UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





________________________





Form 10-K


________________________








x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934





For the fiscal year ended: December 31, 2013





OR





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)15A Saddle Road

Cedar Knolls, NJ

07927(Address of Principal Executive Offices)

(Zip Code)





(973) 455-0970


(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.





104,765,750 shares of common stock, par value $0.001 per share, outstanding as of March 28, 2014.





Large accelerated filer
o
Accelerated filer
oNon-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







Table of Contents








Table of Contents




PART I
1Item 1. Business
1Item 1A. Risk Factors
9Item 1B. Unresolved Staff Comments
9Item 2. Properties
9Item 3. Legal Proceedings
9Item 4. Mine Safety Disclosures
9PART II
10Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
10Item 6. Selected Consolidated Financial Data
10Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
10Item 7A. Quantitative and Qualitative Disclosures About Market Risk
13Item 8. Consolidated Financial Statements and Supplementary Data
13Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
29Item 9A. Controls and Procedures
29Item 9B. Other Information
29PART III
30Item 10. Directors, Executive Officers and Corporate Governance.
30Item 11.  Executive Compensation
33Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
34Item 13. Certain Relationships and Related Transactions, and Director Independence.
35Item 14. Principal Accounting Fees and Services
35PART IV
35Item 15. Exhibits and Financial Statement Schedules
35

















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PART I




Item 1. Business




We were incorporated as a C-Corporation in the State of Nevada as IUCSS, Inc. on November 16, 2010 and we established a fiscal year end of December 31. On May 9, 2011, we changed our name to Pazoo, Inc. to take advantage of unique branding and website opportunities. We are a start-up health and wellness social community that has developed its website (www.pazoo.com) to provide information, services, and online products for improvement of everyday living. Our mission is to be 1) a leading social community offering best-in-class health and wellness products for both people and pets; and 2) an important resource for consumers and professionals with diverse information about health and wellness. We have never been party to any bankruptcy, receivership or similar proceeding, nor have we undergone any material reclassification, merger, consolidation, purchase or sale of a significant amount of assets not in the ordinary course of business. Since November 16, 2010 (our inception) to the year ending December 31, 2013 (the date of the accompanying financial statements) we have generated $174,244 in revenues and have had a cumulative net loss of $2,282,338. Our fiscal year end is December 31.




With a team of health and wellness experts and other supportive professionals, Pazoo.com is committed to making an impact on its visitors’ health and wellness while producing profit with revenue streams coming from a variety of business initiatives.




Pazoo Marketing and Promotion





PAZOO.COM MINI WEB SITE





In order for Pazoo to properly grow and know its business, the Pazoo management felt that launching a mini e-commerce site for Pazoo.com would give a market presence and a “test” environment for how the Pazoo.com target audience would respond to offerings and information that would be part of the fully functional Pazoo.com website. The Pazoo web development team and marketing/sales team could learn from this mini website and apply this experience when developing the technology, merchandising and messaging for  the fully functional Pazoo.com website. The Pazoo team went through an entire production and strategic development process with the mini website, to get a better understanding of how to build the final multi-level and functional site which launched at the end of January, 2012.  The mini website was merchandised with only one health and wellness product line. Additionally, marketing support for this site was limited to search engine optimization (SEO) work. The take away from launching the mini website was 1) a better understanding of marketing, merchandising and messaging to the health and wellness target audience; 2) an insight into building an efficient inventory and fulfillment system; and 3) understanding the unique aspects of operating a business that’s open 24 x 7, in the context of the existing Pazoo team and its resources. Additional benefits of the mini website was  that while the Pazoo technical team built the site’s wire frame the Pazoo marketing /merchandise team developed the product mix, merchandising and promotions for the main Pazoo site.  In Phase 1, Pazoo.com developed a small but loyal client base, as interpreted by examination of our internal mini website statistics of page views and orders placed; created a working relationship with Amazon as its backend third party order processing provider; and developed a shipping and fulfillment system which was well organized and a solid foundation for growth when the main Pazoo.com site, Phase 1 launched.  Promisingly, initial consumer comments of our service order fulfillment on Amazon.com had rated us favorably based on the purchasing experience.  Our Amazon Seller rating for the past 12 months of 2013 was 4.8 out of 5 stars.





OVERVIEW OF PHASE 1 & 2 OF PAZOO.COM





In its quest to have a full range of product and merchandising offerings to a potentially large customer base, the Pazoo management team decided that the main Pazoo.com site would be launched in 2 phases. Phase 1 would have the front end (or what the visitor sees) completed with the backend (the operational part of the site that executes the e-commerce part of the site, collects large data bases, etc) outsourced to a third party provider. Initially, products that were listed on our website linked to product listings on Amazon.com and we competed on total price plus shipping with Amazon, as well as with other vendors whose product listings also appeared on their site.  During the development of our main website back-end, we utilized Amazon.com’s back-end technology and credit card processing.  Given that Amazon is also a competitor and that Amazon stocks similar products as Pazoo, even if our price








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was lower than Amazon’s, Amazon would display its price first.  We also paid Amazon $39.99 per month to list our products for sale on their site and, in addition, Amazon charged us fifteen percent (15%) of every sale that we made on their site.  These are caveats to using a third party provider.   Henceforth, in Phase 2 we developed an internal backend that would be integrated to the front end developed in Phase 1. The reason for this roll out strategy was to launch the main Pazoo.com site as quickly as possible in order to develop as soon as possible a revenue stream from and a relationship with the health and wellness community. Pazoo management knew that the backend would take time to develop and using a third party provider (such as Amazon.com) to execute our e-commerce transactions is an acceptable industry standard. This strategy was fully supported by Pazoo’s technical team and internal management. The wireframe or architecture for the site was developed with this strategy in mind. The approximate launch dates for the 2 phases were as follows:





Phase 1 – January, 2012





Phase 2 – July, 2012.





Phase 1 created the messaging, site’s graphics and offers for both the e-commerce platform and the added-value information and services provided by Pazoo.com. In another words, the main goal and objective of Phase 1 was to create a long term, positive, profitable and sustainable relationship with the health and wellness community, a community that our internal team knows well and is passionately concerned about.  Phase 2 was all about building the backend technical support so that Pazoo could internally manage its own transactions and data.





PHASE 1 – BUILDING PAZOO.COM’S RELATIONSHIP AND BUSINESS WITH ITS TARGET AUDIENCE





>From a marketing and sales prospective, building a successful e-commerce site is based on the following key points:





●
Messaging●
The look, feel and tonality of the graphics●
Product and Services Offerings●
Revenue Streams●
Traffic building





With the backend functionality being the main focus for Phase 2, the main concern for Phase 1 was building a strong relationship with the target audience. For any successful site, developing this relationship is a key goal and objective. Note the site graphics, positioning, messaging, marketing and merchandising that was be developed for the Phase 1 launch, will continue to be used for Phase 2. The only difference between the two phases is that the above will be refined, adjusted and improved based on the learning experience and information gathering that will constantly transpire during Phase 1, Phase 2, and beyond. (Because the internet is a dynamic environment, experienced marketers can continuously learn and grow from managing and monitoring the information flow from a web site and improve it for a better visitors’ experience for the target audience)





MESSAGING: With numerous health and wellness sites competing in the same market, how will Pazoo.com differentiate itself from the competition?  This is an important challenge for the marketing team. Pazoo conducted extensive research and determined that the on line health and wellness market was saturated with all kinds of “hooks” and positioning. However, the marketing team found one positioning that, it believes, no other site has exploited. This positioning is that no other web site has as a dedicated focus on the health and wellness of both humans and, in many cases, their most important family member, their pets. With 50% of the country having pets and substantial medical research confirming the health value of a pet for its owner, Pazoo management felt that this was a perfect positioning for Pazoo.com.  . Though the focus of Pazoo would be skewed towards people, Pazoo’s message and position would be that it cares about the health and wellness of both people and their pets.  It should be noted that many general merchandising sites offer health and wellness products for both people and pets, but these site don’t have a singular focus on just the health and wellness products of people and pets. With its singular focus, Pazoo.com can be unique in its messaging and positioning, found nowhere else on the internet.






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This positioning allows Pazoo to have a broad target audience of adults 25-54 who are health conscious. The target audience who are pet owners will have an additional positive impression of Pazoo. It’s Pazoo management’s belief that visitors who are pet owners will be more predisposed to purchasing products for themselves and/or their pets because of one-stop shopping time savings and, of course, great Pazoo pricing.




THE LOOK, FEEL AND TONALITY OF THE GRAPHICS- The graphics of Pazoo.com has to be a clean, contemporary look that is warm, friendly and supportive. This graphic approach shows that Pazoo management understands its target audience who believe that health and happiness are very important to a balanced, well organized and successful life in today’s stressful environment.  We feel that our management combines its health and wellness background (through CEO David Cunic) with a deep consumer package goods experience and pet industry experience (through President, Steve Basloe’s experience working for various companies such as Samsung, Panasonic, Sony, Warner, and Rothschild), and we believe that management knows what the visual “trigger points” are for our target audience.




OFFERINGS





Value, Value and more Value is the hallmark of Pazoo’s offerings. Whether it is merchandise or services or FREE added value information, Pazoo management wants Pazoo.com visitors to feel that a visit to this site is always a valuable and enriching experience. Pazoo.com merchandise, whether it is people or pet oriented, is aggressively priced so that visitors will feel Pazoo.com is the source they can trust for great prices. Pazoo management adds to Pazoo.com‘s everyday low prices, promotional offerings or discounts that make purchasing at Pazoo even more valuable.





Product Offerings – The initial product offerings will be for both people and pets. People offerings include healthy snacks, vitamins / supplements, and merchandise. Pet offerings include foods, vitamins/supplements, health care items, etc.  All these products are high quality items that support the marketing positioning of a healthy lifestyle.  The product mix has been developed by Pazoo’s internal buyers with the support and advice of product category experts/consultants. Additionally, Pazoo management’s strategy is to regularly increase the product offerings and categories. The execution of this increase will be based on financial and web production capabilities of Pazoo, marketing strategy and promotional considerations. However, it is clear that a further build up in product offerings based on the above criteria is a good way to increase sales in a low cost fashion since the website infra-structure is already built.  In the 3rd quarter of 2012, Pazoo announced plans for a private label product introduction, Cell Max, the first in Pazoo’s Max Line of products.  Cell Max is a natural life enhancement supplement with a specially formulated stem cell nutrition product.  The formula rejuvenates preexisting stem cells in your body.  Our main supplier of this product line is Emergent Technologies Corporation.  As of the date of this filing, we had product labels and UPC codes procured although a final product had not been completed.





Advice– To support Pazoo’s commitment to inform and advise, Pazoo.com created a section devoted to offering information from health and wellness experts and speaking engagements by health and wellness experts. The first expert was our own CEO David Cunic, an experienced public speaker who has an award winning network of physical therapy and training facilities.  Other experts were added to bring the total expert count to 20 as of the end of fiscal year ended 2012.





Newsletter – On a regular basis, Pazoo will distribute a newsletter devoted to important topics on health and wellness. The first newsletter will be devoted to concussions which are well recognized as a major concern affecting many who participate in a number of contact sports.






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REVENUE STREAMS





To finance Pazoo.com’s on-going operation, a strategy was developed to have multiple sources of revenue streams..


We have expanded our business plan to generate revenue through five main sources: 1-direct response (Pazoo Direct), 2-consulting (Pazoo Wellness), 3-retail (Pazoo Retail), 4-website (Pazoo.com), and 5-advertising (Pazoo Advertising).  Pazoo Direct will be a division to bring health and wellness products to the market through direct response TV and digital programs.  Pazoo Wellness is designed to provide centers that Pazoo will use as a training and testing ground for concepts, ideas and products, as well as a platform to setup speaking engagements and interaction with Pazoo experts.  Pazoo Retail will bring various health and wellness products to the retail market through introduction of third party and private label products to brick and mortar retailers.  Pazoo.com focuses on experts by providing a health and wellness social community platform, as well as a small variety of online products for sale.  And lastly, Pazoo Advertising will be the branding and advertising arm of the company through ad space on Pazoo.com





TRAFFIC BUILDING





To be an industry leader, Pazoo.com needs visitors who have a positive experience when visiting the site. This positive experience will be enhanced because of Pazoo.com’s great offerings and information and its ease-of-use.  In addition to traffic building from word-of-mouth, Pazoo management has developed a multi-tier strategy to drive traffic to the site including 1) Search Engine Optimization (SEO); 2) Pay Per Click (PPC); 3) E-mail blasts; 4) affiliate links and 5) Social Media such as Facebook and Twitter.





In Phase 1, SEO and Social Media were the main sources for building traffic.  An SEO strategy was developed and execution commenced during the Pazoo.com mini website.  Facebook and Twitter accounts were opened in Phase 1.  The creative team periodically posted information and offerings on Facebook along with Tweets on Twitter.     Pazoo management also considered testing the effectiveness of PPC. The test benchmark for PPC will be based on a pre-determined conversion rate based on a weighted average of sales transaction. This conversion rate will be established so that the cost of the PPC will be covered by the gross margin of PPC generated sales which will also generate a net profit for these transactions. Off line traffic building will transpire through marketing initiatives such as discount cards being given out at health and wellness events,  and given by key Pazoo personnel networking, and soliciting health and wellness professional practices.





PHASE 2





OVERVIEW





The main objectives for Phase 2 was to 1) bring in-house the backend operations of e-commerce transactions and advanced data management, 2) increase offerings/ revenue and 3) increase traffic.





BACKEND OPERATIONS / DATA MANAGEMENT





To better control e-commerce technology and data management, our Company concluded that these operations should be in-house; sales transactions can be better managed and there will be no transactional fees paid to third party backend operations. Additionally, the data management can generate more relevant information to improve demographic analysis and sales performance. The backend operation has been launched however, and Pazoo.com continues to use Amazon as a third party backend provider. We also have plans to add other third party backend providers.  By having both internal as well as third party backend operations, Pazoo.com has a greater chance to attract additional transactions and awareness for Pazoo.com.  The cost of third party backend providers is worth the expense because this situation insures that Pazoo.com is capturing sales and customers that it may otherwise miss. The cost analysis by Pazoo management has taken into consideration these extra third party fees when it determined the targeted weighted average gross margin / transaction.





INCREASE OFFERINGS





In Phase 2, the strategy to increase product and services offerings continued, however, to properly manage Pazoo.com’s business, certain products and services were dropped from the site’s offerings. We believe that sales will grow by adding strong offerings while deleting underperformers that give way to new and better offerings.






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Also in Phase 2, Pazoo.com increased the number of products in each category through drop shipment and consignment items.  We increased product offerings by acting as a third party sales vehicle. In another words, Pazoo.com did not inventory third party product but sold it on the Pazoo.com site taking a sales and processing fee. Third party products can be posted on Pazoo.com and third parties’ sites with all transactions being executed on Pazoo.com.  Third party product can vary from inexpensive products to high end luxury items.





For additional revenues, Pazoo.com still has plans to link up with an advertising network to sell ad space on its site for a fee.  A fee will be generated for each ad space made available on Pazoo.com. Additional ad space revenue maybe generated from mailings through the directory or other email blast initiatives.





INCREASE TRAFFIC





As the SEO strategy matures and becomes more effective, Pazoo.com’s positioning in Google searches will improve. Additionally, based on PPC testing, a strategy will be developed for PPC. PPC will be used in a cost effective manner so that an appropriate ROI will be achieved.  Also, Pazoo management will assign an internal team to link build which will help traffic.   As in Phase 1, Social Media including Facebook, Linkedin and Twitter will be important traffic builders and an important medium to get out offerings and information to the target audience.





Off line traffic building will be expanded outside the discount cards to include testing advertising in electronic media such as radio and television in selected markets. This is a similar strategy employed by a number of other e-commerce web sites. Pazoo management will buy local cable time on a multiple system operator that focuses on narrow casted marketing so as to be efficient in a buy. In another words, Pazoo management will buy time on the health channels; News channels’ health segments such as CNN, MSNBC and Fox; general entertainment channels’ health sections.





Additionally, to make sure media dollars are well spent, Pazoo management will hold all lines of media distribution accountable by measuring their success. If ROI is strong with a line of distribution, Pazoo management will hold or increase media dollars spent, if it falters Pazoo management will cut or eliminate spending.





PAZOO’S SELLING INITIATIVES OUTSIDE ON-LINE





As has been mentioned, Pazoo senior personnel have extensive selling experience in consumer packaged goods.  As a natural extension to offering health and wellness products on line, Pazoo can sell off line, product lines that need brick and mortar sales penetration. Presently, Pazoo management moved forward to sell in-store vitamin/supplements and packaged media through the introduction of its Cell Max Stem Cell nutrition product. Pazoo management  will also move forward with third party products with appropriate terms which include a necessary ROI for management’s time and costs. These initiatives will help diversify revenue sources, an important strategy for financial stability. All Brick and mortar sales will occur through third party outlets.  A strategy of developing Pazoo owned brick and mortar outlets is not currently part of Pazoo’s business strategy and is currently not part of a future strategy of Pazoo.





We feel that loyal, satisfied customers have vast potential to generate word-of-mouth advertising and awareness, and are able to reach thousands of other customers and potential customers because of the reach of online communication.





Industry Overview





The U.S. overall market for e-commerce retail sales includes 20,000 companies with estimated revenue of $270 billion with global revenue for internet retailing exceeds more than $1 trillion annually.  Consumer personal income coupled with effective marketing are key growth drivers in the development of the output for US electronic shopping1.  According to U.S. Census data reports, e-commerce retail sales for the third quarter of 2013 rose 17.5% from the prior year,Third quarter e-commerce sales in 2013 accounted for 5.9% of total sales.2







1Excerpt from Internet & Mail-Order Retail Industry Profile, First Research, Last quarterly update 11/18/13.  Obtained athttp://www.firstresearch.com/Industry-Research/Internet-and-Mail-Order-Retail.html





2Excerpt from U.S. Census Bureau News, November 22, 2013.  Obtained athttp://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf






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SHIPPING





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.  We will also seek to ship orders to customers on the same day if placed before 2pm Eastern Standard Time, Monday through Friday, Holidays excluded.  Our goal will be to deliver all orders within one to four business days via third party shippers such as, United Parcel Service, United States Postal Service, and occasionally Fedex.  For products that are sold via third party drop shipping, Pazoo absorbs the actual shipping rate from the supplier to the customer.





COMPETITION





The online commerce market is rapidly evolving and intensely competitive, and we expect the competition to intensify in the future. Barriers to entry are minimal, and current and new competitors can launch new sites at a relatively low cost. In addition, the health improvement industry is intensely competitive. We currently or potentially compete with a variety of other companies. These competitors include: (i) direct competitors that specialize in or derive a substantial portion of their revenues from online retail and direct marketing of health and wellness products, including Vitacost; (ii) various nutrition centers and vendors of other health related products such as sports nutrition, diet or other wellness products, including General Nutrition Centers; and (iii) online vendors of dietary supplements, vitamins, minerals and herbs, with significant brand awareness, sales volume and customer bases, such as and VitaminShoppe.





We believe that the principal competitive factors in our market are brand recognition, selection, convenience, price, accessibility, customer service, and speed of order fulfillment. Many of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than Pazoo. In addition, online retailers may be acquired by, receiving investments from or enter into other commercial relationships with larger, well-established and well-financed companies as use of the Internet and other online services increases. Some of our competitors may be able to secure merchandise from vendors on terms that are more favorable, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing or inventory availability policies and devote substantially more resources to website and systems development than our company. Increased competition may result in reduced operating margins, loss of market share and a diminished brand franchise. There can be no assurance that we will be able to compete successfully against current and future competitors, and competitive pressures faced by us may have a material adverse effect on our financial condition, operational results, business, and prospects.  Furthermore, as a strategic response to changes in the competitive environment, we may from time to time make certain pricing, service or marketing decisions or acquisitions that could have a material adverse effect on our financial condition, operational results, business, and prospects.




PATENTS, TRADEMARKS, AND LICENSES





On or about May 1, 2012 a Notice of Allowance was issued for the "PAZOO" mark in anticipation of our sales of Pazoo private label products.  On or about November 1, 2012 a six month extension of time was granted for the filing of a Statement of Use.  A Statement of Use was filed for the "Pazoo" mark which was rejected by the U.S. Patent and Trademark Office. A reinstatement petition needed to be filed, with a new Statement of Use in order to continue to seek protection.   On September 7, 2012 the Company filed trademark applications for the following marks which were intended to be part of the Pazoo "Max Line" of products.  "Max Line", serial number 85723355; "PetMax", serial number 85723411; "MaxPlus", serial number 85723436; and "Cell Max", serial number 85723386. On January 8, 2013 the U.S. Patent and Trademark Office determined there was an incurable conflict with regard to the "Cell Max" mark.








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The Company re-branded certain products under the "Vita Cell" mark and sought protection for that mark.  On January 13, 2013, the company filed a trademark application for the mark "Oyx Max H2O", serial number 85723355.  On March 14, 2013 the Company received a cease and desist letter from the owner of certain "OXY" marks.  The Company and the owner of the "OXY" marks entered into a Settlement Agreement on July 17, 2013 with regard to potential conflict among the two marks.  The U.S. Patent and Trademark Office issued a Notice of Allowance for this mark on October 8, 2013.  The owner of various "ChromMax" marks opposed the Company's "MaxPlus" application.  On or about June 13, 2013, the Company entered into a Co-Existence Agreement with regard to the "MaxPlus" mark.  The U.S. Patent and Trademark Office issued a Notice of Allowance for this mark on November 5, 2013




Government Regulation





We are subject to federal and state consumer protection laws, including laws protecting the privacy of consumer non-public information and regulations prohibiting unfair and deceptive trade practices. In particular, under federal and state financial privacy laws and regulations, we must provide: (i) notice to consumers of our policies on sharing non-public information with third-parties; (ii) advance notice of any changes to our policies; and (iii) with limited exceptions, provide consumers the right to prevent sharing of their non-public personal information with unaffiliated third parties. Furthermore, the growth and demand for online commerce could result in more stringent consumer protection laws that impose additional compliance burdens on online retailers. These consumer protection laws could result in substantial compliance costs and could interfere with the conduct of our business.





There is currently great uncertainty in many states whether or how existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the Internet and commercial online retailers. These issues may take years to resolve. For example, tax authorities in a number of states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations may subject us to additional state sales and income taxes. New legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or a change in application of existing laws and regulations to the Internet and commercial online services could result in significant additional taxes on our business. These taxes could have an adverse effect on our results of operations. Furthermore, there is a possibility that we may be subject to significant fines or other payments for any currently unknown past failures to comply with these requirements.





The sale of nutritional supplements is subject to extensive legislation in the U.S. and abroad. The FDA is responsible for enforcing the Federal Food, Drug and Cosmetic Act, or FDCA, which governs the formulation, packaging, labeling, manufacturing and distribution of vitamins, minerals, herbs and other nutritional supplements, as well as the sale of over the counter, or OTC, drugs. The Federal Trade Commission, or FTC, is responsible for overseeing the advertising of nutritional supplements, and is primarily concerned with publicly made health claims that are not substantiated by definitive scientific studies. The U.S. Postal Service governs advertising as it relates to product safety. Regulation of certain aspects of the nutritional supplement business at the federal level is also governed by the Consumer Safety Product Commission, the Department of Agriculture and the Environmental Protection Agency. The formulation, manufacture, packaging, labeling and sale of nutritional supplements are also subject to extensive state, local and foreign legislation.





The FDCA addresses dietary supplements principally through the Dietary Supplement Health and Education Act of 1994, or DSHEA. The DSHEA defines “dietary supplements” as vitamins, minerals, herbs, other botanicals, amino acids and other dietary substances that are used to supplement the diet, as well as concentrates, constituents, extracts or combinations of such dietary ingredients. Generally, under DSHEA, dietary ingredients that were on the market before October 15, 1994 may be used in dietary supplements without notifying the FDA. However, a “new” dietary ingredient (i.e., a dietary ingredient that was not marketed in the U.S. before October 15, 1994) must be the subject of a new dietary ingredient notification submitted to the FDA unless the ingredient has been “present in the food supply as an article used for food” without having been “chemically altered.” A new dietary ingredient notification must provide the FDA with evidence of a “history of use or other evidence of safety” which establishes that use of the dietary ingredient “will reasonably be expected to be safe.” A new dietary ingredient notification








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must be submitted to the FDA at least 75 days before the new dietary ingredient can be marketed. Furthermore, there can be no assurance that the FDA will accept evidence purporting to establish the safety of any new dietary ingredients that we may want to market, and the FDA’s refusal to accept such evidence could prevent the marketing of such dietary ingredients. The FDA is in the process of developing guidance for the industry to clarify its interpretation of the new dietary ingredient notification requirements, and this guidance has the potential to raise new and significant regulatory barriers for new dietary ingredients. In addition, increased FDA enforcement could lead the FDA to challenge dietary ingredients already on the market as “illegal” under the FDCA because of the failure to file a new dietary ingredient notification.





DSHEA permits “statements of nutritional support” to be included in labeling for dietary supplements without FDA pre-approval. Such statements may describe how a particular dietary ingredient affects the structure, function or general well-being of the body, or the mechanism of action by which a dietary ingredient may affect the structure, function or well-being of the body, but such statements may not state that a dietary supplement will diagnose, cure, mitigate, treat or prevent a disease unless such claim has been reviewed and approved by the FDA. A company that uses a statement of nutritional support in labeling must possess evidence substantiating that the statement is truthful and not misleading. In some circumstances, it is necessary to disclose on the label that the FDA has not “evaluated” the statement, to disclose the product is not intended to combat disease and to notify the FDA about our use of the statement within 30 days of marketing the product. However, there can be no assurance that the FDA will not determine that a particular statement of nutritional support that we want to use is an unacceptable disease claim or an unauthorized version of a “health claim.” Such a determination might prevent the use of such a claim.





In addition, DSHEA provides that certain so-called “third-party literature,” e.g., a reprint of a peer-reviewed scientific publication linking a particular dietary ingredient with health benefits, may be used “in connection with the sale of a dietary supplement to consumers” without being subject to labeling regulations. Such literature must not be false or misleading, the literature may not “promote” a particular manufacturer or brand of dietary supplement and a balanced view of the available scientific information on the subject matter must be presented. There can be no assurance, however, that all third-party literature that we would like to disseminate in connection with our products will satisfy each of these requirements, and failure to satisfy all requirements could prevent use of the literature or subject the product to regulation as an unapproved drug.





As authorized by DSHEA, the FDA has recently proposed Good Manufacturing Practices, or GMPs, specifically for dietary supplements. These new GMP regulations, which are anticipated to be finalized in the near future, would be more detailed than the current GMPs regulating dietary supplements and may, among other things, require dietary supplements to be prepared, packaged and held in compliance with certain rules and might require quality control provisions similar to those set forth in the GMP regulations for drugs. There can be no assurance that if the FDA adopts GMP regulations for dietary supplements we will be able to comply with the new rules without incurring substantial expense.





The FDA generally prohibits labeling a dietary supplement with any “health claim” (that is not authorized as a “statement of nutritional support” permitted by DSHEA) unless the claim is pre-approved by the FDA. There can be no assurance that some of the labeling statements that we would like to use will not be deemed by the FDA to be impermissible “health or disease claims.”





Although the regulation of dietary supplements is in some respects less restrictive than the regulation of drugs, there can be no assurance that dietary supplements will continue to be subject to less restrictive regulation. Legislation has been periodically introduced in Congress, including in 2004 and 2005, to amend the FDCA to place more restrictions on the marketing of dietary supplements. In addition, Congress has been asked to consider various systems for pre-market and post-market review of dietary supplements to make the regulation of these products similar to the regulation of drugs under the FDCA. The FDA regulates the formulation, manufacturing, packaging, labeling and distribution of OTC drug products pursuant to a “monograph” system that specifies active drug ingredients that are generally recognized as safe and effective for particular uses. If an OTC drug is not in compliance with the applicable FDA monograph, the product generally cannot be sold without first obtaining FDA approval of a new drug application, which can be a long and expensive procedure. There can be no assurance that, if more stringent statutes are enacted for dietary supplements, or if more stringent regulations are promulgated, we will be able to comply with such statutes or regulations without incurring substantial expense.





The FDA has broad authority to enforce the provisions of the FDCA with respect to dietary supplements and OTC drugs, including powers to issue a public “warning letter” to a company, to publicize information about illegal products, to request a voluntary recall of illegal products from the market and to request that the Department of Justice initiate a seizure action, an injunction action or a criminal prosecution in U.S. courts.






8
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The FTC exercises jurisdiction over the advertising of dietary supplements. In recent years, the FTC has instituted numerous enforcement actions against dietary supplement companies for making false or misleading advertising claims and for failing to adequately substantiate claims made in advertising. These enforcement actions have often resulted in consent decrees and the payment of civil penalties and/or restitution by the companies involved.





We are also subject to regulation under various state, local and international laws that include provisions governing, among other things, the formulation, manufacturing, packaging, labeling, advertising and distribution of dietary supplements and OTC drugs. Government regulations in foreign countries may prevent or delay the introduction, or require the reformulation, of certain of our products. Compliance with such foreign governmental regulations is generally the responsibility of our distributors in those countries. These distributors are independent contractors whom we do not control.





In addition, from time to time in the future, we may become subject to additional laws or regulations administered by the FDA or by other federal, state, local or foreign regulatory authorities, to the repeal of laws or regulations that we consider favorable, such as DSHEA, or to more stringent interpretations of current laws or regulations. We are not able to predict the nature of such future laws, regulations, repeals or interpretations, and we cannot predict what effect additional governmental regulation, if and when it occurs, would have on our business in the future. Such developments could, however, require reformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, additional personnel or other new requirements. Any such developments could have a material adverse effect on our business.





Item 1A. Risk Factors


As a smaller reporting company we are not required to provide the information required by this item.





Item 1B. Unresolved Staff Comments





None.





Item 2. Properties





Our corporate headquarters is located at 15A Saddle Road, Cedar Knolls, New Jersey, 07927.  We lease 750 square feet of office space which is comprised of three offices for corporate personnel, storage space to house inventory and one conference room for meeting space.  Pazoo rents this facility for $500 per month from DMC Athletics and Rehabilitation under a sublease agreement.   We anticipate moving to a new headquarters beginning in the 1st quarter of 2014.  Pazoo’s office facilities are specifically used to further our business endeavors.





Item 3. Legal Proceedings





In April 2013, the Company filed a complaint against Edataworx, Inc. for return of monies and stock under an agreement dated August 2012. On or about September 24, 2013 the Company filed a motion seeking a Default Judgment for Edataworx, Inc. failure to appear.  EDataWorx, Inc. opposed the Company's motion and cross-moved to vacate the Default previously entered by the Court.  On October 25, 2013, the Company's motion was denied and EDataWorx, Inc.'s cross-motion was granted and the Default was vacated.  EDataWorx, Inc. was ordered to Answer the Complaint.  Prior to filing an Answer, the Company, on November 4, 2013, filed and Amended Complaint now seeking total damages of $105,000 and a return, for cancellation, of the 2,000,000 shares of Company's common stock issued to EDataWorx, Inc.  On November 21, 2013 Edataworx, Inc. filed an Answer to the Amended Complaint denying the allegations and asserted a Counter-Claim against the Company in the amount of $25,000. Edataworx, Inc. also filed a Third-Party Complaint as against Integrated Capital Partners, Inc. (an investor of the Company) for the same $25,000.




Item 4. Mine Safety Disclosures





None.






9
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Part II




Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.




(a) Market for Our Common Shares




Our common shares are quoted on the OTCQB under the symbol PZOO. The high and low common stock prices per share during the periods indicated were as follows:




Quarter Ended

Mar. 31


June 30


Sept. 30


Dec. 31


YearFiscal year 2013Price per common share:High

$
0.034


$
0.030


$
0.036


$
0.021


$
0.061Low

$
0.0339


$
0.028


$
0.032


$
0.020


$
0.0104Fiscal year 2012Price per common share:High

$
N/A


$
0.15


$
0.41


$
0.28


$
0.41Low

$
N/A


$
0.15


$
0.20


$
0.01


$
0.01








NUMBER OF HOLDER OF OUR COMMON SHARES


As of the date of this filing there are one hundred and fifty four (154) holders of record of our common shares.




DIVIDEND POLICY


We have never paid cash or any other form of dividend on our common stock, and we do not anticipate paying cash dividends in the foreseeable future. Moreover, any future credit facilities might contain restrictions on our ability to declare and pay dividends on our common stock. We plan to retain all earnings, if any, for the foreseeable future for use in the operation of our business and to fund the pursuit of future growth. Future dividends, if any, will depend on, among other things, our results of operations, capital requirements and on such other factors as our board of directors, in its discretion, may consider relevant.  We have paid Series A dividends on our preferred stock per the Series A Certificate of Designation.




Item 6. Selected Consolidated Financial Data





As a smaller reporting company we are not required to provide the information required by this item.





Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations





This report on Form 10-K contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Any statements in this Annual Report that are not statements of historical facts but rather 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 Annual Report on Form 10-K, 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 report on Form 10-K contains terminology referring to Pazoo, Inc., such as “us,” “our,” and “the Company.”






10
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Management intends the following discussion to assist in the understanding of our financial position and our results of operations for the year ended December 31, 2013 and December 31, 2012.





Overview


We were incorporated as a C-Corporation in the State of Nevada as IUCSS, Inc. on November 16, 2010 and we established a fiscal year end of December 31.  On May 9, 2011, we changed our name to Pazoo, Inc. to take advantage of unique branding and website opportunities. We are a start-up health and wellness social community that has developed its website (www.pazoo.com) to provide information, services, and online products for improvement of everyday living.  Our mission is to be 1) a leading social community offering best-in-class health and wellness products for both people and pets; and 2) an important resource for consumers and professionals with diverse information about health and wellness.





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 in conformity with accounting principles generally accepted in the United States of America 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.




Comparison of Fiscal Years Ended December 31, 2013 and 2012




Revenues. Revenues were $52,813 in the fiscal year ended December 31, 2013, compared to $119,251 in the fiscal year ended December 31, 2013, a decrease of $66,438, or 55.8%. Service revenues decreased to zero in fiscal 2013, due to a contract with DMC Athletics & Rehabilitation (DMC) not being renewed in 2013.  Merchandise sales in fiscal 2013 decreased to $9,989, a decrease of $4,262, or 29.9%.  The decrease was a result of a shift in efforts towards developing advertising sales to replace merchandise sales.  Advertising sales increased 100% from zero to $42,824.




Cost of Goods Sold. Cost of goods sold were $8,977 in fiscal 2013, compared to $14,832 in fiscal 2012, a decrease of $5,855, or 39.5%.




Operating Expenses.Operating expenses consisted of the following expenses.  Total expenses were $579,452 in fiscal 2013, compared to $1,685,548 in fiscal 2012, a decrease of $1,106,096.  Selling, general and administrative (SG&A) expenses were $418,778 or 72.3% of total expenses in fiscal 2013 compared to $1,479,035 in fiscal 2012, a decrease of $1,060,257 or 71.7%. SG&A expenses were mainly comprised of Branding and Public Relations, Marketing and Advertising, and Payroll.  Marketing and Advertising expense was comprised of Pay-Per-Click advertising, which increased 100% from 2012 to $77,951.  It also included contracts with iBuild Media to provide digital development, marketing and consulting servies, and with OpenX to provide real time bidding exchange with yield optimization.  iBuild expenses for the year ended December 31, 2013 were $52,520 for 54.6% and OpenX expenses totaled $20,667 for 21.5% of the total Marketing and Advertising expense.  Both amounts were 100% increases from the year ended December 31, 2012.   Branding and Public Relations expense was mainly comprised of a contract with Small Cap Voice to provide radio marketing and awareness.  Payroll expenses decreased to $42,040 in fiscal 2013 compared to $165,448 in fiscal 2012, a decrease of $123,408, or 74.6%.  The decrease was attributed to lower salaries by Steve Basloe, Gregory Jung, and Ben Hoehn and no salary for David Cunic in 2013.  Professional fees were $111,394 or 19.6% of total expenses in fiscal 2013, compared to $111,327 or 6.6% of total expenses in fiscal 2012, an increase of $67.














11
 Table of Contents





Net loss. The net loss was $657,690 for the year ended December 31, 2013, compared to net loss of $1,581,189 for the year ended December 31, 2012.




Liquidity and Capital Resources.




Cash and cash equivalents were $35,848 and $130,556 as of December 31, 2013 and December 31, 2012, respectively.




Net cash used in operations was $373,075 and $1,002,466 for the twelve months ended December 31, 2013 and December 31, 2012, respectively.  The decrease in cash used by operations was attributed to much less stock issued for services and decreases in SG&A as described above in Operating Expenses.




Net cash provided by financing activities as of December 31, 2013 and December 31, 2012 was $278,367 and $1,130,000, respectively.  At December 31, 2013, our principal source of liquidity had been funded primarily through the unregistered sales of Series A Preferred Stock and will be considered a source of liquidity until we have generated sufficient cash from our operations.  In the twelve month period from January 1 to December 31 2013, we issued 4,871,678 shares of Series A Preferred Stock to ICPI at a price of $0.04 per share for $194,867. We used a majority of those proceeds to pay for advertising and marketing expenses for the year ended December 31, 2013. During 2013, we incurred accounting costs of $36,963 associated with the audit of our financial statements. We expect that the legal and accounting costs of becoming a public company will continue to impact our liquidity. In the event the Company does not generate sufficient revenue to meet its expenses, additional funding will need to be obtained.


For the year ending December 31, 2013, we incurred liabilities of $241,744 which included accounts payable of $64,846, derivative liability of $172,049, and loans of $4,849.
  Subsequent Events
  In accordance with FASB ASC 855-10-50-1 we evaluated our subsequent events through March 31, 2014.
 
 On or about January 31, 2014 the Company filed a Reply to Counterclaim denying the allegations as set forth in Legal Proceedings.
 
 In January 2014, ICPI exercised a warrant purchase agreement for 800,000 shares of Series A Convertible Preferred Stock pursuant to, and in accordance with, an Investment Agreement dated May 31, 2013.
 
 In March 2014 we issued an aggregate amount of 1,175,000 shares of restricted common stock to various experts for services rendered, or to be rendered as expert contributors to www.pazoo.com. Also in March 2014, we issued 3,481,250 shares of restricted common stock to four consultants for services rendered, or to be rendered, to the Company.
 
 On or about February 27, 2014 the Company entered into a $220,000 10% Convertible Promissory Note (the "Note") with Iconic Holdings, LLC (“Iconic”). Under the terms of the Note the Company will receive the principal in one or more installments with a Maturity Date for the Note of February 27, 2015. Iconic shall have the right to convert any unpaid sums into common stock of the Company at the rate of the lesser of $.01 per share or 50% of the lowest trade reported in the 25 days prior to date of conversion.
 
 
   12
 Table of Contents
 In March 2014, ICPI converted 170,000 shares of Series A Convertible Preferred Stock into 1,700,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
  On or about March 25, 2014 the Company entered into a Binding Letter of Intent (the “LOI”) with MA & Associates, LLC (“MA”) whereby the Company would acquire a 40% equity interest in MA in exchange for $2,000,000. Under the terms of the LOI the parties have agreed to execute definite documents within fourteen days and Pazoo will complete its due diligence by April 30, 2014. MA is in the process of becoming a licensed medical marijuana testing laboratory in the State of Nevada.
  Item 7A. Quantitative and Qualitative Disclosures AboutMarket Risk





As a smaller reporting company we are not required to provide the information required by this item.





Item 8. Consolidated Financial Statements and Supplementary Data



































13
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To the Board of Directors and Stockholders of


Pazoo, Inc.


Cedar Knolls, New Jersey





We have audited the accompanying balance sheets of Pazoo, Inc. (the "Company") as of December 31, 2013 and 2012, and the related statements of operations, stockholders' equity (deficit), and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companysis for designing audit procedures that are appropriate in the circumstances, but not for the purpose es examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pazoo, Inc. as of December 31, 2013 and 2012 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.





The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations, which raises substantial doubt about its ability to continue as a going concern. Managements, plans regarding those matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.





/s/ MaloneBailey, LLP


www.malonebailey.com


Houston, Texas





March 31, 2014












14
 Table of Contents







PAZOO, INC(A DEVELOPMENT STAGE COMPANY)BALANCE SHEETSDecember 31,

2013


December 31,

2012ASSETSCurrent assets:Cash and cash equivalents

$
35,848


$
130,556Accounts receivable


33,461



58,360Inventories


4,129



6,808Prepaid expenses


1,911



3,536Allowance for Doubtful Accounts


-



(13,300
)Total current assets


75,349



185,960Property and equipment, net


-



-Total assets

$
75,349


$
185,960LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)Current liabilities:Accounts payable

$
64,846


$
19,081Accrued liabilities


-



3,410Loans payable


3,000



18,302Convertible debt, net of discount of $48,151


1,849



-Derivative liability


172,049



-Total current liabilities


241,744



40,793Stockholders' equity (deficit):Common stock, $0.001 par value; 980,000,000 shares authorized,  101,409,500 and 72,142,000 shares issued and outstanding at December 31, 2013 and 2012, respectively


101,410



72,142Convertible preferred stock, Ser. A, $0.001 par value, 10,000,000 shares authorized, 9,233,935 shares issued and 5,542,814 shares outstanding at December 31, 2013. 2,400,000 shares issued and outstanding at December 31, 2012.


9,234



5,543Preferred stock, Ser. B, $0.001 par value, 2,500,000 shares authorized, 1,187,500  and 1,375,000 shares issued and outstanding at December 31, 2013 and 2012, respectively


1,187



1,375Preferred stock, Ser. C, $0.001 par value, 7,500,000 shares authorized, no shares issued and outstanding at December 31, 2013 and 2012


-



-Warrants, 7,000,000 and 2,400,000 warrants issued and outstanding at December 31, 2013 and 2012, respectively


-



-Additional paid-in capital


2,242,140



1,862,082Retained earnings (accumulated deficit)


(2,520,366
)


(1,795,975
)Total stockholders' equity (deficit)


(166,395
)


145,167Total liabilities and stockholders' equity (deficit)

$
75,349


$
185,960


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





15
 Table of Contents






PAZOO, INC.(A DEVELOPMENT STAGE COMPANY)STATEMENT OF OPERATIONS(Audited)For the year ended December 31,

2013


For the year ended

December 31,

2012Net salesService Revenue

$
-



105,000Merchandise Sales


9,989



14,251Advertising Sales


42,824



-Total Income


52,813



119,251Cost of goods soldService Revenue


-



-Merchandise Sales


8,977



14,832Total Cost of Goods Sold


8,977



14,832Gross profit (loss)


43,836



104,419Selling, general and administrative expenses


418,778



1,479,035Bad debt Expense


60



13,300Professional fees


111,394



111,327Website setup


49,220



81,886Total operating expenses


579,452



1,685,548Loss from operations


(535,616
)


(1,581,129
)Other expenses:Gain/loss on derivative liability


(122,049
)


-Interest expense


(25
)


(60
)Net loss

$
(657,690
)


(1,581,189
)Series A preferred stock dividend


(66,701
)


(38,794
)(724,391
)


(1,619,983
)Weighted average common shares outstanding - Basic and diluted


85,655,534



60,904,780Net loss per common share - Basic and diluted

$
(0.01
)


(0.03
)






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




16
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PAZOO, INC.(A DEVELOPMENT STAGE COMPANY)STATEMENT OF CASH FLOWS(Audited)For the year ended

December 31,

2013


For the year ended

December 31,

2012Cash flows from operating activities:Net loss

$
(657,690
)

$
(1,581,189
)Adjustments to reconcile net loss to net cash used in operating activities:Common stock issued for services


96,128



626,502Warrants expense


-



9,936Loss on derivative liability


122,049



-Amortization of debt discount


1,849



-Bad debt expense


60



13,300Changes in operating assets and liabilities:Accounts receivable


11,539



(58,360
)Inventories


2,679



(3,448
)Prepaid expenses and other current assets


1,625



(2,840
)Accounts payable and accrued liabilities


48,686



(6,367
)Net cash used in operating activities


(373,075
)


(1,002,466
)Cash flows from financing activities:Loans payable


33,500



-Borrowings on convertible note


50,000



-Proceeds from sale of Series A preferred stock


194,867



1,130,000Net cash provided by financing activities


278,367



1,130,000Net increase in cash and cash equivalents


(94,708
)


127,534Cash and cash equivalents beginning of period


130,556



3,022Cash and cash equivalents end of period

$
35,848


$
130,556Supplemental Disclosure of Cash Flows InformationCash paid for interest


-



-Cash paid for income taxes


-



-Noncash Investing and Financing ActivitiesCommon stock issued for the converstion of SeriesA preferred stock


28,750



17,800SeriesA preferred stock issued for SeriesA preferred stock dividend


66,701



38,794Debt discount


50,000



-Preferred stock issued for settlement of debt


55,133



-Conversion of preferred stock to common stock


28,750



-Common stock cancellation


2,000



-Payments of AP by third party


6,331



-Series B preferred stock cancellation


188



-


The accompanying notes are an integral part of these financial statements.
  17
 Table of Contents






PAZOO, INC.(A DEVELOPMENT STAGE COMPANY)STATEMENT OF STOCKHOLDER’S EQUITY (DEFICIT)(Audited)Common Stock


Series A Pref Stock


Series B Pref Stock





AccumulatedShares


Par


Shares


Par


Shares


Par


APIC


Deficit


TotalDecember 31, 2011


48,182,000



48,182



2,400,000



2,400



-



-



85,328



(175,992
)


(40,082
)Common shares issued for services


6,160,000



6,160



-



-



-



-



620,342



-



626,502Preferred shares for cash


-



-



4,600,000



4,600



-



-



1,125,400



-



1,130,000Preferred shares for services


-



-



-



-



1,375,000



1,375



(1,375
)


-



-Conversion of Preferred Stock to Common Stock


17,800,000



17,800



(1,780,000
)


(1,780
)


-



-



(16,020
)


-



-Warrants issued


-



-



-



-



-



-



9,936



-



9,936Stock dividend


-



-



322,814



323



-



-



38,471



(38,794
)


-Net Loss


-



-



-



-



-



-



-



(1,581,189
)


(1,581,189
)December 31, 2012


72,142,000



72,142



5,542,814



5,543



1,375,000



1,375



1,862,082



(1,795,975
)


145,167Preferred Stock and Preferred Stock warrants for cash


-



-



4,871,678



4,872



-



-



189,995



-



194,867Preferred Stock and Preferred Stock warrants for debt


-



-



1,378,322



1,378



-



-



53,755



-



55,133Preferred dividends


-



-



316,121



316



-



-



66,385



(66,701
)


-Common shares issued for services


2,517,500



2,518



-



-



-



-



93,610



-



96,128Cancellation of preferred shares


-



-



-



-



(187,500
)


(188
)


188



-



-Cancellation of common shares


(2,000,000
)


(2,000
)


-



-



-



-



2,000



-



-Conversion of Preferred Stock to Common Stock


28,750,000



28,750



(2,875,000
)


(2,875
)


-



-



(25,875
)


-



-Net Loss


-



-



-



-



-



-



-



(657,690
)


(657,690
)December 31, 2013


101,409,500


$
101,410



9,233,935


$
9,234



1,187,500


$
1,188


$
2,242,140


$
(2,520,366
)

$
(166,395
)










18
 Table of Contents




Pazoo, Inc.


(A DEVELOPMENT STAGE COMPANY)
 Notes to Financial Statements
   Note 1—DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES


Description of Business
  We were incorporated as a C-Corporation in the State of Nevada as IUCSS, Inc. on November 16, 2010 and we established a fiscal year end of December 31. On May 9, 2011, we changed our name to Pazoo, Inc. to take advantage of unique branding and website opportunities. We are a start-up health and wellness social community that has developed its website (www.pazoo.com) to provide information, services, and online products for improvement of everyday living. Our mission is to be 1) a leading social community offering best-in-class health and wellness products for both people and pets; and 2) an important resource for consumers and professionals with diverse information about health and wellness. We have never been party to any bankruptcy, receivership or similar proceeding, nor have we undergone any material reclassification, merger, consolidation, purchase or sale of a significant amount of assets not in the ordinary course of business. The Company is considered to be in the development stage as defined in Statement of Financial Accounting Standards No. 7 (FAS7), "Accounting and Reporting by Development Stage Enterprises". The Company has devoted substantially all of its efforts to business planning and development, as well as allocating a substantial portion of its time and resources in bringing unique product offerings to the market.
  Basis of Presentation
  The audited financial statements have been prepared by Pazoo, Inc. (the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods.
  Use of Estimates
  In accordance with Generally Accepted Accounting Principles (GAAP) the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the 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.
  Fair Value of Financial Instruments
  The Company’s financial instruments consist principally of cash and cash equivalents 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:
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   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.
  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 as December 31, 2013 and 2012.




Recurring Fair Value Measurements

Level 1


Level 2


Level 3


TotalLIABILITIES:Derivative liability- 2013


-



-



172,049



172,049Derivative liability- 2012


-



-



-



-





Cash and Cash Equivalents




We classify all highly liquid instruments with an original maturity of three months or less at the time of purchase as cash equivalents.




Stock Based Compensation




Total stock based compensation issued during 2013 and 2012 totaled $97,378 for 2,767,500 shares and $626,502 for 6,160,000 shares, respectively, issued to consultants.  ASC 718 "Compensation - Stock Compensation" which codified SFAS No. 123 prescribes accounting and reporting standards for all stock-based payments awarded to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights, which may be classified as either equity or liabilities. The Company determines if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the transaction is recognized as a liability; otherwise, the transaction is recognized as equity.  The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50 "Equity-Based Payments to Non-Employees" which codified SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services." Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date, the performance completion date, or the contract date.




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 sources.  Typically advertising revenue is based upon the activity reports received from the advertising brokers and revenue is paid in accordance with the broker agreements at varying intervals from 30 to 75 days following the close of the particular advertising period.  The Company recognizes the revenue, and records the accounts receivable, upon receipt of the activity report from the broker. In the event payment is not received within 120 days of the due date, the Company with classify such amount as an account where collection is doubtful.  At this time the Company has no reason to believe any accounts are not collectible and therefore no allowance for doubtful accounts has been made at this time for any advertising revenue.




20
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Inventories




Inventory currently consists predominately of goods purchased from third party suppliers and does not include raw materials. Certain inventory contains expiration dates (“shelf life”) and the efficacy of any product which is held beyond its shelf life may be impaired. Our inventory reserve is zero. The company purchased most inventory in 2011 with very little purchases in 2012 and as such, there are some products that are approached the end of their shelf life and were subsequently written off in 2013. Inventory cost is determined using the weighted average cost method.




Income Taxes




Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse.




We have net operating loss carryforwards available to reduce future taxable income. Future tax benefits for these net operating loss carryforwards are recognized to the extent that realization of these benefits is considered more likely than not. To the extent that we will not realize a future tax benefit, a valuation allowance is established.




Recent Accounting Pronouncements




The Company does not expect any recently issued accounting pronouncements to have a material impact on its financial condition or results of operations.




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.


Note 2—GOING CONCERN
 
 During 2013 and 2012, the Company incurred net losses of $657,690 and $1,581,189, respectively. This factor, among others, raises 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.
   Note 3—STOCKHOLDERS’ EQUITY
 
 Preferred Stock
 
 We have authorized 20 million shares of $0.001 par value Preferred Stock. The preferred shares available for issuance are 10,000,000 Series A Convertible Preferred Stock, 2,500,000 Series B Non-convertible Preferred Stock, and 7,500,000 Series C Non-convertible Preferred Stock.
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  The Series A Preferred Stock is convertible into ten shares of common stock for each Preferred share at the option of the holder, does not have voting rights and pays a Series A Preferred Stock dividend of 5% annually. The Company amended the Certificate of Designations of the Series A Preferred Stock amending the expiration date to February 1, 2022.The Company shall pay the amount due on the Maturity Date in kind with shares of Common Stock. The number of shares of Common Stock to be issuable to a Holder on the Maturity Date (the “Maturity Shares”) shall be equal to the quotient of (x) the aggregate Liquidation Preference for such Holder’s Shares on the Maturity Date divided by (y) the Conversion Price in effect as of the Maturity Date. On or before the third (3rd) Business Day following the Maturity Date (the “Maturity Share Delivery Date”), the Company must deliver to each Holder the Maturity Shares issuable to such Holder. In the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, each Holder shall be entitled to receive prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of any Junior Stock, an amount (the “Liquidation Preference”) equal to (A) $1,000 per Share held by such Holder, plus (B) a further amount equal to any Dividends accrued but unpaid on such Shares. If, upon such liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to the stockholders of the Company are insufficient to provide for the payment of the full aforesaid preferential amount, such assets as are so available shall be distributed among the Holders in proportion to the relative aggregate Liquidation Preferences of the Shares held by such Holders. The Liquidation Preference shall be appropriately adjusted for any stock splits, stock combinations, stock dividends or similar recapitalizations.
  The Series B Preferred Stock is non-convertible, does not pay a dividend, and contains voting rights at a ratio of 200 votes for each share of Series B Preferred Stock. In the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, each Holder shall be entitled to receive prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of any Junior Stock, an amount (the “Liquidation Preference”) equal to $0.001 per Share held by such Holder, or such other amount as any Securities Purchase Agreement under which the Shares are issued may provide. If, upon such liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to the stockholders of the Company are insufficient to provide for the payment of the full aforesaid preferential amount, such assets as are so available shall be distributed among the Holders in proportion to the relative aggregate Liquidation Preferences of the Shares held by such Holders. The Liquidation Preference shall be unaffected for any stock splits, stock combinations, stock dividends or similar recapitalizations.
  The Series C Preferred Stock is non-convertible and has no voting rights, pays a common stock dividend from 2% to 12% annually. The Company amended the Certificate of Designations of the Series C Preferred Stock amending the expiration date for redemption to February 1, 2022.The Company shall pay the amount due on the Maturity Date in kind with shares of Common Stock. The number of shares of Common Stock to be issuable to a Holder on the Maturity Date (the “Maturity Shares”) shall be equal to the quotient of (x) the aggregate Liquidation Preference for such Holder’s Shares on the Maturity Date divided by (y) the Conversion Price in effect as of the Maturity Date. On or before the third (3rd) Business Day following the Maturity Date (the “Maturity Share Delivery Date”), the Company must deliver to each Holder the Maturity Shares issuable to such Holder. In the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, each Holder shall be entitled to receive prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of any Junior Stock, an amount (the “Liquidation Preference”) equal to (A) $0.001per Share held by such Holder, plus (B) a further amount equal to any Dividends accrued but unpaid on such Shares. If, upon such liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to the stockholders of the Company are insufficient to provide for the payment of the full aforesaid preferential amount, such assets as are so available shall be distributed among the Holders in proportion to the relative aggregate Liquidation Preferences of the Shares held by such Holders. The Liquidation Preference shall be appropriately adjusted for any stock splits, stock combinations, stock dividends or similar recapitalizations.
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 In May 2013, we exchanged 1,360,580 Series A Preferred Stock and 1,360,580 Series A Preferred stock warrants to Integrated Capital Partners, Inc. (ICPI) for the conversion of $54,423 in loans payable.
  In June 2013, we sold 187,500 Series A Preferred Stock and 187,500 Series A Preferred Stock warrants to ICPI at $0.04 per share for $7,500.
  In July 2013, we sold 875,000 Series A Preferred Stock and 875,000 Series A Preferred stock warrants to ICPI at $0.04 per share for $35,000.
  In August 2013, we sold 875,000 Series A Preferred Stock and 875,000 Series A Preferred stock warrants to ICPI at $0.04 per share for $35,000.
  In September 2013, we sold 125,000 Series A Preferred Stock and 125,000 Series A Preferred stock warrants to ICPI at $0.04 per share for $5,000.
  In October 2013, we sold 362,500 Series A Preferred Stock and 362,500 Series A Preferred stock warrants to ICPI at $0.04 per share for $14,500.
  In November 2013, we sold 150,000 Series A Preferred Stock and 150,000 Series A Preferred stock warrants to ICPI at $0.04 per share for $6,000.
  Also, in November 2013, we exchanged 17,742 Series A Preferred Stock and 17,742 Series A Preferred stock warrants to ICPI for $709 in loans payable.
  In November 2013, we issued 2,296,678 Series A Preferred Stock and 2,296,678 Series A Preferred stock warrants to ICPI at $0.04 per share for $91,867. This investment completes the $250,000 investment commitment under the May 2013 Investment Agreement.
  In December 2013, we recorded a preferred stock dividend of 316,121 shares of Series A Preferred Stock which represents payment of the 5% stated Series A Convertible Preferred Stock dividend (through December 31, 2013). This issuance will occur in the 1st quarter of 2014.
  In August 2013, 187,500 Series B Preferred shares were sent back to the Company and cancelled for David Cunic, who stepped down as Chairman of the Board in 2012.
  Total Series A Preferred shares outstanding as of December 31, 2013 were 9,233,935.
  Common Stock
  Issuances
  In 2013, we issued a total of 2,517,500 common shares to experts who have agreed to be included in the “Our Experts” section of our Company website (www.pazoo.com). Each Expert has executed an expert services contract certain number of shares issued upon signing and further shares earned over the first year of the contract. The total stock compensation expense recorded was $96,128. As of December 31, 2013, there were 2,815,000 shares to be issued that will be earned through 2014.
  In April 2013, we cancelled 2,000,000 common shares previously issued to Gotham Capital for an advisory agreement 2012.
  During 2012, we issued an aggregate of 550,000 common shares to experts who have agreed to be included in the “Our Experts” section of our Company website. Each expert has executed an expert services contract which includes a certain number of shares issued upon signing and further shares earned over the first year of the contract. During 2012, an aggregate of $33,452 was expensed under these contracts. During 2012, we issued an additional 5,610,000 common shares for services valued at $593,050.
   23
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 Total common shares outstanding as of December 31, 2012 were 101,409,500.
  Conversions
  In January 2013, ICPI converted 300,000 shares of Series A Convertible Preferred Stock into 3,000,000 common shares pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
  In February 2013, ICPI converted 125,000 shares of Series A Convertible Preferred Stock into 1,250,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
  In April 2013, ICPI converted 300,000 shares of Series A Convertible Preferred Stock into 3,000,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
  In May 2013, ICPI converted 300,000 shares of Series A Convertible Preferred Stock into 3,000,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
  In June 2013, ICPI converted 200,000 shares of Series A Convertible Preferred Stock into 2,000,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
  In July 2013, ICPI converted 200,000 shares of Series A Convertible Preferred Stock into 2,000,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
  In August 2013, ICPI converted 400,000 shares of Series A Convertible Preferred Stock into 4,000,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
  In September 2013, ICPI converted 200,000 shares of Series A Convertible Preferred Stock into 2,000,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
  In October 2013, ICPI converted 450,000 shares of Series A Convertible Preferred Stock into 4,500,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
  In December 2013, ICPI converted 400,000 shares of Series A Convertible Preferred Stock into 4,000,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011)
   24
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 During 2012, we issued an aggregate of 17,800,000 common shares for the conversion of 1,780,000 shares of Series A Preferred Stock.
  Warrants
  Simultaneous with the issuance of Series A Preferred Stock in 2013, and under the Investment Agreement May 2013 we issued 6,250,000 warrants to ICPI which entitles its owner to purchase one share of Series A Preferred Stock for each Series A Preferred Stock at an exercise price of $0.05, subject to the terms of the warrant agreement between the warrant agent and us. The warrants are exercisable three years from the date of issue. No warrants have been exercised as of December 31, 2013. These warrants had negligible fair value at the time of issuance.
  In connection with a termination and release agreement on or about April 2013, and related to compensation paid to Gotham Capital (Gotham) in 2012, we cancelled 2,000,000 common stock purchase warrants exercisable at an exercise price of $0.01 per share.
  No warrants have been exercised as of December 31, 2013.
  The following table presents the Series A preferred stock warrant activity during 2013 and 2012:
  WeightedAverageWarrants


Exercise PriceOutstanding - December 31, 2011


-


$
-Granted


2,000,000



0.75Forfeited/canceled


-



-Exercised


-



-Outstanding - December 31, 2012


2,000,000


$
0.75Granted


6,232,258


$
0.05Forfeited/canceled


-



-Exercised


-



-Outstanding - December 31, 2013


8,232,258


$
0.22Exercisable – December 31, 2013


8,232,258


$
0.22
 
 The weighted average remaining life of the outstanding Series A preferred stock warrants as of December 31, 2013 and 2012 was 3.92 and 2.54 years, respectively.


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   The following table presents the common stock warrant activity during 2013 and 2012:
 WeightedAverageWarrants


Exercise PriceOutstanding - December 31, 2011


2,400,000


$
0.05Granted


4,600,000


$
0.05Forfeited/canceled


-



-Exercised


-



-Outstanding - December 31, 2012


7,000,000


$
0.04Granted





$Forfeited/canceled


(2,000,000)


$
0.05Exercised


-



-Outstanding - December 31, 2013


5,000,000


$
0.05Exercisable – December 31, 2013


5,000,000


$
0.05
   
 Note 4—RELATED PARTY TRANSACTIONS
  Related Party Transactions
  Steve Basloe has an equity ownership interest in Pazoo and is the Chairman of the Board and the President of Pazoo. He is also the owner of SMB Marketing. SMB Marketing signed a consulting agreement with Pazoo in June 2013 to create strategy and execute against this plan to roll out the design and production of Pazoo.com and the content for Pazoo.com. The agreement is for a term of two years and requires weekly compensation of $1,000. During 2013, he received $14,750 in relation to this agreement.
  In April 2012 Pazoo entered into a consulting agreement with DMC Athletics & Rehabilitation, Inc. (DMC) to render such advice, consultation, information, and services to the Directors and/or Officers of Pazoo regarding general business and marketing matters including, but not limited to the following: advice on structure of the organization, organization of sales team, prospecting new partners/vendor relationships and clients, and positioning of Pazoo into promotional and healthcare marketing, whether through Pazoo’s website (www.Pazoo.com), or by some other means, as well as professional physical therapy sessions performed by David M. Cunic (at that time an equity owner of DMC and an equity owner of Pazoo and is a Board Member and the CEO of Pazoo) for, or on behalf of, Pazoo. DMC and Pazoo mutually agreed to terminate the consulting agreement in November 2012.
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 In October 2012 Pazoo entered into a binding letter of intent for the acquisition of DMC. Pazoo extended the Letter of Intent until June 30, 2013 to afford DMC an opportunity to recover from the business losses suffered by DMC due to Superstorm Sandy. Upon further management evaluation, Pazoo declined to acquire DMC.
  Gina Morreale was previously employed as Secretary/Treasurer for Pazoo and was concurrently employed by ICPI, a Series A Convertible Preferred Stock holder. In September 2011, Ben Hoehn assumed the role of Chief Operating Officer and replaced Gina Morreale as Secretary/Treasurer. Since that time Gina Morreale had no affiliation with Pazoo other than being a shareholder.


Note 5—CONVERTIBLE NOTE AND DERIVATIVE LIABILITIES
  On December 4, 2013 the Company entered into a $500,000 Promissory Note with JMJ Financial. (Attached as Exhibit 99.02 to the Company's Form 8-K filed December 17, 2013).Under the terms, the Company will receive one or more installments on a periodic basis and will have 90 days for the date of each installment in which to repay the principal amount of the loan and interest. In the event repayment is not made within the 90 day period, JMJ shall have the right to convert any unpaid sums into common stock of the Company at the rate of the lesser of $.05 per share or 60% of the lowest trade reported in the 25 days prior to conversion. As of December 31, 2013, the Company received $50,000 of the note.
  During 2013, the Company recorded a discount of $50,000 on the note of which $1,849 was amortized as of yearend.
  The following table summarizes the changes in the derivative liabilities during 2013:
 Balance as of December 31, 2012

$
-Additions to derivative liability related to warrants


93,662Discount


50,000Initial loss on convertible note


28,387Ending balance as of December 31, 2013

$
172,049
 
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   The Company uses the Black Scholes Option Pricing Model to value its option based derivatives based upon the following assumptions: dividend yield of -0-%, volatility of 208%, risk free rate of 0.30% and an expected term equal to the remaining term of the note.
  There were 5,000,000 common stock warrants outstanding on the date the convertible note agreement was entered into which became tainted. These warrants were valued using the Black Scholes Option Pricing Model based upon the following assumptions: dividend yield of -0-%, volatility of 208%, risk free rate of 0.38% and an expected term equal to the remaining exercise term of the warrants.
 
 
 Note 6—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.
  During 2013, the Company entered into one convertible note agreement. The conversion option and the outstanding common stock warrants on that date which were tainted by the convertible note were classified as derivative liabilities at their fair value on the date of issuance.
  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).
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   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.
  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 as December 31, 2013.
 Recurring Fair Value Measurements

Level 1


Level 2


Level 3


TotalLIABILITIES:Derivative liability- 2013


-



-



172,049



172,049Derivative liability- 2012


-



-



-



-
 
 
 Note 7—INCOME TAXES




The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During 2013 and 2012, the company incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $2,411,838 at December 31, 2013, and will expire in the years 2031 – 2033.




Internal Revenue Section 382 restricts the ability to use these carryforwards whenever an ownership change as defined occurs.






29
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At December 31, 2013, deferred tax assets consisted of the following:




Deferred tax assetsNet operating losses

$
767,134Less: valuation allowance


(767,134
)Net deferred tax asset

$
0
 
 At December 31, 2012, deferred tax assets consisted of the following:
 Deferred tax assetsNet operating losses

$
395,061Less: valuation allowance

$
(395,061
)Net deferred tax asset

$
0
 
 Note 8—LOANS PAYABLE
  In June 2013 Pazoo, Inc. entered into a Promissory note totaling $9,000 with ICPI for expenses paid directly to vendors.  In November 2013, $6,000 was converted into 150,000 Series A Preferred shares.  ICPI is a Series A Preferred stockholder.  As of December 31, $3,000 still remains outstanding.


Note 9—SUBSEQUENT EVENTS
  Subsequent Events
  In accordance with FASB ASC 855-10-50-1 we evaluated our subsequent events through March 31, 2014.
  In January 2014, ICPI exercised a warrant purchase agreement for 800,000 shares of Series A Convertible Preferred Stock pursuant to, and in accordance with, an Investment Agreement dated May 31, 2013.
  In March 2014 we issued an aggregate amount of 1,175,000 shares of restricted common stock to various experts for services rendered, or to be rendered as expert contributors to www.pazoo.com.  Also in March 2014, we issued 3,481,250 shares of restricted common stock to four consultants for services rendered, or to be rendered, to the Company.
  On or about February 27, 2014 the Company entered into a $220,000 10% Convertible Promissory Note (the "Note") with Iconic Holdings, LLC (“Iconic”).  Under the terms of the Note the Company will receive the principal in one or more installments with a Maturity Date for the Note of February 27, 2015.  Iconic shall have the right to convert any unpaid sums into common stock of the Company at the rate of the lesser of $.01 per share or 50% of the lowest trade reported in the 25 days prior to date of conversion.
  In March 2014, ICPI converted 170,000 shares of Series A Convertible Preferred Stock into 1,700,000 shares of Common Stock pursuant to, and in accordance with, an Investment Agreement dated January 3, 2011 (See, Exhibit 99.01, of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011).
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   Item 9. Changes in and Disagreements with Accountants onAccounting and Financial Disclosure
 
 None.
 
 Item 9A. Controls and Procedures
  As of December 31, 2013, management, with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation 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 Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. Because of inherent limitations, any controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance of achieving the desired control objective. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2013, the design and operation of our disclosure controls and procedures were not effective at the reasonable assurance level.
  There has been no change in our internal control over financial reporting during the quarter ended December 31, 2013, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
  Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.  Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on this evaluation, our management concluded that, as of December 31, 2013, our internal control over financial reporting was not effective based on such criteria.  Contributing to our deficiency is the Company’s small size and the Company’s lack of an Audit Committee.  As defined by the Public Company Accounting Oversight Board’s Auditing Standard No. 5, a material weakness is a significant control deficiency, or a combination of significant control deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management continues to monitor and assess the controls to ensure compliance.  The Company expects that as we grow, an Audit Committee (which requires outside Board Members) will be added, as well as internal accounting staff to provide further internal checks and balances
  Item 9B. Other Information
  None.
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 PartIII
  Item 10. Directors, Officers, andCorporate Governance
 
 Our directors serve until their successors are elected and qualified. Our directors elect our officers to a term of one (1) year and they serve until they are reelected or their successors are duly elected and qualified, or until they are removed from office. The board of directors has no nominating or compensation committees.
  The name, age, and position of our present officers and directors are set forth below:
 Name

Age

TitleSteven Basloe

62

President, Chairman of the Board of DirectorsDavid Cunic

34

Chief Executive Officer, DirectorGregory Jung

46

Chief Financial Officer, DirectorBen Hoehn

32

Chief Operating Officer





With the exception of Ben Hoehn, who has held his position since September 2011, the persons named above have held their offices/positions since November 2010 and we expect them to hold their offices/positions at least until the next annual meeting of our shareholders.
  David M. Cunic - Chief Executive Officer, Director
 David Cunic is a member of various physical therapy and community service organizations and has been the owner and manager of DMC since its founding in 2006.  David has grown DMC from himself, as the only employee, to 23 employees in just over five years with sales reaching approximately $2 million per year. Educated with a Bachelor of Health Science and Master of Physical Therapy from the University of New England, David is highly trained in sports medicine, orthopedics, and manual therapy and has had the honor of working with prestigious doctors from numerous professional and Olympic sport teams.  In addition, prior to forming DMC, he has worked at inpatient facilities and has managed several outpatient orthopedic clinics.  Mr. Cunic periodically refines his knowledge and manual skills through workshops and continuing education seminars, but what makes him truly unique is his ability to relate to his patients, which is a result of receiving intensive physical therapy himself for four years.  David is a certified personal trainer and a licensed referee for the United States Soccer Federation. He was chosen to serve as the CEO and Chairman of the board of directors based on the fact that it was his vision and concept to create Pazoo, Inc.
  Steven Basloe - President, and Executive Vice President of Marketing/Sales, Chairman of the Board
 Mr. Basloe brings over three decades of sales and marketing experience and leadership to PAZOO, where he has developed the strategic plans and execution for advertising, sales, marketing and distribution. Since 1996, Mr. Basloe has served as the president of SMB Marketing Group – a full-service marketing firm that provides strategy, sales consulting, planning and creative production for brand development, marketing, advertising and promotions. At SMB, his key accomplishments have included the launch of a new division for Bertelsmann Home Entertainment; product/brand introductions for Samsung, McGraw-Hill, GoodTimes Home Entertainment, Thomas Regional Publishing, and Alfred Haber Distribution; as well as online brand development for S. Rothschild outwear and Rosco Vision Systems. He most recently developed the branding, product and marketing strategies for the rollout of a breakthrough tennis elbow device. For the 15 years prior to SMB, Mr. Basloe was a founding partner at Ericksen/Basloe Advertising, a leading, award-winning entertainment agency that grew an average of 20% a year through its offices in NYC and LA. The agency’s prestigious client base included several top movie studios: Warner Brothers, Disney, Paramount and Columbia Pictures. At EBA, Mr. Basloe developed the marketing, advertising and sales strategies for the launches of Turner Home Entertainment and Hanna Barbara Home Entertainment (through Worldvision Home Entertainment). Mr. Basloe also developed the multi-year, direct response campaign for Jack Nicklaus’s ‘Golf My Way’ video series. Previously, he was a member of the senior management team that launched Columbia Pictures Home Entertainment and made it into an industry leader. At Columbia, Mr. Basloe built a nationwide sales distribution network and led the team that branded the division and its individual product labels, and created the marketing, advertising and promotional programs for new product releases. Steven Basloe holds a Bachelor of Science degree (B.S.) and a Master in Business Administration in marketing (M.B.A.), plus a Juris Doctorate (J.D.), from Syracuse University.
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Gregory Jung – Chief Financial Officer, Director


Gregory Jung holds a Bachelor of Science degree from Michigan State University in Food Systems Economics and Management. Prior to his employment with Pazoo, Inc., he was president of Curtis Michael Management Corporation, a Phoenix, Arizona investor relations consulting firm, where he prepared research reports and presentation materials for small cap companies from December 2008 to November 2010. He was also a Director of Investor Relations from January 2008 to December 2008 at Christensen Investor Relations, a Scottsdale Arizona investor relations consulting firm. His responsibilities included the planning and implementation of all phases of client consulting with particular emphasis on program delivery of perception research (writing feedback studies), corporate messaging to the general public (drafting press releases and designing presentations), analyzing shareholder composition, and planning financial media and outreach services. From 2004 through 2007 he worked for SunAmerica, Sentra, and Spelman Securities (which later changed its name to AIG Financial Advisors) where he was a fixed income trader (2005-2007) and he performed supervisory transactional review of the firm's Offices of Supervisory Jurisdiction (2004-2005). He began his capital markets career in 1997 with experience spanning the areas of equity and fixed income trading, compliance, and supervision in the planning and delivery within client relationships. He has formerly held FINRA Series 4, 7, 24, 53, 55, and 63 licenses, although he has not been FINRA registered since December 2007. He was chosen to serve on the board of directors based on his capital markets experience and familiarity with investor relations procedures.
 
 Ben Hoehn – Chief Operating Officer
 Ben Hoehn has both a Bachelor and a Master of Science in Criminal Justice from the University of Cincinnati. He is currently the Chief Operating Officer for all 3 of DMC’s physical therapy and personal training facilities, in New Jersey as well as DMC's Nutritional Line. He has held this post since April 2010, managing its current staff, handling all day to day business operations and implementing new policies and procedures to ensure patient satisfaction. Prior to his work at DMC, from 2007 to 2010 he was employed in Cincinnati by Community Police Partnering Center, a non-profit organization that worked with the Cincinnati Police Department in crime and problem solving techniques. His duties included developing, extracting, and analyzing criminal data as well as providing technical and analytical assistance to all stages of the criminal problem solving process.
 
 Possible Potential Conflicts
 
 The OTCQB on which shares of our common stock is quoted does not currently have any director independence requirements.
 
 No member of management will be required by us to work on a full time basis. Accordingly, certain conflicts of interest may arise between us and our officers and directors in that they may have other business interests in the future to which they devote their attention, and may be expected to continue to do so although management time must also be devoted to our business. As a result, conflicts of interest may arise that can be resolved only through their exercise of such business judgment as is consistent with each officer's understanding of his fiduciary duties to us.
 
 Currently we have three officers and directors and will seek to add additional officer(s) and/or director(s) as and when the proper personnel are located and terms of employment are mutually negotiated and agreed, and we have sufficient capital resources and cash flow to make such offers.
 
 We cannot provide assurances that our efforts to eliminate the potential impact of any conflicts of interest will be effective.
 
 Code of Business Conduct and Ethics
 
 In January 1, 2011, we adopted a Code of Ethics and Business Conduct that is applicable to our future employees, concurrently with adopting a separate Code of Ethics for Principal Executive and Senior Financial Officers or persons performing similar functions. A code of ethics is a written standard designed to deter wrongdoing and to promote:
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●
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships●
full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the SEC and in other public communications made by the Company●
compliance with applicable governmental laws, rules and regulations●
the prompt internal reporting of violations of the Code of Ethics to an appropriate person or persons identified in the Code of Ethics; and●
accountability for adherence to the Code of Ethics.
 
 Copies of our Code of Ethics and Business Conduct and Code of Ethics for Principal and Senior Financial Officers were filed as Exhibit 99.2 of the Company’s Form S-1 filed with the Securities and Exchange Commission on November 18, 2011.
 
 Board of Directors
 
 Our directors hold office until the completion of their terms of office, which is not longer than one year, or until they have been reelected or their successor(s) have been elected. On November 16, 2013 each of our directors was reelected for a one year term. Therefore, our director’s terms of office expire on November 16, 2014. All officers are appointed annually by the board of directors and, subject to existing employment agreements (of which there is currently one), serve at the discretion of the board. Currently, directors receive no compensation for their role as directors but may receive compensation for their role as officers. In hope of attracting exemplary professionals, the company reserves the right to compensate outside directors when such outside directors are elected.
 
 Involvement in Certain Legal Proceedings
 
 During the past five years, no present director, executive officer or person nominated to become a director or an executive officer of us:
 
 (1) had a petition under the federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
 
 (2) was convicted in a criminal proceeding or subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
 
 (3) was subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any of the following activities:
 
 i. acting as a futures commission merchant, introducing broker, commodity trading advisor commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
 ii. engaging in any type of business practice; or
 
 iii. engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws; or






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(4) was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of an federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (3) (i), above, or to be associated with persons engaged in any such activity; or
 
 (5) was found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and for which the judgment has not been reversed, suspended or vacated.
 
 Committees of the Board of Directors
 
 Concurrent with having sufficient members and resources, our board of directors will establish an audit committee and a compensation committee. We believe that we will need a minimum of five directors to have effective committee systems. The audit committee will review the results and scope of the audit and other services provided by the independent auditors and review and evaluate the system of internal controls. The compensation committee will manage any stock option plan we may establish and review and recommend compensation arrangements for the officers. No final determination has yet been made as to the memberships of these committees or when we will have sufficient members to establish committees. See “Executive Compensation” hereinafter.
 
 Item 11. Executive compensation
 
 We will reimburse all directors for any expenses incurred in attending directors' meetings provided that we have the resources to pay these fees. At the current time we do not have officers and directors liability insurance. We will consider applying for officers and directors liability insurance at such time when we have the resources to do so.
 
 Summary Executive Compensation Table
 
 The following table shows, for the fiscal year ended December 2013 and the fiscal year ended December 31, 2012, compensation awarded to or paid to, or earned by, our Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer.
 
 Summary Compensation TableName

and

principal

position

(a)

Year

(b)

Salary

($)

(c)

Bonus

($)

(d)

Stock

Awards

($)

(e)

Option

Awards

($)

(f)

Non-Equity

Incentive

Plan

Compensation

($)

(g)

Nonqualified

Deferred

Compensation

Earnings

($)

(h)

All Other

Compensation

($)

(i)

Total

($)

(j)David Cunic,

2013

-

-

-

-

-

-

-

-CEO and Director

2012

37,500

-

-

-

-

-

-

-Steve Basloe,

2013

11,538

-

-

-

-

-

16,750(1)

28,288President and Director

2012

17,143

-

-

-

-

-



-Gregory Jung,2

2013

29,595

-

-

-

-

-

-

-CFO and Director

2012

51,692

-

-

-

-

-

-

-Ben Hoehn,

2013

2,308

-

-

-

-

-

-

-COO

2012

40846

-

-

-

-

-

-

-






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(1)
Steve Basloe earned $11,538 as a Pazoo employee and $16,750 as a 1099 consultant(2)
Mr. Jung signed an at-will employment contract in June 2012 with no specified term.
 
 We have no outstanding equity awards at fiscal year-end 2013.
 We have no formal employment arrangement with our Directors and their compensation has not been fixed or based on any percentage calculations. Our Directors will make all decisions determining the amount and timing of their compensation and, for the immediate future, will not receive any compensation. Our Directors compensation amounts will be formalized if and when their annual compensation exceeds $50,000.
  Item 12. Security Ownership of Certain Beneficial Owners and Management
 
 The following table sets forth the beneficial ownership of our common stock by each executive officer and director, by each person known by us to beneficially own more than 5% of our common stock and by the executive officers and directors as a group. Except as otherwise indicated, all shares are beneficially owned directly and the percentage shown is based on 101,409,500 shares of common stock issued and outstanding, as of December 31, 2013.
  Title of class

Name and address of beneficial owner

Amount of beneficial ownership


Percent of classCommon

David Cunic


15,000,000



14.8
%13 Old Mill DriveDenville NJ 07834Common

Steve Basloe


15,000,000



14.8
%

(1)560 Sylvan AvenueEnglewood NJ 07632Common

Gregory Jung


12,500,000



12.3
%2620 Sand Arbor Circle,

Orlando, FL 32824Common

Ben Hoehn


2,500,000



2.5
%

(2)496 Mayhew CourtSouth Orange NJ 07079Common

Total Beneficial Ownership


101,409,500



100.0
%
 (1)
Mr. Basloe's beneficial ownership includes 1,000,000 shares of stock issued in the names of his four children at his request and direction.(2)
Ben Hoehn is the Chief Operating Officer and replaced Gina Morreale as Secretary and Treasurer in September 2011






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As of December 31, 2013, shares of the Company's common stock was issued and outstanding was 101,409,500.
  As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date.
 
 The persons named above have full voting and investment power with respect to the shares indicated. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a "beneficial owner" of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security.
  Item 13. Certain Relationships andRelated Transactions, and Director Independence
  Steve Basloe has an equity ownership interest in Pazoo and is the Chairman of the Board and the President of Pazoo. He is also the owner of SMB Marketing. SMB Marketing signed a consulting agreement with Pazoo in June 2013 to create strategy and execute against this plan to roll out the design and production of Pazoo.com and the content for Pazoo.com. The agreement is for a term of two years and requires weekly compensation of $1,000. During the year ended December 31, 2013, he received $16,750 in relation to this agreement.
  In April 2012 Pazoo entered into a consulting agreement with DMC Athletics & Rehabilitation, Inc. (DMC) to render such advice, consultation, information, and services to the Directors and/or Officers of Pazoo regarding general business and marketing matters including, but not limited to the following: advice on structure of the organization, organization of sales team, prospecting new partners/vendor relationships and clients, and positioning of Pazoo into promotional and healthcare marketing, whether through Pazoo’s website (www.Pazoo.com), or by some other means, as well as professional physical therapy sessions performed by David M. Cunic (at that time an equity owner of DMC and an equity owner of Pazoo and is a Board Member and the CEO of Pazoo) for, or on behalf of, Pazoo. DMC and Pazoo mutually agreed to terminate the consulting agreement in November 2012.
  In October 2012 Pazoo entered into a binding letter of intent for the acquisition of DMC. Pazoo extended the Letter of Intent until June 30, 2013 to afford DMC an opportunity to recover from the business losses suffered by DMC due to Superstorm Sandy.
  Gina Morreale was previously employed as Secretary/Treasurer for Pazoo and was concurrently employed by ICPI, a Series A Convertible Preferred Stock holder. In September 2011, Ben Hoehn assumed the role of Chief Operating Officer and replaced Gina Morreale as Secretary/Treasurer. Since that time Gina Morreale had no affiliation with Pazoo other than being a shareholder.
  Item 14. Principal Accounting Fees and Services
  Malone & Bailey fees – audit only: $16,000.
  PartIV
  Item 15. Exhibits and Financial Statement Schedules
  EXHIBIT

NUMBER

DESCRIPTION
 31.1

Certification of David Cunic, Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 193431.2

Certification of Gregory Jung, Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 193432.1

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 200232.2

Certification of Gregory Jung, Chief Financial Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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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.
  
 
 March 31, 2014
PAZOO, INC./s/ David M. CunicDavid M. CunicChief Executive OfficerMarch 31, 2014
PAZOO, INC./s/ Gregory JungGregory JungChief Financial Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 38