UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

____________________

 

FORM 10-Q

____________________

 

¨ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended September 30, 2017

 

OR

 

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

 

For the transition period from __________ to _________

 

Commission File No. 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 101, Denver, CO		80212
(Address of Principal Executive Offices)		(Zip Code)

 

(720) 536-5824

(Registrant’s Telephone Number, Including Area Code)

 

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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 x No o

 

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 ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if a smaller reporting company)

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: November 20, 2017 – 175,375,148 shares of common stock.

 

INDEX

 

			Page
PART I	FINANCIAL INFORMATION
Item 1	Financial Statements		4
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3	Quantitative and Qualitative Disclosures About Market Risk		15
Item 4	Controls and Procedures		15
PART II	OTHER INFORMATION
Item 1	Legal Proceedings		17
Item 1A	Risk Factors		17
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		17
Item 3	Defaults Upon Senior Securities		17
Item 4	Mine Safety Disclosures		17
Item 5	Other Information		17
Item 6	Exhibits		18
	SIGNATURES		19

 

2

 

FORWARD-LOOKING STATEMENTS

 

This Form 10-Q contains certain forward-looking statements that we believe are within the meaning of the federal securities laws. For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements, including the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our strategy, future operations, future expectations or future estimates, financial position and objectives of management. Those statements in this Form 10-Q containing the words “believes,” “anticipates,” “plans,” “expects” and similar expressions constitute forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and are subject to a number of risks, uncertainties and assumptions relating to our operations, results of operations, competitive factors, shifts in market demand and other risks and uncertainties.

 

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate and actual results may differ from those indicated by the forward-looking statements included in this Form 10-Q. In light of the significant uncertainties inherent in the forward-looking statements included in this Form 10-Q, you should not consider the inclusion of such information as a representation by us or anyone else that we will achieve such results. Moreover, we assume no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

 

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PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016		5
Unaudited Condensed Consolidated Statements of Operations for the Three and Nine-Month Periods Ended September 30, 2017 and 2016		6
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2017 and 2016		7
Unaudited Condensed Statements of Changes in Stockholders’ Equity for the Nine Month Period Ended September 30, 2017.		8
Notes to the Unaudited Condensed Consolidated Financial Statements.		9

 

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CSA HOLDINGS, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

		September 30,				December 31,
		2017				2016
ASSETS
CURRENT ASSETS
Cash		$	-			$	-
Accounts receivable - net of allowance for doubtful accounts			189,046				247,109
Prepaid expenses			20,925				88,422
Total Current Assets			209,971				335,531
Property and Equipment			111,450				163,103
GOODWILL			1,057,509				1,057,509
TOTAL ASSETS		$	1,378,929			$	1,556,143

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT
Bank overdraft		$	20,718			$	19,838
Accounts payable			368,355				441,740
Accrued compensation and related benefits			20,576				-
Related party notes payable			133,995				342,905
Note payable - from acquisition			25,748				25,748
Taxes payable			91,128				109,143
Convertible notes payable - net of discount			-				55,125
Preferred dividends payable			18,621				18,621
Unit redemption payable			-				302,500
Total Current Liabilities			674,141				1,315,620
TOTAL LIABILITIES			674,141				1,315,620
STOCKHOLDERS’ EQUITY(DEFICIT)
Preferred stock, $.001 par value, 20,000,000 shares authorized - issued and outstanding - 1,461,853 as of September 30, 2017 and December 31, 2016			1,461				1,461
Common stock, $.001 par value, 500,000,000 shares authorized-issued and outstanding - 175,375,148 as of September 30, 2017 and 126,351,955 as of December 31, 2016			175,375				126,352
Additional paid-in capital			4,964,162				3,723,939
Accumulated deficit			(4,441,210	)			(3,611,229	)
TOTAL STOCKHOLDERS’ EQUITY			699,789				240,523
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,378,929			$	1,556,143

  

See Accompanying Notes

 

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CSA HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

 

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2017				2016				2017				2016
REVENUE		$	913,196			$	728,921			$	2,826,491			$	1,313,203
DIRECT COSTS			631,984				458,417				2,122,450				847,936
GROSS PROFIT			281,211				270,504				704,041				465,267
OPERATING EXPENSES
Wages and benefits			182,132				190,678				571,991				498,255
Professional fees			73,987				60,791				299,092				298,962
Bad debts expense(recovered)			-				(183	)			14,111				(60,253	)
General and administrative			235,513				80,155				622,593				209,257
Total Operating Expenses			491,632				331,441				1,507,787				946,221
LOSS FROM OPERATIONS			(210,421	)			(60,937	)			(803,746	)			(480,954	)
OTHER INCOME (EXPENSE)
Interest expense			(2,937	)			(6,299	)			(26,235	)			(26,297	)
Net Loss		$	(213,357	)		$	(67,236	)		$	(829,981	)		$	(507,251	)
Weighted average shares outstanding
Basic and fully diluted			150,364,543				166,598,261				136,550,336				137,350,518
Net loss per share - basic and fully diluted		$	(0.00	)		$	(0.00	)		$	(0.01	)		$	(0.00	)

  

See Accompanying Notes

 

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CSA HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 

    

		2017				2016
Cash Flows from Operating Activities
Net loss		$	(829,981	)		$	(507,251	)
Adjustments to reconcile net loss
Depreciation			43,581				32,326
Stock based compensation			139,622				38,553
Loss on sale of assets - net			15,160				-
Interest expense			-				1,800
Discount amortization			-				10,606
Changes in operating assets and liabilities
Accounts receivable			58,063				(121,128	)
Prepaid expenses			67,497				(31,315	)
Accounts payable (including bank overdraft)			(72,505	)			88,617
Accrued compensation			20,576				60,924
Taxes payable			(18,015	)
Deferred revenue			-				59,775
Cash Used in Operating Activities			(576,002	)			(367,093	)
Cash Flows from Investing Activities
Purchase of Big Al’s			-				(350,000	)
Purchase of furniture and equipment			(7,089	)			(9,928	)
Cash Used in Investing Activities			(7,089	)			(359,928	)
Cash Flows from Financing Activities
Proceeds from issuance of shares			348,000				643,170
Proceeds of convertible debt			235,082				238,200
Cash Provided by Financing Activities			583,082				881,370
Change in Cash and Cash Equivalents			-				154,349
Cash and Cash Equivalents - Beginning of period			-				56,932
Cash and Cash Equivalents -End of period		$	-			$	211,281
SUPPLEMENTAL DISCLOSURES
Interest paid		$	-			$	-
Income taxes paid		$	-			$	-
NON-CASH FINANCING ACTIVITES
Shares issued in debt conversions			801,625				-

 

See Accompanying Notes

 

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CSA HOLDINGS, INC.

UNAUDITED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY     

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

 

		Preferred Stock								Common Stock								Additional				Accumulated				Total Stockholders’
		Shares				Amount				Shares				Amount				Paid-In Capital				Deficit				Equity
Balance December 31, 2016			1,461,853			$	1,461				126,351,955			$	126,352			$	3,723,939			$	(3,611,229	)		$	240,523
Issuance of common shares for cash			-				-				8,100,000				8,100				339,900				-				348,000
NP - Converted to Stock			-				-				40,923,193				40,923				760,702				-				801,625
Stock option awards			-				-				-				-				139,622				-				139,622
Net loss			-				-				-				-				-				(829,981	)			(829,981	)
Balance September 30, 2017			-			$	-				175,375,148			$	175,375			$	4,969,162			$	(4,441,210	)		$	699,789

 

See Accompanying Notes

 

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CSA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017

(Unaudited)

 

1. ORGANIZATION AND BASIS OF PRESENTATION

 

Organization and nature of business

 

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. Historically, we had been engaged solely in the business of yacht maintenance, repairs, refurbishing, winterizing, custom refinishing and modifications, interior customization and professional boat detailing in the Russian Federation and had been exploring expansion in North America until its acquisition of CSA, LLC (“Canna Security”).

 

Basis of presentation and going concern

 

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. These unaudited financial statements should be read in conjunction with the unaudited financial statements and notes thereto for the year ended December 31, 2016.

 

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) applicable to 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 losses and negative cash flows from operating activities since inception. As of September 30, 2017, we had a significant working capital deficit and an accumulated deficit.

 

The Company anticipates that it will continue to incur losses into the foreseeable future and plans to fund its losses from operations and capital funding needs through future public or private equity or debt financings, other third-party funding, collaborations or a combination of these. 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.

 

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2. Summary of Significant Accounting Policies

 

The following are significant accounting policies followed by the Company in the preparation and presentation of its financial statements

 

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.

 

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.

 

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.

 

3. PROPERTY AND EQUIPMENT

 

Property and equipment consists of the following as of September 30, 2017 and December 31, 2016:

 

		September 30,				December 31,
		2017				2016
Vehicles		$	158,372			$	158,372
Furniture and equipment			49,078				63,520
Software			9,779				9,779
Total property and equipment at cost			217,229				231,671
Less accumulated depreciation			(105,779	)			(68,568	)
Property and equipment, net		$	111,450			$	152,793

 

4. 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.

 

5. NOTES PAYABLE

 

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. This note was converted to common stock in August 2017. – See note 10.

 

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. This note was converted to common stock in August 2017. – See note 10

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6. RELATED PARTY TRANSACTIONS

 

As of September 30, 2017, and December 31, 2016, the Company had outstanding related party notes payable totaling $98,905 and $342,905, respectively. As of September 30, 2017, $48,905 of the outstanding notes payable was in default, however, no demand for damages has been received.

 

7. STOCK BASED COMPENSATION

 

During the year ended December 31, 2016, the Company granted 5,000,000 stock options 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. There were no additional options granted during the nine months ended September 30, 2017.

 

The following table summarizes the Company’s option activity the September 30, 2017:

 

										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 in 2016			5,000,000				0.18								0.41
Outstanding at September 30, 2017			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 and for the nine months ended September 30, 2017 stock option expense was $108,595.

 

The Board of Directors of CSA LLC., adopted at a meeting of the Directors of the Corporation that Tom Siciliano who has served as COO for 10 months and President for the last 14 months of CSA LLC will be granted 2,000,000 new stock options at a price of .03. We are also approving, when the company has money available - the payment of $30k in expenses and interest for his relocation back in November 2015 that was never paid, plus $45k in back wages and small bonus for his efforts to keep the company going strong and growing. The effective date is October 10, 2017.

  

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8. STOCKHOLDER’S EQUITY

 

Common Stock

 

For the period from January 1, 2017 through September 30, 2017, we issued a total of 10,285,714 shares of restricted and unregistered common stock in private placements for cash proceeds totaling approximately $348,000.

 

On April 3, 2017, CSA Holdings, Inc. (the “Company”) issued 200,000 shares to James Willett for $10,000 cash.

 

On April 4, 2017, the Company issued 500,000 shares to Frank Gallo for $25,000 cash.

 

On April 6, 2017, the Company issued 300,000 shares to Emil Assentato for $15,000 cash.

 

On April 6, 2017, the Company issued 100,000 shares to Chuck Smith for $5,000 cash.

 

On April 7, 2017, the Company issued 200,000 shares to Christopher Parks for $10,000 cash.

 

On April 7, 2017, the Company issued 200,000 shares to Bradley Nattrass for $10,000 cash.

 

On April 4, 2017, the Company issued 400,000 shares to Kathryn Trickey for $20,000 cash.

 

On April 7, 2017, the Company issued 200,000 shares to James Lowe for $10,000 cash.

 

On April 10, 2017, the Company issued 3,800,000 shares to Jose Antoni Silva for $190,000 cash.

 

On April 21, 2017, the Company issued 300,000 shares to Bagel Hole for $15,000 cash.

 

On August 1, 2017, the Company issued 1,900,000 shares to MOD Worldwide, LLC for $38,000 cash.

 

For the period from January 1, 2017 through September 30, 2017, the Company entered into several debt conversions and issued 40,923,192 shares for the amount totaling approximately $801,625.

 

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 9,500,000 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 $302,500 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.

 

9. SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events through November 30, 2017, the date these financial statements were available for issuance and is not aware of any event that would have a material impact on the accompanying financial statements.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

General

 

We were incorporated in Nevada on June 12, 2013 under the name Asta Holdings, Corp. We changed our name 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. Historically, we had been engaged solely in the business of yacht maintenance, repairs, refurbishing, winterizing, custom refinishing and modifications, interior customization and professional boat detailing in the Russian Federation and had been exploring expansion in North America until its acquisition of CSA, LLC (“Canna Security”).

 

Results of Operations

 

Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016

 

Revenue. Revenues increased by $184,410 to $913,340 for the three months ended September 30, 2017, compared to $728,921 in the same period in 2016 primarily as a result of the acquisition of Big Al’s. Big Al’s was acquired in August 2016, so that the full revenue increase resulting from the acquisition was reflected in the 2017 numbers and only a little over a month was reflected in the three months ended September 30, 2016. Plus new sales focus on cash transport to the Federal Reserve.

 

Cost of Revenues. The resulting direct costs which included direct labor costs for security personnel increased over 2016. For the three months ended September 30, 2017 direct costs were $631,984 compared to $458,417 for the same three months ended September 30, 2016.

 

Gross Profit. Gross Profit increased from $270,504 for the three months ended September 30, 2016 compared to $281,211 for the three months ended September 30, 2017. The main reason relates to the fact that even though revenues have increased, direct labor costs have also increased at a higher percentage basis in 2017 over the labor costs incurred in 2016 partly due to the low margin business from the Big Al Acquistion.

 

Operating Expenses. Operating expenses for the three months ended September 30, 2017 were $491,632 compared to $331,441 for the three months ended September 30, 2016. The primary cause of this increase relates to higher insurance costs.

 

Other Income (Expense). Other expense which was interest was $2,937 for the three months ended September 30, 2017, compared to $6,937 for the same period in 2016, resulting from increased debt

 

Net Loss. Net loss for the three months ended September 30, 2017 was $213,357 compared to $67,236 in the same period in 2016.

 

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

 

Revenue. Revenues for the nine months ended September 30, 2017 were $2,826,635 compared to $1,313,203 in the same period in 2016 which was primarily due to the additional customer base created from the acquisition of Big Al’s back in August 2016. Plus new service offering of cash transport to the Federal Reserve.

  

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Cost of Revenues. Cost of revenues for the nine months ended September 30, 2017 was $2,122,450 compared to $847,936 in the same period for 2016. Percentage wise cost of revenues for the nine months ended September 30, 2017, represented 75.1% of revenues. For the same period ended September 30, 2016, the percentage of cost of revenues to revenues was 64.6%. The increase in the percentage in 2017 over 2016 relates directly to higher labor costs to generate the increase in sales. Management has begun to replace lower margin business.

 

Gross Profit. Gross profit for the nine months ended September 30, 2017, was $704,041 compared to $465,267 in the same period for 2016 primarily related to the increase in sales from the Big Al’s acquisition.

 

Operating Expenses. Operating expenses increased for the nine months ended September 30, 2017 were $1,507,787 compared to $946,221 in the same period for 2016. The main reasons for the increase over 2016 relates to the acquisition of Big Al’s in 2016. Insurance costs which were $178,614 for the nine months ended September 30, 2017, have increased by approximately $136,000 over 2016, which were $42,714, relates directly to the acquisition of Big Al’s and the increased liability issues. Compensation has increased reflecting increased labor to deal with office administration which also includes stock option awards to the President of $108,595 for the nine months ended September 30, 2017 compared to $38,553 in the same period in 2016.

 

Other Income (Expense). Other expense represented by interest was $26,235 for the nine months ended September 30, 2017 compared to $26,297 for the same period in 2016.

 

Net Loss. Net loss for the nine months ended September 30, 2017 was $829,981 compared to $507,251 in the same period in 2016. The increased loss can be directly correlated with increased costs for revenue derived from the acquisition of Big Al’s customers plus the direct cost from accountants, auditors and legal for public filings and the increased expense in insurance.

 

Liquidity and Capital Resources

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. The Company has experienced recurring operating losses and negative cash flows from operations since its inception. As of September 30, 2017, we had total current assets of $209,971. We had total current liabilities of $674,141 and working capital deficiency of $464,170 and stockholders’ equity of $704,789 as of September 30, 2017.

 

Net cash used in operating activities was 603,613 during the nine-month period ended September 30, 2017, compared to $367,093 in the same period for 2016. The decrease in cash used in operating activities is primarily attributable to our increased compensation liability, decrease in accounts receivable and prepaid expenses and certain non-cash items such as depreciation and stock based compensation.

 

Net cash from investing activities during nine-month period ended September 30, 2017 was $21,392 compared to ($359,928) in the same period in 2016, was made up of purchase of furniture and equipment. The decrease was due to the fact that Big Al’s was acquired in 2016 and is represented as a use of cash for investing activities.

 

Net cash from financing activities during nine-month period ended September 30, 2017 was $589,309 compared to $881,370 in the same period in 2016, The decrease ’resulted from high stock subscriptions offset by debt reduction.

 

Cash Requirements

 

We do not believe our current working capital position together with our expected future cash flows from operations will be sufficient to fund our operations in the ordinary course of business, anticipated capital expenditures and other contractual obligations for at least the next twelve months. We have been and expect to continue to fund these activities with debt and equity financing.

 

The Company will require additional capital, either through debt or private placements, to meet its obligations and execute its business plan. Such additional financing may not become available on acceptable terms and there can be no assurance that any additional financing that the Company does obtain will be sufficient to meet its needs in the long term. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.

 

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Off-Balance Sheet Arrangements

 

As of September 30, 2017, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

 

Critical Accounting Policies

 

The Company’s consolidated financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our consolidated financial statements.

 

Our significant accounting policies are summarized in Note 2 of our condensed financial statements included in this report. While all these significant accounting policies impact our financial condition and results of operations, the Company views certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on the Company’s consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not required.

 

Item 4. 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 interim report on Form 10-Q. 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 September 30, 2017.

 

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.

 

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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 September 30, 2017 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 September 30, 2017:

 

·

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. These reports have now all been filed as of November 13, 2017.

 

·

Significant Deficiencies – Inadequate segregation of duties.

 

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.

 

Changes in Internal Controls over Financial Reporting

 

There have been no changes in our internal control over financial reporting during the nine months ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

During the quarter ended September 30, 2017, we were not subject to any material pending legal proceedings, and we are not aware of any such proceedings contemplated by governmental authorities.

 

Item 1A. Risk Factors.

 

Not required.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

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

 

The securities issuances discussed above were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on an exemption provided by Section 4(a)(2) of the Securities Act because, among other things, the transactions did not involve a public offering and the purchasers acquired the securities for investment and not resale.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

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Item 6. Exhibits.

 

Exhibit No.		Description
3.1(a)		Articles of Incorporation, filed June 13, 2012 (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 filed with the Commission on December 31, 2013 (Commission File No. 333-193153)).
3.1(b)*		Amended and Restated Articles of Incorporation filed with the Secretary of State of Nevada on July 9, 2015.
3.1(c)*		Certificate of Amendment to Articles of Incorporation filed by the Company with the Secretary of State of Nevada on August 8, 2016.
3.2		Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 filed with the Commission on December 31, 2013 (Commission File No. 333-193153)).(1)

 

10.1		Agreement dated December 19, 2013 between Asta Holdings, Corp. and Inturia, Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 filed with the Commission on December 31, 2013 (Commission File No. 333-193153)).
10.2		Unit Purchase and Sale Agreement dated as of October 15, 2013 by and between Canna Security America, LLC (N/K/A CSA, LLC), Dixie Holdings, LLC and James Willett (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-QT filed with the Commission on January 26, 2016).
10.3		First Amendment Unit Purchase and Sale Agreement dated as of January 24, 2015 by and between CSA, LLC, Dixie Holdings, LLC and James Willett (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-QT filed with the Commission on January 26, 2016).
10.4		Amended and Restated Settlement Agreement dated August 5, 2016 entered into among CSA Holdings Inc., CSA, LLC and Daniel Williams (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 11, 2016).
10.5		Asset Purchase Agreement dated July 26, 2016 by and among CSA, LLC, Big Al’s Security Team, LLC, BSAT Oregon, LLC, BAST Arizona, LLC, Precision Operations Group, Inc. and Precession Operations Group SHS, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 18, 2016).
10.8		Form of Stock Option Agreement.
21.1		Subsidiaries.
31.1*		Section 302 Certificate of President and Chief Financial Officer.
32.1*		Section 906 Certificate of President and Principal Financial and Accounting Officer.

________

* Filed herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized

 

	CSA HOLDINGS, INC.
Date: December 1, 2017	By:	/s/ Tom Siciliano
		Tom Siciliano
		President (Principal Executive Officer and Principal Financial and Accounting Officer)

 

 

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