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Alan Brochstein, CFA
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Alan Brochstein, CFA has worked in the securities industry since 1986, primarily with the responsibility for managing investments in institutional environments until he founded AB Analytical Services in 2007 in order to provide independent research and consulting to registered investment... More
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  • Why Pazoo May Move To New Lows

    SUMMARY

    • Pazoo has seen a massive expansion of its outstanding shares and will soon triple the authorized shares.
    • In addition to using convertible notes with no floors (toxic financing), the company funds with convertible preferred stock.
    • The company recently sold preferred stock that converts to 144mm shares at just $0.00157 per share, a financing that will likely pressure the stock.

    On 7/24, Pazoo, Inc. (OTCPK:PZOO) filed another preliminary proxy in advance of a dramatic boost to its authorized shares. The company is raising its common share authorization by almost 2 billion to 2.95 billion from 0.98 billion. It is also increasing its preferred stock authorization from 20mm to 50mm. Investors should be aware that some of these securities are convertible.

    The dilution so far in 2015 has been extraordinary, as the company had 193mm shares at year-end, up from 101mm at the end of 2013, but now reports over 660mm as of 6/22. Part of the reason for the boost in the authorized shares is to cover shares reserved for potential issuance to holders of convertible notes. The preliminary proxy lists seven different entities that have loaned the company $799K, requiring a reserve of over 600mm shares. These loans are all due in less than a year and cost 8-12% in interest costs.

    (click to enlarge)

    In addition to extensive liquidity challenges that could lead to further share issuance if the company doesn't generate enough cash to pay its debt, the float faces a bigger near-term challenge. Since its inception as a public company, PZOO has been relying upon financing provided by James Farinella of Integrated Capital Partners, Inc. (ICPI). Farinella provides money to the company in exchange for convertible preferred stock (Series A). At the end of the first quarter, the company had 1.478526mm shares outstanding, up from 1.203526mm at year-end. The terms of conversion are 100 shares to 1, so this represented a potential addition of almost 148mm common shares.

    As detailed in its Q-1 10-Q filing, the company reported $435K of conversions (into 43.5mm shares) after the end of the quarter. It also issued another 1.4375mm Preferred A for just $225K. THIS IS A RED FLAG, as the price is just $0.00157 per share on a converted basis. The company has progressively lowered the price to Farinella, from $0.0100 (last year), to $0.0040, to $0.0020 (both in February) and now just $0.0016. In other words, Farinella can make a return of 100% if he converts and sells at $0.0032, a 47% discount to the current price. The all-time low in early March was exactly twice Farinella's newest conversion price of $0.0020.

    The chart reflects the tremendous dilution in 2015 that has pressured the stock:

    (click to enlarge)

    Earlier this month, the stock traded at an all-time high volume following the release of three different press releases and two interviews in the course of a 24-hour period. PZOO remains one of the most promotional companies on the OTC (seewww.stockpromoters.com for more details). Unfortunately for the company, investors are no longer reacting positively to these promotions.

    One final concern that hasn't been addressed publicly is the set of incentives provided to CEO David Cunic. In 2014 he earned a salary and bonus of just $27,250. His entire equity exposure is limited to just 15mm shares (currently valued at $90K). Cunic works hard, but why?

    PZOO has several potential near-term drivers, most of which have seen delays. The company is still finalizing the purchase of the Colorado Steep Hill Labs, is awaiting the opening of the Nevada market and is in site selection for its Oregon facility. The company is likely to face severe pressure financially absent revenue and cash flow generation, as it will be forced again to let its multiple convertible note holders convert over the next year should it not be able to pay off the principal. The recent issuance of effectively 22% of its current shares outstanding at just $0.00157 (through the convertible preferred) is a red flag and a likely harbinger of a drop to a new low.

    Tags: PZOO, cannabis
    Jul 27 8:01 AM | Link | Comment!
  • 420 Investor Presents A 10-Q Walk-Through

    This is the first in what I hope will be a series of educational videos to demystify SEC filings. Separate yourself from the pack and learn to pull the important information from these required disclosures rather than relying solely upon what they want you to read (their press releases!).

    In this 32 minute video, I extend upon the educational series " Basics by Brochstein " from 2014 and explain the key attributes of the 10-Q filing, a quarterly obligation to the SEC by companies that report to it. I cover:

    • Where to find the 10-Q
    • What to look for
    • Why it is important

    Watch the Video

    May 24 5:04 PM | Link | 2 Comments
  • 420 Investor Newsletter - Just $49 For A Year

    As I get ready to go to press with what will be my 9th edition of the 420 Investor Newsletter (with discussions of my recent trip to Canada to visit marijuana production facilities, my outlook for Nevada-based testing labs and the issues surrounding "CBD-only" laws), I want to offer people interested in the cannabis industry and in learning about the investment risks and opportunities a chance to get into our community at an insanely low price (Memorial Day special - $49 instead of $99). VIP members of 420 Investor pay $42 a month or $420 per year for full access to our community, which includes the newsletter but also many other features, but you might not be quite ready to make that investment of time or the expense. I began offering the 420 Investor Newsletter last year to help people who are curious about the risks and opportunities but are not yet ready for the steady flow of information shared within our community on a daily basis.

    Whether you don't think the market is quite ready for you to commit to the 420 Investor VIP subscription or you just aren't ready yet, there is no better way to keep your finger on the pulse of the market than with the 420 Investor Newsletter. Just $49 for the year (about $4 per month) gets you:

    • Market Review and Outlook
    • 3 Feature Articles on the industry and the companies
    • Performance Summary
    • Industry Calendar
    • Company Updates

    If that's not enough, I am including access to our highly valuable "Forums" that allow you to keep up on a variety of topics and companies and even upload your own content. Through at least 8/31/15, I am giving subscribers to the 420 Investor Newsletter access to this valuable tool. You will also get the popular "Daily Dab" delivered into your inbox with no advertisements.

    Get the 420 Investor Newsletter for just $49 for the first yearSUBSCRIBE
    May 23 4:51 PM | Link | 3 Comments
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