UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-55550
| CSA HOLDINGS, INC. |
| (Exact name of registrant as specified in its charter) |
| Nevada | 68-0683334 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 4704 Harlan Street, Suite 100, Denver, CO | 80212 | |
| (Address of principal executive offices) | (Zip Code) |
(720) 536-5824
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 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 o No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Ruble 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| Non-accelerated filer | ¨ | 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
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of November 7, 2017 was approximately $4,400,000.
The number of shares of the registrant’s common stock issued and outstanding was 158,812,216 as of November 7, 2017.
Explanatory Note
CSA Holdings, Inc. (“CSA,” or “Company”, “we,” “us” or “our”) is filing this Restated Comprehensive Annual Report on Form 10-K/ A for the fiscal year ended December 31, 2016 (this “Annual Report”) as a result of an inadvertent filing without final proofing. The changes to not rise to the level of restatement of the financial statements and are more in the nature of typing and proofing errors
DOCUMENTS INCORPORATED BY REFERENCE
None.
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FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. The Securities and Exchange Commission (the “Commission”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. Factors that could cause our actual results of operations and financial condition to differ materially are discussed in greater detail under Item 1A, “Risk Factors” of this annual report on Form 10-K.
We caution that the factors described herein and other factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
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The Company
CSA Holdings Inc. (“we,” “us,” or the “Company”) was incorporated in Nevada in 2013 and provides comprehensive security systems and services catering to businesses in the legalized cannabis (“marijuana”) industry.
We provide comprehensive security solutions to businesses in the legalized cannabis industry throughout the country. We have expanded our operations, and expect to continue to expand, as more and more states legalize both medical and recreational marijuana. As of the date of this report, marijuana sales, distribution, and use is still against federal laws in the United States.
Services
Security is a primary concern for licensed cannabis businesses and the state regulators who oversee each program. Permitted facilities must adopt strong security systems to protect their businesses and comply with regulations. These businesses maintain valuable inventories onsite, and typically also have significant cash holdings since transactions are often conducted in cash. Facilities are exposed to theft both from outsiders and employees. In addition, business operators in all legal cannabis states must show regulatory agencies that security systems carefully protect inventories and transactions. Failure to do so could not only result in large losses, but also threaten businesses’ operating permits and force closure. In Colorado and other states, the legalized cannabis use laws require “on-premise” security to control and enforce the age restrictions and regulations.
We provide effective security solutions to cannabis businesses, including installations of alarms, door access systems, video cameras, security system design and consulting, and on-site and transportation guard services. All systems and services are designed to meet individual state regulatory requirements.
Security Systems
Our security system solutions include equipment and services for customer installations. Our core existing products and services include the following:
|
| · | Video surveillance/ systems |
|
| · | Intrusion alarm systems |
|
| · | Perimeter alarm systems |
|
| · | Access control |
|
| · | Security consulting |
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Guard Services
We offer armed and unarmed security guards, armored transport services, site risk assessments and consulting services. We have made significant investments in armored vehicles, state security licenses and highly trained armed staff in anticipation of transporting cash to the Federal Reserve as well as other growth opportunities.
Our physical security solutions include the following:
|
| · | Armed and unarmed guards |
|
| · | Armored transport |
|
| · | Executive protection |
|
| · | Background checks |
|
| · | Risk assessment |
Cannabis Industry
As of the date of this report, more than 30 U.S. states, and the District of Columbia, have some form a legalized marijuana, primarily known as medical and/or recreational use. If current trends continue, we expect that all states will have some form of legalized marijuana which will likely result in the reversal of federal prohibition.
To date, on a Federal United States level, marijuana has been classified as an illegal substance despite its lack of challenges and enforcement. In a 2013 memorandum from James Cole, the U.S. Deputy Attorney General at the time, stated that federal enforcement agencies are unlikely to enforce Federal laws in states where marijuana has been legalized, particularly where the regulation and control is functional.
Despite the proposed leniency on the state level, Federal prohibition has led to various impediments, the most prominent being the inability to make bank deposits normally available to other industries within the United States.
The Market
The market itself is broken into two categories, consumers and businesses. Consumers are those that are permitted to use marijuana for medicinal purposes and who have obtained recommendations from physicians for medical conditions that qualify under certain guidelines. In addition, several states have approved the recreational consumption of cannabis for adults over the age of 21. These states include Colorado, Washington, Oregon, California, Alaska, Nevada, Maine, Massachusetts, and the District of Columbia.
As a result, several newly legalized businesses, have the ability (on a state level) to cultivate, process, and distribute marijuana. Also included in the industry are companies that do not directly handle marijuana products (ancillary services), but benefit from the industry, ie. equipment manufacturers, insurance companies, lenders, etc.
Current legalization trends point to more states legalizing marijuana use on a medical and recreational level. Industry analysts, GreenWave Advisors and the ArcView Group, estimated the industry was worth $4.8 billion and $5.4 billion, respectively in 2015. GreenWave estimated the cannabis industry would hit $6.5 billion in 2016, while ArcView’s report projects $6.7 billion. Both research groups estimate the industry will surpass $20 billion by the year 2020. Separate data from industry watcher Marijuana Business Daily projects the industry’s economic impact could surpass $40 billion in the next five years, up from an estimated $17 billion in 2016.
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The Opportunity
Legal cannabis businesses operate facilities for the cultivation, processing/infused products manufacturing, the wholesale distribution of cannabis products and retail distribution of cannabis products. Cultivation sites may operate indoors with the use of artificial light, or outdoors in the open air or inside greenhouses. Processors include operations that trim and package raw marijuana flowers for sale, as well as businesses that extract oils from raw marijuana to produce cannabis-related consumable products. Distribution facilities include medical marijuana dispensaries serving patient populations, as well as cannabis retailers in states with recreational marijuana laws. Some legal cannabis facilities combine groups of these operations. We believe all facility types require security services to protect against theft, and in many cases to comply with regulatory requirements. Thousands of cannabis facilities currently comprise our market. We target businesses in states in which the consumption of cannabis has been legalized.
Sales and Marketing Strategy
Growth within states with various forms of legalized cannabis, in addition to new states coming online and the expansion of cannabis programs in mature markets, are expected to increase the overall market in the United States. Expanded state regulatory approvals that permit larger patient bases for medical cannabis and recreational cannabis use, implies substantial expansion potential beyond near term market opportunities. In addition, Canna Security is now seeing expansion of its existing customer base in places across the United States. We will continue new strategic market penetration in existing states and new states as new laws are passed.
States with various forms of legalized cannabis consumption, require tight security and compliance with rules established by industry oversight agencies. We believe that our experience with compliance in multiple states and municipalities provides a significant competitive advantage when serving businesses in new markets.
The cannabis industry is expanding not only in terms of the number of states with cannabis laws, but also in the scope of business transactions allowed under state regulations. It is likely that all states that are legalized will have a greater consumption, paving the way for additional permits.
We expect to expand operations through the acquisition of new customers in the growing cannabis market both by entering new states and capitalizing on the growth of large customer bases in Colorado, Washington, Nevada, Florida, Pennsylvania and California. We are positioning our armored vehicle services to play a significant role in the overall growth of our Company, both short and long term. This will be accomplished in large part by recently sponsored approval to deliver currency to the Federal Reserve. This will require us to expand our management staff and vehicles.
Following our acquisition of Big Al’s and Precision Operations Group in August 2016, we have expanded our security services outside of the cannabis industry to include a full range of security services such as personal security for high-profile individuals, to full-time around the clock armed protection, event security, executive protection, identity verification, and on-site security. Our strategy is primarily focused on the addition of sales and marketing personnel to accelerate our sales growth across the country.
Employees
As of the date of the report, we employ over 75 full time employees in addition to a variety of independent contractors we hire for specific projects. We have no labor union contracts and believe relations with our employees are satisfactory.
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Competition
We have positioned ourselves as an innovative security firm that offers dependable services. We compete with, what we believe to be, other security firms of similar size and a variety of smaller, local security companies. Certain of these security providers are larger than we are and have greater financial resources than we do. We believe we can compete effectively with our competitors on the basis of our favorable reputation for outstanding reliability, customer service and satisfaction. There is no assurance, however, that our ability to our services successfully will not be impacted by competition that now exists or may later develop.
Government Regulation
Marijuana is categorized as a Schedule I controlled substance by the Drug Enforcement Agency and the United States Department of Justice and is illegal to grow, possess and consume under Federal law. A Schedule I controlled substance is defined as a substance that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. The Department of Justice defines Schedule 1 controlled substances as “the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence.” However, since 1995, most states and the District of Columbia have passed state laws that permit medical or recreational cannabis. This has created an unpredictable business-environment for dispensaries and collectives that legally operate under state-laws but in violation of Federal law. On August 29, 2013, United States Deputy Attorney General James Cole issued the Cole Memo to United States Attorneys guiding them to prioritize enforcement of Federal law away from the cannabis industry operating as permitted under state law, so long as:
|
| ● | cannabis is not being distributed to minors and dispensaries are not located around schools and public buildings; |
|
| ● | the proceeds from sales are not going to gangs, cartels or criminal enterprises; |
|
| ● | cannabis grown in states where it is legal is not being diverted to other states; |
|
| ● | cannabis-related businesses are not being used as a cover for sales of other illegal drugs or illegal activity; |
|
| ● | there is not any violence or use of fire-arms in the cultivation and sale of marijuana; |
|
| ● | there is strict enforcement of drugged-driving laws and adequate prevention of adverse health consequences; and |
|
| ● | cannabis is not grown, used, or possessed on Federal properties. |
The Cole Memo is meant only as a guide for United States Attorneys and does not alter in any way the Department of Justice’s Federal authority to enforce Federal law, including Federal laws relating to cannabis, regardless of state law. We believe and have implemented procedures and policies to ensure we are operating in compliance with the “Cole Memo”. However, we cannot provide assurance that our actions are in full compliance with the Cole Memo or any other laws or regulations.
While initially it was difficult for us to access the banking system it has become easier with less stringent interpretations of the Cole memo. Our banks have requested information through questionnaires based on the Cole memo and we believe the banks have realized that our participation in the marijuana industry is limited by the amounts of marijuana that our employees are exposed to and the vendors that we pay.
Our current understanding of federal cannabis law enforcement effectively indicates that it is not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. However, there is no guarantee that federal enforcement will not change from low-priority. Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to us. While we do not intend to harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement by the Federal or state governments.
Corporate History and Key Transactions
We were incorporated in Nevada on June 12, 2013 under the name Asta Holdings, Corp. and, prior to our merger with Canna Security in September 2015, were engaged in yacht maintenance and repairs and refurbishing in the Russian Federation. We changed our name from Asta Holdings, Corp. to CSA Holdings, Inc. effective July 9, 2015.
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Acquisition of Canna Security and Private Placement Funding
Effective March 25, 2015 (the “Effective Date”), we entered into a merger and exchange agreement (the “Agreement”) with CSA Acquisition Subsidiary, LLC (the “Acquisition Subsidiary”) and CSA LLC (“Canna Security”). The Agreement was subsequently amended on June 30, 2015 (the “First Amendment”) and August 17, 2015 (the “Second Amendment”). We closed the transaction contemplated under the Agreement (the “Merger”) on September 4, 2015 and Acquisition Subsidiary merged into and with Canna Security, and Canna Security, as the surviving limited liability company, became a wholly-owned subsidiary of the Company.
Pursuant to the terms and conditions of the Agreement, the members who collectively owned 100% of the issued and outstanding units of Canna Security immediately prior to the closing of the Merger exchanged their units for shares of our common stock. In addition, pursuant to terms of the Agreement and immediately prior to the closing of the Merger, the former shareholders agreed to cancel approximately 103,000,000, resulting in a net recapitalization common stock issuance of 30,196,272 shares.
Up to, and through the closing of the Merger on September 4, 2015, we issued to 17 accredited investors, (the “September Private Placement”), 908,853 shares of our 5% Series A Convertible Preferred Stock (the “Series A Preferred”) at an original issue price of $1.00 per share (the “Stated Value”). Of the Series A Preferred shares issued on September 4, 2015, previously outstanding notes payable with a principal balance of $460,500 and accrued interest of $19,353 converted at the Stated Value.
Amended and Restated Articles of Incorporation
We amended and restated our articles of incorporation effective as of July 9, 2015 (the “Amended and Restated Articles”) to:
|
| (1) | Change our corporate name from ASTA HOLDINGS CORP. to CSA HOLDINGS INC.; |
|
| (2) | Increase the number of authorized shares of common stock, $0.001 par value from 75,000,000 to 500,000,000; |
|
| (3) | Create a class of preferred stock consisting of 20,000,000 shares, 2,000,000 of which are designated as Series A Convertible Preferred, $0.001 par value per share and the designations and attributes for the remaining 18,000,000 shares of preferred stock are left for future determination by our board of directors; |
|
| (4) | Effect a one (1) for 13.8 forward stock split (the “Forward Split”) of the authorized and issued and outstanding shares of its common stock, par value $0.001 per share; |
|
| (5) | Provide that the provisions of Nevada Revised Statutes §§ 78.378 to 78.3793 inclusive, are not applicable to the Company; and |
|
| (6) | Include indemnification provisions. |
All references to shares of our common stock in this report on Form 10-K refers to the number of shares of common stock after giving effect to the Forward Stock Split (unless otherwise indicated).
Change of Control
Effective March 25, 2015 (the “Effective Date”), Asta Holdings Corp. (n/k/a CSA Holdings Inc.) entered into a merger and exchange agreement (the “Agreement”) with CSA Acquisition Subsidiary, LLC (the “Acquisition Subsidiary”) and CSA LLC (“CSA”). The Agreement was subsequently amended on June 30, 2015 and August 17, 2015. Upon the closing of the transaction contemplated under the Agreement (the “Merger”), Acquisition Subsidiary merged into and with CSA, and CSA, as the surviving limited liability company, became a wholly-owned subsidiary of the Company. The Merger closed as of September 4, 2015.
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On August 5, 2016, we entered into an amended and restated settlement agreement (“Settlement Agreement”) with Daniel Williams, our former Chief Executive Officer and member of our Board of Directors. The settlement agreement provided for a cash payment of $575,000 to us to settle a dispute related to an Internal Revenue Service (“IRS”) administrative action against us and Mr. Williams for federal taxes owed to the IRS by the Company. The cash paid to the Company was used to satisfy the IRS administrative action at a cost of approximately $250,000, not including any additional interest and penalties. We used the remaining cash for working capital purposes. The Company and Mr. Williams also agreed to a mutual release of claims.
On August 5, 2016, three purchasers (“Purchasers”), entered into stock purchase agreements to acquire an aggregate of 50,000,000 shares of restricted common stock of the Company (“Shares”) owned by Mr. Williams for an aggregate purchase price of $700,000. The Purchasers consisted of (1) Emil Assentato who purchased 43,571,429 of the Shares, (2) Silvestro Spilabotte, Jr. who purchased 2,142,857 of the Shares, and (3) 15E 30 West Street, LLC who purchased 4,285,714 of the Shares. The source of the funds for the consideration paid by Purchasers was personal funds with respect to Mr. Assentato and Mr. Spilabotte, Jr. and equity contributions from investors in 15E 30 West Street, LLC. Upon purchase of the Shares, Purchasers beneficially owned approximately 50.19% of the voting securities of the Company as of August 5, 2016.
Acquisition of Big Al’s and Precision Operations Group’s Assets
On July 26, 2016, our wholly owned subsidiary CSA, LLC (the “Buyer”) entered into an asset purchase agreement (“Agreement”) with Big Al’s Security Team, LLC, BAST Oregon, LLC, BAST Arizona, LLC, Precision Operations Group, Inc. and Precession Operations Group SHS, LLC (collectively referred to herein as the “Sellers”) and closed the transaction on August 18, 2016. The Agreement provided for a cash payment of $350,000 to the Sellers and issuance of 12,000,000 shares of restricted common stock of the Company and an earn-out of up to $100,000 in cash and an additional 4,000,000 shares of restricted common stock of the Company in exchange for the acquisition of the Sellers’ assets and specified liabilities related to the business of providing security services for (1) high profile individuals, (2) event security, (3) commercial security, (4) identity verification and (5) cannabis security for employers, facilities, retail stores as well as money and cannabis transportation services.
This section is not required of smaller reporting companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
The Company owns no properties and leases a property at 4704 Harlan Street, Suite 680, Denver, CO 80212 occupying approximately 1,808 square feet, pursuant to a three-year lease expiring on August 31, 2019 requiring monthly payments of $2,460. The Company also leases a property at 2649 East Mulberry Street, Suite A #11, Fort Collins, CO 80524 occupying approximately 2,389 square feet, pursuant to a one-year lease expiring September 30,, 2017.
We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us that may materially affect us.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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Our common stock is quoted on the Pink tier of the OTC Markets Group, Inc. under the symbol “CSAX” since we became delinquent in our Exchange Act filings on April 13, 2016. Prior to August 7, 2015, our symbol was “ASTA” on the OTCQB tier OTC Markets Group. Our stock has been thinly traded on the Pink Tier of OTC and there can be no assurance that a liquid market for our common stock will ever develop.
The following table reflects the high and low closing sales information for our common stock for the last two fiscal quarters during the fiscal year ended December 31, 2016. Prior to this period, no sales information is available. This information was obtained from the OTC Markets and reflects inter-dealer prices without retail mark-up, markdown or commission and may not necessarily represent actual transactions.
| Quarter Ended |
| High |
|
| Low |
| ||
| March 31, 2016 |
| $ | 0.50 |
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| $ | 0.2162 |
|
| June 30, 2016 |
| $ | 0.35 |
|
| $ | 0.04 |
|
| September 30, 2016 |
| $ | 0.175 |
|
| $ | 0.03 |
|
| December 31, 2016 |
| $ | 0.2379 |
|
| $ | 0.0157 |
|
As of November 7, 2017, there were approximately 75 record holders, an unknown number of additional holders whose stock is held in “street name” and 158,812,216 shares of common stock issued and outstanding.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
Common Stock
During the year ended December 31, 2015, the Company issued 30,196,272 shares of common stock for total consideration of $74,579 associated with the recapitalization.
During the year ended December 31, 2015, the Company issued 124,000 shares of common stock, along with the issuance of preferred stock, for the settlement of previously accrued interest.
In August 2016, the Company issued 12,000,000 shares of restricted common stock as part of the acquisition of Big Al’s
In August 2016, three purchasers (“Purchasers”), entered into stock purchase agreements to acquire an aggregate of 50,000,000 shares of restricted common stock of the Company (“Shares”) owned by Daniel Williams for an aggregate purchase price of $700,000. Upon purchase of the Shares, Purchasers will beneficially own 50.19% of the voting securities of the Company as of August 5, 2016.
In September 2016, the Company issued 12,500,000 shares of restricted common stock for cash proceeds totaling $150,000.
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In October 2016, the Company issued 3,283,333 shares of restricted common stock for cash proceeds totaling $85,000.
In November 2016, the Company issued 279,600 shares of restricted common stock for cash proceeds totaling $13,980.
For the period from January 1, 2017 through the date of this report, we issued a total of 8,000,000 shares of restricted and unregistered common stock in private placements for cash proceeds totaling approximately $213,000.
Preferred Stock
In August and September of 2015, the Company issued 479,853 shares of Series A Convertible Preferred Stock, at its stated value of $1.00 per share, for the conversion of debt and previously accrued interest totaling $479,853. Additionally, the Company sold 429,000 shares of Series A Convertible Preferred Stock to investors for cash totaling $429,000.
In the fourth quarter of 2015, the Company issued 213,000 shares of Series A Convertible Preferred Stock for cash proceeds totaling $213,000.
During the year ended December 31, 2015, the Company issued 50,000 shares of Series A Convertible Preferred Stock for interest totaling $50,000.
For the period from January 1, 2016 through August 31, 2017 the Company issued 290,000 shares of Series A Convertible Preferred Stock for total cash receipts of $290,000.
No underwriters were involved in the issuance of the securities noted above. All of the securities issued above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act. The issuance of stock that was exempt under Section 4(a)(2) was a private offering to an accredited investor. Each of the investors represented to the Company that it (i) is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended, (ii) is knowledgeable, sophisticated and experienced in making investment decisions of this kind, and (iii) has had adequate access to information about the Company.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable to a smaller reporting company.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial statements, including the notes to those statements, included elsewhere in this report, and the Section entitled “Cautionary Statement Regarding Forward-Looking Statements” in this report. As discussed in more detail in the Section entitled “Cautionary Statement Regarding Forward-Looking Statements,” this discussion contains forward-looking statements which involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements.
The Company Overview
Since Canna Securities creation we have been providing installations of alarms, door access systems, video cameras, security system design, physical guard security, transportation and consulting services in the state licensing process designed to meet individual state regulatory requirements. The acquisition of Big Al’s in August 2016 broadened our guard and security services and provided a substantial base to pursue growth in other areas of our services.
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RESULTS OF OPERATIONS
The following comparative analysis on results of operations was based primarily on the comparative audited financial statements, footnotes and related information for the periods identified below and should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report.
THREE MONTHS ENDED MARCH 31, 2016
Revenue
Revenue for the first three months of 2016, revenue was $283,450 of which $120,490 was for guard services and the balance related security system installations. With our August 2016 acquisition of Big Al’s, we expect more of our future revenues to be derived from guard services.
Payroll and Related Costs
For the three months ended March 31, 2016, our direct payroll costs relating to revenue was $118,934. Administrative wages and benefits for the three months was $106,427 which included an intrinsic credit adjustment of $81,275.
Professional Fees
Our professional fees for the three months ended March 31, 2016 mainly included $98,679 for investor relations paid mainly for press releases and promoting of the Company, $19,923 for legal fees and accounting fees of $13,868.
Other General and Administrative
Other general and administrative expenses for the three months ended March 31, 2016 of $88,210 included mainly the following items – insurance $20,586, rent $15,818, marketing costs of $6,009 and interest expense of $14,786.
SIX MONTHS ENDED JUNE 30, 2016
Revenue
Revenue for the six months ended June 30, 2016, revenue was $584,285 as compared to the first three months which was $283,450, an increase of $300,835, of which $280,934 was for guard services, an increase of $160,444. The balance of the revenue of $303,351 was related to security system installations. With our August 2016 acquisition of Big Al’s, we expect more of our future revenues to be derived from guard services.
Payroll and Related Costs
For the six months ended June 30, 2016, our direct payroll costs relating to revenue was $212,220, an increase of $93,294 over the three months ended March 31, 2016. Administrative wages and benefits for the six months ended June 30, 2016 was $354,120, an increase of 247,693 which included an intrinsic credit adjustment of $81,275.
Professional Fees
Our professional fees for the six months ended June 30, 2016 totaling $223,966 mainly included $98,679 for investor relations paid mainly for press releases and promoting of the Company, $19,923 for legal fees and accounting fees of $13,868.
Other General and Administrative
Other general and administrative expenses for the six months ended June 30, 2016 of $116,549 which mainly included the following items – insurance $25,248, rent $29,315, marketing costs of $9,144 and interest expense of $19,999.
NINE MONTHS ENDED SEPTEMBER 30, 2016
Revenue
Revenue for the nine months ended September 30, 2016, revenue was $1,233,266 which was an increase of $648,981 over the six months ended June 30, 2016, of which $768,162 was for guard services, an increase of $487,228 which reflects the acquisition of Big Al’s. The balance of the revenue of $465,104 was related to security system installations which increased over the last three months by $161,753.
Payroll and Related Costs
For the nine months ended September 30, 2016, our direct payroll costs relating to revenue was $508,312 an increase of $350,113 over the six months ended June 30, 2016, which is related to the labor assumed on the purchase of Big Al’s. Administrative wages and benefits for the nine months ended September 30, 2016 was $498,255, an increase of 144,135 over the six months ended June 30, 2016 and which included an intrinsic credit adjustment of $81,275.
Professional Fees
Our professional fees for the nine months ended September 30, 2016 totaling $287,446 mainly included $146,900 for investor relations paid mainly for press releases and promoting of the Company, $63,626 for legal fees and accounting fees of $69,331.
Other General and Administrative
Other general and administrative expenses for the nine months ended September 30, 2016 of $212,108 which mainly included the following items – insurance $42,714, rent $44,903, marketing costs of $11,768, travel expenses of $23,537, and interest expense of $26,297.
YEAR ENDED DECEMBER 31, 2016
Revenue
Although comparative numbers are shown on the financial statements, the nature of the Company’s business changed considerably on the acquisitions that took place in September 2015 and August 2016. The acquisition of Big Al’s in August 2016 increased revenues considerably in that the last quarter of revenues in 2016 increased by $1,102,329 to $2,335,595 from the revenue for the nine months ended September 30, 2016, of $1,233,266 as noted above. Guard Service revenue increased to $1,746,118 for the year ended December 31, 2016 from $768,162 for the nine months ended September 30, 2016, an increase of $977,956 which again reflects from the acquisition of Big Al’s.
| 13 |
| Table of Contents |
Payroll and Related Costs
For the year ended December 31, 2016 direct payroll costs relating to revenue was $1,374,310, an increase of $811,977 over the nine months ended September 30, 2016, which is related to the labor assumed on the purchase of Big Al’s. Administrative wages and benefits for year ended December 31, 2016 was $624,482, an increase of 126,227 over the nine months ended September 30, 2016 and which included an intrinsic credit adjustment of $81,275. In addition, included in administrative wages is $146,301 of expense for the value of stock options held by certain officers and directors.
Professional Fees
Our professional fees for year ended December 31, 2016 was $395,317 which is an increase of $110,871 over the nine months ended September 30, 2016. Professional fees included $146,900 for investor relations paid mainly for press releases and promoting of the Company (no additional costs were incurred for this expense after July 1, 2016), $103,345 for legal fees which included the costs relating to the settlement with a former officer and director and the acquisition costs for Big Al’s, and accounting fees of $127,516.
Other General and Administrative
Other general and administrative expenses for the year ended December 31, 2016 was $333,977. The main items are as follows: – insurance $106,024, rent $58,150, marketing costs of $16,372, travel expenses of $30,935, vehicle expenses of 13,123, telecommunications of $22,348, and depreciation expense of $39,308.
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of December 31, 2016, our working capital deficit amounted to $1,004,000. Two of our Board Members hold mandatorily redeemable units totaling approximately $303,000 that are due on demand. The holders have informally agreed to defer redemption, but are not under any obligation to continue to do so, and we are actively trying to renegotiate the terms of the units, but there can be no assurances that we will be successful.
Our operating activities used net cash of approximately $677,000 during fiscal 2016. Cash used to operate at our net loss of approximately $249,614 was off-set by stock based compensation totaling approximately $146,301 and increases in our current obligations totaling approximately $195,000. We are continuing to seek increases to our gross margins and overhead reductions to reduce our cash used in operations over the next twelve months.
During the year ended December 31, 2016 our investing activities consisting of net property and equipment purchases of approximately $4,600 of small equipment and computer software. As noted throughout this report, we also acquired the operations of Big Al’s
In 2016, we raised net capital of approximately $953,000 through a combination of debt and equity financing. In this regard, we issued, either directly or as a conversion of notes payable. Subsequent to December 31, 2016, and as of the date of this report, we raised additional cash proceeds totaling approximately $213,000 through common stock issuances. We expect to need to continue raise additional cash through debt and equity financing to fund our operations for at least the next twelve months, but do not currently have any firm commitments to do so.
| 14 |
| Table of Contents |
Cash Requirements
Our ability to fund our growth and meet our obligations on a timely basis is dependent on our ability to match our available financial resources to our growth strategy which includes increasing the scope of our cannabis service offering within existing markets and expansion into new markets. The decisions we make with regard to these activities drive the level of capital required and the level of our financial obligations.
If we are unable to generate cash flow from operations and successfully raise sufficient additional capital through future debt and equity financings or strategic and collaborative ventures with potential partners, we would likely have to reduce the size and scope of our operations and expansion plans. We have analyzed our liquidity requirements and have determined that we do not have sufficient liquidity to execute our business plan for the next 12 months.
Recent Financing Transactions
5% Series A Convertible Preferred Stock
As of the date of this report, we have issued a total of 1,461,853 shares of our Series A Preferred at an original issue price of $1.00 per share (the "Stated Value") for an aggregate purchase price of $1,461,853.
The Series A Preferred have the following rights, preferences and designations:
Liquidation Preference and Ranking. Upon a liquidation event, the Company shall first pay to the holders of the Series A Preferred an amount per share equal to the Stated Value (i.e., $1.00 per Series A Preferred Share), plus all accrued and unpaid dividends and any other fees or liquidated damages then due and owing thereon on each share of Series A Preferred (the "Series A Preference Amount"). After full payment of the liquidation preference amount to the holders of the Series A Preferred, the Company will then distribute the remaining assets to holders of common stock, and other junior preferred shares (if any). The Series A Preferred are intended to rank senior to the Company's common stock and senior to any other shares of preferred stock the Company may issue in the future.
Dividends. The Series A Preferred will carry an annual 5% per share cumulative dividend on the sum of the Stated Value, payable when and if declared by the Board of Directors and in preference to payment of any dividends on the common stock. Optional Conversion. The holders of Series A Preferred will, at any time from and after six (6) months after the first issuance of any of the Series A Preferred, be entitled to convert each Series A Preferred Share into shares of common stock at a conversion price of $0.25 per share, as adjusted. The Series A Preferred contain provisions that protect their holders against dilution by adjustment of the purchase price in certain events such as stock dividends, stock splits and other similar events.
Anti-Dilution. If, at any time during the five year period after the date when the Series A Preferred is issued, the Company or any subsidiary, as applicable sells or grants any option to purchase or sells or grants any right to re-price, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of common stock at an effective price per share that is lower than a conversion price of $0.25 per share, as adjusted, then such conversion price shall be reduced to equal the lower issuance price.
Voting Rights. The Series A Preferred shall be entitled to one vote per share on matters submitted to a vote of the stockholders of the Company.
Protective Provisions. In addition to any other vote or approval required under the Company's charter or bylaws, the Company will not, without the written consent of the holders of at least 51% of the Company's Series A Preferred, (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred or alter or amend the Certificate of Designation, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon certain liquidation events, senior to, or otherwise pari passu with, the Series A Preferred, (c) amend the Company's charter documents in any manner that adversely affects any rights of the holders of Series A Preferred, (d) increase the number of authorized shares of Series A Preferred, or (e) enter into any agreement with respect to any of the foregoing.
Negative Covenants. As long as any shares of Series A Preferred are outstanding, unless the holders of at least 51% of the then outstanding shares of Series A Preferred shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the subsidiaries to, directly or indirectly, do the following:
|
| a) | The Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents (or a combination of units thereof) involving a variable rate transaction. "Variable Rate Transaction" means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of common stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of common stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the common stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. |
|
| b) | enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom which individually or in the aggregate exceed $100,000; |
|
| c) | enter into, create, incur, assume or suffer to exist any liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom which individually or in the aggregate exceed $100,000; |
|
| d) | amend its charter documents, including, without limitation, its articles of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder; |
|
| e) | repay, repurchase or offer to repay, repurchase or otherwise acquire shares of its equity securities, other than as permitted or required under the Certificate of Designation; |
|
| f) | pay dividends or distributions on securities junior to the Series A Preferred; |
|
| g) | enter into any employment agreement with any officer, director or employee of the Corporation or any transaction with any affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm's-length basis and is deemed fair and reasonable by the Company's Board of Directors which shall include at least one independent director; or |
|
| h) | enter into any agreement with respect to any of the foregoing. |
Common Stock
For the period from January 1, 2017 through the date of this report, we issued a total of 8,000,000 shares of restricted and unregistered common stock in private placement for cash proceeds totaling approximately $213,000.
Inflation
In the opinion of management, inflation has not and will not have a material effect on our operations in the immediate future. Management will continue to monitor inflation and evaluate the possible future effects of inflation on our business and operations.
Off-Balance Sheet Arrangements
Under Commission regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. As of December 31, 2016, we have no off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES
Embedded Conversion Features and Other Equity-linked Instruments
The SEC has requested that all registrants address their most critical accounting policies. The SEC has indicated that a “critical accounting policy” is one which is both important to the representation of the registrant’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on past experience and on various other assumptions our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results will differ, and may differ materially from these estimates under different assumptions or conditions. Additionally, changes in accounting estimates could occur in the future from period to period. The following paragraphs identify our most critical accounting policies:
The Company classifies all of its common stock purchase warrants and options, embedded debt conversion features, and other derivative financial instruments as equity if the contracts (1) require physical settlement or net-share settlement or (2) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (1) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (2) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (3) contracts that contain reset provisions. The Company assesses classification of its equity-linked instruments at each reporting date to determine whether a change in classification between equity and liabilities (assets) is required.
Until such instruments are completely settled, our management is required to assess the classification as the issuance of other similar instruments may impact the accounting for then outstanding instruments and could result in changes between equity and liability classification.
Stock-Based Compensation (Intrinsic Value Method)
Prior to becoming a public company, we issued 775,000 options convertible into restricted and unregistered shares of common stock. While operating as a private company, our management experienced difficulty in developing reasonable estimates of the value of these options without the incurrence of unreasonable cost and effort. In this regard, our management considered fluctuations based on, among other factors, the lack of liquidity of the underlying stock; volatility in cannabis markets and federal and state law enforcement; the relative lack of our brand awareness in a highly competitive industry with several participants having substantial financial means; our majority controlled ownership, and our history of operating losses. The consideration of these factors resulted in our management determining the most reasonable approach to estimating the fair value of the awards was based on the intrinsic value method.
| 17 |
| Table of Contents |
Subsequent to becoming a public company, and in accordance with US GAAP, we are required to remeasure the intrinsic value of these awards at each reporting date through the date of exercise or other settlement. The changes are recorded as a component of earnings and included in general and administrative expenses.
Based on our current analysis, a $0.05 change in the intrinsic value of the options, in consideration of quoted market prices, would potentially result in the recognition of approximately $81,275 of compensation benefit. Additionally, the recognition of any significant fluctuation in the intrinsic value of these outstanding awards could changes operating result results from a loss to income, and vice versa, in future periods.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules appearing on the F-pages of this annual report on Form 10-K.
| 18 |
| Table of Contents |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
| Table of Contents |
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
CSA Holdings, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheet of CSA Holdings, Inc. as of December 31, 2016 and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the 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 includes 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 Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CSA Holdings, Inc. at December 31, 2016, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and negative cash flows from operating activities that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/S/ Thayer O’Neal Company, LLC
Thayer O’Neal Company, LLC
Houston, Texas
November 10, 2017
| F-2 |
| Table of Contents |
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
CSA Holdings, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheets of CSA Holdings, Inc. as of December 31, 2015 and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 the 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 audits 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 Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of CSA Holdings, Inc. as of December 31, 2015, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and negative cash flows from operating activities that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ WSRP, LLC
WSRP, LLC
Salt Lake City, Utah
April 25, 2017
| F-3 |
| Table of Contents |
Consolidated Balance Sheets
December 31, 2016 and 2015
|
|
| 2016 |
|
| 2015 |
| ||
| ASSETS |
|
|
|
|
|
| ||
| CURRENT ASSETS |
|
|
|
|
|
| ||
| Cash and cash equivalents |
| $ | - |
|
| $ | 56,932 |
|
| Accounts receivable less allowance for doubtful accounts of $4,868 in 2016 and 2015, respectively |
|
| 247,109 |
|
|
| 39,573 |
|
| Prepaid Expenses |
|
| 88,422 |
|
|
| 24,570 |
|
| Total current assets |
|
| 335,531 |
|
|
| 121,075 |
|
| Related Party Receivables |
|
| - |
|
|
| 261,573 |
|
| Property and Equipment |
|
| 163,103 |
|
|
| 152,793 |
|
| Goodwill |
|
| 1,057,509 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| TOTAL ASSETS |
| $ | 1,556,142 |
|
| $ | 535,441 |
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDER’S EQUITY |
|
|
|
|
|
|
|
|
| CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
| Bank overdraft |
| $ | 19,838 |
|
| $ | - |
|
| Accounts payable |
|
| 441,738 |
|
|
| 241,638 |
|
| Accrued compensation and related benefits |
|
| - |
|
|
| 442,884 |
|
| Related party notes payable |
|
| 342,905 |
|
|
| 21,905 |
|
| Deferred revenue |
|
| - |
|
|
| 67,451 |
|
| Convertible notes payable less discount |
|
| 55,125 |
|
|
| 87,262 |
|
| Note payable - taxes |
|
| 109,143 |
|
|
| - |
|
| Notes payable - from acquisition |
|
| 25,748 |
|
|
| - |
|
| Preferred dividends payable |
|
| 18,621 |
|
|
| 18,621 |
|
| Unit redemption payable |
|
| 302,500 |
|
|
| 302,500 |
|
|
|
|
|
|
|
|
|
|
|
| TOTAL LIABILITIES |
|
| 1,315,619 |
|
|
| 1,182,261 |
|
|
|
|
|
|
|
|
|
|
|
| STOCKHOLDER’S EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
| Preferred stock, $.001 par value, 20,000,000 shares authorized - issued and outstanding - 1,461,853 (December 31, 2015 - 1,171,853) |
|
| 1,461 |
|
|
| 1,172 |
|
| Common stock, $.001 par value, 500,000,000 shares authorized - issued and outstanding - 126,351,955 (December 31, 2015 - 99,489,022) |
|
| 126,352 |
|
|
| 99,489 |
|
| Additional paid-in capital |
|
| 3,723,939 |
|
|
| 1,970,652 |
|
| Accumulated deficit |
|
| (3,611,229 | ) |
|
| (2,718,133 | ) |
| TOTAL STOCKHOLDER’S EQUITY (DEFICIT) |
|
| 240,523 |
|
|
| (646,820 | ) |
| TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT) |
| $ | 1,556,142 |
|
| $ | 535,441 |
|
See notes to consolidated financial statements
| F-4 |
| Table of Contents |
Consolidated Statements of Operations
December 31, 2016 and 2015
|
|
| 2016 |
|
| 2015 |
| ||
| REVENUE |
| $ | 2,335,323 |
|
| $ | 796,677 |
|
| DIRECT COSTS |
|
| 1,702,421 |
|
|
| 533,600 |
|
| GROSS PROFIT |
|
| 632,901 |
|
|
| 263,077 |
|
| OPERATING EXPENSES |
|
|
|
|
|
|
|
|
| Wages and benefits |
|
| 556,903 |
|
|
| 1,224,694 |
|
| Professional fees |
|
| 385,653 |
|
|
| 338,104 |
|
| Bad debt expense |
|
| 26,795 |
|
|
| - |
|
| General and administrative |
|
| 441,306 |
|
|
| 380,801 |
|
|
|
|
|
|
|
|
|
|
|
| TOTAL OPERATING EXPENSES |
|
| 1,410,658 |
|
|
| 1,943,599 |
|
|
|
|
|
|
|
|
|
|
|
| LOSS FROM OPERATIONS |
|
| (777,757 | ) |
|
| (1,680,522 | ) |
|
|
|
|
|
|
|
|
|
|
| OTHER EXPENSE |
|
|
|
|
|
|
|
|
| INTEREST EXPENSE |
|
| (115,339 | ) |
|
| (222,137 | ) |
| PREFERRED DIVIDENDS |
|
| - |
|
|
| (18,621 | ) |
|
|
|
|
|
|
|
|
|
|
| NET LOSS |
| $ | (893,096 | ) |
| $ | (1,921,280 | ) |
See notes to consolidated financial statements
| F-5 |
| Table of Contents |
Consolidated Statements of Cash Flows
December 31, 2016 and 2015
|
|
| 2016 |
|
| 2015 |
| ||
| Cash flows from operating activities |
|
|
|
|
|
| ||
| Net loss |
| $ | (893,096 | ) |
| $ | (1,921,280 | ) |
| Adjustments to reconcile net loss |
|
|
|
|
|
|
|
|
| Depreciation |
|
| 38,033 |
|
|
| 22,830 |
|
| Loss on disposal of asset |
|
| - |
|
|
| 860 |
|
| Non-cash interest expense |
|
| - |
|
|
| 222,615 |
|
| Convertible Notes Discount Expense |
|
| (11,243 | ) |
|
| - |
|
| Stock based compensation |
|
| 93,082 |
|
|
| 283,082 |
|
| Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
| Accounts receivable |
|
| (207,536 | ) |
|
| 45,430 |
|
| Prepaid expenses |
|
| (63,852 | ) |
|
| (20,543 | ) |
| Accounts payable |
|
| 200,100 |
|
|
| 145,407 |
|
| Accounts payable - bank overdraft |
|
| 19,838 |
|
|
| - |
|
| Preferred dividends payable |
|
| - |
|
|
| 18,621 |
|
| Accrued compensation |
|
| (442,884 | ) |
|
| 395,237 |
|
| Deferred revenue |
|
| (67,451 | ) |
|
| 9,225 |
|
| Tax payables |
|
| 109,143 |
|
|
| - |
|
| Net cash used in operating activities |
|
| (1,357,398 | ) |
|
| (798,516 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash flows from investing activities |
|
|
|
|
|
|
|
|
| Acquisition of company paid by cash |
|
| (350,000 | ) |
|
| - |
|
| Proceeds from sale of asset |
|
| - |
|
|
| 14,128 |
|
| Purchase of assets |
|
| (9,928 | ) |
|
| (148,110 | ) |
| Cash used in investing activities |
|
| (359,928 | ) |
|
| (133,982 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash flows from financing activities |
|
|
|
|
|
|
|
|
| Proceeds from issuance of preferred shares |
|
| 290,000 |
|
|
| 642,000 |
|
| Proceeds from issuance of common shares |
|
| 938,755 |
|
|
| - |
|
| Proceeds of related party notes payable |
|
| 300,106 |
|
|
| 11,905 |
|
| Payment of redeemable units |
|
| - |
|
|
| (247,500 | ) |
| Convertible notes |
|
| - |
|
|
| 540,500 |
|
| Cash provided by financing activities |
|
| 1,528,861 |
|
|
| 946,905 |
|
| Change in cash and cash equivalents |
|
| (56,932 | ) |
|
| 14,407 |
|
| Cash and cash equivalent - beginning of period |
|
| 56,932 |
|
|
| 42,525 |
|
| Cash and cash equivalents - end of period |
| $ | - |
|
| $ | 56,932 |
|
See notes to consolidated financial statements
| F-6 |
| Table of Contents |
Consolidated Statements of Changes in Stockholders’ Deficit
December 31, 2016 and 2015
|
|
| PREFERRED STOCK |
|
| COMMON STOCK |
|
| ADDITIONAL PAID-IN |
|
| ACCUMULATED |
|
|
| ||||||||||||||
|
|
| SHARES |
|
| AMOUNT |
|
| SHARES |
|
| AMOUNT |
|
| CAPITAL |
|
| DEFICIT |
|
| TOTALS |
| |||||||
| Balance December 31, 2014 |
|
|
|
|
|
|
|
| 69,168,750 |
|
| $ | 69,169 |
|
| $ | 472,628 |
|
| $ | (796,853 | ) |
| $ | (255,056 | ) | ||
| Issuance of preferred shares for cash |
|
| 429,000 |
|
| $ | 429 |
|
|
| - |
|
|
| - |
|
|
| 428,571 |
|
|
| - |
|
|
| 429,000 |
|
| Issuance of preferred shares for debt conversion |
|
| 460,500 |
|
|
| 461 |
|
|
| - |
|
|
| - |
|
|
| 460,039 |
|
|
| - |
|
|
| 460,500 |
|
| Issuance of common and preferred shares for interest conversion |
|
| 19,353 |
|
|
| 19 |
|
|
| 124,000 |
|
|
| 124 |
|
|
| 19,210 |
|
|
| - |
|
|
| 19,353 |
|
| Issuance of preferred share for cash |
|
| 213,000 |
|
|
| 213 |
|
|
| - |
|
|
| - |
|
|
| 212,787 |
|
|
| - |
|
|
| 213,000 |
|
| Reverse merger re-capitalization |
|
| - |
|
|
| - |
|
|
| 30,196,272 |
|
|
| 30,196 |
|
|
| 44,384 |
|
|
| - |
|
|
| 74,580 |
|
| Stock based compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 283,083 |
|
|
| - |
|
|
| 283,083 |
|
| Preferred stock issued for interest payment |
|
| 50,000 |
|
|
| 50 |
|
|
| - |
|
|
| - |
|
|
| 49,950 |
|
|
| - |
|
|
| 50,000 |
|
| Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,921,280 | ) |
|
| (1,921,280 | )) |
| Balance December 31, 2015 |
|
| 1,171,853 |
|
| $ | 1,172 |
|
|
| 99,489,022 |
|
| $ | 99,489 |
|
| $ | 1,970,652 |
|
| $ | (2,718,133 | ) |
| $ | (646,820 | ) |
| Issuance of preferred shares for cash |
|
| 290,000 |
|
|
| 289 |
|
|
|
|
|
|
|
|
|
|
| 289,711 |
|
|
| - |
|
|
| 290,000 |
|
| Issuance of common shares for cash |
|
|
|
|
|
|
|
|
|
| 16,062,933 |
|
|
| 16,063 |
|
|
| 922,692 |
|
|
| - |
|
|
| 938,755 |
|
| Common shares issued on purchase of assets |
|
| - |
|
|
| - |
|
|
| 12,000,000 |
|
|
| 12,000 |
|
|
| 708,175 |
|
|
| - |
|
|
| 720,175 |
|
| Stock option awards |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 93,082 |
|
|
| - |
|
|
| 93,082 |
|
| Stock cancellation |
|
| - |
|
|
| - |
|
|
| (1,200,000 | ) |
|
| (1,200 | ) |
|
| (260,373 | ) |
|
| - |
|
|
| (261,573 | ) |
| Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (893,096 | ) |
|
| (893,096 | ) |
| Balance December 31, 2016 |
|
| 1,461,853 |
|
| $ | 1,461 |
|
|
| 126,351,955 |
|
| $ | 126,352 |
|
| $ | 3,723,939 |
|
| $ | (3,611,229 | ) |
| $ | 240,523 |
|
See notes to consolidated financial statements
| F-7 |
| Table of Contents |
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
1. Organization and Business Description
CSA Holdings Inc. (“we,” “us,” “our,” “CSA Holdings,” or the “Company”) was incorporated in Nevada on June 12, 2013 under the name Asta Holdings, Corp. The name was changed to CSA Holdings, Inc. effective July 9, 2015. Following our September 4, 2015 acquisition of a 100% ownership interest in CSA, LLC (“Canna Security”), our wholly owned subsidiary, we became a security solutions provider catering to businesses in the legalized cannabis industry. We provide our customers security system design services, installation, consulting services in physical security solutions and security systems as part of the state licensing process in the legalized cannabis business.
Acquisition of Canna Security and Recapitalization
On September 4, 2015, our wholly-owned subsidiary, CSA Acquisition Subsidiary, was merged with and into Canna Security. Pursuant to the terms of the merger and exchange agreement (“Agreement”), Canna Security became the surviving corporation, and as such, continues as a wholly-owned subsidiary.
Immediately prior the closing of the merger, the previous controlling stockholders agreed to cancel approximately 103,000,000 shares of common stock; and all of the CSA LLC outstanding member units were converted into shares of common stock resulting in a net recapitalization common stock issuance of 30,196,272, representing approximately 70% of the outstanding shares of our Company’s common stock after giving effect to the Merger. The common stock issuance was accounted for as a recapitalization in accordance with accounting principles generally accepted in the United States (“US GAAP”) and the Rules and Regulations as promulgated by the United States Securities and Exchanges Commission (“SEC”).
In accordance with US GAAP, Canna Security was deemed the accounting acquirer. Further, as of the date of the recapitalization transaction, the legal acquirer, CSA Holdings, Inc., was also deemed the accounting acquiree. The transaction is deemed to be equivalent to the issuance of stock by the Canna Security for the net monetary assets (liabilities) of CSA Holdings, Inc. accompanied by a recapitalization. The accounting is similar to that resulting from a reverse acquisition, except that no goodwill or other intangible assets were recorded. Upon completion of the transaction, the consolidated financial statements include the assets and liabilities of both CSA Holdings and Canna Security, and the historical operations of Canna Security. The accompanying financial statements reflect the recapitalization retroactively applied to all periods presented.
Acquisition of Big Al’s and Precision Operations Group’s Assets
On July 26, 2016, our wholly owned subsidiary CSA, LLC (the “Buyer”) entered into an asset purchase agreement (“Agreement”) with Big Al’s Security Team, LLC, BAST Oregon, LLC, BAST Arizona, LLC, Precision Operations Group, Inc. and Precession Operations Group SHS, LLC (collectively referred to herein as the “Sellers”) and closed the transaction on August 18, 2016. The Agreement provided for a cash payment of $350,000 to the Sellers and issuance of 12,000,000 shares of restricted common stock of the Company and an earn-out of up to $100,000 in cash and an additional 4,000,000 shares of restricted common stock of the Company in exchange for the acquisition of the Sellers’ assets and specified liabilities related to the business of providing security services for (1) high profile individuals, (2) event security, (3) commercial security, (4) identity verification and (5) cannabis security for employers, facilities, retail stores as well as money and cannabis transportation services.
The following is an analysis of consideration provided, assets acquired and goodwill.
| Description |
| Amount |
| |
| Stocks issued |
| $ | 720,175 |
|
| Cash given |
|
| 350,000 |
|
| Assets acquired, NBV |
|
| (38,405 | ) |
| Liability assumed |
|
| 25,748 |
|
| Goodwill |
| $ | 1,057,508 |
|
| F-8 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
On August 5, 2016, we entered into an amended and restated settlement agreement (“Settlement Agreement”) with Daniel Williams, our former Chief Executive Officer and member of our Board of Directors. The settlement agreement provided for a cash payment of $575,000 to us to settle a dispute related to an Internal Revenue Service (“IRS”) administrative action against us and Mr. Williams for federal taxes owed to the IRS by the Company. The cash paid to the Company was used to satisfy the IRS administrative action at a cost of approximately $250,000, not including any additional interest and penalties. We used the remaining cash for working capital purposes. The Company and Mr. Williams also agreed to a mutual release of claims.
Of the total funds received from Mr. Williams, $350,000 was used for the purchase of the assets from Big Al’s.
On August 5, 2016, three purchasers (“Purchasers”), entered into stock purchase agreements to acquire an aggregate of 50,000,000 shares of restricted common stock of the Company (“Shares”) owned by Mr. Williams for an aggregate purchase price of $700,000. The Purchasers consisted of (1) Emil Assentato who purchased 43,571,429 of the Shares, (2) Silvestro Spilabotte, Jr. who purchased 2,142,857 of the Shares, and (3) 15E 30 West Street, LLC who purchased 4,285,714 of the Shares. The source of the funds for the consideration paid by Purchasers was personal funds with respect to Mr. Assentato and Mr. Spilabotte, Jr. and equity contributions from investors in 15E 30 West Street, LLC. Upon purchase of t he s hares , Purchasers beneficially owned approximately 50.19% of the voting securities of the Company as of August 5, 2016.
2. Summary of Significant Accounting Policies
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate continuation of the Company as a going concern.
Use of estimates
Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.
Revenue recognition
Major components of revenue for the Company include installations of alarms, door access systems, video cameras, security system design, monitoring, guard services, and consulting. Revenue is recognized as those services are rendered, net of sales taxes. Customer billings for services not yet rendered are deferred and recognized as revenue as the services are rendered. Revenue associated with the sale of equipment and related installation is recognized once delivery, installation is completed. Monitoring revenue is recognized over the life of the respective contract as the services are performed.
Cash and cash equivalents
All highly liquid investments with original maturities of three months or less from the time of purchase are considered to be cash equivalents.
Accounts receivable
Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment on the invoice date. Accounts receivable are stated at the contractual amount billed to the customer plus any accrued and unpaid interest. Customer account balances with invoices dated over 90 days old are considered past due. Interest continues to accrue on past due accounts until paid.
The allowance for doubtful accounts receivable reflects the best estimate of probable losses inherent in the Company’s receivable portfolio determined on the basis of historical experience and other currently available evidence.
| F-9 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
Property and equipment
Property and equipment is stated at historical cost. Expenditures for improvements that significantly extend the useful life of an asset are capitalized in the period incurred. Repairs and maintenance expenditures are expensed. Depreciation is computed using the straight-line method over estimated useful lives as follows:
| Classification |
| Estimated useful life |
| Vehicles and equipment |
| 7 years |
| Equipment, furniture, and fixtures |
| 5 to 7 years |
| Computer hardware and software |
| 3 years |
Long-lived assets
Management reviews long-lived assets for impairment annually or when circumstances indicate the carrying amount of an asset may not be recoverable based on the undiscounted future cash flows of the asset. If the carrying amount of an asset may not be recoverable, a write-down to fair value is recorded. Fair values are determined based on the discounted cash flows, quoted market values, or external appraisals, as applicable. Long-lived assets are reviewed for impairment at the individual asset or the asset group level for which the lowest level of independent cash flows can be identified.
Income taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. In evaluating the Company’s ability to recover its deferred tax assets, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, the Company develops assumptions including the amount of future state and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income, and are consistent with the plans and estimates that the Company is using to manage the underlying businesses. The Company
provides a valuation allowance for deferred tax assets for which the Company does not consider realization of such deferred tax assets to be more likely than not.
The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
Fair Value Measurements
The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including the party’s own credit risk.
| F-10 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
Stock Based Compensation
For stock-based transactions, compensation expense is recognized over the requisite service period, which is generally the vesting period, based on the estimated fair value on the grant date of the award. The Company issued stock options prior to going public that are valued using the intrinsic value method and recognized over the requisite service period. The intrinsic value method requires re-measurement on each reporting date through the date of settlement.
Loss per Common Share
Basic net loss per common share is computed by dividing net loss, less the preferred stock dividends, by the weighted average number of common shares outstanding. Dilutive loss per share includes any additional dilution from common stock equivalents, such as stock options and warrants, and convertible instruments, if the impact is not antidilutive. Since the Company incurred net losses for the periods presented, all equity-linked instruments are considered anti-dilutive.
Embedded Conversion Features and Other Equity-linked Instruments
The Company classifies all of its common stock purchase warrants and other derivative financial instruments as equity if the contracts (1) require physical settlement or net-share settlement or (2) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (1) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (2) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (3) contracts that contain reset provisions. The Company assesses classification of its equity-linked instruments at each reporting date to determine whether a change in classification between equity and liabilities (assets) is required.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced recurring net losses and negative cash flows from operating activities.
| F-11 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
The Company anticipates that it will continue to incur losses into the foreseeable future and plans to supplement the funding of its operations through equity or debt financings, and business combinations to increase revenue sources and operating margins. There can be no assurance that the Company will be able to obtain equity or debt financing on acceptable terms, or at all. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations, and future prospects, including its ability to continue as a going concern.
The accompanying financial statements do not include any adjustments to reflect the possible future effects of the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 2016 and 2015:
|
|
| 2016 |
|
| 2015 |
| ||
| Vehicles |
| $ | 158,372 |
|
| $ | 136,188 |
|
| Furniture and equipment |
|
| 63,520 |
|
|
| 47,140 |
|
| Software |
|
| 9,779 |
|
|
|
|
|
| Total property and equipment at cost |
|
| 231,671 |
|
|
| 183,328 |
|
| Less accumulated depreciation |
|
| (68,568 | ) |
|
| (30,535 | ) |
|
|
|
|
|
|
|
|
|
|
| Property and equipment, net |
| $ | 163,103 |
|
| $ | 152,793 |
|
4. PROVISION FOR INCOME TAXES
The components of the provision for income tax expense are as follows for the years ended December 31, 2016 and 2015 consists of the following:
|
|
| 2016 |
|
| 2015 |
| ||
| Current: |
|
|
|
|
|
| ||
| Federal |
| $ | - |
|
| $ | - |
|
| State |
|
| - |
|
|
| - |
|
| Foreign |
|
| - |
|
|
| - |
|
|
|
|
| - |
|
|
| - |
|
| Deferred: |
|
|
|
|
|
|
|
|
| Federal |
|
| - |
|
|
| - |
|
| State |
|
| - |
|
|
| - |
|
|
|
|
| - |
|
|
| - |
|
| Total provision (benefit) for income taxes |
| $ | - |
|
| $ | - |
|
The Company is subject to United States federal and state income taxes at an approximate rate of 36.25%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows for the years ended December 31, 2016 and 2015:
|
|
| 2016 |
|
| 2015 |
| ||
| Federal tax benefit |
| $ | (281,345 | ) |
| $ | (653,236 | ) |
| State benefit, net of Federal |
|
| (21,421 | ) |
|
| (43,295 | ) |
| Permanent differences |
|
| 85,188 |
|
|
| 171,084 |
|
| Change in valuation allowance |
|
| 217,578 |
|
|
| 525,448 |
|
| Total |
| $ | - |
|
| $ | - |
|
| F-12 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
Deferred tax assets consist of the following at:
|
|
| Year Ended December 31, |
| |||||
|
|
| 2016 |
|
| 2015 |
| ||
| Deferred tax assets: |
|
|
|
|
|
| ||
| Net operating loss carryforward |
| $ | 776,125 |
|
| $ | 580,087 |
|
| Allowance for bad debt |
|
| 26,845 |
|
|
| 1,804 |
|
| Accrued compensated absences |
|
| - |
|
|
| 5,616 |
|
| Depreciation |
|
| 24,684 |
|
|
| (5,434 | ) |
| Stock-based compensation |
|
| - |
|
|
| 121,017 |
|
| Total gross deferred tax assets |
|
| 827,654 |
|
|
| 703,089 |
|
| Less: valuation allowance |
|
| (827,654 | ) |
|
| (703,089 | ) |
| Net deferred tax assets |
| $ | - |
|
| $ | - |
|
At December 31, 2016, the Company had federal and state net operating losses of approximately $2,341,738 which will begin to expire in 2033. On September 4, 2015, the Company completed a recapitalization, by which the non-surviving entity generated net operating losses through the completion of the recapitalization. The Company has not included these losses in the above deferred tax assets since it cannot conclude that it is more likely than not that they will not be limited or fully forfeited under Section 382 of the Internal Revenue Code.
The Company has historically generated losses and the future realizability of its loss carryforwards is uncertain, correspondingly, management believes that it is more likely than not that its deferred tax assets will not be realized. Due to this uncertainty, the Company has applied a 100% valuation against its deferred tax assets.
As of December 31, 2016, and 2015, the Company did not have any unrecognized tax benefits. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception, however all periods since its inception remain open.
5. COMMITMENTS AND CONTINGENCIES
Operating Lease
In September 2016, the Company entered into a three-year lease with base monthly lease payments averaging $2,561.
Litigation
From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. Any adverse outcome of any claim, in management’s opinion, individually or in the aggregate, would not have a material effect on the Company’s financial condition, results of operations or cash flows.
6. UNIT REDEMPTION PAYABLE
In October 2013, the Company issued an aggregate of 250,000 Class A Units (“Unit”) to two current Board Members pursuant to a Unit Purchase and Sale Agreement dated October 15, 2013 (the “Unit Purchase Agreement”). One-half of the Class A Units are mandatorily redeemable by the Company at an aggregate purchase price of $400,000 once it has received financing or capital of any form totaling the Series A raise amount of $1,960,000.
| F-13 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
In January 2015, the Unit Purchase Agreement was amended to change the definition of a liquidity event from $1,960,00 to any merger, reverse merger, or any other sale or swap of all or substantially all of the seller’s equity with another entity or person (including, without limitation, with a public shell) or the sale of all or substantially all of the assets of the seller, which would cause the units to become mandatorily redeemable. In addition, the number of units to be repurchased and the purchase price was revised to $550,000 to redeem 125,000 Class A Units with 45% of the redemption price due within five days of a liquidity event and the remaining amount due on or before the 12-month anniversary of the liquidity event. In September 2015, the Company repurchased 125,000 Class A Units for a cash payment of $247,500. In addition, the Company issued the Unit holders 50,000 shares of Series A Convertible Preferred Stock at its stated value of $50,000. As of December 31, 2016, and 2015, the remaining Unit payable obligations totaled $302,500.
7. NOTES PAYABLE
During 2015, the Company issued promissory notes totaling $460,500 bearing interest at rates between 8% and 18% per annum. In connection with the closing of the Merger in September 2015, the Company settled the notes via the issuance of 479,853 shares of Series A Convertible Preferred stock and 124,000 shares of common stock, inclusive of accrued interest totaling $19,354.
In December 2015, the Company issued a convertible note in the aggregate principal amount of $84,000. The note is secured by the Company’s vehicles, and provides for the conversion of all principal and interest outstanding under the notes into shares of the Company’s common stock beginning six months after the issuance date (“conversion date”) at a conversion rate of 65% of the lowest listed closing market price of the Company’s common stock for the previous ten trading days immediately prior to the conversion date, but not lower than $0.10 per share.
On June 30, 2016 Adriatic Advisors, LLC purchased this note. Adriatic is controlled by Jelena Doukas (“Doukas”) who is a beneficial owner of the Corporation’s 5% Series A Convertible Preferred Stock (the “Series A Preferred”).
In August 2016, the Company issued a convertible note in the aggregate principal amount of $55,125. The note is secured by the Company’s vehicles, and provides for the conversion of all principal and interest outstanding under the notes into shares of the Company’s common stock beginning six months after the issuance date (“conversion date”) at a conversion rate of 65% of the lowest listed closing market price of the Company’s common stock for the previous ten trading days immediately prior to the conversion date, with a floor of $0.0035 per share.
See Note 8 for a discussion of the Company’s related party notes payable.
8. RELATED PARTY TRANSACTIONS
During the year ended December 31, 2014, the Company advanced various payments to its former Chief Executive Officer (“CEO”) totaling $261,573. In September of 2015, the Company determined the amount due from its former CEO was going to be treated as wages for the year ended December 31, 2015 and recognized additional compensation expenses during the nine months ended September 30, 2015. Upon further review and analysis during the fourth quarter of 2015, the Company determined the amount would not be treated as wages and subsequently reclassified the $261,573 as receivable as of December 31, 2015.
In March of 2016, the Company’s former CEO returned 1,200,000 shares of common stock to treasury in exchange for forgiveness of the receivable due to the Company. The shares were subsequently cancelled. The Company also cancelled the receivable of $261,573 as part of its settlement with the former CEO.
In August 2016, CSA Holdings Inc. (the “Company”) entered into an amended and restated settlement agreement (“Settlement Agreement”) with Daniel Williams. The settlement agreement provided for a cash payment of $575,000 to the Company to settle a dispute related to an IRS administrative action against the Company and Mr. Williams for federal taxes owed by the Company. The Company and Mr. Williams also agreed to a mutual release of claims subject to the following events occurring: (1) Mr. Williams making the $575,000 payment, (2) resignation of Mr. Williams from all position of the Company and its wholly-owned subsidiary – CSA, LLC, as CEO, President and Chairman of the Board or Manager, as the case may be, (3) repayment of certain loans previously made to the Company and (4) dismissal of the IRS administrative action. In connection with entry into the Settlement Agreement, Mr. Williams resigned as the Company’s Chief Executive Officer, President and Chairman of the Board effective as of the April 18, 2016.
| F-14 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
As of December 31, 2016 and 2015, the Company had outstanding related party notes payable totaling $342,905 and $21,905, respectively. As of December 31, 2016, the outstanding loan payable was in default, however, no demand for damages has been received and additional monies were advanced to the Company during the year.
9. STOCK BASED COMPENSATION
During the years ended December 31, 2016 and 2015, the Company granted 5,000,000 stock options and 1,000,000 stock options, respectively. The total grant date fair value of the options granted during the year ended December 31, 2016 was $159,979. The grant date fair value for the award was calculated with a Black-Scholes Option pricing model with the following assumptions: expected volatility of 300%; an average expected term of 6.5 years; risk free rates based on U.S. Treasury instruments for the expected term; and no dividend payment expectations.
The following table summarizes the Company’s option activity the December 31, 2016:
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
| ||||
|
|
|
|
|
|
|
|
| Average |
|
|
|
| ||||
|
|
|
|
|
| Weighted |
|
| Remaining |
|
|
|
| ||||
|
|
|
|
|
| Average |
|
| Contractual |
|
| Aggregate |
| ||||
| Options |
| Shares |
|
| Exercise Price |
|
| Term (years) |
|
| Intrinsic Value |
| ||||
| Outstanding at December 31, 2013 |
|
| - |
|
| $ | - |
|
|
|
|
|
|
| ||
| Options granted |
|
| 775,000 |
|
|
| 0.0001 |
|
|
|
|
|
|
| ||
| Exercised |
|
|
|
|
|
| - |
|
|
|
|
|
|
| ||
| Forfeited, cancelled or expired |
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||
| Outstanding at December 31, 2014 |
|
| 775,000 |
|
| $ | 0.0001 |
|
|
|
|
|
|
| ||
| Options granted |
|
| 1,000,000 |
|
|
| 0.18 |
|
|
|
|
|
|
| ||
| Exercised |
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||
| Forfeited, cancelled or expired |
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Outstanding at December 31, 2015 |
|
| 1,775,000 |
|
| $ | 0.18 |
|
|
| 9.75 |
|
| $ | 0.23 |
|
| Options granted |
|
| 5,000,000 |
|
|
| 0.18 |
|
|
|
|
|
|
| 0.41 |
|
| Outstanding at December 31, 2016 |
|
| 6,775,000 |
|
| $ | 0.18 |
|
|
| 9.75 |
|
| $ | 0.23 |
|
The options granted and vested, as a private company during the year ended December 31, 2014, were accounted for under the intrinsic value method. In accordance with this method, the Company is required to re-measures the intrinsic value of the outstanding options at each reporting date through the date of settlement. The change related to the intrinsic value of the applicable awards is included in payroll and related costs in the accompanying consolidated statements of operations. As of December 31, 2016, the outstanding options subject to re-measurement had an intrinsic value of $0.41. As a result of the re-measurements, the Company recognized stock option expense of $146,301 for the year ended December 31, 2016.
For the years ended December 31, 2016 and 2015, the Company recognized $146,301 and $283,083, respectively, of compensation cost associated with its stock options. As of December 31, 2016, the Company had unrecognized compensation expense associated with its outstanding options totaling $8,346.
| F-15 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
10. STOCKHOLDER’S EQUITY
Common Stock
At December 31, 2014, the Company had 1,115,625 member units outstanding. As part of the recapitalization completed on September 4, 2015, all of the previously outstanding member units were exchanged for shares of common stock. Immediately prior to the recapitalization there were 133,584,000 shares of common stock outstanding, of which the majority were cancelled. The closing of the reverse merger resulted in a net recapitalization common stock issuance of 30,196,272 shares. All of the following stock transactions have been retroactively adjusted to reflect the recapitalization.
During the year ended December 31, 2015, the Company issued 30,196,272 shares of common stock for total consideration of $74,579 associated with the recapitalization.
During the year ended December 31, 2015, the Company issued 124,000 shares of common stock, along with the issuance of preferred stock, for the settlement of previously accrued interest.
In August 2016, the Company issued 12,000,000 shares of restricted common stock as part of the acquisition of Big Al’s
In August 2016, three purchasers (“Purchasers”), entered into stock purchase agreements to acquire an aggregate of 50,000,000 shares of restricted common stock of the Company (“Shares”) owned by Daniel Williams for an aggregate purchase price of $700,000. Upon purchase of the Shares, Purchasers will beneficially own 50.19% of the voting securities of the Company as of August 5, 2016.
In September 2016, the Company issued 12,500,000 shares of restricted common stock for cash proceeds totaling $150,000.
In October 2016, the Company issued 3,283,333 shares of restricted common stock for cash proceeds totaling $85,000.
In November 2016, the Company issued 279,600 shares of restricted common stock for cash proceeds totaling $13,980.
Series A Convertible Preferred Stock
As of December 31, 2016, the Company had 1,461,853 shares of 5% Series A Convertible Preferred Stock (“Preferred”) issued and outstanding. Each share of the Series A Convertible Preferred Stock has a stated value of $1.00 per share and is convertible, at the holder’s election, at an initial conversion price of $0.25 per share. The conversion price is subject to conventional adjustments associated with anti-dilution provisions for certain stock dividend, splits, business combination transactions, and other contemplated change in control transactions. The conversion price also adjusts, for a period of five years, for subsequent sales or grants of equity and equity-linked instruments at an effective price per share lower than the initial conversion price such that the conversion price equals the price of the subsequent issuance. Additionally, the Company has the option to redeem all or a portion of the Series A Preferred Shares at a price equal to the stated value of the shares ($1.00) plus accrued and unpaid dividends beginning three years after the issuance date of the Preferred. Each preferred share is entitled to one vote.
The Preferred shares accrue cumulative dividends at a rate of 5% per annum. As of December 31, 2016, the Company had accrued dividends of $18,621, payable in cash only when, as, and if declared by the Board of Directors out of funds legally available therefor or upon liquidation, redemption for common stock at the Company’s option, or conversion into common stock. No accrual for dividends has been set up for 2016.
Additionally, the Preferred shareholders were granted additional covenants, requiring prior written consent from at least 51% of the Preferred to execute certain transactions. These covenants include:
|
| a) | Prohibition from effecting or entering into an agreement to effect any issuance of common stock or common stock equivalents involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of common stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of common stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the common stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. |
| F-16 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
|
| b) | Enter into any indebtedness, lien, or guarantee any transaction in excess of $100,000. |
|
| c) | Amend the Articles of Incorporation of By-Laws that may have any adverse impacts on the Preferred holders. |
|
| d) | Repurchase or acquire shares of common stock, common stock equivalents, or securities deemed junior to the preferred. |
|
| e) | Enter into any employment agreement with any officer, director, or employee of the Company on an other than arm’s-length basis. |
In the event these negative covenants are triggered, each Preferred Holder shall have the right, exercisable the Holder’s sole option, to redeem all of the Preferred shares at a cash redemption price equal to 130% of the Stated value of $1.00 per share.
For the period from January 1, 2016 through December 31, 2016 the Company issued 290,000 shares of Series A Convertible Preferred Stock for total cash receipts of $290,000.
11. ACQUISITION
In July 2016 entered into an asset purchase agreement (“Agreement”) with Big Al’s Security Team, LLC, BSAT Oregon, LLC, BAST Arizona, LLC, Precision Operations Group, Inc. and Precession Operations Group SHS, LLC (collectively referred to herein as the “Sellers”) and closed the transaction on August 18, 2016. The Agreement provided for a cash payment of $350,000 to the Sellers and issuance of 12,000,000 shares of restricted common stock of the Company and an earn-out of up to $100,000 in cash and an additional 4,000,000 shares of restricted common stock of the Company in exchange for the acquisition of the Sellers’ assets and specified liabilities related to the business of providing security services for (1) high profile individuals, (2) event security, (3) residential and commercial security, (4) identity verification and (5) cannabis security for employers, facilities, retail stores as well as money and cannabis transportation services (collectively referred to as the “Business”).
12. SUPPLEMENTAL NON-CASH DISCLOSURES
Supplemental non-cash disclosures for the years ended December 31, 2016 and 2015 are as follows:
| Description |
| 2016 |
|
| 2015 |
| ||
| Cash paid during the year for |
|
|
|
|
|
| ||
| Income taxes |
|
| - |
|
|
| - |
|
| Interest |
|
| - |
|
|
| 745 |
|
| Financing Activities |
|
|
|
|
|
|
|
|
| Share redemption |
|
| 261,573 |
|
|
|
|
|
| Conversion of debt and accrued interest to preferred stock |
|
|
|
|
|
| 479,853 |
|
| Investing Activities |
|
|
|
|
|
|
|
|
| Acquisition of fixed assets |
|
| 38,415 |
|
|
| - |
|
| Acquisition of intangibles |
|
| 1,057,509 |
|
|
| - |
|
| F-17 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
13. INTERIM FINANCIAL STATEMENTS DISCLOSURES
Interim financial statements disclosures for the quarterly periods in the years ended December 31, 2016 and 2017 are as follows:
| INTERIM BALANCE SHEETS | ||||||||||||
|
|
| September 30, |
|
| June 30, |
|
| March 31, |
| |||
| ASSETS |
|
|
|
|
|
|
|
|
| |||
| Current Assets |
|
|
|
|
|
|
|
|
| |||
| Cash and cash equivalents |
| $ | 211,281 |
|
| $ | 142,395 |
|
| $ | 23,142 |
|
| Accounts receivable - net of allowance for doubtful accounts |
|
| 160,701 |
|
|
| 4,521 |
|
|
| 49,454 |
|
| Prepaid expenses |
|
| 55,885 |
|
|
| 57,473 |
|
|
| 15,887 |
|
| Total Current Assets |
|
| 427,867 |
|
|
| 204,389 |
|
|
| 88,483 |
|
| Property and equipment, net |
|
| 168,809 |
|
|
| 138,866 |
|
|
| 146,193 |
|
| Goodwill |
|
| 1,057,509 |
|
|
| - |
|
|
| - |
|
| TOTAL ASSETS |
| $ | 1,654,186 |
|
| $ | 343,255 |
|
| $ | 234,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable |
| $ | 330,255 |
|
| $ | 305,547 |
|
| $ | 205,906 |
|
| Accrued compensation and related benefits |
|
| 503,808 |
|
|
| 473,005 |
|
|
| 485,229 |
|
| Related party notes payable |
|
| 196,905 |
|
|
| 123,905 |
|
|
| 46,905 |
|
| Deferred revenue |
|
| 127,225 |
|
|
| 113,493 |
|
|
| 1,845 |
|
| Notes payable – from acquisition |
|
| 25,748 |
|
|
| - |
|
|
| - |
|
| Convertible notes payable - net of discount |
|
| 162,868 |
|
|
| 87,868 |
|
|
| 97,868 |
|
| Preferred dividends payable |
|
| 18,621 |
|
|
| 18,621 |
|
|
| 18,621 |
|
| Unit redemption payable |
|
| 302,500 |
|
|
| 302,500 |
|
|
| 302,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TOTAL LIABILITIES |
|
| 1,667,931 |
|
|
| 1,424,939 |
|
|
| 1,158,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred stock, $.001 par value, 20,000,000 shares authorized - issued and outstanding - 1,461,853, 1,461,853, 1,441,853 - September 30, 2016, June 30, 2016 and March 31, 2016 respectively |
|
| 1,461 |
|
|
| 1,461 |
|
|
| 1,441 |
|
| Common stock, $.001 par value, 500,000,000 shares authorized - issued and outstanding - 110,289,022, 98,289,022, 98,289,022 - September 30, 2016, June 30, 2016 and March 31, 2016 respectively |
|
| 186,872 |
|
|
| 148,289 |
|
|
| 99,489 |
|
| Additional paid-in capital |
|
| 3,023,305 |
|
|
| 1,926,713 |
|
|
| 1,905,513 |
|
| Accumulated deficit |
|
| (3,225,384 | ) |
|
| (3,158,148 | ) |
|
| (2,930,661 | ) |
| Total stockholders’ equity (deficit) |
|
| (13,745 | ) |
|
| (1,081,685 | ) |
|
| (924,198 | ) |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 1,654,186 |
|
| $ | 343,255 |
|
| $ | 234,676 |
|
| F-18 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
| STATEMENTS OF OPERATIONS |
| THREE MONTHS ENDED SEPTEMBER 30, |
|
| NINE MONTHS ENDED SEPTEMBER 30, |
| ||||||||||
|
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||
| REVENUE |
| $ | 728,921 |
|
| $ | 635,854 |
|
| $ | 1,313,203 |
|
| $ | 663,255 |
|
| DIRECT COSTS |
|
| 458,417 |
|
|
| 400,521 |
|
|
| 847,937 |
|
|
| 415,015 |
|
| GROSS PROFIT |
|
| 270,504 |
|
|
| 235,333 |
|
|
| 465,267 |
|
|
| 248,240 |
|
| OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Wages and benefits |
|
| 190,678 |
|
|
| 93,629 |
|
|
| 498,255 |
|
|
| 210,758 |
|
| Professional fees |
|
| 60,791 |
|
|
| 67,789 |
|
|
| 298,962 |
|
|
| 123,891 |
|
| Bad debts (recovered) |
|
| (183 | ) |
|
| 9,810 |
|
|
| (60,253 | ) |
|
| 9,810 |
|
| General and administrative |
|
| 80,155 |
|
|
| 894,771 |
|
|
| 209,257 |
|
|
| 928,416 |
|
| Total Operating Expenses |
|
| 331,441 |
|
|
| 1,065,999 |
|
|
| 946,220 |
|
|
| 1,272,875 |
|
| Loss from operations |
|
| (60,937 | ) |
|
| (830,666 | ) |
|
| (480,953 | ) |
|
| (1,024,635 | ) |
| OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest income (expense) |
|
| (6,299 | ) |
|
| (221,513 | ) |
|
| (26,297 | ) |
|
| (221,513 | ) |
| NET INCOME(LOSS) |
| $ | (67,236 | ) |
| $ | (1,052,179 | ) |
| $ | (507,251 | ) |
| $ | (1,246,148 | ) |
| Weighted average shares outstanding - Basic and fully diluted |
|
| 166,598,261 |
|
|
| 100,264,022 |
|
|
| 137,350,518 |
|
|
| 100,264,022 |
|
| Net loss per share - basic and fully diluted |
| $ | (0.00 | ) |
| $ | (0.01 | ) |
| $ | (0.01 | ) |
| $ | (0.01 | ) |
| STATEMENTS OF OPERATIONS |
| THREE MONTHS ENDED JUNE 30, |
|
| SIX MONTHS ENDED JUNE 30, |
| ||||||||||
|
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||
| REVENUE |
| $ | 300,832 |
|
| $ | 2,220 |
|
| $ | 584,282 |
|
| $ | 27,401 |
|
| DIRECT COSTS |
|
| 222,923 |
|
|
| 14,494 |
|
|
| 389,520 |
|
|
| 14,494 |
|
| GROSS PROFIT |
|
| 77,909 |
|
|
| (12,274 | ) |
|
| 194,763 |
|
|
| 12,907 |
|
| OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Wages and benefits |
|
| 201,149 |
|
|
| 38,351 |
|
|
| 307,577 |
|
|
| 117,129 |
|
| Professional fees |
|
| 103,426 |
|
|
| 16,489 |
|
|
| 238,171 |
|
|
| 56,102 |
|
| Bad debts (recovered) |
|
| (60,071 | ) |
|
| - |
|
|
| (60,071 | ) |
|
| - |
|
| General and administrative |
|
| 55,679 |
|
|
| 33,646 |
|
|
| 129,102 |
|
|
| 33,645 |
|
| Total Operating Expenses |
|
| 300,183 |
|
|
| 88,486 |
|
|
| 614,779 |
|
|
| 206,876 |
|
| Income (loss) from operations |
|
| (222,274 | ) |
|
| (100,760 | ) |
|
| (420,016 | ) |
|
| (193,969 | ) |
| Interest income (expense) |
|
| (5,212 | ) |
|
| - |
|
|
| (19,999 | ) |
|
| - |
|
| NET INCOME(LOSS) |
| $ | (227,486 | ) |
| $ | (100,760 | ) |
| $ | (440,014 | ) |
| $ | (193,969 | ) |
| Weighted average shares outstanding - Basic and fully diluted |
|
| 145,642,868 |
|
|
| 99,485,734 |
|
|
| 122,565,945 |
|
|
| 99,485,734 |
|
| Net loss per share - basic and fully diluted |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| F-19 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
| STATEMENTS OF OPERATIONS |
| THREE MONTHS |
| |||||
|
|
| 2016 |
|
| 2015 |
| ||
| REVENUE |
| $ | 283,450 |
|
| $ | 25,181 |
|
| DIRECT COSTS |
|
| 166,597 |
|
|
| 78,778 |
|
| GROSS PROFIT |
|
| 116,853 |
|
|
| (53,597 | ) |
| OPERATING EXPENSES |
|
|
|
|
|
|
|
|
| Wages and benefits |
|
| 106,427 |
|
|
| - |
|
| Professional fees |
|
| 134,744 |
|
|
| 39,612 |
|
| General and administrative |
|
| 73,424 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| Total Operating Expenses |
|
| 314,596 |
|
|
| 39,612 |
|
|
|
|
|
|
|
|
|
|
|
| INCOME(LOSS) FROM OPERATIONS |
| $ | (197,742 | ) |
| $ | (93,209 | ) |
| Interest income (expense) |
|
| (14,786 | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| NET INCOME (LOSS) |
|
| (212,528 | ) |
|
| (93,209 | ) |
|
|
|
|
|
|
|
|
|
|
| Weighted average shares outstanding Basic and fully diluted |
|
| 99,485,734 |
|
|
| 99,485,734 |
|
| Net loss per share - basic and fully diluted |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| F-20 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
|
|
| 2016 |
|
| 2015 |
| ||
| Cash Flows from Operating Activities |
|
|
|
|
|
| ||
| Net income (loss) |
| $ | (507,251 | ) |
| $ | (1,246,148 | ) |
| Adjustments to reconcile net loss Depreciation |
|
| 32,326 |
|
|
| 8,484 |
|
| Loss (gain) on disposal of asset |
|
| - |
|
|
| 1,873 |
|
| Stock based compensation |
|
| 38,553 |
|
|
| - |
|
| Interest expense |
|
| 1,800 |
|
|
| 218,064 |
|
| Discount amortization |
|
| 10,606 |
|
|
|
|
|
| Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
| Accounts receivable |
|
| (121,128 | ) |
|
| 81,808 |
|
| Prepaid expenses |
|
| (31,315 | ) |
|
| - |
|
| Accounts payable |
|
| 88,617 |
|
|
| 44,104 |
|
| Accrued compensation |
|
| 60,924 |
|
|
| 218,712 |
|
| Other accrued expenses |
|
| - |
|
|
| (57,286 | ) |
| Customer deposits |
|
| - |
|
|
| (58,226 | ) |
| Accrued vacation |
|
| - |
|
|
| 3,865 |
|
| Deferred revenue |
|
| 59,774 |
|
|
| - |
|
| Cash Used In Operating Activities |
|
| (367,093 | ) |
|
| (535,423 | ) |
| Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
| Purchase of Big Al’s |
|
| (350,000 | ) |
|
| - |
|
| Purchase of furniture, vehicles and equipment |
|
| (9,928 | ) |
|
| (141,429 | ) |
| Proceeds from disposal asset |
|
|
|
|
|
| 14,128 |
|
| Cash Used In Investing Activities |
|
| (359,928 | ) |
|
| (127,301 | ) |
| Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
| Proceeds from issuance of shares |
|
| 643,170 |
|
|
| 429,000 |
|
| Proceeds from subscription receivable |
|
| - |
|
|
| 2,250 |
|
| Note payables |
|
| 238,200 |
|
|
| 472,405 |
|
| Redeemable units |
|
| - |
|
|
| (247,500 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash Provided by Financing Activities |
|
| 881,370 |
|
|
| 656,155 |
|
| Change in Cash and Cash Equivalents |
|
| 154,350 |
|
|
| (6,569 | ) |
| Cash and Cash Equivalents - Beginning of period |
|
| 56,932 |
|
|
| 42,525 |
|
| Cash and Cash Equivalents -End of period |
| $ | 211,281 |
|
| $ | 35,956 |
|
| F-21 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
| CASH FLOW STATEMENTS |
| SIX MONTHS PERIOD ENDED JUNE 30, |
| |||||
|
|
| 2016 |
|
| 2015 |
| ||
| Cash Flows from Operating Activities |
|
|
|
|
|
| ||
| Net loss |
| $ | (440,015 | ) |
| $ | (193,969 | ) |
| Adjustments to reconcile net loss |
|
|
|
|
|
|
|
|
| Depreciation |
|
| 14,653 |
|
|
| - |
|
| Stock based compensation |
|
| 15,998 |
|
|
| - |
|
| Interest expense |
|
| 1,200 |
|
|
| - |
|
| Discount amortization |
|
| 10,606 |
|
|
|
|
|
| Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
| Accounts receivable |
|
| 35,052 |
|
|
| (27,401 | ) |
| Prepaid expenses |
|
| (32,902 | ) |
|
| - |
|
| Accounts payable |
|
| 63,909 |
|
|
| 99,157 |
|
| Accrued compensation |
|
| 30,121 |
|
|
| 47,487 |
|
| Deferred revenue |
|
| 46,042 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| Cash Used in Operating Activities |
|
| (256,062 | ) |
|
| (74,726 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
| Purchase of furniture, vehicles and equipment |
|
| (726 | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| Cash Used in Investing Activities |
|
| (726 | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
| Issuance of shares |
|
| 250,725 |
|
|
| - |
|
| Note payable |
|
| 90,800 |
|
|
| 69,642 |
|
|
|
|
|
|
|
|
|
|
|
| Cash Provided by Financing Activities |
|
| 341,525 |
|
|
| 69,642 |
|
|
|
|
|
|
|
|
|
|
|
| Change in Cash and Cash Equivalents |
|
| 85,464 |
|
|
| (5,084 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash and Cash Equivalents - Beginning of period |
|
| 56,932 |
|
|
| (1,870 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash and Cash Equivalents -End of period |
| $ | 142,395 |
|
| $ | (6,954 | ) |
| F-22 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
| CASH FLOW STATEMENTS |
| THREE MONTHS PERIOD ENDED MARCH 31, |
| |||||
|
|
| 2016 |
|
| 2015 |
| ||
| Cash Flows from Operating Activities |
|
|
|
|
|
| ||
| Net loss |
| $ | (212,528 | ) |
|
| (93,209 | ) |
| Adjustments to reconcile net loss |
|
|
|
|
|
|
|
|
| Depreciation |
|
| 7,327 |
|
|
| - |
|
| Stock based compensation |
|
| 7,999 |
|
|
| - |
|
| Interest expense |
|
| 600 |
|
|
| - |
|
| Discount amortization |
|
| 10,606 |
|
|
| - |
|
| Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
| Accounts receivable |
|
| (9,881 | ) |
|
| (25,181 | ) |
| Prepaid expenses |
|
| 8,683 |
|
|
| - |
|
| Accounts payable |
|
| (35,732 | ) |
|
| 39,613 |
|
| Accruals |
|
| 42,345 |
|
|
| 42,034 |
|
| Deferred revenue |
|
| (65,606 | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| Cash Used in Operating Activities |
|
| (246,187 | ) |
|
| (36,743 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
| Purchase of furniture, vehicles and equipment |
|
| (727 | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| Cash Used in Investing Activities |
|
| (726 | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
| Issuance of shares |
|
| 188,724 |
|
|
| - |
|
| Note payable |
|
| 24,400 |
|
|
| 36,743 |
|
|
|
|
|
|
|
|
|
|
|
| Cash Provided by Financing Activities |
|
| 213,124 |
|
|
| 36,743 |
|
|
|
|
|
|
|
|
|
|
|
| Change in Cash and Cash Equivalents |
|
| (33,790 | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| Cash and Cash Equivalents - Beginning of period |
|
| 56,932 |
|
|
| (1,870 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash and Cash Equivalents -End of period |
| $ | 23,142 |
|
| $ | (1,870 | ) |
| F-23 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
| INTERIM BALANCE SHEETS | ||||||||
| ASSETS |
| June 30, 2017 |
|
| March 31, 2017 |
| ||
| Current Assets |
|
|
|
|
|
| ||
| Cash and cash equivalents |
| $ | 5,299 |
|
| $ | 10,160 |
|
| Accounts receivable (net of allowance for doubtful accounts) |
|
| 101,632 |
|
|
| 184,217 |
|
| Prepaid expenses |
|
| 59,769 |
|
|
| 87,563 |
|
| Total Current Assets |
|
| 166,700 |
|
|
| 281,940 |
|
| Property and equipment, net |
|
| 138,896 |
|
|
| 152,147 |
|
| Goodwill |
|
| 1,057,509 |
|
|
| 1,057,509 |
|
|
|
|
|
|
|
|
|
|
|
| TOTAL ASSETS |
| $ | 1,363,104 |
|
| $ | 1,491,596 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
| Current Liabilities |
|
|
|
|
|
|
|
|
| Accounts payable |
| $ | 400,721 |
|
| $ | 387,571 |
|
| Accrued compensation and related benefits |
|
| 5,652 |
|
|
| 87,809 |
|
| Related party notes payable |
|
| 485,911 |
|
|
| 534,816 |
|
| Deferred revenue |
|
| (20,045 | ) |
|
| - |
|
| Taxes payable |
|
| 97,128 |
|
|
| 103,143 |
|
| Notes payable |
|
| 74,654 |
|
|
| 86,650 |
|
| Preferred dividends payable |
|
| 18,621 |
|
|
| 18,621 |
|
| Unit redemption payable |
|
| 302,500 |
|
|
| 302,500 |
|
|
|
|
|
|
|
|
|
|
|
| TOTAL LIABILITIES |
|
| 1,365,141 |
|
|
| 1,521,110 |
|
|
|
|
|
|
|
|
|
|
|
| STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
| Preferred stock, $.001 par value, 20,000,000 shares authorized - issued and outstanding - 1,461,853, 1,461,853, 1,441,853 - September 30, 2016, June 30, 2016 and March 31, 2016 respectively |
|
| 1,461 |
|
|
| 1,461 |
|
| Common stock, $.001 par value, 500,000,000 shares authorized - issued and outstanding - 110,289,022, 98,289,022, 98,289,022 - September 30, 2016, June 30, 2016 and March 31, 2016 respectively |
|
| 132,452 |
|
|
| 126,352 |
|
| Additional paid-in capital |
|
| 4,115,920 |
|
|
| 3,770,479 |
|
| Accumulated deficit |
|
| (4,251,870 | ) |
|
| (3,927,806 | ) |
| Total stockholders’ equity (deficit) |
|
| (2,037 | ) |
|
| (29,514 | ) |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 1,363,104 |
|
| $ | 1,491,596 |
|
| F-24 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
| STATEMENTS OF OPERATIONS |
| THREE MONTHS ENDED JUNE 30, |
|
| SIX MONTHS ENDED JUNE 30, |
| ||||||||||
|
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
| REVENUE |
| $ | 851,044 |
|
| $ | 300,832 |
|
| $ | 1,908,280 |
|
| $ | 584,282 |
|
| DIRECT COSTS |
|
| 642,286 |
|
|
| 222,923 |
|
|
| 1,490,466 |
|
|
| 389,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| GROSS PROFIT |
|
| 208,758 |
|
|
| 77,909 |
|
|
| 417,815 |
|
|
| 194,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Wages and benefits |
|
| 131,580 |
|
|
| 209,149 |
|
|
| 243,784 |
|
|
| 307,577 |
|
| Professional fees |
|
| 46,541 |
|
|
| 104,426 |
|
|
| 93,081 |
|
|
| 238,171 |
|
| Bad debts (recovered) |
|
| - |
|
|
| (60,071 | ) |
|
| - |
|
|
| (60,071 | ) |
| General and administrative |
|
| 354,702 |
|
|
| 55,679 |
|
|
| 721,591 |
|
|
| 129,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Operating Expenses |
|
| 532,822 |
|
|
| 300,183 |
|
|
| 1,058,456 |
|
|
| 614,779 |
|
| Income (loss) from operations |
|
| (324,064 | ) |
|
| (222,274 | ) |
|
| (640,641 | ) |
|
| (420,016 | ) |
| Interest income (expense) |
|
| - |
|
|
| (5,212 | ) |
|
| - |
|
|
| (19,999 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| NET INCOME(LOSS) |
| $ | (324,064 | ) |
| $ | (227,486 | ) |
| $ | (640,642 | ) |
| $ | (440,014 | ) |
| Weighted average shares outstanding - Basic and fully diluted |
|
| 132,369,537 |
|
|
| 99,485,734 |
|
|
| 131,179,352 |
|
|
| 99,485,734 |
|
| Net loss per share - basic and fully diluted |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.01 | ) |
| $ | (0.00 | ) |
| F-25 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
| STATEMENTS OF OPERATIONS |
| THREE MONTHS PERIOD ENDED MARCH 31, |
| |||||
|
|
| 2017 |
|
| 2016 |
| ||
| REVENUE |
| $ | 1,057,237 |
|
| $ | 283,450 |
|
| DIRECT COSTS |
|
| 848,180 |
|
|
| 166,597 |
|
|
|
|
|
|
|
|
|
|
|
| GROSS PROFIT |
|
| 209,057 |
|
|
| 116,853 |
|
|
|
|
|
|
|
|
|
|
|
| OPERATING EXPENSES |
|
|
|
|
|
|
|
|
| Wages and benefits |
|
| 112,204 |
|
|
| 106,427 |
|
| Professional fees |
|
| 46,541 |
|
|
| 134,744 |
|
| General and administrative |
|
| 366,889 |
|
|
| 73,424 |
|
|
|
|
|
|
|
|
|
|
|
| Total Operating Expenses |
|
| 525,634 |
|
|
| 314,596 |
|
| Income (loss) from operations |
|
| (316,578 | ) |
|
| (197,742 | ) |
| Interest income (expense) |
|
| - |
|
|
| (14,786 | ) |
|
|
|
|
|
|
|
|
|
|
| NET INCOME(LOSS) |
| $ | (316,578 | ) |
| $ | (212,528 | ) |
|
|
|
|
|
|
|
|
|
|
| Weighted average shares outstanding Basic and fully diluted |
|
| 126,351,955 |
|
|
| 99,485,734 |
|
| Net loss per share - basic and fully diluted |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| F-26 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
| CASH FLOW STATEMENTS |
| SIX MONTHS PERIOD ENDED JUNE 30, |
| |||||
|
|
| 2017 |
|
| 2016 |
| ||
| Cash Flows from Operating Activities |
|
|
|
|
|
| ||
| Net loss |
| $ | (640,642 | ) |
| $ | (440,014 | ) |
| Adjustments to reconcile net loss |
|
|
|
|
|
|
|
|
| Depreciation |
|
| 31,886 |
|
|
| 14,653 |
|
| Stock based compensation |
|
| 93,081 |
|
|
| 15,998 |
|
| Interest expense |
|
|
|
|
|
| 1,200 |
|
| Discount amortization |
|
| - |
|
|
| 10,606 |
|
| Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
| Accounts receivable |
|
| 120,962 |
|
|
| 35,052 |
|
| Prepaid expenses |
|
| 57,748 |
|
|
| (32,903 | ) |
| Accounts payable |
|
| (22,374 | ) |
|
| 63,909 |
|
| Accrued compensation |
|
| 2,016 |
|
|
| 30,121 |
|
| Deferred revenue |
|
| - |
|
|
| 46,042 |
|
|
|
|
|
|
|
|
|
|
|
| Cash Used in Operating Activities |
|
| (402,843 | ) |
|
| (255,336 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
| Purchase of furniture, vehicles and equipment |
|
| (7,089 | ) |
|
| (727 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash Used in Investing Activities |
|
| (7,089 | ) |
|
| (727 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
| Issuance of shares |
|
| - |
|
|
| 250,725 |
|
| Note payable - related party |
|
| 310,000 |
|
|
| 90,800 |
|
| Convertible notes |
|
| 102,814 |
|
|
| - |
|
| Lien notes payable |
|
| (2,259 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash Provided by Financing Activities |
|
| 410,555 |
|
|
| 341,525 |
|
|
|
|
|
|
|
|
|
|
|
| Change in Cash and Cash Equivalents |
|
| 623 |
|
|
| 85,464 |
|
|
|
|
|
|
|
|
|
|
|
| Cash and Cash Equivalents - Beginning of period |
|
| (24,196 | ) |
|
| 56,932 |
|
|
|
|
|
|
|
|
|
|
|
| Cash and Cash Equivalents -End of period |
| $ | (23,573 | ) |
| $ | 142,395 |
|
| F-27 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
| CASH FLOW STATEMENTS |
| THREE MONTHS PERIOD ENDED MARCH 31 |
| |||||
|
|
| 2017 |
|
| 2016 |
| ||
| Cash Flows from Operating Activities |
|
|
|
|
|
| ||
| Net loss |
| $ | (316,578 | ) |
| $ | (212,528 | ) |
| Adjustments to reconcile net loss |
|
|
|
|
|
|
|
|
| Depreciation |
|
| 18,280 |
|
|
| 7,326 |
|
| Stock based compensation |
|
| 46,541 |
|
|
| 7,999 |
|
| Interest expense |
|
|
|
|
|
| 600 |
|
| Discount amortization |
|
| - |
|
|
| 10,606 |
|
| Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
| Accounts receivable |
|
| 49,814 |
|
|
| (9,881 | ) |
| Prepaid expenses |
|
| 28,874 |
|
|
| 8,683 |
|
| Accounts payable |
|
| 22,495 |
|
|
| (35,732 | ) |
| Accrued compensation |
|
| 90,188 |
|
|
| 42,345 |
|
| Deferred revenue |
|
| - |
|
|
| (65,606 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash Used in Operating Activities |
|
| (77,927 | ) |
|
| (246,187 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
| Purchase of furniture, vehicles and equipment |
|
| (7,089 | ) |
|
| (727 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash Used in Investing Activities |
|
| 7,089 | ) |
|
| (727 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
| Issuance of shares |
|
| - |
|
|
| 188,724 |
|
| Lien notes payable |
|
| (877 | ) |
|
| - |
|
| Note payable |
|
| 102,814 |
|
|
| 24,400 |
|
|
|
|
|
|
|
|
|
|
|
| Cash Provided by Financing Activities |
|
| 101,937 |
|
|
| 213,124 |
|
|
|
|
|
|
|
|
|
|
|
| Change in Cash and Cash Equivalents |
|
| 16,921 |
|
|
| (33,789 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash and Cash Equivalents - Beginning of period |
|
| (24,196 | ) |
|
| 56,932 |
|
|
|
|
|
|
|
|
|
|
|
| Cash and Cash Equivalents -End of period |
| $ | (7,275 | ) |
| $ | 23,142 |
|
| F-28 |
| Table of Contents |
CSA HOLDINGS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
14. SUBSEQUENT EVENTS
For the period from January 1, 2017 through the date of this report, we issued a total of 8,000,000 shares of restricted and unregistered common stock in private placements for cash proceeds totaling approximately $213,000.
On August 22, 2017, CSA Holdings, Inc. (the “Company”) entered into a Debt Conversion, Accord and Satisfaction Agreement with Adriatic Advisors, LLC (“Adriatic”) and Jelena Doukas (“Doukas”). The Agreement provided for issuance of 8,000,000 shares of common stock of the Company in exchange for the cancellation of certain debt obligations of the Company and a mutual release of potential claims between the parties to the agreement.
On August 22, 2017, the Company entered into a Debt Conversion, Accord and Satisfaction Agreement with Pure Energy 714, LLC (“Pure Energy”). The Agreement provided for issuance of 7,000,000 shares of common stock of the Company in exchange for the cancellation of certain debt obligations of the Company and a mutual release of potential claims between the parties to the agreement.
On August 24, 2017, the Company entered into a Stock Purchase Agreement with Emil Assentato (“Assentato”). The Agreement provided for the purchase and issuance of 10,756,528 shares of restricted common stock of the Company to Assentato for a purchase price of $300,000
On August 24, 2017, the Company entered into a Termination Agreement with Dixie Holdings, LLC (“Dixie”) and James Willett (“Willett”). The Agreement provided for issuance of 4,333,333 shares of restricted common stock of the Company to Dixie and 9,100,000 shares of restricted common stock of the Company to Willett in exchange for the cancellation of repayment obligations of the Company in the amount of $403,000 arising under the Unit Purchase Agreement between CSA, LLC, a wholly-owned subsidiary of the Company, Dixie and Willett dated October 15, 2013
On August 24, 2017, the Company entered into a Stock Purchase Agreement with Willett. The Agreement provided for the purchase and issuance of 1,333,333 shares of restricted common stock of the Company to Willett for a purchase price of $40,000.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On July 2017, our Board of Directors approved the dismissal of WSRP, LLC. (“WSRP”) as the Company’s independent registered public accounting firm
The report of WSRP on the Company’s financial statements for the fiscal year ended December 31, 2015 did not contain an adverse opinion or a disclaimer of opinion, nor was either such report qualified or modified as to uncertainty, audit scope, or accounting principles, except that such report raised substantial doubt on the Company’s ability to continue as a going concern as a result of the Company’s continued losses from operations since inception, and had both stockholders’ and working capital deficiencies.
During the Company’s most recent fiscal year and through the date of dismissal, (a) the Company had no disagreements with WSRP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure which disagreement if not resolved to the satisfaction of WSRP would have caused either of them to make reference to the subject matter of the disagreement in connection with their reports and (b) there were no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K).
On July 2017, the Company’s Board of Directors approved the engagement of Thayer O’Neal (“Thayer”) as the Company’s independent registered public accounting firm and Thayer was engaged on July 2017. During the Company’s most recent fiscal year ended December 31, 2015 and from January 1, 2016 through July 2017, neither the Company nor anyone on its behalf consulted Thayer regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and no written report or oral advice was provided to the Company that Thayer concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a disagreement or reportable event as defined in Regulation S-K, Item 304(a)(1)(iv) and Item 304(a)(1)(v), respectively.. In approving the selection of Thayer as the Company’s independent registered public accounting firm, the Company’s Board of Directors considered these services previously provided by Thayer and concluded that such services would not adversely affect the independence of Thayer.
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ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management conducted an evaluation, with the participation of our President, who is our principal executive officer, and our Chief Financial Officer, who is our principal financial and accounting officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this annual report on Form 10-K. Based upon that evaluation, our President and Chief Financial Officer concluded that as a result of the material weakness and significant deficiencies in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of December 31, 2016.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for the preparation of our financial statements and related information. Management uses its best judgment to ensure that the financial statements present fairly, in material respects, our financial position and results of operations in conformity with generally accepted accounting principles.
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in the Exchange Act. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal controls including the possibility of human error and overriding of controls. Consequently, an ineffective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information.
Our internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that, in reasonable detail, accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles and that the receipts and expenditures of company assets are made in accordance with our management and directors authorization; and (iii) provide reasonable assurance regarding the prevention of or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
Under the supervision of management, including our President and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) published in 1992 and subsequent guidance prepared by COSO specifically for smaller public companies. Based on that evaluation, our management concluded that our internal control over financial reporting was not effective as of December 31, 2016 for the reasons discussed below.
A significant deficiency is a deficiency, or combination of deficiencies in internal control over financial reporting, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control. A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis
Management identified the following material weakness and significant deficiencies in its assessment of the effectiveness of internal control over financial reporting as of December 31, 2016:
|
| · | Material Weakness – The Company did not maintain effective controls over certain aspects of the financial reporting process because we lacked a sufficient complement of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with our financial reporting requirements. This material weakness resulted in, among other things, our failure to timely file our Annual Report on Form 10-K for the period ended December 31, 2016 as well as our quarterly reports on Form 10-Q for the periods ended March 31, 2016, June 30, 2016 and September 30, 2016. |
|
| · | Significant Deficiencies – Inadequate segregation of duties. |
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We expect to be materially dependent upon a third party to provide us with accounting consulting services for the foreseeable future. Until such time as we have a chief financial officer with the requisite expertise in U.S. GAAP and a sufficient complement of accounting personnel, there are no assurances that the material weaknesses and significant deficiencies in our disclosure controls and procedures and internal control over financial reporting will not result in errors in our financial statements which could lead to a restatement of those financial statements or a delay in the filing of our required periodic reports with the SEC.
Our management, including our President and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.
This annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Commission that permit us to provide only management’s report in this annual report on Form 10-K
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal control over financial reporting during the year ended December 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set forth below are the names and ages of our directors and executive officers and their principal occupations at present and for at least the past five years.
| Name |
| Age |
| Positions and Offices to be Held |
| Thomas Siciliano |
| 58 |
| President, Chief Financial Officer and Secretary |
| Charles Smith |
| 55 |
| Director |
| James Willett |
| 67 |
| Director |
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board. All officers and directors listed above will remain in office until the next annual meeting of our stockholders, and until their successors have been duly elected and qualified. There are no agreements with respect to the election of directors. Our board of directors appoints officers annually and each executive officer serves at the discretion of our board of directors.
Thomas Siciliano. Mr. Siciliano was appointed as our President and Chief Financial Officer on August 26, 2016 and our Chief Operating Officer as of January 22, 2016 after joining our company on November 2, 2015. Prior to joining the Company, Mr. Siciliano served as a Vice President for Classic Party Rentals from 2012 to 2015 where he was responsible for establishing and implementing new operating strategies, consolidated locations and built new branding, marketing, and operations efficiencies. From 2001 to 2011, Mr. Siciliano was the Chief Operations Officer and Senior Vice President of Sales at Integrity Associates, LLC (“Integrity”), a provider of business operations and sales consulting services. In addition to his duties at Integrity, Mr. Siciliano was a speaker in the areas of leadership, operations excellences and sales training at a variety of national conventions and universities and co-author of Shifting Into Higher Gear. From 2000 – 2001 Siciliano Mr. Siciliano was a Vice President of Sales and Operations at Corporate Express, an office supply company where he was responsible for creating comprehensive sales and infrastructure strategic plans and following a merger, lead the sales, customer service and team integration. From 1995 to 2000, Mr. Siciliano was a Senior Vice President of Sales for Aramark Uniform Services. Mr. Siciliano earned a Bachelor’s Degree in Business Administration from Columbus University.
Charles Smith. Charles Smith was appointed as a director on September 4, 2015. Mr. Smith has been the Chief Operating Officer and acting Chief Financial Officer for Dixie Brands, Inc. since 2014 and is responsible for the day-to-day oversight of company operations, production, sales, finance and long-term strategic planning. Mr. Smith is also one of the original founders of the Dixie Elixirs and Edibles Company in 2009. Mr. Smith is also the President of Bella Terra Realty Holdings since 2007. Mr. Smith was President of Sagebrush Realty Development from 2005 – 2007. Mr. Smith has over twenty five (25) years of experience in a variety of industries. He has a strong financial background, holding the position of Chief Financial Officer for a mid-sized retail apparel chain, has built and managed sales and marketing teams for private and publicly traded technology companies, and has successfully founded two companies, including one in the alcohol beverage industry. Mr. Smith has a Bachelor’s degree in Accounting from the University of Maryland and an MBA from the Owen Graduate School at Vanderbilt University.
As a business executive, Mr. Smith brings our board his considerable experience in the strategic planning and growth of companies and qualifies him to continue to serve as a director or our company.
James Willett. James Willett, age 66, was appointed to the board of directors on February 12, 2016. Mr. Willett is a graduate of the University of Washington and served in the United States Navy from 1974-1982. Subsequent to his service, he worked for Merrill Lynch from 1982-1987. Since 1987, Mr. Willett has been a business owner acting most recently as the majority owner and Chief Executive Officer of The Yakima Company, a waste recycling company servicing southern California, including the City of Los Angeles. Mr. Willett retired from The Yakima Company in 2003.
As a business executive, Mr. Willett brings our board his considerable experience in the development and strategic planning of companies and qualifies him to continue to serve as a director or our company.
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Involvement in Certain Legal Proceedings
To our knowledge, none of our current directors or executive officers has, during the past ten years:
|
| · | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
|
| · | had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; |
|
| · | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; |
|
| · | been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
|
| · | been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
|
| · | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
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Committees of our Board of Directors
Our securities are not quoted on an exchange that has requirements that a majority of our board members be independent and we are not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our board of directors include “independent” directors, nor are we required to establish or maintain an audit committee or other committee of our board of directors.
The entire board of directors participates in the consideration of compensation issues and of director nominees. Candidates for director nominees are reviewed in the context of the current composition of the board and the Company’s operating requirements and the long-term interests of its stockholders. In conducting this assessment, the Board of Directors considers skills, diversity, age, and such other factors as it deems appropriate given the current needs of the board and the Company, to maintain a balance of knowledge, experience and capability.
The board’s process for identifying and evaluating nominees for director, including nominees recommended by stockholders, will involve compiling names of potentially eligible candidates, conducting background and reference checks, conducting interviews with the candidate and others (as schedules permit), meeting to consider and approve the final candidates and, as appropriate, preparing an analysis with regard to particular recommended candidates.
Through their own business activities and experiences each of directors have come to understand that in today’s business environment, development of useful products and identification of undervalued real estate, along with other related efforts, are the keys to building our company. The directors will seek out individuals with relevant experience to operate and build our current and proposed business activities.
Since we have only one person currently serving as an executive officer and two directors, we have not adopted a code of ethics for our principal executives and financial officers. Our board of directors will revisit this issue in the future to determine if adoption of a code of ethics is appropriate. In the meantime, our management intends to promote honest and ethical conduct, full and fair disclosure in our reports to the SEC, and comply with applicable governmental laws and regulations
Director Compensation
Typically, our directors do not receive any compensation as directors and there is no other compensation being considered at this time.
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Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, or written representations that no other reports were required, and to the best of our knowledge, we believe that all of our officers, directors, and owners of 10% or more of our common stock filed all required Forms 3, 4, and 5. Mr. Smith did not file a Form 3 and Mr. Willet did not file a Form 3.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for our principal executive officer or other individual serving in a similar capacity during the year ended December 31, 2016:
2016 SUMMARY COMPENSATION TABLE
| Name and Principal Position |
| Fiscal Year |
| Salary ($) |
|
| Option Awards ($) |
|
| All Other Compensation ($) |
|
| Total ($) |
| ||||
| Thomas Siciliano, |
| 2016 |
| $ | 176,958 |
|
|
| 146,301 |
|
|
| - |
|
| $ | 323,259 |
|
| President, Principal Executive and Financial Officer (2) |
| 2015 |
| $ | 26,750 |
|
|
| 5,333 |
|
|
| - |
|
| $ | 32,083 |
|
Mr. Siciliano was appointed as our Principal Executive and Financial Officer on August 26, 2016. Mr. Siciliano’s employment commenced on November 3, 2015
Employment Agreements with Executive Officers
Mr. Siciliano’s employment agreement with the Company became effective as of January 22, 2016, and is on an at-will basis. The Company agreed to pay Mr. Siciliano a base salary of $160,000 per year and a sign-on moving expense payment of $25,000. In addition, the Company awarded Mr. Siciliano stock options to acquire 1,000,000 shares of the Company’s common stock at a price of $0.18 per share. The stock options vest 20% each year over a five-year period beginning on November 3, 2016 so long as Mr. Siciliano is employed by the Company. The stock options are subject to immediate vesting in the event the Company is sold. Upon the completion of a financing in which the Company receives gross proceeds of at least $1,000,000, the Company agreed to increase Mr. Siciliano’s base salary to $200,000 per year and make a one-time payment to him of $20,000 as a further reimbursement of his moving expenses.
On August 26, 2016, the Board of Directors named Mr. Siciliano as President of the Company. Siciliano’s salary was increased to $200,000 per year and was granted stock options to purchase 5,000,000 shares of our common stock at a price of .06. The options vest 2,000,000 at the time of the award and 1,000,000 each year for the next 3 years on the annual anniversary of the option grant. The Board agreed to develop a Bonus program designed to reward the accomplishment of agreed upon goals for the period of August 26, 2016 through September 22, 2017.
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Outstanding Equity Awards at 2016 Fiscal Year-End
The following table provides information regarding all restricted stock, stock options and SAR awards (if any) held by our officers listed in the summary compensation table above as of December 31, 2016.
| Name |
| Number of Securities Underlying Unexercised Options Exercisable |
|
| Number of Securities Underlying Unexercised Options Unexercisable |
|
| Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options |
|
| Weighted Average Exercise Price |
|
| Expiration Date |
| Number of Shares or Units of Stock That Have Not Vested |
|
| Market Value of Shares or Units of Stock That Have Not Vested |
|
| Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested |
|
| Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |
| ||||||||
| Thomas Siciliano |
|
| - |
|
|
| 1,000,000 |
|
|
| - |
|
| $ | 0.18 |
|
| 11/3/2025 |
|
| 1,000,000 |
|
| $ | 160,000 |
|
|
| - |
|
|
| - |
|
| Thomas Siciliano |
|
|
|
|
|
| 5,000,000 |
|
|
|
|
|
| $ | 0.06 |
|
| 08/22/2019 |
|
| 3,000,000 |
|
| $ | 180,000 |
|
|
|
|
|
|
|
|
|
. Our directors do not receive any compensation as directors and there is no other compensation being considered at this time
The following tables set forth certain information, as of September 30, 2017, with respect to the beneficial ownership of our outstanding common stock and preferred stock by:
|
| · | any holder of more than 5% of our common stock, |
|
| · | each of our executive officers listed in the summary compensation table above, |
|
| · | each of our directors, and |
|
| · | our directors and executive officers as a group. |
The information provided herein is based upon a list of our shareholders and our records with respect to the ownership of common stock. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.
|
|
| Shares Beneficially Owned (1) |
|
| Percentage Ownership |
| ||
|
|
|
|
|
|
|
| ||
| Name and Address of Affiliate |
|
|
|
|
|
| ||
| Thomas Siciliano (2) 4704 Harlan Street, Suite 680 Denver, CO 80212 |
|
| 6,000,000 |
|
|
| 3.98 | % |
| Charles Smith (3) 4704 Harlan Street, Suite 680 Denver, CO 80212 |
|
| 3,642,973 |
|
|
| 2.42 | % |
| James Willet (4) 4704 Harlan Street, Suite 680 Denver, CO 80212 |
|
| 4,857,402 |
|
|
| 3.22 | % |
| Daniel Williams (5) 4704 Harlan Street, Suite 680 Denver, CO 80212 |
|
| 5,034,078 |
|
|
| 3.34 | % |
| Emil Assentato 141 Piping Rock Road Locust Valley, NY 11560 |
|
| 56,071,429 |
|
|
| 37.20 | % |
|
|
|
|
|
|
|
|
|
|
| Officers, Directors, and Affiliates |
|
| 70,748,480 |
|
|
| 50.16 | % |
_________
| (1) | Based on aggregate shares outstanding and issuable upon conversion at September 22, 2017 of 150,746,867. |
| (2) | Mr. Siciliano become our Principal Executive and Financial Officer effective August 9, 2016. Mr. Siciliano’s holding consist solely of options exercisable into shares of common stock. |
| (3) | Mr. Smith has been a member of our Board of Directors since our Company’s September 2015. Mr. Smith’s holdings include 3,642,973 shares held by Dixie Holdings, an entity he controls. |
| (4) | Mr. Willett was appointed to our Board of Directors on February 12, 2016. |
| (5) | Mr. Williams served as our Principal Executive and Financial Officer until his resignation on April 18, 2016. |
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| Table of Contents |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
We engaged in the following transactions with related parties:
On August 5, 2016, we entered into an amended and restated settlement agreement (“Settlement Agreement”) with Daniel Williams, our form Chief Executive Officer and member of our Board of Directors. The settlement agreement provided for a cash payment of $575,000 to us to settle a dispute related to an Internal Revenue Service (“IRS”) administrative action against us and Mr. Williams for federal taxes owed to the IRS by the Company. The cash paid to Company was used to satisfy the IRS administrative action at a cost of approximately $250,000 excluding additional interest and penalties. We used the remaining cash for working capital purposes. The Company and Mr. Williams also agreed to a mutual release of claims subject to the following events occurring: (1) Mr. Williams making the $575,000 payment, (2) resignation of Mr. Williams from all position of the Company and its wholly-owned subsidiary – CSA, LLC, as CEO, President and Chairman of the Board or Manager, as the case may be, (3) repayment of certain loans previously made to the Company and (4) dismissal of the IRS administrative action.
On August 5, 2016, three purchasers (“Purchasers”), entered into stock purchase agreements to acquire an aggregate of 50,000,000 shares of restricted common stock of the Company (“Shares”) owned by Mr. Williams for an aggregate purchase price of $700,000. The Purchasers consisted of (1) Emil Assentato who purchased 43,571,429 of the Shares, (2) Silvestro Spilabotte, Jr. who purchased 2,142,857 of the Shares, and (3) 15E 30 West Street, LLC who purchased 4,285,714 of the Shares. The source of the funds for the consideration paid by Purchasers was personal funds with respect to Mr. Assentato and Mr. Spilabotte, Jr. and equity contributions from investors in 15E 30 West Street, LLC. Upon purchase of the Shares, Purchasers beneficially owned approximately 50.19% of the voting securities of the Company as of August 5, 2016.
In connection with entry into the Settlement Agreement, Mr. Williams resigned as the Company’s Chief Executive Officer, President and Chairman of the Board effective as of the April 18, 2016.
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| Table of Contents |
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table shows the fees that were billed for the audit and other services provided by Thayer O’Neal for the fiscal year ended December 31, 2016.
| Audit Fees |
| $ | - |
|
| $ | - |
|
| Audit-Related Fees |
|
| - |
|
|
| - |
|
| Tax Fees |
|
| - |
|
|
| - |
|
| All Other Fees |
|
| - |
|
|
| - |
|
| Total |
| $ | - |
|
| $ | - |
|
Audit Fees—This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
Audit-Related Fees—This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the Commission and other accounting consulting.
Tax Fees—This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.
All Other Fees—This category consists of fees for other miscellaneous items.
Our board of directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under the procedure, the board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the board, or, in the period between meetings, by a designated member of board. Any such approval by the designated member is disclosed to the entire board at the next meeting. Accordingly all of the fees in the above table were approved prior to the services being rendered.
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| Table of Contents |
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The consolidated financial statements and Report of Independent Registered Public Accounting Firm are listed in the “Index to Financial Statements and Schedules” on the accompanying F-pages.
(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulations of the Commission are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein.
(3) Exhibits (including those incorporated by reference).
| Exhibit No. |
| Description |
|
| ||
|
| ||
|
| ||
| 3.1(b) |
| |
|
| ||
| 3.1(c) |
| |
|
| ||
|
|
|
| ||
|
|
|
|
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
| 10.8 |
| |
|
| ||
| 21.1 |
| |
|
| ||
|
| Section 302 Certificate of President and Chief Financial Officer. | |
|
| ||
|
| Section 906 Certificate of President and Principal Financial and Accounting Officer. |
*Filed herewith.
| 28 |
| Table of Contents |
Pursuant to the requirements of Section 13 or 15(d) 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.
|
| CSA Holdings Inc. | ||
|
| |||
| Date: November 29, 2017 | By: | /s/ Thomas Siciliano | |
|
| Thomas Siciliano, Principal Executive and Financial Officer | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature |
| Title |
| Date |
|
| ||||
| /s/ Thomas Siciliano |
| President and Chief Financial Officer |
| November 29, 2017 |
| Thomas Siciliano | (Principal Executive Officer and Principal Financial and Accounting Officer) | |||
|
| ||||
| /s/ Charles Smith |
| Director |
| |
| Charles Smith |
| November 29, 2017 | ||
|
| ||||
| /s/ James Willet |
| Director |
| |
| James Willet |
| November 29, 2017 |
| 29 |