregate of 4,500,000 shares of the Company's common
              stock at an exercise price of $0.20 per share. The options expire
              on January 1, 1998. The fair value of each option grant is
              estimated on the grant date using an option-pricing model with the
              following weighted-average assumptions used for grants in 1995:
              risk-free interest rate of 6%, and expected lives of 3 years of
              the options.

              In 2000, the Company granted to the Company's legal counsel
              250,000 options to purchase common stock at an exercise price of
              $0.55 per share. The options expire on March 21, 2003. The fair
              value of each option grant is estimated on the grant date using
              the Black-Scholes option-pricing model with a risk-free interest
              rate of 6.5% and an expected life of 3 years, with a 35% discount
              for lack of marketability. No additional expense was recorded for
              the year ended December 31, 2000 under the Black-Scholes option
              pricing model for these options.

              The following is a summary of options transactions:
<TABLE>
<CAPTION>
                                                                                                    Weighted
                                                                                                     Average
                                                                                                    Exercise
              Fixed Options                                                       Shares             Price
              -------------                                                 ------------------  ------------------

<S>                                                                                  <C>        <C>
              Balance - January 1, 1996                                              4,500,000  $             0.20
              Granted                                                                        -                   -
              Exercised                                                                      -                   -
              Forfeited                                                                      -                   -
                                                                            ------------------  ------------------

              Balance - December 31, 1996                                            4,500,000                0.20
              Granted                                                                        -                   -
              Exercised                                                                      -                   -
              Forfeited                                                             (3,000,000)                  -
                                                                            ------------------  ------------------

              Balance - December 31, 1997                                            1,500,000  $             0.20
                                                                            ------------------  ------------------
</TABLE>

                                       34

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


NOTE 7 -      STOCK OPTIONS (Continued)
<TABLE>
<CAPTION>
                                                                                                    Weighted
                                                                                                     Average
                                                                                                     Exercise
              Fixed Options (Continued)                                           Shares              Price
              -------------                                                 ------------------  ------------------

<S>                                                                                  <C>        <C>
              Balance - December 31, 1997                                            1,500,000  $             0.20
              Granted                                                                        -                   -
              Exercised                                                                      -                   -
              Forfeited                                                                      -                   -
                                                                            ------------------  ------------------

              Balance, December 31, 1998                                             1,500,000                0.20
              Granted                                                                        -                   -
              Exercised                                                                      -                   -
              Forfeited                                                             (1,500,000)              (0.20)
                                                                            ------------------  ------------------

              Balance, December 31, 1999                                                     -                   -
              Granted                                                                  250,000                0.55
              Exercised                                                                      -                   -
              Forfeited                                                                      -                   -
                                                                            ------------------  ------------------

              Balance, December 31, 2000                                               250,000                0.55
              Granted                                                                        -                   -
              Exercised                                                                      -                   -
              Forfeited                                                                      -                   -
                                                                            ------------------  ------------------

              Balance, December 31, 2001                                               250,000  $             0.55
                                                                            ==================  ==================
</TABLE>

NOTE 8 -      RELATED PARTY PAYABLE

              The Company was advanced a total of $855 from its CEO during 2001
              to cover operating expenses. The amount is non-interest bearing,
              unsecured and due on demand.

NOTE 9 -      GOING CONCERN

              The Company's consolidated financial statements are prepared using
              generally accepted accounting principles applicable to a going
              concern which contemplates the realization of assets and
              liquidation of liabilities in the normal course of business. The
              Company has incurred losses from its inception through December
              31, 2001 which have resulted in an accumulated deficit of
              $17,046,202 at December 31, 2001. The Company does not have an
              established source of funds sufficient to cover its operating
              costs, has a working capital deficit of approximately $1,446,000,
              has relied exclusively on debt and equity financing, accordingly,
              there is substantial doubt about its ability to continue as a
              going concern.




                                       35

<PAGE>



                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000

NOTE 9 -      GOING CONCERN (Continued)

              Continuation of the Company as a going concern is dependent upon
              obtaining additional capital, obtaining the requisite approvals
              from the FDA and/or the EU for the marketing of ozone-related
              products and equipment, and ultimately, upon the Company's
              attaining profitable operations. The Company will require a
              substantial amount of additional funds to complete the development
              of its products, to establish manufacturing facilities, to build a
              sales and marketing organization and to fund additional losses,
              which the Company expects to incur over the next several years.

              Because ozone-generation for the purposes of interfacing with
              blood and blood products is regarded as a new drug delivery
              system, the Company is precluded from selling or distributing its
              drug or the Medizone Technology in the United States until after
              FDA approval has been granted. In order to obtain FDA approval,
              the Company will be required to submit a New Drug Application
              ("NDA") for review by the FDA and provide medical and scientific
              evidence sufficient to demonstrate that the drug and the Medizone
              Technology has been successfully used in pre-clinical studies
              followed by three phases of well-controlled clinical studies using
              human volunteer subjects. The FDA will not grant an NDA unless it
              contains sufficient medical evidence and data to permit a body of
              qualified and experienced scientists to conclude that the new drug
              product is safe and effective for its recommended and proposed
              medical uses. Historically, the FDA has held a strong bias against
              treating humans with ozone, due largely to issues of safety.

              In order to initiate the first phase (i.e., Phase I) of human
              clinical trials required as part of an NDA, an applicant must
              submit to the FDA an application for an Investigational New Drug
              Exemption ("IND"), which contains adequate information to satisfy
              the FDA that human clinical trials can be conducted without
              exposing the volunteer human subjects to an unreasonable risk of
              illness or injury. The Company submitted an IND application
              (assigned to the Company by its former president) to the FDA on
              October 6,1985, and requested FDA approval to commence human
              clinical trials using ozone- oxygen to inactivate HIV. The FDA
              deemed the IND application to be incomplete, and required the
              Company to conduct additional animal studies prior to commencing a
              large animal study and human trials. In September 1994, after not
              receiving responses to requests for information from the Company,
              the FDA inactivated the Company's IND. The Company has no present
              plans to commence a large animal study, which would require, as a
              precursor, additional small animal and laboratory work.
              Accordingly, there can be no assurance that the Company's IND
              application will ever be reopened. Until an NDA had been granted
              to the Company, it may not distribute ozone-generating devices,
              except to researchers who agree to follow FDA guidelines, and
              provided the devices are labeled as "Investigational Devices."

              Because ozone has been used to treat humans in Europe for at least
              30 years, the EU is more accepting of human clinical trials of
              ozone therapies being conducted than is the United States.
              Accordingly, management believes that the Company should pursue
              the option of conducting human clinical trials in Europe, using
              stringent protocols that will meet EU standards, with a view to
              utilizing the results of such a trial in an effort to obtain EU
              approval, to market the product in Europe and to reopen the
              Company's FDA file.

                                       36

<PAGE>


                   MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000


NOTE 9 -       GOING CONCERN (Continued)

               The management of the Company intends to seek additional funding
               which will be utilized to fund additional research and continue
               operations. The Company recognizes that, if it is unable to raise
               additional capital, it may find it necessary to substantially
               reduce or cease operations.

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

NOTE 10 -      SUBSEQUENT EVENTS

               Subsequent to December 31, 2001, the Company issued 1,000,000
               shares of common stock at $0.10 per share for total proceeds of
               $100,000. The Company also granted the investor warrants to
               purchase 1,000,000 shares of stock at $0.10 per share,
               exercisable over a two-year term. The market price of the common
               stock was $0.10 on the date of the issuance of the shares and
               grant of the warrants.

               The Company also issued a total of 677,368 shares of common stock
               for services rendered and repayment of outstanding debt at $0.10
               per share for a total of $67,737.




                                       37