Form 10-Q/A for PAZOO, INC.
31-Mar-2016
Quarterly Report
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 and six months ended June 30, 2015 and June 30, 2014.
Overview
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 June 30, 2015, we had total assets of $2,299,761 and plan to make additional investments in online content.
Pazoo, Inc., is a company focused on health, wellness and safety. Our focus is to provide best-in-class laboratory testing of cannabis and cannabinoids to protect consumers from impurities, contaminants and other irregularities. Through our wholly-owned subsidiary, Harris Lee, and our partnership with MA & Associates, Pazoo provides industry-leading laboratory testing of cannabis. Harris Lee’s and MA’s license agreements with Steep Hill Labs, Inc. allows the Pazoo subsidiaries to use Steep Hill’s top-rated testing protocols in select markets as we expand throughout the USA. Pazoo’s subsidiaries are currently licensed to test cannabis in Nevada, Oregon and Colorado, with other states to come. Additionally, Pazoo delivers a comprehensive array of health and wellness information on its website www.pazoo.com.
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 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 April 2014 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. As of June, 2015, we have acquired a 100% equity state in MA & Associates, LLC and the testing laboratory in Las Vegas Nevada is open for business.
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.
We have further expanded our footprint in this arena through our acquisition of 100% stake in Harris Lee Holdings, LLC, a company formed to take the MA & Associates testing model outside of Nevada and into other states. The company is currently in the process of partnering with Harris Lee Colorado, LLC to take over an existing lab in Denver, Colorado, and just announced it has leased a space in Portland, Oregon where it will be establishing a testing lab. We are in a unique position to provide the mandated health and safety testing upon which this burgeoning industry must hinge moving forward.
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 June 30, 2015 to the three months ended June 30, 2014
Net Sales. We had net sales of $1,399 and $34,093 in the three months ended June 30, 2015 and June 30, 2014, respectively.
Cost of Goods Sold. We had cost of goods sold of zero and $244 in the three months ended June 30, 2015 and June 30, 2014, respectively.
Operating Expenses. Operating expenses consisted primarily of selling, general and administrative expenses and professional fees. Total operating expenses increased to $750,227 for the three month period ended June 30, 2015 from $492,211 for the three month period ended June 30, 2014. The components of operating expenses are detailed below.
Selling, General and Administrative expenses increased to $401,921 from $320,808, in 2015 versus 2014 which was mainly comprised of professional fees, stock compensation, and marketing & advertising.
Professional fees increased to $299,035 from $136,701 in 2015 versus 2014. The increase in professional fees was attributed to an increase in investor relations and investor consultants.
Results of Operations
Comparison of the six months ended June 30, 2015 to the six months ended June 30, 2014
Net Sales. We had net sales of $21,632 and $51,419 in the six months ended June 30, 2015 and June 30, 2014, respectively.
Cost of Goods Sold. We had cost of goods sold of zero and $569 in the six months ended June 30, 2015 and June 30, 2014, respectively.
Operating Expenses. Operating expenses consisted primarily of selling, general and administrative expenses and professional fees. Total operating expenses increased to $2,116,730 for the six month period ended June 30, 2015 from $834,283 for the six month period ended June 30, 2014. The components of operating expenses are detailed below.
Selling, General and Administrative expenses increased to $1,482,783 from $605,039, in 2015 versus 2014 which was mainly comprised of professional fees, stock compensation, and marketing & advertising.
Professional fees increased to $527,556 from $172,134 in 2015 versus 2014. The increase in professional fees was attributed to an increase in investor relations and investor consultants.
Net Loss. Our net loss increased to $4,221,774 for the six months ended June 30, 2015 from $1,132,733 for the same period in 2014. The increase is primarily attributable to higher operating expense, as outlined above.
Liquidity and Capital Resources. In the six month period ended June 30, 2015, we had outstanding 667,848,681 common shares, 2,463,526 Series A Preferred Stock shares, 1,637,500 Series B preferred stock, and 1,080,000 shares of Series C Preferred Stock shares to fund business operations and invest in companies.
Our total assets were $2,299,761 as of June 30, 2015, which primarily consisted of goodwill, intangible assets and accounts receivable primarily for advertising revenue.
We had negative working capital of $2,713,250 as of June 30, 2015.
Our total liabilities were $4,311,103 which was mainly comprised of derivative liabilities of $1,542,994, convertible debt of $1,152,240 and contingent consideration liabilities of $1,228,581.
Our total stockholder’s deficit as of June 30, 2015 was $2,011,343 and we had a retained deficit of $11,641,724 through the same period.
We used $1,067,321 in net cash for operating activities for the six months ended June 30, 2015, which included a net loss of $4,221,774 and gain on derivative liability of $6,031.
We had $1,084,341 net cash used in investing activities in the six month period ended June 30, 2015 due primarily to investment in MA & Associates.
We had $1,570,667 net cash provided by financing activities in the six month period ended June 30, 2015 due primarily to borrowings on convertible notes and proceeds from sale of Series A preferred stock and warrants.
As of June 30, 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.
Subsequent Events.
In accordance with FASB ASC 855-10-50-1 we evaluated our subsequent events through August 14, 2015. Refer to Note 9, Subsequent Events, for detailed information.
MAPH Enterprises, LLC | (305) 414-0128 | 1501 Venera Ave, Coral Gables, FL 33146 | new@marijuanastocks.com
