UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________

FORM 10-Q

_____________

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

For the quarterly period ended: September 30, 2017

☐ 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)

34 DeForest Ave, Unit 9 East Hanover NJ		07936
(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 ☒ No ☐

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 ☒ No ☐

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	☐	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.

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

Yes ☐ No ☒

869,645,259 shares of common stock, par value $0.001 per share, outstanding as of February 7, 2018.

			Page
Part I	Financial Information		3
	Item 1	Condensed Consolidated Financial Statements	3
		Balance Sheets (Unaudited)	3
		Statements of Operations (Unaudited)	4
		Statements of Cash Flows (Unaudited)	5
		Notes to Financial Statements (Unaudited)	6
	Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 3	Quantitative and Qualitative Disclosures About Market Risk	18
	Item 4	Controls and Procedures	18

Part II	Other Information		19
	Item 1	Legal Proceedings	19
	Item 1A	Risk Factors	19
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	19
	Item 3	Defaults Upon Senior Securities	19
	Item 4	Mine Safety Disclosures	19
	Item 5	Other Information	19
	Item 6	Exhibits	20

PAZOO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

	September 30,			December 31,
	2017			2016

ASSETS
Current assets:
Cash	$	39,047		$	88,909
Prepaid expenses		5,536			5,536

Total current assets		44,583			94,445

Fixed assets, net		473,817			613,332

Total assets	$	518,400		$	707,777

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Lines of credit	$	16,070		$	21,039
Accounts payable and accrued liabilities		905,190			608,332
Loans payable ($1,504,449 and $546,717 to related party)		1,536,349			615,801
Interest payable ($416,248 and $227,033 to related party)		2,124,309			1,452,102
Convertible debt, net of unamortized discounts of $316,297 and $195,827		1,284,672			983,621
Contingent consideration liabilities		713,581			713,581
Derivative liabilities		4,304,752			2,925,627
Capital lease liabilities		356,712			373,930

Total current liabilities		11,241,635			7,694,033

Long-term liabilities:
Long-term portion of convertible debt, net of unamortized discounts of $0, and $110,672 ($800,000 and $800,000 to related party)		1,292,500			1,401,828
Capital lease liabilities		-			136,672

Total long-term liabilities		1,292,500			1,538,500

Total liabilities		12,534,135			9,232,533

Commitments and contingencies

Stockholders' deficit:
Convertible Preferred Stock, 50,000,000 shares authorized, $0.001 par value
Series A; 10,000,000 shares authorized, 215,139 and 230,401 shares issued and outstanding, respectively.		215			230
Series B; 5,000,000 shares authorized, 2,150,000 and 1,762,500 shares issued and outstanding, respectively.		2,150			1,762
Series C; 10,000,000 shares authorized, 2,643,709 and 2,621,375 shares issued and outstanding, respectively.		2,644			2,621
Series D; 12,500,000 shares authorized, 0 and 0 shares issued and outstanding, respectively.		-			-
Series E; 12,500,000 shares authorized, 0 and 0 shares issued and outstanding, respectively.		-			-
Common stock, $0.001 par value; 2,950,000,000 shares authorized, 123,589,339 and 9,137,630 shares issued and outstanding, respectively.		123,589			9,138
Additional paid-in capital		12,590,391			12,155,641
Accumulated deficit		(24,734,724	)		(20,694,148	)

Total stockholders' deficit		(12,015,735	)		(8,524,756	)

Total liabilities and stockholders' deficit	$	518,400		$	707,777

PAZOO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016

Revenues:
Management fees - related party	$	-		$	11,919		$	-		$	30,515
Advertising Sales		-			-			51			-
Total revenues		-			11,919			51			30,515

Operating expenses:
Selling, general and administrative expenses		188,173			164,144			1,053,777			2,292,314
Professional fees		81,559			55,278			428,286			327,162
Loss on impairment of license		-			-			-			1,540,207
Total operating expenses		269,732			219,422			1,482,063			4,159,683

Loss from operations		(269,732	)		(207,503	)		(1,482,012	)		(4,129,168	)

Other income/(expenses):
Gain/(loss) on derivative liabilities		(2,421,000	)		642,948			(2,046,906	)		(3,796,031	)
Gain/(loss) on debt extinguishment		37,397			541,133			753,264			2,238,375
Gain on change in fair value of contingent consideration		-			-			-			5,000
Interest expense		(237,513	)		(1,068,853	)		(1,264,847	)		(2,735,216	)

Total other income/(expenses)		(2,621,116	)		115,228			(2,558,489	)		(4,287,872	)

Net loss	$	(2,890,848	)	$	(92,275	)	$	(4,040,501	)	$	(8,417,040	)

Series A preferred stock dividends		(16	)		(77	)		(52	)		(431	)

Net loss attributable to common stockholders	$	(2,890,864	)	$	(92,352	)	$	(4,040,553	)	$	(8,417,471	)

Basic and dilutive net loss per common share	$	(0.04	)	$	(0.04	)	$	(0.12	)	$	(8.18	)

Weighted average common shares outstanding – basic and diluted		75,357,664			2,619,089			34,616,005			1,029,097

PAZOO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Nine Months Ended
	September 30,
	2017			2016

Cash flows from operating activities:
Net loss	$	(4,040,501	)	$	(8,417,040	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discounts		480,082			1,246,540
Depreciation		139,515			71,776
Amortization		-			50,728
Change in fair value of contingent consideration		-			(5,000	)
Stock-based compensation		66,110			1,226,131
(Gain)/loss on derivative liabilities		2,046,906			3,796,031
(Gain)/loss on debt extinguishment		(753,264	)		(2,238,375	)
(Gain)/loss on impairment of intangibles		-			1,540,207
Changes in operating assets and liabilities:
Accounts receivable		-			(28,715	)
Prepaid expenses and other current assets		-
Accounts payable, accrued liabilities and interest payable		1,065,979			1,981,361
Net cash used in operating activities		(995,173	)		(776,356	)

Cash flows from financing activities:
Proceeds from convertible debt		523,605			638,460
Repayments on capital leases		(153,890	)		(36,685	)
Repayments on convertible debt		(305,757	)		(86,311	)
Repayments on loans payable		(57,100	)		(17,100	)
Repayment on loans payable- related party		(3,300	)		-
Proceeds from loans payable		946,722			170,300
Proceeds from sale of Series C preferred stock		-			90,000
Lines of credit		(4,969	)		4,049
Net cash provided by financing activities		945,311			762,713

Net decrease in cash and cash equivalents		(49,862	)		(13,643	)

Cash and cash equivalents beginning of period		88,909			16,819

Cash and cash equivalents end of period	$	39,047		$	3,176

Noncash Investing and Financing Activities
Common stock issued for the conversion of Series A and C preferred stock	$	2,634		$	163,659
Debt discount for derivative convertible feature and OID		471,592			1,353,842
Preferred shares issued for conversion of debt and interest		-			30,652
Common shares issued for conversion of debt and interest		483,412			957,808
Common shares issued for accrued liability		-			350,000
Accrued interest converted to convertible debt and loans payable		57,667			134,495

Potentially Dilutive Securities	Nine Months Ended
	September 30, 2017		September 30, 2016

Convertible notes		5,015,062,816		158,168,021
Preferred series A shares & warrants		21,513,900		92,160
Preferred series B		430,000,000		1,410,000
Preferred series C		264,370,900		1,266,829
		5,730,947,616		160,937,010

Recurring Fair Value Measurements	Level 1			Level 2			Level 3			Total

LIABILITIES:
Derivative liability – September 30, 2017		$	-		$	-		$	4,304,752		$	4,304,752
Derivative liability – December 31, 2016		$	-		$	-		$	2,925,627		$	2,925,627

Fixed Assets
	Estimated Useful Life (in years)		September 30, 2017			December 31, 2016

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				(416,070	)		(276,555	)

Fixed Assets, Net			$	473,817		$	613,332

Balance as of December 31, 2016	$	2,925,627

Grant date fair value		2,030,299
Extinguished		(1,139,373	)
Change in fair value		488,199

Balance as of September 30, 2017	$	4,304,752

	September 30, 2017			September 30, 2016

Dividend yield		0	%		0	%
Expected volatility		80	%		80	%
Risk-free interest rate		0.20% to 1.06	%		0.29% to 0.35	%
Expected life (years)		0.00 to 0.39			0.01 to 1.38

	Short Term			Long Term			Total

Balance as of January 1, 2016 - Gross	$	1,343,035		$	992,500		$	2,335,535
Cash additions		373,460			300,000			673,460
Interest added to notes payable		111,778			116,600			228,378
Cash payments		(118,223	)		-			(118,223	)
Conversions		(474,777	)		-			(474,777	)
Reassignments		(103,400	)		103,400			-
Original issue discount		47,575			-			47,575
Total	$	1,179,448		$	1,512,500		$	2,691,948
Less: unamortized discount		(195,827	)		(110,672	)		(306,499	)
Balance as of December 31, 2016 - Net	$	983,621		$	1,401,828		$	2,385,449
Add back: unamortized discount		195,827			110,672			306,499
Balance as of December 31, 2016 - Gross	$	1,179,448		$	1,512,500		$	2,691,948
Cash additions		523,605			-			523,605
Interest added to notes payable		23,441			-			23,441
Cash payments		(305,757	)		-			(305,757	)
Conversions		(116,116	)		-			(116,116	)
Reclassification to short-term		220,000			(220,000	)		-
Original issue discount		76,348			-			76,348
Total gross balance	$	1,600,969		$	1,292,500		$	2,893,469
Less: unamortized discount		(316,297	)		-			(316,297	)
Balance as of September 30, 2017 - Net	$	1,284,672		$	1,292,500		$	2,577,172

	Year Ended September 30,
	2018			2019			2020			2021			2022			Thereafter			Total

Convertible notes		$	1,600,969		$	-		$	-		$	350,000		$	942,500		$	-		$	2,893,469
Short-term non-convertible notes			1,536,349			-			-			-			-			-			1,536,349
		$	3,137,318		$	-		$	-		$	350,000		$	942,500		$	-		$	4,429,818

February 7, 2018	PAZOO, INC.

	/s/ Steve Basloe
	Steve Basloe
	Chief Executive Officer


February 7, 2018	PAZOO, INC.

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

Exhibit Number		Description

31.1		Certification of Steve Basloe, 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 Steve Basloe, 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.

Pazoo, Inc. 10-Q