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, 2002

__       TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
         ACT OF 1934

            For the transition period from                     to
                                           ------------------    ---------------

Commission File Number: 2-93277-D

                          MEDIZONE INTERNATIONAL, INC.
                 (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 Exchange Act:  None
Securities registered pursuant to Section 12(g) of the Exchange Act:  None

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes 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 registrant'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. 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 $4,310,855 on March 26, 2003 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 31, 2003, the registrant had 158,145,387 shares of common stock, par
value $.001 per share issued and outstanding.


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


                                       i


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                                TABLE OF CONTENTS


PART   I
                                                                            Page

Item 1.  Description of Business                                              1

Item 2.  Description of Property                                             13

Item 3.  Legal Proceedings                                                   13

PART   II

Item 5.  Market for Common Equity and Related Stockholder Matters            14

Item 6.  Management's Discussion and Analysis or Plan of Operation           15

Item 7.  Financial Statements                                                17

PART   III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
           Compliance with Section 16(a) of the Exchange Act                 17

Item 10. Executive Compensation                                              18

Item 11. Security Ownership of Certain Beneficial Owners and Management
          and Related Stockholder Matters                                    19

Item 12. Certain Relationships and Related Transactions                      20

Item 13. Exhibits and Reports on Form 8-K                                    20

Item 14. Controls and Procedures                                             21

Signatures                                                                   22

Certifications                                                               23

Financial Statements and Schedules                                           F-1




                                       ii



<PAGE>




                                     PART I


Item 1.           Description of Business


FORWARD LOOKING STATEMENTS:


         When used in this Annual Report and the documents incorporated herein
by reference, the terms "anticipates", "believes", "expects" and similar
expressions are intended to identify in certain circumstances, forward-looking
statements. Such statements are subject to a number of risks and uncertainties
that could cause actual results to differ materially from those projected,
including the risks described in this Annual Report. Given these uncertainties,
readers are cautioned not to place undue reliance on such statements. The
company also undertakes no obligation to update those forward-looking
statements.


General


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


         We own two key patents:

        o   United States equipment patent (U.S. Patent No. 5,052,382) entitled
            "Approaches for the Control Generation and  Administration of Ozone"
            ("Patent No. 1")

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


         Patent No. 1, which covers an apparatus for the controlled generation,
monitoring and dosage of the Drug was developed by our consultant engineer and
issued and assigned to us in 1991. Patent No. 1 was developed to provide the
physical means to deploy our previously patented process for ozone
decontamination of blood and blood products through the treatment of blood and
blood components. We hold several foreign patents based on this patent in
Canada, the European Community, Australia, Malaysia, Hong Kong and Japan. These
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 was issued on March 14, 2000. We believe that this patent
will strengthen our existing technology 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 November 2, 2001, we filed U.S. Provisional Patent Application
serial no.  10/002943,  for "Method and Apparatus for Ozone  Decontamination  of
Biological Liquids." This application deals with protocols for biological liquid
decontamination as well as the devices for conducting decontamination.


                                       1

<PAGE>



         We also owned a process patent, (U.S. Patent No. 4,632,980), entitled,
"Ozone Decontamination of Blood and Blood Products," which covers a procedure
for ozone decontamination of blood and blood products through the treatment of
blood and blood components. That patent expired in February 2003. Many of the
claims and primary aspects of the technology covered by this patent are assumed
by or incorporated in Patents 1 and 2. We do not believe the expiration of this
patent will prevent us from proceeding with our business plan as outlined in
this report if and when adequate financial backing has been received. In
addition, we hold several foreign rights based on this patent in key
jurisdictions such as Canada, the United Kingdom, Austria, France, Italy,
Belgium, Germany, Sweden, Switzerland, Luxembourg, Australia, Malaysia,
Singapore, Hong Kong and Japan.


Research and Development


         We do not own laboratories or other clinical research or testing
facilities. All research and development activities to date have been conducted
under contract by outside laboratories and clinicians.


Government Regulation


         The manufacturing and marketing of the Drug and related drug delivery
technology, as well as our related research and development activities are
subject to regulation for safety, efficacy and quality by numerous governmental
authorities in the United States and other countries. We believe that complying
with these regulations will involve a considerable amount of time, expense and
uncertainty.


         In the United States, drugs are subject to rigorous federal regulation
and, to a lesser extent, state regulation. The Federal Food, Drug and Cosmetic
Act, as amended, and the regulations promulgated thereunder, and other federal
and state statutes and regulations govern, among other things, the testing,
manufacture, safety, efficacy, labeling, storage, record keeping, approval,
advertising and promotion of our drugs. Drug development and approval within
this regulatory framework is difficult to predict and will take a number of
years and involve the expenditure of substantial resources.


         The steps required before a pharmaceutical agent may be marketed in the
United States include:

        1.  Pre-clinical laboratory tests, in vivo pre-clinical studies and
            formulation studies;

        2.  The submission to the FDA of an Investigational New Drug Application
            (IND) for human clinical testing which must become effective before
            human clinical trials can commence;

        3.  Adequate and well-controlled human clinical trials to establish the
            safety and efficacy of the product;

        4.  The submission of a New Drug Application to the FDA; and

        5.  FDA approval of the New Drug Application prior to any commercial
            sale or shipment of the product.


         In addition to obtaining FDA approval for each product, each domestic
product-manufacturing establishment must be registered with, and approved by,
the FDA. Domestic manufacturing establishments are subject to biennial
inspections by the FDA and must comply with the FDA's Good Manufacturing
Practices for products, drugs and devices.


Pre-clinical Trials


         Pre-clinical testing includes laboratory evaluation of chemistry and
formulation, as well as tissue culture and animal studies to assess the
potential safety and efficacy of the product. Pre-clinical safety tests must be
conducted by laboratories that comply with FDA regulations regarding Good
Laboratory Practices. No assurance can be given as to the ultimate outcome of
such pre-clinical testing. The results of pre-clinical testing are submitted to
the FDA as part of an IND and are reviewed by the FDA prior to the commencement
of human clinical trials. Unless the FDA objects to an IND, the IND will become
effective 30 days following its receipt by the FDA.


                                       2

<PAGE>



         We have conducted limited pre-clinical studies described on page 6. We
intend to largely rely upon contractors to perform further pre-clinical trials
to the extent we obtain sufficient funding, of which there is no assurance.


Clinical Trials


         Clinical trials involve the administration of the new product to
healthy volunteers or to patients under the supervision of a qualified principal
investigator. Clinical trials must be conducted in accordance with Good Clinical
Practices under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND.


         Further, each clinical study must be conducted under the auspices of an
independent institutional review board at the institution where the study will
be conducted. The institutional review board will consider, among other things,
ethical factors, the safety of human subjects and the possible liability of the
institution. Compounds must be formulated according to Good Manufacturing
Practices.


          Clinical trials are typically conducted in three sequential phases,
but the phases may overlap. In Phase I, the initial introduction of the product
into healthy human subjects, the drug is tested for safety (adverse side
effects), absorption, dosage tolerance, metabolism, bio-distribution, excretion
and pharmacodynamics (clinical pharmacology). Phase II is the proof of principal
stage and involves studies in a limited patient population in order to:

        o   Determine the efficacy of the product for specific, targeted
            indications;

        o   Determine dosage tolerance and optimal dosage; and

        o   Identify possible adverse side effects and safety risks.


         When there is evidence that the product may be effective and has an
acceptable safety profile in Phase II evaluations, Phase III trials are
undertaken to further evaluate clinical efficacy and to test for safety within
an expanded patient population at geographically dispersed multi-center clinical
study sites. Phase III frequently involves randomized controlled trials and,
whenever possible, double blind studies. We, or the FDA, may suspend clinical
trials at any time if it is believed that the individuals participating in such
trials are being exposed to unacceptable health risks.


         We intend to rely upon third party contractors to advise and assist us
in our clinical trials.


New Drug Application and FDA Approval Process


         The results of the pharmaceutical development, pre-clinical studies and
clinical studies are submitted to the FDA in the form of a New Drug Application
for approval of the marketing and commercial shipment of the product. The
testing and approval process is likely to require substantial time and effort.
In addition to the results of pre-clinical and clinical testing, the applicant
must submit detailed information about chemistry and manufacturing and controls
that will determine how the product will be made. The approval process is
affected by a number of factors, including the severity of the disease, the
availability of alternative treatments and the risks and benefits demonstrated
in clinical trials. Consequently, there can be no assurance that any approval
will be granted on a timely basis, if at all. The FDA may deny a New Drug
Application if applicable regulatory criteria are not satisfied, require
additional testing or information or require post-marketing testing (Phase IV)
and surveillance to monitor the safety of a company's products if it does not
believe the New Drug Application contains adequate evidence of the safety and
efficacy of the drug. Notwithstanding the submission of such data, the FDA may
ultimately decide that a New Drug Application does not satisfy its regulatory
criteria for approval. Moreover, if regulatory approval of a drug is granted,
such approval may entail limitations on the indicated uses for which it may be
marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing. Post approval studies may be conducted to explore further
intervention, new indications or new product uses.


                                       3

<PAGE>



         Among the conditions for New Drug Application approval is the
requirement that any prospective manufacturer's quality control and
manufacturing procedures conform to Good Manufacturing Practices and the
requirement specifications of the approved New Drug Application. In complying
with standards set forth in these regulations, manufacturers must continue to
expend time, money and effort in the area of drug and quality control to ensure
full technical compliance. Manufacturing establishments, both foreign and
domestic, also are subject to inspections by or under the authority of the FDA
and by other federal, state or local agencies.


         Additionally, in the event of non-compliance, FDA may issue warning
letters and seek criminal and civil penalties, enjoin manufacture, seize product
or revoke approval.


International Approval


         Whether or not FDA approval has been obtained, approval of a product by
regulatory authorities in foreign countries must be obtained prior to the
commencement of commercial sales of the drug in such countries. The requirements
governing the conduct of clinical trials and drug approvals vary widely from
country to country, and the time required for approval may be longer or shorter
than that required for FDA approval. Although there are some procedures for
unified filings for certain European countries, in general, each country at this
time has its own procedures and requirements.


Other Regulation


         In addition to regulations enforced by the FDA, our business activities
may also become subject to regulation under the Occupational Safety and Health
Act, the Environmental Protection Act, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act and other present and potential future
federal, state or local regulations. Our research and development may involve
the controlled use of hazardous materials, chemicals, and various radioactive
compounds. The risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of any accident, we could be held
liable for any damages that result and any such liability could exceed our
resources.


Medizone's Pre-clinical Studies


         Between 1988 and 2000, we sponsored and were the primary 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.


         The pre-clinical projects included: (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 we 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. We 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, we view 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.


                                       4

<PAGE>



Effect of Governmental Regulation on Medizone


         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, we are precluded from selling
or distributing the Drug or the Medizone Technology until after FDA approval has
been granted. To obtain FDA approval we 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 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 had a bias against treating humans with
ozone, citing issues of safety.


         We 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
us to conduct additional animal studies prior to commencing a large animal study
followed by human trials. In September 1994, the FDA inactivated our IND. We
have no present plans to commence a large animal study, which would require, as
a precursor, additional small animal and laboratory work. Accordingly, we do not
expect that our IND application will ever be re-opened. Until an NDA has been
granted, we 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. We believe we should pursue foreign Phase I human toxicity
trials, as well as early stage phase II efficacy trials in these regions of the
world when funding is obtained. 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.


         We previously entered into a research agreement with a foreign national
research center 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 our ozone therapy for the
hepatitis C virus. The trial will be blind and the country of origin and
laboratories in Canada will share the data produced. This proposed trial is
considered a major step toward our goal to conduct similar tests in Canada and
eventually with the FDA. The proposal anticipates substantial collaborative
efforts by the parties to share information with appropriate regulatory bodies
in both countries. While we continued development work to proceed with this
trail through 2001, no substantive progress was made during 2002 and additional
funding will be required to start the trial and see it through to completion.


         We intend to pursue future trials in Canada and other countries as soon
as funding allows. We believe trials successfully completed in Canada would be
acceptable to both the FDA and the regulatory agencies of the European Union,
due to recent harmonization of regulatory requirements between Health Canada and
the FDA.


Anecdotal Studies


Human Pilot Trial - Hepatitis C


         Beginning in 1998 and concluding in 2000, we obtained patient data for
40 participants in a developmental human pilot trial investigating ozone
treatment of hepatitis C. This trial was conducted by William Hitt, Ph.D., M.D.,
at his clinic, The William Hitt Center, in Tijuana, Mexico, during the normal
course of Dr. Hitt's 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 have value only as anecdotal information.


                                       5

<PAGE>



         According to Dr. Hitt, the following data was produced from his
practice and related trial of developmental ozone. Dr. Hitt has provided this
data to us and we have not independently verified its accuracy. 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. If accurate,
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 we
regard these results only as anecdotal information. Further studies are needed
to verify the effectiveness of the science.


 Instrument Development


         We entered into an agreement with Biozone Corporation ("Biozone") under
which Biozone was granted worldwide manufacturing rights for Medizone Ozone
Generating Equipment and we were granted 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 we obtain regulatory
approvals for our technology and protocols and enter production mode, Biozone
will phase out its other business to concentrate on its work with us.


         In the future we intend 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, we anticipate that we would need to construct or acquire a
smaller development facility on the outskirts of the San Francisco Bay Area.
This facility would 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. These plans are on hold pending the receipt of
funding, of which there is no assurance given.


International Activities


Medizone Canada Limited


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


         We presently own 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. We believe that if our research continues to prove successful, the
future participation of the World Health Organization and the World Bank might
be available to help bring our science to developing regions of the world
through matching funds and grant programs. The majority of our expected future
customer base is located in the developing regions of the world.


                                       6

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Medizone New Zealand Limited


         On June 22, 1995, we 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, one of our directors. MNZ is a research and
development stage company formed to obtain regulatory approval for the
distribution of our patented technology in New Zealand, Australia, South East
Asia and the South Pacific Islands.


         Under these agreements we purchased 100% of MNZ from Mr. Solomon and
sold 50% of MNZ to Solwin for $150,000. We also loaned $50,000 to MNZ on a
demand basis, which was repaid on October 2, 1995. On October 26, 1995, we
loaned MNZ $50,000 on a demand basis, which has not been repaid as of the date
of this report. We also entered into a Licensing Agreement (the "Licensing
Agreement") and a Managing Agent Agreement (the "Managing Agent Agreement") with
MNZ.


         Under the Licensing Agreement, we granted an exclusive license to MNZ
under certain patents and the right to use the Medizone 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. We will receive a guaranteed minimum royalty, in
an amount to be agreed to by the parties, commencing in the third year after all
necessary regulatory approvals requisite to the license, use or distribution of
our proprietary technology have been obtained in New Zealand. If we are unable
to agree with MNZ upon the amount of the guaranteed minimum royalty, we may
terminate the Licensing Agreement. Commencing on the first sale to a user by
MNZ, we are to receive a sales royalty on MNZ's gross annual sales under the
Licensing Agreement.


         Under the Managing Agent Agreement, MNZ will act as our 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). We will divide Licensing fees with MNZ on a sliding scale as set forth
below:


                                                           Medizone       MNZ

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%


         We will also divide any net royalties paid to us under any license
entered into pursuant to the Managing Agent Agreement, with MNZ receiving 10% 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 us under certain circumstances. We have had informal discussions
with the management of MNZ about acquiring the rights of MNZ in the future.
Negotiations have not yet progressed to a formal stage, due to the lack of
funding to finalize such a purchase.


Competition


         The market in which we intend to do business is extremely competitive.
We are 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.


                                       7

<PAGE>



Employees


         As of December 31, 2002, we had two full time employees and four part
time employees acting in a consulting or outside services capacity, including
our CFO. If we are successful in obtaining needed financing, we intend to bring
on additional personnel and we have identified key members of that team.


Status of Research Activity


         We have 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, we would 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, but was interrupted while product development of the gas-serum interface
system was finalized. The new interface development is complete and we expect
that the veterinarian research program will begin again as soon as funding has
been obtained, of which there is no assurance given. The next hepatitis C trial
is also scheduled to start as soon as we complete our preparations and obtain
funding. The lack of funding, however, has placed these projects on hold and
there is no assurance that we will be able to complete them as originally
planned even if funding becomes available.


Risk Factors


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


         Our 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. We have incurred significant losses since inception, which have
resulted in an accumulated deficit of $17,733,475 at December 31, 2002. These
losses and this significant deficit raise substantial doubt about our ability to
continue as a going concern. The accompanying audited consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result from the outcome of this uncertainty.


         We are a development stage company with significant accumulated
deficits and we can expect losses to continue for the foreseeable future. We
have not generated any revenues from operations. No assurance can be given that
our business activities will ever generate revenues. Even with funding to
continue our research and development activity, we expect to continue to incur
substantial losses 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. We have financed operations at a minimal level during the
past three years by the sale of common stock in small private placements to
accredited investors. Committed funding sources have thus far been unable to
perform as promised. We have pursued and continue to pursue funding
opportunities, however to date no significant financing transactions have been
completed. The lack of revenues and regulatory approvals has made it difficult
to obtain funding, as has the significant downturn in the United States economy
since September 2001.


         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. We
have funded development and operations activities to date primarily from the
sale of common stock. We do not have adequate financing at this time and will
require substantial additional capital to meet our obligations. The lack of
assets and borrowing capacity make it most likely that such funding, if
obtained, will most likely be obtained through sales of common stock or other
securities. No assurances can be given that we will be able to obtain sufficient
additional capital to continue our intended research program, or that any
additional financing will be sufficient to satisfy our ongoing administrative
and operating expenses for any significant period of time.


                                       8

<PAGE>



         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
technology, we could be required to scale back or to even cease operations. We
may also lose key elements of our technology as patents and license agreements
lapse or expire. The identification, development and commercialization of
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. Our actual capital
requirements will depend on many factors, including but not limited to, the
costs and timing of research and development activities, the number and type of
clinical or other tests we may be required to conduct in seeking approval of
products from governmental or other agencies, the success of our development
efforts, the cost and timing of establishing or expanding sales and marketing
and/or manufacturing activities, the extent to which our products (if any) gain
market acceptance, our ability to establish and maintain collaborative
relationships, competing technological and market developments, the progress of
our commercialization efforts and the commercialization efforts of our 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. We continually
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 us to relinquish its rights
to certain of our technologies, products or marketing territories. The failure
to raise capital when needed will have a material adverse effect on our
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 us, 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 our products, which constitute medical devices or
products, are extensively regulated by a number of governmental agencies,
including the FDA. 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 most other countries. The
regulatory processes established by government agencies are lengthy, expensive,
and uncertain and may require extensive and expensive clinical trials. There can
be no assurance that any future products we develop that 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 of
testing activities could be susceptible to varied interpretations, which could
delay, limit or prevent required regulatory approvals. In addition, we 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. We might 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 us. Any such events,
were they to occur, would likely have a material adverse effect on our business,
financial condition and results of operations.


         We 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 our products or
supplying materials or components for such products may also be subject to these
manufacturing practices and mandatory procedures. If we or our third party
manufacturers fail to comply with applicable regulations regarding these
manufacturing practices, we or they 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.


         Our 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


                                       9

<PAGE>

and Safety Administration. In addition, if we engage in contract sterilization
services, our products and operations may be subject to the infection control or
other requirements of the Joint Commission on Accreditation of Health Care
Organizations, the Centers 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 our planned products 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 solely by us 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 we are required to conduct clinical or other testing or trials of
our 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. Our sterilization technology has not been approved for
use in connection with or as part of any device, and there can be no assurance
that we will not encounter problems in the conduct of any clinical trials or
tests we are 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 our products. If any of our 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 our business, financial
condition and results of operations.


         Our reliance on patented technology may limit the scope of our
protection and may increase the cost of doing business if we are required to
enforce our rights under existing and future patents. Our success will depend,
in large part, on our ability to obtain and enforce patents, maintain 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


                                       10

<PAGE>

can be uncertain to some extent and involve complex legal and factual questions,
and, therefore, the scope and enforceability of claims allowed in patents are
not systematically predictable with absolute accuracy. Our license rights depend
in part upon the breadth and scope of protection provided by the patents and the
validity of the patents. Any failure to maintain the issued patents could
adversely affect our business. We intend to file additional patent applications
(both United States and foreign), when appropriate, relating to our
technologies, improvements to the technologies and for specific products. There
can be no assurance that any issued patents or pending patent applications will
not be challenged, invalidated or circumvented. There can also be no assurance
that the rights granted under patents will provide us with adequate proprietary
protection or competitive advantages.

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


         We also rely on secrecy to protect portions of our technology for which
patent protection has not yet been pursued or which is not believed to be
appropriate or obtainable in addition to any information of a confidential and
proprietary nature relating to us, including but not limited to our know-how,
trade secrets, methods of operation, names and information relating to existing
or potential vendors or suppliers and customer names and addresses. This
technology includes technology that we acquired from two parties in connection
with, but separate from, the patented technology from Biozone, a portion of
which we have acquired and a portion of which we have obtained a license to use.
There can be no assurance that our undivided ownership and/or license rights in
such technology are enforceable.


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


         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 our technology will have advantages over those of competitors, which
will be significant enough to cause users to adopt its use. The products in
which our technology may be incorporated will compete with products currently
marketed, and competition from such products is expected to increase.


         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. 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


                                       11

<PAGE>

development programs. Moreover, these companies and institutions may be in the
process of developing technology that could be developed more quickly or
ultimately proved safer or more effective than our technology.


         We face 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 our competitors will not develop more effective or more affordable
products, or achieve earlier patent protection or product commercialization.


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


         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. Our research and
development activities, and the application of our technology, may involve the
controlled use of materials, substances or electro-magnetic radiation that may,
if used or employed improperly, prove hazardous. We believe, however, that our
technology employs such potentially hazardous or toxic materials and substances
in a manner that minimizes their adverse effects. Further, where such hazards
are employed, we intend 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. At this time our financial limitations have restricted our staff
to two administrative officers. If funding can be obtained, we will require
assistance of qualified expert scientific and sales staff. We anticipate that at
a minimum we will rely upon consultants and advisors to assist in formulating
our research and development strategies and operations. Retaining and attracting
qualified personnel, consultants and advisors will be critical to our success.
In order to pursue product development and marketing plans, we will need
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. We face competition for qualified individuals
from numerous medical and clinical companies, universities and other research
institutions. Even if financing is obtained, there can be no assurance we will
be able to attract and retain such individuals on acceptable terms, when needed,
and to the degree required.


         We anticipate that any clinical development or other approval tests in
which we participate will be augmented by agreements with universities and/or
medical institutions or other personnel. It is likely that our academic
collaborators will not become our employees. As a result, we will have limited
control over their activities and can expect that only limited amounts of their
time will be dedicated to our business activities. Our academic collaborators
may have relationships with other commercial entities, some of which could
compete with us.


         We do not own 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
might build or acquire our own manufacturing facility in the future, at this
time we have no manufacturing capability or capacity to produce any products
utilizing its sterilization technology, including any products to be used in any


                                       12

<PAGE>

required clinical or other tests. We initially intend to develop relationships
with other companies to manufacture those components and/or products, and we
will act as specification developer and final assembly manufacturer for selected
products only. The two products currently being developed by us have never been
manufactured on a commercial scale and there can be no assurance that such
products can be manufactured at a cost or in quantities necessary to make them
commercially viable. Any delay in availability of products may result in a delay
in the submission of products for any required regulatory approval or market
introduction, subsequent sales of such products, which could have a material
adverse effect on our business, financial condition, or results of operations.
Our manufacturing processes may be labor intensive and, if so, significant
increases in production volume would likely require changes in both product and
process design in order to facilitate increased automation of our then-current
production processes. There can be no assurance that any such changes in
products or processes or efforts to automate all or any portion of our
manufacturing processes would be successful, or that manufacturing or quality
problems will not arise as we initiate production of any products we might
develop.


         In addition, some or all of our potential products, or products in
which our 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 we can successfully
acquire manufacturing capacity on a profitable basis, or contract with another
party on terms acceptable to us, 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 that
may cause our actual results, performance or achievements, or industry results,
to be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. These risks,
uncertainties and other factors include, among other things, our lack of revenue
and our substantial net losses and accumulated deficit, as well as the
continuing uncertainty of profitability, our ability to develop and introduce
new products, our lack of sales, marketing and distribution experience and
anticipated dependence on third parties for such matters, the risks associated
with obtaining governmental approval of our products, the highly competitive
industry in which we intend to operate and the rapid pace of technological
change within those industries, the uncertainty of patent and proprietary
technology protection and our reliance on such patent protection 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 our products, general economic and business
conditions and other factors referenced above.


Item 2.  Description of Property


         Our offices are located at 144 Buena Vista Ave., Stinson Beach,
California. The offices are located temporarily in the home of our CEO, Edwin
Marshall. We also rent a secure storage area from a third party for our
corporate archives. The cost of this facility is $200 per month. We pay or
reimburse all telephone and related expenses. To date we have not been charged
or paid any rent for the temporary office space provided by our CEO.


Item 3.  Legal Proceedings


         During the year ended December 31, 2002, we were 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 we had failed to pay consulting fees under a consulting
agreement. We deny that we owe any fees to the consultant. In September 2001,
the parties agreed to settle the matter for $25,000. Our lack of funds prevented
us from consummating the settlement and the plaintiff moved the court to enter a
default judgment in the amount of $143,000 in January 2002. On May 8, 2002, the
court vacated the default judgment and requested that we post a bond of $25,000
to cover the settlement previously entered into by the parties. We have not been
in a position to post the bond as of the date of this report and there is no
assurance that we will be able to do so in the near term unless additional
financing is made available to us. Therefore, at December 31, 2002, the entire
amount of the judgment has been accrued pending additional settlement
discussions.


                                       13

<PAGE>



         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 us.  Other
defendants named in the complaint are Dr. Hitt, Jane Hitt, The Hitt Clinic,  and
Jill Marshall.  Mrs.  Marshall and we deny all of the  allegations and also deny
any liability for any injury or harm these persons allege to have suffered. Mrs.
Marshall and we filed an answer to the  complaint on February 22, 2002. On March
26,  2002,  counsel  for the parties met and  conferred  to discuss  alternative
dispute  resolution  alternatives,  discovery  and  initial  disclosure.  A Case
Management  Conference  was held April 22, 2002. The claims against Dr. and Mrs.
Hitt and the Hitt Clinic were  subsequently  dismissed for lack of  jurisdiction
over those  defendants.  Discovery by the  remaining  parties  continues in this
case.


         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 made untrue statements in connection
with the purchase of securities regarding certain funding transactions that we
anticipated. In addition, the plaintiffs allege that the Marshalls have breached
their duties to our shareholders by making untrue statements regarding the
funding transactions and that they otherwise mismanaged the company. The company
and the Marshalls deny any wrongdoing and have vigorously defended themselves
against the claims of the plaintiffs. The Marshalls and the company filed an
answer with the court on February 25, 2002. On April 12, 2002, we also filed a
Schedule 14 A with the Securities and Exchange Commission, responding to the
allegations of the Bottomlys and Pace in proxy solicitation materials they
circulated to certain of our shareholders. We believe the allegations made by
the plaintiffs are false and distort our previous disclosures in filings we have
made with the SEC.


         Medizone International, Inc. vs. Nathaniel Bottomly, Ross Bottomly,
Jeff Pace et al., Civil No. CO2 1659CRB (United States District Court, Northern
District of California). We filed this complaint alleging that the defendants
violated federal laws by using materially misleading and false statements to
solicit the vote of shareholders to replace our current management. In addition
to the Bottomlys and Pace, defendants to our lawsuit included Advocates of
Medizone (known as "AFM"), an unincorporated entity we believe to have been
founded by these individual defendants and John Does 1 through 25. After limited
discovery, on October 10, 2002, we filed a motion to dismiss the complaint
without prejudice, permitting us to file the action in federal court in Utah
where we believe jurisdiction may be obtained over our intended defendants. The
court subsequently granted our motion. To date we have not re-filed this
lawsuit.


                                     Part II


Item 5.           Market for Common Equity and Related Stockholder Matters

         Our 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 common stock during each
of the four calendar quarters of 2001 and 2002. These prices reflect
inter-dealer prices without retail markup, markdown or commission, are not
necessarily representative of actual transactions, or of the value of our
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


                                       14

<PAGE>


                  2002              First Quarter             $0.15    $0.08
                                    Second Quarter            $0.10    $0.03
                                    Third Quarter             $0.09    $0.04
                                    Fourth Quarter            $0.05    $0.02


         As of March 26, 2003, we estimate that there were approximately 3,500
holders of record of our common stock, and approximately 4,500 beneficial
owners.


         We have never paid cash dividends on the common stock. Payment of cash
dividends is subject to the discretion of the Board of Directors and is
dependent upon various factors, including the availability of earnings, capital
needs and general financial condition. We do not believe that we have any
immediate prospect of earnings. However, we anticipate that in the foreseeable
future, we will follow a policy of retaining earnings, if any, to finance
research and development.


Recent Sales of Unregistered Securities


         Subsequent to December 31, 2002, we sold 400,000 shares of common stock
to a director and his son-in-law at $0.05 per share, for gross proceeds of
$20,000. We also granted these investors warrants to purchase 400,000 shares of
stock at $0.05 per share, exercisable over a two-year term. The shares were sold
without registration under the Securities Act of 1933, as amended, in reliance
upon an exemption under the Securities Act for private sales of securities by
issuers to accredited persons. Both investors purchasing these shares are
accredited investors as that term is defined by Regulation D and related rules
promulgated under the Securities Act by the Securities and Exchange Commission.
The shares are restricted shares, meaning that they may not be resold or
distributed by the holders in the absence of an effective registration statement
or an exemption from registration under the Securities Act.


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


Results of Operations


         From inception in January 1986, we have been a development stage
company primarily engaged in research into the medical uses of ozone. We have
not generated, and cannot predict when or if we will generate, revenues or
sufficient cash flow to fund continuing or planned. We had a net loss in 2002 of
$687,273, compared to a net loss of $716,054 in 2001.


         In 2002, research and development expenses were $40,602 compared to
$67,333 spent for research and development in 2001. The decrease in research and
development expenses was primarily due to the company's lack of capital. Since
inception we have spent a total of $2,685,788 for research and development
related to our ozone technology and related apparatus. Research and development
expenses include consultant fees, interface development costs and research stage
ozone generator and instrument development.


         General and administrative expenses in 2002 totaled $618,264, compared
to $620,708 in 2001. These expenses include professional fees, payroll,
insurance costs and travel expenses. Our lack of cash has prevented us from
paying all accrued salary and other expenses during the last two years. During
2002, due to our lack of capital, we paid approximately $71,000 of the total
general and administrative expenses to third parties by issuing common stock for
services. We also converted debt totaling $44,737 by issuing shares of common
stock to certain creditors.


         Notes payable totaled $303,491 in 2002 and 2001. We did not make any
new notes during 2002. Interest expense on these obligations totaled $23,656 in
2002, compared to $23,262 in 2001. The applicable interest rates on this debt
ranged from 0% to 10% percent per annum.


Liquidity and Capital Resources


         At December 31, 2002, we had a working capital deficiency of
$1,887,655, compared to a working capital deficiency of $1,435,644 at December
31, 2001. The stockholders' deficit at December 31, 2002 was $1,882,180,
compared to a stockholders' deficit of $1,435,644 at December 31, 2001.


                                       15

<PAGE>


         We continue to require additional funding to fund research necessary to
make the appropriate regulatory applications for our technology and products and
to continue operations. Our only source of financing to date has been the sale
of our common stock. During 2002, we generated cash of $134,481 through
financing activities, primarily through the sale of shares of common stock for
proceeds of $125,000.


         Given current negative cash flows, it will be difficult for us to
continue as a going concern without an influx of capital. While we continue to
aggressively pursue potential financing opportunities, those efforts have to
date produced only minimal results. Previously anticipated and announced
financing commitments have failed to be fulfilled.


         Our 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 is
not obtained, we may be required to discontinue operations. Even if additional
financing becomes available there can be no assurance that it will be on terms
favorable to us. In any event, this additional financing will result in
immediate and possibly substantial dilution to existing shareholders.


         In 2000, we announced that we 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 an initial investment of
$10,000,000 at a price of $5.00 per share. The second tranche of funding, also
for $10,000,000, was to be based on the performance of our common stock during
2001. The investor informed us that the funds to be invested under its
commitment letter were to be provided out of an anticipated commission payment
payable to the investor upon closing of a series of very large and complex
multi-national financing transactions and that the investor believed those
transactions would close within six weeks of the original delivery of its
commitment. Because of the sensitive nature of the transactions that were in
process, the investor required that we keep any additional details of the
transactions entirely confidential as a condition to our receipt of funds. The
investor did approve the contents of a press release describing the transaction
that was distributed us and filed as an exhibit to earlier filings made with the
SEC.


         As of March 26, 2003, the financing transactions that are to provide
the source of funds for the investor's purchase of shares continue to be in
progress, but they have not closed and the investor reports that it has yet to
receive any funds in connection with those pending transactions. Since 2000,
when we announced the funding commitment, the investor has repeatedly confirmed
its commitment to invest a total of $20,000,000 in our common stock. The
investor has continued to assure us 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.


         We remain in close contact with the investor. However, we also continue
to seek funding from other sources. The general downturn in the investment
climate and economy in the United States since 2000 have contributed to the
difficulties encountered in obtaining financing. If we fail to receive
financing, we may be forced to cease operations.


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
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


                                       16

<PAGE>

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.


Item 7.  Financial Statements


         Our financial statements are included commencing at page F-1 and form a
part of this report.


                                    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 our directors and
executive officers as of December 31, 2002.


Name                       Age              Position

Edwin G. Marshall          60               Chairman of the Board, CEO
Richard G. Solomon         60               Director
Daniel Hoyt                63               Director
Jill C. Marshall           51               Chief Operating Officer,
                                                 Corporate Secretary
Steve M. Hanni             35               Chief Financial Officer




         Edwin G. Marshall became Chairman of the Board & Chief Executive
Officer in April 1998 and has been with us full time 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, including managing his personal investments.


         Richard Garrett Solomon, Director and Executive Officer of Medizone New
Zealand  Limited.  Mr. Solomon has been one of our  shareholders  since 1992. In
1995,  Mr.  Solomon joined with us to form Medizone New Zealand as a 50/50-owned
joint  venture.  Between  January 1996 and February 1997, Mr. Solomon was one of
our  directors.  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 and operated a private hospital operating
company,  Haven Care Hospitals Limited.  He was a long-standing board member and
president of the New Zealand  Hospitals  Association and he was  instrumental in
the establishment of the New Zealand Council of Healthcare Standards,  Inc., now
known as Quality Health New Zealand.


         Daniel Hoyt became a director in January 2002. Mr. Hoyt is a graduate
of the University of Indiana, where he received a Bachelor of Science degree in
Business Administration. Over the past 25 years he has become a 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. 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.

         Steve Hanni became Chief Financial Officer in April 2002. Mr. Hanni is
a certified public accountant engaged in public practice with the firm of
Stayner, Bates & Jensen, PC, Certified Public Accountants, in Salt Lake City,


                                       17

<PAGE>

Utah. Mr. Hanni was previously a partner with the firm of HJ& Associates, LLC, a
public accounting firm that acts as our independent public accountant in
connection with the audit of our annual reports and the review of our quarterly
financial reports.


         Jill C. Marshall, NMD has been our Chief Operating Officer, Corporate
Secretary, and Director of Investor Relations since April 1998. Dr. Marshall
received 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 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 our CEO, Ed Marshall.


Compliance with Section 16(a) of the Exchange Act


         Section 16(a) of the Securities Exchange Act of 1934 requires our
officers and directors, and persons who beneficially own more than 10% of a
registered class of our 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). We are not aware of any
transactions in our common stock by or on behalf of any director, executive
officer or 10% shareholder, which would require the filing of any report
pursuant to Section 16(a) during the fiscal year ended December 31, 2002, that
was not timely filed with the Commission.


Item 10.   Executive Compensation

         The following Summary Compensation Table shows compensation paid to our
Chief Executive Officer for each of the past three years.

                           Summary Compensation Table

                                                                Long-Term
                                                                Compensation
                                      Annual Compensation         Awards
Name and Principal
Position                Year     Salary           Bonus         Options (#)

Edwin G. Marshall(1)    2002     $170,000(2)      $    0            0
Chairman and CEO        2001     $170,000(3)      $    0            0
                        2000     $ 99,166(4)      $    0            0


(1)      Does not include amounts paid or accrued to Mr. Marshall's wife (Dr.
         Jill Marshall), also an officer, at $95,000 per year for 2002, 2001 and
         2000. Cash payments of salary were made to Dr. Jill Marshall in the
         amounts of $23,750 in 2002, $23,750 in 2001 and $55,417 in 2000. The
         remaining balance of $182,083 has been accrued, but remains unpaid to
         Dr. Jill Marshall due to the lack of funds.

(2)      Of the amount  indicated,  a total of $49,583 was paid to Mr. Marshall.
         The remaining  amount has been accrued,  but has not been paid to Mr.
         Marshall due to the lack of funds.  Aggregate  accrued  wages owed Mr.
         Marshall at December 31, 2002 totals $298,750.

(3)      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. See note (2) above.


                                       18

<PAGE>


(4)      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. We remain indebted to
         the CEO for the payment of accrued salary in the aggregate amount of
         $50,833 for 2000. See note (2) above.


         We do not have any employment agreements with any employee. Our Board
of Directors does not have a compensation committee. The Board determines
matters concerning the compensation of executive officers. When resources allow,
we anticipate 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. Currently the
Board has no committees.


Item 11.  Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters


         The following table contains information as of March 26, 2003,
regarding beneficial stock ownership of (1) all persons known to us to be
beneficial owners of more than 5% of our outstanding common stock, (2) each
director and each person who served at any time during fiscal year 2002 as CEO
of Medizone, and (3) officers and directors at March 26, 2003, as a group. Each
of the persons in the table below is believed to have sole voting and
dispositive power as to all of the shares shown as beneficially owned by them
except as otherwise indicated.

                                       Number of Shares         Percent of
Name and Address                      Beneficially Owned     Outstanding Shares

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

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

Daniel D. Hoyt (3)                        4,110,000                2.6%
1 American Square, Suite 1370
Indianapolis, IN 82040

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

Steve Hanni                                  50,000                   *
455 South 300 East
Salt Lake City, UT 84111

All Officers and Directors
as a Group  (5 persons) (5):             23,349,242               14.6%



     * Less than 1%.


                                       19

<PAGE>

(1)         Amount indicated includes (i) 920,000 shares owned of record by Jill
            Marshall, Mr. Marshall's wife and our 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 1,600,000 shares of common stock at
            prices ranging from $0.05 to $0.20 per share, and
            2,510,000 shares owned of record.

(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 158,745,387 shares outstanding. This amount
            includes currently exercisable options for the purchase of 1,600,000
            shares and eliminates all duplicate holdings.


Item 12. Certain Relationships and Related Transactions


         Mr. Marshall, our CEO and Chairman, is the general partner of Sand
Dollar Solution, a limited partnership ("Sand Dollar"). 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 Securities Act for offerings made solely to accredited
investors. The shares are "restricted shares" as that term is defined under the
Securities 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    Loan agreement with Messrs. McGrath and Watrous dated as of
                November 16, 1992 (4)


        10.2    Loan Agreements between Medizone and John Kells, George Handel
                and John Pealer, executed as of June 11, 1993 (and promissory
                notes) (4)


        10.3    Agreement  for Sale and Purchase of Shares in Medizone New
                Zealand  Limited  between  Richard G. Solomon and  Medizone
                International, Inc., dated June 22, 1995 (5)


                                       20

<PAGE>



        10.4    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 (5)


        10.5    Licensing Agreement between Medizone International, Inc. and
                MNZ, dated June 22, 1995 (5)


        10.6    Managing Agent Agreement between Medizone International, Inc.
                and Medizone New Zealand Limited, dated June  22, 1995 (5)

        10.7    Funding commitment letter from Groundell Trust. (6)


        10.8    Letter re: change in certifying accountants (6)





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


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


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


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


(5)      Incorporated by reference to current report on Form 8-K, dated June 22,
         1995.


(6)      Incorporated by reference to annual report on Form 10-KSB for the
         period ended December 31, 2001.

(b)      Reports on Form 8-K.

         None.

Item 14.    Controls and Procedures

         Our Chief Executive Officer and Chief Financial Officer (collectively,
the "Certifying Officers") are responsible for establishing and maintaining our
disclosure controls and procedures. These officers have concluded (based on
their evaluation of these controls and procedures as of a date within 90 days of
the filing of this report) that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by the company in
this report is accumulated and communicated to management, including its
principal executive officers as appropriate, to allow timely decisions regarding
required disclosure. The Certifying Officers also have indicated that there were
no significant changes in the internal controls or other factors that could
significantly affect such controls subsequent to the date of their evaluation,
and there were no corrective actions with regard to significant deficiencies and
material weaknesses.


                                       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
                                ----------------------------------------------
                             Chief Financial Officer

Date: April 11, 2003

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.



/s/ Edwin G. Marshall      CEO and Chairman of the Board     April 11, 2003
------------------------
Edwin G. Marshall


/s/ Steve Hanni            Chief Financial Officer           April 11, 2003
------------------------
Steve Hanni                (Principal Financial
                           and Accounting Officer)


/s/ Richard G. Solomon     Director                          April 11, 2003
------------------------
Richard G. Solomon


/s/ Daniel Hoyt            Director                          April 11, 2003
------------------------
Daniel Hoyt



                                       22


<PAGE>


                                 CERTIFICATIONS

I, Edwin G. Marshall, certify that:

        1.      I have reviewed this annual report on Form 10-KSB of Medizone
                International, Inc.;

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

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

        4.      The registrant's other certifying officers and I are
                responsible for establishing and maintaining disclosure
                controls and procedures (as defined in Exchange Act Rules
                13a-14 and 15d-14) for the registrant and have:

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

                b)    evaluated the effectiveness of the registrant's disclosure
                      controls and procedures as of a date within 90 days prior
                      to the filing date of this annual report (the "Evaluation
                      Date"); and

                c)    presented in this annual report our conclusions about the
                      effectiveness of the disclosure controls and procedures
                      based on our evaluation as of the Evaluation Date;

        5.      The registrant's other certifying officers and I have
                disclosed, based on our most recent evaluation, to the
                registrant's auditors and the audit committee of registrant's
                board of directors (or persons performing the equivalent
                functions):

                a)    all significant deficiencies in the design or operation of
                      internal controls which could adversely affect the
                      registrant's ability to record, process, summarize and
                      report financial data and have identified for the
                      registrant's auditors any material weaknesses in internal
                      controls; and

                b)    any fraud, whether or not material, that involves
                      management or other employees who have a significant role
                      in the registrant's internal controls; and

        6.      The registrant's other certifying officers and I have
                indicated in this annual report whether there were significant
                changes in internal controls or in other factors that could
                significantly affect internal controls subsequent to the date
                of our most recent evaluation, including any corrective
                actions with regard to significant deficiencies and material
                weaknesses.

Date: April 11, 2003

         /s/ Edwin G. Marshall
--------------------------------------------
Edwin G. Marshall, Chief Executive Officer





                                       23


<PAGE>


I, Steve Hanni, certify that:

        1.      I have reviewed this annual report on Form 10-KSB of Medizone
                International, Inc.;

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

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

        4.      The registrant's other certifying officers and I are
                responsible for establishing and maintaining disclosure
                controls and procedures (as defined in Exchange Act Rules
                13a-14 and 15d-14) for the registrant and have:

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

                b)    valuated the effectiveness of the registrant's disclosure
                      controls and procedures as of a date within 90 days prior
                      to the filing date of this annual report (the "Evaluation
                      Date"); and

                c)    presented in this annual report our conclusions about the
                      effectiveness of the disclosure controls and procedures
                      based on our evaluation as of the Evaluation Date;

        5.      The registrant's other certifying officers and I have
                disclosed, based on our most recent evaluation, to the
                registrant's auditors and the audit committee of registrant's
                board of directors (or persons performing the equivalent
                functions):

                a)    all significant deficiencies in the design or operation of
                      internal controls which could adversely affect the
                      registrant's ability to record, process, summarize and
                      report financial data and have identified for the
                      registrant's auditors any material weaknesses in internal
                      controls; and

                b)    any fraud, whether or not material, that involves
                      management or other employees who have a significant role
                      in the registrant's internal controls; and

        6.      The registrant's other certifying officers and I have
                indicated in this annual report whether there were significant
                changes in internal controls or in other factors that could
                significantly affect internal controls subsequent to the date
                of our most recent evaluation, including any corrective
                actions with regard to significant deficiencies and material
                weaknesses.

Date: April 11, 2003

         /s/ Steve Hanni
-------------------------------------
Steve Hanni, Chief Financial Officer




<PAGE>












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

                        CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2002







<PAGE>





                                 C O N T E N T S


Independent Auditors" Report............................................... F-3

Consolidated Balance Sheet................................................. F-4

Consolidated Statements of Operations...................................... F-5

Consolidated Statements of Stockholders" Equity (Deficit).................. F-6

Consolidated Statements of Cash Flows......................................F-15

Notes to the Consolidated Financial Statements.............................F-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, 2002, and the related consolidated statements of operations,
stockholders" equity (deficit), and cash flows for the years ended December 31,
2002 and 2001 and from inception on January 31, 1986 through December 31, 2002.
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, 2002, and the consolidated results of their operations and their
cash flows for the years ended December 31, 2002 and 2001 and from inception on
January 31, 1986 through December 31, 2002, 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 10, 2003



<PAGE>






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

                                     ASSETS
<TABLE>
<CAPTION>
                                                                       December 31,
                                                                            2002

CURRENT ASSETS

<S>                                                                    <C>
   Cash                                                                $               72
                                                                       ------------------

     Total Current Assets                                                              72
                                                                       ------------------

PROPERTY AND EQUIPMENT (Net) (Notes 1 and 2)                                        5,475
                                                                       ------------------

OTHER ASSETS

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

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

     TOTAL ASSETS                                                      $            5,547
                                                                       ==================

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES

   Accounts payable                                                    $          598,735
   Due to shareholders (Note 8)                                                     5,057
   Accrued expenses (Note 3)                                                      980,444
   Notes payable (Note 6)                                                         303,491
                                                                       ------------------

     Total Current Liabilities                                                  1,887,727
                                                                       ------------------

     Total Liabilities                                                          1,887,727
                                                                       ------------------

COMMITMENTS AND CONTINGENCIES (Note 4)

STOCKHOLDERS" EQUITY (DEFICIT)

   Common stock; 250,000,000 shares authorized of $0.001 par value,
    157,745,387 shares issued and outstanding                                     157,745
   Additional paid-in capital                                                  15,693,550
   Deficit accumulated during the development stage                           (17,733,475)
                                                                       ------------------

     Total Stockholders' Equity (Deficit)                                      (1,882,180)
                                                                       ------------------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)              $            5,547
                                                                       ==================
</TABLE>



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


                                      F-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,
                                                               ---------------------------------  ----------------
                                                                    2002              2001             2002
                                                               ---------------   ---------------  ----------------

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

EXPENSES

   Cost of sales                                                             -                 -           103,790
   Research and development                                             40,602            67,333         2,685,788
   General and administrative                                          618,264           620,708        13,355,454
   Expense on extension of warrants (Note 5)                                 -                 -         1,866,857
   Bad debt expense                                                          -                 -            48,947
   Depreciation and amortization                                         4,751             4,751            42,521
                                                               ---------------   ---------------  ----------------

     Total Expenses                                                    663,617           692,792        18,103,357
                                                               ---------------   ---------------  ----------------

     Loss from Operations                                             (663,617)         (692,792)      (17,970,008)
                                                               ---------------   ---------------  ----------------

OTHER INCOME (EXPENSE)

   Minority interest in loss                                                 -                 -            26,091
   Other income                                                              -                 -            19,780
   Gain on sale of subsidiary (Note 1)                                       -                 -           208,417
   Interest expense                                                    (23,656)          (23,262)         (912,493)
                                                               ---------------   ---------------  ----------------

     Total Other Income (Expense)                                      (23,656)          (23,262)         (658,205)
                                                               ---------------   ---------------  ----------------

LOSS BEFORE EXTRAORDINARY ITEMS                                       (687,273)         (716,054)      (18,628,213)
                                                               ---------------   ---------------  ----------------

EXTRAORDINARY ITEMS

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

     Total Extraordinary Items                                               -                 -           894,738
                                                               ---------------   ---------------  ----------------

NET LOSS                                                       $      (687,273)  $      (716,054) $    (17,733,475)
                                                               ===============   ===============  ================

BASIC INCOME (LOSS) PER SHARE

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

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

WEIGHTED AVERAGE NUMBER
 OF SHARES OUTSTANDING                                             156,948,735       155,052,479
                                                               ===============   ===============
</TABLE>



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


                                      F-5

<PAGE>


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


<TABLE>
<CAPTION>
                                                                                                                      Deficit
                                                                                                                    Accumulated
                                                                                                                      During
                                                                 Common Stock                       Additional         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.


                                      F-6


<PAGE>


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






<TABLE>
<CAPTION>
                                                                                                                      Deficit
                                                                                                                    Accumulated
                                                                                                                       During
                                                                  Common Stock                       Additional         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.



                                      F-7

<PAGE>


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







<TABLE>
<CAPTION>
                                                                                                                       Deficit
                                                                                                                     Accumulated
                                                                                                                       During
                                                                  Common Stock                       Additional         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.



                                      F-8


<PAGE>


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







<TABLE>
<CAPTION>
                                                                                                                       Deficit
                                                                                                                     Accumulated
                                                                                                                       During
                                                                  Common Stock                       Additional          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.


                                      F-9


<PAGE>


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







<TABLE>
<CAPTION>
                                                                                                                       Deficit
                                                                                                                     Accumulated
                                                                                                                        During
                                                                 Common Stock                        Additional          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.


                                      F-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.


                                      F-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.


                                      F-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.


                                      F-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)

Common stock and warrants issued
 for cash at $0.10 per share                        1,000,000            1,000                 -            99,000                -

Common stock issued for services
 at $0.10 per share                                   230,000              230                 -            22,770                -

Common stock issued for debt
 at $0.10 per share                                   447,368              447                 -            44,290                -

Common stock and warrants issued for cash
 at $0.10 per share                                   250,000              250                 -            24,750                -

Common stock issued for services
 at $0.10 per share                                   480,000              480                 -            47,520                -

Net loss for the year ended
 December 31, 2002                                          -                -                 -                 -         (687,273)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 2002                        157,745,387  $       157,745   $             -  $     15,693,550  $   (17,733,475)
                                             ================  ===============   ===============  ================  ---------------
</TABLE>



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


                                      F-14



<PAGE>


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

<TABLE>
<CAPTION>
                                                                                                       From
                                                                                                   Inception on
                                                                                                    January 31,
                                                                       For the Years Ended         1986 Through
                                                                             December 31,          December 31,
                                                               ---------------------------------  ----------------
                                                                       2002              2001             2002
                                                               ---------------   ---------------  ----------------
CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                            <C>               <C>              <C>
   Net loss                                                    $      (687,273)  $      (716,054) $    (17,733,475)
   Adjustments to reconcile net loss to net cash
    used by operating activities:
     Depreciation and amortization                                       4,751             4,751            42,521
     Stock issued for services                                          71,000                 -         3,086,916
     Expense for extension of warrants below market
      value                                                                  -                 -         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                                              -                 -          (188,510)
     Gain on lawsuit settlement                                              -                 -          (415,000)
   Changes in assets and liabilities:
     (Increase) in prepaid expenses
      and deposits                                                           -                 -           (48,947)
     Increase in accounts payable                                      220,463            57,948           993,265
     Increase in accrued expenses                                      256,650           372,143         1,403,466
                                                               ---------------   ---------------  ----------------

       Net Cash Used by Operating Activities                          (134,409)         (281,212)      (10,276,299)
                                                               ---------------   ---------------  ----------------

CASH FLOWS FROM INVESTING ACTIVITIES

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

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

CASH FLOWS FROM FINANCING ACTIVITIES

   Bank overdraft                                                           (8)                8                 -
   Proceeds from lawsuit settlement                                          -                 -           415,000
   Principle payments on notes payable                                       -                 -          (192,774)
   Cash received from notes payable and related
    party payable                                                            -            23,855         1,129,518
   Advances from shareholders                                            9,489                 -            10,344
   Capital contributions                                                     -                 -           421,847
   Stock issuance costs                                                      -                 -          (105,312)
   Increase in minority interest                                             -                 -            14,470
   Issuance of common stock for cash                                   125,000           254,981         8,631,272
                                                               ---------------   ---------------  ----------------

       Net Cash Provided by Financing Activities               $       134,481   $       278,844  $     10,324,365
                                                               ---------------   ---------------  ----------------
</TABLE>




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


                                      F-15


<PAGE>




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


<TABLE>
<CAPTION>
                                                                                                       From
                                                                                                   Inception on
                                                                                                    January 31,
                                                                       For the Years Ended         1986 Through
                                                                             December 31,          December 31,
                                                               ---------------------------------
                                                                     2002              2001             2002
                                                               ---------------   ---------------  ----------------

<S>                                                            <C>               <C>              <C>
NET (DECREASE) IN CASH                                         $            72   $        (2,368) $             72

CASH AT BEGINNING OF PERIOD                                                  -             2,368                 -
                                                               ---------------   ---------------  ----------------
SUPPLEMENTAL CASH FLOW INFORMATION

CASH AT END OF PERIOD                                          $            72   $             -  $             72
                                                               ===============   ===============  ================

CASH PAID FOR:

   Interest                                                    $             -   $             -  $         26,483
   Income taxes                                                $             -   $             -  $              -

NON-CASH FINANCING ACTIVITIES

   Stock issued for services                                   $        71,000   $             -  $      3,086,916
   Stock issued for conversion of debt                         $        44,737   $             -  $      4,116,230
   Stock issued for license agreement and patent               $             -   $             -  $        693,752
</TABLE>




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


                                      F-16


<PAGE>



                  MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2002 and 2001

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, 2002 and 2001


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 the Company thereupon
              loaned $50,000 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, 2002 and 2001


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  Issues 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, 2002.

              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, 2002 and 2001


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, 2002 and 2001


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, 2002 and 2001


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

              f.  Basic Loss Per Share (Continued)
<TABLE>
<CAPTION>
                                                                  For the Years Ended
                                                                         December 31,
                                                           --------------------------------------
                                                                   2002                2001
                                                           ------------------  ------------------
              Numerator
<S>                                                        <C>                 <C>
                    - Loss before extraordinary items      $         (687,273) $         (716,054)
                    - Extraordinary items                                   -                   -

              Denominator (weighted average number
               of shares outstanding)                             156,948,735         155,052,479

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

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

              In April 2002, the Financial  Accounting  Standards  Board issued
              Statement No. 145 ("SFAS 145"),  "Rescission  of FASB  Statements
              Nos. 4, 44, and 64 and Amendment of FASB  Statement No. 13." SFAS
              145 addresses the presentation for losses on early retirements of
              debt in the statement of operations. The Company has adopted SFAS
              145 and will not present  losses on early  retirements of debt as
              an extraordinary item.

              In June 2002, the Financial Accounting Standards Board issued
              Statement No. 146 ("SFAS 146"), "Accounting for Costs Associated
              with Exit or Disposal Activities." The provisions of SFAS 146
              become effective for exit or disposal activities commenced
              subsequent to December 31, 2002.

              In December 2002, the Financial Accounting Standards Board issued
              Statement  No.  148 ("SFAS  148"),  "Accounting  for  Stock-Based
              Compensation".  The  provisions  of  SFAS  148  became  effective
              December 15, 2002.

              The adoption of SFAS 146 and SFAS 148 had no impact on the
              Company's consolidated financial position, results of operations
              or cash flows.



                                       22


<PAGE>


                  MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2002 and 2001


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

              g.  Newly Issued Accounting Pronouncements (Continued)

              In November 2002, the Financial Accounting Standards Board issued
              FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and
              Disclosure Requirements for Guarantees, Including Indirect
              Guarantees of Indebtedness of Others." This interpretation
              elaborates on the disclosures to be made by a guarantor in its
              interim and annual financial statements about its obligations
              under certain guarantees that it has issued. It also clarifies
              (for guarantees issued after January 1, 2003) that a guarantor is
              required to recognize, at the inception of a guarantee, a
              liability for the fair value of the obligations undertaken in
              issuing the guarantee. At December 31, 2002, the Company does not
              have any outstanding guarantees and accordingly does not expect
              the adoption of FIN 45 to have any impact on its consolidated
              financial position, results of operations, or cash flows.

              In January 2003, the Financial Accounting Standards Board issued
              FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
              Interest Entities." This interpretation addresses the requirements
              for business enterprises to consolidate related entities in which
              they are determined to be the primary economic beneficiary as a
              result of their variable economic interests. The interpretation is
              intended to provide guidance in judging multiple economic
              interests in an entity and in determining the primary beneficiary.
              The interpretation outlines disclosure requirements for VIEs
              created after January 31, 2003. The Company has reviewed its major
              relationships and its overall economic interests with other
              companies consisting of related parties and other suppliers to
              determine the extent of its variable economic interest in theses
              parties. The review has not resulted in a determination that it
              would be judged to be the primary beneficiary in any material
              relationships, or that any material entities would be judged to be
              Variable Interest Entities of the Company.

              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, 2002.



                                       23

<PAGE>


                  MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2002 and 2001


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

              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.

              At December 31, 2002, the Company had net operating loss
              carryforwards of $13,100,000 that may be offset against future
              taxable income and expire in years 2006 through 2022. 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,
                                                         --------------------------------------
                                                                 2002                2001
                                                         ------------------  ------------------

<S>                                                      <C>                 <C>
              Income tax benefit at statutory rate       $          234,100  $          268,000
              Change in valuation allowance                        (234,100)           (268,000)
                                                         ------------------  ------------------

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

              Deferred tax assets at December 31, 2002 and 2001 are comprised of
the following:

<TABLE>
<CAPTION>
                                                                 2002                2001
                                                         ------------------  ------------------

<S>                                                      <C>                 <C>
              Net operating loss carryforwards           $        4,984,100  $        4,750,000
              Valuation allowance                                (4,984,100)         (4,750,000)
                                                         ------------------  ------------------

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


                                       24


<PAGE>


                  MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2002 and 2001


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

              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.

              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, 2002 and 2001 would have been
              unchanged from the reported net loss.


                                       25


<PAGE>


                  MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2002 and 2001

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

              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.

              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 FDA
              has not approved the technologies covered by the patent.
              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,
2002:

              Office equipment                        $           19,249
              Furniture                                            6,307
                                                      ------------------

                                                                  25,556
              Accumulated depreciation                           (20,081)
                                                      ------------------

              Net property and equipment              $            5,475
                                                      ==================

              Depreciation expense for the years ended December 31, 2002 and
              2001 was $4,751 and $4,751, respectively.


                                       26


<PAGE>


                  MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2002 and 2001


NOTE 3 -      ACCRUED EXPENSES

              Accrued expenses consist of the following at December 31, 2002:

              Accrued payroll                                  $       703,167
              Accrued interest                                         218,402
              Accrued payroll taxes                                     58,875
                                                               ---------------

                            Total                              $       980,444
                                                               ===============

NOTE 4 -      COMMITMENTS AND CONTINGENCIES

              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 complaint 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's  President and Director of Research was  terminated
              effective December 31, 2001. No accrual,  therefore, was made for
              this officer and director for 2002.


                                       27


<PAGE>


                  MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2002 and 2001

NOTE 4 -      COMMITMENTS AND CONTINGENCIES (Continued)

              The Company is also party to litigation matters as follows:

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

              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 filed an answer to the complaint on
              February 22, 2002. On March 26, 2002, counsel for the parties met
              and conferred to discuss alternative dispute resolutions,
              discovery and initial disclosure. A Case Management Conference was
              held on April 22, 2002 where the claims against certain defendants
              were dismissed. Discovery by the remaining parties continues in
              this case. The outcome of the case cannot currently be determined
              and no accrual has been recorded as of December 31, 2002.

              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. They also allege that the Company and certain
              officers had made untrue statements in connection with the
              purchase of securities regarding certain funding transactions that
              the Company anticipated. The Company denies any wrongdoing and
              intends on vigorously contesting the case. The Company and the
              accused officers filed an answer with the court on February 25,
              2002. The outcome of the case cannot currently be determined and
              no accrual has been recorded as of December 31, 2002.





                                       28



<PAGE>




                  MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2002 and 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 transaction for aggregate proceeds of $150,000.

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

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

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

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

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



                                       29


<PAGE>




                  MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2002 and 2001

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

              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


<PAGE>


                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2002 and 2001


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, 2002 and 2001

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.

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

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


                                       32


<PAGE>


                  MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2002 and 2001

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

              As of December 31, 2002, 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*
                           1,000,000               $       0.10                           March 25, 2004
                             250,000               $       0.10                           May 22, 2004
</TABLE>

              * See Note 10.

NOTE 6 -      NOTES PAYABLE

<TABLE>
<CAPTION>
              Notes payable consisted of the following at December 31, 2002:

              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>



                                       33

<PAGE>




                  MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2002 and 2001

NOTE 6 -      NOTES PAYABLE (Continued)

The aggregate principal maturities of notes payable are as follows:

                Year Ended
               December 31,                            Amount
               ------------                       ------------------
                     2003                         $          303,491
                     2004                                          -
                     2005                                          -
                     2006                                          -
                     2007                                          -
                     2008 and thereafter                           -
                                                  ------------------

                     Total                        $          303,491
                                                    ================

NOTE 7 -      STOCK 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 expired March 31, 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.

NOTE 8 -      ADVANCES FROM SHAREHOLDERS

              The Company was advanced a total of $3,202 and $855 from its CEO
              and COO during 2002 and 2001, respectively, to cover operating
              expenses. The amounts are non-interest bearing, unsecured and due
              on demand. During the year ended December 31, 2002, two separate
              directors advanced $500 each to the Company to cover operating
              expenses. These amounts are also 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, 2002 which have resulted in an accumulated deficit of
              $17,733,475 at December 31, 2002. The Company does not have an
              established source of funds sufficient to cover its operating
              costs, has a working capital deficit of approximately $1,887,600,
              has relied exclusively on debt and equity financing, accordingly,
              there is substantial doubt about its ability to continue as a
              going concern.


                                       34



<PAGE>




                  MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2002 and 2001

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.


                                       35


<PAGE>




                  MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2002 and 2001

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, 2002, the Company issued 400,000
               shares of common stock at $0.05 per share to a director and his
               son-in-law for total proceeds of $20,000. The Company also
               granted these investors warrants to purchase 400,000 shares of
               stock at $0.05 per share, exercisable over a two-year term. The
               market price of the common stock was $0.05 on the date of the
               issuance of the shares and grant of the warrants.

               In addition, certain outstanding warrants that were to expire
               from February 2003 through April 2003 were extended to expire on
               July 10, 2003.




                                       36