Today, Pazoo, Inc. (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.
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.
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 ...