TKCI Turnkey Capital Inc (PK)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This quarterly report on Form 10-Q and other reports filed by TurnKey Capital, Inc. (the “Company,” “we,” “us” or “our”) from time to time with the U.S. Securities and Exchange Commission(“SEC”) (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the factors, risks, and uncertainties contained in Part I, Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as amended..  Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

ROM Operations

On September 1, 2016, the Company formed a new subsidiary, Remote Office Management, Inc. (“ROM”), to market bundled accounting and computer/IT services. Simultaneously, ROM entered into a professional services agreement with R3 Accounting, (an accounting firm owned by Timothy Hart, a director, secretary and CFO of the Company ) and an unrelated computer/IT company. The purpose of the agreement was to form a joint venture whereby these entities would cross-market professional services under ROM for one stop computer/IT and accounting services. Through ROM, we generated revenues of $60,000 and $99,500 for the nine month periods ended September 30, 2018 and 2017, respectively, from accounting services. These services were provided to MediXall Group, Inc. (“MediXall”). MediXall is a publicly reporting company. Each of Mr. Swartz, our President, Chief Executive Officer and director, and Mr. Hart, our Chief Financial Officer and director, is a significant stockholder of MediXall. Mr. Swartz is MediXall’s Interim Chief Executive Officer and Chairman of the Board, and Mr. Hart is MediXall’s Chief Financial Officer and a member of MediXall’s board of directors. In addition, TBG Holdings Corporation (“TBG”) is a significant stockholder of MediXall. Messrs. Swartz and Hart are officers and major shareholders of TBG. As such, they may be deemed to be beneficial holders of the MediXall shares held by TBG.

We cannot accurately predict the amount of funding or the time required to successfully implement our business plan. The actual cost and time required to achieve profitability may vary significantly depending on, among other things, the availability of qualified personnel and marketing and other costs associated with the planned operations. Because of this uncertainty, even if financing is available to us, we may secure insufficient funding to effectuate our business plan.

As of September 30, 2018, we had negative working capital of $586,914 and cash of $0. Based upon current and near term anticipated level of operations and expenditures, we believe that our lack of cash precludes us from continue operations for the next twelve months. Management recognizes that in order for us to meet our capital requirements, and continue to operate, additional financing will be necessary. We expect to raise additional funds through private or public equity investment in order to expand the range and scope of our business operations. We will seek access to private or public equity but there is no assurance that such additional funds will be available for us to finance our operations on acceptable terms, if at all. If we are unable to raise additional capital or generate positive cash flow, it is unlikely that we will be able to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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Results of Operations

Three Month Period Ended September 30, 2018 Compared to the Three Month Period Ended September 30, 2017

Revenue

During the three month periods ended September 30, 2018 and 2017, we generated revenues of $0 and $32,000 for each period, respectively. These revenues were generated from services that were provided to MediXall Group, Inc., a related party.

General and administrative ("G&A") costs include costs related to public company costs and other office related costs.

Professional fees – related party costs primarily include costs for management services provided by TBG related to the development of our planned operations and costs related to R3 Accounting. The decrease in costs related to less work required in maintaining the public company. Also, ROM was inactive during the third quarter of 2018.

Legal and professional expenses related to amounts incurred by the outside accounting firm and lawyers. The increase is primarily a result of increases in expenses with the Company’s SEC counsel and outside accounting firm.

Nine Month Period Ended September 30, 2018 Compared to the Nine Month Period Ended September 30, 2017

Revenue

During the nine month periods ended September 30, 2018 and 2017, we generated revenues of $60,000 and $99,500, respectively. These revenues were generated from services that were provided to MediXall Group, Inc., an affiliate of TBG, a related party.

G&A costs include costs related to public company costs and other office related costs.

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During the nine month period ended September 30, 2018 the Company incurred a loss on its planned acquisition of Palm Beach Integrative Medicine LLC. The Company was unable to reach an agreement on favorable terms and the deal was unwound. As a result, all of the acquisition costs used were expensed and recorded in other operations expense.

Professional fees – related party costs primarily include costs for management services provided by TBG and costs related to R3 Accounting. The decrease in costs related to less work required in maintaining the public company. Also, ROM was inactive during the third quarter of 2018.

Legal and professional expenses relate to amounts incurred by the outside accounting firm and lawyers. The increase is primarily a result of increases in expenses with the Company’s SEC counsel and outside accounting firm.

Other Expenses

Other expenses consist of a $129,070 settlement expense. In December 2017 the Company was named in a civil arbitration proceeding in San Diego, CA. The complaint alleges a contract dispute between the Company and Fiori Communications, a Wyoming Corporation, related to alleged services that were performed for the Company. The arbitration alleged the Company engaged in a breach of contract. The Company settled this action for 3,000,000 shares of its common stock. Accordingly an expense of $129,070, based on the approximate fair value of the Company common stock at the settlement date, has been recorded on the condensed consolidated financial statements regarding this matter. The 3,000,000 shares of common stock were issued in July 2018.

Liquidity and Capital Resources

Our available working capital and capital requirements will depend upon numerous factors, including our ability to make accretive acquisitions, and our ability to attract and retain key employees.

During the nine month period ended September 30, 2018, because of our operating losses, we did not generate positive operating cash flows. As of September 30, 2018, we had an accumulated deficit of $1,988,154, cash on hand of $0 and negative working capital of $586,914. As a result, we have significant short-term cash needs. These needs historically have been satisfied through proceeds from the sales of our securities and advances from TBG, a related party. We are expecting to reduce the need for such short-term financing as we build our revenues by growing our business. (See "Plan of Operations" below). In order to repay our obligations in full or in part when due, we will be required to raise capital from other sources. There is no assurance, however, that we will be successful in these efforts.

Cash used in operating activities was $56,125 for the nine month period ended September 30, 2018, as compared to cash used of $141,729 during the nine month period ended September 30, 2017.

Cash used in investing activities was $2,105 for the nine month period ended September 30, 2018. There were no such expenditures for investing activities during the nine month period ended September 30, 2017.

Cash provided by financing activities was $56,205 for the nine month period ended September 30, 2018 compared to $157,092 during the nine month period ended September 30, 2017.

We expect TBG, a related party, will continue to provide support services until sufficient capital is raised.

Plan of Operations and Funding

We expect that working capital requirements will continue to be funded through further related party advances and further issuances of securities until our business activities can generate positive cash flow. Our working capital requirements are expected to increase in line with the growth of our business.

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We have minimal working capital, and we do not have any lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments and related party advances. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures. We intend to finance these expenses with further issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet short-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.

Critical Accounting Policies and Estimates

The preparation of condensed consolidated financial statements and related disclosures in conformity with generally accepted accounting principles in the United States (“GAAP”) requires us to make judgments, assumptions and estimates that have a significant impact on the results that we report in our condensed consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Note 1 of the Notes to Condensed Consolidated Financial Statements describes the significant accounting policies used in the preparation of the condensed consolidated financial statements. Certain of these significant accounting policies require us to make critical accounting estimates, as defined below.

A critical accounting estimate is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes:

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in accordance with GAAP and present a meaningful presentation of our financial condition and results of operations.

Our most critical accounting estimates include:

Below, we discuss these policies further, as well as the estimates and judgments involved.

Income Taxes

The Company accounts for income taxes using the liability method prescribed by ASC 740 “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset the deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

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Pursuant to accounting standards related to the accounting for uncertainty in income taxes, the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. The accounting standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.

The Company assessed its earning history, trends and estimates of future earnings and determined that the deferred tax asset could not be realized as of September 30, 2018. Accordingly, a valuation allowance was recorded against the net deferred tax asset.

Off-Balance Sheet Arrangements

As of September 30, 2018, we do 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 that are material to investors.

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