Item 1. Business.
Corporate History
TurnKey Capital, Inc. (formerly Train Travel Holdings, Inc.) (“the Company,” “we,” or “us”) was incorporated under the laws of the State of Nevada under the name of Vanell, Corp. on September 7, 2012 (“Inception”). The Company changed its name to Train Travel Holdings, Inc. on March 20, 2014 and to TurnKey Capital, Inc. on January 15, 2016
From Inception in 2012 through December 2013, our business operations were limited primarily to the development of a business plan to provide consulting services to commercial growers of coffee in El Salvador, the completion of private placements for the offer and sale of our common stock, discussing the offers of consulting services with potential customers, and the signing of the service agreement with Finca La Esmeralda, a private El-Salvadorian company. We discontinued our coffee business on January 23, 2014.
Commencing January 23, 2014, our business plan changed to the acquisition and operation of entertainment train companies, as well as managing and providing consulting services to entertainment train companies. Since January 2014 our management has spent all of its time and effort on developing our business plan, including identifying specific entertainment railroad acquisition targets, engaging in discussions with these potential targets to ascertain the potential level of interest, negotiating general terms with targets, and undertaking early stage due diligence of potential targets. As a result, we entered into non-binding letters of intent with two acquisition candidates and subsequently performed initial stage due diligence. In one case, the railroad was in such disrepair we determined the acquisition was not feasible at the price being sought by the target. In another case, we determined the price was too high based on our due diligence and could not reach an agreement with the potential seller. We also entered into a series of agreements to operate a dinner train in Missouri which were subsequently unwound. In light of the forgoing, our management has looked to potential new lines of business in addition to pursuing our current line of business.
On July 6, 2015, the Company completed a share exchange agreement (the “Share Exchange Agreement”) with Turnkey Home Buyers USA, Inc., a Florida corporation (“Turnkey”), TBG Holdings Corporation (“TBG”), each of the Turnkey shareholders and Train Travel Holdings, Inc., a Florida corporation. The Company, Turnkey, TBG and Train Travel Holdings, Inc., a Florida corporation, are all under the common control of Neil Swartz and Tim Hart.
Pursuant to the terms of the Share Exchange Agreement, Turnkey shareholders transferred to the Company all of the issued and outstanding shares of capital stock of Turnkey’s shareholders. In exchange for the acquisition of all of the issued and outstanding shares of Turnkey, the Company issued 15,337,500 shares of its common stock to Turnkey shareholders. Prior to closing, TBG, a principal shareholder of the Company and Turnkey, tendered to Turnkey for cancellation 15,000,000 shares of Turnkey common stock.
The Company shares issued to the Turnkey shareholders were not registered and were issued in a transaction which was exempt from the registration requirements pursuant to Section 4(a)(2) of the Securities Act of 1933. Each of the Turnkey shareholders were accredited investors and no underwriters or placement agents were involved.
As a result of the Share Exchange Agreement, the Turnkey shareholders owned 38.9% of the Company’s common stock and 58.5% of the fully diluted common stock as a result of their ownership of the outstanding preferred stock.
Due to the common control of Turnkey and the Company, pursuant to ASC 805-50-25, “Transactions Between Entities Under Common Control” and other SEC guidance including for lack of economic substance, the Share Exchange Agreement was accounted for as a transfer of the carrying amounts of assets and liabilities under the predecessor value method of accounting. Financial statement presentation under the predecessor values method of accounting as a result of a business combination between entities under common control requires the receiving entity (i.e., the Company) to report the results of operations as if both entities had always been combined. The consolidated financial statements include both entities’ full results since the inception of Turnkey on September 12, 2014.
Business
Founded in September 2014, Turnkey offers clients a full suite of services for residential and commercial real estate transactions. As part of the acquisition, the Company acquired Turnkey’s subsidiary, a real estate brokerage firm, to handle the sales transactions. Turnkey generates revenue in three primary ways: coaching and mentoring real estate investors to improve their returns, leasing and sales of quality turnkey rental properties, and brokerage of residential and commercial transactions.
In September 2014, Turnkey acquired the intellectual properties of Robert Blair Real Estate, which included videos, instructional books, and an established real estate investor education program. Prior to September 2014, Turnkey’s current management team has been mentoring real estate investors for over 20 years.
Turnkey’s Single-Family Rental home division has developed an acquisition platform that is capable of acquiring large numbers of properties across many acquisition channels in multiple markets. When identifying desirable markets, the company focuses on steady population growth, strong rental demand and a desirable level of distressed sales of homes that can be acquired below replacement cost, providing for attractive potential rental yields and capital appreciation. More specifically, the company looks to acquire single-family homes in select submarkets that are appealing to middle income families, based on its disciplined market selection criteria, such as above-average median household incomes, well-regarded school districts, proximity to employment centers and lifestyle amenities, access to transportation routes and public transit and low crime levels. Turnkey believes that homes in these areas will attract tenants with strong credit profiles, produce high occupancy/rental rates, providing for long-term property appreciation potential.
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 PC Lauderdale (an unrelated computer/IT company). The purpose of the agreement was to form a joint venture where by these entities would cross market professional services under ROM for one stop computer/IT and accounting services.
In pursuit of our existing real estate business, on September 15, 2016 Turnkey entered an asset purchase agreement with ECP Capital Partners, Inc. Pending due diligence and a final closing, in exchange for 5,000,000 shares of Turnkey (convertible into 28,800,083 shares of the Company’s common stock) the agreement would provide two vacant lots in a Port Charlotte real estate development, and option to purchase another 20 additional lots in the same development, and the rights and title to certain assets associated with Castle Capital Development Group. Due diligence for this transaction is currently underway. As of the date of this report, the transaction has not been consummated and has been rescinded.
On November 1, 2016, the Company signed a letter of intent with Ticket Corp. to establish a partnership. Ticket Corp. provides consumers access to tickets, merchandise, news, social media, and performance dates through its mobile app. The Company will provide consulting services in the form of financial and strategic guidance and resources. As of the date of this report, the transaction has not been consummated and has been rescinded.
On December 22, 2016, the Company signed a 10-year licensing agreement (“Agreement with Brand Strategy Group Intl. (“BSGI”)). The Agreement gives the Company the rights to all the assets, tangible and intangible, owned by BSGI that are used in, or necessary for the conduct of, its Phillip Acker apparel business including the Phillip Acker name and all related intellectual property as well as the goodwill associated with the foregoing. As of the date of this report, the transaction has not been consummated and has been recinded.
On February 1, 2017, the Company signed a licensing agreement (“Agreement with Active Lab International, Inc. (“ALI”)). The Agreement gives the Company the rights to all the assets, tangible and intangible, owned by ALI that are used in, or necessary for the conduct of, its Citris Defense personal care business including the Citris Defence name and all related intellectual property as well as the goodwill associated with the foregoing.
Risks and Challenges
Limited Operating History. The Company was established on September 7, 2012 and has been attempting to develop unrelated businesses. We have had no operating history upon which an investor may rely. Potential investors should be aware of the difficulties the Company is likely to encounter in view of the fact that it has not yet commenced operations, including, but not limited to, competition and unanticipated costs and expenses. There can be no assurance that the Company will successfully implement its new business or other business plans.
We Need Additional Capital To Fund Our Planned Operations. The Company does not have cash reserves available to meet its basic operational requirements and will be dependent upon the sale of its common stock and, or, other financing to fund potential acquisitions as well as covering our basic overhead expenses. We expect to fund our general operations for the next 6 -12 months with the private sale of our common stock or from funding provided by our officers or affiliates. There is no assurance we can raise the capital we need or that a financing will be at terms satisfactory to us. We currently have no commitment for financing.
Web Site
We maintain a website at http://turnkeyhomebuyersusa.com/. This website is not incorporated in this Form 10-K.
Employees
As of December 31, 2016, the Company had no full-time employees. The Company utilizes contract labor as needed. The management fee paid to TBG compensates Timothy Hart for his services.
Item 1A.
Item 1A. Risk Factors.
Before you invest in our securities, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected.
RISKS RELATED TO OUR BUSINESS
We have limited sales and financial history and cannot assure you that we will be profitable in the foreseeable future.
We had limited revenue in 2016; we may never become profitable. We expect our expenses will increase for the foreseeable future as we seek to start operations. It is difficult to accurately forecast Turnkey’s revenues and operating results and they could fluctuate in the future At times, these fluctuations may be significant.
We will depend on the services of our executives.
We depend on the services of our executive officers, director and outside contractors. To date we have not entered into any employment agreements with our executives. The loss of the services of any of our executives could materially harm our business. In addition, we do not presently maintain a key-man life insurance policy on any of our officers or directors.
Risks Related to the Company
General economic conditions, industry cycles, financial, business and other factors affecting our operations, many of which are beyond our control, may affect our future performance.
General economic conditions, industry cycles, financial, business and other factors may affect our operations. If we cannot generate sufficient cash flow from operations in the future, we may, among other things, be required to take one or more of the following actions:
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seek additional financing in the debt or equity markets;
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refinance or restructure all or a portion of our indebtedness;
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sell selected assets;
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reduce or delay planned capital expenditures; or
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discontinue operations.
In addition, any financing, refinancing or sale of assets might not be available on economically favorable terms, which may prevent us from future expansion and growth in new markets and, thus, negatively affect our business and financial condition.
RISKS RELATED TO OUR COMMON STOCK
The market for our common stock is extremely limited and sporadic.
Our common stock is quoted on the OTCQB tier of the OTC Markets under the symbol “TKCI”. The market for our common stock is extremely limited and sporadic. Trading in stock quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Market is not a stock exchange, and trading of securities in the OTC Markets is often more sporadic than the trading of securities listed on a stock exchange such as Nasdaq or the NYSE MKT. Accordingly, stockholders may have difficulty reselling any of their shares.
The tradability of our common stock is limited under the penny stock regulations which may cause the holders of our common stock difficulty should they wish to sell the shares.
Because the quoted price of our common stock is less than $5.00 per share and we do not meet certain other exemptions, our common stock is considered a “penny stock,” and trading in our common stock is subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. The broker/dealer must make an individualized written suitability determination for the purchaser and receive the purchaser’s written consent prior to the transaction. SEC regulations also require additional disclosure in connection with any trades involving a “penny stock,” including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of securities in the secondary market because few broker or dealers are likely to undertake these compliance activities and this limited liquidity will make it more difficult for an investor to sell his shares of our common stock in the secondary market should the investor wish to liquidate the investment. In addition to the applicability of the penny stock rules, other risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market.
Our board of directors has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stockholders and with the ability to affect adversely stockholder voting power and perpetuate their control over us.
Our Articles of Incorporation allows us to issue shares of preferred stock without any vote or further action by our stockholders. Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.
The ability of our principal stockholders, including our CEO, to control our business may limit or eliminate minority stockholders’ ability to influence corporate affairs.
The principal holders of our common stock, including TBG, and our CEO, have voting control. Because of their stock ownership, they are in a position to significantly influence membership of our board of directors, as well as all other matters requiring stockholder approval. The interests of our principal stockholders may differ from the interests of other stockholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of other officers and directors and other business decisions. The minority stockholders have no way of overriding decisions made by our principal stockholders. This level of control may also have an adverse impact on the market value of our shares because our principal stockholders may institute or undertake transactions, policies or programs that result in losses may not take any steps to increase our visibility in the financial community and / or may sell sufficient numbers of shares to significantly decrease our price per share.
Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our stockholders have limited protection against interested director transactions, conflicts of interest and similar matters.
The Sarbanes-Oxley Act of 2002, as well as the rules enacted by the SEC, the stock exchanges, including the New York Stock Exchange, NYSE MKT and the Nasdaq Stock Market require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges. Our common stock is quoted in the over the counter market and we are not presently required to comply with many of the corporate governance provisions. Because we chose to avoid incurring the substantial additional costs associated with voluntary compliance, we have not yet adopted these measures. We do not currently have independent audit or compensation committees. As a result, directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations as a result thereof.
Item 1B.
Item 1B. Unresolved Staff Comments.
None.
Item 2.
Item 2. Properties.
The Company’s corporate headquarters are located at 2929 E. Commercial Blvd, PH-D, Fort Lauderdale, Florida 33308, which is the office of our principal shareholder. Our phone number is (954) 440-4678. Rent is charged at the rate of $2,000 per month on a month-to-month basis. The management fee paid to TBG provides the office space to the Company.
Item 3.
Item 3. Legal Proceedings.
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 4.
Item 4. Mining Safety Disclosures.
Not applicable.
PART II
Item 5.
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is traded on the Over the Counter Markets Group Inc. QB tier (the “OTCQB”) under the symbol “TKCI.”
The following table shows, for the periods indicated, the high and low bid prices per share of our common stock as reported by the OTCBB quotation service. These bid prices represent prices quoted by broker-dealers on the OTCBB quotation service. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions.
Calendar Quarter Ended:
The market price of our common stock is subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market, and other factors, over many of which we have little or no control. In addition, broad market fluctuations, as well as general economic, business and political conditions, may adversely affect the market for our common stock, regardless of our actual or projected performance.
Holders
As of March 24, 2017, there are approximately 162 stockholders of record of our common stock. A majority of our common stock are held in “street name” or by beneficial holders, whose shares are held of record by banks, brokers, and other financial institutions.
Transfer Agent
The transfer agent and registrar for our common stock is Island Stock Transfer, 15500 Roosevelt Blvd., Suite 301, Clearwater, FL 33760 and their telephone number at that location is (727) 289-0010.
Dividend Policy
We have not paid any dividends on our common stock and our Board of Directors (the “Board”) presently intends to continue a policy of retaining earnings, if any, for use in our operations. The declaration and payment of dividends in the future, of which there can be no assurance, will be determined by the Board in light of conditions then existing, including earnings, financial condition, capital requirements and other factors. The Nevada Revised Statutes prohibit us from declaring dividends where, if after giving effect to the distribution of the dividend:
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We would not be able to pay our debts as they become due in the usual course of business; or
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Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.
Except as set forth above, there are no restrictions that currently materially limit our ability to pay dividends or which we reasonably believe are likely to limit materially the future payment of dividends on common stock.
Penny Stock
Our common stock trades at less than $5.00 per share and is therefore subject to the Securities and Exchange Commission’s penny stock rules.
Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect the ability of our stockholders to resell our common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
None.
Recent Sales of Unregistered Securities
None.
Additional Information
Copies of our annual reports, quarterly reports, current reports, and any amendments to those reports, are available free of charge on the internet at www.sec.gov. All statements made in any of our filings, including all forward-looking statements, are made as of the date of the document, in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.
Item 6.
Item 6. Selected Financial Data
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of TurnKey Capital, Inc. and its subsidiaries. The MD&A is provided as a supplement to, and should be read in conjunction with financial statements and the accompanying notes to the financial statements included in this Form 10-K.
Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Turnkey Operations
Founded in September 2014, Turnkey offers clients a full suite of services for residential and commercial real estate transactions. Turnkey generates revenue in three primary ways: coaching and mentoring real estate investors to improve their returns, leasing and sales of quality turnkey rental properties, and brokerage of residential and commercial transactions.
In September 2014, Turnkey acquired the intellectual properties of Robert Blair Real Estate, which included videos, instructional books, and an established real estate investor education program. Prior to September 2014, Turnkey’s current management team has been mentoring real estate investors for over 20 years.
Turnkey and its existing subsidiary will be run as subsidiary companies and are planning to execute aggressive marketing campaigns and live seminars that will drive traffic to both the education and coaching programs, as well as the wholesale turnkey properties that Turnkey offers to its clients.
Turnkey’s Single-Family Rental home division has developed an acquisition platform that is capable of acquiring large numbers of properties across many acquisition channels in multiple markets. When identifying desirable markets, the company focuses on steady population growth, strong rental demand and a desirable level of distressed sales of homes that can be acquired below replacement cost, providing for attractive potential rental yields and capital appreciation. More specifically, the company looks to acquire single-family homes in select submarkets that are appealing to middle income families, based on its disciplined market selection criteria, such as above-average median household incomes, well-regarded school districts, proximity to employment centers and lifestyle amenities, access to transportation routes and public transit and low crime levels. Turnkey believes that homes in these areas will attract tenants with strong credit profiles, produce high occupancy/rental rates, providing for long-term property appreciation potential.
Initially, Turnkey is purchasing properties in the single-family rental home market in Florida, due to the favorable environment for investment and high rental demand, as well as yield potential. As the Company grows its portfolio, it will be better positioned to acquire properties on a much larger scale. Turnkey intends to continually evaluate potential new markets where it could invest and establish operations as opportunities emerge.
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 PC Lauderdale (an unrelated computer/IT company). The purpose of the agreement was to form a joint venture where by these entities would cross market professional services under ROM for one stop computer/IT and accounting services.
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 ability to acquire entertainment train operations on favorable terms, the health of our targeted real estate markets, the cost of developing, acquiring, and operating rental properties, 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 December 31, 2016, we had negative working capital of $461,692 and cash of $1,244. Based upon current and near term anticipated level of operations and expenditures, we believe that cash on hand is not sufficient to enable us to 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 financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Results of Operations
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Revenue
During the year ended December 31, 2016, we generated revenues of $20,075 as compared to $22,138 during the year ended December 31, 2015. For the year ended December 31, 2016, we generated revenue of $16,925 from accounting and computer/IT services. Our Turnkey business generated revenue of $22,138 from real estate rentals and coaching for the year ended December 31, 2015.
Operating Expenses
A summary of our operating expense for the years ended December 31, 2016 and 2015 follows:
General and administrative ("G&A") costs include costs related to personnel, professional fees, travel and entertainment, public company costs, insurance and other office related costs. G&A costs decreased during the year ended December 31, 2016 compared to the year ended December 31, 2015 due to decreases in professional fees, outside services, personnel and travel.
Sales and marketing ("S&M") costs include costs to promote and sell our products and exclude stock compensation costs. S&M costs decreased during the year ended December 31, 2016 compared to the year ended December 31, 2015 primarily due to a decrease in commissions and coaching fees, offset by increased costs related to contract labor.
Legal and professional - related party costs primarily include costs paid to affiliates for services related to the development of our planned operations in real estate related development activities in 2016 and 2015.
Liquidity and Capital Resources
Our available working capital and capital requirements will depend upon numerous factors, including our ability to make accretive acquisitions, increase demand for real estate services, find, secure and monetize real estate investments and our ability to attract and retain key employees.
During the year ended December 31, 2016, because of our operating losses, we did not generate positive operating cash flows. As of December 31, 2016 we had an accumulated deficit of $1,535,792, cash on hand of $1,244 and negative working capital of $261,692. 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 related party advances. We are expecting to reduce the need for such short term financing as we build our revenues by growing our business. (See "Plan of Operating and Funding" 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 $1,244 for the year ended December 31, 2016, as compared to $553,100 during the year ended December 31, 2015.
TBG will continue to provide support services until sufficient capital is raised.
Cash provided by investing activities was $0 for year ended December 31, 2016, as compared to $51,363 during the year ended December 31, 2015.
Cash provided by financing activities was $133,016 during the year ended December 31, 2016, as compared to $632,247 during the year ended December 31, 2015.
Plan of Operating 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.
We have minimal working capital, nor do we have 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.
Going Concern
As a result of our net loss from operations, net cash used in operations and deficit accumulated as of December 31, 2016, our ability to continue as a going concern is in substantial doubt. Our ability to continue as a going concern is subject to the ability of the Company to generate profits from operations and/or obtaining the necessary funding from outside sources. Management’s plan to address the Company’s ability to continue as a going concern includes (i) obtaining funding from private placement sources; (ii) obtaining additional funding from the sale of the Company’s securities; and (iii) obtaining loans from shareholders as necessary, (iv) acquiring existing entertainment trains to generate cash flow from operations. Although management believes that it will be able to obtain the necessary funding and acquisitions to allow the Company to remain a going concern, and to pursue its’ acquisition strategy through the methods discussed above, there can be no assurances that such methods will prove successful.
Contractual Obligations
None.
Off-Balance Sheet Arrangements
As of the date of this report, 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.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions and estimates that have a significant impact on the results that we report in our 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 A of the Notes to Financial Statements describes the significant accounting policies used in the preparation of the 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:
·
we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and
·
different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.
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 accounting principles generally accepted in the United States, and present a meaningful presentation of our financial condition and results of operations.
Our most critical accounting estimates include:
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the recognition and measurement of current and deferred income taxes, which impact our provision for taxes
Below, we discuss these policies further, as well as the estimates and judgments involved.
Income Taxes
Provisions for income taxes are based on taxes payable or refundable for the current period and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.
When accounting for Uncertainty in Income Taxes, first, the tax position is evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company’s utilization of U.S. Federal net operating losses will be limited in accordance to Section 381 rules. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Recently Issued Accounting Pronouncements
See “NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” to our Consolidated Financial Statements.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
Item 8.
Item 8. Financial and Supplementary Data.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of TurnKey Capital, Inc.
We have audited the accompanying consolidated balance sheets of TurnKey Capital, Inc. and subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years ended December 31, 2016 and 2015. TurnKey Capital, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these 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 audits to obtain reasonable assurance about whether the consolidated 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 consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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 TurnKey Capital, Inc. as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years ended December 31, 2016 and 2015 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 discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a significant amount of accumulated deficit 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 A. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Baum & Company PA
Miami Beach, FL
March 22, 2017
TurnKey Capital, Inc. and Subsidiaries
Consolidated Balance Sheets
(The accompanying notes are an integral part of these consolidated financial statements)
TurnKey Capital, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31, 2016 and 2015
(The accompanying notes are an integral part of these consolidated financial statements)
TurnKey Capital, Inc. and Subsidiaries
Consolidated Statement Stockholders' Deficit
For the Years Ended December 31, 2016 and 2015
(The accompanying notes are an integral part of these consolidated financial statements)
TurnKey Capital, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2016 and 2015
(The accompanying notes are an integral part of these consolidated financial statements)
TURNKEY CAPITAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
NOTE 1 - ORGANIZATION AND GOING CONCERN
Organization and Description of Business
TurnKey Capital, Inc. (formerly Train Travel Holdings, Inc.) (the “Company”) was incorporated under the laws of the State of Nevada on September 7, 2012 (“Inception”).
From Inception in 2012 through December 2013, our business operations were limited primarily to the development of a business plan to provide consulting services to commercial growers of coffee in El Salvador, the completion of private placements for the offer and sale of our common stock, discussing the offers of consulting services with potential customers, and the signing of the service agreement with Finca La Esmeralda, a private El-Salvadorian company. We discontinued our coffee business on January 23, 2014.
Commencing January 23, 2014, our business plan changed to the acquisition and operation of entertainment train companies, as well as managing and providing consulting services to entertainment train companies. Since January 2014 our management has spent all of its time and effort on developing our business plan, including identifying specific entertainment railroad acquisition targets, engaging in discussions with these potential targets to ascertain the potential level of interest, negotiating general terms with targets, and undertaking early stage due diligence of potential targets. As a result, we entered into non-binding letters of intent with two acquisition candidates and subsequently performed initial stage due diligence. In one case, the railroad was in such disrepair we determined the acquisition was not feasible at the price being sought by the target. In another case, we determined the price was too high based on our due diligence and could not reach an agreement with the potential seller. We also entered into a series of agreements to operate a dinner train in Missouri which were subsequently unwound. In light of the forgoing, our management has looked to potential new lines of business in addition to pursuing our current line of business.
On July 6, 2015, the Company completed a share exchange agreement (“the Agreement”) with Turnkey Home Buyers USA, Inc., a Florida corporation (“Turnkey”), TBG Holdings Corporation (“TBG”), each of the Turnkey shareholders and Train Travel Holdings, Inc., a Florida corporation. the Company, Turnkey, TBG and Train Travel Holdings, Inc., a Florida corporation, are all under the common control of Neil Swartz and Tim Hart.
Pursuant to the terms of the Agreement, Turnkey shareholders transferred to the Company all of the issued and outstanding shares of capital stock of Turnkey’s shareholders. In exchange for the acquisition of 100% of Turnkey issued and outstanding shares, the Company issued 15,337,500 shares of its common stock to Turnkey shareholders. Prior to closing, TBG, a principal shareholder of the Company and Turnkey, tendered to Turnkey for cancellation 15,000,000 shares of Turnkey common stock.
The Company shares issued to the Turnkey shareholders were not registered and were issued in a transaction which was exempt from the registration requirements pursuant to Section 4(a)(2) of the Securities Act of 1933. Each of the Turnkey shareholders were accredited and no underwriters or placement agents were involved.
As a result of the Agreement, the Turnkey shareholders owned 38.9% of the Company common stock and 58.5% of the fully diluted common stock as a result of their ownership of the outstanding preferred stock.
Due to the common control of Turnkey and the Company, pursuant to ASC 805-50-25, “Transactions Between Entities Under Common Control” and other SEC guidance including for lack of economic substance, the Agreement was accounted for as a transfer of the carrying amounts of assets and liabilities under the predecessor value method of accounting. Financial statement presentation under the predecessor values method of accounting as a result of a business combination between entities under common control requires the receiving entity (i.e., the Company) to report the results of operations as if both entities had always been combined. The consolidated financial statements include both entities’ full results since the inception of Turnkey on September 12, 2014.
Founded in September 2014, Turnkey offers clients a full suite of services for residential and commercial real estate transactions. As part of the acquisition, the Company will acquire Turnkey’s subsidiary, a real estate brokerage firm, to handle the sales transactions. Turnkey generates revenue in three primary ways: coaching and mentoring real estate investors to improve their returns, leasing and sales of quality turnkey rental properties, and brokerage of residential and commercial transactions.
In September 2014, Turnkey acquired the intellectual properties of Robert Blair Real Estate, which included videos, instructional books, and an established real estate investor education program. Prior to September 2014, Turnkey’s current management team has been mentoring real estate investors for over 20 years.
Turnkey’s Single-Family Rental home division developed an acquisition platform that is capable of acquiring large numbers of properties across many acquisition channels in multiple markets. When identifying desirable markets, the company focused on steady population growth, strong rental demand and a desirable level of distressed sales of homes that can be acquired below replacement cost, providing for attractive potential rental yields and capital appreciation. More specifically, the company looked to acquire single-family homes in select submarkets that are appealing to middle income families, based on its disciplined market selection criteria, such as above-average median household incomes, well-regarded school districts, proximity to employment centers and lifestyle amenities, access to transportation routes and public transit and low crime levels. Turnkey believed that homes in these areas would attract tenants with strong credit profiles, produce high occupancy/rental rates, providing for long-term property appreciation potential.
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 where by these entities would cross market professional services under ROM for one stop computer/IT and accounting services.
On February 1, 2016, the Company signed a licensing agreement (“Agreement with Active Lab International, Inc. (“ALI”)). The Agreement gives the Company the rights to all the assets, tangible and intangible, owned by ALI that are used in, or necessary for the conduct of, its Citris Defense personal care business including the Citris Defence name and all related intellectual property as well as the goodwill associated with the foregoing.
Going Concern
The financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. As of December 31, 2016, the Company had $1,244 of cash, a workin capital deficit of $261,692 and an accumulated deficit of $1,535,792 and further losses are anticipated in the development of its business raising substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and, or, obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. There is no assurance that these events will be satisfactorily completed.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Turnkey Home Buyers USA, Inc. and Remote Office Management, Inc. All intercompany transactions and balances have been eliminated in consolidation. The results of our subsidiary are consolidated with the Company’s based on guidance from the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 810, “Consolidation” (“ASC 810”).
Accounting estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
Fair Value Measurement
The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The Company utilizes a three-tier hierarchy which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. The Company has no assets or liabilities valued with Level 1 inputs.
Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. The Company has no assets or liabilities valued with Level 2 inputs.
Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company has no assets or liabilities valued with Level 3 inputs.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts payable, accrued liabilities and related party advances approximate their fair value because of the short-term nature of these instruments and their liquidity. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
Income Taxes
The Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Revenue Recognition
We recognize revenue when services are performed in our ROM subsidiary.
We anticipate earning income from the operations of residential real estate properties classified as real estate owned. Revenue is recognized when all of the following criteria were met: persuasive evidence of an arrangement existed, services had been provided, all significant contractual obligations had been satisfied, and collection was reasonably assured.
Real Estate Owned and Held-For-Sale
Real estate owned, shown net of accumulated depreciation and impairment charges, is comprised of real property acquired for cash or through partial or full settlement of mortgage debt. Real estate acquired is recorded at its estimated fair value at the time of acquisition.
We allocate the purchase price of our operating properties to land and building and to any other identified intangible assets or liabilities. We finalize our purchase price allocation on these assets within one year of the acquisition date.
Real estate assets are depreciated using the straight-line method over their estimated useful lives. Ordinary repairs and maintenance which are not reimbursed by the tenants are expensed as incurred. Major replacements and betterments which improve or extend the life of the asset are capitalized and depreciated over their estimated useful life.
Our properties are individually reviewed for impairment each quarter, if events or circumstances change indicating that the carrying amount of the assets may not be recoverable. We recognize impairment if the undiscounted estimated cash flows to be generated by the assets are less than the carrying amount of those assets. Measurement of impairment is based upon the estimated fair value of the asset. In the evaluation of a property for impairment, many factors are considered, including estimated current and expected operating cash flows from the property during the projected holding period, costs necessary to extend the life or improve the asset, expected capitalization rates, projected stabilized net operating income, selling costs, and the ability to hold and dispose of such real estate owned in the ordinary course of business. Impairment charges may be necessary in the event discount rates, capitalization rates, lease-up periods, future economic conditions, and other relevant factors vary significantly from those assumed in valuing the property.
Real estate is classified as held-for-sale when management commits to a plan of sale, the asset is available for immediate sale, there is an active program to locate a buyer, and it is probable the sale will be completed within one year. Real estate assets that are expected to be disposed of are valued, on an individual asset basis, at the lower of their carrying amount or their fair value less costs to sell.
We recognize sales of real estate properties upon closing. Payments received from purchasers prior to closing are recorded as deposits. Gain on real estate sold is recognized using the full accrual method when the collectability of the sale price is reasonably assured and we are not obligated to perform significant activities after the sale. Gain may be deferred in whole or in part until collectability of the sales price is reasonably assured and the earnings process is complete.
Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred advertising expense of $0 during the years ended December 31, 2016 and 2015.
Stock-Based Compensation
As of December 31, 2016 the Company has not issued any stock-based payments. Stock-based compensation is accounted for at fair value in accordance with SFAS ASC 718, when applicable. To date, the Company has not adopted a stock option plan and has not granted any stock options.
Net Income (Loss) Per Share
The computation of basic earnings per share (“EPS”) is based on the weighted average number of shares that were outstanding during the period, including shares of common stock that are issuable at the end of the reporting period. The computation of diluted EPS is based on the number of basic weighted-average shares outstanding plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares outstanding using the treasury stock method. The computation of diluted net income per share does not assume conversion, exercise or contingent issuance of securities that would have an antidilutive effect on earnings per share. Therefore, when calculating EPS if the Company experienced a loss, there is no inclusion of dilutive securities as their inclusion in the EPS calculation is antidilutive. Furthermore, options and warrants will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options or warrants (they are in the money).
Following is the computation of basic and diluted net loss per share for the years ended December 31, 2016 and 2015:
Potentially dilutive securities not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would be anti-dilutive are as follows (in common stock equivalent shares):
Recent accounting pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation, which is intended to simplify several aspects of the accounting for share-based payment award transactions. The guidance will be effective for the fiscal year beginning after December 15, 2016, including interim periods within that year. The Company does not expect adoption of ASU 2016-09 to have a material impact on its financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which supersedes ASC Topic 840, Leases, and creates a new topic, ASC Topic 842, Leases. ASU 2016-02 requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. ASU 2016-02 also expands the required quantitative and qualitative disclosures surrounding leases. ASU 2016-02 is effective for the Company beginning January 1, 2019. Early adoption is permitted. The Company has determined that the adoption of ASU 2016-02 will currently have no impact on its consolidated financial statements.
We review new accounting standards as issued. Although some of these accounting standards issued or effective after the end of our previous fiscal year may be applicable to us, we have not identified any standards that we believe merit further discussion. We believe that none of the new standards will have a significant impact on our financial statements.
NOTE 3 - REAL ESTATE OWNED
For the year ended December 31, 2016, the Company did not purchase or own any properties.
During the year ended December 31, 2015, the Company purchased a residential property for $36,000 and made improvements bringing the total carry cost to $63,110.
During 2015, the Company sold both of its properties resulting in gross proceeds of $114,374 and a $3,938 loss on the disposition of the properties. No depreciation was recorded on the properties.
NOTE 4 -RELATED PARTY TRANSACTIONS
Amounts due from and to related parties as of December 31, 2016 and December 31, 2015 are detailed below:
(1)
Represents amounts primarily owed to R3 Accounting for accounting related services and TBG Holdings Corporation for rent.
(2)
As of December 31, 2016, due from related parties primarily represents advances paid to TBG Holdings Corporation owned, in part by Timothy Hart, CFO, for services that are being expensed at a rate of $10,000 per month. As of December 31, 2015, due from related parties primarily represents advances of 1) $166,124 paid to TBG Holdings Corporation; 2) $25,000 paid to R3 Accounting owned by Timothy Hart, CFO; and 3) $16,313 paid to multimedia Platforms, Inc. who former CFO was Timothy Hart. Non-interest bearing balances are due to Travel Train Holdings Florida, and are repayable on demand.
All of the Company’s revenue for the year ended December 31, 2016 was earned by a subsidiary controlled by Timothy Hart, a director, secretary and CFO of the Company.
NOTE 5 - ADVANCES PAYABLE
During 2015, the Company received proceeds of $200,000 for an anticipated business transaction. During 2016, it became clear that the anticipated transaction would not be consummated. The parties considered various alternatives to satisfy this liability and has agreed to issue shares of common stock as part of a future transaction to settle the advance. As of December 31, 2016, the liability is unpaid.
NOTE 6 - PREFERRED STOCK
On January 13, 2016, The Company filed a Certificate of Amendment with the State of Nevada to amend its Articles of Incorporation to increase its authorized shares of preferred stock from 1,000,000 to 5,000,000 shares with a par value of $ 0.001 per share.
NOTE 7 - COMMON STOCK
The 600,000 outstanding preferred shares are convertible into 29,100,000 common shares.
On January 13, 2016, The Company filed a Certificate of Amendment with the State of Nevada to amend its Articles of Incorporation to increase its authorized shares of common stock from 75,000,000 to 750,000,000 shares with a par value of $0.001 per share.
During 2015 and 2016 the Company issued 487,500 restricted shares of common stock related to a prior year investors whose issuances were overlooked. These issuanaces were reflected in the 2014 opening balances due to the immateriality of the amounts involved.
On July 6, 2015, the Company completed a Share Exchange Agreement for 100% of the issued and outstanding shares of Turnkey Home Buyers USA, Inc. by issuing 15,337,500 shares of common stock. Due to the common control of Turnkey and the Company, pursuant to ASC 805-50-25, “Transactions Between Entities Under Common Control” and other SEC guidance including for lack of economic substance, the Agreement was accounted for as a transfer of the carrying amounts of assets and liabilities under the predecessor value method of accounting. Financial statement presentation under the predecessor values method of accounting requires the receiving entity to report the results of operations as if both entities had always been combined. As a result the Company has reflected the shares issued pursuant to the Agreement retrospectively. As part of the transaction the Company raised $353,100 from a private placement.
NOTE 8 - INCOME TAXES
A reconciliation of differences between the effective income tax rates and the statutory federal rates for the years ended December 31, 2016 and 2015 are as follows:
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2016 and 2015 consisted of the following:
As of December 31, 2016, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $5.37 million that may be offset against future taxable income through 2030. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amounts available to offset future taxable income may be limited. No tax assets have been reported in the financial statements because the Company believes there is a 50% or greater chance the carryforwards will expire unused. Accordingly, the potential tax benefits of the loss carry forwards are offset by a valuation allowance of the same amount.
NOTE 9 - SUBSEQUENT EVENTS
On February 1, 2016, the Company signed a licensing agreement (“Agreement with Active Lab International, Inc. (“ALI”)). The Agreement gives the Company the rights to all the assets, tangible and intangible, owned by ALI that are used in, or necessary for the conduct of, its Citris Defense personal care business including the Citris Defence name and all related intellectual property as well as the goodwill associated with the foregoing.
Management has reviewed material events subsequent to the period covered by this report and prior to the filing of financial statements in accordance with FASB ASC 855 “Subsequent Events.” There were no additional disclosures deemed necessary.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
In October 2015, the Company's board of directors engaged Baum & Company PA. (“Baum”), as the Company's new independent registered public accounting firm and discharged Cutler & Co, LLC, originally engaged in February 2014. There have been no disagreements with Baum & Company PA., or our previous independent registered public accounting firm, Cutler & Co, LLC, P.C., with respect to accounting and financial disclosure.
Item 9A.
Item 9A. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain a system of disclosure controls and procedures (as defined in Securities Exchange Act Rule 15d-15(e)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC's rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure.
We carried out an evaluation as required by paragraph (b) of Rule 13a-15 and 15d-15 of the Exchange Act.
Under the supervision and with the participation of our management, including our President (Chief Executive Officer) and Chief Financial Officer, of the effectiveness of our financial disclosures, controls and procedures, as defined in Rules 13a-15€ and 15d-15€ under the Exchange Act, as of December 31, 2016.
A material weakness can be defined as an insufficiently of internal controls that may result in a more than remote likelihood that a material misstatement will not be prevented, detected or corrected in a company’s financial statements.
Based upon that evaluation, our President (Chief Executive Officer) and Chief Financial Officer concluded that our disclosure controls and procedures were not effective, based on the following deficiencies.
·
Weakness in Accounting and Finance Personnel: We have a small accounting staff and we do not have the robust employee resources and expertise needed to meet complex and intricate GAAP and SEC reporting requirements of a U.S. public company. Additionally, numerous adjustments and proposed adjustments have been noted by our auditors. This is deemed by management to be a material weakness in preparing financial statements.
·
We have written accounting policies and control procedures, but we do not have sufficient staff to implement the related controls. Management had determined that this lack of the implementation of segregation of duties, as required by our written procedures, represents a material weakness in our internal records.
·
Internal control has at its core a basic tenant segregation of duties. Due to our limited size and economic constraints, the Company is not able to segregate for control purposes carious asset controls and recording duties and function to different employees. This lack of segregation of duties had been evaluated by management, and has been deemed to be a material control deficiency.
The Company has determined that the above internal control weaknesses and deficiencies could result in a reasonable possibility for interim financial statements that a material misstatement will not be prevented or detected on a timely basis by the Company’s internal controls.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management, consisting of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f) and 15d-15(f), is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and includes those policies and procedures that:
-
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
-
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
-
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. Based on this assessment, management believes that as of December 31, 2016, our internal control over financial reporting is effective based on those criteria.
This annual report does not include an attestation report of the company's 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 temporary rules of the SEC to provide only management's report in this annual report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes during our last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
Item 10. Directors, Executive Offices and Corporate Governance.
Directors and Executive Officers
The following table and text sets forth the names and ages of all our directors and executive officers and our key management personnel as of December 31, 2016. All of our directors serve until the next annual meeting of stockholders and until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. Executive officers serve at the discretion of the Board of Directors, and are elected or appointed to serve until the next Board of Directors meeting following the annual meeting of stockholders. Also provided is a brief description of the business experience of each director and executive officer and the key management personnel during the past five years and an indication of directorships held by each director in other companies subject to the reporting requirements under the Federal securities laws.
Neil Swartz, CEO
Mr. Swartz was reappointed as president, chief executive officer and director on March 14, 2016. Mr. Swartz had previously served as president, chief executive officer and director from January 23, 2014 to October 31, 2014. From 2009, Mr. Swartz has been president and CEO of TBG Holdings Corp (“TBG”) a financial consulting firm that works with public and private companies, bringing a sophisticated and efficient approach to structuring their capital, allowing them to take advantage of the existing foundation and continued development. Mr. Swartz’s business experience includes positions such as managing director of Sunbelt South East Florida, LLC, a business brokerage of mergers and acquisitions firm with 350 offices worldwide. Prior to TBG and Sunbelt, Swartz was chairman and CEO of a software company, which he took public on the Nasdaq Small Cap Market. Under his management, the company went from building one product to over thirty products with in-house manufacturing capabilities. Mr. Swartz is a CPA and received his BS degree in accounting from Northeastern University. He is a member of the American Institute of Certified Public Accountants and the Pennsylvania Institute of Certified Public Accountants.
Timothy S. Hart, CFO
Mr. Hart was appointed chief financial officer and director on October 31, 2014, and previously served as our chief financial officer and member of our board of directors from January 23, 2014 until October 3, 2014. Mr. Hart has over 30 years of accounting and finance experience. Since July 2013 Mr. Hart has been the CFO and a director of Monkey Rock Group, Inc. (OTC Markets: MKRO). Mr. Hart has held the position of CFO of TBG Holdings Corporation since March 2012 and a director since September 9, 2013. Hart has been providing accounting and consulting services from R3 Accounting LLC, a private accounting firm formed in 2008. He consulted extensively with the RailAmerica, Inc., a NYSE-listed holding company for short line and regional railroads in the U.S., which was acquired by Fortress Investment Group in 2007, during its initial public offering and assisted the company with governmental compliance. Hart’s firm also provided consulting, strategic tax planning and compliance, and acquisition audits for Patriot Rail Corp., a Boca Raton, Florida based company, which is an operator of short line and regional railroad in the U.S. Mr. Hart served as chief financial officer of Alternative Americas Fuels, Inc. (OTCBB: AFAI) from August 2011 until February 2012. Mr. Hart holds B.A.s in Accountancy, Economics and Business Administration from Thomas More College and has been a certified public accountant since 1984. Mr. Hart devotes approximately 30% of his time to our business and operations.
Director Qualifications
Mr. Swartz’s executive business experience and merger and acquisition experience were factors considered by the Board in selecting Mr. Swartz to serve on the Board.
Mr. Hart’s prior public company and accounting experience were factors considered by the Board in selecting Mr. Hart to serve on the Board.
Committees of the board of directors; stockholder nominations; audit committee financial expert
We have not established any committees comprised of members of our board of directors, including an Audit Committee, a Compensation Committee or a Nominating Committee, or any committee performing similar functions. The functions of those committees are being undertaken by our board of directors as a whole.
Audit Committee Financial Expert
Our Board currently acts as our audit committee. Mr. Hart is considered an “audit committee financial expert,” as defined in Item 401(e) of Regulation S-K and is not “independent,” as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.
Family Relationships
During the period covered by this report, there were no family relationships on the board of directors or with key management.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers have been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order enjoining that person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement.
Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors, director nominees or executive officers has been involved in any transactions with our Company or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the U.S. Securities and Exchange Commission.
Conflicts of Interest
Certain potential conflicts of interest are inherent in the relationships between our officers and directors, and us.
From time to time, one or more of our affiliates may form or hold an ownership interest in and/or manage other businesses both related and unrelated to the type of business that we own and operate. These persons expect to continue to form, hold an ownership interest in and/or manage additional other businesses which may compete with ours with respect to operations, including financing and marketing, management time and services and potential customers. These activities may give rise to conflicts between or among the interests of us and other businesses with which our affiliates are associated. Our affiliates are in no way prohibited from undertaking such activities, and neither we nor our shareholders will have any right to require participation in such other activities.
Further, because we intend to transact business with some of our officers, directors and affiliates, as well as with firms in which some of our officers, directors or affiliates have a material interest, potential conflicts may arise between the respective interests of us and these related persons or entities. We believe that such transactions will be effected on terms at least as favorable to us as those available from unrelated third parties.
With respect to transactions involving real or apparent conflicts of interest, we have adopted policies and procedures which require that: (i) the fact of the relationship or interest giving rise to the potential conflict be disclosed or known to the directors who authorize or approve the transaction prior to such authorization or approval, (ii) the transaction be approved by a majority of our disinterested outside directors, and (iii) the transaction be fair and reasonable to us at the time it is authorized or approved by our directors.
Code of Ethics and Conduct
We have adopted a Code of Ethics and Conduct which applies to our board of directors, our executive officers and our employees. The Code of Ethics and Conduct outlines the broad principles of ethical business conduct we adopted, covering subject areas such as:
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conflicts of interest;
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corporate opportunities;
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public disclosure reporting;
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confidentiality;
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protection of company assets;
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health and safety;
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conflicts of interest; and
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compliance with applicable laws
A copy of our Code of Ethics and Conduct is available without charge to any person desiring a copy by written request to us at our principal offices at 2929 East Commercial Blvd., PH-D, Fort Lauderdale, Florida 33308.
Director compensation
Our directors do not receive compensation for their services as directors.
Compliance with Section 16(a) of the Exchange Act
Our common stock is not registered pursuant to Section 12(g) or Section 12(b) of the Exchange Act and, accordingly, our officers, directors and 10% or greater stockholders are not subject to compliance with Rule 16(a) of the Exchange Act.
Item 11.
Item 11. Executive Compensation.
The following table and descriptive materials set forth information concerning compensation earned for services rendered to us by: the Chief Executive Officer (the “CEO”); the Chief Financial Officer (the “CFO”) who were serving as executive officers during the fiscal year ended December 31, 2016 and 2015.
SUMMARY COMPENSATION TABLE
We do not have employment agreements with the CEO or CFO.
Outstanding Equity Awards as Fiscal Year-End
None.
Payments Upon Termination of Change in Control
There are no understandings or agreements known by management at this time which would result in a change in control.
Compensation of Directors
We do not currently compensate our directors.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information concerning the ownership of the Company’s 39,216,665 shares of common stock issued and outstanding as of December 31, 2016, with respect to: (i) all officers and directors; (ii) each person known by us to be the beneficial owner of more than five percent (5%) of our common stock; and (iii) our directors and executive officers as a group.
(1)
Train Travel Holdings Inc. (Florida) is a subsidiary of TBG Holdings Corporation (Florida) whose officers and majority shareholders are Neil Swartz and Timothy Hart. The principal shareholders of Train Travel Holdings, Inc. (Florida) are TBG Holdings Inc.
(2)
On January 23, 2014, in conjunction with the Stock Purchase Agreement, the Company authorized the issuance of 600,000 preferred shares convertible into 29,100,000 common shares as compensation for services provided to the Company by its Chairman and Chief Financial Officer.The share certificates are held directly by the shareholder.
Securities Authorized for Issuance Under Equity Compensation Plans
None.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
We do not have a formal written policy for the review and approval of transactions with related parties. However, our Code of Ethics requires actual or potential conflict of interest to be reported to the Board. Our employees are expected to disclose personal interests that may conflict with ours and they may not engage in personal activities that conflict with their responsibilities and obligations to us. Periodically, we inquire as to whether or not any of our Directors have entered into any transactions, arrangements or relationships that constitute related party transactions. If any actual or potential conflict of interest is reported, our entire Board and outside legal counsel review the transaction and relationship disclosed and the Board makes a formal determination regarding each Director's independence. If the transaction is deemed to present a conflict of interest, the Board will determine the appropriate action to be taken.
Transactions with Related Persons
The Board is responsible for review, approval, or ratification of "related-person transactions" involving the Company or its subsidiaries and related persons. Under SEC rules (Section 404 (a) of Regulation S-K), a related person is a director, officer, nominee for director, or 5% stockholder of the company since the beginning of the previous fiscal year, and their immediate family members. the Company is required to report any transaction or series of transactions in which the company or a subsidiary is a participant, the amount involved exceeds $120,000, and a related person has a direct or indirect material interest.
The Board has determined that, barring additional facts or circumstances, a related person does not have a direct or indirect material interest in the following categories of transactions:
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any transaction with another company for which a related person's only relationship is as an employee (other than an executive officer), director, or beneficial owner of less than 10% of that company's shares, if the amount involved does not exceed the greater of $1 million or 2% of that company's total annual revenue;
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compensation to executive officers determined by the Board;
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compensation to directors determined by the Board;
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transactions in which all security holders receive proportional benefits; and
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banking-related services involving a bank depository of funds, transfer agent, registrar, trustee under a trust indenture, or similar service.
The Board reviews transactions involving related persons who are not included in one of the above categories and makes a determination whether the related person has a material interest in a transaction and may approve, ratify, rescind, or take other action with respect to the transaction in its discretion. The Board reviews all material facts related to the transaction and takes into account, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances; the extent of the related person's interest in the transaction; and, if applicable, the availability of other sources of comparable products or services.
Through TBG Holdings Corporation and R3 Accounting, Timothy Hart, the Company’s Chief Financial Officer, provides accounting and other consulting related services to the Company. During the years ended December 31, 2016 and 2015, the company recognized expense related to these services of $166,338 and $195,431, respectively. At December 31, 2016 and 2015, the Company owed R3 Accounting and TBG Holdings a total of $54,726 and $70,249, respectively, which is included on the balance sheet under “Accounts payable - related party”.
In January 2014, the Company issued 600,000 shares of its Series A Preferred Stock, valued at $174,600, to Train Travel Holdings (Florida) in consideration for services rendered and to be rendered to the Company.
Review, Approval or Ratification of Transactions with Related Persons
Our unwritten policy with regard to transactions with related persons is that all material transactions are to be reviewed by the entire Board for any possible conflicts of interest. In the event of a potential conflict of interest, the Board will generally evaluate the transaction in terms of the following standards: (i) the benefits to us; (ii) the impact on a director’s independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, shareholder or executive officer; (iii) the availability of other sources for comparable products or services; (iv) the terms and conditions of the transaction; and (v) the terms available to unrelated parties or the employees generally. The Board will then document its findings and conclusion in written minutes.
Director Independence
The Company is quoted on the OTCBB inter-dealer quotation system, which does not have director independence requirements. However, for purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 4200(a)(15). NASDAQ Rule 4200(a)(15) states that a director is not considered to be independent if he or she is also an executive officer or employee of the corporation. Accordingly, we do not currently have an independent director.
Item 14.
Item 14. Principal Accountant Fees and Services.
Summary of Principal Accountant Fees for Professional Services Rendered
The following table presents the aggregate fees for professional audit services and other services rendered by Baum & Company PA, our independent registered public accountants, for 2016 and 2015 audits.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as a part of this Form 10-K:
1. Financial Statements
The following financial statements are included in Part II, Item 8 of this Form 10-K:
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Report of Independent Registered Public Accounting Firm
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Consolidated Balance Sheets as of December 31, 2016 and 2015
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Consolidated Statements of Operations for the years ended December 31, 2016 and 2015
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Consolidated Statements of Stockholders’ Deficit For the Years Ended December 31, 2016 and 2015
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Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015
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Notes to Consolidated Financial Statements
2. Exhibits
The exhibits listed in the Exhibit Index below are incorporated herein by reference, and are filed as part of this Form 10-K.
3. Financial Statement Schedules
Financial statement schedules are omitted because they are not required or are not applicable, or the required information is provided in the financial statements or notes described in Item 15(a)(1) above.
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Filed herewith.
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Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
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.