Pazoo Inc. (PZOO)

[Alan Brochstein]

The company seems to have misled investors yet again. The press release title gives it away:

Pazoo, Inc. Receives $200,000 Loan To Make Las Vegas Testing Lab Fully Operational In November Of This Year

Wow! All that dilution this year (not from conversion, which also jacked the shares outstanding, but from NEW ISSUANCE - see below), and they didn't have enough money to complete the lab? They had a "grand opening" party four months ago! They said that they were leasing the equipment. Why would they need another $200K? My guess is because they have to pay salaries for the employees who just sit there with nothing to do, unfortunately.

The 10-Q points to $1.57mm net raised so far in 2015 through 6/30:
http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=10874438

*$900K net from converts
*$580K from issuance of Preferred A
*$90K from equity sales and management contributions

I guess that wasn't enough! After the quarter, also:

The Company borrowed one Convertible Note of $125,000 under convertible notes with the following terms: 8.0% interest, maturity date of 4/14/16, and a conversion price calculated at 50% discount to the lowest trading price of the previous 15 days.

This is the toxic debt that the company will be choking on in the coming months.

I can't get excited about this deal, but, yes, it could have been worse. They could have issued yet more toxic debt, and instead they sold the first sales and income on their prize jewel. Investors have been looking forward to the lab opening, as the cash could have been used to retire the pending convertible note expirations. The fact is that it is now MORE LIKELY that there will be dilution from these previously issued notes.

PZOO had no money when this marijuana lab venture started and no real business. As of today, 18 months after telling the world it was a pot stock, it has not made a single dollar from the labs (because none are yet open). It has raised a bunch of capital but siphoned a great deal of it to its outside partners already (with some used for construction). They should have structured the deal so that Harris Lee and MA Associates (M and A are already gone!) didn't get paid until the license started producing revenue. Once again, the insiders score, while the shareholders bend over.

The bottom-line is that shareholders have been and will continue to be diluted here. The capital structure stinks, and it is obvious that there won't be enough cash to pay the convertible notes, despite the assurances from the CEO. This $200K "non-dilutive" debt looks like it jumps in front of shareholders (no terms have been disclosed, so this is based on the press release), compounding the challenges to pay off the toxic convertible notes. The company has foolishly borrowed from multiple lenders, so the first to convert is going to smack this one silly to get out. Toxic. Death. Spiral.