Pazoo, Inc. - Quarter Report: 2015 March (Form 10-Q)

pazoo10q033115.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________

FORM 10-Q

_____________

x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2015

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission File No. 333-178037

PAZOO, INC.

(Exact name of registrant as specified in its charter)

Nevada		27-3984713
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

760 State Route 10, Suite 203 Whippany, NJ		07981
(Address of Principal Executive Offices)		(Zip Code)

(973) 884-0136

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§230.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No 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 the definitions of “large accelerated file,” “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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

660,811,645 shares of common stock, par value $0.001 per share, outstanding as of June 22, 2015.

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Pazoo, Inc.

Form 10-Q

Table of Contents

			Page
Part I	Financial Information		1
	Item 1	Financial Statements	1
		Balance Sheets (Unaudited)	2
		Statements of Operations (Unaudited)	3
		Statements of Cash Flow (Unaudited)	4
		Notes to Financial Statements (Unaudited)	5
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 3	Quantitative and Qualitative Disclosures About Market Risk	13
	Item 4	Controls and Procedures	13

Part II	Other Information		14
	Item 1	Legal Proceedings	14
	Item 1A	Risk Factors	14
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	14
	Item 3	Defaults Upon Senior Securities	14
	Item 4	(Reserved)	14
	Item 5	Other Information	14
	Item 6	Exhibits	14

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Part I – FINANCIAL INFORMATION

Item 1 Consolidated Financial Statements (Unaudited)

The results reflected in the unaudited Consolidated Statement of Operations for the three month period ended March 31, 2015 may not be indicative of results expected for the full year. The following unaudited Consolidated financial Statements should be read in conjunction with the Notes to the Financial Statements, Management’s Discussion and Analysis of Financial Condition and Results of Operations shown in Item 2 of Part I of this report, as well as the audited financial statements and related notes to the financial statements in the Company’s Annual Report on Form 10-K filed on May 13, 2015 with the Securities and Exchange Commission (SEC) for the year ended December 31, 2014. Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to these rules.

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PAZOO, INC
CONSOLIDATED BALANCE SHEETS
(Unaudited)


	March 31, 2015			December 31, 2014

ASSETS
Current assets:
Cash and cash equivalents	$	17,209		$	733,637
Accounts receivable		88,770			87,949
Stock subscription receivable		12,999			18,253
Inventories		2,668			2,668
Prepaid expenses		1,465			6,181

Total current assets		123,111			848,688

Intangible assets		200,000			-

Total assets	$	323,111		$	848,688

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities	$	89,347		$	84,189
Loans payable		3,000			3,000
Interest payable		62,602			46,862
Convertible debt, net of unamortized discounts of $242,308 and $413,898		621,133			895,664
Derivative liabilities		1,191,670			2,576,025

Total current liabilities		1,967,752			3,605,740

Long-term liabilities:
Long-term portion of convertible debt, net of unamortized discounts of $690,124 and $783,668		62,625			28,832

Total long-term liabilities		62,625			28,832

Total liabilities	$	2,030,377		$	3,634,572

Stockholders' deficit
Common stock, $0.001 par value; 980,000,000 shares authorized, 501,850,585 and 193,030,398 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively		501,850			193,031
Convertible preferred stock, Ser. A, $0.001 par value, 10,000,000 shares authorized, 1,478,526 shares and 1,203,526 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively.		1,479			1,204
Preferred stock, Ser. B, $0.001 par value, 2,500,000 shares authorized, 1,637,500 and 1,187,500 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively		1,637			1,187
Convertible Preferred stock, Ser. C, $0.001 par value, 7,500,000 shares authorized, 580,000 and no shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively		580			-
Additional paid-in capital		7,131,665			4,438,643
Accumulated deficit		(9,344,477	)		(7,419,949	)

Total stockholders' deficit		(1,707,266	)		(2,785,884	)

Total liabilities and stockholders' equity deficit	$	323,111		$	848,688

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

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PAZOO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended
	March 31,
	2015			2014

Revenues
Merchandise sales	$	-		$	218
Advertising sales		20,233			17,109
Total revenues		20,233			17,327
Cost of goods sold
Merchandise sales		-			325
Total cost of goods sold		-			325
Gross profit		20,233			17,002

Selling, general and administrative expenses		1,080,862			206,458
Professional fees		228,521			35,433
Website setup		57,120			22,408
Total operating expenses		1,366,503			264,299

Loss from operations		(1,346,270	)		(247,297	)

Other expenses:
Gain/(loss) on derivative liability		439,113			(376,187	)
Impairment loss on investments		(499,000	)		-
Interest expense		(518,371	)		(23,804	)

Net loss	$	(1,924,528	)	$	(647,288	)
Series A preferred stock dividend		(8,962	)		(5,672	)
Net loss attributable to common stockholders		(1,933,490	)		(652,960	)

Weighted average common shares outstanding - Basic and diluted		294,471,692			105,994,083

Net loss per common share - Basic and diluted	$	(0.01	)	$	(0.01	)

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

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PAZOO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Three Months Ended
	March 31,
	2015			2014

Cash flows from operating activities:
Net loss	$	(1,924,528	)	$	(647,288	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		862,800			110,991
(Gain)/loss on derivative liabilities		(439,113	)		376,187
Impairment loss on equity method investment		499,000			-
Amortization of debt discounts		451,693			17,804
Loss on true-up of convertible notes		34,383			-
Additional common shares issued for true-up of convertible notes		51,470			-
Changes in operating assets and liabilities:
Accounts receivable		(821	)		(7,537	)
Stock subscription receivable		5,254			-
Inventories		-			1,565
Prepaid expenses and other current assets		4,716			(22,147	)
Accounts payable and accrued liabilities		5,159			12,076
Interest payable		66,679			6,000
Net cash used in operating activities		(383,308	)		(152,349	)

Cash flows from investing activities:
Deposit made on acquisition of investment		-			(50,000	)
Cash paid for intangible asset		(200,000	)		-
Equity investment in equity method investee		(499,000	)		-
Net cash used in investing activities		(699,000	)		(50,000	)

Cash flows from financing activities:
Borrowings on convertible note, net of original issue discounts		82,500			55,000
Proceeds from issuing common stock		48,380			-
Proceeds from exercise of Series A preferred warrants		-			40,000
Proceeds from sale of Series A preferred stock and warrants		235,000			100,000
Net cash provided by financing activities		365,880			195,000

Net increase in cash and cash equivalents		(716,428	)		(7,349	)
Cash and cash equivalents beginning of period		733,637			35,848
Cash and cash equivalents end of period	$	17,209		$	28,499

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 Series A preferred stock	$	60,000		$	1,700
Debt discounts due to derivative liabilities		181,803			60,500
Payments of accounts payable by third party		-			2,075
Original issue discount on convertible note		-			5,500
Resolution of derivative liabilities		1,126,245			-
Common shares issued for conversion of debt and interest		679,251			-

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

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Pazoo, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1—DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Financial Presentation

The unaudited Consolidated Balance Sheets, Consolidated Statements of Operations, and Consolidated Statements of Cash Flows of Pazoo, Inc. (“we”, “our”, “Pazoo” or the “Company”) reflect all normal recurring adjustments nature which are, in the opinion of management, necessary for a fair presentation of financial position and the results of operations for the interim periods presented. Certain prior-year amounts have been reclassified to conform to the current period presentation.

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.

We entered the pharmaceutical testing laboratory market with our acquisitions of MA & Associates, which will operate pharmaceutical testing laboratories in Nevada, and Harris Lee which will operate pharmaceutical testing laboratories in other states. These pharmaceutical testing laboratories focus on providing quality control services to the medical cannabis industry. The mission is to protect the public health by providing infrastructure and analytical services to legally-authorized cannabis producers and distributors as well as to regulators. States that have legalized cannabis are developing cannabis health and safety criteria that we will fulfill through our testing laboratories.

Principles of Consolidation

The accompanying consolidated financial statements include the amounts of the Company and its wholly-owned subsidiary Harris Lee LLC, a Nevada limited liability company. All intercompany accounts and transactions have been eliminated as of March 31, 2015.

Intangible Assets

Intangible assets as of March 31, 2015 consisted of a license agreement acquired for $200,000 during March 2015 from Steep Hill Labs for the right to take the Steep Hill software and methodology to states above and beyond Nevada. The cost basis of the intangible asset will be amortized over the initial 9-year term of the license. Amortization expense during the three months ended March 31, 2015 was zero as the amount was nominal.

Impairment of Long-Lived Assets

The Company’s intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the historical-cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the asset by comparing the undiscounted future net cash flows expected to result from the asset to its carrying value. If the carrying value exeeds the undiscounted future net cash flows of the asset, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived asset. The license was evaluated for impairment and no impairment loss was incurred as of March 31, 2015.

Note 2—GOING CONCERN

From inception of November 16, 2010 through March 31, 2015, the Company has incurred net losses of $9,344,477 and the Company has a working capital deficit as of March 31, 2015. These factors, among others, raise 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.

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Note 3—STOCKHOLDERS’ EQUITY

Common Stock

During the first quarter of 2015, the Company issued 308,820,187 common shares for the following purposes.

	3,858,333		shares for third-party services valued at $15,550
	5,460,125		shares issued for cash for cash proceeds of $48,380
	7,918,528		shares issued for true-up of loan conversion valued and expensed at $51,470
	60,000,000		shares resulting from Series A Preferred Stock holders converting 600,000 shares
	231,583,201		shares resulting from debt holders converting $679,251 of debt into common stock
	308,820,187		shares issued total
	193,030,398		shares at December 31, 2014
	501,850,585		shares at March 31, 2015

Preferred Stock

During the first quarter of 2015, the Company issued 275,000 net shares of Series A preferred stock for the following purposes.

(600,000	)	shares converted into 60,000,000 common shares
875,000		shares issued for $235,000 in cash
275,000		shares total
1,203,526		shares at December 31, 2014
1,478,526		shares at March 31, 2015

During the first quarter of 2015, the Company issued 450,000 net shares of Series B preferred stock and issued 580,000 shares of Series C preferred stock as a part of its investments in Harris Lee and MA investments. The total value of preferred shares at issuance was $847,250.

Warrants

Simultaneous with issuing Series A Preferred Stock in the three month period ended March 31, 2015, and under Investment Agreement No. 5 (October 2014) and Investment Agreement No. 6 (February 2015), we issued 1,750,000 warrants. These warrants allow the holder to purchase one share of Series A Preferred Stock for each Series A Preferred Stock at an exercise price of $0.50, subject to the terms of the warrant agreement between the warrant agent and us. These warrants are exercisable up to five years from the issuance date.

The following table presents the Series A preferred stock warrant activity during the three months ended March 31, 2015:

	Warrants		Weighted Average Exercise Price

Outstanding - December 31, 2014		1,030,226	$	2.23
Granted		1,750,000		0.50
Forfeited/Canceled		-		-
Exercised		-		-
Outstanding - March 31, 2015		2,780,726		1.18
Exercisable - March 31, 2015		2,780,726	$	1.18

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The weighted average remaining life of the outstanding Series A preferred stock warrants as of March 31, 2015 and December 31, 2014 was 4.23 and 3.26 years, respectively.

The following table presents the common stock warrant activity during the three months ended March 31, 2015:

	Warrants		Weighted Average Exercise Price

Outstanding - December 31, 2014		6,130,470	$	0.05
Granted		-		-
Forfeited/Canceled		-		0.05
Exercised		-		-
Outstanding - March 31, 2015		6,130,470		0.05
Exercisable - March 31, 2015		6,130,470	$	0.05

The weighted average remaining life of the outstanding common stock warrants as of March 31, 2015 and December 31, 2014 was 0.23 and 0.48 years, respectively.

Note 4—RELATED PARTY TRANSACTIONS

In July 2013, we entered into a consulting agreement with an affiliate of Mr. Basloe. The agreement provides for consulting on marketing-related services for use in our business operations. The amounts paid under this agreement in the three months ended March 31, 2015 and March 31, 2014 were $15,000 and $14,250, respectively.

In January 2015, we entered into a services agreement with a family member of Mr. Basloe. The agreement provided for consultation services related to the Colorado recreational and medical marijuana marketplace and onsite retail operations studies in Boulder, CO and Denver, CO. The consultant was granted 250,000 common shares under the agreement which vest after six months. The fair value of the award was determined to be $1,500 as of March 31, 2015 of which $750 was recognized during the three months ended March 31, 2015 as stock-based compensation. The shares will be issued upon vesting.

In connection with the investments in Harris Lee and MA Associates, the Company issued Series B and Series C Preferred shares to two current board members, Mr. Del Hierro and Mr. Lierberthal. Mr. Del Hierro was issued 150,000 shares of Series B Preferred shares valued at $150 and 140,000 shares of Series C Preferred shares value at $204,400. Mr. Lieberthal was issued 150,000 shares of Series B Preferred shares valued at $150 and 140,000 shares of Series C Preferred shares value at $204,400.

Note 5—EQUITY METHOD INVESMENTS AND ACQUISITIONS

MA & Associates, LLC

Equity method investees are all entities over which the Company has significant influence, but not control. Significant influence is presumed with a shareholding of between 20% and 50% of the voting rights. Investments in equity method investees are accounted for using the equity method of accounting and are initially recognized at cost. As of March 31, 2015, the Company has significant influence in its investments in, MA & Associates, LLC and subsequently gained control in the second quarter of 2015. (See Subsequent Events.)

As of March 31, 2015, the Company owned a 40% interest in MA. In the first quarter of 2015, the Company paid an additional $499,000 of the $2,000,000 cash portion of the purchase price and issued 100,000 of the 150,000 shares of Series C Preferred Stock. The remaining shares will be issued in the future after the testing laboratory is operational. Subsequent to March 31, 2015, the Company paid an additional $237,638. The fair value of the 100,000 Series C shares was determined to be $146,000 and it was recognized as compensation expense to the sellers of MAIn addition, there are 60,000 additional Series C shares to be issued upon achieving certain milestones in 2015 of which 30,000 were issued valued and expensed at $43,800.

In accordance with the agreement, ICPI is entitled to 500,000 Series C shares of which 300,000 were issued valued and expensed at $438,000. The remaining 200,000 shares will be issued upon achieving certain milestones in 2015.

During the quarter ended March 31, 2015, the Company performed an impairment analysis and determined that due to the fact that MA is a start up with no current cash flows; we impaired 100% of the additional equity method investment resulting in an impairment loss of $499,000.

The Company recognizes its proportionate share of the net income or losses for MA in the Statements of Operations, after adjustments to align the accounting policies with those of the Company. When the Company’s share of losses exceeds its interest in equity method investees, the Company reduces to zero its carrying amount of that interest (including any long-term loans) and discontinues recognizing further losses except to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the equity method investees. The Company eliminates unrealized gains on transactions between the Company and its equity method investees and eliminates unrealized losses unless the transaction provides evidence of an impairment of the asset transferred. Re-measurement differences of equity stake resulting from gaining control over the investee previously recorded as an equity method investments are recorded under Results related to investments in equity method investees. During the quarter ended March 31, 2015, the equity method investment loss recognized was zero as it was determined to be nominal.

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Harris Lee Holdings, LLC

At December 31, 2014, the Company owned 45% of Harris Lee Holdings, LLC (“Harris Lee”). Pursuant to an October 2014 agreement, during the first quarter of 2015, the company acquired an additional 10% interest in Harris Lee in exchange for 150,000 shares of the Company’s Series C Preferred stock based on a series of milestone events.

In January 2015, the Company acquired the remaining 45% of Harris Lee in exchange for 450,000 shares of the Company’s Series B Preferred Stock.

The aggregate fair value of the 450,000 Series B and the 150,000 Series C shares was determined to be $219,450 and it was recognized as compensation expense to the sellers of Harris Lee. Harris Lee is now consolidated in the Company’s financial results.

During the quarter ended March 31, 2015, Harris Lee was not operating and its impact on the Company’s Statement of Operations was zero as it was determined to be nominal.

Note 6—CONVERTIBLE NOTES

During the first quarter of 2015, the Company recorded discounts of $186,559 on the notes of which $181,003 resulted from derivative liabilities and $5,556 resulted from original issue discounts. Aggregate amortization of debt discounts was $451,693 for the three months ended March 31, 2015.

The following table summarizes the changes in the convertible notes for the three months ending March 31, 2015:

	Short Term			Long Term			Total

Balance as of December 31, 2014 - Net	$	895,664		$	28,832		$	924,496
Add back: unamortized discount		(413,898	)		(783,668	)		(1,197,566	)
Balance as of December 31, 2014 - Gross	$	1,309,562		$	812,500		$	2,122,062
Cash additions		52,500			30,000			82,500
Non-cash additions		34,383			-			34,383
Cash payments		( -	)		( -	)		( -	)
Conversions		(572,756	)		(55,556	)		(628,312	)	(a)
Original issue discount		5,556			-			5,556
Total		829,245			786,944			1,616,189
Less: unamortized discount		(208,113	)		(724,319	)		(932,432	)
Balance as of March 31, 2015	$	621,132		$	62,625		$	686,757

(a)	The Statement of Cash Flows shows $679,251 which consists of $628,312 in principal plus $50,939 in interest. Both were converted into common shares.

The Company uses the Black Scholes Option Pricing Model to value its convertible debt and warrant derivative liabilities based upon the following assumptions during the three months ended March 31, 2015:

	March 31, 2015

Dividend yield:		0
Expected volatility	144.0% to 219.0%
Risk free interest rate	0.03% to 1.37%
Expected life (years)	0.25 to 4.91

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Note 7—DERIVATIVE LIABILITIES

The following table summarizes the changes in the derivative liabilities during the period ending March 31, 2015:

Balance as of December 31, 2014	$	2,576,025

Debt discount		181,003
Original issuance discount		-
Extinguished		(1,126,245	)
Change in fair value		(439,113	)

Ending balance as of March 31, 2015	$	1,191,670

Note 8—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.

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.

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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, 2015.

Recurring Fair Value Measurements	Level 1		Level 2		Level 3		Total

LIABILITIES:
Derivative liabilities - March 31, 2015		-		-		1,191,670		1,191,670
Derivative liabilities - December 31, 2014		-		-		2,576,025		2,576,025

Note 9—SUBSEQUENT EVENTS

In accordance with FASB ASC 855-10-50-1 we evaluated our subsequent events from the May 15, 2015 filing date of our 2014 Form 10-K with the U. S. Securities and Exchange Commission through June 17, 2015. During this period, we entered into the following debt and equity transactions:

●	Investors converted $282,067 of Convertible Promissory Notes into 115,461,060 common shares.

●	Investors converted $435,000 of Convertible Preferred Series A Stock into 43,500,000 shares of common stock.

●	We issued 1,437,500 of Series A Preferred Stock for $225,000 in accordance with Investment Agreement No. 5 and No. 6.

●

The Company acquired the remaining 60% of MA & Associates in exchange for an aggregate total of 1,000,000 shares of the Company’s Preferred C shares of stock. The Company now owns 100% of MA & Associates and is consolidating this investment. In 2014, the company accounted for this investment under the equity method. The Agreement is attached here as Exhibit 99.3.

●	The Company formed a wholly owned subsidiary called CannabisKing Distribution LLC. This subsidiary will distribute ancillary non-regulated products at various testing laboratories across the country.

●	The Company borrowed an aggregate of $780,000 under convertible notes with the following terms: Interest rates 8.0% to 12.0% Conversion rates $0.0065 to $0.02 Maturity dates November 2015 to April 2020

●	The Company paid back an aggregate total of $373,382 in Convertible Notes.

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Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements in this Quarterly Report that are not statements of historical facts are forward-looking statements, which involve risks and uncertainties. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. Our actual results may differ materially from those indicated in the forward-looking statements as a result of the factors set forth elsewhere in this Quarterly Report on Form 10-Q, including under “Risk Factors.” You should read the following discussion and analysis together with our unaudited financial statements for the periods specified and the related notes included herein. Further reference should be made to our Registration Statement on Form S-1 filed with the Securities and Exchange Commission.

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.

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 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:

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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:

A comprehensive solution as a content source – information on a full spectrum of disciplines within the health and wellness marketplace;

Health and wellness experts that have expertise in these varied disciplines and write about their areas expertise; and

Content that is both for the health and wellness of people as well as their pets (over 60% of American homes have pets).

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E-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:

An e-commerce platform that is functional;

Relationships with manufacturers, distributors and other e-commerce companies so that increasing product offerings will not be time consuming;

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

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.

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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.

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We had negative working capital of $1,844,641 as of March 31, 2015.

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.

Subsequent Events.

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.

Item 3 Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company”, as defined by Item 10(f) of Regulation S-K, we are not required to provide the information required by Item 3.

Item 4 Controls and Procedures

Evaluation of disclosure controls and procedures.

We carried out an evaluation, under the supervision of and with our executive officers, David M. Cunic in his role as Chief Executive Officer and Ben Hoehn in his role as Chief Operating Officer and Acting Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, the officers concluded that because of the limited size of our organization our disclosure controls and procedures are not effective as of March 31, 2015.

We have not made any changes in our internal control over financial reporting during the three months ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1 Legal Proceedings

No updates for the period ending March 31, 2015

Item 1A Risk Factors

As a “smaller reporting company” as defined by Item 10(f) of Regulation S-K, we are not required to provide information required by this item.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3 Defaults Upon Senior Securities

None.

Item 4 (Reserved)

Item 5 Other Information

None.

Item 6 Exhibits

Exhibit Number		Description

31.1		Certification of David Cunic, Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2		Certification of Ben Hoehn, Acting Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1		Certification of David Cunic, Chief Executive Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Ben Hoehn, Acting Chief Financial Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1		ICPI Investment Agreement No. 4
99.2		3-17-14 Board Resolution
99.3		MA & Associates Limited Liability Company Membership Interest Purchase Agreement

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SIGNATURE

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

June 23, 2015	PAZOO, INC.

	/s/ David M. Cunic
	David M. Cunic
	Chief Executive Officer


June 23, 2015	PAZOO, INC.

	/s/ Ben Hoehn
	Ben Hoehn,
	Chief Operating Officer, Acting Chief Financial Officer (Principal Financial and Accounting Officer)