The results reflected in the unaudited Condensed Consolidated Statement of Operations for the nine month period ended September 30, 2016 may not be indicative of results expected for the full year. The following unaudited Condensed 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 April 15, 2016 with the Securities and Exchange Commission (SEC) for the year ended December 31, 2015. 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 the instructions to Article 8 Regulation S-X.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1—DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Company is a growth stage health and wellness company. Presently, their business consists of 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.
Further, the Company entered the pharmaceutical testing laboratory market with their acquisitions of MA & Associates, LLC which will operate pharmaceutical testing laboratories in Nevada, and Harris Lee Holdings, LLC which will operate pharmaceutical testing laboratories within other states, or license testing protocols as independently owned laboratories. 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 their testing laboratories. Lastly, the Company's wholly owned subsidiary, CK Distribution LLC, provides the marketing and sales agent for the distribution of non-controlled hemp products throughout the USA. Non-controlled hemp products are the items utilized by the industry that support grow facilities, infusion companies and dispensaries.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Pazoo, Inc. ("Pazoo" or the "Company") and its wholly-owned subsidiaries MA & Associates, LLC, Harris Lee Holdings, LLC, and CK Distribution, LLC. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). All significant inter-company transactions and accounts have been eliminated in consolidation.
In March 2016, the Company effected a 1-for-100 reverse stock split of the outstanding common stock (the "Reverse Stock Split") whereby every one hundred (100) shares of outstanding common stock decreased to one (1) share of common stock. Similarly, the number of shares of common stock, par value $0.001 ("Common Stock") into which each outstanding Preferred stock and warrant to purchase common stock is to be exercisable decreased on a 1-for-100 basis and the exercise price of each outstanding preferred stock and warrant to purchase common stock increased proportionately. The impact of this reverse stock split has been retroactively applied to the financial statements and the related notes.
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 as filed on April 15, 2016.
Use of Estimates
In accordance with GAAP the preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated 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.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Pazoo and its subsidiaries, which are wholly owned. All significant intercompany transactions and balances have been eliminated in consolidation.
Fixed Asset
Fixed assets are presented at cost at the date of acquisition. Depreciation and amortization is calculated based on the straight-line method over the estimated useful lives of the depreciable assets, or in the case of leasehold improvements, the shorter of the lease term or the estimated useful life of the asset, a portion of which is allocated to cost of sales. Improvements are capitalized while repairs and maintenance are charged to operations as incurred.
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 exceeds 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 Steep Hill and MA licenses were evaluated for impairment and no impairment loss was incurred as of December 31, 2015.
The Company, due to the uncertainties surrounding the license agreement, impaired 100% of the value of the Steep Hill Labs licenses due to the purported unsubstantiated termination of the license agreements in June 2016 between Steep Hill Labs and MA & Associates, LLC and Harris Lee, LLC respectively. The Company strongly believes that any attempted termination of the licenses on the part of Steep Hill Labs was ineffective for many reasons, including, without limitation, Steep Hill's failure to provide key deliverables including technology, scientific know-how and lab guidance. On July 6, 2016, the Company contested the improper attempted termination of the licenses which was based on no identifiable contractual justification, and to which Steep Hill has not formally responded. To the contrary, as of the date of this Report, Steep Hill Labs continues to list the Company as one of its "partners" and continues to display the Company's Las Vegas facility as a Steep Hill location. If Steep Hill Labs takes any further action to effectuate the ineffective termination of the licenses, this matter will be litigated under the terms and conditions of the respective license agreements, which management will vigorously defend.
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.
Dilutive Securities
|
|
|
September 30,
2016
|
|
|
September 30,
2015
|
|
|
|
|
|
|
|
|
|
|
Common stock warrants
|
|
|
-
|
|
|
|
3,355
|
|
|
Convertible notes
|
|
|
39,542,005,182
|
|
|
|
7,354,189
|
|
|
Preferred series A shares & warrants
|
|
|
23,040,100
|
|
|
|
2,503,526
|
|
|
Preferred series C
|
|
|
316,707,200
|
|
|
|
1,233,000
|
|
|
|
|
|
39,881,752,482
|
|
|
|
11,094,070
|
|
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued new guidance related to how an entity should recognize lease assets and lease liabilities. The guidance specifies that an entity who is a lessee under lease agreements should recognize lease assets and lease liabilities for those leases classified as operating leases under previous FASB guidance. Accounting for leases by lessors is largely unchanged under the new guidance. The guidance is effective for us beginning in the first quarter of 2019. Early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is evaluating the impact of adopting this guidance on our consolidated financial condition, results of operations and cash flows.
In March 2016, the FASB issued new guidance which involves several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. This ASU is effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period, however early adoption is permitted. The Company is currently evaluating the guidance to determine the Company's adoption method and the effect it will have on the Company's Consolidated Financial Statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed to have a material impact on our present or future consolidated financial statements.
Fair Value of Financial Instruments
The Company's financial instruments consist principally of cash and cash equivalents, derivatives, convertible debt, 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.
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, cannabis testing, and sales and distribution of non-controlled hemp products.
Note 2—GOING CONCERN
During the nine months ended September 2015 and 2016, the Company incurred net losses of $2,420,465 and $8,417,040, respectively. In addition, as of September 30, 2016, the Company had a working capital deficit of $7,337,290. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. These consolidated 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 and raise additional capital to meet our obligations on a timely basis and ultimately attain profitability. If the Company is unable to generate sufficient cash flow or raise additional capital, it could be forced to cease operations.
Note 3—FIXED ASSETS
Fixed assets consists of the following:
Fixed Assets
|
|
|
Estimated Useful Life (in years)
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
3-5
|
|
|
$
|
643,195
|
|
|
$
|
643,195
|
|
|
Furniture and fixture
|
|
|
7
|
|
|
|
6,687
|
|
|
|
6,687
|
|
|
Leasehold improvements
|
|
|
3-5
|
|
|
|
238,620
|
|
|
|
238,620
|
|
|
Website
|
|
|
3
|
|
|
|
1,385
|
|
|
|
1,385
|
|
|
|
|
|
|
|
|
$
|
889,887
|
|
|
$
|
889,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
|
|
|
|
(211,822
|
)
|
|
|
(140,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets, Net
|
|
|
|
|
|
$
|
678,065
|
|
|
$
|
749,841
|
|
Costs of assets acquired under capital leases were approximately $615,000 as of September 30, 2016 and December 31, 2015. The capital lease represents a total of three leases for testing equipment. The leases hold an interest rate of 0% and monthly payments are approximately $17,000 per month. As of September 30, 2016 and at December 31, 2015, accumulated depreciation related to assets was $211,822 and $140,046, respectively.
Note 4—INTANGIBLE ASSETS
Intangible assets as of December 31, 2015 consisted of a license agreement acquired for $307,500 from Steep Hill Labs for the right to take the Steep Hill software and methodology to states above and beyond Nevada, and the MA license derived from the acquisition of $1,345,771. As of September 30, 2016, the Company has impaired 100% of the Steep Hill license agreement acquired for $307,500 as well as the MA license derived from acquisition of $1,345,771. The impairment was due to the uncertainties surrounding the license agreement, as well as the purported unsubstantiated termination of the license agreements in June 2016 between Steep Hill Labs and MA & Associates, LLC and Harris Lee, LLC respectively.
Note 5—LINES OF CREDIT
The Company entered into a line of credit with Wells Fargo in December 2015 in the amount of $25,000. The credit line bears an interest rate of 9.75% annually, compounded daily, and there is no term on the account. There are no financial covenants and the guarantor on the account is Steve Basloe, the Company's President. The line of credit has been used for general operating expenses. The balance at December 31, 2015 and September 30, 2016 was $19,500 and $18,666, respectively.
The Company entered into a line of credit with Wells Fargo in May 2016 in the amount of $5,000. The credit line bears an interest rate of 24.24% for the first year and then 9.75% annually, compounded daily, and there is no term on the account. There are no financial covenants and the guarantor on the account is David Cunic, the Company's CEO. The balance at September 30, 2016 was $4,883. The credit has been used for general operating expenses.
Note 6—DERIVATIVE LIABILITIES
The Company evaluates all of its 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 8 require liability classification because they do not contain an explicit limit to the number of shares that could be issued upon settlement.
The following table summarizes the changes in the derivative liabilities during nine months ended September 30, 2016:
Deritvative Liability Table
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
$
|
1,756,435
|
|
|
|
|
|
|
|
|
Initial value derivatives
|
|
|
4,525,309
|
|
|
Extinguished
|
|
|
(3,672,811
|
)
|
|
Change in fair value
|
|
|
624,384
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2016
|
|
$
|
3,233,317
|
|
The Company uses the Black Scholes Option Pricing Model to value its convertible debt derivative liabilities based upon the following assumptions during the nine months ended September 30, 2016:
|
|
September 30, 2016
|
|
|
|
|
|
|
Dividend yield:
|
|
|
0
|
|
|
Expected volatility
|
|
0.00% to 100.00%
|
|
|
Risk free interest rate
|
0.29% to 0.35%
|
|
|
Expected life (years)
|
0.01 to 1.38
|
|
During the nine months ended September 30, 2016 and 2015 the aggregate gain/(loss) on change in derivative liability was ($3,796,031) and ($267,987), respectively, consisting of charges for the initial derivative value in excess of the face value of the associated debt at inception ($3,171,647) for nine months ended September 30, 2016 and the change in fair value of the derivative liabilities as noted above.
Note 7—STOCKHOLDERS' EQUITY
Preferred Stock
Total stock-based compensation recognized at September 30, 2016 totaled $1,226,131, consisting of 60,000 common shares and 2,277,500 Series C preferred shares which include 2,200,000 Series C preferred shares issued to ICPI.
During the nine months ended September 30, 2016, the Company issued 55 shares of Series A Preferred Stock for 2015 Dividends.
During the nine months ended September 30, 2016, investors converted 691,629 shares of Series A Preferred Stock into 34,658,826 shares of common stock.
During the nine months ended September 30, 2016, the Company sold 128,572 Series C Preferred Stock for $90,000.
During the nine months ended September 30, 2016, investors converted 1,290,000 shares of Series C Preferred Stock into 129,000,000 shares of common stock.
During the nine months ended September 30, 2016, investor converted a total of $30,652 of notes payable into 61,306 shares of Series A Preferred Stock.
At September 30, 2016 the Company's Series D and Series E Preferred shares terms and conditions are not yet determined and neither certificates of designation have been filed with the State of Nevada.
Common Stock
Issuances
During the nine months ended, September 30, 2016, the Company issued 892,981,123 common shares with conversion of debt valued at $364,784 and accrued interest of $12,676.
Preferred Stock Warrants
The following table presents the Series A preferred stock warrant activity during the nine months ended September 30, 2016:
|
|
|
Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding – December 31, 2015
|
|
|
2,958,083
|
|
|
$
|
1.17
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Canceled
|
|
|
(2,958,083
|
)
|
|
$
|
1.17
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding – September 30, 2016
|
|
|
0
|
|
|
$
|
0
|
|
In April 2016, pursuant to a Settlement Agreement with ICPI, all remaining Series A Warrants have been retired in exchange for the issuance of Series C Preferred Stock. A total of 1,700,000 Series C Preferred Shares were issued to ICPI in exchange for the retirement of all remaining Series A Warrants and the waiver of unpaid dividends on Series A Preferred stock held by ICPI for the years 2014, 2015 and 2016. Additionally, 500,000 Series C preferred shares were issued to ICPI for settlement of liability to issue shares for services.
Note 8—CONVERTIBLE NOTES
The following table summarizes the changes in the convertible notes in the nine months ending September 30, 2016:
|
|
|
Short Term
|
|
|
Long Term
|
|
|
Total
|
|
|
Balance as of December 31, 2015 - Net
|
|
$
|
809,644
|
|
|
$
|
198,464
|
|
|
$
|
1,008,108
|
|
|
Add back: unamortized discount
|
|
|
533,391
|
|
|
|
794,036
|
|
|
|
1,327,427
|
|
|
Balance as of December 31, 2015 - Gross
|
|
$
|
1,343,035
|
|
|
$
|
992,500
|
|
|
$
|
2,335,535
|
|
|
Cash additions
|
|
|
338,460
|
|
|
|
300,000
|
|
|
|
638,460
|
|
|
Interest added to notes payable
|
|
|
330,426
|
|
|
|
192,936
|
|
|
|
523,362
|
|
|
Cash payments
|
|
|
(86,311
|
)
|
|
|
-
|
|
|
|
(86,311
|
)
|
|
Conversions
|
|
|
(395,400
|
)
|
|
|
-
|
|
|
|
(395,400
|
)
|
|
Reassignments
|
|
|
(103,400
|
)
|
|
|
103,400
|
|
|
|
-
|
|
|
Original issue discount
|
|
|
45,574
|
|
|
|
-
|
|
|
|
45,574
|
|
|
Total
|
|
$
|
1,472,384
|
|
|
$
|
1,588,836
|
|
|
$
|
3,061,220
|
|
|
Less: unamortized discount
|
|
|
(400,112
|
)
|
|
|
(204,314
|
)
|
|
|
(604,426
|
)
|
|
Balance as of September 30, 2016
|
|
$
|
1,072,272
|
|
|
$
|
1,384,522
|
|
|
$
|
2,456,794
|
|
|
|
Year Ended September 30, 2016
|
|
|
|
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Thereafter
|
|
Total
|
|
|
Convertible notes
|
|
|
1,472,384
|
|
|
|
296,336
|
|
|
|
-
|
|
|
|
-
|
|
|
|
350,000
|
|
|
|
942,500
|
|
|
|
3,061,220
|
|
|
Short-term non-convertible notes (see Note 9)
|
|
|
371,631
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
371,631
|
|
|
Total
|
|
|
1,844,015
|
|
|
|
296,336
|
|
|
|
-
|
|
|
|
-
|
|
|
|
350,000
|
|
|
|
942,500
|
|
|
|
3,432,851
|
|
In February 2016, the Company entered into convertible note agreements for an aggregate total of $77,750. The interest rates range from 8% - 12% and the conversion terms are at a 50% discount to the 25 prior trading days. The maturity dates range from November 2016 to February 2017.
In March 2016, the Company entered into a convertible agreement note with private investors for the amount of $300,000 with an interest rate of 12% and a maturity date of March 2021.
In April 2016, the Company entered into a convertible note agreement for a total of $58,000. The note carries an interest rate of 10% and the maturity date is April 2017. The conversion terms are at a 50% discount to the 20 prior trading dates.
In May 2016, the Company entered into convertible note agreements for an aggregate total of $118,250. The interest rates are 12% and the conversion terms are at a 50% discount to the 20-25 prior trading dates. The maturity dates range from May 2017 to June 2017.
In August 2016, the Company entered into a convertible note agreement for a total of $130,035. The note carries an interest rate of 12% and the maturity date is August 2017. The conversion terms are at a 50% discount to the 20 prior trading dates.
In addition to the funds received, noteholders converted $395,400 during the nine months ended September 30, 2016 into common stock exclusive of accrued interest. Non-cash additions, which are due to the increase in principle for compounding interest, including accrued interest, to new assignee, totaled $523,362 in the first nine months of 2016. At September 30, 2016, a total of 6 notes with a principle balance of $690,398 were past due. The Company has adequately accrued all default interest and associated penalties related to these instruments. Additionally, cross default clauses exist within certain other instruments containing terms which would make the notes immediately due and payable, however no cross default clauses have been triggered as of yet.
Note 9—LOANS PAYABLE
In September 2015, Pazoo, Inc. entered into a loan note totaling $200,000 with Mark Sarna and Sarna Family Limited Partnership. The note has an interest rate of 15.0% and matures September 22, 2016. As of September 30, 2016, $215,431 still remains outstanding.
In January 2016, Pazoo, Inc. entered into a loan note totaling $5,000 with RBF Unlimited, LLC. The note has an interest rate of 0.70% and matures January 27, 2017. As of September 30, 2016, loan was paid back in full.
In January 2016, Pazoo, Inc. entered into a loan agreement with Kabbage Loans totaling $9,100. The loan has a monthly payment consisting of $500 to the principal and $210 to fees, totaling a monthly cost of $710. The loan will be paid off in a maximum of 12 months. As of September 30, 2016, $1,420 still remains outstanding.
In February 2016, Pazoo, Inc. entered into a loan note totaling $25,000 with LG Capital, LLC. The note has an interest of 8% and it matures on October 4, 2017. As of September 30, 2016, $25,000 still remains outstanding.
In June 2016, Pazoo, Inc. entered into a loan agreement with Kabbage Loans totaling $35,000. The loan will be paid off in a maximum of 12 months and has a monthly payment consisting of $3,792 to the principal and $875 to fees, totaling a monthly cost of $4,667. As of September 30, 2016, $35,000 remains outstanding.
In July 2016, Pazoo, Inc. entered into a loan agreement with Kabbage Loans totaling $7,500. The loan will be paid off in a maximum of 6 months and has a monthly payment consisting of $1,250 to the principal and $188 to fees, totaling a monthly cost of $1,438. As of September 30, 2016, $7,500 remains outstanding.
In August 2016, Pazoo, Inc, entered into loan agreements totaling an aggregate of $81,000 with a private investor. The notes have an interest rate of 8% and maturity dates range from October 2016 to August 2017. As of September 30, 2016, $81,000 still remains outstanding.
In September 2016, Pazoo, Inc. entered into a loan agreement with Kabbage Loans totaling $7,700. The loan will be paid off in a maximum of 6 months and has a monthly payment consisting of $1,284 to the principal and $193 to fees, totaling a monthly cost of $1,477. As of September 30, 2016, $7,700 remains outstanding.
Note 10---RELATED PARTIES
In July 2013, the Company entered into a consulting agreement with an affiliate of Mr. Basloe, President and Chairman of the Company. The agreement provides for consulting on marketing-related services for the Company. Amounts incurred under this agreement for the nine months ended September 30, 2016 and 2015, totaled $6,500 and $15,000, respectively.
In July 2015, Harris Lee Holdings, LLC entered into a series of agreements related to the operations of the Colorado testing facility being managed by Harris Lee Colorado, LLC. The Managing Member of Harris Lee Colorado, LLC is an immediate family member of Steve Basloe, President and Director of the Company.
The Company is currently managing Harris Lee Colorado, LLC, an existing lab in Denver, Colorado, after receiving approval from the Colorado Marijuana Enforcement Division in February of 2016. Harris Lee Holdings, LLC has sub-licensed the testing protocols to Harris Lee Colorado, LLC in exchange for a testing fee for each test conducted. The Colorado MED has recently approved the transfer of management of an existing laboratory, to Harris Lee Colorado, LLC (a related party) and Harris Lee Holdings, LLC has begun to derive testing revenue from Harris Lee Colorado, LLC. The revenue derived from these tests for the nine months ended September 30, 2016 was $30,515.
Note 11—COMMITMENTS
On March 10, 2015, Harris Lee signed a 9-year licensing agreement with Steep Hill Labs, LLC, with options to renew for an additional 9 years. The purpose of the agreement is to take the Steep Hill licensing to additional states to test medical marijuana above and beyond the State of Nevada, namely Oregon and Colorado. Under the license agreement for the first two states (Oregon and Colorado), if certain gross revenue thresholds are met, the Company is obligated to pay an additional $250,000. In addition, the Company is obligated to pay certain royalties over the life of the license agreement to Steep Hill Labs, Inc, based on the greater of the number of tests ($5 dollars a test) or an escalating royalty rate (7% to 15%) of the initial purchase price. The Company has the option to enter into additional states with similar commitments and royalties. In June 2016, the Company, due to the uncertainties surrounding the license agreement with Steep Hill, impaired 100% of the value of the Steep Hill Labs licenses due to the purported unsubstantiated termination of the license agreements in June 2016 between Steep Hill Labs and MA & Associates, LLC and Harris Lee, LLC respectively.
In 2015, MA and Associates, LLC entered into various capital lease agreements to finance fixed asset purchases for approximately $615,000. Total monthly payments over the 36 month terms are approximately $17,000.
The Company's MA and Associates, LLC subsidiary rents space in Nevada with a 60 month term ending in May of 2019, with monthly rent expense of $1,632. The Company's Harris Lee, LLC subsidiary rents space in Portland, Oregon under a 96 month lease, ending October of 2023 with escalating monthly rental payments from $1,650 to $2,322.
As of September 30, 2016 the Company was still obligated to pay the remaining portion under the original 2014 40% investment agreement with MA and Associates, LLC, consisting of $678,000 of cash and 50,000 shares of Series C Preferred Stock (valued at $35,000 as of June 30, 2016), totaling $713,581 and included in contingent consideration liability on the accompanying consolidated balance sheet and will be issued in the future after the testing laboratory is operational.
As of September 30, 2016 the Company was obligated to pay Blue Moon Advisors, Inc., per the November 2015 Incubation Agreement. The Company is obligated to pay $17,000 per month starting on January 1, 2016, throughout the year of 2016, totaling $204,000.
Note 12—SUBSEQUENT EVENTS
The company issued an aggregate of 796,475,717 common shares to debt holders valued at a total of $50,298 for conversions pursuant to convertible notes.
Investors converted 545,697 shares of Series C Preferred stock into 54,569,700 shares of common stock.
The Company entered into loan agreements with a private investor for $112,000. The loan has an interest rate of 8% and the maturity date is October 2017.