Form 10-Q for PAZOO, INC.
This Quarterly Report on Form 10-Q contains terminology referring to Pazoo, Inc., such as “us,” “our,” and “the Company.”
Management intends the following discussion to assist in the understanding of our financial position and our results of operations for the three months ended March 31, 2015 and March 31, 2014.
Pazoo (“Pazoo”) was incorporated in Nevada on November 16, 2010 under the name “IUCSS, Inc.” A name change from IUCSS, Inc. to Pazoo occurred on May 9, 2011. We are a 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. At present our only revenue source is www.pazoo.com which generates product sales and online advertising revenue. As of March 31, 2015, we had total assets of $323,111 and plan to make additional investments in online content.
The primary mission of pazoo.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 based on relationships with leading manufacturers in the health improvement industry. In other words, pazoo.com is a user-friendly, attractively designed web site and e-commerce portal for total health and wellness information and health products for individuals and their pets. We seek to enhance visitors’ experiences to our website by providing total health content and health products including foods, drinks, supplements, wellness merchandise, and health/wellness advice. Pazoo.com’s primary target demographic is health conscious adults ages 24 – 54 seeking to better their personal well-being and complement their daily lifestyles with consumer products items that are part of and promote a healthy lifestyle.
Our principal executive offices are located at 760 Route 10, Suite 203, Whippany, New Jersey 07981. Our telephone number is (855) PAZOO-US. Our internet address is www.pazoo.com.
Sources of Revenue
We currently have three lines of business relating to and revolving around the health and wellness arena:
? 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 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. Health and wellness experts that have expertise in these varied disciplines and write about their areas expertise; and
3. Content that is both for the health and wellness of people as well as their pets (over 60% of American homes have pets).
1. An e-commerce platform that is functional;
2. Relationships with manufacturers, distributors and other e-commerce companies so that increasing product offerings will not be time consuming;
3. 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 by negotiating with shipping companies to offer a flat rates on various products.
? 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 provide 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 required 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 safety testing upon which this burgeoning industry must hinge.
Critical Accounting Policy and Estimates Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements 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 conditions.
Results of Operations
Comparison of the three months ended March 31, 2015 to the three months ended March 31, 2014
Net Sales. We had net sales of $20,233 and $17,327 in the three months ended March 31, 2015 and March 31, 2014, respectively.
Cost of Goods Sold. We had cost of goods sold of zero and $325 in the three months ended March 31, 2015 and March 31, 2014, respectively.
Operating Expenses. Operating expenses consisted primarily of selling, general and administrative expenses and professional fees. Total operating expenses increased to $1,366,503 for the three month period ended March 31, 2015 from $264,299 for the three month period ended March 31, 2014. The components of operating expenses are detailed below.
Selling, General and Administrative expenses in the first three months of 2015 increased to $1,080,862 from $206,458 in the first three months of 2014. The increase was mainly comprised of stock compensation, and marketing & advertising.
Professional fees increased to $228,251 in the first three months of 2015 from $35,433 in the first three months of 2014. The increase in professional fees was attributed to an increase in investor relations and investor consultants.
Net Loss. Our net loss increased to $1,924,528 for the three months ended March 31, 2015 from $647,288 for the same period in 2014. The increase is primarily attributable to higher operating expense, as outlined above.
Liquidity and Capital Resources. In the three month period ended March 31, 2015, we had outstanding 501,850,585 common shares, 1,478,526 Series A Preferred Stock shares, 1,637,500 Series B preferred stock, and 580,000 shares of Series C Preferred Stock shares to fund business operations and invest in companies.
Our total assets were $323,111 as of March 31, 2015, which primarily consisted of intangible assets and $88,770 accounts receivable primarily for advertising revenue.
Our total liabilities were $2,030,377 which was mainly comprised of derivative liability of $1,191,670 for our convertible notes and convertible debt of $621,133.
Our total stockholder’s deficit as of March 31, 2015 was $1,707,266 and we had a retained deficit of $9,344,477 through the same period.
We used $383,308 in net cash for operating activities for the three months ended March 31, 2015, which included a net loss of $1,924,528 and loss on derivative liability of $439,113.
We had $699,000 net cash used in investing activities in the three month period ended March 31, 2015 due primarily to investment in MA & Associates.
We had $365,880 net cash provided by financing activities in the three month period ended March 31, 2015 due primarily to borrowings on convertible notes and proceeds from sale of Series A preferred stock and warrants.
As of March 31, 2015, we had no formal long-term lines of credit or bank financing arrangements.
Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements.
In accordance with FASB ASC 855-10-50-1 we evaluated our subsequent events through June 17, 2015. Refer to Note 9, Subsequent Events, for detailed information.