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 audited financial statements for the periods specified and the related notes included herein.






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This report on Form 10-K contains terminology referring to Pazoo, Inc., such as "us," "our," and "the Company."

Management intends the following discussion to assist in the understanding of our financial position and our results of operations for the years ended December 31, 2017 and December 31, 2016

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

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 company offering laboratory testing as it specifically relates to marijuana and the testing of marijuana to ensure quality and safety for the consumer through our 30% equity level investee.

Our principal executive offices are located at 34 DeForest Ave, Unit 9, East Hanover NJ 07936. Our telephone number is (855) PAZOO-US. Our internet address is www.pazoo.com. Any information on the Company's website is not intended to be incorporated into this Report.

On or about April 8, 2014, Pazoo moved into the pharmaceutical testing space with the acquisition of MA & Associates, LLC, a Nevada limited liability company formed with the purpose of opening a cannabis testing laboratory based in Las Vegas, Nevada to be branded under the Steep Hill Labs name. Harris Lee Holdings, LLC was formed, as a Nevada limited liability company, on or about July 23, 2014 and was formed to hold a License from Steep Hill Labs, Inc. for cannabis testing protocols and the use of the Steep Hill Labs name.

The Company, due to the uncertainties surrounding the license agreement and the efficacy of the testing protocols provided, impaired 100% of the value of the Steep Hill Labs licenses due to the purported unsubstantiated termination of the license agreements in June 2016 between Steep Hill Labs and MA & Associates, LLC and Harris Lee, LLC respectively. The Company strongly believes that any attempted termination of the licenses on the part of Steep Hill Labs was ineffective for many reasons, including, without limitation, Steep Hill's failure to provide key deliverables including technology, scientific know-how and lab guidance. On July 6, 2016, the Company contested the improper attempted termination of the licenses which was based on no identifiable contractual justification, and to which Steep Hill has not formally responded.

In regard to MA & Associates, LLC,the company passed its ISO 17025 accreditation and received its ISO Laboratory Certification in September of 2019. MA & Associates also passed its annual rigorous inspection by the State of Nevada's team of State inspectors in November of 2019. The lab is fully staffed and operational and is fully licensed to accept both recreational and medical cannabis samples for testing in Nevada.

On November 22, 2017, the Company entered into a Limited Liability Membership Interest Purchase Agreement (the "Agreement") to sell a 70% Membership Interest for the aggregate sales price of One Million Five Hundred Twenty-Three Thousand Seven Hundred Sixty-Seven and no/100 United States Dollars ($1,523,767) in the following manner: (i) Four Hundred Ninety-Two Thousand Two Hundred Twenty-Seven and 30/100 United States Dollars ($492,227); and (ii) One Million Thirty-One Thousand Five Hundred Thirty-Nine and 70/100 United States Dollars ($1,031,539), in the form of retirement of the loans extended by the Buyer as designated by Buyer in Buyer's sole and absolute discretion, including applicable interest, default interest, late charges, and other obligations accrued in respect thereof. The Agreement also contained an option to purchase an additional 10% interest within 18 months. The option has subsequently been extended to November 22, 2020. The remaining 30% interest was fair valued at zero as of the transaction date of November 22, 2017.

Liquidity, Capital Resources and Going Concern

As of December 31, 2017 and December 21, 2016, the Company had cash and cash equivalents of $73,387 and $88,909 respectively. As of December 31, 2017, we had a working capital deficit of $9,824,496.

The Company has no agreements, arrangements or understandings with any officer, director or shareholder as to any future financing, either equity or debt. In view of general economic conditions, there can be no assurance that any additional financing will be available to us, that any affiliate will provide additional investments in the Company or that adequate funds for our operations will otherwise be available when needed or on terms acceptable to us.






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Cash used in operating activities during the year end 2017 was ($904,987) compared to cash used of ($928,085) during the year end 2016. This resulted from a net loss of $3,544,617 in the year end 2017 and $8,795,474 in 2016. The Company continued to have net cash flow used in operations for the year ended December 31, 2017 and 2016, primarily as a result of continued net losses and no significant revenue to cover operating expenses.

Net cash provided by financing activities for the years ended December 31, 2016 and December 31, 2017 was $1,000,175, and $889,465 respectively. At December 31, 2017, our principal source of liquidity had been funded primarily through the borrowings on convertible notes and preferred stock offset by repayment of convertible notes in the period.

Net cash used in investing activities for the years ended December 31, 2016 and December 31, 2017 was $0, and $0, respectively. The lack in investing activities was due to the Company focusing its resources on the current testing laboratories.

The company raised $1,356,433 under various loans, convertible loans and advances during 2017, to support operations. As of the issuance of these financial statements, a total of $1,072,773 has been repaid, retired, or converted.

Subsequent to year end, the company entered into a Bridge Loan in the aggregate amount of $150,000 whose proceeds are to be used to get the Company's SEC filings up to date.

The financial statements included in this report have been prepared in conformity with generally accepted accounting principles that contemplate our continuance as a going concern. The Company has had no revenues and has generated losses from operation. As set forth in Note 2 to the audited Financial Statements, the continuation of the Company as a going concern is dependent upon the Company obtaining adequate capital to fund operating losses until it becomes profitable, if ever. The financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company does not have sufficient cash for the next 12 months from the issuance of these financial statements.

Critical Accounting Policy and Estimates

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.





Stock Based Compensation

We follow ASC 718 "Compensation - Stock Compensation" which 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." 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. To date, the Company has not issued any stock options, but has issued common stock to non-employees for services.






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Fair Value of Financial Instruments

We follow ASC Topic 820, Fair Value Measurement, to measure certain financial instruments. The fair value of our long-term debt is determined by using estimated market prices. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

Level 1: Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level 2: Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are not active near the measurement date.

Level 3: Inputs include management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument's valuation.





Derivatives

We follow ASC Topic 815, Derivatives and Hedging, to evaluate our 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.

Impairment of Long-Lived Assets

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





Equity Method Investments

We apply the equity method of accounting to investments when we have significant influence, but not controlling interest in the investee. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company's proportionate share of the net income (loss) resulting from these investments is reported under the line item captioned "equity method investment (loss) income" in our Statements of Operations. The carrying value of our equity method investments is reported in equity method investments in the Balance Sheets. The Company's equity method investments are reported at cost and adjusted each period for the Company's share of the investee's income or loss and dividend paid, if any. The Company classifies distributions received from equity method investments using the cumulative earnings approach on the Statements of Cash Flows. The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable.

Comparison of Fiscal Years Ended December 31, 2017 and 2016

Revenues. Revenues were $30,515 for the year ended December 31, 2016, compared to $0 for the year ended December 31, 2017, a decrease of $30,515. As of December 31, 2016, revenue has discontinued from the management fees derived from the cannabis laboratory in Denver, Colorado and the Company does not have any plans to re-open the facility in the near future.

Operating Expenses. Operating expenses consisted of the following expenses: selling, general and administrative expenses; professional fees; and impairment of licenses. Total operating expenses were $4,482,997 in the year ended 2016, compared to $2,152,641 in year ended 2017. Selling, general and administrative (SG&A) expenses were $2,278,768 in 2016 compared to $1,600,848 in 2017, a decrease of $677,920. The decrease in SG&A was due to a decrease in spending on marketing expenses, and the conversion premium fee. SG&A expenses were mainly comprised of branding and public relations, marketing and advertising, and payroll. Professional fees were $664,022 in the year ended 2016, compared to $551,793 in the year ended 2017, a decrease of $112,229. The decrease in professional fees was due primarily to the decrease in investor relations. The Company also had a loss of impairment of $0 during year ended 2017 compared to a $1,540,207 impairment during year ended 2016, as no impairment occurred in 2017.






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Other Expenses. For the year ended December 31, 2016, other expense was $4,342,992 mostly from the following factors; $2,430,259 from a gain on debt extinguishment $2,959,548 for interest expense, and $3,827,703 loss on derivative liabilities. For the year ended December 31, 2017, other expenses were $1,391,976 primarily from loss on debt extinguishment of $624,690, interest expense of $1,212,268 and loss on derivative liabilities of $2,371,599. On November 22, 2017, the Company entered into a Limited Liability Membership Interest Purchase Agreement to sell a 70% Membership Interest of MA & Associates for the aggregate sales price of $1,523,767 of which $1,031,539 was in the form of retirement of the loans extended by the Buyer as designated by Buyer in Buyer's sole and absolute discretion, including applicable interest, default interest, late charges, and other obligations accrued.

Net loss. The net loss was $8,795,474 for the year ended December 31, 2016, compared to net loss of $3,544,617 for the year ended December 31, 2017.





Subsequent Events

The company issued an aggregate of 2,074,969,990 common shares to debt holders valued at a total of $163,431 for conversions pursuant to convertible notes.

In February 2018, the Company entered into one convertible note agreements for a total of $28,500. The interest rate is 12% and the conversion term is a 45% discount to market over the prior 20 days.

In November of 2019, the Company issued 1,090,000 Series B preferred stock in exchange for services to Board Members and milestones hit in ramping up the testing lab under MA & Associates LLC.

In May of 2019, the Company issued 1,140,000 Series C preferred stock in exchange for a Bridge Loan of $150,000 and the settlement with Ms Eveland.

The company entered into Bridge Loans in the aggregate amount of $150,000 whose proceeds are to be used to get the Company's SEC filings up to date. The Bridge Loans, each of $75,000, carry an interest rate of 6% and the conversion term is as follows: the loans can be turned into a convertible note whereby $115,000 worth of common stock will be issued as payment in full or the loan will be paid back with monies from the revenue of the testing lab in Las Vegas after it has generated more than $1,500,000 in said monies after expenses. As of May 2018, Pazoo, Inc. entered into a settlement with Ms. Eveland in the amount of $5,000 cash and 40,000 Series C Preferred Shares of stock valued at $1,200 at the time of issuance. As of the current date, the Company has completed its obligation of the settlement agreement.

In June 2020, the Company sold the remaining 10% equity interest from the November 22, 2017 Membership Interest Agreement in MA & Associates for an aggregate total of $226,388. The total amount was in the form of retirement of the loans extended by the Buyer as designated by Buyer in Buyer's sole and absolute discretion, including applicable interest, default interest, late charges, and other obligations accrued. The Company still maintains a 20% equity interest in MA & Associates.

The Global COVID-19 Pandemic Could Adversely Affect Our Business Operations. The Company, including its 30% equity investee, MA & Associates LLC, could be adversely affected by the worldwide Covid-19 pandemic in, among others, the following ways: (i) Travel and tourism disruptions in Nevada and specifically, Las Vegas, could affect the demand for cannabis which in turn could affect current efforts to ramp up operations and become cash flow positive; (ii) Cannabis, and cannabis derived products, could experience production interruptions due to infected workers that could in turn affect the demand for MA's testing services; (iii) If dispensaries are forced to close or scale back sales due to the pandemic, and/or experience disruptions in staffing, that could also disrupt MA's business and its ability to collect on accounts receivable; (iv) Any disruption in the supply chain of critical supplies needed to perform testing could interrupt the processing of test samples; and (v) In a highly regulated and specialized industry such as the testing of cannabis products, the extended absence of any key employee due to illness could cause a delay or suspension of testing. As of the date of this report, none of the aforementioned has occurred.





Off-Balance Sheet Agreements

None noted.

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