UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
AMENDMENT NO. 1
TO
FORM S-1
________________________
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PAZOO, INC.
(Exact name of registrant as specified in its charter)
| Nevada | | 5961 | | 27-3984713 |
(State or other jurisdiction of incorporation or organization) | | (Primary Standard Industrial Classification Code Number) | | (I.R.S. Employer Identification Number) |
15A Saddle Road760 State Route 10, Suite 203
Cedar Knolls,Whippany, NJ 07927-1901
07981
Telephone Number – (973) 455-0970
(Address, including zip code,
and telephone number,
including area code, of registrant’s
principal executive offices)
Sandra Miller
711 South Carson Street
Suite 4, Carson City, NV 89701-5292
Telephone Number - 775-882-4641
(Name, address, including zip code,
and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: The Company is not making an initial public offering of its common stock. OnlyA portion of those shares previously issued and those shares into which previously issued Series A Convertible Preferred Stock (Series A Preferred Stock) are convertible into, are being registered pursuant to this Form S-1. Current stock holdersS-1 together with future shares which may re-sell their shares into the public market as soon as practical after the effective date of this registration statement.be issued pursuant to a certain Equity Purchase Agreement dated April 4, 2014.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | | Accelerated filer | o |
| | | | | |
| Non-accelerated filer | o | (Do not check if a smaller reporting company) | Smaller reporting company | x |
Calculation of Registration Fee
Title of Each Class of Securities to be Registered | Amount to be Registered(1) | | Proposed Maximum Offering Price per Unit(1) | | Proposed Maximum Aggregate Offering Price(2) | | Amount of Registration Fee(3) | | | Amount to be Registered(1) | | Proposed Maximum Offering Price per Unit(1) | | Proposed Maximum Aggregate Offering Price(2) | | Amount of Registration Fee(3) | |
| Common stock, $0.001par value per share | 68,182,000 shares | | $ | 0.005 | | $ | 340,910.00 | | $ | 39.06 | | | | | | | | | | | | | |
| (1) | 48,182,00015,000,000 shares are being registered byin accordance with a certain Registration Rights Agreement between the Security HoldersCompany and 20,000,000 of shares of common stock reserved for the conversion of Series A Preferred Stock and bear no relationship to assets, earnings, or any other valuation criteria. No assurance can be given that the shares will have a market value or that they may be sold at this, or at any price.Premier Venture Partners, LLC dated April 4, 2014. |
| (2) | The Company is not making an initial public offering of its common stock. Only those shares previouslyto be issued pursuant to the Registration Rights Agreement and those shares into which previously issued Series A Preferred Stock are convertible into,Equity Purchase Agreement, each dated April 4, 2014 are being registered pursuant to this Form S-1. In the event no shares, or fewer than the amount of shares registered under this S-1, are issued, the remaining shares registered under this S-1 will be terminated. |
| (3) | The registration fee is calculated in accordance with Rule 457(i) of the Securities Act, based upon the fixedconversion price set forth in the Equity Purchase Agreement when using the highest trading price of the Series A Preferred Stock giving effect forCompany’s common stock in the conversion of the Series A Preferred Stock.last thirty (30) calendar days. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
SUBJECT TO COMPLETION, Dated November 17, 2011May 13, 2014
PROSPECTUS
Pazoo, Inc.
68,182,00015,000,000
SHARES OF COMMON STOCK
The shareholdersPremier Venture Partners, LLC (“Premier”), the shareholder named in this prospectus, areis registering up to 48,182,00015,000,000 shares of common stock and 20,000,000 shares of common stock issuable upon conversionpursuant to a certain Equity Purchase Agreement. Because of the Series A Preferred Stock, for a totalnature of 68,182,000 shares, through this prospectus. Wetransaction, Premier is considered to be both an underwriter, as well as the selling shareholder, in this transaction. Pazoo, Inc. will not receive any100% of the proceeds from this offering and have not made any arrangements for the sale of these securities. We have not set anoffering. The initial offering price set for these securities.securities is $0.0155 per share which has been calculated based on the conversion price set forth in the Equity Purchase Agreement which is 70% of the lowest reported trade of the Company’s common stock during the “Put Period” as defined in the Equity Purchase Agreement. The actual price cannot be calculated until the Company makes a “Put Notice” as defined in the Equity Purchase Agreement. The respective rights and obligations of Premier and the Company are not transferable or assignable.
Our common stock is presently not traded on any market or securities exchange. Although we intend to apply for quotation of our common stockquoted on the Over-The-Counter Bulletin Board (“OTCBB”OTCQB”), public trading of our common stock may never materialize. If our common stock becomes traded on the OTCBB, then the sale price to the public will vary according to prevailing market prices or privately negotiated prices by the selling shareholders. We intend to seek quotation of our common stock on the OTCBB immediately following the effectiveness of the Registration Statement of which this Prospectus is a part..
TO ANALYZE ANY OF THE SHARES COVERED BY THIS PROSPECTUS, CAREFULLY READ AND CONSIDER THE RISK FACTORS INCLUDED IN THE SECTION ENTITLED “RISK FACTORS” BEGINNING ON PAGE 68. YOU SHOULD BE PREPARED TO ACCEPT ANY AND ALL OF THE RISKS ASSOCIATED WITH PURCHASING THE SHARES, INCLUDING A LOSS OF ALL OF YOUR INVESTMENT.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities and the registrant is not soliciting an offer to buy these securities in any state.
The Date of This Prospectus Is: May 13, 2014
The Date of This Prospectus Is: November 17, 2011
PROSPECTUS SU SUMMMMARYARY
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing in the common stock. You should carefully read the entire prospectus, including “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Financial Statements, before making an investment decision. In this Prospectus, the terms “Company,” “we,” “us” and “our” refer to PAZOO, Inc..
PAZOO, INC
Organization
We werePazoo (“Pazoo”), was incorporated as a C-Corporation in the State of Nevada as IUCSS, Inc. on November 16, 2010 and we established a fiscal year end of December 31. Onunder the name “IUCSS, Inc.” A name change from IUCSS, Inc. to Pazoo occurred on May 9, 2011, we changed our name to2011. As of May 13, 2014 there were 111,357,417 shares of common stock outstanding. There were also the following Preferred Stock issued and outstanding on May 13, 2014: Series A - 1,086,394; Series B -1,187,500; and no Series C shares outstanding. Certain of these Series of Preferred Stock convert into Pazoo Inc. to take advantageCommon Stock. Copies of unique branding and website opportunities. We are a developmental stage company formed for the purposefiled Certificates of offering a complete selectionDesignations can be obtained from the Nevada Secretary of nutritional foods/supplements, wellness goods, fitness apparel, and healthy advice. We believe that total and complete health should be easy for consumers to achieve and our focus is to use average everyday items to help consumers achieve total health and well-being.State or the Company.
On inception of November 16, 2010 we issued 45,000,000 shares of our common stock with no cost basis to four individuals. The share amounts were issued as follows: 15,000,000 shares to our Chief Executive Officer, David Cunic, 15,000,000 shares to our President, Steve Basloe, 12,500,000 shares to our Chief Financial Officer, Gregory Jung, and 2,500,000 shares to our then Secretary and Treasurer, Gina Morreale. In September 2011 we added Ben Hoehn who replaced Gina Morreale as Secretary and Treasurer, and also assumed the duties of Chief Operating Officer. Mr. Hoehn also received 2,500,000 shares of the company. On inception we issued 600,000 shares of Common Stock valued at $0.005 per share to three consultants for services to be performed in 2011. We also issued 2,000,000 shares of our Series A Preferred Stock to an accredited investor, Integrated Capital Partners, Inc. (“ICPI”) at $0.05 per share valued at $100,000. See “Preferred Stock”. In addition, from July 2011 through September 2011, we issued 82,000 shares of our Common Stock par value $0.001 to 41 individuals in exchange for evaluation of our website functionality and beta testing logistics. Our principal executive office isoffices are located at 15A Saddle Road, Cedar Knolls, NJ 07927 and our760 Route 10, Suite 203, Whippany, New Jersey 07981. Our telephone number is 973-455-0970.(855) PAZOO-US. Our primaryinternet address is www.pazoo.com. Information on our website is www.pazoo.com.
Since November 16, 2010 (our inception) to September 30, 2011 we have generated $636 in product revenues and have a cumulative net loss of $123,288. Although we have had limited operations, our mini website became fully operational in August 2011 with sales through Amazon.com in two months with 3 product offerings. Our goal is to increase our product offerings and spend heavily on marketing and branding initiatives. We anticipate generating significant revenues within twelve months of the datedoes not constitute part of this filing. As set forth in the investment agreement with ICPI (See Investment Agreement - Exhibit 99.1), we believe we have secured sufficient working capital to fund our development activities for the next 24 months without the need to seek additional financing. We currently have four officers and three Board of Directors members. These individuals allocate time and personal resources to us and devote on average approximately 40 hours per week to Pazoo, Inc. As of the date of this Prospectus, we have 48,182,000 shares of $0.001 par value common stock issued and outstanding, which is owned by 53 shareholders.prospectus.
By consent of the Board of Directors, we have authorized 20,000,000 shares of Preferred Stock consisting of 10,000,000 Series A Convertible Preferred Stock, 2,500,000 Series B Non-Convertible Preferred Stock (Series B Preferred Stock), and 7,500,000 Series C Non-Convertible Preferred Stock (Series C Preferred Stock). The Preferred classes of stock are structured as follows: Series A Preferred Stock is convertible into common stock at 10:1, pays a 5% common stock dividend, and is non-voting. Series B Preferred Stock is non-convertible, non-dividend paying, and has voting rights at 200:1. Series C Preferred Stock is non-convertible, pays a common stock dividend of 2% to 12%, and is non-voting. See Exhibit A of the Investment Agreement. As of the date of this filing only 2,000,000 shares of Series A Preferred Stock have been sold and only those shares into which those Series A Preferred Stock are convertible (20,000,000 shares common) are being registered hereunder.
THE OFFERING
We have 48,182,000111,357,417 shares of common stock issued and outstanding andas of May 13, 2014and are registering these15,000,000 shares on behalf of 53 certain individuals(of which 2,604,167 have been issued to date and the remaining may be issued in accordance with the Equity Purchase Agreement between Premier Venture Partners, LLC (“Selling Security Holders”Holder”) named under Selling Security Holders within this registration statement. The Selling Security Holders may sell all 48,182,000and the Company. In the event less than 15,000,000 are issued in accordance with the Equity Purchase Agreement, the remaining unissued shares of their common stock after this registration becomes effective, contingent upon the Company being traded on any market or securities exchange.will be terminated. We will not receive any100% of the proceeds from the sale of the common stock to the Selling Security Holder, but will not receive any proceeds from any future re-sale of the common shares by the Selling Security Holders. We are also registering 20,000,000 shares of common stock issuable upon conversion of the Series A Preferred Stock sold prior to the filing of this Registration Statement. In the event no conversion takes place, or less than the reserved amount of common stock is issued upon conversion, the remainder of any reserved shares will be retired.Holder.
The following is a brief summary of this offering. Please see the “Plan of Distribution” section for a more detailed description of the terms of the offering.
| Securities being offered by the Selling Security Holders, common stock, $0.001 par value | | 48,182,00015,000,000 shares of common stock, $0.001 par value to be issued to Pazoo’s officers, directorsPremier Venture Partners, LLC in accordance with a certain Equity Purchase Agreement dated April 4, 2014. |
| | |
| Underwriter: | | Premier Venture Partners, LLC is both the underwriter and additional individuals through market research participation, and 20,000,000 shares of common stock issuable upon conversion of the Series A Preferred Stock, for a total of 68,182,000 shares.Selling Security Holder in this transaction. |
| | | |
| Offering Price per Share by the Selling Security Holders: | | All shares being registered may be sold by existing shareholdersthe Selling Security Holder without our involvement. Until such time as our Stock is quoted on the OTCBB (see below), the initial offering price shall be $0.005. Thereafter, theThe actual price of the stock will be determined by prevailing market prices atin accordance with the time of sale or by private transactions negotiated byprice as set forth in the selling shareholders.Equity Purchase Agreement. |
| | | |
| Offering Period: | | Given that we are not offering shares for sale, we have no specific offering period.The period during which the Company may make a “Put Notice” as defined in the Equity Purchase Agreement, is thirty-six (36) months from April 4, 2014 (i.e. April 3, 2017) |
| | | |
| Number of Shares Outstanding Before the Offering: | | See “Offering Period”. 48,182,000111,357,417 common shares are currently issued and outstanding of which 2,604,167 shares are being registered under this prospectus by the Selling Security Holders. Additionally, 20,000,000Holder. The remaining 12,395,833 shares are being registered forwhich may be issued in the conversion offuture under the Series A Preferred Stock.
Equity Purchase Agreement. |
| | | |
| Minimum number of shares to be sold in this Offering: | | None. |
| | | |
| Use of Proceeds | | We are not selling any shares of the common stock covered by this prospectus. We will not receive anyAll of the proceeds fromwill be used by the saleCompany for working capital. We have paid and will pay all expenses incidental to the registration of the common stockshares (including registration pursuant to the securities laws of the Selling Security Holders. Thecertain states) other than commissions, expenses, reimbursements and discounts of underwriters, dealers or agents, if any. As of May 13, 2014, expenses for this offering, including the preparation of this prospectus and the filing of this registration statement, were approximately $14,600.$15,000. |
| | | |
| Termination of the offering | | Given that we are not offering shares for sale, we have no specific termination of the offering.April 3, 2017 |
| | | |
| Terms of the offering | | The actual price of the stock will be determined by using the prevailing market prices at the time of sale as adjusted in accordance with the Equity Purchase Agreement (which is 70% of the lowest reported trade of the Company’s common stock during the “Put Period” as defined in the Equity Purchase Agreement) and the Selling Security holdersHolder will determine when and how they will sell the common stock offered in this prospectus. The Company will receive no proceeds from any future re-sale of any of the registered shares by the Selling Security Holder. |
| | | |
| Trading Market: | | None. We will seek a market maker to file a Rule 211 application with the Financial Industry Regulatory Authority (“FINRA”) in order to apply for the inclusion of theOur common stock is currently quoted in the Over-the-Counter Bulletin Board (“OTCBB”OTCQB”); however, such efforts may not be successful and our shares may never be quoted and owners of our. The common stock may not havetrades under the symbol PZOO, but there is only a market in which to sell the shares. In addition, no estimate may be given as to the time that this application process will require.
Even if our common stock is quoted or granted listing, a marketlimited trading market. The last high and low trades of Pazoo Common Stock for the common shares may not develop.last 30 trading days were as follows:
Date High Trading Price Low Trading Price 03/31/14 0.035 04/10/14 0.065 |
The Selling Security HoldersHolder named in this prospectus areis registering all or a portion of theits shares of common stock through this prospectus and are doing so for their own account.in accordance with a certain Registration Rights Agreement and Equity Purchase Agreement, each dated April 4, 2014.
We will not receive any100% of the proceeds from the resalesale of these shares.shares in accordance with the Equity Purchase Agreement but none of the proceeds of any future re-sale by the Selling Shareholder.
SUMMARY OF FINANCIAL INFINFORORMATIONMATION
The following summary financial data should be read in conjunction with “Management’s Discussion and Analysis,” and the “Financial Statements and Notes” thereto, included elsewhere in this prospectus. The statement of operations and balance sheet data from November 16, 2010 (inception) through September 30, 2011December 31, 2013 should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our financial statements and the related notes included in this prospectus.
| Balance Sheet Data: | | As at September 30, 2011 | | | As of December 31, 2013 | |
| Current assets | | $ | 16,551 | | | | | |
| Total assets | | $ | 16,551 | | | | | |
| | | - | | | | |
| Current liabilities | | $ | 23,929 | | | | | |
| Total liabilities | | $ | 23,929 | | | | | |
| Stockholders’ equity | | $ | (7,378) | | | | | |
| Statement of Operations: | | November 16, 2010 (Inception) through September 30, 2011 | | | As of December 31, 2013 | |
| Revenues | | $ | 636 | | | $ | 52,813 | |
| Cost of Goods Sold | | 390 | | | | 8,977 | |
| Gross Profit | | 246 | | | | 43,836 | |
| Operating expenses | | $ | 123,534 | | | $ | 579,452 | |
| | | | (535,616 | ) |
| Other Expenses | | | | | |
Gain/loss on derivative liability | | | $ | (122,049 | ) |
| | | | (25 | ) |
| Net loss | | (123,288) | | | | (657,690 | ) |
| Net loss per common share – basic and diluted | | $ | - | | |
| Weighted average common shares outstanding - basic | | | 48,182,000 | | |
| Weighted average common shares outstanding - diluted | | | 70,182,000 | | |
| | | | | | |
| Weighted average common shares outstanding - Basic and diluted | | | | 85,655,534 | |
| | | | | | |
| Net loss per common share - Basic and diluted | | | $ | (0.01 | ) |
We are subject to those financial risks generally associated with development stage enterprises. Despite currently having sufficient capital on hand, we have sustained losses since inception. We may require additional financing and independently seek capital to fund our development activities. However, we may be unable to obtain such financing. Investing in our common stock involves a high degree of risk. We are subject to risk factors specific to our business strategy and the health and wellness industry. You should carefully consider all the risks described below, together with other information contained in this prospectus (including our financial statements and related notes), before making a decision to invest in our common stock. Our business could be harmed by any of these risks at any time. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.
Risks Associated With Our Business
WE HAVE A LIMITED OPERATING HISTORY AND HAVE INCURRED OPERATING LOSSES
We were founded in November 2010, and began offering our first product online through a “mini-website” in August 2011. This minisite was to serve two functions: 1) to sell products from our first vendor service agreement, and 2) to beta test our online logistics and customer service management. Our main website is currently in the development stage and will be launched contingent upon us attracting new products through vendor relationships. This limited operating history makes it difficult to evaluate our company’s business prospects. Since inception on November 16, 2010 we have incurred losses in the amount of $123,288 including 2010, first, second, and third quarter 2011 losses of $1,615, $42,448, $36,992 and $42,233, respectively. We expect operating expenses, working capital requirements, costs of product development, sales and marketing, research and development, and general and administrative expenses to increase substantially as we execute our business plan to capacity. If we are unable to sufficiently increase our revenue to offset these increased costs, we will not achieve profitability and our operating losses, net losses and negative cash flows will increase.
WE ARE IN THE EARLY STAGES OF DEVELOPMENT
Given the dynamic nature of e-commerce, our potential growth prospects should be similar to examining a company in the early stages of development. Business model unpredictability and management of growth expectations are risks that should be examined. In addition, the following are risk areas that we anticipate will affect our business:
● | maintaining key personnel; |
● | how we respond to competitors; |
● | maintenance of our customer base; |
● | how we manage our suppliers; |
● | customer service excellence; |
● | website improvement; and |
● | marketing strategy execution. |
Our failure to address these tasks could materially affect our financial condition, operational results, business, and prospects and there can be no assurance that we will be successful in managing such risks.
WE CANNOT PREDICT OUR FUTURE REVENUE
Sales volume is difficult to forecast and is generally dependent upon volume and the Company’s ability to fulfill orders in a timely manner. Internet sales tend to fluctuate with retail sales and are subject to traditional seasonal fluctuations. Retail sales tend to be slower in the summer months and are significantly higher in the fourth quarter. We expect that our business cycles will change according to retail sales cycles. The Company expects to experience quarterly operational fluctuations due to many external factors outside of our control. These factors, which may adversely affect our results, include:
● | economic conditions relative to e-commerce; |
● | technical difficulties related to volume increases; |
● | technology upgrades to online systems; |
● | increasing acceptance of e-commerce as a viable shopping vehicle; |
● | price wars relative to the Company’s competitors; |
● | our ability to manage vendor relationships and inventory; |
● | our ability to build and maintain customers; |
● | the quantity of product returns; and |
● | capital expenditures related to expansion. |
WE ARE IN A HIGHLY COMPETITIVE MARKETRISK FACTORS
General Risks Relating to the our Business and this Offering
We have only a limited operating history. We have had only limited sales and revenue during our operating history. We have never been profitable. We cannot therefore forecast with any accuracy the results of operations for the next fiscal year, nor predict our need for cash. Our revenues may not grow as anticipated, and revenues are dependent on consumer acceptance of our products and website, our ability to market our products and website, the effect of competition, and general economic factors beyond our control.
We have competition in each of our business segments.
Health & Wellness Websites. Pazoo.com is a site for people who want to live a healthy life and also want the same for their pets. Based on our market research, we have not identified other web sites that offer our dual health and wellness offerings, catering to the health of people and pets.
There are indirect competitors, which offer medical advice such as WebMD. However, these sites have, in relative terms, a narrow focus on medical issues and don't focus on the broader area of health and wellness. We are not looking to be an in depth resource about a specific ailment or condition, which is the main focus for WebMD and other similar sites. In effect, we are not competing with those sites per se, because if you want specific information on a specific ailment or condition a consumer will perform internet searches and end up at sites such as WebMD.
People Focused. We are about living a healthy and happy lifestyle which includes making sure that a visitor has the proper health and wellness experts involved in their lives when professionals are needed. On the people side we are looking for the same audience as Health.com, Shape.com, EveryDayHealth.com, etc., which are very informative sites. These sites primarily focus on diets and exercise. While Pazoo does provide content related to diets and exercise (as good, if not better than these competitors), we go beyond that offering a comprehensive look at health and wellness by going to areas like military health and wellness. We not only have professional writers addressing these issues but we have our Pazoo experts discussing these issues. In another words, we go outside the narrow focus that other sites have, utilizing our own Experts as well as professional writers. This combination is rare in health and wellness web sites.
Pet Focused. We compete with websites in the pet owner space. These sites are usually more narrowly focused than Pazoo's approach to a broad view of the Pet world. Most pet sites are for shopping (Petco.com) or a specific area like adoption/rescue, etc. (Breeders.net, Dogfriendly.com -- travel advice). We take a broad view, providing an ongoing experience to learn more about a lot of different areas in the pet world. So, if a visitor is a pet lover (over 60% of American homes have pets) then this visitor can go to pazoo.com and find a wide array of topics and new information.
E-Commerce.The e-commerce industryonline commerce market is highly concentrated with minimal barriersrapidly evolving and intensely competitive, and we expect the competition to intensify in the future. Barriers to entry are minimal, and current and new competitors can launch websitesnew sites at a relatively low cost. Our businessIn addition, the health improvement industry is particularly subject to rapidly and frequently changing consumer trends and preferences. Our continued success depends in part on our ability to anticipate and respond to these changes, and we may not be able to respond inintensely competitive. We currently or potentially compete with a timely or commercially appropriate manner to these changes. Our failure to accurately predict these trends could negatively affect our inventory levels, sales and consumer opinionvariety of us as a source for the latest products. We will be competing against larger companies with central purchasing efficiencies, inventory economies of scale, and in some cases, brick-and-mortar locations.other companies. These competitors include various health improvement, wellness, and sports nutrition stores, as well as vendors of other vitamin products, including VitaminShoppe, VitaCost, and General Nutrition Centers. Given our small size, we will need to compete on:include:
● | customer service excellence;1. | Direct competitors that specialize in or derive a substantial portion of their revenues from online retail and direct marketing of health and wellness products, including Vitacost; |
● | selection2. | Various nutrition centers and vendors of our niche products; |
● | order fulfillment speed;other health related products such as sports nutrition, diet or other wellness products, including General Nutrition Centers; and |
● | 3. | Online vendors of dietary supplements, vitamins, minerals and herbs, with significant brand recognition.awareness, sales volume and customer bases, such as and VitaminShoppe. |
OurWe believe that the principal competitive factors in our market are brand recognition, selection, convenience, price, accessibility, customer service, and speed of order fulfillment. Many of our current and potential competitors may have longer operating histories, greater financial resources,larger customer bases, greater brand recognition larger customer bases and significantly deepergreater financial, marketing budgets, which, in turn,and other resources than Pazoo. In addition, online retailers may be acquired by, receive investments from or enter into other commercial relationships with larger, well-established and well-financed companies as use of the Internet and other online services increases. Some of our competitors may be able to secure merchandise from vendors on terms that are more favorable, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing or inventory availability policies and devote substantially more resources to website and systems development than our company. Increased competition may result in lowerreduced operating margins, loss of market share and a decreased market share for our company.diminished brand franchise. There iscan be no assurance that we will be able to compete effectivelysuccessfully against presentcurrent and future competitors, and this competitioncompetitive pressures faced by us may have a material adverse effect on our financial condition, operational results, business, and prospects.
WE ARE DEPENDENT ON THE GROWTH OF E-COMMERCE.
Our future revenues and growth are dependent upon the continued acceptance of online purchases Furthermore, as the medium of choice for retail purchases. Consumer acceptance of e-commerce is dependent upon the maintenance of reliable infrastructurea strategic response to support technology demands that increased internet usage places upon bandwidth. Government regulation may cause disruptions in service due to delayschanges in the development of new standards to control various levels of internet activity. Third party internet service providers may also cause service interruptions outside of our control. Such delays could adversely affect our ability to provide adequate customer service to our website users. If online usage growth declines or grows slower than expected, if consumer’s ability to access the internet, or if the infrastructure necessary to sustain online commerce is temporarily or permanently lost, our financial condition, operational results, business, and prospects could be materially adversely affected.
WE ARE EXPOSED TO SECURITY RISKS INHERENT WITH E-COMMERCE.
We rely on technology from third parties to provide the security and authentication necessary to effect secure transmission of personal confidential information, such as customer credit card numbers. Failure to successfully prevent such breaches could significantly harm our business and expose us to litigation. Outside parties who are able to bypass our security measures could misappropriate proprietary information, including customer credit card and personal data. To the extent that our activities or third-party contractor activity involves the storage and transmission of proprietary information, security breaches could damage our reputation and expose us to a risk of loss or litigation and possible liability. While we do comply with the Data Security Standards of the Plastic Card Security Act (PCI DSS), there can be no assurance that our security measures will prevent security breaches or that failure to prevent such security breaches will not have a material adverse effect on our financial condition, operational results, business, and prospects.
WE ARE DEPENDENT ON KEY PERSONNEL AND MAY REQUIRE ADDITIONAL PERSONNEL IN THE FUTURE.
Our performance is dependent on the continued services and on the performance of our senior management, David Cunic, Chief Executive Officer; Steve Basloe, President; Ben Hoehn, Chief Operating Officer; and Gregory Jung, Chief Financial Officer. Company performance also depends on our ability to retain and motivate other officers and key employees. The loss of the services of any of executive officers or other key employees could have a material adverse effect on our financial condition, operational results, business, and prospects. The Company does not have long-term employment agreements with any of our key personnel and maintains no "key person" life insurance policies. Our future success also depends on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, editorial, merchandising, marketing and customer service personnel. Competition for such personnel is intense, and there can be no assurance that we will be able to successfully attract, assimilate or retain sufficiently qualified personnel. The failure to retain and attract the necessary technical, managerial, merchandising, marketing and customer service personnel could have a material adverse effect on our financial condition, operational results, business, and prospects.
WE RELY ON THIRD PARTY SHIPPERS.
We rely on third-party carriers both for the shipment of our products to customers and for the delivery of inventory. Consequently, we are subject to risks of these carriers, including employee strikes and inclement weather. Any disruption in the ability of these carriers to promptly deliver our products to our customers or inventory to us could damage the brand and lead to customer dissatisfaction. This could materially and adversely affect our financial condition, operational results, business, and prospects.
WE ARE DEPENDENT ON DEVELOPING FAVORABLE VENDOR RELATIONSHIPS FOR OUR PRODUCTS PROCUREMENT.
We currently only carry inventory in Emergent Health products and we have a long-term contract with VitaminSpice (See VitaminSpice Supply Agreement), which assures the availability of merchandise, and the continuation of particular payment terms. However, there can be no assurance that VitaminSpice will comply with the terms of the contract or that we will be able to negotiate with future vendors to sell us products on terms that will ensure acquisition of merchandise in a timely and efficient manner and on acceptable commercial terms. If we are unable to develop and maintain relationships with vendors that would allow us to obtain sufficient quantities of merchandise on acceptable commercial terms, our financial condition, operational results, business, and prospects would be materially adversely affected.
WE MUST RESPOND TO CONSUMER DEMANDS.
Our business is subject to changing consumer trends and preferences. Our failure to accurately predict or react to these trends could negatively affect consumer opinion of us as a source for the latest products, which in turn could harm our customer relationships and cause us to lose market share. The success of our new product offerings depends upon a number of factors, including our ability to:
● | Anticipate customer needs; |
● | Procure or develop new products; |
● | Successfully commercialize new products in a timely manner; |
● | Price our products competitively; |
● | Deliver our products in sufficient volumes and in a timely manner; and |
● | Differentiate our product offerings from our competition |
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY FROM THIRD PARTY INFRINGEMENT
We have invested resources to promote our brand name and have applied for trademark and copyright protection; however, while we attempt to ensure that such licensees maintain the quality of our brand, there can be no assurance that such licensees will not adversely affect the value of our financial condition, operational results, business, and prospects. There can be no assurance that the steps
taken to protect our proprietary rights will be adequate or that third parties will not infringe or misappropriate our copyrights or trademarks. In addition, there can be no assurance that other parties will not assert infringement claims against us. We may in the future be subject to intellectual property litigation and infringement claims, which could cause us to incur significant expenses or prevent us from manufacturing, selling or using some aspect of our products. Claims of intellectual property infringement may also require us to enter into costly royalty or license agreements. However,competitive environment, we may be unable to obtain royalty or license agreements on terms acceptable to us or at all. Claims that our technology or products infringe on intellectual property rights of others could be costly and would divert the attention of management and key personnel, which in turn could adversely affect our financial condition, operational results, business, and prospects.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS COULD INCREASE OUR COSTS AND AVERSELY AFFECT OUR FINANCIAL RESULTS.
Due to the increasing popularity and use of the Internet and other online services, additional laws and regulations may be adopted (such as PCI DSS) with respect to the Internet or other online services covering issues such as user privacy, pricing, content, copyrights, distribution and characteristics and quality of products and services. Furthermore, the growth and development of the market for online commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on those companies conducting business online. The adoption of any additional laws or regulations may decrease the growth of the Internet or other online services, which could, in turn, decrease the demand for our products and services and increase our cost of doing business, or otherwise have an adverse effect on our financial condition, operational results, business, and prospects. Moreover, the applicability to the Internet and other online services of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve. Any such new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other online services could have a material adverse effect on our financial condition, operational results, business, and prospects. In addition, from time to time Congress, the FDA, the FTCmake certain pricing, service or other federal, state, localmarketing decisions or foreign legislative and regulatory authorities may impose additional laws or regulationsacquisitions that apply to our distribution of dietary supplements, repeal laws or regulations that we consider favorable to us or impose more stringent interpretations of current laws or regulations. We are not able to predict the nature of such future laws, regulations, repeals or interpretations or to predict the effect additional governmental regulation, when and if it occurs, would have on our business in the future. Such developments could require reformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, adverse event reporting or other new requirements. Any such developments could increase our costs significantly and could have a material adverse effect on our business, financial condition and results of operations. For example, legislation has been introduced in Congress to, among other things, impose substantial new regulatory requirements for dietary supplements, including adverse event reporting, post-market surveillance requirements, FDA market reviews of dietary supplement ingredients, safety testing and records inspection. If enacted, new legislation could raise our costs and negatively influence our business. In addition, the FDA may adopt the proposed rules on GMP in manufacturing, packaging, or holding dietary ingredients and dietary supplements, which will apply to the products we distribute. These regulations will require dietary supplements to be prepared, packaged and held in compliance with stricter rules, and will require quality control provisions similar to those in the GMP regulations. We or our third-party manufacturers may not be able to comply with the new rules without incurring additional expenses, which could have a material adverse effect on our financial condition, operational results, business, and prospects.
CHANGES TO SALES AND OTHER TAX LAWS COULD IMPACT OUR BUSINESS
We do not currently collect sales or other similar taxes in respect of shipments of goods into states other than New Jersey; however, one or more states may seek to impose sales tax collection obligations on out-of-state companies such as Pazoo, which engages in online commerce. In addition, any new operation in states outside New Jersey could subject shipments into such states to state sales taxes under current or future laws. A successful assertion by one or more states or any foreign country that the Company should collect sales or other taxes on the sale of merchandise could have a material adverse effect on our financial condition, operational results, business, and prospects.
WE ARE SUBJECT TO INFRASTRUCTURE CAPACITY CONSTRAINTS
Our revenues depend on the number of visitors who shop on our website and the volume of orders we fulfill. A key element of our strategy isPharmaceutical Testing Facilities. There are high barriers to generate a high volume of traffic on, and use of, our website. As such, the satisfactory performance, reliability and availability of the website, transaction-processing systems and network infrastructure are critical to our ability to attract and retain customers and maintain adequate customer service levels. Any system interruptions that resultentry in the unavailability of our website or reduced order fulfillment performance would reduce the volume of goods sold and the attractiveness of our product and service offerings. Any substantial increase in the volume of traffic on the website or the number of orders placed by customers will require Pazoo to expand and upgrade further our technology, transaction-processing systems and network infrastructure. There can be no assurance that we will be able to accurately project the rate or timing of increases, if any, in the use of our website or timely expand and upgrade our systems and infrastructure to accommodate such increases. In addition, although we work to prevent unauthorized access to Company data, it is impossible to completely eliminate this risk. There can be no assurance that we will be able in a timely manner to effectively upgrade and expand our transaction-processing systems or to integrate smoothly any newly developed or purchased modules with our existing systems. Any inability to do so would have a material adverse effect on our financial condition, operational results, business, and prospects.
WE MAY NOT BE ABLE TO MAINTAIN OUR DOMAIN NAMES.
Maintaining our Internet domain names is critical to our success. Under current domain name registration practices, no other entity may obtain an identical domain name but can obtain a similar or identical name with a different suffix, such as “.net” or “.org,” or with a different country designation, such as “de” for Germany. We have not registered our domain names with each of the suffixes or jurisdictions available. As a result, third parties may use domain names that are similar to our domain names, which may result in confusion to potential customers and lost sales. Failure to maintain our domain name’s uniqueness could have a material adverse effect on our business, results of operations and financial condition.
WE ARE RELIANT ON FAVORABLE CONSUMER PERCEPTION OF HEALTH AND WELLNESS PRODUCTS
We are highly dependent upon consumer perception of the safety, efficacy and quality of our products, as well as similar products distributed by other companies. Consumer perception of products can be significantly influenced by scientific research or findings, national media attention and other publicity about product use. A product may be received favorably, resulting in high sales associated with that product that may not be sustainable as consumer preferences change. In addition, recent studies have challenged the safety or benefit of certain nutritional supplements and dietary ingredients. Future scientific research or publicity could be unfavorable to our industry or any of our particular products and may not be consistent with earlier favorable research or publicity. A future research report or publicity that is perceived by our consumers as less favorable or that questions earlier favorable research or publicity could have a material adverse effect on our ability to generate revenues. Adverse publicity in the form of published scientific research, statements by regulatory authorities or otherwise, whether or not accurate, that associates consumption of our products or any other similar products with illness or other adverse effects, that questions the benefits of our or similar products, or that claims that such products are ineffective could have a material adverse effect on our financial condition, operational results, business, and prospects.
WE MAY FACE LOSSES TO OUR SYSTEMS AND INVENTORY DUE TO LOCATION CONCENTRATION
Our ability to successfully receive and fulfill orders and provide high-quality customer service depends on the efficient and uninterrupted operation of our computer and communications hardware systems. Substantially all of our computer and communications hardware is located at a single facility in Cedar Knolls, NJ. Computer viruses, worms and similar programs may cause our computer systems to incur interruptions, delays, loss of data or the inability to accept and fulfill customer orders. We do not presently have redundant systems or a business continuity plan and do not carry sufficient business interruption insurance to compensate us for losses that may occur. The occurrence of any of the foregoing risks could have a material adverse effect on our financial condition,
operational results, business, and prospects. Additionally, our inventory is stored at our headquarters facility in Cedar Knolls, New Jersey and any significant disruption in our warehousing location for any reason, such as a fire, flood, hurricanes, earthquakes or similar events, could adversely affect our product distributions and sales until we are able to secure an alternative distribution method. In addition, we may experience losstesting space, mostly due to the expiration of inventory with certain life cycles and/or theft of our products while they are being held in inventory. We have implemented security measuresstringent regulatory risks and guidelines. The risk factors set forth below relate to prevent such theftbarriers and maintain insurancerisks related to cover such losses. However, if our security measures fail and our losses exceed our insurance coverage or result in service disruptions, our losses and the resulting harm to consumer satisfaction could have a material adverse effect on our business, results of operations and financial condition.
WE MAY NOT MANAGE OUR GROWTH EFECTIVELY
Our future growth and expansion, which includes negotiating vendor relationships for our private label products, expanding product offerings and increasing our customer base, requires significant management time and operational and financial resources. There is no assurance that we have the operational and financial resources to manage our growth. In addition, rapid growth in our personnel and operations may place a significant strain on our management, administrative, operational and financial infrastructure. Failure to adequately manage our growth could have a material adverse effect on the quoted price of our common stock and our financial condition, operational results, business, and prospects.
WE MAY INCUR PRODUCT LIABILITY CLAIMS THAT COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS, BUSINESS AND PROSPECTS.
As a retailer of products designed for human consumption, we are subject to product liability claims if the use of our products is alleged to have resulted in illness or injury or if our products include inadequate instructions or warnings. Our products consist of vitamins, minerals, herbs and other ingredients that are classified as foods or dietary supplements and generally are not subject to pre-market regulatory approval or clearancetesting facilities in the U.S. by the FDA or other governmental authorities. Our products could contain contaminated substances, and someState of our products contain ingredients that do not have long histories of human consumption. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. In addition,Nevada, where MA Associates is applying for a State license as a distributor of products manufactured by third parties, we may also be liable for various product liability claims for products we do not manufacture. We require all suppliers to carry products liability insurance. However, any product liability claim against us could result in increased costs and could adversely affect our reputation with our customers, which in turn could adversely affect our financial condition, operational results, business, and prospects.
WE FACE SIGNIFICANT LIABILITY WITH OUR WEBSITE CONTENT
Because we post product information and other content on our website, we face potential liability for copyright infringement, patent infringement, trademark infringement, defamation, unauthorized practice of medicine, false or misleading advertising and other claims based on the nature and content of the materials we post. Although we maintain general liability insurance, our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed. Any imposition of liability that is not covered by insurance, or is in excess of insurance coverage, could materially adversely affect our financial condition, operational results, business, and prospects.
Risks Associated with Our Common Stocktesting facility.
INVESTORS MAY LOSE THEIR ENTIRE INVESTMENT IF WE FAIL TO IMPLEMENT OUR BUSINESS PLAN | 1. | Local Regulatory Risk. The primary local regulatory risk faced by medical marijuana facilities is that of the local municipality enacting a moratorium on the issuance of business licenses. Some of the local municipalities have gone back and forth regarding whether and what categories of medical marijuana facilities they will allow in their jurisdiction. Municipalities from the City of Henderson to the City of North Las Vegas have vacillated between a full moratorium, a moratorium on dispensaries only, and no moratorium at all. |
| 2. | State Regulatory Risk. On November 7th, 2000, 65% of Nevada voters passed 'Question 9' which went into effect October 1st, 2001. Question 9 amended the States' constitution recognizing the medical use of marijuana and removing the state-level criminal penalties for the use, possession and cultivation of marijuana by qualified patients. Nevada marijuana laws allow the legal use of medical marijuana by a patient with 'written documentation' and a 'registry identification card’. The will of the people was codified in Nevada Revised Statute 453A. Despite the fact that the people of the State of Nevada expressed their wish to legalize medical marijuana in 2000, NRS 453A was not fully adopted until April 1, 2014. |
As a development-stage company, we expect to face substantial risks, uncertainties, expenses and difficulties. We were formed on November 16, 2010. We have limited demonstrable operations records, on which you can evaluate our business and prospects. We have just recently commenced planned operations and as of the date of this prospectus, we have generated $636 in product revenues. We cannot guarantee that we will be successful in accomplishing our business plan objectives. In addition, our lack of operating capital could negatively impact the value of our common shares and could result in the loss of your entire investment.
OUR ARTICLES OF INCORPORATION PROVIDE FOR INDEMNIFICATION OF OFFICERS AND DIRECTORS AT OUR EXPENSE AND LIMIT THEIR LIABILITY THAT MAY BE EXPENDED FOR THE BENEFIT OF OFFICERS AND/OR DIRECTORS
Our Articles of Incorporation, specifically Article VIII, provide for indemnification as follows: No director or officer of the Corporation shall be personally liable to the Corporation or any of its stockholders for damages for breach of fiduciary duty as a director or officer; provided, however, that the foregoing provision shall not eliminate or limit the liability of a director or officer: (i) for acts or omissions which involve intentional misconduct, fraud or knowing violation of law; or (ii) the unlawful payment of dividends. Any repeal or modification of any Article, within our Articles of Incorporation, by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation of the personal liability of a director or officer of the Corporation for acts or omissions prior to such repeal or modification. | 3. | Federal Regulatory Risk. Due to the current federal laws prohibiting the use of cannabis for any reason, medical or non-medical, the regulatory risks associated with federal enforcement of the Controlled Substances Act are the most serious threat to the medical marijuana industry as a whole. Fortunately, the U.S. Department of Justice has taken an official stance on the matter and has declared that it will enforce the law to prevent sales to minors, sales by criminal enterprises or gangs, interstate commercial trade of medical marijuana, and medical marijuana as a pretext for trafficking other controlled substances. The USDOJ has specifically declared that it will leave all other enforcement to the States to enforce as they see fit and in compliance with their own State laws. |
We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities lawsThere is againstonly a limited public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with our activities, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce thetrading market and price for our shares, if such a market ever develops.
ALL OF OUR PRESENTLY ISSUED AND OUTSTANDING COMMON SHARES ARE RESTRICTED UNDER RULE 144 OF THE SECURITIES ACT, AS AMENDED. WHEN THE RESTRICTION ON ANY OR ALL OF THESE SHARES IS LIFTED, AND THE SHARES ARE SOLD IN THE OPEN MARKET, THE PRICE OF OUR COMMON STOCK COULD BE ADVERSELY AFFECTED.
All of the presently outstanding shares of common stock (48,182,000 shares) are "restricted securities" as defined under Rule 144 promulgated under the Securities Act and may only be sold pursuant to an effective registration statement or an exemption from registration, if available. Rule 144 provides in essence that a person who is not an affiliate and has held restricted securities for a prescribed period of at least six (6) months if purchased from a reporting issuer or twelve (12) months if purchased from a non-reporting Company, may, under certain conditions, sell all or any of his shares without volume limitation, in brokerage transactions. Affiliates, however, may not sell shares in excess of 1% of the Company’s outstanding common stock each three months. As a result of revisions to Rule 144 which became effective on February 15, 2008, there is no limit on the amount of restricted securities that may be sold by a non-affiliate (i.e., a stockholder who has not been an officer, director or control person for at least 90 consecutive days) after the restricted securities have been held by the owner for the aforementioned prescribed period of time. A sale under Rule 144 or under any other exemption from the Act, if available, or pursuant to registration of shares of common stock of present stockholders, may have a depressive effect upon the price of the common stock in any market that may develop.
BECAUSE WE ARE NOT SUBJECT TO COMPLIANCE WITH RULES REQUIRING THE ADOPTION OF CERTAIN CORPORATE GOVERNANCE MEASURES, OUR STOCKHOLDERS HAVE LIMITED PROTECTION AGAINST INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.
The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the Nasdaq Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than legally required, we have not yet adopted these measures.
Because we have no independent directors, we do not currently have independent audit or compensation committees. As a result, these directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.
We intend to comply with all corporate governance measures relating to director independence as and when required. However, at this time we do not have officers and directors liability insurance and we may find it very difficult or be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.
WE DO NOT EXPECT TO PAY CASH DIVIDENDS IN THE NEAR FUTURE.
We have never paid cash dividends on our common stock. We do not expect to pay cash dividends on our common stock at any time in the near future. The future payment of dividends directly depends upon our future earnings, capital requirements, financial requirements and other factors that our board of directors will consider. Since we do not anticipate paying cash dividends on our common stock, return on your investment, if any, will depend solely on an increase, if any, in the market value of our common stock.
ANY TRADING MARKET THAT MAY DEVELOP MAY BE RESTRICTED BY VIRTUE OF STATE SECURITIES “BLUE SKY” LAWS THAT PROHIBIT TRADING ABSENT COMPLIANCE WITH INDIVIDUAL STATE LAWS. THESE RESTRICTIONS MAY MAKE IT DIFFICULT OR IMPOSSIBLE TO SELL SHARES IN THOSE STATES.
There is currently no established public market for our common stock, and there can be no assurance that any established public market would develop in the foreseeable future. Transfer of our common stock may also be restricted under the securities regulations or laws promulgated by various states and foreign jurisdictions, commonly referred to as “Blue Sky” laws. Absent compliance with such individual state laws, our common stock may not be traded in such jurisdictions. Because the securities registered hereunder have not been registered for resale under the blue sky laws of any state, the holders of such shares and persons who desire to purchase them in any trading market that might develop in the future, should be aware that there may be significant state blue sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities. These restrictions prohibit the secondary trading of our common stock. We currently do not intend to andInvestors may not be able to qualify securities for resale inresell their Conversion Shares, if at least 17 states which do not offer manual exemptionsall, and require shares to be qualified before they can be resold by our shareholders. Accordingly, investors may not be able to liquidate their investments and should be prepared to hold the common stock for an indefinite period of time. See also “Plan of Distribution-State Securities-Blue Sky Laws.”
WE ARE SUBJECT TO RISKS INHERENT WITH MICRO CAPITALIZTION COMPANIES.
We believe that certain micro capitalization companies have significant potential for growth, although such companies generally have limited product lines, markets, market shares and financial resources. The securities of such companies, if traded in the public market, may trade less frequently and in more limited volume than those of more established companies. Additionally, in recent years, the stock market has experienced a high degree of price and volume volatility for the securities of micro capitalization companies. In particular, micro capitalization companies that trade in the over-the-counter markets have experienced wide price fluctuations not necessarily related to the operating performance of such companies.
THE ADDITIONAL ISSUANCE OF PREFERRED STOCK MAY ADVERSELY AFFECT THE VOTING RIGHTS OF THE COMMON STOCKHOLDERS.
Our Board of Directors has authorized up to 10,000,000 shares of Series A Preferred Stock and we have issued 2,000,000 Series A Preferred Stock at $0.05 per share to Integrated Capital Partners Incorporated (ICPI) to date. As of January 2011, through an investment agreement titled ICPI Investment Agreement (See Investment Agreement - Exhibit 99.1) ICPI has committed to the following: (i) $50,000 within ten (10) days of the date of the Investment Agreement, but in no event later than January 15, 2011; (ii) $50,000 within thirty (30) days of the first installment, but in no event later than February 15, 2011; (iii) $50,000 upon IUCSS filing a Form S-1 Registration Statement with the Securities and Exchange Commission; (iv) $100,000 upon the Form S-1 Registration Statement becoming effective; and (v) at the sole option and discretion of ICPI, Investor may within ten (10) days of the Form S-1 Registration Statement becoming effective, purchase up to $250,000 of additional Series A Convertible Preferred Stock. Our Board of Directors has authorized up to 2,500,000 shares of Series B Preferred Stock, however, none of these shares have been issued and we currently have no plans to issue these shares. Our Board of Directors has authorized up to 7,500,000 shares of Series C Preferred Stock, however, none of these shares have been issued and we currently have no plans to issue these shares. The issuance of additional Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company without further action by the stockholders and may adversely affect the voting and other rights of the holders of Common Stock. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. Further, certain provisions of the Company's Articles of Incorporation and Bylaws and Nevada and/or New Jersey lawthus could delay or make more difficult a merger, tender offer or proxy contest involving the Company. See "Description of Securities: Preferred Stock."
THERE IS HIGH CONCENTRATION OF CAPITAL STOCK INSIDE OWNERSHIP AND CERTAIN ACTIONS DO NOT NEED SHAREHOLDER APPROVAL.
We are not making an initial public offering of our common stock and only those shares previously issued, and those shares into which previously issued Series A Preferred Stock are convertible into, are being registered pursuant to this filing. However, the outstanding common stock is beneficially owned approximately 31.1% by David Cunic, 29.1% by Steve Basloe, 25.9% by Gregory Jung, our Chief Executive Officer, President, and Chief Financial Officer, respectively. The above persons compose our Board of Directors and will hold an aggregate of approximately 86.1% of the outstanding voting power of the Company. As a result these shareholders will be able to:
(i) elect, or defeat the election of, the Company's directors;
(ii) amend or prevent amendment of the Company's Articles of Incorporation or Bylaws; or
(iii) effect or prevent a merger, sale of assets or other corporate transaction.
The Company's public stockholders, for so long as they hold less than 50% of the outstanding voting power of the Company, will not be able to control the outcome of such transactions. The extent of ownership by the aforementioned shareholders may have the effect of preventing a change in control of the Company or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company, which in turn could have an adverse effect on the market price of the Common Stock. Our board of directors has authority, without action or vote of the shareholders, to issuelose all or part of the authorized but unissued common shares. Such issuances may be issued to parties or entities committed to supporting existing management and the interests of existing management which may not be the same as the interests of other shareholders. Our ability to issue shares without shareholder approval serves to enhance existing management’s ability to maintain control of our Company. See "Management," "Certain Transactions" and "Principal Stockholders."
THERE IS NO CURRENT MARKET FOR OUR SECURITIES AND THERE CAN BE NO ASSURANCE THAT ANY PUBLIC MARKET WILL DEVELOP. IF, AND WHEN, OUR COMMON STOCK IS QUOTED FOR TRADING, IT IS LIKELY TO BE SUBJECT TO SIGNIFICANT PRICE FLUCTUATIONS.
Prior to the date of this registration, there has not been any established trading market for our common stock, and there is currently no established public market for our securities. We plan to contact a market maker immediately following the effectiveness of this registration statement and apply to have the shares quoted on the OTCBB. To be eligible for quotation on the OTCBB, issuers must remain current in their filings with the SEC. Market makers are not permitted to begin quotation of a security whose issuer does not meet this filing requirement. Securities already quoted on the OTCBB that become delinquent in their required filings will be removed following a 30 or 60 day grace period if they do not make their required filing during that time. If the application is accepted, there can be no assurances as to:
● | whether any market for our shares will develop; |
● | the prices at which our common stock will trade; or |
● | the extent to which investor interest in Pazoo will lead to the development of an active, liquid, trading market. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors |
If our shares of common stock become available to be quoted on the OTCBB, we will attempt through a broker-dealer and its clearing firm, to become eligible with the Depository Trust Company ("DTC") to permit our shares to trade electronically. If an issuer is not “DTC-eligible”, then its shares cannot be electronically transferred between brokerage accounts, which, based on the dynamics of the marketplace today (specifically, the OTCBB), means that shares of a company will not be traded. DTC-eligibility is a necessity to process trades on the OTCBB if a company’s stock will be trading high volume. There are no assurances that our shares will become DTC-eligible or, if they do, how long the process may take. We have identified Platinum Stock Transfer to be our transfer agent in the event our registration statement becomes effective. See Exhibit 99.4 “Platinum Stock Transfer Agent”
In addition, our common stock will unlikely be followed by any market analysts, and there may be few institutions acting as market makers for our common stock. Either of these factors could adversely affect the liquidity and trading price of our common stock. Until ourinvestment. The common stock is fully distributedlisted on the OTC Bulletin Board under the symbol PZOO. Listing on the OTC Bulletin Board does not constitute any endorsement or approval of a listed company or its securities, and the OTC Bulletin Board does not review or monitor an orderly market develops in ourissuer’s activities. Our common stock if ever,is a “penny stock” (as defined in Exchange Act Rule 3a-51) which means that brokers can only buy or sell the price at which it trades is likely to fluctuate significantly. Prices for our common stock on an unsolicited basis. The penny stock rule and similar regulations will be determined inreduce the marketplace and may be influenced by many factors, includinglikelihood that a liquid trading market will arise for the depth and liquidity of the market for shares of ourcommon stock. The common stock developments affecting our business, includingmay trade at less than the impact of the factors referred to elsewhere in these Risk Factors, investor perception of Pazoo and general economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of our common stock.
offering price. Because of the anticipated low price of the securities being registered, many brokerage firms may not be willing to effect transactions in these securities. Purchasers of our securities should be aware that any market that develops in our stock will be subject to the penny stock restrictions. See “Plan of Distribution”.
WE ARE SUBJECT TO PENNY STOCK REGULATIONS
The trading of our securities, if any, will be in the over-the-counter market which is commonly referred to as the OTCBB as maintained by FINRA. As a result, an investor“penny stock” a shareholder may find it more difficult to dispose of, or to obtain accurate quotations as to the price of, our securities.
In the absence of a security being quoted on NASDAQ, or the Company having $2,000,000 in net tangible assets, trading in the Common Stock is covered by Rule 3a51-1 of15c2-6 promulgated under the Securities Exchange Act of 1934 establishesfor non-NASDAQ and non-exchange listed securities. Under such rule, broker/dealers who recommend such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or an annual income exceeding $200,000 or $300,000 jointly with their spouse) must make a special written suitability determination for the definitionpurchaser and receive the purchaser's written agreement to a transaction prior to sale. Securities are also exempt from this rule if the market price is at least $5.00 per share, or for warrants, if the warrants have an exercise price of at least $5.00 per share.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosures related to the market for penny stocks and for trades in any stock defined as a "pennypenny stock. The Commission's regulations under such Act define a penny stock" for purposes relevant to us, asbe any NASDAQ or non-NASDAQ equity security that has a minimum bidmarket price of less than $4.00 per share or with an exercise price of less than $4.00$5.00 per share subject to a limited number of exceptions which are not available to us. It is likely that our shares will be considered penny stocksand allow for the immediately near future. This classification severely and adversely affects any market liquidity for our common stock.
Forenforcement against violators of the proposed rules. In addition, unless exempt, the rules require the delivery, prior to any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person's account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that each person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating toCommission explaining important concepts involving the penny stock market, which,the nature of such market, terms used in highlight form, sets forth:
● | when the basis on which the broker or dealer made the suitability determination, and |
● | that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
such market, the broker/dealer's duties to the customer, a toll-free telephone number for inquiries about the broker/dealer's disciplinary history, and the customer's rights and remedies in case of fraud or abuse in the sale. Disclosure also must be made about the risks of investing in penny stock in both public offerings and in secondary trading and commissions payable to both the broker-dealerbroker/dealer and the registered representative, current quotations for the securities, and if the rightsbroker/dealer is the sole market-maker, the broker/dealer must disclose this fact and remedies available to an investor in cases of fraud in penny stock transactions. Additionally,its control over the market. Finally, monthly statements have tomust be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
BecauseWhile many NASDAQ stocks are covered by the proposed definition of these regulations, broker-dealers maypenny stock, transactions in NASDAQ stock are exempt from all but the sole market-maker provision for (i) issuers who have $2,000,000 in tangible assets ($5,000,000 if the issuer has not wish to engagebeen in continuous operation for three years), (ii) transactions in which the above-referenced necessary paperworkcustomer is an institutional accredited investor and disclosures and/or may encounter difficulties in their attempt to sell shares of our common stock, which may affect(iii) transactions that are not recommended by the ability of selling shareholders or other holders to sell their shares in any secondary market and have the effect of reducing the level of trading activity in any secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if our securities become publicly traded.broker/dealer. In addition, the liquidity for our securities may decrease, withtransactions in a corresponding decrease in the price of our securities. Our shares, in all probability, will be subject to such penny stock rules for the near future and our shareholders will, in all likelihood, find it difficult to sell their securities.
YOU MAY HAVE LIMITED ACCESS TO INFORMATION REGARDING OUR BUSINESS BECAUSE OUR OBLIGATIONS TO FILE PERIODIC REPORTS COULD BE AUTOMATICALLY SUSPENDED UNDER CERTAIN CIRCUMSTANCES.
As of the effective date of our registration statement of which this prospectus is a part, we will become subject to certain informational requirements of the Exchange Act, as amended, and we will be required to file periodic reports (i.e., annual, quarterly and special reports)NASDAQ security directly with the SEC which will be immediately availableNASDAQ market-maker for such securities, are subject only to the public for inspectionsole market-maker disclosure, and copying. Except during the year that our registration statement becomes effective, these reporting obligations may (at our sole discretion)disclosure with regard to commissions to be automatically suspended under Section 15(d) of the Exchange Act if we have less than 300 shareholders and do not file a registration statement on Form 8A. If this occurs after the year in which our registration statement becomes effective, we will no longer be obligated to file periodic reports with the SEC and your access to our business information would then be even more restricted. After this registration statement on Form S-1 becomes effective, we may be required to deliver periodic reports to security holders. However, we will not be required to furnish proxy statements to security holders and our directors, officers and principal beneficial owners will not be required to report their beneficial ownership of securitiespaid to the SEC pursuant to Section 16 ofbroker/dealer and the Exchange Act until we have both 500 or more security holders and greater than $10 million in assets. This means that your access to information regarding our business will be limited.registered representatives.
THE MARKET FOR PENNY STOCKS HAS EXPERIENCED NUMEROUS FRAUDS AND ABUSES THAT COULD ADVERSELY AFFECT INVESTORS OF OUR STOCK
We believeSufficiency of Funds. It is expected that the market for penny stocks has suffered from patternstotal amount of fraud and abuse, including:
● | Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; |
● | Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; |
● | “Boiler room” practices involving high pressure sales tactics and unrealistic price projections by salespersons; |
● | Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and |
● | Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. |
WE MAY NEED ADDITIONAL CAPITAL
While we feel we have sufficient capitalfunds to sustain operationsbe raised in this offering will enable the Company to continue to operate for the next 24 months. The Company expects that it will become profitable within the next 18 months, however there can be no assurance that the development of our services will require the commitment of substantial resources to implement our business plan which we may not have anticipated. Currently, we have no established bank-financing arrangements. Therefore, it is likely that we may need to seek additional financing through subsequent future private offering of our equity securities, or through strategic partnerships and other arrangements with corporate partners. Our expenses are at a minimum and therefore most of the capitals raisedCompany will be invested in marketing. Weable to become profitable according to this schedule, or ever. If the Company cannot give anybecome profitable within the next 14-18 months, additional funding may be required for the Company's operations. However, there can be no assurance that additional financingsuch funds will be available to us, the Company and/or if available,that such funds will be available on terms favorableacceptable to us. The salethe Company. Moreover the successful raising of such additional funds could further dilute the existing investors' ownership interest, resulting in diminished potential earnings and/or book value per equity securities will result in dilutionowner. If the Company is unable to our stockholders. If adequatecomplete this offering or to obtain any additional financing is not available on acceptable terms, wefunds that may become necessary, the Company could be required to suspend or terminate operations entirely.
We may not be able to implement our business development planaccess the entire equity line. There are certain restrictions which may limit the Company from gaining access to the full $5,000,000 available under the Equity Purchase Agreement. The primary risk is the Company’s ability to maintain volume and price of its common stock. Practically, the Company will not be able to do more than two "puts" a month on the equity line. In order to draw down $5,000,000 over 36 months, the Company would need to average $140,000 a month. However, te Company can only draw at anyone time 200% of the average volume. Currently, the stock price is approximately $.04. and the average volume is around 700,000 shares. Taking into consideration the discount on the purchase price, the Company would likely receive around $40,000 if it sent a "put" today (700,000 X 200% X $.04 X 70% = $39,200). Two puts a month would be less than $80,000 and the Company would not likely be able to draw down the entire $5,000,000. However, if the volume were to increase to 1,000,000 and the stock price was at $.06 then the Company could receive $84,000 for one tranch ($168,000 in a month) and could likely access the entire $5,000,000. A secondary risk is that only 15,000,000 shares are being registered pursuant to this S-1. Dependant upon the stock price when “put notices” are made by the Company, additional registration statement(s) will likely need to be filed and declared effective to access the balance of the $5,000,000, and there is always a risk that Company may not be successful in getting those registration statement(s) effective. Lastly, the Company could at some point be removed from the OTCQB or continue our business operations.OTCBB which could potentially jeopardize the effectiveness of the S-1.
WE ARE SUBJECT TO RISKS ASSOCIATED TO THE TYPES OF PAYMENT THAT WE ACCEPT
We accept payment by credit card, debit card, and PayPal. If we offer new payment optionsmay raise capital in future offerings. We cannot predict the terms of these offerings nor the price at which shares of common stock may be offered. An offering might require the participation of institutional investors, which are more likely to our customers,demand more stringent terms for any placement. We have not determined the terms for any future offering. Any future offering may be for common stock, or may be for a security with rights superior to that of the common stock. In connection with any offering, we may be subjectrequired to additional regulations, compliance requirements and fraud. For credit and debit card payments, we pay interchange and other fees, which may increase over time and raise our operating costs and lower our profit margins. We are also subjectadd investor’s representatives to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could changethe Board of Directors, or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subjectrequired to finescommit to other conditions. If other conditions are not met, existing investors could have their rights or equity ownership substantially diluted. We cannot at this time determine the terms of any follow-on offering or whether it will ever occur.
Pazoo cannot assure that the offering price of the Notes, and higher transaction feesthus the Conversion Shares, is an accurate reflection of its value. The offering price of the Conversion Shares has been arbitrarily determined by Pazoo taking into account the business history and lose ourprospects of Pazoo, the number of securities to be offered, and the general condition of the securities market, all as assessed by Pazoo’s management. Such prices bear no relationship to the assets, earnings or net tangible book value of Pazoo or any other traditional criteria of value. See “Terms of the Offering” and “Description of Securities.”
Dependence on Key Personnel and Management of Growth. The Company's success and growth will depend upon its ability to accept creditattract and debit card payments from our customers. In addition, we haveretain skilled employees and may continuethe ability of its officers and key employees to suffer losses because of orders placed with fraudulent creditinitiate and debit card data. Under current practices, a merchant is liable for fraudulent credit card transactions when the merchant does not obtain a cardholder’s signature. Ato manage successfully any growth. Any failure to adequately control fraudulent credit card transactions would result in significantly higher credit card-related costs anddo so could have a material adverse effect on the Company's operations. The Company expects that, in order to attract and retain skilled employees, the Company will have to offer to such prospective employees an equity participation in the Company. Such equity participation could dilute the existing investors' ownership interest, resulting in diminished potential earnings per share and/or book value.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial condition, operational results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and prospects.the trading price of our stock.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our brand and operating results could be harmed. We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement. We have devoted significant resources to remediate and improve our internal controls. Although we believe that these efforts have strengthened our internal controls and addressed many of the concerns, we are continuing to work to improve our internal controls, including in the areas of access and security. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
Restrictions on transferability of securities will limit the ability of purchasers to transfer their Shares. The Securities offered hereby will be “restricted securities” within the meaning of the Securities Act and, consequently, will be subject to the restrictions on transfer set forth in the Securities Act and the rules and regulations promulgated thereunder, such as Rule 144. In addition, such securities are subject to restrictions on transfer under applicable state securities laws under which such securities are sold in reliance on certain exemptions or under the provisions of certain qualifications. As restricted securities, the securities may not be sold in the absence of registration or the availability of an exemption from such registration requirements. See “Terms of the Offering—Restricted Securities.”
The Equity Purchase Agreement and similar financial arrangements in the future will cause dilution to all common stock holders. Our articles of incorporation authorize the issuance of up to 980,000,000 shares of our common stock with a par value of $0.001 per share. Our Board of Directors may choose to issue some or all of such shares to acquire one or more companies or products and to fund our overhead and general operating requirements. The tender of a “put notice” with regard to the Equity Purchase Agreement will result in such an issuance of the Company’s common stock. The issuance of any such shares will reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current stockholders. Further, such issuance may result in a change of control of our company.
There has been no representation of Investors in the preparation of this Offering. No independent opinion on behalf of prospective investors regarding the fairness of terms on which the Shares are offered hereby has been obtained by Pazoo. Prospective investors will be relying on the disclosures set forth in this Memorandum and the additional materials it refers to directly and on the business and investment background and experience of themselves and any advisors engaged by them as the basis for an investment decision by them. See “Additional Materials.”
For all of the foregoing reasons and others set forth herein, an investment in our securities in any market that may develop in the future Securities
involves a high degree of risk. Any person considering an investment in the securities offered
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Informationhereby should be aware of these and other risk factors set forth in this Prospectus contains “forward looking statements” which can be identified by the use of forward-looking words such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “continue,” “seek” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. The matters herein constitute cautionary statements identifying important factors with respect to those forward-looking statements, including certain risks and uncertainties that could cause actual results to differ materially from the future results anticipated by those forward-looking statements.
The following uncertainties and factors, among others (including those set forth under "Risk Factors"), could affect future performance and cause actual results to differ materially from those expressed in or implied by forward-looking statements:Memorandum.
Management of Pazoo intends to use the proceeds of this equity line in what it believes to be the best interests of the Company. Accordingly, the following table sets forth management’s present intentions. However, the proceeds of this equity line may be used in different ways than those set forth in the following table because of a change in circumstances or some other reason that, in the business judgment of management, requires a different use of such proceeds. This column assumes the sale of all Notes for the purposes of illustration.
●Working Capital | our ability to protect our brand; |
● | pricing of our products; |
●$ | our ability to improve the functionality of our website; |
●5,000,000 | the development of our private label product offerings; |
● | our ability to attract and retain quality management personnel; |
● | compliance with government regulations; |
● | our ability to enter into and maintain key supply and outsourcing relationships; |
● | our ability to effectively manage and defend litigation matters pending, or asserted in the future, against us, including product liability claims; |
● | unfavorable publicity or consumer acceptance of our products; and |
● | our reaction to significant competition in our industry. |
We believe that it is importantPazoo will need working capital to communicate our future expectations to our investors. However, there may be events inpurchase inventory, prepare product and ship for pending orders, maintain the future that we are not able to accurately predict or controlcontent on its website (www.pazoo.com) and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Except as required by applicable law, including the securities laws of the U.S. and the rules and regulations of the SEC, we do not plan to publicly update or revise any forward-looking statements after we distribute this prospectus, whether as a result of any new information, future events or otherwise. Consequently, forward-looking statements should be regarded solely as our current plans, estimates and beliefs. Potential investors should not place undue reliance on our forward-looking statements. Prior to any investment in our common stock, you should be aware that the occurrence of any of the events described in the “Risk Factors” section and elsewhere in this prospectus could have a material adverse effect on ourmeet its further contractual obligations for its other business results of operations, financial condition, cash flows, customer relationships and Pazoo-brand value. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.ventures.
USEDETERMINATION OF POFFERIROCNGEEDS
We will not receive any proceeds from the sale of the securities being registered pursuant to this registration statement on behalf of the Selling Security Holders.
DETERMINATION OF OFFERING PRICE
All shares being registered willmay be sold by existing shareholdersthe Selling Security Holder without our involvement, consequently theinvolvement. The actual price of the stock will be determined by prevailing market prices at the time of sale or by private transactions negotiated byany “Put Notice”, as defined in the selling shareholders. The offering price will thus be determined by market factors and the independent decisionsEquity Purchase Agreement, which is 70% of the selling shareholders.lowest reported trade of the Company’s common stock during the “Put Period” as defined in the Equity Purchase Agreement.
The common stock being registered by the Selling Shareholders is all12.12% of the currently issued and outstanding common stock of the Company.Company when taking into account the possible future issuance of the remaining 12,395,833. In addition, 20,000,000 of the1,086,394 shares not being registered hereunder are being reserved for the possible future conversion of the Series A Preferred Stock previously sold. Also, at September 30, 2011,December 31, 2013 there were 2,000,000823,226 preferred stock warrants outstanding, each exercisable for 1 common share.share at a weighted average exercise price of $2.20 per share and 5,000,000 common stock warrants outstanding, each exercisable at for 1 common shares at a weighted average exercise price of $0.50. Accordingly, dilution will occur to our existing shareholders if the holder of the Series A Preferred Stock elects to convert its shares into common stock.
between $0.04 and $0.50 per share. In the event that ICPI were to convert all of its Series A Preferred Stock there would be immediate dilution which will be absorbed by Selling Shareholder.
| | | Number | | | Percent | |
| | | | | | | | | |
| Existing Stockholders | | | 111,357,417 | | | | 32.6 | % |
| ICPI Fully Converted Series A Preferred Stock | | | 135,750,000 | | | | 39.8 | % |
| ICPI Warrants Fully Exercised | | | 88,783,210 | | | | 26.0 | % |
| Future Committed Expert Issuances | | | 1,715,000 | | | | 0.6 | % |
| Future Committed Consultant Issuances | | | 3,000,000 | | | | 0.9 | % |
| Stock Issuable Upon Convertible Notes | | | 431,034 | | | | 0.1 | % |
| Fully Diluted Total | | | 341,216,661 | | | | 100.0 | % |
SELLING SECSECURITY HOURILDTY HOLDERSER
The Company is not making an initial public offering of its common stock. Only those15,000,000 shares (only 2,604,167 of which shares have previously issued, and those shares into which previously issued Series A Preferred Stock are convertible into,been issued) are being registered pursuant to this Form S-1. Current stock holdersOnly the Selling Security Holder listed below may re-sell their shares into the public market as soon as practical after the effective date of this registration statement. We are registering, for offer and sale, 15,000,000 shares of common stock held by all of our current shareholders, which consist ofissued, or to be issued, to the Selling Security HoldersHolder listed below.
To date, we have not taken any steps I the event that fewer than 15,000,000 shares are issued to list our common stock on any public exchange. We intend to apply for listing on a public exchange as soon as we meet all listing requirements; however, there is no assurance that a public exchange will grant us a listing. Moreover, if a public exchange grants us a listing for our common stock, the SellingSeller Security Holders offering priceHolder, registration of the unissued shares will be determined by market factors and the independent decisions of the selling shareholders.terminated.
The following table sets forth information as of the date of the filing of this registration statement, with respect to the beneficial ownership of our common stock.stock by the Selling Security Holder. The shares being offered hereby are being registered to permit public secondary trading,in accordance with a certain Registration Rights Agreement and Equity Purchase Agreement, each dated April 4, 20114, and the selling stockholdersSelling Security Holder may offer all or part of their shares for resale from time to time. However, the selling stockholders areSelling Security Holder is under no obligation to sell all or any portion of such shares nor areis the selling stockholdersSelling Security Holder obligated to sell any shares immediately upon effectiveness of this registration statement. All information with respect to share ownership has been furnished by the selling stockholders.
NOTE: As of theThe termination date of this prospectus, our officers and directors, David Cunic, Chief Executive Officer, Steve Basloe, President, Gregory Jung Chief Financial Officer, and Ben Hoehn, Chief Operating Officer own 15,000,000, 15,000,000, 12,500,000, and 2,500,000 common shares, respectively, which are currently subject to Rule 144 restrictions. There are currently a total of 53 shareholders of our common stock.
We base the percentages determined in these calculations upon the 48,182,000 of our common shares issued and outstanding as of the date of this prospectus. The following table shows the number of shares and percentage as of the date of this offering:
Name and Address of Beneficial Owners of Common Stock | Ownership Before Offering | % Owned Before Offering (1) | Total Shares Offered for Sale | Total Shares After Offering | % Owned After Offering |
| David Cunic | | 15,000,000 | 31.1% | 0 | 15,000,000 | 31.1% |
| 13 Old Mill Drive | | | | | | |
| Denville NJ 07834 | | | | | | |
| Steve Basloe | (2) | 14,000,000 | 29.1% | 0 | 14,000,000 | 29.1% |
| 560 Sylvan Avenue | | | | | | |
| Englewood NJ 07632 | | | | | | |
| Gregory Jung | | 12,500,000 | 25.9% | 0 | 12,500,000 | 25.9% |
17625 North 14th Street | | | | | | |
| Phoenix AZ 85022 | | | | | | |
| Ben Hoehn | | 2,500,000 | 5.2% | 0 | 2,500,000 | 5.2% |
| 496 Mayhow Court | | | | | | |
| South Orange NJ 07079 | | | | | | |
| Gina Morreale | | 2,500,000 | 5.2% | 0 | 2,500,000 | 5.2% |
| 361 Mohegan Circle | | | | | | |
| Lafayette NJ 07848 | | | | | | |
| Jeremy Basloe | (2) | 250,000 | * | 0 | 250,000 | * |
| 560 Sylvan Avenue | | | | | | |
| Englewood NJ 07632 | | | | | | |
| Adam Basloe | (2) | 250,000 | * | 0 | 250,000 | * |
| 560 Sylvan Avenue | | | | | | |
| Englewood NJ 07632 | | | | | | |
| Daniel Basloe | (2) | 250,000 | * | 0 | 250,000 | * |
| 560 Sylvan Avenue | | | | | | |
| Englewood NJ 07632 | | | | | | |
| Rebecca Basloe | (2) | 250,000 | * | 0 | 250,000 | * |
| 560 Sylvan Avenue | | | | | | |
| Englewood NJ 07632 | | | | | | |
| Ken Bae | | 250,000 | * | 0 | 250,000 | * |
| 122 Vincent Road | | | | | | |
| Hicksville NY 11801 | | | | | | |
| Howard Klein | | 250,000 | * | 0 | 250,000 | * |
| 250 Piermont Road | | | | | | |
| Cresskill NJ 07626 | | | | | | |
| Peter Risano | | 100,000 | * | 0 | 100,000 | * |
| 45 Eastern Promenade, Unit 4A | | | | | | |
| Portland ME 04101 | | | | | | |
| Greg Dupont | | 2,000 | * | 0 | 2,000 | * |
| 307 North 18 Avenue | | | | | | |
| Bozeman MT 59715 | | | | | | |
| Cheryl Moreland | | 2,000 | * | 0 | 2,000 | * |
| 61 Philip Street | | | | | | |
| Medfield MA 02052 | | | | | | |
| Jack Cunic | | 2,000 | * | 0 | 2,000 | * |
| 13 Old Mill Drive | | | | | | |
| Denville NJ 07834 | | | | | | |
| Brian Yadisernia | | 2,000 | * | 0 | 2,000 | * |
| 185 Peck Street | | | | | | |
| Franklin MA 02038 | | | | | | |
| Morris Bibliowicz | | 2,000 | * | 0 | 2,000 | * |
| 1449 Croaker Court | | | | | | |
| San Francisco CA 94130 | | | | | | |
| Ryan Vass | | 2,000 | * | 0 | 2,000 | * |
| 208 West Washington Ave | | | | | | |
| Pearl River NY 10965 | | | | | | |
| Zelig Prudowsky | | 2,000 | * | 0 | 2,000 | * |
| 24 Culebra Terrace | | | | | | |
| San Francisco CA 94109 | | | | | | |
| Charles Schwarz | | 2,000 | * | 0 | 2,000 | * |
| 3 Sycamore Terrace | | | | | | |
| Cedar Knolls NJ 07927 | | | | | | |
| Lynda Deehan | | 2,000 | * | 0 | 2,000 | * |
| 12 Birch Hill Drive | | | | | | |
| Whippany NJ | | | | | | |
| Ana Navarro | | 2,000 | * | 0 | 2,000 | * |
| 5 Appio Dr. | | | | | | |
| Randolph NJ 07869 | | | | | | |
| Michael Fitzpatrick | | 2,000 | * | 0 | 2,000 | * |
| 160 Littleton Road, Suite 200 | | | | | | |
| Parsippany NJ 07054 | | | | | | |
| Brian Quinn | | 2,000 | * | 0 | 2,000 | * |
| 25 Cooper Lane | | | | | | |
| Chester NJ 07930 | | | | | | |
| James Rossiter | | 2,000 | * | 0 | 2,000 | * |
| 205 Harrison Avenue | | | | | | |
| Westfield NJ 07090 | | | | | | |
| Mary Meola | | 2,000 | * | 0 | 2,000 | * |
| 68 Thurmont Road | | | | | | |
| Denville NJ 07834 | | | | | | |
| Kimberely Bustamante | | 2,000 | * | 0 | 2,000 | * |
| H10 Farmhouse Lane | | | | | | |
| Morristown NJ 07960 | | | | | | |
| Shelley Seelig | | 2,000 | * | 0 | 2,000 | * |
| 13266 Solana Beach Cove | | | | | | |
| Delray Beach FL 33446 | | | | | | |
| Julia Deehan | | 2,000 | * | 0 | 2,000 | * |
| 12 Birch Hill Drive | | | | | | |
| Whippany NJ 07981 | | | | | | |
| Christopher Deehan | | 2,000 | * | 0 | 2,000 | * |
| 12 Birch Hill Drive | | | | | | |
| Whippany NJ 07981 | | | | | | |
| Christine O’Sullivan | | 2,000 | * | 0 | 2,000 | * |
| 36 Lake Drive | | | | | | |
| Randolph NJ 07869 | | | | | | |
| Allison Hoehn | | 2,000 | * | 0 | 2,000 | * |
| 6490 Winter Hazel Drive | | | | | | |
| Liberty Township OH 45044 | | | | | | |
| Daniel O’Sullivan | | 2,000 | * | 0 | 2,000 | * |
| 36 Lake Drive | | | | | | |
| Randolph NJ 07869 | | | | | | |
| Marko Maniaces | | 2,000 | * | 0 | 2,000 | * |
| 94A Everdale Rd | | | | | | |
| Randolph NJ 07869 | | | | | | |
| Richard Seelig | | 2,000 | * | 0 | 2,000 | * |
| 13266 Solana Beach Cove | | | | | | |
| Delray Beach FL 33446 | | | | | | |
| Anthony Carlucci, Jr | | 2,000 | * | 0 | 2,000 | * |
| 9 Sparrow Road | | | | | | |
| Randolph NJ 07868 | | | | | | |
| Andrew Deehan | | 2,000 | * | 0 | 2,000 | * |
| 12 Birch Hill Drive | | | | | | |
| Whippany NJ 07981 | | | | | | |
| William Martz | | 2,000 | * | 0 | 2,000 | * |
| 10 Pleasant Hill Road | | | | | | |
| Randolph NJ 07869 | | | | | | |
| Todd Simonds | | 2,000 | * | 0 | 2,000 | * |
| 112 Springbrook Road | | | | | | |
| Morristown NJ 07960 | | | | | | |
| Anthony Maniaces | | 2,000 | * | 0 | 2,000 | * |
| 94A Everdale Road | | | | | | |
| Randolph NJ 07869 | | | | | | |
| Jennifer Hoehn | | 2,000 | * | 0 | 2,000 | * |
| 496 Mayhow Court | | | | | | |
| South Orange NJ 07079 | | | | | | |
| Dante Maniaces | | 2,000 | * | 0 | 2,000 | * |
| 94A Everdale Road | | | | | | |
| Randolph NJ 07869 | | | | | | |
| Joe Morreale | | 2,000 | * | 0 | 2,000 | * |
| 228 Demarest Road | | | | | | |
| Sparta NJ 07871 | | | | | | |
| Joseph Colantoni | | 2,000 | * | 0 | 2,000 | * |
| 6 Hunting Meadow Court | | | | | | |
| Rockaway NJ 07866 | | | | | | |
| Robert Deehan | | 2,000 | * | 0 | 2,000 | * |
| 12 Birch Hill Drive | | | | | | |
| Whippany NJ 07981 | | | | | | |
| Mark O’Sullivan | | 2,000 | * | 0 | 2,000 | * |
| 36 Lake Drive | | | | | | |
| Randolph NJ 07869 | | | | | | |
| Frederick Dower | | 2,000 | * | 0 | 2,000 | * |
| 106 Sonoma Valley Drive | | | | | | |
| Cary NC 27518 | | | | | | |
| Michael Friedman | | 2,000 | * | 0 | 2,000 | * |
| 211 Morris Turnpike | | | | | | |
| Randolph NJ 07869 | | | | | | |
| Anne Hoehn | | 2,000 | * | 0 | 2,000 | * |
| 6490 Winter Hazel Drive | | | | | | |
| Liberty Township | | | | | | |
| John Alexander | | 2,000 | * | 0 | 2,000 | * |
| 8184 Grey Fox Drive | | | | | | |
| West Chester OH 45069 | | | | | | |
| Ralph Hoehn | | 2,000 | * | 0 | 2,000 | * |
914 East 3rd Street | | | | | | |
| Delpos OH 45833 | | | | | | |
| David Hoehn | | 2,000 | * | 0 | 2,000 | * |
| 6490 Winter Hazel Drive | | | | | | |
| Liberty Township OH 45044 | | | | | | |
| Dennis White | | 2,000 | * | 0 | 2,000 | * |
| 23 Saddle Road | | | | | | |
| Far Hills NJ 07931 | | | | | | |
| | | 48,182,000 | 100.0% | 0 | 48,182,000 | 100.0% |
| Name and Address of Beneficial Owners of Common Stock | | Ownership Before Offering | | | % Owned Before Offering (1) | | | Total Shares Offered for Sale | | | Total Shares After Offering | | | % Owned After Offering (2) | |
Premier Venture Partners, LLC (3) | | | | | | | | | | | | | | | |
4221 Wilshire Blvd., Suite 355 | | | 2,604,167 | | | | 2.3 | % | | | 2,604,167 | | | | 15,000,000 | | | | 12.12 | % |
Los Angeles, California 90010 | | | | | | | | | | | | | | | | | | | | |
| (1) | Based on 48,182,000 common111,357,417common shares outstanding prior to the registration statement * - less than 1%3% of the shares outstanding as of September 30, 2011May 13, 2014. |
| |
| (2) | Mr. Basloe receivedIf all 15,000,000 shares of restricted founders stock, however, Mr. Basloe directed that certain of his founder’s shareswere to be titledissued in the namesfuture and provided that the Selling Security Holder had not resold any shares. |
| (3) | The control person of his four children. Jeremy Basloe, Adam Basloe, Daniel Basloe, and Rebecca Basloe each received 250,000 shares of restricted founders stock.Premier Venture Partners, LLC is Jeffrey Maller. |
There are no agreements between the company and any selling shareholder pursuant to which the shares subject to this registration statement were issued. As a group, the 53 Selling Security Holders are hereby registering 48,182,000 common shares. The Selling Security Holders may sell at prevailing market prices or privately negotiated prices only after the shares are quoted on either the OTCBB or an exchange.
The shares owned by all of our shareholders, which includes the Selling Security Holders and our officers, director and founders, were acquired in three issuances. On inception of November 16, 2010, we issued 45,000,000 shares of our common stock, $0.001 par value to our officers, director and founders at no cost basis (Mr. Basloe directed that 1,000,000 of his founder’s shares be titled in the names of his four (4) children in increments of 250,000 shares each.) Also on inception we issued 600,000 shares of restricted stock to three consultants for services to be performed in 2011. From July 2011 through September 2011, we issued a total of 82,000 common shares for participation in our marketing research. Each shareholder participated in a questionnaire designed to give us feedback on our website functionality and offered input on their individual shopping experience. In September 2011 we issued 2,500,000 shares of common stock to our new Chief Operating Officer who also assumed the duties of Secretary and Treasurer, replacing Gina Morreale. Mr. Hoehn received shares valued at $12,500 as stock based compensation. In the event the Selling Security Holders receive payment for the sale of their shares, we will not receive any of the proceeds from such sales. We are bearing all expenses in connection with the registration of the shares of the Selling Security Holders.
To our knowledge, other than David Cunic, Steven Basloe, Ben Hoehn, Gregory Jung and Gina Morreale, none of the selling shareholders, except as set forth herein, have either: (1) had a material relationship with us other than as a shareholder at any time within the past three years; or (2) ever been one of our officers or directors.
PLAN OF DDISTRIISTBURIBUTIONTION
We are registering 48,182,00015,000,000 shares in accordance with a certain Registration Rights Agreement and Equity Purchase Agreement, each dated April 4, 2014. The actual price of the stock will be determined by prevailing market prices at the time of any “Put Notice” as defined in the Equity Purchase Agreement, which is 70% of the lowest reported trade of the Company’s common stock for possible resale at prevailing market rates.during the “Put Period” as defined in the Equity Purchase Agreement. We will not receive 100% any proceeds from the sale of the shares to the Selling Security Holders, but will not receive any proceeds upon the re-sale of such shares by the Selling Security Holders.Holder. The percentage of the total outstanding common stock being registered to be offered by the Selling Security Holders is 100%12.12% based upon the 48,182,000123,753,250 common shares that are issued and outstanding as of the date of this prospectus. There is no arrangementif all 15,000,000 were to address the possible effect of the offerings on the price of the stock.be issued.
The Selling Security Holders may sell at prevailing market prices or privately negotiated prices only after the shares are quoted on either the OTCBB or an exchange. However, our common stock may never be quoted on the OTCBB or listed on any exchange.
If and when the common stock is quoted on the OTCBB or listed on an exchange, the Selling Security Holders’ shares may be sold to purchasers from time to time directly by, and subject to the discretion of, the Selling Security Holders. Further, the Selling Security Holders may occasionally offer their shares for sale through underwriters, dealers or agents, who may receive compensation in the form of underwriting discounts, concessions or commissions from the Selling Security Holders and/or the purchasers of the shares for whom they may act as agents. The shares sold by the Selling Security Holders may be sold occasionally in one or more transactions, either at an offering price that is fixed or that may vary from transaction to transaction depending upon the time of sale, or at prices otherwise negotiated at the time of sale. Such prices will be determined by the Selling Security Holders or by agreement between the Selling Security Holders and any underwriters.
In the event that the Selling Security Holders enter into an agreement, after the effective date of this Registration Statement, to sell their shares through a broker-dealer that acts as an underwriter, we will file a post-effective amendment to this Registration Statement and file the agreement as an exhibit to the amended Registration Statement. The amendment will identify the underwriter, provide the required information on the plan of distribution and revise the appropriate disclosures in the Registration Statement.
Any underwriter, dealer, or agent who participates in the distribution of the securities registered in this Registration Statement may be deemed to be an "underwriter" under the Securities Act. Further, any discounts, commissions, or concessions received by any such underwriter, dealer or agent may be deemed to be underwriting discounts and commissions under the Securities Act. In the event an “underwriter” will assist in the sale of the shares, we will disclose:
| 1. | the name or names of any underwriters, dealers, or agents, the purchase price paid by any underwriters for the shares purchased from the Selling Security Holders, and |
| 2. | any discounts, commissions, and other items constituting compensation from the Selling Security Holders, and |
| 3. | any discounts, commissions, or concessions allowed, realized or paid to dealers, and |
| 4. | the proposed selling price to the public |
Pursuant to Regulation M of the General Rules and Regulations of the Securities and Exchange Commission, no person engaged in a distribution of securities on behalf of a Selling Security Holder may simultaneously bid for, purchase or attempt to induce any person to bid for or purchase securities of the same class during the period of time starting five business days prior to the commencement of such distribution and continuing until the Selling Security Holder, or other person engaged in the distribution, is no longer a participant in the distribution.
In order to comply with the applicable securities laws of certain states, the securities will be offered or sold in such states only through registered or licensed brokers or dealers in those states. In addition, in certain states, the securities may not be offered or sold unless they have been registered or qualified for sale in such states or an exemption from such registration or qualification requirement is available and with which Pazoo, Inc. has complied.
In addition and without limiting the foregoing, the Selling Security HoldersHolder will be subject to applicable provisions, rules and regulations under the Exchange Act with regard to security transactions during the period of time when this Registration Statement is effective.
We will pay all expenses incidental to the registration of the shares (including registration pursuant to the securities laws of certain states) other than commissions, expenses, reimbursements and discounts of underwriters, dealers or agents, if any.
Any purchasers of our securities should be aware that any market that develops in our stock would be subject to the penny stock restrictions.
The trading of our securities, if any, will be in the over-the-counter markets, which are commonly referred to as the OTCBB as maintained by FINRA (once and when quoting thereon has occurred). As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the price of, our securities.
OTCBB Considerations
OTCBB securities are not listed and tradedor quoted on the floor of an organized national or regional stock exchange. Instead, OTCBB securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTCBB stocks are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.
To be quoted on the OTCBB, a market maker must file an application on our behalf in order to make a market for our common stock. We are not permitted to file such application on our own behalf. We do not have an agreement with a market maker to file an application with FINRA on our behalf to be able to quote the shares of our common stock on the OTCBB maintained by FINRA commencing upon the effectiveness of our registration statement of which this prospectus is a part. We intend to contact market makers in the future to file an application with FINRA on our behalf. There can be no assurance that a market maker will agree to file an application or that if one agrees to file an application that its application will be accepted by FINRA. If a market maker agrees to file an application with FINRA, we cannot estimate the time period that the application will require to be approved by FINRA.
The OTCBB is separate and distinct from the NASDAQ stock market. NASDAQ has no business relationship with issuers of securities quoted on the OTCBB. The SEC’s order handling rules, which apply to NASDAQ-listed securities, do not apply to securities quoted on the OTCBB.
Although the NASDAQ stock market has rigorous listing standards to ensure the high quality of its issuers, and can delist issuers for not meeting those standards, the OTCBB has no listing standards. Rather, it is the market maker who chooses to quote a security on the system, files the application, and is obligated to comply with keeping information about the issuer in its files. FINRA cannot deny an application by a market maker to quote the stock of a company assuming all FINRA questions relating to its Rule 211 process are answered accurately and satisfactorily. The only requirement for ongoing inclusion in the OTCBB is that the issuer be current in its reporting requirements with the SEC.
Although we anticipate that quotation on the OTCBB will increase liquidity for our stock, investors may have difficulty in getting orders filled because trading activity on the OTCBB in general is not conducted as efficiently and effectively as with NASDAQ-listed securities. As a result, investors’ orders may be filled at a price much different than expected when an order is placed.
Investors must contact a broker-dealer to trade OTCBB securities. Investors do not have direct access to the bulletin board service. For bulletin board securities, there only has to be one market maker.
OTCBB transactions are conducted almost entirely manually. Because there are no automated systems for negotiating trades on the OTCBB, they are conducted via telephone. In times of heavy market volume, the limitations of this process may result in a significant increase in the time it takes to execute investor orders. Therefore, when investors place market orders - an order to buy or sell a specific number of shares at the current market price - it is possible for the price of a stock to go up or down significantly during the lapse of time between placing a market order and getting execution.
If we become able to have our shares of common stock quoted on the OTCBB, we will then try, through a broker-dealer and its clearing firm, to become eligible with the DTC to permit our shares to trade electronically. If an issuer is not “DTC-eligible,” then its shares cannot be electronically transferred between brokerage accounts, which, based on the realities of the marketplace as it exists today (especially the OTCBB), means that shares of a company will not be traded (technically the shares can be traded manually between accounts, but this takes days and is not a realistic option for companies relying on broker dealers for stock transactions - like all the companies on the OTCBB). This means that while DTC-eligibility is not a requirement to trade on the OTCBB, it is a necessity to process trades on the OTCBB if a company’s stock is going to trade with any volume. There are no assurances that our shares will ever become DTC-eligible or, if they do, how long it will take.
Because analysts do not usually follow OTCBB stocks, there may be lower trading volume than for NASDAQ-listed securities.
Section 15(g) of the Exchange Act
Section 15(g) of the Exchange Act will cover our shares and Rules 15g-1 through 15g-6 promulgated thereunder. Securities regulations impose additional sales practice requirements on broker-dealers who sell our securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses).
Rule 15g-1 exempts a number of specific transactions from the scope of the penny stock rules (but is not applicable to us).
Rule 15g-2 declares unlawful broker-dealer transactions in penny stocks unless the broker-dealer has first provided to the customer a standardized disclosure document.
Rule 15g-3 provides that it is unlawful for a broker-dealer to engage in a penny stock transaction unless the broker-dealer first discloses and subsequently confirms to the customer current quotation prices or similar market information concerning the penny stock in question.
Rule 15g-4 prohibits broker-dealers from completing penny stock transactions for a customer unless the broker-dealer first discloses to the customer the amount of compensation or other remuneration received as a result of the penny stock transaction.
Rule 15g-5 requires that a broker-dealer executing a penny stock transaction, other than one exempt under Rule 15g-1, disclose to its customer, at the time of or prior to the transaction, information about the sales persons compensation.
Rule 15g-6 requires broker-dealers selling penny stocks to provide their customers with monthly account statements.
Rule 15g-9 requires broker/dealers to approve the transaction for the customer’s account; obtain a written agreement from the customer setting forth the identity and quantity of the stock being purchased; obtain from the customer information regarding his investment experience; make a determination that the investment is suitable for the investor; deliver to the customer a written statement for the basis for the suitability determination; notify the customer of his rights and remedies in cases of fraud in penny stock transactions; and, the FINRA'sFINRA’s toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.
Rule 3a51-1 of the Exchange Act establishes the definition of a "penny“penny stock,"” for purposes relevant to us, as any equity security that has a minimum bid price of less than $4.00 per share or with an exercise price of less than $4.00 per share, subject to a limited number of exceptions. It is likely that our shares will be considered to be penny stocks for the immediately near future. For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person's account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, which, in highlight form, sets forth:
| ● | The basis on which the broker or dealer made the suitability determination, and |
| ● | That the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
Disclosure also has to be made about the risks of investing in penny stock in both public offerings and in secondary trading and commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Additionally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, which is likely, it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it difficult to dispose of our securities.
State Securities – Blue Sky Laws
There is no established public market for our common stock, and there can be no assurance that any market will develop in the foreseeable future. Transfer of our common stock may also be restricted under the securities regulations or laws promulgated by various states and foreign jurisdictions, commonly referred to as "Blue Sky" laws. Absent compliance with such individual state laws, our common stock may not be tradedquoted in such jurisdictions. Because the securities registered hereunder have not been registered for resale under the blue sky laws of any state, the holders of such shares and persons who desire to purchase them in any trading market that might develop in the future, should be aware that there may be significant state blue-sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities. Accordingly, investors may not be able to liquidate their investments and should be prepared to hold the common stock for an indefinite period of time.
DIVIDEND POLICY
We have never paid cash or any other form of dividend on our common stock, and we do not anticipate paying cash dividends in the foreseeable future. Moreover, any future credit facilities might contain restrictions on our ability to declare and pay dividends on our common stock. We plan to retain all earnings, if any, for the foreseeable future for use in the operation of our business and to fund the pursuit of future growth. Future dividends, if any, will depend on, among other things, our results of operations, capital requirements and on such other factors as our board of directors, in its discretion, may consider relevant.
DESCRIPTION OF SECURITIES
We were incorporated under the lawsGeneralPazoo’s authorized capital consists of the State980,000,000 number of Nevada on November 16, 2010. We are authorized to issue 980,000,000 shares of common stock, $0.001 par value, per share and to issue 20,000,000 shares of preferred stock, (10,000,000$0.001 par value in Series A, Convertible Preferred Stock, 2,500,000 Series B Non-Convertible Preferred Stock, and 7,500,000 Series C Non-Convertible Preferred Stock) as fixed by our board of directors. As of the date of this prospectus, we have issued 2,000,000 shares of Series A Preferred Stock to ICPI, however, there are no Series B or Series C Preferred Stock issued and outstanding to date.C.
Common Stock
When filedThe holders of the common stock are entitled to one vote per share on November 16, 2010, our Articleseach matter submitted to a vote at any meeting of Incorporation authorizedshareholders. Shares of common stock do not carry cumulative voting rights and, therefore, a majority of the issuanceshares of 75,000,000outstanding stock will be able to elect the entire Board of Directors and, if they do so, minority shareholders would not be able to elect any persons to the Board of Directors. Pazoo’s Bylaws provide that a majority of the issued and outstanding shares of Pazoo shall constitute a quorum for shareholders’ meetings, except with respect to certain matters for which a greater percentage quorum is required by statute or the Bylaws.
Shareholders of Pazoo have no preemptive rights to acquire additional shares of common stock with $0.001 par value per share. On March 29, 2011, we increased the authorized shares from 75,000,000 to 980,000,000 par value $0.001 per share. As of the date of this registration statement there are 48,182,000 shares of ouror other securities. The common stock issuedis not subject to redemption and outstanding held by 53 shareholderscarries no subscription or conversion rights. In the event of record.
Each shareliquidation of Pazoo, the shares of common stock entitlesare entitled to share equally in corporate assets after satisfaction of all liabilities and the holderpayment of any liquidation preference, if any, to one vote, either in person or by proxy, at meetings of shareholders. Thethe holders of our common stock:stock then issued and outstanding.
● | have equal ratable rights to dividends from funds legally available if and when declared by our Board of Directors; |
● | in the event of a liquidation, dissolution or winding up of the Company, are entitled to share ratably in all assets remaining after payment of liabilities and liquidation preferences of any outstanding shares of Preferred Stock; |
● | do not have preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights; and |
● | are entitled to one non-cumulative vote per share on all matters on which stockholders may vote. |
Holders of common stock are entitled to receive such dividends as the board of directors may from time to time declare out of funds legally available for the payment of dividends. Pazoo seeks growth and expansion of its business through the reinvestment of profits, if any, and does not anticipate that it will pay dividends in the foreseeable future.
Preferred Stock
The Board of Directors will have the authority, without further action by the stockholders, to issue up to 20,000,000 shares of Preferred Stock in one or more series with designations, powers, preferences, privileges and relative, participating, optional or special rights and the qualifications, limitations or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the Common Stock. We currently have authorized 10,000,000 Series A Convertible Preferred Stock, 2,500,000 Series B Non-Convertible Preferred Stock, and 7,500,000 Series C Non-Convertible Preferred Stock which could thus be issued quickly with terms calculated to delay or prevent a change in control of the Company or make removal of management more difficult. See Exhibit 99.1. Additionally, the issuance of Preferred Stock may have the effect of decreasing the market price of the Common Stock, and may adversely affect the voting and other rights of the holders of Common Stock. We have issued 2,000,000As of December 31, 2013, the date of the accompanying financial statements, there are 9,233,935 shares of Series A Preferred Stock issued and outstanding. In the first quarter of 2014, a 10 for 1 reverse stock split was effectuated. Accordingly the issued and outstanding shares as at $0.05 per share toDecember 31, 2013, when taking into account for the reverse stock split, is 923,394. All of those shares are owned by Integrated Capital Partners, Incorporated (ICPI), as of the date of this
filing. Through an Investment Agreement (See Investment Agreement - Exhibit 99.1), ICPI has committed to the following: (i) $50,000 within ten (10) days of the date of the Investment Agreement, but in no event later than January 15, 2011; (ii) $50,000 within thirty (30) days of the first installment, but in no event later than February 15, 2011; (iii) $50,000 upon IUCSS filing a Form S-1 Registration Statement with the Securities and Exchange Commission; (iv) $100,000 upon the Form S-1 Registration Statement becoming effective; and (v) at the sole option and discretion of ICPI, Investor may within ten (10) days of the Form S-1 Registration Statement becoming effective, purchase up to $250,000 of additional Series A Convertible Preferred Stock. ICPI has completed the commitments set forth in (i) and (ii) above. See “Exhibits”. Our Board of Directors has authorized up to 2,500,000 shares of Series B Preferred Stock however, no Series B Preferred Stock has beenand 1,187,500 are issued and we currently have no present plans to issue these shares.outstanding. Our Board of Directors has authorized up to 7,500,000 shares of Series C Preferred Stock, however, noStock. The Company intends to issue certain of the Series C Preferred Stock has been issued and we currently have no present plans to issue these shares.in conjunction with the Company’s recent acquisition of a 40% equity interest in MA & Associates, LLC.
| Preferred Stock | | Series A | | | Series B | | | Series C | | | Series A | | | Series B | | | Series C | |
| Convertible | | 10 to 1 | | | No | | | No | | | 100 to 1 | | | Contingent Event | | | No | |
| Dividend | | 5% in stock | | | No | | | 2% to 12% in stock | | | 5% in common stock | | | No | | | 2% to 12% in common stock | |
| Voting | | No | | | 200 to 1 | | | No | | | No | | | 200 to 1 | | | No | |
| Total Shares | | | 10,000,000 | | | | 2,500,000 | | | | 7,500,000 | | | | 10,000,000 | | | | 2,500,000 | | | | 7,500,000 | |
Voting Rights
Holders of common stock have the right to cast one vote for each share of stock in his or her own name on the books of the corporation, whether represented in person or by proxy, on all matters submitted to a vote of holders of common stock, including the election of directors.Directors. There is no right to cumulative voting in the election of directors.Directors. Except where a greater requirement is provided by statute or by the Articles of Incorporation, or by the Bylaws, the presence, in person or by proxy duly authorized, of the holder or holders of a majority of the outstanding shares of our common voting stock shall constitute a quorum for the transaction of business. The vote by the holders of a majority of such outstanding shares is also required to effect certain fundamental corporate changes such as liquidation, merger or amendment of the Company's Articles of Incorporation.
Dividend Policy
There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:
1. | 1. | we would not be able to pay our debts as they become due in the usual course of business, or; |
2. | 2. | our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution. |
We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.
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Pre-emptive Rights
HoldersDirectors has authority, without action by the shareholders, to issue all or any portion of commonthe authorized but unissued preferred stock are not entitledin one or more series and to pre-emptive or subscription ordetermine the voting rights, preferences as to dividends and liquidation, conversion rights, and there are no redemptionother rights of such series. Pazoo considers it desirable to have preferred stock available to provide increased flexibility in structuring possible future acquisitions and financings and in meeting corporate needs which may arise. If opportunities arise that would make desirable the issuance of preferred stock through either public offering or sinking fundprivate placements, the provisions applicablefor preferred stock in Pazoo's Articles of Incorporation would avoid the possible delay and expense of a shareholder's meeting, except as may be required by law or regulatory authorities. Issuance of the preferred stock could result, however, in a series of securities outstanding that will have certain preferences with respect to dividends and liquidation over the Common Stock. All outstanding shares of common stock are,which would result in dilution of the income per share and net book value of the sharescommon stock. Issuance of additional common stock offered hereby willpursuant to any conversion right which may be when issued, fully paid and non-assessable.
Common Stock Warrants
Simultaneous with the purchase of Series A Preferred Stock in 2011, we issued 2,000,000 warrants to ICPI and each warrant entitles its owner to purchase common share for each Series A Preferred Stock at an exercise price of $0.05 per common share thereunder, subjectattached to the terms of the warrant agreement between the warrant agent and us. The warrants are exercisable three years from the dateany series of issue. (See Exhibit Bpreferred stock may also result in dilution of the net income per share and the net book value of the common stock. The specific terms of any series of preferred stock will depend primarily on market conditions, terms of a proposed acquisition or financing, and other factors existing at the time of issuance. Therefore, it is not possible at this time to determine in what respect a particular series of preferred stock will be superior to Pazoo's common stock or any other series of preferred stock which Pazoo may issue. The Board of Directors may issue additional preferred stock in future financings, but has no current plans to do so at this time.
The issuance of Preferred Stock could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of Pazoo.
Transfer Agent
Investment Agreement).The transfer agent for the common stock is VStock, Inc. with an address at 18 Lafayette Place, Woodmere, NY 11598 with a website of www.VStockTransfer.com
No warrants have been exercised as of the date of this registration statement.
The holders of the warrants are not entitled to vote, to receive dividends or to exercise any of the rights of common shareholders for any purpose until such warrants have been duly exercised. No shares of common stock acquired as the result of the exercise of any Series A warrant are included within the shares to be registered under this registration statement. All such shares will be restricted securities and may only be sold pursuant to further registration or exemption therefrom.
Options
We have not issued and do not have outstanding any options to purchase shares of our common stock.
Convertible Securities
We have 2,000,000 shares of Series A Convertible Preferred Stock (Series A Preferred Stock) par value 0.001 per share issued and outstanding. Each share Series A Preferred Stock may be converted, at the election of the holder, into 10 shares of the Company’s Common Stock. See also “Description of Securities: Preferred Stock”MARKET FOR SECURITIES
Nevada Anti-Takeover Laws
Nevada Revised Statutes sections 78.378 to 78.379 provide state regulation over the acquisition of a controlling interest in certain Nevada corporations unless the articles of incorporation or bylaws of the corporation provide that the provisions of these sections do not apply. Our articles of incorporation and bylaws do not state that these provisions do not apply. The statute creates a number of restrictions on the ability of a person or entity to acquire control of a Nevada company by setting down certain rules of conduct and voting restrictions in any acquisition attempt, among other things. The statute is limited to corporations that are organized in the state of Nevada and that have 200 or more stockholders, at least 100 of whom are stockholders of record and residents of the State of Nevada; and does business in the State of Nevada directly or through an affiliated corporation. Because of these conditions, the statute currently does not apply to our company.
No Public Market for Common Stock.
There is no established public market for ourOur common stock and a public market may never develop. We will seek to identify a market maker to file an application with FINRA so as to be able to quote the shares of our common stockis currently quoted on the OTCBB maintained by FINRA commencing upon the effectiveness of our registration statement. There can be no assurance as to whether we will identify a market marker that will be willing to file an application and, if we identify one and it agrees to file an application, whether such market maker’s application will be accepted by FINRA. We cannot estimate the time period that will be required for the application process. Even if our common stock were quoted in a market, there may never be substantial activity in such market. If there is substantial activity, such activity may not be maintained, and no prediction can be made as to what prices may prevail in such market.
If we become able to have our shares of common stock quoted on the OTCBB, we will then try, through a broker-dealer and its clearing firm, to become eligible with the DTC to permit our shares to trade electronically. If an issuer is not “DTC-eligible,” then its shares cannot be electronically transferred between brokerage accounts, which, based on the realities of the marketplace as it exists today (especially the OTCBB), means that shares of a company will not be traded (technically the shares can be traded manually between accounts, but this takes days and is not a realistic option for companies relying on broker dealers for stock transactions - like all the companies on the OTCBB). This means that while DTC-eligibility is not a requirement to trade on the OTCBB, it is a necessity to process trades on the OTCBB if a company’s stock will trade with any volume. There are no assurances that our shares will ever become DTC-eligible or, if they do, how long it will take.
In general, under Rule 144, a holder of restricted common shares who is an affiliate at the time of the sale or any time during the three months preceding the sale can resell shares, subject to the restrictions described below.
If we have been a public reporting company under the Exchange Act for at least 90 days immediately before the sale, then at least six months must have elapsed since the shares were acquired from us or one of our affiliates, and we must remain current in our filings for an additional period of six months; in all other cases, at least one year must have elapsed since the shares were acquired from us or one of our affiliates.
The number of shares sold by such person within any three-month period cannot exceed the greater of:
● | 1% of the total number of our common shares then outstanding; or |
● | The average weekly trading volume of our common shares during the four calendar weeks preceding the date on which notice on Form 144 with respect to the sale is filed with the SEC (or, if Form 144 is not required to be filed, the four calendar weeks preceding the date the selling broker receives the sell order). This condition is not currently available to the Company because its securities do not trade on a recognized exchange. |
Conditions relating to the manner of sale, notice requirements (filing of Form 144 with the SEC) and the availability of public information about us must also be satisfied.
AllMost of the presentlyour outstanding shares of our common stock are "restricted securities" as defined under Rule 144 promulgated under the Securities Act and may only be sold pursuant to an effective registration statement or an exemption from registration, if available. WhileFor the purposes of Rule 144, Pazoo, Inc. is a development stage company, and is exempt fromholders of restricted securities need not concern themselves with the “shell company” rules and regulations,limitation, the SEC has adopted in the final rules amending Rule 144, which have become effective on February 15, 2008. PursuantHowever, if we are no longer considered a development stage company, we do not have the requisite revenue and/or assets we may be deemed a “shell company” and the “shell company” limitations contained in Rule 144 apply. In that case, pursuant to the new Rule 144, one year must elapse from the time a “shell company,” as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act, unless the issuer is a development stage company, ceases to be a “shell company” and files a Form 8-K addressing Item 5.06 with such information as may be required in a Form 10 Registration Statement with the SEC, before a restricted shareholder can resell their holdings in reliance on Rule 144. Form 10 information is equivalent to information that a company would be required to file if it were registering a class of securities on Form 10 under the Exchange Act. Under the amended Rule 144, restricted or unrestricted securities that were initially issued by a reporting or non-reporting shell company or a company that was at anytime previously a reporting or non-reporting shell company, can only be resold in reliance on Rule 144 if the following conditions are met:
| 1. | the issuer of the securities that was formerly a reporting or non-reporting shell company has ceased to be a shell company; |
| 2. | the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; |
| 3. | the issuer of the securities has filed all reports and material required to be filed under Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding twelve months (or shorter period that the Issuer was required to file such reports and materials), other than Form 8-K reports; and |
| 4. | at least one year has elapsed from the time the issuer filed the current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company. |
In the event we become a “shell company”, when we are no longer considered a development stage company, we will need to comply with the foregoing provisions.
Current Public Information
In general, for sales by affiliates and non-affiliates, the satisfaction of the current public information requirement depends on whether we are a public reporting company under the Exchange Act:
● | If we have been a public reporting company for at least 90 days immediately before the sale, then the current public information requirement is satisfied if we have filed all periodic reports (other than Form 8-K) required to be filed under the Exchange Act during the 12 months immediately before the sale (or such shorter period as we have been required to file those reports). |
● | If we have not been a public reporting company for at least 90 days immediately before the sale, then the requirement is satisfied if specified types of basic information about us (including our business, management and our financial condition and results of operations) are publicly available. |
However, no assurance can be given as to:
● | the likelihood of a market for our common shares developing, |
| ● | the liquidity of any such market, |
| ● | the ability of the shareholders to sell the shares, or |
| ● | the prices that shareholders may obtain for any of the shares. |
Stock Option Grants
To date, we have not granted any stock options.
Registration Rights
WeOther than those set forth in the Registration Rights Agreement, we have not granted registration rights to the selling shareholders or to any other persons.
We are paying the expenses of the offering because we seek to: (i) become a reporting company with the Commission under the Securities Exchange Act of 1934; and (ii) enable our common stock to be traded on the Over-the-Counter Bulletin Board. We must be a reporting company under the 1934 Act in order that our common stock is eligible for trading on the OTCBB. We believe that the registration of the resale of shares on behalf of existing shareholders may facilitate the development of a public market in our common stock if our common stock is approved for trading on a recognized market for the trading of securities in the United States.
We consider that the development of a public market for our common stock will make an investment in our common stock more attractive to future investors. In the near future, in order for us to continue with our business plan, we will need to raise additional capital. We believe that obtaining reporting company status under the 1934 Act and trading on the OTCBB should increase our ability to raise these additional funds from investors. However, at the current time we believe we have secured sufficient working capital to fund our development activities for the next 24 months without the need to seek additional financing. We intend to seek quotation of our common stock on the OTCBB immediately following the effectiveness of the Registration Statement of which this Prospectus is a part.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or condition.
BUSINESS AND PLAN OF OPERATION
We were incorporated on November 16, 2010 under the laws of the state of Nevada.
While our operating plan is in the development stage, our goal is to expand our product offerings on our website through management’s current contacts in the health improvement industry. We look to increase gross sales by offering additional products incrementally each month.
For the year ending December 31, 2010
Results of Operations
Revenues. We had no revenues for the year ending December 31, 2010. We hope to generate revenues as we continue operations and implement our business plan in 2011.
Operating Expenses. For the fiscal year ending December 31, 2010, our total operating expenses were $1,615.
Net Loss. For the fiscal year ending December 31, 2010, our net loss was $1,615.
As of December 31, 2010, we had liabilities of $1,615, all of which were represented by short term loans for startup and organizational costs. We had no other long-term liabilities, commitments or contingencies.
For the nine month period ending September 30, 2011
Results of Operations
Revenues. We had $636 in product revenues for the nine month period ending September 30, 2011. We hope to increase revenues as we continue operations and implement our business plan in 2011 and beyond.
Operating Expenses. For the nine month period ending September 30, 2011 our total operating expenses were $121,919. Our operating expenses were comprised of organizational costs of $3,642, general and administrative expenses of $49,980, professional fees of $37,112, interest expense of $21, equipment expenses of $3,904, and website development expenses of $27,260.
Net Loss. For the nine month period ending September 30, 2011 our net loss was $121,673.
Liquidity and Capital Resources. In 2011, we issued 2,000,000 shares of Series A Preferred Stock to ICPI at a price of $0.05 per share for $100,000. We used part of those proceeds to pay for start-up and organizational costs.
For the first nine months ending September 30, 2011, we incurred liabilities of $23,929 which included accounts payable of $8,527, payroll liabilities of $2,079, interest payable of $21, and short term loans of $13,302.
During 2011, we expect to incur accounting costs associated with the audit of our financial statements. We expect that the legal and accounting costs of becoming a public company will continue to impact our liquidity, however, we do not anticipate needing to obtain additional funds beyond those committed to by ICPI to pay those expenses. In the event ICPI fails to invest the funds to which it has committed, additional funding will need to be obtained. Other than the anticipated increases in legal and accounting costs due to the reporting requirements of becoming a reporting company, we are not aware of any other known trends, events or uncertainties, which may affect our future liquidity.
DESCRIPTION OF BUSINESSCompany
We were incorporated in the State of Nevada on November 16, 2010 with fiscal year end on December 31. We are a start-uphealth and wellness company. Presently, our primary business is pazoo.com, an online, content driven, ad supported health and wellness web site for people and their pets. Additionally, this site has e-commerce functionality which allows pazoo.com to be an online retailer of nutritional foods/supplements, wellness goods, and fitness apparel, and health improvement advice on our website. We doapparel. Pazoo, Inc. does not have any brick and mortar establishments andestablishments. At present our only revenue source of revenue is through www.pazoo.com. Since November 16, 2010 (our inception) which generates product sales and online advertising revenue. As of December 31, 2013, we had total assets of $75,349 and plan to September 30, 2011 (the date of the accompanying financial statements) we have generated $636make additional investments in revenues and have had a cumulative net loss of $123,288. We have never been party to any bankruptcy, receivership or similar proceeding, nor have we undergone any material reclassification, merger, consolidation, purchase or sale of a significant amount of assets not in the ordinary course of business.online content.
We have yet to commence planned operations to any significant measure. AsThe primary mission of the date of this registration statement, we have had only limited start-up operations and have generated only $636 in revenues. We will not be profitable until we derive sufficient revenues and cash flows from our retail website www.pazoo.com
Our missionpazoo.com is to deliver health and wellness content in the form of media, articles, blogs, videos and other media/content. Additionally, www.pazoo.com delivers healthy cost-effective nutritional products throughbased on relationships with leading manufacturers in the health improvement industry. PAZOO.comIn other words, pazoo.com is a user-friendly, attractively designed web site and e-commerce portal for total health products.and wellness information and health products for individuals and their pets. We are a startup e-commerce retailer and we seek to enhance visitors’ experiences to our customers well beingwebsite by providing total health content and health products including foods, drinks, supplements, wellness merchandise, and health/wellness advice. OurPazoo.com’s primary target demographic will beis health conscious adults ages 29-7524 - 54 seeking to better their personal well-being and complement their daily lifestyles with practical use items. Our operationsconsumer products items that are part of and promote a healthy lifestyle.
We expect to datebenefit from the size and growth of the e-commerce market and to increase our revenues and operating cash flow by acquiring additional customers through enhanced content. The U.S. overall market for e-commerce retail sales includes 20,000 companies with estimated revenue of $270 billion with global revenue for internet retailing exceeding more than $1 trillion annually. Consumer disposable income coupled with effective marketing are key growth drivers in the development of the output for US electronic shopping.1
Lines of Business
We currently have been devoted primarilythree lines of business relating to start-up and development costs, which include:revolving around the health and wellness arena:
1. | Formation● | Advertising Revenue from Our Website, www.pazoo.com. Through advertising providers and agencies, pazoo.com is paid for every ad impression that appears on a page for which a visitor goes to. As we build our visitor base, ad revenue will increase. However, just having the traffic does not effectively increase advertising revenue. To get the full value of each visitor, the Company;time on site must be long enough so that a visitor is interested in going to multiple pages for which there are ads on each page. The only way this will transpire is if the visitor’s experience is gratifying. This is why pazoo.com is so focused on quality content that’s interesting and informative. A bad visitor experience will result in a low time on site and fewer page views. Internet tracking tools have much improved over the past decade and will continue to improve in the coming years, especially when it comes to advertising and overall website analytics. Pazoo continues to constantly improve is this area at all times. Pazoo.com has seen a strong increase in its viewership as shown by the recent average time spent on site for the period March 2014 to May 2014 of five minutes and forty seconds versus three minutes and twenty-seven seconds for the same time period from December 2013 to February 2014 with the same amount of page views. |
Pazoo.com has a unique and compelling online marketing platform. Pazoo.com offers the following important marketing advantages to its target audiences:
| 1. | A comprehensive solution as a content source – information on a full spectrum of disciplines within the health and wellness marketplace; |
2. | Development2. | Health and wellness experts that have expertise in these varied disciplines and write about their areas expertise; and |
1 Excerpt from Internet & Mail-Order Retail Industry Profile, First Research, Last quarterly update 11/18/13. Obtained at http://www.firstresearch.com/Industry-Research/Internet-and-Mail-Order-Retail.html | 3. | Content that is both for the health and wellness of our business plan;people as well as their pets (over 50% of American homes have pets). |
3. | Secured our website domain ●
| www.pazoo.comE-commerce.; Our e-commerce offerings will increase as we build the traffic coming to pazoo.com. In this way we could establish a revenue source over and above advertising to increase the value of each visitor. We have the following e-commerce elements ready for an activated marketing program:
|
| 1. | An e-commerce platform that is functional; |
4. | Procuring products for inclusion on our website;2. | Relationships with manufacturers, distributors and other e-commerce companies so that increasing product offerings will not be time consuming; |
5. | Website development3. | Members on the pazoo.com content team with merchandising experience: i.e. a Pazoo expert is buyer of pet products for a large pet retailer; and |
| 4. | Members on the pazoo.com content team that are experienced in e-commerce marketing; i.e. we will look to offer our consumers low cost and timely delivery of product logistics testing.by negotiating with shipping companies to offer a flat rates on various products. |
Our product line | ● | Pharmaceutical Testing Facilities. We entered this arena through our recent acquisition of a 40% minority equity stake in MA & Associates, LLC. MA & Associates was launched in September of 2013 to provide quality control services to the medical cannabis industry. MA & Associates’ primary mission is to protect the public health by providing infrastructure and analytical services to legally authorized distributors and producers of cannabis and to regulators tracking their operations. |
The company will evolve as new vendor relationshipsprovide the medical cannabis industry guidelines on how the regulation and inspection by public health authorities is to be implemented. MA & Associates’ primary customer base includes all of the licensed cannabis cultivators, in the State of Nevada, and their customers are cultivatedrequired by law to have their products tested before they can be transferred to the dispensaries. As such, we are in a unique position to provide the mandated health and new products are discovered. safety testing upon which this burgeoning industry must hinge.
Growth Strategy
We will lookplan to leveragegrow our in-house expertsassets and earnings per share by employing the following business strategies:
| ● | Continue to Invest in www.pazoo.com. We look to leverage our in-house experts and industry contacts to expand our market presence. On our website, the Pazoo.com experts blog on health and wellness within their areas of expertise, disseminating information on trends, developments and other pertinent industry facts. Additionally, through its own writers and other outside content sources, Pazoo.com provides videos and articles on health and wellness and provides an additional focus on the latest total health concepts. |
The purpose of these various sources of content is to expandoffer a creative solution that comprehensively covers the full spectrum of disciplines within health and wellness. This comprehensive solution has become compelling for our market presence. Onvisitors because we have focused on offering vital and entertaining information content that is updated periodically throughout the day. Combining our website, we will also blog onstrategy to be an online library of comprehensive health improvement,and wellness information with an additional focus on the latest total health concepts. These value added features and a strong product mix should helpmultiple sources of well written content has helped to establish uspazoo.com as a leading retailerprovider of total health. Nutrition is one area where consumers can severely make changes in their lifestyle to positively alter their total well-being. The Company will work closely with leading manufacturers who offer alternative food options that enhance or elevate consumers general nutrition habits. PAZOO will carry a variety of nutritionhealth and food supplement products; however, we will initially begin with VitaminSpice and Emergent products. Energy drinks, and energy bars will also be considered for our online website. Magnetic therapy is believed to provide pain relief, increased blood flow, stress relief, and anti-infective properties. The Company will seek to carry pre-established brands of energy bracelets, watches and anklets, as well as develop its own product line using magnetic technology to increase its therapeutic effect. PAZOO’s bracelets may be in copper, rubber, and metal form for a variety of uses and health benefits. Our product inventory will be held in our headquarters at 15A Saddle Rd, Cedar Knolls, NJ 07927 and will be distributed to consumers through third party shippers.wellness.
We have developed a marketing campaign aimed strategically at reaching our intended customer base. A targeted and powerful internet presence will be achieved by utilizing search engine optimization (SEO), social networking, blogging, and newsletters to enhance the brand name. Our website will be designed to have a comprehensive, user friendly, full product selection with complete descriptions our company’s products. We will compete against traditional brick and mortar retailers as well as a host of online retailers that sell vitamins, supplements, and health/wellness products. Our website, PAZOO.com, will seek to utilize technology and web development to maximize the natural economies of scale of the online business model. Our profitability will be determined by our ability to achieve and maintain heightened revenue levels through superior customer service, unique product offerings, brand recognition, and favorable vendor relationships. | ● | Focus on E-commerce. The product offerings on pazoo.com’s e-commerce platform will expand in terms of the number of products offered when our visitor base increases and management will put more marketing dollars into this business line. At that point, additional manufacturing relationships will be cultivated which will be a main factor in increasing the product offerings on pazoo.com. |
| ● | Grow Secondary Revenue Streams. Pazoo is a health and wellness company with a strategy of growing revenues through a number of sources. From our inception, the strategy has been to be an integrated health and wellness company offering quality products and services in many lines of business which include the following: |
| 1. | Advertising revenue through more traditional media outlets, such as television and radio. The internet has given direct response an inexpensive, effective way to test a direct response offer in terms of the product itself, the pricing of that product, the messaging associated with that product and the target audience. Limited, focused, pay per click (PPC) campaigns can be effectively executed for a fraction of broadcast costs. If a test campaign can successfully determine the elements for a profitable PPC, on line campaigns can be rolled out leading to testing for traditional media outlets such as television, radio and print. |
The criteria that Pazoo Marketingwill use to determine if a product justifies an on line test is the following: how innovative and Promotion
Our goalmarketable is a product; how well does the product work; is this product attractive to bea large audience; is the leading providerproduct priced in a way that the target audience would perceive value; is there a large enough gross margin in terms of health and wellness products and services and our marketing strategy is designed to:dollars to finance the media while generating a strong profit.
Pazoo has found the first product that fits the above criteria. Shortly, we will be testing the product for its effectiveness. This product fits our criteria for audience requirements and financial modeling.
● | 2. | Consulting services featuring our experts. Generally, our Experts regularly advise consumers and/or companies on matters related to each Expert’s specific discipline. At some point in the future, it would be a natural extension of our relationship with the Experts to find them “for pay” consulting engagements. The consulting engagement could be in the form of working with a person one-on-one or advising a small or large group in a forum or presentation. For Pazoo, this would be a natural extension of our relationship with our Experts (which is already provided for in their contracts with Pazoo). Additionally, with the size of the Pazoo.com audience we have a built in solicitation vehicle for our Experts’ services. Additionally, the Pazoo management is regularly meeting with potential customers for consulting services. The attractive part of this additional revenue stream is that the risk is minimal because there is not meaningful overhead attached to it as a startup opportunity. And, Pazoo only has to pay the Experts when it gets paid. |
| 3. | Pazoo branded events like forums and conventions. As a further extension to our consulting business, Pazoo will put on its own health and wellness forums or conventions. Once the consulting business has enough transactions, visibility and awareness, Pazoo can put on a forum which would be marketed using the Pazoo brand which will have substantial awareness, promoted through the pazoo.com web site and existing partnerships, and feature our own Experts. By rolling out this division in the aforementioned manner, Pazoo will be effectively able to introduce this service without exposing itself to some of the risks that others are exposed to when they enter the public forum business. |
| ● | Opportunistically Pursue Strategic Acquisitions. We plan to selectively pursue strategic, investments in, or acquisitions of, companies (like MA & Associates) and assets that are complementary to our existing lines of business. We believe that our existing management platform can support more assets without significant increases to our infrastructure due to the scalable nature of our operations. |
Marketing and Promotion
To achieve our marketing goal and objective of being the leading provider of health and wellness content, services and products, our marketing strategy has focused on the following:
| ● | Strengthen the Pazoo.com brand name,name; |
● | ● | Increase customer traffic to the Pazoo.com website,website; |
● | Build● | Continue to build strong customer loyalty,loyalty; and |
● | ● | Maximize repeat purchasesinvolvement with our visitors and develop incremental revenue opportunities. |
We intend to build customer loyalty by creatively applying technology to deliver personalized programshave and service, as well as creative and flexible merchandising. We will strive to provide increasingly targeted and customized services by using customer preference data obtained as a result of consumer online feedback. By offering customers a compelling and personalized value proposition, we seek to increase the number of visitors that make a purchase, to encourage repeat visits and purchases and to extend customer retention.
We will utilize a variety of media, programmarketing tools to increase traffic on pazoo.com and product development, business development and promotional activities to achieve these goals implementingawareness about this site. These marketing tools include the following:
On-Line Marketing
| ● | Search Engine Optimization (SEO) |
| ● | Pay-per-click Marketingmarketing |
| ● | Social media (Facebook, Twitter, Instagram, YouTube) |
●
| ● | Online promotional partners – event marketing |
Brick and Mortar Marketing and Promotion
● | Targeting distributors to independent outlets in the pharmacy and health store markets |
●
● | Take advantage of market relationships from suppliers and retailers |
| ● | Take advantage of combined sales efficiencies from online as well as off lineoff-line |
| ● | Build strong relationships with suppliers from both a sales standpoint as well as a promotional standpoint |
By marketing and advertising pazoo.com, we are able to drive our targeted audience to pazoo.com while increasing awareness about pazoo.com as the leading on line health and wellness community for people as well as their pets. In fact, to retain awareness we have added a memorable tagline to the pazoo.com’s logo ‘Be Inspired. Live Powerful.’ This challenging tagline is an example of pazoo.com having its own personality that stands out and can be remembered.
We feel that loyal, satisfied customersvisitors to our site have vast potential to generate additional visits as returning visitors as well as word-of-mouth advertising and awareness, and are ablesources for new visitors to reach thousands of other customers and potential customers because of the reach of online communication.come to pazoo.com. However, to maintain this loyalty we have to maintain high quality content on pazoo.com that’s constantly being updated.
Industry Overview
The U.S. overall market for e-commerce retail sales includes 16,000 companies with estimated revenue of $235 billion and the top 50 companies accounting for 60% of the industry revenue. According to U.S. Census data reports, online retail sales for the fourth quarter of 2010 rose 16.3% to $44.1 billion from the prior year, which recently led to the gradual revenue shift from catalog to internet sales.2 Total annual online retail sales in 2010 accounted for 4.2% of total sales. While some of this growth can be linked to a slight rebound from the current recession, it also indicates strong sector strength as well.
SHIPPING
We will look to offer our consumers low cost and timely delivery of product by negotiating with shipping companies to offer a flat rates on various products. We will also seek to ship orders to customers on the same day if placed before 2pm Eastern Standard Time, Monday through Friday, Holidays excluded. Our goal will be to deliver all orders within one to four business days via third party shippers such as, United Parcel Service or United States Postal Service.
2Excerpt from Internet and Catalog Retailers Industry Profile, First Research, March 2011. Obtained at http://www.firstresearch.com/industry-research/Internet-and-Catalog-Retailers.html
COMPETITION
The online commerce market is rapidly evolving and intensely competitive, and we expect the competition to intensify in the future. Barriers to entry are minimal, and current and new competitors can launch new sites at a relatively low cost. In addition, the health improvement industry is intensely competitive. We currently or potentially compete with a variety of other companies. These competitors include: (i) direct competitors that specialize in or derive a substantial portion of their revenues from online retail and direct marketing of health and wellness products, including Vitacost; (ii) various nutrition centers and vendors of other health related products such as sports nutrition, diet or other wellness products, including General Nutrition Centers; and (iii) online vendors of dietary supplements, vitamins, minerals and herbs, with significant brand awareness, sales volume and customer bases, such as and VitaminShoppe.
We believe that the principal competitive factors in our market are brand recognition, selection, convenience, price, accessibility, customer service, and speed of order fulfillment. Many of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than Pazoo. In addition, online retailers may be acquired by, receive investments from or enter into other commercial relationships with larger, well-established and well-financed companies as use of the Internet and other online services increases. Some of our competitors may be able to secure merchandise from vendors on terms that are more favorable, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing or inventory availability policies and devote substantially more resources to website and systems development than our company. Increased competition may result in reduced operating margins, loss of market share and a diminished brand franchise. There can be no assurance that we will be able to compete successfully against current and future competitors, and competitive pressures faced by us may have a material adverse effect on our financial condition, operational results, business, and prospects. Furthermore, as a strategic response to changes in the competitive environment, we may from time to time make certain pricing, service or marketing decisions or acquisitions that could have a material adverse effect on our financial condition, operational results, business, and prospects.
PATENTS, TRADEMARKS, AND LICENSES
We have filed for a trademark application for IUCSS with the United States Patent and Trademark Office (USPTO) on April 8, 2011, bearing Serial Number 85290478. On June 29, 2011 we filed a name change to Pazoo, Inc. with the USPTO bearing docket number 0078851-000005. See Exhibit 99.2 “Trademark Application”.
Government Regulation
We are subjectPlease note that as pazoo.com’s traffic and revenue increase, Pazoo will cost effectively continue to federal and state consumer protection laws, including laws protectingincrease the privacy of consumer non-public information and regulations prohibiting unfair and deceptive trade practices. In particular, under federal and state financial privacy laws and regulations, we must provide: (i) notice to consumers of our policies on sharing non-public information with third-parties; (ii) advance notice of any changes to our policies; and (iii) with limited exceptions, provide consumers the right to prevent sharing of their non-public personal information with unaffiliated third parties. Furthermore, the growth and demand for online commerce could result in more stringent consumer protection laws that impose additional compliance burdens on online retailers. These consumer protection laws could result in substantial compliance costs and could interfere with the conduct of our business.
There is currently great uncertainty in many states whether or how existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy applycontent to the Internet and commercial online retailers. These issues may take years to resolve. For example, tax authorities in a number of states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations may subject us to additional state sales and income taxes. New legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or a change in application of existing laws and regulations to the Internet and commercial online services could result in significant additional taxes on our business. These taxes could have an adverse effect on our results of operations. Furthermore, there is a possibility that we may be subject to significant fines or other payments for any currently unknown past failures to comply with these requirements.
The sale of nutritional supplements is subject to extensive legislation in the U.S. and abroad. The FDA is responsible for enforcing the Federal Food, Drug and Cosmetic Act, or FDCA, which governs the formulation, packaging, labeling, manufacturing and distribution of vitamins, minerals, herbs and other nutritional supplements,site as well as the salequality of overthis content. To have successful advertising sales, there needs to be a long term commitment to quality content so that all returning visitors will know that we are source of broad based, high quality health and wellness content. Though content development is a manageable, yet increasing expense, this cost highlights an important market advantage for pazoo.com. A large part of our content development cost does not require cash outlays (the compensation is in stock). This reduces our cash requirements. However, this situation exemplifies the counter, or OTC, drugs. The Federal Tradeever increasing barrier to entry for others to create a health and wellness web site. Since pazoo.com launched its web site the cost of content has significantly gone up as well as marketing costs while ad revenues haven’t moved in a comparable manner. So, startup costs today and cash flow requirements have become much more challenging since pazoo.com launched its first version of pazoo.com
Industry Trends
| ● | Steady and Rapid Growth in Online Advertising. Over the past decade in particular, the internet has changed the landscape of how we share and obtain information. More and more businesses are realizing the power of an online presence and are taking their businesses to the internet for marketing, brand recognition, and sales. The industry trend for 2014 is that online advertising and online marketing will continue to increase and permeate aspects of both business and personal life. |
Specifically, content marketing will continue to increase. By consistently creating and disseminating content through an array of online channels, businesses are reaching consumers and retaining consumer bases in a whole new way. Further, Social Media will continue to be a powerful driving force in online advertising, marketing, and branding. Finally, Mobile content will be increasingly necessary and important. Due to the ever expanding use of smartphones and mobile devices, consumers are spending more time searching and purchasing products and information on their handheld devices than ever before.
Commission, or FTC, is responsible for overseeing the advertising of nutritional supplements, and is primarily concerned with publicly made health claims that are not substantiated by definitive scientific studies. The U.S. Postal Service governs advertising as it relates to product safety. Regulation of certain aspects of the nutritional supplement business at the federal level is also governed by the Consumer Safety Product Commission, the Department of Agriculture and the Environmental Protection Agency. The formulation, manufacture, packaging, labeling and sale of nutritional supplements are also subject to extensive state, local and foreign legislation.
The FDCA addresses dietary supplements principally through the Dietary Supplement Health and Education Act of 1994, or DSHEA. The DSHEA defines “dietary supplements” as vitamins, minerals, herbs, other botanicals, amino acids and other dietary substances that are used to supplement the diet, as well as concentrates, constituents, extracts or combinations of such dietary ingredients. Generally, under DSHEA, dietary ingredients that were on the market before October 15, 1994 may be used in dietary supplements without notifying the FDA. However, a “new” dietary ingredient (i.e., a dietary ingredient that was not marketed in the U.S. before October 15, 1994) must be the subject of a new dietary ingredient notification submitted to the FDA unless the ingredient has been “present in the food supply as an article used for food” without having been “chemically altered.” A new dietary ingredient notification must provide the FDA with evidence of a “history of use or other evidence of safety” which establishes that use of the dietary ingredient “will reasonably be expected to be safe.” A new dietary ingredient notification must be submitted to the FDA at least 75 days before the new dietary ingredient can be marketed. Furthermore, there can be no assurance that the FDA will accept evidence purporting to establish the safety of any new dietary ingredients that we may want to market, and the FDA’s refusal to accept such evidence could prevent the marketing of such dietary ingredients. The FDA is in the process of developing guidance for the industry to clarify its interpretation of the new dietary ingredient notification requirements, and this guidance has the potential to raise new and significant regulatory barriers for new dietary ingredients. In addition, increased FDA enforcement could lead the FDA to challenge dietary ingredients already on the market as “illegal” under the FDCA because of the failure to file a new dietary ingredient notification.
DSHEA permits “statements of nutritional support” to be included in labeling for dietary supplements without FDA pre-approval. Such statements may describe how a particular dietary ingredient affects the structure, function or general well-being of the body, or the mechanism of action by which a dietary ingredient may affect the structure, function or well-being of the body, but such statements may not state that a dietary supplement will diagnose, cure, mitigate, treat or prevent a disease unless such claim has been reviewed and approved by the FDA. A company that uses a statement of nutritional support in labeling must possess evidence substantiating that the statement is truthful and not misleading. In some circumstances, it is necessary to disclose on the label that the FDA has not “evaluated” the statement, to disclose the product is not intended to combat disease and to notify the FDA about our use of the statement within 30 days of marketing the product. However, there can be no assurance that the FDA will not determine that a particular statement of nutritional support that we want to use is an unacceptable disease claim or an unauthorized version of a “health claim.” Such a determination might prevent the use of such a claim.
In addition, DSHEA provides that certain so-called “third-party literature,” e.g., a reprint of a peer-reviewed scientific publication linking a particular dietary ingredient with health benefits, may be used “in connection with the sale of a dietary supplement to consumers” without being subject to labeling regulations. Such literature must not be false or misleading, the literature may not “promote” a particular manufacturer or brand of dietary supplement and a balanced view of the available scientific information on the subject matter must be presented. There can be no assurance, however, that all third-party literature that we would like to disseminate in connection with our products will satisfy each of these requirements, and failure to satisfy all requirements could prevent use of the literature or subject the product to regulation as an unapproved drug.
As authorized by DSHEA, the FDA has recently proposed Good Manufacturing Practices, or GMPs, specifically for dietary supplements. These new GMP regulations, which are anticipated to be finalized in the near future, would be more detailed than the current GMPs regulating dietary supplements and may, among other things, require dietary supplements to be prepared, packaged and held in compliance with certain rules and might require quality control provisions similar to those set forth in the GMP regulations for drugs. There can be no assurance that if the FDA adopts GMP regulations for dietary supplements we will be able to comply with the new rules without incurring substantial expense.
The FDA generally prohibits labeling a dietary supplement with any “health claim” (that is not authorized as a “statement of nutritional support” permitted by DSHEA) unless the claim is pre-approved by the FDA. There can be no assurance that some of the labeling statements that we would like to use will not be deemed by the FDA to be impermissible “health or disease claims.”
Although the regulation of dietary supplements is in some respects less restrictive than the regulation of drugs, there can be no assurance that dietary supplements will continue to be subject to less restrictive regulation. Legislation has been periodically introduced in Congress, including in 2004 and 2005, to amend the FDCA to place more restrictions on the marketing of dietary supplements. In addition, Congress has been asked to consider various systems for pre-market and post-market review of dietary supplements to make the regulation of these products similar to the regulation of drugs under the FDCA. The FDA regulates the formulation, manufacturing, packaging, labeling and distribution of OTC drug products pursuant to a “monograph” system that specifies active drug ingredients that are generally recognized as safe and effective for particular uses. If an OTC drug is not in compliance with the applicable FDA monograph, the product generally cannot be sold without first obtaining FDA approval of a new drug application, which can be a long and expensive procedure. There can be no assurance that, if more stringent statutes are enacted for dietary supplements, or if more stringent regulations are promulgated, we will be able to comply with such statutes or regulations without incurring substantial expense.
The FDA has broad authority to enforce the provisions of the FDCA with respect to dietary supplements and OTC drugs, including powers to issue a public “warning letter” to a company, to publicize information about illegal products, to request a voluntary recall of illegal products from the market and to request that the Department of Justice initiate a seizure action, an injunction action or a criminal prosecution in U.S. courts.
The FTC exercises jurisdiction over the advertising of dietary supplements. In recent years, the FTC has instituted numerous enforcement actions against dietary supplement companies for making false or misleading advertising claims and for failing to adequately substantiate claims made in advertising. These enforcement actions have often resulted in consent decrees and the payment of civil penalties and/or restitution by the companies involved.
We are also subject to regulation under various state, local and international laws that include provisions governing, among other things, the formulation, manufacturing, packaging, labeling, advertising and distribution of dietary supplements and OTC drugs. Government regulations in foreign countries may prevent or delay the introduction, or require the reformulation, of certain of our products. Compliance with such foreign governmental regulations is generally the responsibility of our distributors in those countries. These distributors are independent contractors whom we do not control.
In addition, from time to time in the future, we may become subject to additional laws or regulations administered by the FDA or by other federal, state, local or foreign regulatory authorities, to the repeal of laws or regulations that we consider favorable, such as DSHEA, or to more stringent interpretations of current laws or regulations. We are not able to predict the nature of such future laws, regulations, repeals or interpretations, and we cannot predict what effect additional governmental regulation, if and when it occurs, would have on our business in the future. Such developments could, however, require reformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, additional personnel or other new requirements. Any such developments could have a material adverse effect on our business.
Our fiscal year end is December 31.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our directors serve until their successors are elected and qualified. Our directors elect our officers to a term of one (1) year and they serve until they are reelected or their successors are duly elected and qualified, or until they are removed from office. The board of directors has no nominating or compensation committees.
The name, age, and
positionposition of our present officers and directors is set forth below:
| Name | | Age | | Title |
| Steven Basloe | | 62 | | President, Chairman of the Board of Directors |
| David Cunic | | 3234 | | Chief Executive Officer, Director |
Steven Basloe | | 60 | | President, Director |
| Ben Hoehn | | 3032 | | Chief Operating Officer |
Gregory Jung | | 44 | | and acting Chief Financial Officer Director |
With the exception of Ben Hoehn, who has held his position since September 2011, the persons named above have held their offices/positions since inception of November 2010 and we expect them to hold their offices/positions at least until the next annual meeting of our shareholders.
Steven Basloe – President, and Executive Vice President of Marketing/Sales, Chairman of the Board Steven Basloe holds a Bachelor of Science degree and a Master in Business Administration in Marketing, as well as a Juris Doctorate, all from Syracuse University. Mr. Basloe brings over three decades of sales and marketing experience to Pazoo and will play a key role in developing strategic plans for advertising, sales, marketing, and distribution. Since 1996, Mr. Basloe has served as owner of SMB Marketing Group, Inc. where he successfully provided consulting services in creative and strategic planning to major corporations such as Bertelsmann, Warner’s, Samsung, S. Rothschild, and Alfred Haber Distribution. He was chosen to serve as the Chairman of the Board of Directors based on his previous success in operating SMB Marketing Group, a full service marketing firm providing strategic marketing, sales consulting services, planning and creative production for marketing, advertising and promotions. He maintained 100% responsibility for budgeting, planning and execution for his client’s campaigns based strategy and planning.
David M. Cunic – Chief Executive Officer, Director
David Cunic is a member of various physical therapy and community service organizations as well as theand was an owner and manager of DMC Athletics & Rehabilitation, Inc. (DMC). from its founding in 2006 until he sold his interest in November 2013. David had grown the company from himself, as the only employee, to 23 employees in just over seven years with sales reaching approximately $2 million per year. Educated with a Bachelor of Health Science and Master of Physical Therapy from the University of New England, David is highly trained in sports medicine, orthopedics, and manual therapy and has had the honor of working with prestigious doctors from numerous professional and Olympic sport teams. In addition, prior to forming DMC, he has worked at inpatient facilities and has managed several outpatient orthopedic clinics. Mr. Cunic periodically refines his knowledge and manual skills through workshops and continuing education seminars, but what makes him truly unique is his ability to relate to his patients, which is a result of receiving intensive physical therapy himself for four years. David is a certified personal trainer and a licensed referee for the United States Soccer Federation. He was chosen to serve as the CEO and on the Board of Directors based on the fact that it was his vision and concept to create Pazoo, Inc.
Steven Basloe – President, Executive Vice President of Marketing and Sales, Director
Steven Basloe holds a Bachelor of Science degree and a Master in Business Administration in marketing, as well as a Juris Doctorate, all from Syracuse University. Mr. Basloe brings over three decades of sales and marketing experience to PAZOO and will play a key role in developing strategic plans for advertising, sales, marketing, and distribution. Mr. Basloe recently served as owner of SMB Marketing Group where he successfully provided consulting services in creative and strategic planning to major corporations such as Bertelsmann, Warner’s, Samsung, S. Rothschild, and Alfred Haber Distribution.
Ben Hoehn – Chief Operating Officerand acting Chief Financial Officer
Ben Hoehn has both a Bachelor and a Master of Science in Criminal Justice from the University of Cincinnati. He is currentlywas formerly the Chief Operating Officer for all 3 of DMC Athletics and Rehabilitation’s physical therapy and personal training facilities, in New Jersey as well as DMC's Nutritional Line. He had held this post since April 2010, managing its current staff, handling all day to day business operations and implementing new policies and procedures to ensure patient satisfaction. Prior to his work at DMC, from 2007 to 2010 he workedwas employed in Cincinnati forby Community Police Partnering Center, a non-profit organization that worked with the Cincinnati Police Department in crime and problem solving techniques. His duties included developing, extracting, and analyzing criminal data as well as providing technical and analytical assistance to all stages of the criminal problem solving process.
Gregory Jung – Chief Financial Officer, Director
Gregory Jung holds a Bachelor of Science degree from Michigan State University in Food Systems Economics and Management. Mr. Jung brings over 14 years of capital markets experience spanning the areas of equity and fixed income trading, compliance, and supervision in the planning and delivery within client relationships. He has formerly held FINRA Series 4, 7, 24, 53, 55, and 63 licenses.
Possible Potential Conflicts
The OTCBB on which we plan to have our shares of common stock quoted does not currently have any director independence requirements.
No member of management will be required by us to work on a full time basis. Accordingly, certain conflicts of interest may arise between us and our officers and directors in that they may have other business interests in the future to which they devotes their attention, and may be expected to continue to do so although management time must also be devoted to our business. As a result, conflicts of interest may arise that can be resolved only through their exercise of such business judgment as is consistent with each officer's understanding of his fiduciary duties to us.
Currently we have three officers and directors and will seek to add additional officer(s) and/or director(s) as and when the proper personnel are located and terms of employment are mutually negotiated and agreed, and we have sufficient capital resources and cash flow to make such offers.
We cannot provide assurances that our efforts to eliminate the potential impact of any conflicts of interest will be effective.
Code of Business Conduct and Ethics
In January 1, 2011, we adopted a Code of Ethics and Business Conduct that is applicable to our future employees, concurrently with adopting a separate Code of Ethics for Principal Executive and Senior Financial Officers or persons performing similar functions. A code of ethics is a written standard designed to deter wrongdoing and to promote:
● | honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships |
● | full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the SEC and in other public communications made by the Company |
● | compliance with applicable governmental laws, rules and regulations |
● | the prompt internal reporting of violations of the Code of Ethics to an appropriate person or persons identified in the Code of Ethics; and |
●
| accountability for adherence to the Code of Ethics. |
Copies of our Code of Ethics and Business Conduct and Code of Ethics for Principal and Senior Financial Officers are being filed as Exhibit 99.2 to our Registration Statement of which this prospectus is a part.
Board of Directors
Our directors hold office until the completion of their terms of office, which is not longer than one year, or until they have been reelected or their successor(s) have been elected. Our directors terms of office expire on November 16, 2011. All officers are appointed annually by the board of directors and, subject to existing employment agreements (of which there are currently none), serve at the discretion of the board. Currently, directors receive no compensation for their role as directors but may receive compensation for their role as officers. In hope of attracting exemplary professionals, the company reserves the right to compensate outside directors when such outside directors are elected.
Involvement in Certain Legal Proceedings
During the past five years, no present director, executive officer or person nominated to become a director or an executive officer of us:
(1) had a petition under the federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
(2) was convicted in a criminal proceeding or subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3) was subject to any order, judgmentExecutive Compensation| Summary Compensation Table | |
Name and principal position (a) | | Year (b) | | Salary ($) (c) | | | Bonus ($) (d) | | | Stock Awards ($) (e) | | | Option Awards ($) (f) | | | Non-Equity Incentive Plan Compensation ($) (g) | | | Nonqualified Deferred Compensation Earnings ($) (h) | | | All Other Compensation ($) (i) | | | Total ($) (j) | |
| Steven Basloe, | | 2013 | | | 11,538 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 16,750 | (1) | | | 28,288 | |
| President and Director | | 2012 | | | 17,143 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| David Cunic, | | 2013 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| CEO and Director | | 2012 | | | 37,500 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ben Hoehn, | | 2013 | | | 2,308 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| COO | | 2012 | | | 40,846 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| (1) | Steven Basloe earned $11,538 as a Pazoo employee and $16,750 as a 1099 consultant |
Limitation of Liability and Indemnification
The Articles of Incorporation of Pazoo limits or decree, not subsequently reversed, suspendedeliminates the personal liability of directors for damages for breaches of their fiduciary duty, unless the director has engaged in intentional misconduct, fraud or vacated,a knowing violation of any court of competent jurisdiction, permanentlylaw, or temporarily enjoining him from or otherwise limiting his involvementpaid a dividend in anyviolation of the following activities:Nevada Revised Statutes.
i. acting as a futures commission merchant, introducing broker, commodity trading advisor commodity pool operator, floor broker, leverage transaction merchant, any other person regulated byPazoo’s Articles of Incorporation provisions may be interpreted to provide for the Commodity Futures Trading Commission, or an associated personindemnification of anyofficers and directors for certain civil liabilities, including liabilities arising under the Securities Act. In the opinion of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii. engaging in any type of business practice; or
iii. engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws; or
(4) was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of an federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (3) (i), above, or to be associated with persons engaged in any such activity; or
(5) was found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission, orsuch indemnification is against public policy as expressed in the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law,Securities Act and for which the judgment has not been reversed, suspended or vacated.
Committees of the Board of Directors
Concurrent with having sufficient members and resources, our board of directors will establish an audit committee and a compensation committee. We believe that we will need a minimum of five directors to have effective committee systems. The audit committee will review the results and scope of the audit and other services provided by the independent auditors and review and evaluate the system of internal controls. The compensation committee will manage any stock option plan we may establish and review and recommend compensation arrangements for the officers. No final determination has yet been made as to the memberships of these committees or when we will have sufficient members to establish committees. See “Executive Compensation”is, therefore, unenforceable. hereinafter.
We will reimburse all directors for any expenses incurred in attending directors' meetings provided that we have the resources to pay these fees. At the current time we do not have officers and directors liability insurance. We will consider applying for officers and directors liability insurance at such time when we have the resources to do so.
Summary Executive Compensation Table
The following table shows, for the period from November 16, 2010 (inception) to December 31, 2010, and the first nine months of 2011, compensation awarded to or paid to, or earned by, our Chief Executive Officer, President, Chief Operating Officer, and Chief Financial Officer.
Summary Compensation Table |
Name
PRINCIPAL SHAREHOLDERS
and
principal
position
(a)
| | Year
(b)
| | Salary
($)
(c)
| | Bonus
($)
(d)
| | Stock
Awards
($)
(e)
| | Option
Awards
($)
(f)
| | Non-Equity
Incentive
Plan
Compensation
($)
(g)
| | Nonqualified
Deferred
Compensation
Earnings
($)
(h)
| | All Other
Compensation
($)
(i)
| | Total
($)
(j)
|
| David Cunic, | | 2011 | | - | | - | | - | | - | | - | | - | | - | | - |
| CEO and Director | | 2010 | | - | | - | | - | | - | | - | | - | | (1) | | - |
| | | | | | | | | | | | | | | | | | | |
| Steve Basloe, | | 2011 | | - | | - | | - | | - | | - | | - | | - | | - |
| President and Director | | 2010 | | - | | - | | - | | - | | - | | - | | (2) | | - |
| | | | | | | | | | | | | | | | | | | |
| Ben Hoehn, | | 2011 | | - | | - | | - | | - | | - | | - | | (3) | | - |
| COO | | 2010 | | - | | - | | - | | - | | - | | - | | - | | - |
| | | | | | | | | | | | | | | | | | | |
| Gregory Jung, | | 2011 | | 13,462 | | - | | - | | - | | - | | - | | - | | - |
| CFO and Director | | 2010 | | - | | - | | - | | - | | - | | - | | (4) | | - |
We have no formal employment arrangement with our Directors and their compensation has not been fixed or based on any percentage calculations. Our Directors will make all decisions determining the amount and timing of their compensation and, for the immediate future, will not receive any compensation. Our Directors compensation amounts will be formalized if and when their annual compensation exceeds $50,000.
(1) | David Cunic, our Chief Executive Officer and Director, was issued 15,000,000 shares of no cost basis common stock at inception in 2010 |
(2) | Steve Basloe, our President and Director, was issued 15,000,000 shares of no cost basis common stock at inception in 2010. However, Mr. Basloe directed that certain of his founder’s shares be titled in the names of his four children. Jeremy Basloe, Adam Basloe, Daniel Basloe, and Rebecca Basloe each received 250,000 shares of restricted founders stock. |
(3) | Ben Hoehn, our Chief Operating Officer, was issued 2,500,000 shares of common stock valued at $12,500 in 2011 and replaced Gina Morreale as Secretary and Treasurer |
(4) | Gregory Jung, our Chief Financial Officer, was issued 12,500,000 shares of common stock in 2010 and is the only Director receiving monetary compensation in 2011 from the Company for his services in the amount of $25,000 per year. As of September 30, 2011, Mr. Jung’s compensation was in the amount of $13,462. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
followingfollowing table sets forth, as of
September 30, 2011,May 13, 2014, the beneficial ownership of our common stock by each executive officer and director, by each person known by us to beneficially own more than 5% of our common stock and by the executive officers and directors as a group. Except as otherwise indicated, all shares are
beneficially owned directly and the percentage shown is based on
48,182,000111,357,417 shares of common stock.
| Title of class | | Name and address of beneficial owner | | Amount of beneficial ownership | | Percent of class | |
| | | | | | | | | | |
| Common | | Steve Basloe | | 15,000,000 | | | 13.5 | % | |
| | | 560 Sylvan Avenue | | | | | | | |
| | | Englewood NJ 07632 | | | | | | | |
| | | | | | | | | | |
| Common | | David Cunic | | 15,000,000 | | | 13.5 | % | (1) |
| | | 13 Old Mill Drive | | | | | | | |
| | | Denville NJ 07834 | | | | | | | |
| | | | | | | | | | |
| Common | | Gregory Jung | | 12,500,000 | | | 11.2 | % | |
| | | 2620 Sand Arbor Circle, | | | | | | | |
| | | Orlando, FL 32824 | | | | | | | |
| | | | | | | | | | |
| Common | | Ben Hoehn | | 2,500,000 | | | 2.2 | % | (2) |
| | | 32 Osborne Place | | | | | | | |
| | | West Orange, NJ 07052 | | | | | | | |
| | | | | | | | | | |
| Common | | Total Beneficial Ownership | | 45,000,000 | | | 40.4 | % | |
| | | | | | | | | | |
| Common | | Total Issued and Outstanding | | 111,357,417 | | | 100.0 | % | |
| (1) | Mr. Basloe's beneficial ownership includes 1,000,000 shares of stock issued in the names of his four children at his request and direction. |
| (2) | Ben Hoehn is the Chief Operating Officer and replaced Gina Morreale as Secretary and Treasurer in September 2011. |
As of May 13, 2014, shares of the Company's common stock was issued and outstanding was 111,357,417.
| Title of class | | Name and address of beneficial owner | | Amount of beneficial ownership | | | Percent of class* | |
| Common | | David Cunic 13 Old Mill Drive Denville NJ 07834 | | | 15,000,000 | | | | 31.1 | % |
| | | | | | | | | | | |
| Common | | Steve Basloe 560 Sylvan Avenue Englewood NJ 07632 | | | 14,000,000 | | | | 29.1 | % |
| | | | | | | | | | | |
| Common | | Gregory Jung 17625 North 14th Street Phoenix AZ 85022 | | | 12,500,000 | | | | 25.9 | % |
| | | | | | | | | | | |
| Common | | Ben Hoehn 496 Mayhow court South Orange NJ 07079 | | | 2,500,000 | | | | 5.2 | % |
| | | | | | | | | | | |
| Common | | Gina Morreale 361 Mohegan Circle Lafayette NJ 07848 | | | 2,500,000 | | | | 5.2 | % |
| | | | | | | | | | | |
| Common | | Total beneficial ownership | | | 46,500,000 | | | | 96.5 | % |
As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date.
The persons named above have full voting and investment power with respect to the shares indicated. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a "beneficial owner" of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security.
Disclosure of Commission Position of Indemnification for Securities Act Liabilities
In accordance with the provisions in our Articles of Incorporation, we will indemnify an officer, director, or former officer or director, to the full extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to our directors, officers and controlling persons pursuant to the company’s Articles of Incorporation, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of us in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Board of Directors and ShareholdersStockholders of
PAZOO,Pazoo, Inc.
Cedar Knolls, NJ 07927-1901New Jersey
We have audited the accompanying balance sheetsheets of PAZOO,Pazoo, Inc., a development stage enterprise, (the "Company") as of December 31, 2010,2013 and 2012, and the related statements of income,operations, stockholders' equity (deficit), and cash flows for each of the period from November 16, 2010 (Date of Inception) through December 31, 2010.years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.audits.
We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform thean audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our auditsaudit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. AnCompanysis for designing audit also includesprocedures that are appropriate in the circumstances, but not for the purpose es examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PAZOO,Pazoo, Inc., as of December 31, 2010,2013 and 2012 and the results of its operations and its cash flows for the period from November 16, 2010 (Date of Inception) through December 31, 2010,years then ended, in conformity with U.S.accounting principles generally accepted accounting principles.in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 42 to the financial statements, unless the Company is successful in expanding itshas suffered recurring losses from operations, and generating sufficient cash flow to meet its obligations, the Company is likely to cease operations. These matters raisewhich raises substantial doubt about the Company'sits ability to continue as a going concern. Management's plan in regard to theseManagements, plans regarding those matters is alsoare described in Note 4.2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
/s/ Santora CPA GroupMarch 31, 2014
Newark, DE 19713-4309
November 17, 2011
| PAZOO, INC | |
| (A DEVELOPMENT STAGE COMPANY) | |
| BALANCE SHEET | |
| | | | |
| | | | |
| | | December 31, 2010 | |
| ASSETS | |
| Current assets: | | | |
| Prepaid expense | | $ | 3,000 | |
| | | | | |
| Total current assets | | | 3,000 | |
| | | | | |
| Total assets | | $ | 3,000 | |
| | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| Current liabilities: | | | | |
| Loans payable - related party | | $ | 1,615 | |
| | | | | |
| Total current liabilities | | | 1,615 | |
| | | | | |
| Total liabilities | | $ | 1,615 | |
| | | | | |
| Stockholders' equity: | | | | |
| Common stock, 980,000,000 shares authorized, 45,600,000 shares issued and outstanding as of December 31, 2010 | | | 600 | |
| Additional paid in capital | | | 2,400 | |
| Retained earnings (accumulated deficit) | | | (1,615 | ) |
| | | | | |
| Total stockholders' equity | | | 1,385 | |
| | | | | |
| Total liabilities and stockholders' equity | | $ | 3,000 | |
The accompanying notes are an integral part of these financial statements.
| PAZOO, INC | |
| (A DEVELOPMENT STAGE COMPANY) | |
| BALANCE SHEETS | |
| | | | | | | |
| | | December 31, 2013 | | | December 31, 2012 | |
| | | | | | | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 35,848 | | | $ | 130,556 | |
| Accounts receivable | | | 33,461 | | | | 58,360 | |
| Inventories | | | 4,129 | | | | 6,808 | |
| Prepaid expenses | | | 1,911 | | | | 3,536 | |
| Allowance for Doubtful Accounts | | | - | | | | (13,300 | ) |
| | | | | | | | | |
| Total current assets | | | 75,349 | | | | 185,960 | |
| Property and equipment, net | | | - | | | | - | |
| | | | | | | | | |
| Total assets | | $ | 75,349 | | | $ | 185,960 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 64,846 | | | $ | 19,081 | |
| Accrued liabilities | | | - | | | | 3,410 | |
| Loans payable | | | 3,000 | | | | 18,302 | |
| Convertible debt, net of discount of $48,151 | | | 1,849 | | | | - | |
| Derivative liability | | | 172,049 | | | | - | |
| | | | | | | | | |
| Total current liabilities | | | 241,744 | | | | 40,793 | |
| | | | | | | | | |
| Stockholders' equity (deficit): | | | | | | | | |
| Common stock, $0.001 par value; 980,000,000 shares authorized, 101,409,500 and 72,142,000 shares issued and outstanding at December 31, 2013 and 2012, respectively | | | 101,410 | | | | 72,142 | |
| Convertible preferred stock, Ser. A, $0.001 par value, 10,000,000 shares authorized, 9,233,935 shares issued and 5,542,814 shares outstanding at December 31, 2013. 2,400,000 shares issued and outstanding at December 31, 2012. | | | 9,234 | | | | 5,543 | |
| Preferred stock, Ser. B, $0.001 par value, 2,500,000 shares authorized, 1,187,500 and 1,375,000 shares issued and outstanding at December 31, 2013 and 2012, respectively | | | 1,187 | | | | 1,375 | |
| Preferred stock, Ser. C, $0.001 par value, 7,500,000 shares authorized, no shares issued and outstanding at December 31, 2013 and 2012 | | | - | | | | - | |
| Warrants, 7,000,000 and 2,400,000 warrants issued and outstanding at December 31, 2013 and 2012, respectively | | | - | | | | - | |
| Additional paid-in capital | | | 2,242,140 | | | | 1,862,082 | |
| Retained earnings (accumulated deficit) | | | (2,520,366 | ) | | | (1,795,975 | ) |
| | | | | | | | | |
| Total stockholders' equity (deficit) | | | (166,395 | ) | | | 145,167 | |
| | | | | | | | | |
| Total liabilities and stockholders' equity (deficit) | | $ | 75,349 | | | $ | 185,960 | |
| PAZOO, INC. | |
| (A DEVELOPMENT STAGE COMPANY) | |
| STATEMENT OF OPERATIONS | |
| | | | |
| | | November 16, 2010 (Inception) to December 31, 2010 | |
| Net sales | | $ | - | |
| Cost of goods sold | | | - | |
| | | | | |
| Gross profit | | | - | |
| | | | | |
| Organizational costs | | | 1,615 | |
| | | | | |
| Loss from operations | | | (1,615 | ) |
| | | | | |
| Net loss | | $ | (1,615 | ) |
| | | | | |
| Weighted average common shares outstanding - Basic and Diluted | | | 45,600,000 | |
| Net loss per common share - Basic and Diluted | | $ | - | |
The accompanying notes are an integral part of these financial statements.
| PAZOO, INC. | |
| (A DEVELOPMENT STAGE COMPANY) | |
| STATEMENT OF OPERATIONS | |
| (Audited) | |
| | | | | | | |
| | | For the year ended December 31, 2013 | | | For the year ended December 31, 2012 | |
| | | | | | | | | |
| Net sales | | | | | | | | |
| Service Revenue | | $ | - | | | | 105,000 | |
| Merchandise Sales | | | 9,989 | | | | 14,251 | |
| Advertising Sales | | | 42,824 | | | | - | |
| Total Income | | | 52,813 | | | | 119,251 | |
| Cost of goods sold | | | | | | | | |
| Service Revenue | | | - | | | | - | |
| Merchandise Sales | | | 8,977 | | | | 14,832 | |
| Total Cost of Goods Sold | | | 8,977 | | | | 14,832 | |
| Gross profit (loss) | | | 43,836 | | | | 104,419 | |
| | | | | | | | | |
| Selling, general and administrative expenses | | | 418,778 | | | | 1,479,035 | |
| Bad debt Expense | | | 60 | | | | 13,300 | |
| Professional fees | | | 111,394 | | | | 111,327 | |
| Website setup | | | 49,220 | | | | 81,886 | |
| Total operating expenses | | | 579,452 | | | | 1,685,548 | |
| | | | | | | | | |
| Loss from operations | | | (535,616 | ) | | | (1,581,129 | ) |
| | | | | | | | | |
| Other expenses: | | | | | | | | |
| Gain/loss on derivative liability | | | (122,049 | ) | | | - | |
| Interest expense | | | (25 | ) | | | (60 | ) |
| | | | | | | | | |
| Net loss | | $ | (657,690 | ) | | | (1,581,189 | ) |
| Series A preferred stock dividend | | | (66,701 | ) | | | (38,794 | ) |
| | | | (724,391 | ) | | | (1,619,983 | ) |
| Weighted average common shares outstanding - Basic and diluted | | | 85,655,534 | | | | 60,904,780 | |
| | | | | | | | | |
| Net loss per common share - Basic and diluted | | $ | (0.01 | ) | | | (0.03 | ) |
The accompanying notes are an integral part of these financial statements.
| PAZOO, INC. | |
| (A DEVELOPMENT STAGE COMPANY) | |
| STATEMENT OF CASH FLOWS | |
| (Audited) | |
| | | | | | | |
| | | For the year ended December 31, 2013 | | | For the year ended December 31, 2012 | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (657,690 | ) | | $ | (1,581,189 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
| Common stock issued for services | | | 96,128 | | | | 626,502 | |
| Warrants expense | | | - | | | | 9,936 | |
| Loss on derivative liability | | | 122,049 | | | | - | |
| Amortization of debt discount | | | 1,849 | | | | - | |
| Bad debt expense | | | 60 | | | | 13,300 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | 11,539 | | | | (58,360 | ) |
| Inventories | | | 2,679 | | | | (3,448 | ) |
| Prepaid expenses and other current assets | | | 1,625 | | | | (2,840 | ) |
| Accounts payable and accrued liabilities | | | 48,686 | | | | (6,367 | ) |
| Net cash used in operating activities | | | (373,075 | ) | | | (1,002,466 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Loans payable | | | 33,500 | | | | - | |
| Borrowings on convertible note | | | 50,000 | | | | - | |
| Proceeds from sale of Series A preferred stock | | | 194,867 | | | | 1,130,000 | |
| Net cash provided by financing activities | | | 278,367 | | | | 1,130,000 | |
| | | | | | | | | |
| Net increase in cash and cash equivalents | | | (94,708 | ) | | | 127,534 | |
| | | | | | | | | |
| Cash and cash equivalents beginning of period | | | 130,556 | | | | 3,022 | |
| | | | | | | | | |
| Cash and cash equivalents end of period | | $ | 35,848 | | | $ | 130,556 | |
| | | | | | | | | |
| Supplemental Disclosure of Cash Flows Information | | | | | | | | |
| Cash paid for interest | | | - | | | | - | |
| Cash paid for income taxes | | | - | | | | - | |
| Noncash Investing and Financing Activities | | | | | | | | |
| Common stock issued for the converstion of SeriesA preferred stock | | | 28,750 | | | | 17,800 | |
| SeriesA preferred stock issued for SeriesA preferred stock dividend | | | 66,701 | | | | 38,794 | |
| Debt discount | | | 50,000 | | | | - | |
| Preferred stock issued for settlement of debt | | | 55,133 | | | | - | |
| Conversion of preferred stock to common stock | | | 28,750 | | | | - | |
| Common stock cancellation | | | 2,000 | | | | - | |
| Payments of AP by third party | | | 6,331 | | | | - | |
| Series B preferred stock cancellation | | | 188 | | | | - | |
The accompanying notes are an integral part of these financial statements.
| PAZOO, INC. | |
| (A DEVELOPMENT STAGE COMPANY) | |
| STATEMENT OF STOCKHOLDER’S EQUITY (DEFICIT) | |
| (Audited) | |
| | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | Series A Pref Stock | | | Series B Pref Stock | | | | | | Accumulated | | | | |
| | | Shares | | | Par | | | Shares | | | Par | | | Shares | | | Par | | | APIC | | | Deficit | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2011 | | | 48,182,000 | | | | 48,182 | | | | 2,400,000 | | | | 2,400 | | | | - | | | | - | | | | 85,328 | | | | (175,992 | ) | | | (40,082 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common shares issued for services | | | 6,160,000 | | | | 6,160 | | | | - | | | | - | | | | - | | | | - | | | | 620,342 | | | | - | | | | 626,502 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred shares for cash | | | - | | | | - | | | | 4,600,000 | | | | 4,600 | | | | - | | | | - | | | | 1,125,400 | | | | - | | | | 1,130,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred shares for services | | | - | | | | - | | | | - | | | | - | | | | 1,375,000 | | | | 1,375 | | | | (1,375 | ) | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Conversion of Preferred Stock to Common Stock | | | 17,800,000 | | | | 17,800 | | | | (1,780,000 | ) | | | (1,780 | ) | | | - | | | | - | | | | (16,020 | ) | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Warrants issued | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 9,936 | | | | - | | | | 9,936 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock dividend | | | - | | | | - | | | | 322,814 | | | | 323 | | | | - | | | | - | | | | 38,471 | | | | (38,794 | ) | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,581,189 | ) | | | (1,581,189 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2012 | | | 72,142,000 | | | | 72,142 | | | | 5,542,814 | | | | 5,543 | | | | 1,375,000 | | | | 1,375 | | | | 1,862,082 | | | | (1,795,975 | ) | | | 145,167 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock and Preferred Stock warrants for cash | | | - | | | | - | | | | 4,871,678 | | | | 4,872 | | | | - | | | | - | | | | 189,995 | | | | - | | | | 194,867 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock and Preferred Stock warrants for debt | | | - | | | | - | | | | 1,378,322 | | | | 1,378 | | | | - | | | | - | | | | 53,755 | | | | - | | | | 55,133 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred dividends | | | - | | | | - | | | | 316,121 | | | | 316 | | | | - | | | | - | | | | 66,385 | | | | (66,701 | ) | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common shares issued for services | | | 2,517,500 | | | | 2,518 | | | | - | | | | - | | | | - | | | | - | | | | 93,610 | | | | - | | | | 96,128 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cancellation of preferred shares | | | - | | | | - | | | | - | | | | - | | | | (187,500 | ) | | | (188 | ) | | | 188 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cancellation of common shares | | | (2,000,000 | ) | | | (2,000 | ) | | | - | | | | - | | | | - | | | | - | | | | 2,000 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of Preferred Stock to Common Stock | | | 28,750,000 | | | | 28,750 | | | | (2,875,000 | ) | | | (2,875 | ) | | | - | | | | - | | | | (25,875 | ) | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (657,690 | ) | | | (657,690 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2013 | | | 101,409,500 | | | $ | 101,410 | | | | 9,233,935 | | | $ | 9,234 | | | | 1,187,500 | | | $ | 1,188 | | | $ | 2,242,140 | | | $ | (2,520,366 | ) | | $ | (166,395 | ) |
The accompanying notes are an integral part of these financial statements.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
Note 1—DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES
Description of Business
We were incorporated as a C-Corporation in the State of Nevada as IUCSS, Inc. on November 16, 2010 and we established a fiscal year end of December 31. On May 9, 2011, we changed our name to Pazoo, Inc. to take advantage of unique branding and website opportunities. We are a start-up health and wellness social community that has developed its website (www.pazoo.com) to provide information, services, and online products for improvement of everyday living. Our mission is to be 1) a leading social community offering best-in-class health and wellness products for both people and pets; and 2) an important resource for consumers and professionals with diverse information about health and wellness. We have never been party to any bankruptcy, receivership or similar proceeding, nor have we undergone any material reclassification, merger, consolidation, purchase or sale of a significant amount of assets not in the ordinary course of business. The Company is considered to be in the development stage as defined in Statement of Financial Accounting Standards No. 7 (FAS7), "Accounting and Reporting by Development Stage Enterprises". The Company has devoted substantially all of its efforts to business planning and development, as well as allocating a substantial portion of its time and resources in bringing unique product offerings to the market.
Basis of Presentation
The audited financial statements have been prepared by Pazoo, Inc. (the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods.
Use of Estimates
In accordance with Generally Accepted Accounting Principles (GAAP) the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.
On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in the notes to the financial statements.
Fair Value of Financial Instruments
The Company’s financial instruments consist principally of cash and cash equivalents and accounts payable. The Company believes that the recorded values of all of its other financial instruments approximate their fair values because of their nature and respective maturity dates or durations. The fair value of our long-term debt is determined by using estimated market prices. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:
Level 1: Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date.
Level 2: Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are not active near the measurement date.
Level 3: Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.
The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as December 31, 2013 and 2012.
| Recurring Fair Value Measurements | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | | | | | | | | |
| LIABILITIES: | | | | | | | | | | | | |
| Derivative liability- 2013 | | | - | | | | - | | | | 172,049 | | | | 172,049 | |
| Derivative liability- 2012 | | | - | | | | - | | | | - | | | | - | |
Cash and Cash Equivalents
We classify all highly liquid instruments with an original maturity of three months or less at the time of purchase as cash equivalents.
Stock Based Compensation
Total stock based compensation issued during 2013 and 2012 totaled $97,378 for 2,767,500 shares and $626,502 for 6,160,000 shares, respectively, issued to consultants. ASC 718 "Compensation - Stock Compensation" which codified SFAS No. 123 prescribes accounting and reporting standards for all stock-based payments awarded to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights, which may be classified as either equity or liabilities. The Company determines if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the transaction is recognized as a liability; otherwise, the transaction is recognized as equity. The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50 "Equity-Based Payments to Non-Employees" which codified SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services." Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date, the performance completion date, or the contract date.
Revenue Recognition
Revenues are recognized when evidence of an agreement exists, the price is fixed or determinable, collectability is reasonably assured and goods have been delivered or services performed. The Company is paid revenue from various advertising sources. Typically advertising revenue is based upon the activity reports received from the advertising brokers and revenue is paid in accordance with the broker agreements at varying intervals from 30 to 75 days following the close of the particular advertising period. The Company recognizes the revenue, and records the accounts receivable, upon receipt of the activity report from the broker. In the event payment is not received within 120 days of the due date, the Company with classify such amount as an account where collection is doubtful. At this time the Company has no reason to believe any accounts are not collectible and therefore no allowance for doubtful accounts has been made at this time for any advertising revenue.
Inventories
Inventory currently consists predominately of goods purchased from third party suppliers and does not include raw materials. Certain inventory contains expiration dates (“shelf life”) and the efficacy of any product which is held beyond its shelf life may be impaired. Our inventory reserve is zero. The company purchased most inventory in 2011 with very little purchases in 2012 and as such, there are some products that are approached the end of their shelf life and were subsequently written off in 2013. Inventory cost is determined using the weighted average cost method.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse.
We have net operating loss carryforwards available to reduce future taxable income. Future tax benefits for these net operating loss carryforwards are recognized to the extent that realization of these benefits is considered more likely than not. To the extent that we will not realize a future tax benefit, a valuation allowance is established.
Recent Accounting Pronouncements
The Company does not expect any recently issued accounting pronouncements to have a material impact on its financial condition or results of operations.
Basic and Diluted Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share reflects, in addition to the weighted average number of common shares, the potential dilution if shares of convertible preferred stock were converted into shares of common stock and a corresponding accrued 5% dividend, unless the effects of such exercises and conversions would have been anti-dilutive.
Note 2—GOING CONCERN
During 2013 and 2012, the Company incurred net losses of $657,690 and $1,581,189, respectively. This factor, among others, raises significant doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis and ultimately attain profitability. Management believes that we can alleviate the facts and circumstances which indicate a going concern by expanding our services, expert advice and online products.
Note 3—STOCKHOLDERS’ EQUITY
Preferred Stock
We have authorized 20 million shares of $0.001 par value Preferred Stock. The preferred shares available for issuance are 10,000,000 Series A Convertible Preferred Stock, 2,500,000 Series B Non-convertible Preferred Stock, and 7,500,000 Series C Non-convertible Preferred Stock.
The Series A Preferred Stock is convertible into ten shares of common stock for each Preferred share at the option of the holder, does not have voting rights and pays a Series A Preferred Stock dividend of 5% annually. The Company amended the Certificate of Designations of the Series A Preferred Stock amending the expiration date to February 1, 2022. The Company shall pay the amount due on the Maturity Date in kind with shares of Common Stock. The number of shares of Common Stock to be issuable to a Holder on the Maturity Date (the “Maturity Shares”) shall be equal to the quotient of (x) the aggregate Liquidation Preference for such Holder’s Shares on the Maturity Date divided by (y) the Conversion Price in effect as of the Maturity Date. On or before the third (3rd) Business Day following the Maturity Date (the “Maturity Share Delivery Date”), the Company must deliver to each Holder the Maturity Shares issuable to such Holder. In the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, each Holder shall be entitled to receive prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of any Junior Stock, an amount (the “Liquidation Preference”) equal to (A) $1,000 per Share held by such Holder, plus (B) a further amount equal to any Dividends accrued but unpaid on such Shares. If, upon such liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to the stockholders of the Company are insufficient to provide for the payment of the full aforesaid preferential amount, such assets as are so available shall be distributed among the Holders in proportion to the relative aggregate Liquidation Preferences of the Shares held by such Holders. The Liquidation Preference shall be appropriately adjusted for any stock splits, stock combinations, stock dividends or similar recapitalizations.
The Series B Preferred Stock is non-convertible, does not pay a dividend, and contains voting rights at a ratio of 200 votes for each share of Series B Preferred Stock. In the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, each Holder shall be entitled to receive prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of any Junior Stock, an amount (the “Liquidation Preference”) equal to $0.001 per Share held by such Holder, or such other amount as any Securities Purchase Agreement under which the Shares are issued may provide. If, upon such liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to the stockholders of the Company are insufficient to provide for the payment of the full aforesaid preferential amount, such assets as are so available shall be distributed among the Holders in proportion to the relative aggregate Liquidation Preferences of the Shares held by such Holders. The Liquidation Preference shall be unaffected for any stock splits, stock combinations, stock dividends or similar recapitalizations.
The Series C Preferred Stock is non-convertible and has no voting rights, pays a common stock dividend from 2% to 12% annually. The Company amended the Certificate of Designations of the Series C Preferred Stock amending the expiration date for redemption to February 1, 2022. The Company shall pay the amount due on the Maturity Date in kind with shares of Common Stock. The number of shares of Common Stock to be issuable to a Holder on the Maturity Date (the “Maturity Shares”) shall be equal to the quotient of (x) the aggregate Liquidation Preference for such Holder’s Shares on the Maturity Date divided by (y) the Conversion Price in effect as of the Maturity Date. On or before the third (3rd) Business Day following the Maturity Date (the “Maturity Share Delivery Date”), the Company must deliver to each Holder the Maturity Shares issuable to such Holder. In the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, each Holder shall be entitled to receive prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of any Junior Stock, an amount (the “Liquidation Preference”) equal to (A) $0.001per Share held by such Holder, plus (B) a further amount equal to any Dividends accrued but unpaid on such Shares. If, upon such liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to the stockholders of the Company are insufficient to provide for the payment of the full aforesaid preferential amount, such assets as are so available shall be distributed among the Holders in proportion to the relative aggregate Liquidation Preferences of the Shares held by such Holders. The Liquidation Preference shall be appropriately adjusted for any stock splits, stock combinations, stock dividends or similar recapitalizations.
In May 2013, we exchanged 1,360,580 Series A Preferred Stock and 1,360,580 Series A Preferred stock warrants to Integrated Capital Partners, Inc. (ICPI) for the conversion of $54,423 in loans payable.
In June 2013, we sold 187,500 Series A Preferred Stock and 187,500 Series A Preferred Stock warrants to ICPI at $0.04 per share for $7,500.
In July 2013, we sold 875,000 Series A Preferred Stock and 875,000 Series A Preferred stock warrants to ICPI at $0.04 per share for $35,000.
In August 2013, we sold 875,000 Series A Preferred Stock and 875,000 Series A Preferred stock warrants to ICPI at $0.04 per share for $35,000.
In September 2013, we sold 125,000 Series A Preferred Stock and 125,000 Series A Preferred stock warrants to ICPI at $0.04 per share for $5,000.
In October 2013, we sold 362,500 Series A Preferred Stock and 362,500 Series A Preferred stock warrants to ICPI at $0.04 per share for $14,500.
In November 2013, we sold 150,000 Series A Preferred Stock and 150,000 Series A Preferred stock warrants to ICPI at $0.04 per share for $6,000.
Also, in November 2013, we exchanged 17,742 Series A Preferred Stock and 17,742 Series A Preferred stock warrants to ICPI for $709 in loans payable.
In November 2013, we issued 2,296,678 Series A Preferred Stock and 2,296,678 Series A Preferred stock warrants to ICPI at $0.04 per share for $91,867. This investment completes the $250,000 investment commitment under the May 2013 Investment Agreement.
In December 2013, we recorded a preferred stock dividend of 316,121 shares of Series A Preferred Stock which represents payment of the 5% stated Series A Convertible Preferred Stock dividend (through December 31, 2013). This issuance will occur in the 1st quarter of 2014.
In August 2013, 187,500 Series B Preferred shares were sent back to the Company and cancelled for David Cunic, who stepped down as Chairman of the Board in 2012.
Total Series A Preferred shares outstanding as of December 31, 2013 were 9,233,935.
Common Stock
Issuances
In 2013, we issued a total of 2,517,500 common shares to experts who have agreed to be included in the “Our Experts” section of our Company website (www.pazoo.com). Each Expert has executed an expert services contract certain number of shares issued upon signing and further shares earned over the first year of the contract. The total stock compensation expense recorded was $96,128. As of December 31, 2013, there were 2,815,000 shares to be issued that will be earned through 2014.
In April 2013, we cancelled 2,000,000 common shares previously issued to Gotham Capital for an advisory agreement 2012.
During 2012, we issued an aggregate of 550,000 common shares to experts who have agreed to be included in the “Our Experts” section of our Company website. Each expert has executed an expert services contract which includes a certain number of shares issued upon signing and further shares earned over the first year of the contract. During 2012, an aggregate of $33,452 was expensed under these contracts. During 2012, we issued an additional 5,610,000 common shares for services valued at $593,050.
Total common shares outstanding as of December 31, 2012 were 101,409,500.
Conversions
In January 2013, ICPI converted 300,000 shares of Series A Convertible Preferred Stock into 3,000,000 common shares pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
In February 2013, ICPI converted 125,000 shares of Series A Convertible Preferred Stock into 1,250,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
In April 2013, ICPI converted 300,000 shares of Series A Convertible Preferred Stock into 3,000,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
In May 2013, ICPI converted 300,000 shares of Series A Convertible Preferred Stock into 3,000,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
In June 2013, ICPI converted 200,000 shares of Series A Convertible Preferred Stock into 2,000,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
In July 2013, ICPI converted 200,000 shares of Series A Convertible Preferred Stock into 2,000,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
In August 2013, ICPI converted 400,000 shares of Series A Convertible Preferred Stock into 4,000,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
In September 2013, ICPI converted 200,000 shares of Series A Convertible Preferred Stock into 2,000,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
In October 2013, ICPI converted 450,000 shares of Series A Convertible Preferred Stock into 4,500,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
In December 2013, ICPI converted 400,000 shares of Series A Convertible Preferred Stock into 4,000,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
During 2012, we issued an aggregate of 17,800,000 common shares for the conversion of 1,780,000 shares of Series A Preferred Stock.
Warrants
Simultaneous with the issuance of Series A Preferred Stock in 2013, and under the Investment Agreement May 2013 we issued 6,250,000 warrants to ICPI which entitles its owner to purchase one share of Series A Preferred Stock for each Series A Preferred Stock at an exercise price of $0.05, subject to the terms of the warrant agreement between the warrant agent and us. The warrants are exercisable three years from the date of issue. No warrants have been exercised as of December 31, 2013. These warrants had negligible fair value at the time of issuance.
In connection with a termination and release agreement on or about April 2013, and related to compensation paid to Gotham Capital (Gotham) in 2012, we cancelled 2,000,000 common stock purchase warrants exercisable at an exercise price of $0.01 per share.
No warrants have been exercised as of December 31, 2013.
The following table presents the Series A preferred stock warrant activity during 2013 and 2012:
| | | | | | Weighted | |
| | | | | | Average | |
| | | Warrants | | | Exercise Price | |
| Outstanding - December 31, 2011 | | | - | | | $ | - | |
| Granted | | | 2,000,000 | | | | 0.75 | |
| Forfeited/canceled | | | - | | | | - | |
| Exercised | | | - | | | | - | |
| Outstanding - December 31, 2012 | | | 2,000,000 | | | $ | 0.75 | |
| Granted | | | 6,232,258 | | | $ | 0.05 | |
| Forfeited/canceled | | | - | | | | - | |
| Exercised | | | - | | | | - | |
| Outstanding - December 31, 2013 | | | 8,232,258 | | | $ | 0.22 | |
| Exercisable – December 31, 2013 | | | 8,232,258 | | | $ | 0.22 | |
The weighted average remaining life of the outstanding Series A preferred stock warrants as of December 31, 2013 and 2012 was 3.92 and 2.54 years, respectively.
The following table presents the common stock warrant activity during 2013 and 2012:
| | | | | | Weighted | |
| | | | | | Average | |
| | | Warrants | | | Exercise Price | |
| Outstanding - December 31, 2011 | | | 2,400,000 | | | $ | 0.05 | |
| Granted | | | 4,600,000 | | | $ | 0.05 | |
| Forfeited/canceled | | | - | | | | - | |
| Exercised | | | - | | | | - | |
| Outstanding - December 31, 2012 | | | 7,000,000 | | | $ | 0.04 | |
| Granted | | | | | | $ | | |
| Forfeited/canceled | | | (2,000,000) | | | $ | 0.05 | |
| Exercised | | | - | | | | - | |
| Outstanding - December 31, 2013 | | | 5,000,000 | | | $ | 0.05 | |
| Exercisable – December 31, 2013 | | | 5,000,000 | | | $ | 0.05 | |
The weighted average remaining life of the outstanding Series A common stock warrants as of December 31, 2013 and 2012 was 1.26 and 2.55 years, respectively.
Note 4—RELATED PARTY TRANSACTIONS
Related Party Transactions
Steve Basloe has an equity ownership interest in Pazoo and is the Chairman of the Board and the President of Pazoo. He is also the owner of SMB Marketing. SMB Marketing signed a consulting agreement with Pazoo in June 2013 to create strategy and execute against this plan to roll out the design and production of Pazoo.com and the content for Pazoo.com. The agreement is for a term of two years and requires weekly compensation of $1,000. During 2013, he received $14,750 in relation to this agreement.
In April 2012 Pazoo entered into a consulting agreement with DMC Athletics & Rehabilitation, Inc. (DMC) to render such advice, consultation, information, and services to the Directors and/or Officers of Pazoo regarding general business and marketing matters including, but not limited to the following: advice on structure of the organization, organization of sales team, prospecting new partners/vendor relationships and clients, and positioning of Pazoo into promotional and healthcare marketing, whether through Pazoo’s website (www.Pazoo.com), or by some other means, as well as professional physical therapy sessions performed by David M. Cunic (at that time an equity owner of DMC and an equity owner of Pazoo and is a Board Member and the CEO of Pazoo) for, or on behalf of, Pazoo. DMC and Pazoo mutually agreed to terminate the consulting agreement in November 2012.
In October 2012 Pazoo entered into a binding letter of intent for the acquisition of DMC. Pazoo extended the Letter of Intent until June 30, 2013 to afford DMC an opportunity to recover from the business losses suffered by DMC due to Superstorm Sandy. Upon further management evaluation, Pazoo declined to acquire DMC.
Gina Morreale was previously employed as Secretary/Treasurer for Pazoo and was concurrently employed by ICPI, a Series A Convertible Preferred Stock holder. In September 2011, Ben Hoehn assumed the role of Chief Operating Officer and replaced Gina Morreale as Secretary/Treasurer. Since that time Gina Morreale had no affiliation with Pazoo other than being a shareholder.
Note 5—CONVERTIBLE NOTE AND DERIVATIVE LIABILITIES
On December 4, 2013 the Company entered into a $500,000 Promissory Note with JMJ Financial. (Attached as Exhibit 99.02 to the Company's Form 8-K filed December 17, 2013). Under the terms, the Company will receive one or more installments on a periodic basis and will have 90 days for the date of each installment in which to repay the principal amount of the loan and interest. In the event repayment is not made within the 90 day period, JMJ shall have the right to convert any unpaid sums into common stock of the Company at the rate of the lesser of $.05 per share or 60% of the lowest trade reported in the 25 days prior to conversion. As of December 31, 2013, the Company received $50,000 of the note.
During 2013, the Company recorded a discount of $50,000 on the note of which $1,849 was amortized as of yearend.
The following table summarizes the changes in the derivative liabilities during 2013:
| Balance as of December 31, 2012 | | $ | - | |
| | | | | |
| Additions to derivative liability related to warrants | | | 93,662 | |
| Discount | | | 50,000 | |
| Initial loss on convertible note | | | 28,387 | |
| | | | | |
| Ending balance as of December 31, 2013 | | $ | 172,049 | |
The Company uses the Black Scholes Option Pricing Model to value its option based derivatives based upon the following assumptions: dividend yield of -0-%, volatility of 208%, risk free rate of 0.30% and an expected term equal to the remaining term of the note.
There were 5,000,000 common stock warrants outstanding on the date the convertible note agreement was entered into which became tainted. These warrants were valued using the Black Scholes Option Pricing Model based upon the following assumptions: dividend yield of -0-%, volatility of 208%, risk free rate of 0.38% and an expected term equal to the remaining exercise term of the warrants.
Note 6—FAIR VALUE MEASUREMENTS AND DERIVATIVE LIABILIITY
The Company evaluates all of it financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Under ASC-815 the conversion options embedded in the notes payable described in Note 5 require liability classification because they do not contain an explicit limit to the number of shares that could be issued upon settlement.
During 2013, the Company entered into one convertible note agreement. The conversion option and the outstanding common stock warrants on that date which were tainted by the convertible note were classified as derivative liabilities at their fair value on the date of issuance.
As defined in FASB ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The three levels of the fair value hierarchy are as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
Level 2 - Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date.
Level 3 - Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as December 31, 2013.
| Recurring Fair Value Measurements | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | | | | | | | | |
| LIABILITIES: | | | | | | | | | | | | |
| Derivative liability- 2013 | | | - | | | | - | | | | 172,049 | | | | 172,049 | |
| Derivative liability- 2012 | | | - | | | | - | | | | - | | | | - | |
Note 7—INCOME TAXES
The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During 2013 and 2012, the company incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $2,411,838 at December 31, 2013, and will expire in the years 2031 – 2033.
Internal Revenue Section 382 restricts the ability to use these carryforwards whenever an ownership change as defined occurs.
At December 31, 2013, deferred tax assets consisted of the following:
| Deferred tax assets | | | | |
| Net operating losses | | $ | 767,134 | |
| Less: valuation allowance | | | (767,134 | ) |
| Net deferred tax asset | | $ | 0 | |
At December 31, 2012, deferred tax assets consisted of the following:
| Deferred tax assets | | | | |
| Net operating losses | | $ | 395,061 | |
| Less: valuation allowance | | $ | (395,061 | ) |
| Net deferred tax asset | | $ | 0 | |
Note 8—LOANS PAYABLE
In June 2013 Pazoo, Inc. entered into a Promissory note totaling $9,000 with ICPI for expenses paid directly to vendors. In November 2013, $6,000 was converted into 150,000 Series A Preferred shares. ICPI is a Series A Preferred stockholder. As of December 31, $3,000 still remains outstanding.
In accordance with FASB ASC 855-10-50-1 we evaluated our subsequent events through May 13, 2014.
In April 2014 the Company issued 125,000 shares of Series A Preferred Stock to ICPI in exchange for $125,000, in accordance with Investment Agreement No. 4
Simultaneous with the issuance of Series A Preferred Stock in April 2014, and under the Investment Agreement No. 4 we issued 125,000 warrants to ICPI which entitles its owner to purchase one share of Series A Preferred Stock for each Series A Preferred Stock at an exercise price of $2.00, subject to the terms of the warrant agreement between the warrant agent and us.
In April 2014, the Company entered into a Equity Purchase Agreement and Securities Purchase Agreement with Premier Venture Partners, LLC “Premier”) whereby Premier is obligated, providing the Company has met certain conditions including the filing or a Form S-1 Registration Statement for the shares to be acquired, to purchase up to Five Million Dollars ($5,000,000) of the Company’s common stock at the rates set forth in the Equity Purchase Agreement. Under the Equity Purchase Agreement the shares are purchased at the discretion of the Company by issuing a Put Notice when funds are needed. The Securities Purchase Agreement is a facility whereby the Company will receive $22,500 (pursuant to two Convertible Promissory Notes.
In April 2014, the Company entered into a $10,000 Convertible Promissory Note (the “Note”) with Premier Venture Partners, LLC. Under the terms of the Note the Company’s will receive $10,000 for the preparation and filing of the Form S-1 Registration Statement required for the Equity Purchase Agreement (See, Section 2.01 above). Premier Venture Partners, LLC shall have the right to convert any unpaid sums into common stock of the Company at the rate of the lesser of $.03 per share or 50% of the lowest trade reported in the 10 days prior to date of conversion. A second Convertible Promissory Note, in the amount of $12,500, will be issued after the Form S-1 Registration Statement is filed in order to cover any additional expense of making the Form S-1 Registration Statement effective.
In April 2014, the Company agreed to buy a 40% equity interest in MA and Associates, LLC for $2,000,000 and 150,000 shares of the Company’s Series C Preferred Stock. MA is in the process of becoming a licensed medical marijuana testing laboratory in the State of Nevada. The Company made a $50,000 down payment in March 2014.
In May 2014, the Company entered into a 12% Convertible Note (the “Note”) with JSJ Investments, Inc. (“JSJ”) in the amount of $100,000. Prior to October 28, 2014, the Company may redeem the Note for a $150,000. Thereafter, JSJ may convert the Note into common stock of the company at a stated discount of 50% based on the average of the lowest three trades in the previous ten days, or $0.06 per share.
In May 2014 the Company issued 25,000 shares of Series A Preferred Stock to ICPI in exchange for $25,000, in accordance with Investment Agreement No. 4.
Simultaneous with the issuance of Series A Preferred Stock in May 2014, and under the Investment Agreement No. 4 we issued 25,000 warrants to ICPI which entitles its owner to purchase one share of Series A Preferred Stock for each Series A Preferred Stock at an exercise price of $2.00, subject to the terms of the warrant agreement between the warrant agent and us.
FINANCIAL STATEMENTS FOR THE PERIOD ENDING MARCH 31, 2014 (UNAUDITED)
| PAZ OO , INC | |
| BALANCE SHEETS | |
| (Unaudited) | |
| | | | | | | |
| | | March 31, 2014 | | | December 31, 2013 | |
| | | | | | | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 28,499 | | | $ | 35,848 | |
| Accounts receivable | | | 40,998 | | | | 33,461 | |
| Inventories | | | 2,564 | | | | 4,129 | |
| Deposit | | | 50,000 | | | | - | |
| Prepaid expenses | | | 24,058 | | | | 1,911 | |
| | | | | | | | | |
| Total current assets | | | 146,119 | | | | 75,349 | |
| | | | | | | | | |
| Total assets | | $ | 146,119 | | | $ | 75,349 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable and accrued liabilities | | $ | 74,847 | | | $ | 64,846 | |
| Interest payable | | | 6,000 | | | | - | |
| Loans payable | | | 3,000 | | | | 3,000 | |
| Convertible debt, net of discount of $95,333 | | | 21,728 | | | | 1,849 | |
| Derivative liability | | | 603,236 | | | | 172,049 | |
| | | | | | | | | |
| Total current liabilities | | | 708,811 | | | | 241,744 | |
| | | | | | | | | |
| Total liabilities | | $ | 708,811 | | | $ | 241,744 | |
| | | | | | | | | |
| Stockholders' deficit | | | | | | | | |
| Common stock, $0.001 par value; 980,000,000 shares authorized, 107,765,750 and 101,409,500 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively | | | 107,766 | | | | 101,410 | |
| Convertible preferred stock, Ser. A, $0.001 par value, 10,000,000 shares authorized, 1,086,394 shares issued and 923,394 shares outstanding at March 31, 2014 and December 31, 2013, respectively. | | | 1,086 | | | | 923 | |
| Preferred stock, Ser. B, $0.001 par value, 2,500,000 shares authorized, 1,187,500 and 1,187,500 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively | | | 1,187 | | | | 1,187 | |
| Preferred stock, Ser. C, $0.001 par value, 7,500,000 shares authorized, no shares issued and outstanding at March 31, 2014 and December 31, 2013 | | | - | | | | - | |
| Additional paid-in capital | | | 2,494,923 | | | | 2,250,451 | |
| Retained deficit | | | (3,167,654 | ) | | | (2,520,366 | ) |
| | | | | | | | | |
| Total stockholders' deficit | | | (562,692 | ) | | | (166,395 | ) |
| | | | | | | | | |
| Total liabilities and stockholders' equity (deficit) | | $ | 146,119 | | | $ | 75,349 | |
The accompanying notes are an integral part of these unaudited financial statements.
| PAZ OO , INC. | |
| STATEMENT OF OPERATIONS | |
| (Unaudited) | |
| | | | | | | |
| | | Three Months Ended | |
| | | March 31, | |
| | | 2014 | | | 2013 | |
| | | | | | | |
| Net sales | | | | | | |
| Service Revenue | | $ | - | | | $ | - | |
| Merchandise Sales | | | 218 | | | | 4,370 | |
| Advertising Sales | | | 17,109 | | | | - | |
| Total Income | | | 17,327 | | | | 4,370 | |
| Cost of goods sold | | | | | | | | |
| Service Revenue | | | - | | | | - | |
| Merchandise Sales | | | 325 | | | | 4,603 | |
| Total Cost of Goods Sold | | | 325 | | | | 4,603 | |
| Gross profit (loss) | | | 17,002 | | | | (233 | ) |
| | | | | | | | | |
| Selling, general and administrative expenses | | | 206,458 | | | | 93,705 | |
| Bad debt Expense | | | - | | | | - | |
| Professional fees | | | 35,433 | | | | 40,747 | |
| Website setup | | | 22,408 | | | | 19,645 | |
| Total operating expenses | | | 264,299 | | | | 154,097 | |
| | | | | | | | | |
| Loss from operations | | | (247,297 | ) | | | (154,330 | ) |
| | | | | | | | | |
| Other expenses: | | | | | | | | |
| Gain/loss on derivative liability | | | (376,187 | ) | | | - | |
| Amortization of debt discount | | | (17,804 | ) | | | | |
| Interest expense | | | (6,000 | ) | | | (15 | ) |
| | | | | | | | | |
| Net loss | | $ | (647,288 | ) | | $ | (154,345 | ) |
| Series A preferred stock dividend | | | (5,672 | ) | | | (21,687 | ) |
| Net loss attributable to common stockholders | | | (652,960 | ) | | | (176,032 | ) |
| | | | | | | | | |
| Weighted average common shares outstanding - Basic and diluted | | | 105,994,083 | | | | 75,325,972 | |
| | | | | | | | | |
| Net loss per common share - Basic and diluted | | $ | (0.01 | ) | | | (0.00 | ) |
The accompanying notes are an integral part of these unaudited financial statements.
| PAZOO, I NC. | |
| STATEMENT OF CASH FLOWS | |
| (Unudited) | |
| | | | | | | |
| | | Three Months Ended | |
| | | March 31, | |
| | | 2014 | | | 2013 | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (647,288 | ) | | $ | (154,345 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Common stock issued for services | | | 110,991 | | | | 39,048 | |
| Loss on derivative liability | | | 376,187 | | | | - | |
| Amortization of debt discount | | | 17,804 | | | | - | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | (7,537 | ) | | | 987 | |
| Inventories | | | 1,565 | | | | (678 | ) |
| Prepaid expenses and other current assets | | | (22,147 | ) | | | (881 | ) |
| Interest payable | | | 6,000 | | | | - | |
| Accounts payable and accrued liabilities | | | 12,076 | | | | 17,865 | |
| Net cash used in operating activities | | | (152,349 | ) | | | (98,004 | ) |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Deposit made on acquisition of investment | | | (50,000 | ) | | | - | |
| Net cash used in investing activities | | | (50,000 | ) | | | - | |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Borrowings on convertible note | | | 55,000 | | | | - | |
| Proceeds from exercise of Series A preferred warrants | | | 40,000 | | | | - | |
| Proceeds from sale of Series A preferred stock | | | 100,000 | | | | - | |
| Net cash provided by financing activities | | | 195,000 | | | | - | |
| | | | | | | | | |
| Net increase in cash and cash equivalents | | | (7,349 | ) | | | (98,004 | ) |
| | | | | | | | | |
| Cash and cash equivalents beginning of period | | | 35,848 | | | | 130,556 | |
| | | | | | | | | |
| Cash and cash equivalents end of period | | $ | 28,499 | | | $ | 32,552 | |
| Supplemental Disclosure of Cash Flows Information | | | | | | | | |
| Cash paid for interest | | | - | | | | - | |
| Cash paid for income taxes | | | - | | | | - | |
| Noncash Investing and Financing Activities | | | | | | | | |
| Common stock issued for the conversion of SeriesA preferred stock | | | 1,700 | | | | 4,250 | |
| Debt discount | | | 60,500 | | | | - | |
| Payments of AP by third party | | | 2,075 | | | | - | |
| Original issue discount on convertible note | | | 5,500 | | | | - | |
The accompanying notes are an integral part of these unaudited financial statements.
| PAZOO, INC. | |
| (A DEVELOPMENT STAGE COMPANY) | |
| STATEMENT OF CASH FLOWS | |
| | | | |
| | | November 16, 2010 (Inception) to December 31, 2010 | |
| Cash flows from operating activities: | | | |
| Net loss | | $ | (1,615 | ) |
| Adjustments to reconcile net income to net cash provided by operating activities: | |
| Changes in operating assets and liabilities: | | | | |
| Prepaid expenses and other current assets | | | (3,000 | ) |
| Stock issued for services | | | 3,000 | |
| | | | | |
| Net cash used in operating activities | | | (1,615 | ) |
| | | | | |
| Cash flows from investing activities: | | | | |
| | | | | |
| Net cash used in investing activities | | | - | |
| | | | | |
| Cash flows from financing activities: | | | | |
| Increase in loans payable | | | 1,615 | |
| Net cash provided by financing activities | | | 1,615 | |
| | | | | |
| Net (decrease) increase in cash and cash equivalents | | | - | |
| | | | | |
| Cash and cash equivalents end of period | | $ | - | |
Notes to the Unaudited Financial Statements
Note 1—DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Basis of Presentation
The accompanying unaudited interim financial statements of Pazoo, Inc. (“we”, “our”, “Pazoo” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with Pazoo’s audited 2013 annual financial statements and notes thereto filed on Form 10-K with the SEC. In the opinion of management, all adjustments, consisting of normal reoccurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods present have been reflected herein. The results of operation for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements, which would substantially duplicate the disclosure required in Pazoo’s fiscal 2013 financial statements have been omitted.
Description of Business
We are an early growth stage health and wellness company. Presently, our primary business is pazoo.com, an online, content driven, ad supported health and wellness web site for people and their pets. Additionally, this site has e-commerce functionality which allows pazoo.com to be an online retailer of nutritional foods/supplements, wellness goods, and fitness apparel. Pazoo, Inc. does not have any brick and mortar establishments..
Note 2—GOING CONCERN
From inception of November 16, 2010 through March 31, 2014, the Company has incurred net losses of $3,167,654. This factor, among others, raises significant doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis and ultimately attain profitability. Management believes that we can alleviate the facts and circumstances which indicate a going concern by expanding our services, expert advice and online products. We aim to become more than a web based company by providing information, services and products through direct response, retail, and advertising revenue, in addition to our website.
Note 3—STOCKHOLDERS’ EQUITY
Common Stock
In January 2014, the Company issued 3,000,000 common shares valued at $63,000 in exchange for consulting services provided. Provided that the consultant performs all tasks within the scope of work, an additional 3,000,000 shares will be due to be issued on or about January 1, 2015 with those shares vesting 1,500,000 shares on July 1, 2015 and the remaining 1,500,000 shares on December 31, 2015. All shares issued are subject to a contractual lock-up provision.
In January 2014, the Company issued 556,250 shares to various consultants for services valued at $11,851.
In March 2014, ICPI converted 170,000 shares of Series A Convertible Preferred Stock into 1,700,000 common shares.
The accompanying notes are an integral part of these financial statements.
| PAZOO, INC. | |
| (A DEVELOPMENT STAGE COMPANY) | |
| STATEMENT OF STOCKHOLDERS' EQUITY | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock (in shares) | | | Common Stock | | | Preferred Stock (in shares) | | | Preferred Stock | | | Additional Paid-In Capital | | | Accumulated Other Comprehensive Income (Loss) | | | Retained Earnings (Accumulated Deficit) | | | Total Stockholders' Equity | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Beginning Balance at Nov. 16, 2010 (Inception) | | | - | | | | - | | | | - | | | | | | | - | | | | - | | | | - | | | | - | |
| Founders' Stock, issued at no cost on November 16, 2010 | | | 45,000,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Stock issued to consultants for services rendered on November 16, 2010 | | | 600,000 | | | | 600 | | | | - | | | | | | | | 2,400 | | | | - | | | | - | | | | 3,000 | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,615 | ) | | | (1,615 | ) |
| Ending Balance at Dec. 31, 2010 | | | 45,600,000 | | | | 600 | | | | - | | | | - | | | | 2,400 | | | | - | | | | (1,615 | ) | | | 1,385 | |
In March 2014 the Company issued an aggregate amount of 1,100,000 common shares. This included shares issued to individuals who are affiliated with the “Pazoo Experts” section of our Company website. In exchange for services rendered, or to be rendered, as expert contributors on our Company website. These shares and the value of the pro-rata shares to be issued of 1,175,000 was $36,140 as of March 31, 2014.
Preferred Stock
In January 2014, the Company issued 800,000 shares of Series A Preferred Stock to ICPI in exchange for $40,000 in accordance with the exercise of warrants.
In March 2014, the Company effectuated a 10 for 1 reverse stock split on the Company’s Series A Convertible Preferred Stock (See Exhibit 99.2 3-17-14 Board Resolution), and the Company amended all of the previous Investment Agreements with ICPI collectively.
In March 2014, the Company entered into a new Investment Agreement (Investment Agreement No. 4) with Integrated Capital Partners, Inc. (“ICPI”). The Investment Agreement provides that in exchange for an investment of up to $500,000 ICPI could acquire up to 500,000 shares of Series A Preferred Stock at the rate of $1.00 per share.
In March 2014, the Company issued 100,000 shares of Series A Preferred Stock to ICPI in exchange for $100,000, in accordance with Investment Agreement No. 4
On March 31, 2014, we recorded a Series A Preferred dividend in the amount of 11,969 shares.
Warrants
Simultaneous with the issuance of Series A Preferred Stock in the three month period ending March 31, 2014, and under the Investment Agreement No. 4 (March 2014) we issued 100,000 warrants to ICPI which entitles its owner to purchase one share of Series A Preferred Stock for each Series A Preferred Stock at an exercise price of $2.00, subject to the terms of the warrant agreement between the warrant agent and us. The warrants are exercisable five years from the date of issuance.
The following table presents the Series A preferred stock warrant activity during the three months ended March 31, 2014:
| | | Warrants | | | Weighted Average Exercise Price | |
| | | | | | | | | |
| Outstanding - December 31, 2013 | | | 823,226 | | | $ | 2.20 | |
| Granted | | | 100,000 | | | | - | |
| Forfeited/Canceled | | | - | | | | - | |
| Exercised | | | 80,000 | | | | - | |
| Outstanding - March 31, 2014 | | | 843,226 | | | | 2.34 | |
| Exercisable- March 31, 2014 | | | 843,226 | | | $ | 2.34 | |
The weighted average remaining life of the outstanding Series A preferred stock warrants as of March 31, 2014 and December 31, 2013 was 3.78 and 3.92 years, respectively.
The accompanying notes are an integral part of these financial statements.
PAZOO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTSThe following table presents the common stock warrant activity during the three months ended March 31, 2014:
NOVEMBER 16 2010 (INCEPTION)
THROUGH DECEMBER 31, 2010| | | Warrants | | | Weighted Average Exercise Price | |
| | | | | | | | | |
| Outstanding - December 31, 2013 | | | 5,000,000 | | | $ | 0.05 | |
| Granted | | | - | | | | - | |
| Forfeited/Canceled | | | - | | | | - | |
| Exercised | | | - | | | | - | |
| Outstanding - March 31, 2014 | | | 5,000,000 | | | | 0.05 | |
| Exercisable- March 31, 2014 | | | 5,000,000 | | | $ | 0.05 | |
Note 1—DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES | | | | | | | | | | | |
| | | | | | | | | | | | |
Description of Business | | | | | | | | | | | | |
|
Pazoo, Inc. was originally incorporated in the State of Nevada as IUCSS, Inc., and is a development stage company with our operating headquarters in Cedar Knolls, New Jersey as an online retailer and distributer of nutritional foods/supplements, wellness goods, and fitness apparel. We changed our name on May 9, 2011 to take advantage of unique branding and website opportunities in the health improvement field. The Company is considered to be in the development stage as defined in Statement of Financial Accounting Standards (“SFAS”) No. 7, "Accounting and Reporting by Development Stage Enterprises". The Company has devoted substantially all of its efforts to business planning and development, as well as allocating a substantial portion of its time and resources in bringing its product to the market. The Company has not commenced any commercial operations as of December 31, 2010. |
|
Use of Estimates | | | | | | | | | | | | |
|
In accordance with Generally Accepted Accounting Principals (GAAP) the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.
On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in the notes to the financial statements.
|
|
Fair Value of Financial Instruments | | | | | | | | | | | | |
|
For certain of the Company's assets and liabilities, including prepaid expense, the carrying amounts approximate fair value due to their short maturities. The amounts shown for loanss payable also approximate fair value because current interest rates and terms offered to the Company for similar debt are substantially the same. |
|
Cash and Cash Equivalents | | | | | | | | | | | | |
| | | | | | | | | | |
We classify all highly liquid instruments with an original maturity of three months or less at the time of purchase as cash equivalents. | | | | | | | | | | |
| | | | | | | | | | | | |
Revenue Recognition | | | | | | | | | | | | |
| | |
The Company's financial statements are prepared under the accrual method of accounting. Revenues are recognized when evidence of an agreement exists, the price is fixed or determinable, collectability is reasonably assured and goods have been delivered or services performed. | | |
| | | | | | | | | | | | |
Inventories | | | | | | | | | | | | |
|
Inventory currently consists predominately of goods purchased from third party suppliers and does not include raw materials. Certain inventory contains expiration dates (“shelf life”) and the efficacy of any product which is held beyond its shelf life may be impaired. The company has made no adjustments to inventory for products which may have, or are approaching, the end of their shelf life. Inventory cost is determined using the weighted average cost method. |
| | | | | | | | | | | | |
Net Income Per Common Share | | | | | | | | | | | | |
|
Basic net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share reflects, in addition to the weighted average number of common shares, the potential dilution if shares of convertible preferred stock were converted into shares of common stock, unless the effects of such exercises and conversions would have been anti-dilutive. |
| | For the period ending
December 31, 2010
| |
| | | | |
Weighted average common shares outstanding | | | | |
Basic | | | 45,600,000 | |
Diluted | | | 45,600,000 | |
Net income per common share | | | | |
Basic | | $ | - | |
Diluted | | $ | - | |
| | | | |
The weighted average remaining life of the outstanding common stock warrants as of March 31, 2014 and December 31, 2013 was 1.02 and 1.26 years, respectively.
Note 4—LOANS PAYABLE
In February 2014, the Company entered into a convertible Promissory note totaling $16,601 with ICPI for office space through February 2015. ICPI may convert all or any part of the outstanding and unpaid principal into shares of Series A Preferred Stock at a price of $0.50 per share.
Note 5—EQUITY INTEREST
In April 2014, the Company agreed to buy a 40% equity interest in MA and Associates, LLC for $2,000,000 and 150,000 shares of the Company’s Series C Preferred Stock. MA is in the process of becoming a licensed medical marijuana testing laboratory in the State of Nevada. The Company made a $50,000 down payment which was recorded as a deposit in March 2014 subsequently made a $50,000 investment in April 2014. As of March 31, 2014, the Company does not own any interest in MA.
Note 6—CONVERTIBLE NOTE AND DERIVATIVE LIABILITIES
On December 4, 2013 the Company entered into a $500,000 Promissory Note with JMJ Financial. (Attached as Exhibit 99.02 to the Company's Form 8-K filed December 17, 2013). Under the terms, the Company will receive one or more installments on a periodic basis and will have 90 days for the date of each installment in which to repay the principal amount of the loan and interest. In the event repayment is not made within the 90 day period, JMJ shall have the right to convert any unpaid sums into common stock of the Company at the rate of the lesser of $.05 per share or 60% of the lowest trade reported in the 25 days prior to conversion. As of December 31, 2013, the Company received $50,000 of the note.
During 2013, the Company recorded a discount of $50,000 on the note of which $1,849 was amortized as of year-end. During the quarter ended March 31, 2014, $12,500 was recorded to amortization expense.
On or about February 27, 2014 the Company entered into a $220,000 10% Convertible Promissory Note with Iconic Holdings, LLC (“Iconic”). As of March 31, 2014, the Company received $60,500. Under the terms of the Promissory Note (the “Note”) the Company will receive principal in one or more installments with a Maturity Date for the Note of February 27, 2015. Iconic shall have the right to convert any unpaid sums into common stock of the Company at the rate of the lesser of $.01 per share or 50% of the lowest trade reported in the 25 days prior to date of conversion. (Attached as Exhibit 99.03 to the Company's Form 8-K filed March 27, 2014)
During the first quarter of 2014, the Company recorded a discount of $60,500 on the note of which $5,304 was amortized as of March 31, 2014. Of that amount, $5,500 was an original issuance discount on the note.
Note 2—RELATED PARTY TRANSACTIONS | | | | | | | | | | | | |
| | | | | | | | | | | | |
Loans Payable | | | | | | | | | | | | |
| | | | | | | | | | | | |
Pazoo, Inc. entered into a Promissory note with Integrated Capital Partners Incorporated (ICPI) and used the funds for startup and organizational costs. ICPI is a Series A Preferred stockholder. | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Note 3—STOCKHOLDERS’ EQUITY | | | | | | | | | | | | |
| | | | | | | | | | | | |
Common Stock | | | | | | | | | | | | |
| | | | | | | | | | | | |
Common shares outstanding totaled 45,600,000 at December 31, 2010. In November 2010, Pazoo, Inc. issued stock at inception at no cost per share. We issued 15,000,000 shares of common stock to our Chief Executive Officer and Director, David Cunic, 15,000,000 shares of common stock to our President and Director, Steve Basloe (however, he requested that 250,000 shares each for his four children be registered in their names), 12,500,000 shares of our common stock to our Chief Financial Officer, Gregory Jung, and 2,500,000 shares of our common stock to our then, Secretary and Treasurer, Gina Morreale. Also, in November 2010, we issued 600,000 shares of common stock to three consultants for prepaid services to be completed in 2011. Voting rights are non cumulative for the holders of the common shares. |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Note 4—GOING CONCERN | | | | | | | | | | | | |
| | | | | | | | | | | | |
Going Concern | | | | | | | | | | | | |
| | | | | | | | | | | | |
The company was formed in November 2010. We have limited operations and are still in the development stage. This factor, among others, raises significant doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis and ultimately attain profitability. Management believes that we can alleviate the facts and circumstances which indicate a going concern by generating online revenue through an increase of products on our website. We have spent minimal capital resources on marketing and brand advertising; however, we have $636 in product revenue in one month with essentially three product offerings through our mini website (which was launched in August 2011). ICPI has committed to additional funding upon the filing of a registration statement, and subsequently upon the effectiveness of the registration statement. These funds will be used to market the name “Pazoo” and to add additional product offerings on our main website. |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Note 5—RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | | | | | | | | | | | |
| | | | | | | | | | | |
Recently Issued Accounting Pronouncements | | | | | | | | | | | |
| | | | | | | | | | | |
We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations. |
The following table summarizes the changes in the derivative liabilities during the period ending March 31, 2014:
Balance as of December 31, 2013 | | | | |
| | | | | |
| | | | |
Original issuance discount | | | | |
| | | | |
| | | | | |
Ending balance as of December 31, 2013 | | | | |
The Company uses the Black Scholes Option Pricing Model to value its option based derivatives based upon the following assumptions: dividend yield of -0-%, volatility of 167%, risk free rate of 0.33% and an expected term equal to the remaining term of the note.
There were 5,000,000 common stock warrants outstanding on the date the convertible note agreement was entered into which became tainted. These warrants were valued using the Black Scholes Option Pricing Model based upon the following assumptions: dividend yield of -0-%, volatility of 203%, risk free rate of 0.44% and an expected term equal to the remaining exercise term of the warrants. The fair value of the warrants at March 31, 2014 was $142,110.
Note 7—FAIR VALUE MEASUREMENTS AND DERIVATIVE LIABILIITY
The Company evaluates all of it financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Under ASC-815 the conversion options embedded in the notes payable described in Note 5 require liability classification because they do not contain an explicit limit to the number of shares that could be issued upon settlement.
During the period ending March 31, 2014, the Company entered into one convertible note agreement. The conversion option and the outstanding common stock warrants on that date which were tainted by the convertible note were classified as derivative liabilities at their fair value on the date of issuance.
As defined in FASB ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
| PAZOO, INC | |
| (A DEVELOPMENT STAGE COMPANY) | |
| BALANCE SHEETS | |
| (UNAUDITED) | |
| | | | | | | |
| | | September 30, 2011 | | | December 31, 2010 | |
| ASSETS | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 2,601 | | | | - | |
| Inventories | | | 1,050 | | | | - | |
| Prepaid expense | | | - | | | | 3,000 | |
| Advance to vendor | | | 12,900 | | | | - | |
| | | | | | | | | |
| Total current assets | | | 16,551 | | | | 3,000 | |
| Property and equipment, net | | | - | | | | - | |
| | | | | | | | | |
| Total assets | | $ | 16,551 | | | | 3,000 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 8,527 | | | | - | |
| Payroll liabilities | | | 2,079 | | | | - | |
| Loans payable - related party | | | 13,302 | | | | 1,615 | |
| Interest payable | | | 21 | | | | - | |
| | | | | | | | | |
| Total current liabilities | | | 23,929 | | | | 1,615 | |
| | | | | | | | | |
| Total Liabilities | | $ | 23,929 | | | | 1,615 | |
| | | | | | | | | |
| Stockholders' equity: | | | | | | | | |
| Common stock, $0.001 par value; 980,000,000 shares authorized, 48,182,000 shares issued and outstanding as of September 30, 2011 | | | 3,182 | | | | 600 | |
| Preferred stock, 20,000,000 shares authorized, 2,000,000 shares issued and outstanding at September 30, 2011 | | | 100,000 | | | | - | |
| Warrants, 2,000,000 issued and outstanding at September 30, 2011 | | | - | | | | - | |
| Additional paid-in capital | | | 12,728 | | | | 2,400 | |
| Retained earnings (accumulated deficit) | | | (123,288 | ) | | | (1,615 | ) |
| | | | | | | | | |
| Total stockholders' equity | | | (7,378 | ) | | | 1,385 | |
| | | | | | | | | |
| Total liabilities and stockholders' equity | | $ | 16,551 | | | | 3,000 | |
The accompanying notesthree levels of the fair value hierarchy are as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an integral partongoing basis. Level 1 primarily consists of these financial statements.instruments such as exchange-traded derivatives, marketable securities and listed equities.
Level 2 - Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date.
Level 3 - Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value at the period ending March 31, 2014.
| Recurring Fair Value Measurements | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
Derivative liability- March 31, 2014 | | | | | | | | | | | | | | | | |
Derivative liability- 2013 | | | | | | | | | | | | | | | | |
Derivative liability- 2012 | | | | | | | | | | | | | | | | |
Note 8—SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10-50-1 we evaluated our subsequent events through May 12, 2014.
In April 2014 the Company issued 125,000 shares of Series A Preferred Stock to ICPI in exchange for $125,000.
Simultaneous with the issuance of Series A Preferred Stock in April 2014, and under the Investment Agreement No. 4 we issued 125,000 warrants to ICPI which entitles its owner to purchase one share of Series A Preferred Stock for each Series A Preferred Stock at an exercise price of $2.00, subject to the terms of the warrant agreement between the warrant agent and us.
In April 2014, the Company entered into an Equity Purchase Agreement and a Securities Purchase Agreement with Premier Venture Partners, LLC (“Premier”) whereby Premier is obligated, providing the Company has met certain conditions including the filing of a Form S-1 Registration Statement for the shares to be acquired, to purchase up to $5,000,000 of the Company’s common stock at the rates set forth at the request of the Company by issuing a Put Notice when funds are needed. The Securities Purchase Agreement is a facility whereby the Company will receive $22,500 pursuant to two Convertible Promissory Notes.
In April 2014 the Company issued 150,000 shares of Series A Preferred Stock to ICPI in exchange for $150,000. The Company also simultaneously issued 150,000 warrants to ICPI which entitles its owner to purchase one share of Series A Preferred Stock for each Series A Preferred Stock acquired at an exercise price of $2.00.
In April 2014, the Company entered into a $10,000 Convertible Promissory Note (the “Note”) with Premier Venture Partners, LLC. Under the terms of the Note the Company’s will receive $10,000 for the preparation and filing of the Form S-1 Registration Statement required for the Equity Purchase Agreement (Attached as Exhibit 99.02 to the Company's Form 8-K filed April 9, 2014). Premier Venture Partners, LLC shall have the right to convert any unpaid sums into common stock of the Company at the rate of the lesser of $.03 per share or 50% of the lowest trade reported in the 10 days prior to date of conversion. A second Convertible Promissory Note, in the amount of $12,500, will be issued after the Form S-1 Registration Statement is filed in order to cover any additional expense of making the Form S-1 Registration Statement effective.
In April 2014, the Company agreed to buy a 40% equity interest in MA and Associates, LLC for $2,000,000 and 150,000 shares of the Company’s Series C Preferred Stock. MA is in the process of becoming a licensed medical marijuana testing laboratory in the State of Nevada. The Company made a $50,000 down payment in March 2014. | PAZOO, INC. | |
| (A DEVELOPMENT STAGE COMPANY) | |
| STATEMENT OF OPERATIONS | |
| (UNAUDITED) | |
| | |
| | | For the Period Ended September 30, 2011 | | | November 16, 2010 (Inception) to September 30, 2011 | |
| | | | | | | |
| Net sales | | $ | 636 | | | $ | 636 | |
| Cost of goods sold | | | 390 | | | | 390 | |
| Gross profit | | | 246 | | | | 246 | |
| | | | | | | | | |
| Selling, general and administrative expenses | | | 49,980 | | | | 49,980 | |
| Professional fees | | | 37,112 | | | | 37,112 | |
| Interest expense | | | 21 | | | | 21 | |
| Equipment | | | 3,904 | | | | 3,904 | |
| Organizational costs | | | 3,642 | | | | 5,257 | |
| Website setup | | | 27,260 | | | | 27,260 | |
| Total operating expenses | | | 121,919 | | | | 123,534 | |
| | | | | | | | | |
| Loss from operations | | | (121,673 | ) | | | (123,288 | ) |
| | | | | | | | | |
| Provision for income taxes | | | - | | | | - | |
| | | | | | | | | |
| Net loss | | $ | (121,673 | ) | | $ | (123,288 | ) |
| | | | | | | | | |
| Weighted average common shares outstanding | | | | | | | | |
| Basic | | | 48,182,000 | | | | 48,182,000 | |
| Diluted | | | 70,182,000 | | | | 70,182,000 | |
| Net loss per common share | | | | | | | | |
| Basic | | $ | - | | | $ | - | |
| Diluted | | $ | - | | | $ | - | |
In May 2014, the Company entered into a 12% Convertible Note (the “Note”) with JSJ Investments, Inc. (“JSJ”) in the amount of $100,000. Prior to October 28, 2014, the Company may redeem the Note for a $150,000. Thereafter, JSJ may convert the Note into common stock of the company at a stated discount of 50% based on the average of the lowest three trades in the previous ten days, or $0.06 per share.
In May 2014 the Company issued 25,000 shares of Series A Preferred Stock to ICPI in exchange for $25,000, in accordance with Investment Agreement No. 4
Simultaneous with the issuance of Series A Preferred Stock in May 2014, and under the Investment Agreement No. 4 we issued 25,000 warrants to ICPI which entitles its owner to purchase one share of Series A Preferred Stock for each Series A Preferred Stock at an exercise price of $2.00, subject to the terms of the warrant agreement between the warrant agent and us.
The accompanying notes are an integral part of these financial statements.
| PAZOO, INC. | |
| (A DEVELOPMENT STAGE COMPANY) | |
| STATEMENT OF CASH FLOWS | |
| (UNAUDITED) | |
| | |
| | | For the Period Ended September 30, 2011 | | | November 16, 2010 (Inception) to September 30, 2011 | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (121,673 | ) | | $ | (123,288 | ) |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Inventories | | | (1,050 | ) | | | (1,050 | ) |
| Prepaid expenses and other current assets | | | (9,900 | ) | | | (12,900 | ) |
| Accounts payables | | | 8,527 | | | | 8,527 | |
| Stock issued for services | | | 12,910 | | | | 12,910 | |
| Interest Payable | | | 21 | | | | 21 | |
| Payroll liabilities | | | 2,079 | | | | 2,079 | |
| | | | | | | | | |
| Net cash used in operating activities | | | (109,086 | ) | | | (113,701 | ) |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| | | | | | | | | |
| Net cash used in investing activities | | | - | | | | - | |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Loans payable - related party | | | 11,687 | | | | 13,302 | |
| Common stock | | | - | | | | 3,000 | |
| Preferred stock | | | 100,000 | | | | 100,000 | |
| | | | | | | | | |
| Net cash provided by financing activities | | | 111,687 | | | | 116,302 | |
| | | | | | | | | |
| Net decrease in cash and cash equivalents | | | 2,601 | | | | 2,601 | |
| | | | | | | | | |
| Cash and cash equivalents end of period | | $ | 2,601 | | | $ | 2,601 | |
The accompanying notes are an integral part of these financial statements.
| PAZOO, INC. | |
| (A DEVELOPMENT STAGE COMPANY) | |
| STATEMENT OF STOCKHOLDERS' EQUITY | |
| (UNAUDITED) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock (in shares) | | | Common Stock | | | Preferred Stock (in shares) | | | Preferred Stock | | | Additional Paid In Capital | | | Accumulated Other Comprehensive Income (Loss) | | | Retained Earnings (Accumulated Deficit) | | | Total Stockholders' Equity | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Beginning Balance at Nov. 16, 2010 (Inception) | | | - | | | | - | | | | - | | | | | | | - | | | | - | | | | - | | | | - | |
| Founders' Stock, issued at no cost on November 16, 2010 | | | 45,000,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Stock issued to consultants for services rendered on November 16, 2010 | | | 600,000 | | | | 600 | | | | - | | | | | | | | 2,400 | | | | - | | | | - | | | | 3,000 | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,615 | ) | | | (1,615 | ) |
| Ending Balance at Dec. 31, 2010 | | | 45,600,000 | | | | 600 | | | | - | | | | - | | | | 2,400 | | | | - | | | | (1,615 | ) | | | 1,385 | |
| Preferred Stock | | | - | | | | - | | | | 2,000,000 | | | | 100,000 | | | | - | | | | - | | | | - | | | | 100,000 | |
| Stock issued for marketing research services from July 2011 through September 2011 | | | 82,000 | | | | 82 | | | | - | | | | - | | | | 328 | | | | - | | | | - | | | | 410 | |
| Stock based compensation | | | 2,500,000 | | | | 2,500 | | | | - | | | | - | | | | 10,000 | | | | - | | | | - | | | | 12,500 | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (121,673 | ) | | | (121,673 | ) |
| Ending Balance at September 30, 2011 | | | 48,182,000 | | | | 3,182 | | | | 2,000,000 | | | | 100,000 | | | | 12,728 | | | | - | | | | (123,288 | ) | | | (7,378 | ) |
The accompanying notes are an integral part of these financial statements.
PAZOO, INC.(A DEVELOPMENT STAGE COMPANY)FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011(UNAUDITED)
Note 1—DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES | | | | | | |
| | | | | | |
Description of Business | | | | | | | | | | | |
| | | | | | | | | | | |
Pazoo, Inc. was originally incorporated in the State of Nevada as IUCSS, Inc., and is a development stage company with our operating headquarters in Cedar Knolls, New Jersey as an online retailer and distributer of nutritional foods/supplements, wellness goods, and fitness apparel. We changed our name on May 9, 2011 to take advantage of unique branding and website opportunities in the health improvement field. The Company is considered to be in the development stage as defined in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 915, Development Stage Entities. The Company has devoted substantially all of its efforts to business planning and development, as well as allocating a substantial portion of its time and resources in bringing its product to the market. The Company is in the initial stages of commencing commercial operations as of September 30, 2011. |
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Use of Estimates | | | | | | | | | | | | |
| | | | | | | | | | | | |
In accordance with Generally Accepted Accounting Principals (GAAP) the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.
On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in the notes to the financial statements.
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Fair Value of Financial Instruments | | | | | | | | | | | |
| | | | | | | | | | | |
For certain of the Company's assets and liabilities, including prepaid expense, the carrying amounts approximate fair value due to their short maturities. The amounts shown for loans payable also approximate fair value because current interest rates and terms offered to the Company for similar debt are substantially the same. |
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Cash and Cash Equivalents | | | | | | | | | | | |
| | | | | | | | | | | |
We classify all highly liquid instruments with an original maturity of three months or less at the time of purchase as cash equivalents. |
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Stock Based Compensation | | | | | | | | | | | |
| | | | | | | | | | | |
ASC 718 "Compensation - Stock Compensation" which codified SFAS No. 123 prescribes accounting and reporting standards for all stock-based payments awarded to employees, including employee stock options, restricted stock, employee stock purchase plans, stock appreciation rights, and stock-based payments may be classified as either equity or liabilities. The Company determines if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the transaction is recognized as a liability; otherwise, the transaction is recognized as equity. The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50 "Equity - Based Payments to Non-Employees" which codified SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services." Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
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Revenue Recognition | | | | | | | | | | | |
| | | | | | | | | | | |
The Company's financial statements are prepared under the accrual method of accounting. Revenues are recognized when evidence of an agreement exists, the price is fixed or determinable, collectability is reasonably assured and goods have been delivered or services performed. |
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Inventories | | | | | | | | | | | | |
| | | | | | | | | | | | |
Inventory currently consists predominately of goods purchased from third party suppliers and does not include raw materials. Certain inventory contains expiration dates (“shelf life”) and the efficacy of any product which is held beyond its shelf life may be impaired. Our inventory reserve is zero. The company has recently purchased inventory and as such, there are no products that are approaching the end of their shelf life. Inventory cost is determined using the weighted average cost method. |
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Advance to Vendors | | | | | | | | | | | |
| | | | | | | | | | | |
Deposit for product, $25,800, was placed into attorney escrow in February 2011. Half of the amount, $12,900, was released with the remaining amount, $12,900, to be released upon satisfactory delivery of product. The remaining escrow amount was returned in June 2011 due to non-delivery of product by this particular vendor and as of September 30, 2011, we are still awaiting delivery of product. |
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Income Taxes | | | | | | | | | | | | |
| | | | | | | | | | | | |
Since inception to September 30, 2011, the Company had no reserves for unrecognized tax benefits on the balance sheet. There are currently no income tax examinations in progress. The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company files income tax returns in the U.S. federal jurisdiction and in the state of New Jersey. The Company has filed all required Federal and State tax returns for the period ending December 31, 2010. |
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Net Loss Per Common Share | | | | | | | | | | | |
| | | | | | | | | | | |
Basic net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share reflects, in addition to the weighted average number of common shares, the potential dilution if shares of convertible preferred stock were converted into shares of common stock, unless the effects of such exercises and conversions would have been anti-dilutive. At September 30, 2011, there were 2,000,000 shares of Series A Convertible Preferred Stock outstanding which have been included in the calculation of diluted common shares outstanding. Each share of Series A Convertible Preferred Stock converts, at the option of the holder, into 10 shares of the Company’s common stock. Also at September 30, 2011, there were 2,000,000 warrants outstanding, each exercisable for 1 common share. |
| | | For the period ending | |
| | | September 30, | | | December 31, | |
| | | 2011 | | | 2010 | |
| | | | | | | | | |
| Weighted average common shares outstanding | | | | | | | | |
| Basic | | | 48,182,000 | | | | 45,600,000 | |
| Diluted | | | 70,182,000 | | | | 45,600,000 | |
| Net loss per common share | | | | | | | | |
| Basic | | $ | - | | | $ | - | |
| Diluted | | $ | - | | | $ | - | |
Note 2—STOCKHOLDERS’ EQUITY | | | | | | | | | | | |
| | | | | | | | | | | |
Preferred Stock | | | | | | | | | | | | |
| | | | | | | | | | | | |
We have authorized 20 million shares of $0.001 par value Preferred Stock. The preferred shares available for issuance are 10,000,000 Series A Convertible Preferred Stock (Series A Preferred Stock), 2,500,000 Series B Non-convertible Preferred Stock (Series B Preferred Stock), and 7,500,000 Series C Non-convertible Preferred Stock (Series C Preferred Stock). We have issued 2,000,000 shares of Series A Prefered Stock to date. No Series B Preferred Stock or Series C Preferred Stock has been issued. |
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In January 2011, we issued 1,000,000 Series A Preferred Stock to Integrated Capital Partners, Inc. (ICPI) at a price of $0.05 per share for $50,000 in a transaction that is exempt from the registration requirements of the Securities Act of 1933, as amended (the “Act”) in reliance on Section 4(2) of the Act |
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In February 2011, we issued 1,000,000 Series A Preferred Stock to Integrated Capital Partners, Inc. (ICPI) at a price of $0.05 per share for $50,000 in a transaction that is exempt from the registration requirements of the Securities Act of 1933, as amended (the “Act”) in reliance on Section 4(2) of the Act. |
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Warrant | | | | | | | | | | | | |
| | | | | | | | | | | | |
Simultaneous with the purchase of Series A Preferred Stock in 2011, we issued 2,000,000 warrants to Integrated Capital Partners, Inc. (ICPI) and each warrant entitles its owner to purchase 1.00 common shares for each Series A Preferred Stock at an exercise price of $0.05 per common share thereunder, subject to the terms of the warrant agreement between the warrant agent and us. The warrants are exercisable three years from the date of issue. No warrants have been exercised as of September 30, 2011. These warrants had negligible fair value at the time of issuance. |
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Common Stock | | | | | | | | | | | | |
| | | | | | | | | | | | |
From July 1 to September 30, 2011, we issued 82,000 shares of our common stock to 41 individuals in exchange for evaluation of our website functionality and beta testing logistics. |
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In September 2011, we issued 2,500,000 shares of our common stock to our Chief Operating Officer, and new Secretary and Treasurer, Ben Hoehn. Pazoo, Inc. issued this stock to Mr. Hoehn in exchange for $12,500 of services rendered at a price of $0.005 per share. |
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As of September 30, 2011 there are 48,182,000 shares of common stock outstanding. | | | | | |
Note 3—RELATED PARTY TRANSACTIONS | | | | | | | | | | |
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Related Party Transactions | | | | | | | | | | | |
| | | | | | | | | | | |
David Cunic has ownership interests in Pazoo, Inc. as a Board Member and the CEO of Pazoo. He is also the owner of DMC Athletics & Rehabilitation, Inc. ("DMC"), a physical therapy personal training clinic in Cedar Knolls, New Jersey. Pazoo subleases office space from DMC at 15A Saddle Road, Cedar Knolls, NJ 07927, which is also the location of DMC. Mr. Cunic spends roughly 40 hours contributing to the advancement of Pazoo, Inc. Gina Morreale was previously employed as Secretary/Treasurer for Pazoo, Inc. and was concurrently employed by ICPI, a Series A Convertible Preferred Stock holder. In September 2011, Ben Hoehn assumed the role of Chief Operating Officer and replaced Gina Morreale as Secretary/Treasurer.
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ICPI was previously the investor relations firm for VitaminSpice, LLC, prior to its investment into Pazoo, Inc. VitaminSpice and Pazoo signed a supply agreement on February 2011. |
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Loans Payable- Related Party | | | | | | | | | | | |
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Pazoo, Inc. entered into Promissory notes with Integrated Capital Partners Incorporated (ICPI) and used the funds for startup and organizational costs. ICPI is a Series A Preferred stockholder. |
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Note 4—CONTRACTUAL COMMITMENTS AND LONG TERM LIABILITIES | | | | | | |
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Contractual commitments and Long Term Liabilities | | | | | | | | | | |
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Pazoo, Inc. sublets office space at $500 per month from DMC Athletics & Rehabilitation (DMC) for a twelve-month term which commenced on April 1, 2011. This lease may be extended on a year-to-year basis at the sole option of Pazoo, Inc. For the term of the sublet period, we have agreed to maintain public liability insurance on the property as stated in the same amounts of DMC’s original lease with the landlord. We also lease office space from Alaris Business Centers at 5450 East High Street, Phoenix, Arizona, 85054. |
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Note 5—GOING CONCERN | | | | | | | | | | | |
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Going Concern | | | | | | | | | | | | |
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During the nine months ended September 30, 2011, the Company incurred net losses of $121,673. This factor, among others, raises significant doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis and ultimately attain profitability. Management believes that we can alleviate the facts and circumstances which indicate a going concern by generating online revenue through an increase of products on our website. We have spent minimal capital resources on marketing and brand advertising; however, we have $636 in product revenue in one month with essentially three product offerings through our mini website (which was launched in August 2011). ICPI has committed to additional funding upon the filing of a registration statement, and subsequently upon the effectiveness of the registration statement. These funds will be used to market the name “Pazoo” and to add additional product offerings on our main website. |
Note 6—OTHER NOTES | | | | | | | | | | | |
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Current Liabilities | | | | | | | | | | | | |
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During our development stage we received loans for organizational and startup expenses from ICPI in the form of Promissory notes totaling $13,302. |
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Selling, General, and Administrative (SG&A) | | | | | | | | | | |
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We incurred SG&A payroll and rent expenses of $16,774 and $10,637, respectively. In September 2011 we had $12,500 in stock based compensation to our Chief Operating Officer, Ben Hoehn. |
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Professional Fees | | | | | | | | | | | |
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We incurred general counsel, patent/trademark counsel, and accounting fees for $12,225, $12,399, and $10,800, respectively. |
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Website Setup | | | | | | | | | | | | |
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We incurred website hosting and setup fees of $27,260 which went towards coding, setup, and search engine optimization expenses for our mini website and main website design. |
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Note 7—RECENT ACCOUNTING PRONOUNCEMENTS | | | | | | | | | | |
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Recent Accounting Pronouncements | | | | | | | | | | |
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In 2010, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) to address diversity in practice in interpreting the pro forma revenue and earnings disclosure requirements for business combinations. The ASU specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the current year business combination(s) had occurred as of the beginning of the comparable prior annual reporting period. We do not expect the adoption of this update to have a material impact on our financial position, results of operations or cash flows. |
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In 2011, the FASB issued an ASU which amends guidance for the presentation of comprehensive income. The amended guidance requires an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The current option to report other comprehensive income and its components in the statement of stockholders’ equity will be eliminated. Although the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under existing guidance. As of September 30, 2011, we have no comprehensive income. We do not expect the adoption of this update to have a material impact on our financial position, results of operations or cash flows. |
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Other Expenses of Issuance and Distribution.
The Company has agreed to pay for all costs associated with the preparation and filing of this Form S-1. No additionalAdditional shares of the company’s stock will be issued as a result of this filing and onlyin addition to shares previously issued (or shares into which previously issued Series A Preferred Stock are convertible into) are being registered hereunder. Accordingly, there are noadditional costs or other expenses associated with the issuance and distribution of these additional shares.
INDEMNIFICATION AND UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any additional shares,action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as no additional shares are being issued at this time.expressed in the Act and will be governed by the final adjudication of such issue.
Indemnification of Directors and Officers.
Article VIII of our Articles of Incorporation (See, Exhibit 3.1) and Article Eleven of the Company’s By-Laws (See, Exhibit 3.2) provide that our officers and directors are afforded indemnification, by the company, to the greatest extend allowable under the General Corporation Law of the State of Nevada. Also, the Board of Directors is afforded the power to purchase and maintain Officers and Directors Liability Insurance. However, at this time the company does not maintain Officers and Directors Liability Insurance due to current cost constraints.
Undertakings
The undersigned Registrant hereby undertakes that,
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
i. To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
ii. To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.
iii. To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(4) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(5) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(6) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(7) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
Recent Sales of Unregistered Securities.
The company has not sold any unregistered common stock of the company. As set forth herein, the onlythere are 111,145,417 shares of common stock issued by the company is:that is currently unregistered. to: (i) founders stock to our officers and directors; (ii) stock issued to certain consultants for services rendered; and (iii) stock issued to certain persons of their assistance in the testing of the functionality of our website. As disclosed above, the company has issued 2,000,000 shares of Series A Preferred Stock to ICPI in accordance with a certain Investment Agreement (See, Exhibit 99.1). Each share of Series A Preferred Stock is convertible 10 shares of the company’s common stock. At this time, ICPI has not sought to convert any of its Series A Preferred Stock.
Also, as disclosed above, the company has issued 1,086,394 shares of Series A Preferred Stock to ICPI, as of the date of this filing, in accordance with a certain Investment Agreements. Each share of Series A Preferred Stock is convertible 100 shares of the company’s common stock.
* Previously Filed
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the Town of Cedar Knolls,Whippany, State of New Jersey, on NovemberJune 17 2011., 2014.
| | PAZOO, INC. | |
| | (Registrant) | |
| | |
| | | |
| | By: | /s/ David M. Cunic | |
| | | David M. Cunic, / C.E.O. | |
| | Chief Executive Officer and Chairman of the | |
| | Board of Directors (Principal Executive Officer) | |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David M. Cunic and Gregory Jung, and each of them, as true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and any related Registration Statement pursuant to Rule 462 under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do, or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| | By: | /s/ Gregory JungDavid M. Cunic | |
| | | Gregory Jung / C.F.O.David M. Cunic, Individually and as | |
| | Chief Executive Officer and Director | |
| | (Principal Executive Officer) | |
| | | | |
| By: | /s/ Steven Basloe | |
| | | NovemberSteven Basloe, Individually and as | |
| | President and Chairman of the Board of Directors | |
| By: | /s/ Ben Hoehn | |
| | Ben Hoehn, Individually and as | |
| | Chief Operating Officer and as acting | |
| | Chief Financial Officer | |
| | (Principal Financial and Accounting Officer) | |
| | |
| June 17 2011, 2014 | |