Filed Pursuant to Rule 424(b)(3)
Registration No. 333-262277
PROSPECTUS
a Florida corporation
96,487,250 Shares of Common Stock
This Prospectus relates to the offer and sale
of up to 96,487,250 shares of our Common Stock (“Common Stock”) by Selling Stockholders listed on page 23 of this Prospectus
(the “Selling Stockholders”), (the “Offering”). See “SELLING STOCKHOLDERS.”
The Selling Stockholders, or their respective
transferees, pledgees, donees or other successors-in-interest, may sell their shares of our Common Stock (the “Shares”) from
time to time at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. The Selling
Stockholders may sell any, all or none of the securities offered by this prospectus, and we do not know when or in what amount the Selling
Stockholders may sell their Shares hereunder following the effective date of this registration statement.
Our Common Stock is currently traded on the OTCQB
Marketplace operated by the OTC Markets Group, Inc. (the “OTCQB”) under the symbol “KITL.” On August 25, 2022,
the last reported sale price for our common stock was $0.0281 per share. Each Selling Stockholder is or may be an “underwriter”
within the meaning of Section 2(a)(11) of the Securities Act. See “DETERMINATION OF OFFERING PRICE,” “SELLING
STOCKHOLDERS” and “PLAN OF DISTRIBUTION.”
We will pay the expenses of registering these
Shares. We will not receive any proceeds from the sale of Shares of Common Stock in this Offering. All of the net proceeds from the sale
of the Shares will go to the Selling Stockholders. However, to the extent that the warrants held by the Selling Stockholders are exercised
for cash, we will receive the payment of the exercise price in connection with such exercise.
We are an “emerging growth company”
as defined under the federal securities laws and are subject to reduced public company reporting requirements.
Investing in our Common Stock involves a high
degree of risk. You should invest in our Common Stock only if you can afford to lose your entire investment.
SEE “RISK FACTORS” BEGINNING
ON PAGE 5.
The information in this Prospectus is not complete
and may be changed. This Prospectus is included in the registration statement that was filed by Kisses From Italy Inc. with the Securities
and Exchange Commission. The Selling Stockholders may not sell these Shares until the registration statement becomes effective. This Prospectus
is not an offer to sell these Shares and is not soliciting an offer to buy these Shares in any State where the offer or sale is not permitted.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this Prospectus is September 9,
2022
TABLE OF CONTENTS
PROSPECTUS SUMMARY
This summary provides an overview of certain
information contained elsewhere in this Prospectus and does not contain all of the information that you should consider or that may be
important to you. Before making an investment decision, you should read the entire Prospectus carefully, including the “RISK FACTORS”
section and the financial statements and the notes to the financial statements. In this Prospectus, the terms “the “Company,”
“we,” “us” and “our” refer to Kisses From Italy Inc., unless otherwise specified herein.
We were incorporated
in the State of Florida on March 7, 2013, with a focus on developing a fast, casual food dining chain restaurant business.
The Company
operates through its wholly-owned subsidiaries, Kisses From Italy 9th LLC, Kisses From Italy-Franchising LLC, Kisses
From Italy, Inc. (Canada) (a company incorporated under the laws of Canada and registered in Quebec on December 23, 2020), and Kisses
From Italy Italia SRLS (a limited liability company incorporated in Italy), and its 70% owned subsidiary, Kisses-Palm Sea Royal LLC.
We commenced
operations by opening our initial corporate-owned restaurant in Fort Lauderdale, Florida in May 2015. By April 2016, we opened three
additional restaurants located in various Wyndham Hotel properties in the Pompano Beach, Florida area. In September 2017, Hurricane Irma
caused significant damage to the area, which resulted in Wyndham halting operations at its hotel properties for repairs and renovations
and the closure of our Wyndham hotel locations. In December 2017, we vacated one of our restaurants in the Wyndham Hotel properties due
to damage from the hurricane and have not re-opened such restaurant. During the first half of 2021, we consolidated the remaining two
Wyndham stores into one location.
While our
Fort Lauderdale location was reopened in early November 2017, we were only able to reopen two of the hotel locations in Pompano Beach
in late January 2018. We also elected not to reopen our fourth location, as the damages were too excessive. If we can raise additional
capital, of which there is no assurance, we intend to own and operate up to 10 restaurants and utilize them as a showcase in the marketing
of our proposed franchise operations.
In May 2017, we completed our National Franchise
License which permits us to sell franchises in all of the states in the United States except for New York, Virginia, and Maryland, which
licenses we may obtain if sufficient demand exists in the future.
We opened
our first European location in Ceglie del Campo, Bari, Italy, in October 2019. The Bari location closed in April 2020 due to the Covid-19
pandemic, briefly re-opened and has not re-opened as of the date of this Report. Such location was intended to serve as the distribution
center for products for European locations, as well as to be used as a training facility for European franchises. However, this initiative
has been severely curtailed due to the onset and lingering impact of Covid -19 in Europe.
Our two corporate-owned
restaurants, one located in Fort Lauderdale, Florida, and one within the Wyndham location in Pompano Beach, Florida, have fully re-opened
without limitation or any social distancing requirement.
In September
2019, the Company's common stock was approved for trading by FINRA and in October 2019 was approved for uplisting by the OTC Markets
Group to the OTCQB under the symbol “KITL”.
In June of 2020, the Company entered into a multi-unit
development agreement (the “Development Agreement”) pursuant to which it granted development rights to Demasar Management,
Inc. to open and operate up to 100 restaurants in Canada. Under this Development Agreement, the developer is obligated to open a
minimum of 20 restaurants by June 17, 2025. On November 20, 2021, we opened a franchise location under the Development Agreement in Montreal,
Quebec, Canada.
In September
of 2020, we entered retail food and grocery stores with Kisses From Italy branded products in Canada. The product launch began in November
of 2020 and Kisses From Italy branded products were in nine retail stores by the end of 2020. Currently, Kisses From Italy branded products
are in 40 stores across Ontario and Quebec, Canada.
In April of 2021, we entered into a Consulting
Agreement (the “Consulting Agreement”) with Fransmart, LLC, a Delaware limited liability company (“Fransmart”),
pursuant to which we engaged Fransmart as our exclusive global franchise developer and representative for a period of ten years.
In June of
2021, the Company’s first franchise location opened in Chino, California. In November of 2021, the Company opened its second franchise
location in Montreal, Canada.
On March 9, 2022,
Articles of Amendment to the Company’s Articles of Incorporation to increase the number of its authorized common stock from 200,000,000
shares to 300,000,000 shares became effective. Such action was approved by the Board of Directors on January 25, 2022 and a majority
of the Company’s shareholders on January 27, 2022. The purpose of share increase is to make available additional shares of
common stock for issuance of all the current obligations of the Company to issue common stock, including under outstanding convertible
securities.
COVID-19
On March
11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. In addition to the devastating effects
on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global
financial markets. Most U.S. states and many countries have issued policies intended to stop or slow the further spread of the disease.
COVID-19
and the U.S.’s response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance
as to the effect the COVID-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject
to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our operations.
The Company’s
two US based locations are fully opened without any Covid-19 limitation. Our location in Bari, Italy remains closed due to COVID-19 restrictions.
Our principal offices are located at 80 SW 8th
St. Suite 2000, Miami, Florida, 33130, and our phone number is (305) 423-7024. Our website is www.kissesfromitaly.com
About
The Offering
Common Stock to be Offered by Selling Stockholders |
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96,487,250 shares, consisting of (i) 75,000,000 shares of our Common
Stock issuable pursuant to that certain Standby Equity Commitment Agreement dated November 22, 2021, by and between MacRab LLC, a Florida
limited liability company (“MacRab”) and us; (ii) up to 14,112,000 shares of our Common Stock issuable upon conversion of
the principal and accrued interest at maturity of three convertible promissory notes in the aggregate principal amount of $480,000 issued
by the Company to Talos Victory Fund, LLC, a Delaware limited liability company (“Talos”), and Blue Lake Partners, LLC, a
Delaware limited liability company (“Blue Lake”), at a conversion price of $0.05 per share, and to Fourth Man, LLC, a Nevada
limited liability company (“Fourth Man”) at a conversion price of $0.025 per share; (iii) 5,550,000 shares of our Common Stock
issuable upon exercise of outstanding warrants held by MacRab, Talos, Blue Lake, and Fourth Man at an exercise price of $0.10 per share;
(iv) 1,607,000 shares of our Common Stock issued to Talos, Blue Lake, and Fourth Man in connection with the issuance of the convertible
promissory notes as commitment shares; and (v) up to 218,250 shares of our Common Stock issuable upon exercise of outstanding warrants
held by J.H. Darbie & Co., Inc. |
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Common Stock outstanding before the Offering |
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185,520,582 shares of Common Stock |
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Common Stock outstanding after the Offering (assuming all of the shares offered in the Offering have been issued and sold) |
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282,007,832 shares of Common Stock |
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OTCQB symbol |
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KITL |
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Use of Proceeds |
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We
will not receive any proceeds from the sale of the Common Stock. However, to the extent that the warrants held by the Selling Stockholders
are exercised for cash, we will receive the payment of the exercise price in connection with such exercise. |
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Risk Factors |
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See the discussion under the caption “RISK FACTORS” and other information in this Prospectus for a discussion of factors you should carefully consider before deciding to invest in our Common Stock. |
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
We have made some statements in this Prospectus,
including some under “RISK FACTORS,” “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” “DESCRIPTION OF BUSINESS” and elsewhere, which constitute forward-looking statements. These statements
may discuss our future expectations or contain projections of our results of operations or financial condition or expected benefits to
us resulting from acquisitions or transactions and involve known and unknown risks, uncertainties and other factors that may cause our
actual results, levels of activity, performance or achievements to be materially different from any results, levels of activity, performance
or achievements expressed or implied by any forward-looking statements. These factors include, among other things, those listed under
“RISK FACTORS” and elsewhere in this Prospectus. In some cases, forward-looking statements can be identified by terminology
such as “may,” “should,” “could,” “expects,” “intends,” “plans,”
“anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue”
or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in forward-looking
statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
RISK FACTORS
Investing in our Common Stock involves a high
degree of risk. Before investing in our Common Stock, you should carefully consider the risks described below, as well as the other information
in this prospectus, including our consolidated financial statements and the related notes. In addition, we may face additional risks and
uncertainties not currently known to us, or which as of the date of this registration statement we might not consider significant, which
may adversely affect our business. If any of the following risks occur, our business, financial condition and results of operations could
be materially adversely affected. In such case, the trading price of our Common Stock could decline due to any of these risks or uncertainties,
and you may lose part or all of your investment.
Risks Related to Our Business
Our independent accountants have expressed a "going concern"
opinion.
Our financial statements accompanying this prospectus
have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The financial statements do not include any adjustment that might result from the outcome
of this uncertainty. We have a minimal operating history and minimal revenues or earnings from operations. We have no significant assets
or financial resources. We will, in all likelihood, sustain operating expenses without corresponding revenues for the immediate future.
See “DESCRIPTION OF BUSINESS” and “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Liquidity and Capital Resources.” There are no assurances that
we will generate profits from operations.
We have not generated profits from our operations.
We incurred net losses of $540,314 in the
six months ended June 30, 2022 and net losses of $4,942,113 and $3,709,402 in the years ended December 31, 2021 and 2020, respectively.
There can be no assurances that we will ever establish profitable operations. As we pursue our business plan, we are incurring significant
expenses without corresponding revenues. In the event that we remain unable to generate significant revenues to pay our operating expenses,
we will not be able to achieve profitability or continue operations.
Our financial condition and
results of operations have been and may continue to be adversely affected by the COVID-19 pandemic or future pandemics or
disease outbreaks.
During March 2020,
a global pandemic was declared by the World Health Organization related to the rapidly spreading outbreak of a novel strain of
coronavirus (“COVID-19”). The COVID-19 pandemic has caused businesses, including our business, as well as
federal, state and local governments to implement significant actions to attempt to mitigate this public health crisis in the United
States. Our operations have been impacted by the COVID-19 pandemic. Future pandemics (or epidemics on a local basis) could
have a similar impact on our business.
During 2020 and
2021, individuals in areas where we operate our restaurants were required to practice social distancing, restricted from gathering
in groups and/or mandated to “stay home” except for “essential” purposes. In response to the
COVID-19 pandemic and government restrictions, we were required to close or restrict our locations. The mobility restrictions,
fear of contracting COVID-19 and the sharp increase in unemployment caused by the closure of businesses in response to
the COVID-19 pandemic, have adversely affected and may continue to adversely affect our guest traffic, which in turn
adversely impacts our business, financial condition or results of operations. Even as the mobility restrictions were loosened or
lifted, we believe that some guests remained reluctant to return and the impact of lost wages due to COVID-19 related
unemployment has dampened consumer spending. Our restaurant operations have been and could continue to be adversely affected by
employees who are unable or unwilling to work, whether because of illness, quarantine, fear of contracting COVID-19 or
caring for family members due to COVID-19 disruptions or illness. Restaurant closures, limited service options or modified
hours of operation due to staffing shortages could materially adversely affect our business, liquidity, financial condition or
results of operations.
The extent of the impact
of the COVID-19 pandemic on our operations and financial results depends on future developments and is highly uncertain due to the unknown
duration and severity of the outbreak, including the potential impact of the COVID-19 delta and omicron variants. The situation is changing
rapidly and future impacts may materialize that are not yet known. We intend to continue to actively monitor the evolving situation and
may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine
are in the best interests of our team members, customers, suppliers and shareholders. The further spread of COVID-19 or other
infectious diseases, and the requirements or measures imposed or taken by federal, state and local governments and businesses to mitigate
the spread of such diseases, could disrupt our business or impact our ability to carry out our business as usual. Depending on the duration
and severity of any such business interruption, we may need to seek additional sources of liquidity. There can be no guarantee that additional
liquidity, whether through the credit markets or government programs, will be readily available or available on favorable terms to us.
The ultimate impact of adverse events in the future on our operations is unknown and will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, including the duration, and any additional preventative and protective actions that
governments, or we, may direct, which may result in an extended period of continued business disruption, reduced guest traffic, damage
to our reputation and reduced operations, any of which could have a material adverse effect on our business, financial condition and results
of operations. The COVID-19 pandemic or other infectious diseases may also have the effect of heightening other risks disclosed
in this prospectus, including, but not limited to, those related to our growth strategy, access capital markets and other funding sources,
changes in consumer spending behaviors, supply chain interruptions and/or commodity price increases.
We are vulnerable
to changes in economic conditions and consumer preferences that could have a material adverse effect on our business, financial condition
and results of operations.
The restaurant industry
depends on consumer discretionary spending and is often affected by changes in consumer tastes, national, regional and local economic
conditions and demographic trends, including changes in behavior caused by the COVID-19 pandemic. In addition, factors such
as traffic patterns, weather, fuel prices, local demographics, local regulations and the type, number and locations of competing restaurants
may adversely affect the performances of individual locations. In addition, economic downturns, inflation or increased food or energy
costs could harm the restaurant industry in general and our restaurants in particular. Adverse changes in any of these factors could
reduce consumer traffic or impose practical limits on pricing that could have a material adverse effect on our business, financial condition
and results of operations. There can also be no assurance that consumers will continue to regard our menu offerings favorably, that we
will be able to develop new menu items that appeal to consumer preferences or that there will not be a drop in consumer demand. Restaurant
traffic and our resulting sales depend in part on our ability to anticipate, identify and respond to changing consumer preferences and
economic conditions. In addition, the restaurant industry is subject to scrutiny due to the perception that restaurant company practices
have contributed to poor nutrition, high caloric intake, obesity or other health concerns of their customers. If we are unable to adapt
to changes in consumer preferences and trends, we may lose customers, which could have a material adverse effect on our business, financial
condition and results of operations.
Changes in customer preferences,
general economic conditions, discretionary spending priorities, demographic trends, traffic patterns and the type, number and location
of competing restaurants affect the restaurant industry. Our success depends to a significant extent on consumer confidence, which is
influenced by general economic conditions, local and regional economic conditions in the markets in which we operate, and discretionary
income levels. Our sales may decline during economic downturns, which can be caused by various economic factors such as high gasoline
prices, or during periods of uncertainty, such as those during the Covid-19 pandemic. Any material decline in consumer confidence or a
decline in spending could cause our sales, operating results, business or financial condition to decline. If we fail to adapt to changes
in customer preferences and trends, we may lose customers, fail to gain customers, and our sales may deteriorate.
Customer preference on
how and where they purchase food may change because of advances in technology or alternative service channels. If we are not able to respond
to these changes, or our competitors respond to these changes more effectively, our business, financial condition and results of operations
could be adversely affected.
Changes in the cost of food could have
a material adverse effect on our business, financial condition and results of operations.
Our profitability depends
in part on our ability to anticipate and react to changes in the cost of sales of food items. We are susceptible to increases in the cost
of food due to factors beyond our control, such as freight and delivery charges, general economic conditions, seasonal economic fluctuations,
weather conditions, global demand, food safety concerns, infectious diseases, fluctuations in the U.S. dollar, tariffs and import taxes,
product recalls and government regulations. Dependence on frequent deliveries of food products subjects our business to the risk that
shortages or interruptions in supply could adversely affect the availability, quality or cost of ingredients or require us to incur additional
costs to obtain adequate supplies. Deliveries of supplies may be affected by adverse short-term weather conditions or long-term changes
in weather patterns, including those related to climate change, natural disasters, labor shortages, or financial or solvency issues of
our distributors or suppliers, product recalls or other issues. Further, increases in fuel prices could result in increased distribution
costs. In addition, a material adverse effect on our business, financial condition and results of operations could occur if any of our
distributors, suppliers, vendors, or other contractors fail to meet our quality or safety standards or otherwise do not perform adequately,
or if any one or more of them seeks to terminate its agreement or fails to perform as anticipated, or if there is any disruption in any
of our distribution or supply relationships or operations for any reason. Changes in the price or availability of certain food products,
including as a result of the COVID-19 pandemic, could affect our profitability and reputation.
Changes in the cost of
ingredients can result from a number of factors, including seasonality, short-term weather conditions or long-term changes in weather
patterns, natural disasters, currency exchange rates, increases in the cost of grain, consumer demand, disease and viruses and other factors
that affect availability and greater international demand for domestic products. In the event of cost increases with respect to one or
more of our raw ingredients, we may choose to temporarily suspend or permanently discontinue serving menu items rather than paying the
increased cost for the ingredients. Any such changes to our available menu could negatively impact our restaurant traffic, business and
results of operations during the shortage and thereafter. While future cost increases can be partially offset by increasing menu prices,
there can be no assurance that we will be able to offset future cost increases by such menu price increases. If we implement menu price
increases, there can be no assurance that increased menu prices will be fully absorbed by our guests without any resulting change to their
visit frequencies or purchasing patterns. Competitive conditions may limit our menu pricing flexibility and if we implement menu price
increases to protect our margins, restaurant traffic could be materially adversely affected.
An important aspect
of our growth strategy involves opening new restaurants in existing and new markets. We may be unsuccessful in opening new restaurants
or establishing new markets and our new restaurants may not perform as well as anticipated, which could have a material adverse effect
on our business, financial condition and results of operations.
A key part of our growth
strategy includes opening new restaurants in existing and new markets and operating those restaurants on a profitable basis. We must
identify target markets where we can enter or expand, and we may not be able to open our planned new restaurants within budget or on
a timely basis, and our new restaurants may not perform as well as anticipated. Our ability to successfully open new restaurants is affected
by several factors, many of which are beyond our control, including our ability to:
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identify available, appropriate and attractive restaurant sites; |
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compete for restaurant sites; |
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reach acceptable agreements regarding the lease or purchase of restaurant sites; |
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obtain or have available the financing required to develop and operate new restaurants, including construction and opening costs, which includes access to leases and equipment leases at favorable interest and capitalization rates; |
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respond to unforeseen engineering or environmental problems with our selected restaurant sites; |
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respond to landlord delays and the failure of landlords to timely deliver real estate to us; |
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mitigate the impact of inclement weather, natural disasters and other calamities on the development of restaurant sites; |
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hire, train and retain the skilled management and other team members necessary to meet staffing needs of new restaurants; |
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obtain, in a timely manner and for an acceptable cost, required licenses, permits and regulatory approvals and respond effectively to any changes in local, state or federal law and regulations that adversely affect our costs or ability to open new restaurants; and |
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respond to construction and equipment cost increases for new restaurants. |
There is no guarantee
that a sufficient number of available, appropriate and attractive restaurant sites will be available in desirable areas or on terms that
are acceptable to us in order to achieve our growth plan. If we are unable to open new restaurants, or if planned restaurant openings
are significantly delayed, it could have a material adverse effect on our business, financial condition and results of operations.
As part of our long-term
growth strategy, we may open restaurants in geographic markets in which we have little or no prior operating experience. The challenges
of entering new markets include: difficulties in hiring experienced personnel; unfamiliarity with local real estate markets and demographics;
consumer unfamiliarity with our brand; and different competitive and economic conditions, consumer tastes and discretionary spending patterns
that are more difficult to predict or satisfy than in our existing markets. Consumer recognition of our brand has been important in the
success of our restaurants in our existing markets, and we may find that our concept has limited appeal in new markets. Restaurants we
open in new markets may take longer to reach expected sales and profit levels on a consistent basis and may have higher construction,
occupancy and operating costs than existing restaurants. Any failure on our part to recognize or respond to these challenges may adversely
affect the success of any new restaurants and could have a material adverse effect on our business, financial condition and results of
operations.
We intend to continue
to make investments to support our business growth and may require additional funds to respond to business challenges or opportunities,
including the need to open additional restaurants. Accordingly, we may need to engage in equity or debt financings to secure additional
funds. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain
adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth
and to respond to business challenges could be significantly limited, which could have a material adverse effect on our business, financial
condition and results of operations.
New restaurants may not be profitable
or may close, and the performance of our restaurants that we have experienced in the past may not be indicative of future results.
In new markets, the length
of time before average sales for new restaurants stabilize is less predictable as a result of our limited knowledge of these markets and
consumers’ limited awareness of our brand. Our ability to operate our restaurants profitably will depend on many factors, some of
which are beyond our control, including:
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consumer awareness and understanding of our brand; |
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general economic conditions, which can affect restaurant traffic, local labor costs and prices we pay for the food products and other supplies we use; |
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consumption patterns and food preferences that may differ from region to region; |
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changes in consumer preferences and discretionary spending; |
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difficulties obtaining or maintaining adequate relationships with distributors or suppliers in new markets; |
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increases in prices for commodities; |
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inefficiency in our labor costs as the staff gains experience; |
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competition, either from our competitors in the restaurant industry or our own restaurants; |
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temporary and permanent site characteristics of new restaurants; |
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changes in government regulation; and |
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other unanticipated increases in costs, any of which could give rise to delays or cost overruns. |
If our new restaurants
do not perform as planned or close, it could have a material adverse effect on our business, financial condition and results of operations.
Our growth strategy also includes continued development
of our business through franchising. The opening and successful operation of our restaurants by franchisees depends on a number of factors,
including those identified above, as well as the availability of suitable franchise candidates and the financial and other resources of
our franchisees such as our franchisees’ ability to receive financing from banks and other financial institutions, which may become
more challenging in the current economic environment. As noted above, identifying and securing an adequate supply of suitable new restaurant
sites presents significant challenges because of the intense competition for those sites in our target markets, and increasing development
and leasing costs. This may be especially true as we continue to expand. Further, any restrictions or limitations of credit markets may
require developers to delay or be unable to finance new projects. Delays or failures in opening new restaurants due to any of the reasons
set forth above could materially and adversely affect our growth strategy and our expected results.
Our success in part depends on the success
of our franchisees’ business.
To achieve our expansion goals within our desired
timeframe, we have adopted a franchising and area developer model into our business strategy. We hope to continue to open new company-owned
restaurants, while also moving forward to developing our franchised operation where we will solicit others to become our franchisees.
We have not used a franchising or area developer model in the past and may not be successful in attracting franchisees and developers
to our business concept or identifying franchisees and developers that have the business abilities or access to financial resources necessary
to open our restaurants or to develop or operate successfully our restaurants in a manner consistent with our standards. Incorporating
a franchising and area developer model into our strategy will required us to devote significant management and financial resources to
prepare for and support the eventual sale of franchises. If we are not successful in incorporating a franchising or area developer
model into our strategy, we may experience delays in our growth or may not be able to expand and grow our business.
Our success also depends in part on the operations
of our franchisees. While we provide training and support to, and monitor the operations of, our franchisees, the product quality and
service they deliver may be diminished by any number of factors beyond our control, including financial pressures and their own business
operations, such as employment related matters. We strive to provide our customers with the same experience at company-owned restaurants
and franchise-operated restaurants. Our customers may attribute to us problems which originate with one of our franchisees, particularly
those affecting the quality of the service experience, food safety, litigation or compliance with laws and regulations, thus damaging
our reputation and brand value and potentially adversely affecting our results of operations. Our growth expectations and revenues could
be negatively impacted by a material downturn in sales at and to franchise-operated locations or if one or more key franchisees become
insolvent.
Our franchisees could take actions that
could harm our business.
Franchisees are independently owned and operated,
and they are not our employees. Although we provide certain training and support to franchisees, our franchisees operate their shops as
independent businesses. Consequently, the quality of franchised shop operations may be diminished by any number of factors beyond our
control. Moreover, franchisees may not operate shops in a manner consistent with applicable laws and regulations or in accordance with
our standards and requirements. Also, franchisees may not successfully hire and train qualified managers and other shop personnel. Although
we believe we currently generally enjoy a positive relationship with our franchisees, there is no assurance that future developments,
some of which may be outside our control, may significantly harm our future relationships with existing and new franchisees. In addition,
our image and reputation, and the image and reputation of other franchisees, may suffer materially if our franchisees do not operate successfully,
or in accordance with our standards and requirements, which could result in a significant decline in our sales, our revenues and our profitability.
Our failure to
manage our growth effectively could harm our business and results of operations.
Our growth plan includes
opening new restaurants. Our existing restaurant management systems, financial and management controls and information systems may be
inadequate to support our planned expansion. Managing our growth effectively will require us to continue to enhance these systems, procedures
and controls and to hire, train and retain managers and team members. We may not respond quickly enough to the changing demands that our
expansion will impose on our management, restaurant teams and existing infrastructure, which could have a material adverse effect on our
business, financial condition and results of operations. These demands could cause us to operate our existing business less effectively,
which in turn could cause a deterioration in the financial performance of our existing restaurants. If we experience a decline in the
financial performance, we may decrease the number of or discontinue restaurant openings, or we may decide to close restaurants that we
are unable to operate in a profitable manner.
Opening new restaurants
in existing markets may negatively impact sales at our existing restaurants.
The consumer target area
of our restaurants varies by location, depending on a number of factors, including population density, other local retail and business
attractions, area demographics and geography. As a result, if we open new restaurants in or near markets in which we already have restaurants,
it could have a material adverse effect on sales at these existing restaurants. Existing restaurants could also make it more difficult
to build our consumer base for a new restaurant in the same market. Our core business strategy does not entail opening new restaurants
that we believe will materially affect sales at our existing restaurants over the long term. However, due to brand recognition and logistical
synergies, as part of our growth strategy, we also intend to open new restaurants in areas where we have existing restaurants. This plan
could have a material adverse effect on the results of operations and same-restaurant sales for our restaurants in such markets due to
the close proximity with our other restaurants and market saturation. Unintentional sales cannibalization or sales cannibalization in
excess of what was intended may become significant in the future as we continue to open new restaurants, and could affect our sales growth,
which could, in turn, have a material adverse effect on our business, financial condition and results of operations.
Our plans to open
new restaurants, and the ongoing need for capital expenditures at our existing restaurants, require us to spend capital.
Our growth strategy depends
on opening new restaurants, which will require us to use cash flows from operations and proceeds from equity or debt offerings. We cannot
assure you that cash flows from operations and the net proceeds of any offering will be sufficient to allow us to implement our growth
strategy. If this cash is not allocated efficiently among our various projects, or if any of these initiatives prove to be unsuccessful,
we may experience reduced financial results and we could be required to delay, significantly curtail or eliminate planned restaurant openings,
which could have a material adverse effect on our business, financial condition, results of operations and the price of our stock.
In addition, as our restaurants
mature, our business will require capital expenditures for the maintenance, renovation and improvement of existing restaurants to remain
competitive and maintain the value of our brand standard. This creates an ongoing need for cash, and, to the extent we cannot fund capital
expenditures from cash flows from operations, funds will need to be borrowed or otherwise obtained.
If the costs of funding
new restaurants or renovations or enhancements at existing restaurants exceed budgeted amounts, and/or the time for building or renovation
is longer than anticipated, our profits could be reduced. If we cannot access the capital we need, we may not be able to execute on our
growth strategy, take advantage of future opportunities or respond to competitive pressures.
Incidents involving food-borne illness
and food safety, including food tampering or contamination could adversely affect our brand perception, business, financial condition
and results of operations.
Food safety is a top
priority, and we dedicate substantial resources to help ensure that our guests enjoy safe, quality food products. However, food-borne
illnesses and other food safety issues have occurred in the food industry in the past, and could occur in the future. Incidents or reports
of food-borne or water-borne illness or other food safety issues, food contamination or tampering, team member hygiene and cleanliness
failures or improper team member conduct, guests entering our restaurants while ill and contaminating food ingredients or surfaces at
our restaurants could lead to product liability or other claims. Such incidents or reports could negatively affect our brand and reputation
and could have a material adverse effect on our business, financial condition and results of operations.
We cannot guarantee to
consumers that our food safety controls, procedures and training will be fully effective in preventing all food safety and public health
issues at our restaurants, including any occurrences of pathogens (i.e., Ebola, “mad cow disease,” “SARS,” “swine
flu,” Zika virus, avian influenza, hepatitis A, porcine epidemic diarrhea virus, norovirus or other virus), bacteria (i.e., salmonella,
listeria or E. coli), parasites or other toxins infecting our food supply. These public health issues, in addition to food tampering,
could adversely affect food prices and availability of certain food products, could generate negative publicity and litigation, and could
lead to closure of restaurants, resulting in a decline in our sales or profitability. In addition, there is no guarantee that our restaurant
locations will maintain the high levels of internal controls and training we require at our restaurants. Furthermore, some food-borne
illness incidents could be caused by third-party food suppliers and transporters outside of our control, and may affect multiple restaurant
locations as a result. We cannot assure you that all food items will be properly maintained during transport throughout the supply chain
and that our team members will identify all products that may be spoiled and should not be used in our restaurants. The risk of food-borne
illness may also increase whenever our menu items are served outside of our control, such as by third-party food delivery services, guest
take out or at catered events. We do not have direct control over our third-party suppliers, transporters or delivery services, including
in their adherence to additional sanitation protocols and guidelines as a result of the COVID-19 pandemic or other infectious
diseases, and may not have visibility into their practices. New illnesses resistant to our current precautions may develop in the future,
or diseases with long incubation periods could arise, that could give rise to claims or allegations on a retroactive basis. One or more
instances of food-borne illness in one of our restaurants could negatively affect sales at all our restaurants if highly publicized, such
as on national media outlets or through social media. This risk exists even if it were later determined that the illness was wrongly attributed
to one of our restaurants. Food safety incidents, whether at our restaurants or involving our business partners, could lead to wide public
exposure and negative publicity, which could materially harm our business. Additionally, even if food-borne illnesses were not identified
at our restaurants, our restaurant sales could be adversely affected if instances of food-borne illnesses at other restaurants were highly
publicized.
Damage to our reputation
and negative publicity could have a material adverse effect on our business, financial condition and results of operations.
Any incident that
erodes consumer loyalty for our brand could significantly reduce its value and damage our business. We may be adversely affected by
negative publicity relating to food quality, the safety, sanitation and welfare of our restaurant facilities, guest complaints or
litigation alleging illness or injury, health inspection scores, integrity of our or our suppliers’ food processing and other
policies, practices and procedures, team member relationships and welfare or other matters at one or more of our restaurants. Any
publicity relating to health concerns, perceived or specific outbreaks of a food-borne illness attributed to one or more of our
restaurants, or non-compliance with food handling and sanitation requirements imposed by federal, state and local
governments could result in a significant decrease in guest traffic in all of our restaurants and could have a material adverse
effect on our results of operations. Furthermore, similar negative publicity or occurrences with respect to other restaurants or
other restaurant chains could also decrease our guest traffic and have a similar material adverse effect on our business. In
addition, incidents of restaurant commentary have increased dramatically with the proliferation of social media platforms. Negative
publicity may adversely affect us, regardless of whether the allegations are valid or whether we are held responsible. In addition,
the negative impact of adverse publicity may extend far beyond the restaurant involved, and affect some or all our other
restaurants.
The digital and
delivery business, and expansion thereof, is uncertain and subject to risk.
As the digital space
around us continues to evolve, our technology needs to evolve concurrently to stay competitive with the industry. If we do not maintain
and innovate our digital systems that are competitive with the industry, our digital business may be adversely affected and could damage
our sales. We rely on third-parties for our ordering and payment platforms. Such services performed by these third-parties could be damaged
or interrupted by technological issues, which could then result in a loss of sales for a period of time. Information processed by these
third-parties could also be impacted by cyber-attacks, which could not only negatively impact our sales, but also harm our brand image.
Recognizing the rise
in delivery services offered throughout the restaurant industry, we understand the importance of providing such services to meet our guests
wherever and whenever they want. We rely on third-parties to fulfill delivery orders timely and in a fashion that will satisfy our guests.
Errors in providing adequate delivery services may result in guest dissatisfaction, which could also result in loss of guest retention,
loss in sales and damage to our brand image. Additionally, as with any third-party handling food, such delivery services increase the
risk of food tampering while in transit. We are also subject to risk if there is a shortage of delivery drivers, which could result in
a failure to meet our guests’ expectations.
Third-party delivery
services within the restaurant industry is a competitive environment and includes a number of players competing for market share. If our
third-party delivery partners fail to effectively compete with other third-party delivery providers in the sector, our delivery business
may suffer resulting in a loss of sales. If any third-party delivery provider we partner with experiences damage to their brand image,
we may also see ramifications due to our partnership with them.
Natural disasters,
unusual weather conditions, pandemic outbreaks, political events, war and terrorism could disrupt our business and result in lower sales,
increased operating costs and capital expenditures.
Our home office, restaurant
locations, suppliers and distributors, and their respective facilities, as well as certain of our vendors and customers, are located in
areas, south as southern Florida, that have been and could be subject to natural disasters such as floods, drought, hurricanes, tornadoes,
fires or earthquakes. Adverse weather conditions or other extreme changes in short-term weather conditions or long-term changes in weather
patterns related to climate change, including those that may result in electrical and technological failures, may disrupt our business
and may adversely affect our ability to obtain food and supplies and sell menu items. Our business may be harmed if our ability to obtain
food and supplies and sell menu items is impacted by any such events, any of which could influence customer trends and purchases and may
negatively impact our revenues, properties or operations. Such events could result in physical damage to one or more of our properties,
the temporary closure of some or all of our restaurants and our suppliers and distributors, the temporary lack of an adequate work force
in a market, temporary or long-term disruption in the transport of goods, delay in the delivery of goods and supplies to our restaurants
and our suppliers and distributors, disruption of our technology support or information systems, or fuel shortages or dramatic increases
in fuel prices, all of which would increase the cost of doing business. These events also could have indirect consequences such as increases
in the costs of insurance if they result in significant loss of property or other insurable damage. Any of these factors, or any combination
thereof, could have a material adverse effect on our business, financial condition and results of operations.
Our financial results may fluctuate from
period to period as a result of several factors which could adversely affect our stock price.
Our operating results may fluctuate significantly
in the future as a result of a variety of factors, many of which are outside our control. Factors that will affect our financial results
include:
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acceptance of our restaurant concept and market penetration; |
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the amount and timing of capital expenditures and other costs relating to the implementation of our business plan; |
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the introduction of new products by our competitors; |
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seasonality applicable to our geographic location; and |
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general economic conditions and economic conditions specific to our industry. |
As a strategic response to changes in the competitive
environment, we may from time to time make certain pricing, service, or marketing decisions or acquisitions that could have a material
adverse effect on our business, prospects, financial condition, and results of operations.
The fast-food segment of the restaurant industry is highly competitive.
We operate in the fast food segment of the restaurant
industry, which is highly competitive with respect to, among other things, taste, consumer trends, price, food quality and presentation,
service, location and the ambiance and condition of the restaurant. Our competition includes a variety of locally owned restaurants, as
well as national and regional chains. Our competitors offer dine-in, carry-out, delivery and drive-through services. Most of our competitors
have existed longer and often have a more established brand and market presence with substantially greater financial, marketing, personnel
and other resources than us. Among our main competitors include Jimmy John’s, Chipotle Mexican Grill, Miami Subs Grill, Subway and
Starbucks, most of whom have expanded nationally. As we expand, our existing restaurants may face competition from existing and new restaurants
that operate in these markets.
Several of our competitors compete by offering
menu items that are specifically identified as low in fat, carbohydrates and calories, allegedly better for customers, or otherwise targeted
at healthier consumer preferences. Many of our competitors in the fast food segment of the restaurant industry also emphasize lower cost,
“value meal” menu options, which is a strategy we also pursue.
Moreover, new companies will likely enter our
markets and target our customers. For example, additional competitive pressures have come recently from the deli sections and in-store
cafés of several major grocery chains, including those targeted at customers who want higher quality and healthier food, as well
as from convenience stores and casual dining outlets. These competitors may have, among other things, lower operating costs,
better locations, better brand awareness, better facilities, better management, more effective marketing and more efficient operations
than we do.
In the restaurant industry, labor is a primary
operating cost component. Competition for qualified employees could also require us to pay higher wages to attract a sufficient number
of employees. We also expect to compete for restaurant locations with other fast food restaurants. Until our name is better recognized,
landlords may prefer well-known fast food restaurants over us and we may experience difficulties in securing desirable restaurant locations.
All of these competitive factors may adversely affect us and reduce our sales and profits.
Our expansion into new markets may present
increased risks due to our unfamiliarity with those areas and our target customers’ unfamiliarity with our brand.
Our initial restaurants are located, and future
restaurants will be located, in markets where we have no operating experience and our restaurants may be less successful than restaurants
where established restaurants are more familiar. Consumers in our new markets will not be familiar with our brand, and we will need to
build brand awareness in those markets through investments in advertising and promotional activity. We may find it more difficult in our
markets to secure desirable restaurant locations and to hire, motivate and keep qualified employees.
We expect to incur losses in the near future, which may impact
our ability to implement our business strategy and adversely affect our financial condition.
We expect to significantly increase our operating
expenses by expanding our marketing activities and increasing our level of capital expenditures in order to grow our business. Such increases
in operating expense levels and capital expenditures may adversely affect our operating results if we are unable to immediately realize
benefits from such expenditures. In addition, if we are unable to manage a significant increase in operating expenses, our
liquidity will likely decrease and negatively impact our cash flow and ability to sustain operations. In turn, this would have a negative
impact on our financial condition and share price.
We also cannot assure you that we will be profitable
or generate sufficient profits from operations in the future. If our revenues do not grow, we may experience a loss in one or more future
periods. We may not be able to reduce or maintain our expenses in response to any decrease in our revenue, which may impact our ability
to implement our business strategy and adversely affect our financial condition. This would also have a negative impact on our share price.
Failure to receive frequent deliveries of
higher quality food ingredients and other supplies could harm our operations.
Our ability to maintain our menu depends in part
on our ability to acquire ingredients that meet our specifications from reliable suppliers. Interruptions or shortages in the supply of
ingredients caused by unanticipated demand, problems in production or distribution, food contamination, inclement weather or other conditions
could adversely affect the availability, quality and cost of our ingredients, which could harm our operations If any of our distributors
or suppliers fails to perform adequately, or our distribution or supply relationships are disrupted for any reason, our business, financial
condition, results of operations or cash flows could be adversely affected. Our inability to replace or engage distributors or suppliers
who meet our specifications in a short period of time could increase our expenses and cause shortages of food and other items at our restaurant,
which could cause a restaurant to remove items from its menu. If that were to happen to our restaurants that affected our key ingredients
such as beef, chicken, cheese and produce, it could adversely affect our operating results. We are susceptible to increases in food costs
as a result of factors beyond our control, such as general economic conditions, seasonal fluctuations, weather conditions, demand, food
safety concerns, product recalls, labor disputes and government regulations. In addition to food, we purchase electricity, oil and natural
gas needed to operate our restaurants, and suppliers purchase gasoline needed to transport food and supplies to us. Any significant increase
in energy costs could adversely affect our business through higher rates and the imposition of fuel surcharges by our suppliers. Because
we provide moderately priced food, we may choose not to, or be unable to, pass along commodity price increases to our customers. Additionally,
significant increases in gasoline prices could result in a decrease of customer traffic at our restaurants. We rely on third-party distribution
companies to deliver food and supplies to our restaurant. Interruption of distribution services due to financial distress or other issues
could impact our operations.
Our operating costs also include premiums that
we pay for our insurance (including workers’ compensation, general liability, property and health). The cost of insurance has risen
significantly in the past few years and we expect could experience significant reductions in sales during the shortage or thereafter,
if our customers change their dining habits as a result.
In addition, we intend to use a substantial amount
of naturally raised and organically grown ingredients, and try to make our food as fresh as we can, in light of pricing considerations.
As we increase our use of these ingredients, the ability of our suppliers to expand output or otherwise increase their supplies to meet
our needs may be constrained. Our inability to obtain a sufficient and consistent supply of these ingredients on a cost-effective basis,
or at all, could cause us difficulties in aligning our brand with the principle of “fresh and healthy,” which could in turn
make us less popular among our customers and cause sales to decline.
If we fail to retain our key personnel or
if we fail to attract additional qualified personnel, we may not be able to achieve our anticipated level of growth and our business could
suffer.
Our future success and ability to implement our
business strategy depends, in part, on our ability to attract and retain key personnel, and on the continued contributions of members
of our senior management team and key technical personnel, each of whom would be difficult to replace. All of our employees, including
our senior management, are free to terminate their employment relationships with us at any time. Competition for highly skilled technical
people is extremely intense, and we face challenges identifying, hiring and retaining qualified personnel in many areas of our business.
If we fail to retain our senior management and other key personnel or if we fail to attract additional qualified personnel, we may not
be able to achieve our strategic objectives and our business could suffer.
Changes in accounting standards and subjective
assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.
Generally accepted accounting principles and related
pronouncements, implementation guidelines and interpretations with regard to a wide variety of matters that are relevant to our business,
such as, but not limited to, revenue recognition, stock-based compensation, trade promotions, and income taxes are highly complex and
involve many subjective assumptions, estimates and judgments by our management. Changes to these rules or their interpretation or changes
in underlying assumptions, estimates or judgments by our management could significantly change our reported results.
If we are unable to build and sustain proper
information technology infrastructure, our business could suffer.
We depend on information technology as an enabler
to improve the effectiveness of our operations and to interface with our customers, as well as to maintain financial accuracy and efficiency.
If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, we could
be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to
intellectual property through security breach. Our information systems could also be penetrated by outside parties’ intent on extracting
information, corrupting information or disrupting business processes. Such unauthorized access could disrupt our business and could result
in the loss of assets.
We are dependent upon third party suppliers of our raw materials.
We are dependent on outside vendors for our supplies
of raw materials. While we believe that there are numerous sources of supply available, if the third-party suppliers were to cease production
or otherwise fail to supply us with quality raw materials in sufficient quantities on a timely basis and we were unable to contract on
acceptable terms for these services with alternative suppliers, our ability to produce our products would be materially adversely affected.
Our inability to protect our trademarks,
patents and trade secrets may prevent us from successfully marketing our products and competing effectively.
Failure to protect our intellectual property could
harm our brand and our reputation, and adversely affect our ability to compete effectively. Further, enforcing or defending our intellectual
property rights, including our trademarks, patents, copyrights and trade secrets, could result in the expenditure of significant financial
and managerial resources. We regard our intellectual property, particularly our trademarks, patents and trade secrets to be of considerable
value and importance to our business and our success. We rely on a combination of trademark, patent, and trade secrecy laws, confidentiality
procedures and contractual provisions to protect our intellectual property rights. There can be no assurance that the steps taken by us
to protect these proprietary rights will be adequate or that third parties will not infringe or misappropriate our trademarks, patented
processes, trade secrets or similar proprietary rights. In addition, there can be no assurance that other parties will not assert infringement
claims against us, and we may have to pursue litigation against other parties to assert our rights. Any such claim or litigation could
be costly. In addition, any event that would jeopardize our proprietary rights or any claims of infringement by third parties could have
a material adverse effect on our ability to market or sell our brands, profitably exploit our products or recoup our associated research
and development costs.
We may be subject to legal claims against
us or claims by us which could have a significant impact on our resulting financial performance.
At any given time, we may be subject to litigation,
the disposition of which may have an adverse effect upon our business, financial condition, or results of operation. Such claims include
but are not limited to and may arise from product liability and related claims in the event that any of the products that we sell is faulty
or contains defects in materials or design. We may be subject to infringement claims from our products. In addition, we may be subject
to claims by our lenders, claims for rent, and claims from our vendors on our accounts payable; and although we have been able to obtain
understandings with the foregoing and have informal forbearance agreements from those parties, one or more of them may elect to commence
collection proceedings which could result in judgments against us and have a significant negative impact on our operations.
The requirements of being a public company
may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified
board members.
As a public company, we are subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, and the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, and
other applicable securities rules and regulations. Compliance with these rules and regulations increases our legal and financial compliance
costs, make some activities more difficult, time-consuming or costly, and increase demand on our systems and resources, particularly after
we are no longer an “emerging growth company,” as defined in the Jumpstart our Business Startups Act, or the JOBS Act. The
Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating
results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal
control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control
over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s
attention may be diverted from other business concerns which could adversely affect our business and operating results. We may need to
hire more employees in the future or engage outside consultants who will increase our costs and expenses.
In addition, changing laws, regulations and standards
relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance
costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in
many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided
by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated
by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and
standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time
and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards
differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory
authorities may initiate legal proceedings against us and our business may be adversely affected.
However, for as long as we remain an “emerging
growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to public companies
that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation
requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements,
and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden
parachute payments not previously approved. We may take advantage of these reporting exemptions until we are no longer an “emerging
growth company.”
We would cease to be an “emerging growth
company” upon the earliest of: (i) the first fiscal year following the fifth anniversary of our becoming a reporting company, (ii)
the first fiscal year after our annual gross revenues are $1.0 billion or more, (iii) the date on which we have, during the previous three-year
period, issued more than $1.0 billion in non-convertible debt securities, or (iv) as of the end of any fiscal year in which the market
value of our Common Stock held by non-affiliates exceeded $75 million as of the end of the second quarter of that fiscal year.
We also expect that being a public company and
these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required
to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for
us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee,
and qualified executive officers.
As a result of disclosure of information in this
Prospectus and in future filings required of a public company, our business and financial condition will become more visible, which we
believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful,
our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in
our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely
affect our business and operating results.
We are an “emerging growth company”
and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Common Stock less
attractive to investors.
As a reporting company under the Exchange Act,
we are classified as an "emerging growth company," as defined in the JOBS Act. We may take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply
with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote
on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors
will find our Common Stock less attractive because we may rely on these exemptions. If some investors find our Common Stock less attractive
as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
Section 107 of the JOBS Act provides that an “emerging
growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933
(the “Securities Act” or “33 Act”) for complying with new or revised accounting standards. In other words, an
“emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply
to private companies. We have irrevocably opted out of the extended transition period for complying with new or revised accounting standards
pursuant to Section 107(b) of the JOBS Act.
We could remain an “emerging growth company”
for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1
billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would
occur if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the last business day of our most
recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during
the preceding three-year period.
Notwithstanding the above, we are a “smaller
reporting company.” In the event that we are still considered a “smaller reporting company,” at such time are we cease
being an “emerging growth company,” the disclosure we will be required to provide in our SEC filings will increase, but will
still be less than it would be if we were not considered either an “emerging growth company” or a “smaller reporting
company.” Specifically, similar to “emerging growth companies,” “smaller reporting companies” are able to
provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley
Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control
over financial reporting; and have certain other decreased disclosure obligations in their SEC filings. Decreased disclosures in our SEC
filings due to our status as an “emerging growth company” or “smaller reporting company” may make it harder for
investors to analyze our results of operations and financial prospects. Should we cease to be an “emerging growth company”
but remain a “smaller reporting company”, we would be required to: (1) comply with new or revised US GAAP accounting standards
applicable to public companies, (2) comply with new Public Company Accounting Oversight Board requirements applicable to the audits of
public companies, and (3) to make additional disclosures with respect to related party transactions, namely Item 404(d).
Our management and principal shareholders
have the ability to significantly influence or control matters requiring a shareholder vote and other shareholders may not have the ability
to influence corporate transactions.
Currently,
our principal shareholders own approximately 59.2% of our outstanding Common Stock. As a result, they have the ability to determine the
outcome on all matters requiring approval of our shareholders, including the election of directors and approval of significant corporate
transactions.
Risks Relating to our Common
Stock
The sale of a large number of shares of
Common Stock by our principal shareholders could depress the market price of our common stock.
As of
June 28, 2022, our principal shareholders beneficially owned approximately 58.9% of our common stock outstanding. The shares may
become available for resale, subject to the requirements of the U.S. securities laws. The sale or prospect of a sale of a
substantial number of these shares could have an adverse effect on the market price of our common stock.
If we fail to remain current on our reporting
requirements, we could be removed from the OTCQB, which would limit the ability of broker-dealers to sell our securities in the secondary
market.
Companies trading on the OTCQB must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in
order to maintain price quotation privileges on the OTCQB. As a result, the market liquidity for our securities could be severely and
adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of shareholders to sell their securities
in the secondary market. In addition, we may be unable to relist on the OTCQB, which may have an adverse material effect on the Company.
Our Common Stock is considered a “penny
stock,” and any investment in our shares is considered to be a high-risk investment and is subject to restrictions on marketability.
Our Common Stock is considered a “penny
stock” because it is quoted on the OTCQB and it trades for less than $5.00 per share. The OTCQB is generally regarded as a less
efficient trading market than the NASDAQ Capital or Global Markets or the New York Stock Exchange. The SEC has rules that regulate broker-dealer
practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of
less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided
that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a
standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance
of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock,
the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value
of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to effecting a transaction
in a penny stock not otherwise exempt from those rules, the broker-dealer must 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 disclosure requirements
may have the effect of reducing the trading activity in the secondary market for our Common Stock. Since our Common Stock is subject to
the regulations applicable to penny stocks, the market liquidity for our Common Stock could be adversely affected because the regulations
on penny stocks could limit the ability of broker-dealers to sell our Common Stock and thus your ability to sell our Common Stock in the
secondary market in the future. We can provide no assurance that our Common Stock will be quoted or listed on the OTCQB, NASDAQ or any
exchange, even if eligible in the future.
The market price of our Common Stock may fluctuate significantly
in the future.
We expect that the market price of our Common
Stock may fluctuate in response to one or more of the following factors, many of which are beyond our control:
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competitive pricing pressures; |
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our ability to market our services on a cost-effective and timely basis; |
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our inability to obtain working capital financing, if needed; |
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changing conditions in the market; |
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changes in market valuations of similar companies; |
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stock market price and volume fluctuations generally; |
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regulatory developments; |
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fluctuations in our quarterly or annual operating results; |
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additions or departures of key personnel; and |
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future sales of our Common Stock or other securities. |
Sales of substantial amounts of our Common Stock,
or in anticipation that such sales could occur, may materially and adversely affect prevailing market prices for our Common Stock, if
and when such market develops in the future.
The price at which you purchase shares of our
Common Stock may not be indicative of the price that will prevail in the trading market. You may be unable to sell your shares of Common
Stock at or above your purchase price, which may result in substantial losses to you and which may include the complete loss of your investment.
In the past, securities class action litigation has often been brought against a company following periods of stock price volatility.
We may be the target of similar litigation in the future. Securities litigation could result in substantial costs and divert management’s
attention and our resources away from our business. Any of the risks described above could adversely affect our sales and profitability
and also the price of our Common Stock.
Provisions of our Articles of Incorporation
and Bylaws may delay or prevent a take-over that may not be in the best interests of our stockholders.
Provisions of our Articles of Incorporation and
Bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called,
and may delay, defer or prevent a takeover attempt.
The market price for our Common Stock may
be particularly volatile given our status as a relatively unknown company, with a lack of profits, which could lead to wide fluctuations
in our share price. You may be unable to sell your Common Stock at or above your purchase price, which may result in substantial losses
to you.
The price of our Common Stock in the future may
be particularly volatile when compared to the shares of larger, more established companies that trade on a national securities exchange
and have large public floats. The volatility in our share price will be attributable to a number of factors. First, our Common Stock will
be, compared to the shares of such larger, more established companies, sporadically and thinly traded. As a consequence of this limited
liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those
shares in either direction. The price for our shares could decline precipitously in the event that a large number of our Common Stock
are sold on the market without commensurate demand. Secondly, we are a speculative or “risky” investment due to our lack of
profits to date, and uncertainty of future market acceptance for our products. As a consequence of this enhanced risk, more risk-adverse
investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined
to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a larger, more established
company that trades on a national securities exchange and has a large public float. Many of these factors are beyond our control and may
decrease the market price of our Common Stock, regardless of our operating performance. We cannot make any predictions or projections
as to what the prevailing market price for our Common Stock will be at any time.
Our future results may vary significantly which may adversely
affect the price of our Common Stock.
It is possible that our quarterly revenues and
operating results may vary significantly in the future and that period-to-period comparisons of our revenues and operating results are
not necessarily meaningful indicators of the future. You should not rely on the results of one quarter as an indication of our future
performance. It is also possible that in some future quarters, our revenues and operating results will fall below our expectations or
the expectations of market analysts and investors. If we do not meet these expectations, the price of our Common Stock may decline significantly.
Our internal controls may be inadequate,
which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing
and maintaining adequate internal control over our financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over
financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and
effected by the 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
and includes those policies and procedures that:
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pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
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provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and/or directors of the Company; and |
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provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Our internal controls may be inadequate or ineffective,
which could cause financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying
upon this misinformation may make an uninformed investment decision.
Failure to achieve and maintain an effective internal
control environment could cause us to face regulatory action and also cause investors to lose confidence in our reported financial information,
either of which could have a material adverse effect on the Company’s business, financial condition, results of operations and future
prospects.
However, our auditors will not be required to
formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an
“emerging growth company” as defined in the JOBS Act if we take advantage of the exemptions available to us through the JOBS
Act.
The costs of being a public company could
result in us being unable to continue as a going concern.
As a public company, we are required to comply
with numerous financial reporting and legal requirements, including those pertaining to audits and internal control. The costs of maintaining
public company reporting requirements could be significant and may preclude us from seeking financing or equity investment on terms acceptable
to us and our shareholders. We estimate these costs to be in excess of $100,000 per year and may be higher if our business volume or business
activity increases significantly. Our current estimate of costs does not include the necessary expenses associated with compliance, documentation
and specific reporting requirements of Section 404 as we will not be subject to the full reporting requirements of Section 404 until we
exceed $700 million in market capitalization or we decide to opt-out of the “emerging growth company” as defined under the
JOBS Act. This exemption is available to us under the JOBS Act or until we have been public for more than five years.
If our revenues are insufficient or non-existent,
and/or we cannot satisfy many of these costs through the issuance of shares or debt, we may be unable to satisfy these costs in the normal
course of business. This would certainly result in our being unable to continue as a going concern.
Shareholders may be diluted significantly
through our efforts to obtain financing and satisfy obligations through issuance of additional shares.
Our Board of Directors has authority, without
action or vote of the shareholders, to issue all or part of our authorized shares that are not issued. In addition, we may attempt to
raise additional capital by selling shares, possibly at a deep discount to market. These actions will result in dilution of the ownership
interests of existing shareholders, further dilute Common Stock book value, and that dilution may be material.
There is a limited trading market for our
shares of common stock on the OTCQB. You may not be able to sell your shares of common stock if you require funds.
Our Common Stock is traded on the OTCQB, an inter-dealer
automated quotation system for equity securities. There has been limited trading activity in our Common Stock. We consider our Common
Stock to be “thinly traded” and any last reported sale prices might not be a true market-based valuation of the Common Stock.
Stockholders may experience difficulty selling their shares if they choose to do so because of the illiquid market and limited public
float for our Common Stock.
Our stock price may be volatile, or may
decline regardless of our operating performance, and you could lose all or part of your investment as a result.
You should consider an investment in our Common
Stock to be risky, and you should invest in our Common Stock only if you can withstand a significant loss and wide fluctuation in the
market value of your investment. The market price of our Common Stock could be subject to significant fluctuations in response to the
factors described in this section and other factors, many of which are beyond our control. Among the factors that could affect our stock
price are:
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Actual or anticipated variations in our quarterly and annual operating results or those of companies perceived to be similar to us; |
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Weather conditions; |
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Changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors, or differences between our actual results and those expected by investors and securities analysts; |
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Fluctuations in the market valuations of companies perceived by investors to be comparable to us; |
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The public’s response to our or our competitors’ filings with the SEC or announcements regarding new products or services, enhancements, significant contracts, acquisitions, strategic investments, litigation, restructurings or other significant matters; |
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Speculation about our business in the press or the investment community; |
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Future sales of our shares; |
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Actions by our competitors; |
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Additions or departures of members of our senior management or other key personnel; and |
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The passage of legislation or other regulatory developments affecting us or our industry. |
In addition, the securities markets have experienced
significant price and volume fluctuations that have affected and continue to affect market price of equity securities of many companies.
These fluctuations have often been unrelated or disproportionate to the operating performance of particular companies. These broad market
fluctuations, as well as general economic, systemic, political and market conditions, such as recessions, loss of investor confidence,
interest rate changes, or international currency fluctuations, may negatively affect the market price of our shares.
If any of the foregoing occurs, it could cause
our stock price to fall and may expose us to securities class action litigation that, even if unsuccessful, could be costly to defend
and a distraction to management.
The trading market for our Common Stock will be
influenced by the research and reports that equity research analysts publish about us and our business. The price of our Common Stock
could decline if one or more securities analysts downgrade our Common Stock or if those analysts issue a sell recommendation or other
unfavorable commentary or cease publishing reports about us or our business. If one or more of the analysts who elect to cover us downgrade
our common shares, our share price could decline rapidly. If one or more of these analysts cease coverage of us, we could lose visibility
in the market, which in turn could cause our share price and trading volume to decline.
We do not intend to pay dividends on our
Common Stock.
We intend to retain all of our earnings, if any,
for the foreseeable future to finance the operation and expansion of our business and do not anticipate paying cash dividends. Any future
determination to pay dividends will be at the discretion of our board of directors, subject to compliance with applicable law and any
contractual provisions, and will depend on, among other factors, our results of operations, financial condition, capital requirements
and other factors that our board of directors deems relevant. As a result, you should expect to receive a return on your investment in
our Common Stock only if the market price of the Common Stock increases, which may never occur.
Risks
Relating To This Offering
FINRA sales practice requirements may limit
a stockholder’s ability to buy and sell our stock.
The Financial Industry Regulatory Authority (“FINRA”)
has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing
that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status,
investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability
that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult
for broker-dealers to recommend that their customers buy our Common Stock, which may have the effect of reducing the level of trading
activity in our Common Stock. As a result, fewer broker-dealers may be willing to make a market in our Common Stock, reducing a stockholder’s
ability to resell shares of our Common Stock.
State securities laws may limit secondary
trading, which may restrict the states in which you can sell the shares offered by this Prospectus.
If you purchase shares of our Common Stock sold
in this Offering, you may not be able to resell the shares in any state unless and until the shares of our Common Stock are qualified
for secondary trading under the applicable securities laws of such state or there is confirmation that an exemption, such as listing
in certain recognized securities manuals, is available for secondary trading in such state. There can be no assurance that we will be
successful in registering or qualifying our Common Stock for secondary trading, or identifying an available exemption for secondary trading
in our Common Stock in every state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading
of, our Common Stock in any particular state, our Common Stock could not be offered or sold to, or purchased by, a resident of that state.
In the event that a significant number of states refuse to permit secondary trading in our Common Stock, the market for our Common Stock
will be limited which could drive down the market price of our Common Stock and reduce the liquidity of the shares of our Common Stock
and a stockholder’s ability to resell shares of our Common Stock at all or at current market prices, which could increase a stockholder’s
risk of losing some or all of his investment.
The issuance of common stock
upon conversion of our outstanding convertible notes or exercise of our outstanding warrants will cause immediate and substantial dilution.
The issuance
of Common Stock upon conversion of the convertible notes or warrants by the Selling Shareholders will result in immediate and substantial
dilution to the interests of other stockholders since the holders of the convertible notes and warrants may ultimately receive and sell
the full number of shares issuable in connection with the conversion of such convertible notes or exercise of such warrants. Although
the convertible notes and warrants may not be converted or exercised if such conversion or exercise would cause the holders thereof to
own more than 4.99% of our outstanding Common Stock, this restriction does not prevent the holders of the convertible notes and warrants
from converting or exercising some of their holdings, selling those shares, and then converting or exercising the rest of their holdings,
while still staying below the 4.99% limit. In this way, the holders of the convertible notes and warrants could sell more than any applicable
ownership limit while never actually holding more shares than the applicable limits allow. If the holders of the convertible notes or
warrants choose to do this, it will cause substantial dilution to the then holders of our Common Stock.
In addition,
the Common Stock issuable upon conversion of the convertible notes may represent overhang that may also adversely affect the market price
of our Common Stock. Overhang occurs when there is a greater supply of a company’s stock in the market than there is demand for
that stock. When this happens the price of the company’s stock will decrease, and any additional shares which shareholders attempt
to sell in the market will only further decrease the share price. The convertible notes will be convertible into shares of our common
stock at a discount to market as described above, and such discount to market provides the holders with the ability to sell their common
stock at or below market and still make a profit. In the event of such overhang, the note holders will have an incentive to sell their
common stock as quickly as possible. If the share volume of our common stock cannot absorb the discounted shares, then the value of our
common stock will likely decrease. Notwithstanding the above, we hope to repay the convertible notes in full before any conversions take
place.
We could face significant
penalties for our failure to comply with the terms of our outstanding convertible notes.
Our convertible
notes contain positive and negative covenants and customary events of default including requiring us in many cases to timely file SEC
reports. In the event we fail to timely file our SEC reports in the future, or any other events of defaults occur under the notes, we
could face significant penalties and/or liquidated damages and/or the conversion price of such notes could be adjusted downward significantly,
all of which could have a material adverse effect on our results of operations and financial condition, or cause any investment in the
Company to decline in value or become worthless.
Certain of our outstanding convertible promissory notes include
favored nations rights.
Certain of our outstanding convertible promissory
notes include provisions which provide that, so long as such notes are outstanding, the Company shall not enter into any public or
private offering of its securities (including securities convertible into shares of our Common Stock) with any individual or entity that
has the effect of establishing rights or otherwise benefiting such other investor in a manner more favorable in any material respect
to such other investor than the rights and benefits established in favor of the holder of our convertible notes unless, in any such case,
the holder has been provided with such rights and benefits pursuant to a definitive written agreement or agreements between the Company
and the holder. Such favored nations provisions could be triggered in the future and could materially change the terms of the notes.
In the event any favored nations provisions of the notes are triggered, it may cause the terms of such notes to be materially amended
in favor of the holders thereof, cause significant dilution to existing shareholders, and otherwise have a material adverse effect on
the Company.
USE OF PROCEEDS
We will receive
none of the proceeds from the sale of the Common Stock by the Selling Stockholders in this Offering. However, to the extent that the
warrants held by the Selling Stockholders are exercised for cash, we will receive the payment of the exercise price in connection with
such exercise.
DETERMINATION OF THE OFFERING PRICE
The Selling Stockholders will offer shares of
our Common Stock at the prevailing market prices or privately negotiated prices. The offering price of our Common Stock does not necessarily
bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value.
Our Common Stock may not trade at the market prices in excess of the offering prices for Common Stock in any public market, will be determined
in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for our Common Stock.
MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our Common Stock is quoted on the OTCQB over-the-counter
market under the symbol “KITL.” Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions and may not necessarily represent actual transactions. On August 25, 2022, the closing price on the OTCQB of our Common
Stock was $0.0281.
Holders
As of August 25, 2022, there were 185,520,582 holders
of record of our Common Stock.
Dividend Policy
We have not paid any dividends since our incorporation
and do not anticipate the payment of dividends in the foreseeable future. At present, our policy is to retain earnings, if any, to develop
and market our products and implement our business plan. The payment of dividends in the future will depend upon, among other factors,
our earnings, capital requirements, and operating financial conditions.
SELLING STOCKHOLDERS
This prospectus
covers the resale by the Selling Stockholders of up to an aggregate of 96,487,250 shares of Common Stock, which includes (i) 75,000,000
shares of our Common Stock issuable pursuant to that certain Standby Equity Commitment Agreement dated November 22, 2021, by and between
MacRab LLC, a Florida limited liability company (“MacRab”) and us; (ii) up to 14,112,000 shares of our Common Stock issuable
upon conversion of the principal and accrued interest at maturity of three convertible promissory notes in the aggregate principal amount
of $480,000 issued by the Company to Talos Victory Fund, LLC, a Delaware limited liability company (“Talos”) and Blue Lake
Partners, LLC, a Delaware limited liability company (“Blue Lake”), at a conversion price of $0.05 per share, and to Fourth
Man, LLC, a Nevada limited liability company (“Fourth Man”) at a conversion price of $0.025 per share; (iii) 5,550,000 shares
of our Common Stock issuable upon exercise of outstanding warrants held by MacRab, Talos, Blue Lake, and Fourth Man at an exercise price
of $0.10 per share; (iv) 1,607,000 shares of our Common Stock issued to Talos, Blue Lake, and Fourth Man in connection with the issuance
of the convertible promissory notes as commitment shares; and (v) up to 218,250 shares of our Common Stock issuable upon exercise
of outstanding warrants held by J.H. Darbie & Co., Inc.
MacRab
Standby Equity Commitment Agreement and Warrant
On November
29, 2021, we entered into a Standby Equity Commitment Agreement (the “Standby Equity Commitment Agreement”), dated November
22, 2021, with MacRab, pursuant to which we have the right to sell to MacRab up to $7,500,000 in shares of Common Stock, subject to certain
limitations. MacRab was also issued a five-year warrant (the “MacRab Warrant”) to purchase 750,000 shares of
Common Stock (the “MacRab Warrant Shares”) with standard anti-dilution provisions and cashless exercise.
Under the terms and subject to the conditions
of the Standby Equity Commitment Agreement, MacRab is obligated to purchase up to $7,500,000 in shares of Common Stock, subject to certain
limitations, from time to time over the 24-month period commencing on November 22, 2021. The number of shares of Common Stock
shall be calculated using an initial purchase price of ninety percent (90%) of the volume weighted average price on the trading day immediately
prior to the put date associated with the put notice delivered by us to MacRab. The price per share of Common Stock shall be ninety percent
(90%) of the average of the two lowest volume weighted average prices of the Common Stock for six trading days following the clearing
date associated with the put notice delivered by us to MacRab. The minimum amount of each put shall be $10,000 and the maximum shall be
the lower of 200% of the average daily trading volume and $250,000. In order for any of Company’s sale of Common Stock to MacRab
under the Standby Equity Commitment Agreement to occur, the closing price of the Common Stock during each of the six trading days immediately
preceding the respective “put date” (as defined in the Standby Equity Commitment Agreement) must not be lower than $0.10 per
share.
The Company’s sales
of shares of Common Stock to MacRab under the Standby Equity Commitment Agreement are limited to no more than the number of
shares that would result in the beneficial ownership by MacRab and its affiliates, at any single point in time, of more than 4.99% of
the then outstanding shares of the Common Stock.
We have agreed with MacRab
that we will not enter into any other credit equity line agreements without the prior consent of MacRab.
The issuance
and sale of the Common Stock and the MacRab Warrant by us to MacRab under the Standby Equity Commitment Agreement was made without registration
under the Securities Act of 1933, as amended (the “Act”), or the securities laws of the applicable state, in reliance on
the exemptions provided by Section 4(2) of the Act and Regulation D promulgated thereunder, and in reliance on similar exemptions under
applicable state law, based on the offering of such securities to one investor, the lack of any general solicitation or advertising in
connection with such issuance, the representations of MacRab to the Company that, among others, it was an accredited investor (as that
term is defined in Rule 501(a) of Regulation D), and that it was purchasing the shares for its own account and without a view to distribute
them.
Talos
Convertible Note and Warrant
On April
11, 2022, we entered into a Securities Purchase Agreement, dated as of April 6, 2022, (the “Talos Purchase Agreement”) with
Talos, pursuant to which the Company issued to Talos a promissory note in the principal amount of $165,000.00 (the “Talos Note”).
The Company received $148,500 gross proceeds from Talos due to the original issue discount on the Talos Note. In connection with the
execution and delivery of the Purchase Agreement and the issuance of the Talos Note, the Company issued to Talos 500,000 commitment shares
(the “Talos Commitment Shares”) and a warrant to purchase an additional 1,650,000 shares of common stock of the Company (the
“Talos Warrant”).
Pursuant
to the Talos Purchase Agreement, Talos was granted a right of first refusal on all issuances by the Company, as well as a most favored
nations on all securities to be issued by the Company until the Talos Note is paid in full. The Company also agreed with Talos that it
will not enter into any credit equity line agreements. Pursuant to the Talos Note, the Company agreed not to incur any additional unsecured
debt which is senior or pari passu to the indebtedness evidenced by the Talos Note, other than the issuances of notes in the principal
amount of up to $850,000 in the aggregate by the Company (including the Talos Note, the Blue Lake Note, and the Fourth Man Note (as defined
below)). The Company and Talos made certain customary representations and warranties, subject to specified exceptions and qualifications.
The Talos
Note bears interest at a rate of 12% per annum and is due and payable no later than April 6, 2023. Although the Company has the right
to prepay the Talos Note without penalty, the annual interest is due if the Talos Note is paid in full after October 6, 2022 by the Company
prior to maturity. Upon default of the Talos Note, the interest increases to 16%.
The Talos
Note is convertible at a fixed conversion price of $0.05 (the “Talos Note Conversion Price”), subject to standard adjustments.
If the Company issues securities for less than the Talos Note Conversion Price, the Talos Note Conversion Price shall be reduced to such
amount.
The Talos
Warrant issued to Talos provides for the purchase of up to 1,650,000 shares of the Company’s common stock (the “Talos Warrant
Shares”) at an exercise price of $0.10 per share. The Talos Warrant is exercisable on the earlier of 180 days from the date it
was issued or when the registration statement covering the Talos Warrant Shares is declared effective. The Talos Warrant may be exercised
on a cashless basis unless a registration statement covering the Talos Warrant Shares has been declared effective at the time of exercise,
and the number of Talos Warrant Shares is subject to customary adjustments.
The Company’s
sales of shares of common stock to Talos under the agreements described herein are limited to no more than the number of
shares that would result in the beneficial ownership by Talos and its affiliates, at any single point in time, of more than 4.99% of
the then outstanding shares of the Company’s common stock.
The issuance
and sale of the Talos Note, Talos Warrant, Talos Commitment Shares, and the shares of Common Stock issuable in connection with the Talos
Note and Talos Warrant was made without registration under the Act, or the securities laws of the applicable state, in reliance on the
exemptions provided by Section 4(2) of the Act and Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable
state law, based on the offering of such securities to one investor, the lack of any general solicitation or advertising in connection
with such issuance, the representations of Talos to the Company that, among others, it was an accredited investor (as that term is defined
in Rule 501(a) of Regulation D), and that it was purchasing the shares for its own account and without a view to distribute them.
Blue
Lake Convertible Note and Warrant
On
April 13, 2022, the Company entered into a Securities Purchase Agreement, dated as of April 11, 2022, (the “Blue Lake Purchase
Agreement”) with Blue Lake, pursuant to which the Company issued to Blue Lake a promissory note in the principal amount of $165,000.00
(the “Blue Lake Note”). The Company received $148,500 gross proceeds from Blue Lake due to the original issue discount on
the Blue Lake Note. In connection with the execution and delivery of the Blue Lake Purchase Agreement and the issuance of the Blue Lake
Note, the Company issued to Blue Lake 500,000 commitment shares (the “Blue Lake Commitment Shares”) and a warrant to purchase
an additional 1,650,000 shares of common stock of the Company (the “Blue Lake Warrant”).
Pursuant
to the Blue Lake Purchase Agreement, Blue Lake was granted a right of first refusal on all issuances by the Company, as well as a most
favored nations on all securities to be issued by the Company until the Blue Lake Note is paid in full. The Company also agreed with
Blue Lake that it will not enter into any credit equity line agreements. Pursuant to the Blue Lake Note, the Company agreed not to incur
any additional unsecured debt which is senior or pari passu to the indebtedness evidenced by the Blue Note, other than the issuances
of notes in the principal amount of up to $850,000 in the aggregate by the Company (including the Talos Note, the Blue Lake Note, and
the Fourth Man Note (as defined below)). The Company and Blue Lake made certain customary representations and warranties, subject to
specified exceptions and qualifications.
The Blue
Lake Note bears interest at a rate of 12% per annum and is due and payable no later than April 11, 2023. Although the Company has the
right to prepay the Blue Lake Note without penalty, the annual interest is due if the Blue Lake Note is paid in full after October 11,
2022 by the Company prior to maturity. Upon default of the Blue Lake Note, the interest increases to 16%.
The Blue
Lake Note is convertible at a fixed conversion price of $0.05 (the “Blue Lake Note Conversion Price”), subject to standard
adjustments. If the Company issues securities for less than the Blue Lake Note Conversion Price, the Blue Lake Note Conversion Price
shall be reduced to such amount.
The Blue
Lake Warrant issued to Blue Lake provides for the purchase of up to 1,650,000 shares of the Company’s common stock (the “Blue
Lake Warrant Shares”) at an exercise price of $0.10 per share. The Blue Lake Warrant is exercisable on the earlier of 180 days
from the date it was issued or when the registration statement covering the Blue Lake Warrant Shares is declared effective. The Blue
Lake Warrant may be exercised on a cashless basis unless a registration statement covering the Blue Lake Warrant Shares has been declared
effective at the time of exercise, and the number of Blue Lake Warrant Shares is subject to customary adjustments.
The Company’s
sales of shares of common stock to Blue Lake under the agreements described herein are limited to no more than the number
of shares that would result in the beneficial ownership by Blue Lake and its affiliates, at any single point in time, of more than 4.99%
of the then outstanding shares of the Company’s common stock.
The issuance
and sale of the Blue Lake Note, Blue Lake Warrant, Blue Lake Commitment Shares, and the shares of Common Stock issuable in connection
with the Blue Lake Note and Blue Lake Warrant was made without registration under the Act, or the securities laws of the applicable state,
in reliance on the exemptions provided by Section 4(2) of the Act and Regulation D promulgated thereunder, and in reliance on similar
exemptions under applicable state law, based on the offering of such securities to one investor, the lack of any general solicitation
or advertising in connection with such issuance, the representations of Blue Lake to the Company that, among others, it was an accredited
investor (as that term is defined in Rule 501(a) of Regulation D), and that it was purchasing the shares for its own account and without
a view to distribute them.
J.H. Darbie &
Co., Inc. received warrants for the purchase of up to 162,000 shares of the Company’s common stock at an exercise price of $0.11
per share as a fee in connection with the issuance of the Talos Note, the Blue Lake Note, the Talos Warrant, and the Blue Lake Warrant.
Fourth
Man Convertible Note and Warrant
On May 11,
2022, the Company entered into a Securities Purchase Agreement (the “Fourth Man Purchase Agreement”) with Fourth Man, LLC,
a Nevada limited liability company (“Fourth Man”), pursuant to which the Company issued to Fourth Man a promissory note in
the principal amount of $150,000.00 (the “Fourth Man Note”). The Company received $135,000 gross proceeds from Fourth Man
due to the original issue discount on the Fourth Man Note. In connection with the execution and delivery of the Fourth Man Purchase Agreement
and the issuance of the Fourth Man Note, the Company issued to Fourth Man 607,000 commitment shares (the “Fourth Man Commitment
Shares”) and a warrant to purchase an additional 1,500,000 shares of common stock of the Company (the “Fourth Man Warrant”).
Pursuant
to the Fourth Man Purchase Agreement, Fourth Man was granted a right of first refusal on all issuances by the Company, as well as a most
favored nations on all securities to be issued by the Company until the Fourth Man Note is paid in full. The Company also agreed with
Fourth Man that it will not enter into any credit equity line agreements. Pursuant to the Fourth Man Note, the Company agreed not to
incur any additional unsecured debt which is senior or pari passu to the indebtedness evidenced by the Fourth Man Note, other than the
issuances of notes in the principal amount of up to $850,000 in the aggregate by the Company (including the Talos Note, the Blue Lake
Note, and the Fourth Man Note). The Company and Fourth Man made certain customary representations and warranties, subject to specified
exceptions and qualifications.
The Fourth
Man Note bears interest at a rate of 12% per annum and is due and payable no later than 12 months from the issue date of the Fourth Man
Note. Although the Company has the right to prepay the Fourth Man Note without penalty, the annual interest is due if the Fourth Man
Note is paid in full after November 11, 2022 by the Company prior to maturity. Upon default of the Fourth Man Note, the interest increases
to 16%.
The Fourth
Man Note is convertible at a fixed conversion price of $0.025 (the “Fourth Man Note Conversion Price”), subject to standard
adjustments. If the Company issues securities for less than the Fourth Man Conversion Price, the Fourth Man Conversion Price shall be
reduced to such amount.
The Fourth
Man Warrant issued to Fourth Man provides for the purchase of up to 1,500,000 shares of the Company’s common stock (the “Fourth
Man Warrant Shares”) at an exercise price of $0.10 per share. The Fourth Man Warrant is exercisable on the earlier of 180 days
from the date it was issued or when the registration statement covering the Fourth Man Warrant Shares is declared effective. The Fourth
Man Warrant may be exercised on a cashless basis unless a registration statement covering the Fourth Man Warrant Shares has been declared
effective at the time of exercise, and the number of Fourth Man Warrant Shares is subject to customary adjustments.
The Company’s
sales of shares of common stock to Fourth Man under the agreements described herein are limited to no more than the number
of shares that would result in the beneficial ownership by Fourth Man and its affiliates, at any single point in time, of more than 4.99%
of the then outstanding shares of the Company’s common stock.
The issuance and sale of the Fourth Man Note,
the Fourth Man Warrant, and the Fourth Man Commitment Shares by the Company to Fourth Man was made without registration under the Securities
Act of 1933, as amended (the “Act”), or the securities laws of the applicable state, in reliance on the exemptions provided
by Section 4(2) of the Act and Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state law,
based on the offering of such securities to one investor, the lack of any general solicitation or advertising in connection with such
issuance, the representations of Fourth Man to the Company that, among others, that Fourth Man is an accredited investor (as that term
is defined in Rule 501(a) of Regulation D), and that Fourth Man was purchasing the shares for its own account and without a view to distribute
them.
J.H. Darbie &
Co., Inc. received warrants for the purchase of up to 56,250 shares of the Company’s common stock at an exercise price of $0.12
per share as a fee in connection with the issuance of the Fourth Man Note and the Fourth Man Warrant.
The Selling
Stockholders may dispose of the shares covered by this Prospectus from time to time at such prices as they may choose. The following
table provides as of the date of this Prospectus, information regarding the beneficial ownership of our Common Stock held by the Selling
Stockholders and the percentage owned by the Selling Stockholders. Assuming all of the shares registered below are sold by the Selling
Stockholders, none of the Selling Stockholders will own one percent or more or our Common Stock.
Selling Stockholders |
|
Beneficial
Ownership
Before
the
Offering |
|
|
Number
of
Shares
Being
Offered |
|
|
Beneficial
Ownership
After
the
Offering |
|
|
Percentage
of
Ownership
After
the
Offering |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MacRab LLC (7) |
|
|
75,750,000 |
(1)(2) |
|
|
75,750,000 |
|
|
|
0 |
|
|
|
0 |
% |
Talos Victory Fund, LLC (8) |
|
|
5,846,000 |
(3)(2) |
|
|
5,846,000 |
|
|
|
0 |
|
|
|
0 |
% |
Blue Lake Partners, LLC (9) |
|
|
5,846,000 |
(4)(2) |
|
|
5,846,000 |
|
|
|
0 |
|
|
|
0 |
% |
Fourth Man, LLC (10) |
|
|
8,827,000 |
(5)(2) |
|
|
8,827,000 |
|
|
|
0 |
|
|
|
0 |
% |
J.H. Darbie & Co., Inc. (11) |
|
|
218,250 |
(6)(2) |
|
|
218,250 |
|
|
|
0 |
|
|
|
0 |
% |
______________________
(1) Represents 75,000,000
shares of our Common Stock issuable pursuant to the Standby Equity Commitment Agreement and
750,000 shares of our Common Stock issuable upon exercise of the outstanding Warrant held by the Selling Stockholders.
(2) Such amount of Common
Stock is solely for the purposes of making a good faith estimate as to the number of shares issuable to be registered.
(3) Represents
(1) 1,650,000 shares of common stock issuable upon exercise of the Talos Warrant at an exercise price of $0.10 per share, subject to
adjustment; (2) up to 3,696,000 shares of common stock of the Company issuable upon the conversion of principal and accrued interest
at maturity pursuant to the Talos Note, at the option of Talos; and (3) 500,000 shares issued to Talos as Talos Commitment Shares.
(4) Represents
(1) 1,650,000 shares of common stock issuable upon exercise of the Blue Lake Warrant at an exercise price of $0.10 per share, subject
to adjustment; (2) up to 3,696,000 shares of common stock of the Company issuable upon the conversion of principal and accrued interest
at maturity pursuant to the Blue Lake Note, at the option of Blue Lake; and (3) 500,000 shares issued to Blue Lake as Blue Lake Commitment
Shares.
(5) Represents
(1) 1,500,000 shares of common stock issuable upon exercise of the Fourth Man Warrant at an exercise price of $0.10 per share, subject
to adjustment; (2) up to 6,720,000 shares of common stock of the Company issuable upon the conversion of principal and accrued interest
at maturity pursuant to the Fourth Man Note, at the option of Fourth Man; and (3) 607,000 shares issued to Fourth Man as Fourth Man Commitment
Shares.
(6) Represents (1) up
to 162,000 shares of common stock issuable upon exercise of warrants issued to J.H. Darbie & Co., Inc. as a fee in connection with
the issuance of the Talos Note, the Blue Lake Note, the Talos Warrant, and the Blue Lake Warrant and (2) up to 56,250 shares of common
stock issuable upon exercise of warrants issued to J.H. Darbie & Co., Inc. as a fee in connection with the issuance of the Fourth
Man Note and the Fourth Man Warrant.
(7) Mackey
McFarlane, manager of MacRab LLC, has sole voting and dispositive power over the shares held by or issuable to MacRab LLC. Mr. McFarlane
disclaims beneficial ownership over the securities listed except to the extent of his pecuniary interest therein. The principal business
address of MacRab LLC is 738 Mandalay Grove Ct. Merritt Island, FL 32953.
(8) Mr. Thomas Silverman has sole
voting and dispositive power over the shares held by Talos Victory Fund, LLC. The principal business address of Talos Victory Fund, LLC
is 348 Cambridge Street #101, Woburn, MA 01801.
(9) Mr. Craig Kesselman has sole
voting and dispositive power over the shares held by Blue Lake Partners, LLC. The principal business address of Blue Lake Partners, LLC
is 3411 Silverside Road, Tatnal Building #104, Wilmington, DE 19810.
(10) Messrs. Edward Deese and Kenneth Hall each have 50% voting
and dispositive power over the shares held by Fourth Man, LLC. The principal business address of Fourth Man, LLC is 21520 Yorba Linda
Blvd., Suite G PMB 335, Yorba Linda, CA 92887.
(11) J.H. Darbie & Co., Inc. has sole voting and dispositive power over
the shares held by or issuable to J.H. Darbie & Co., Inc. J.H. Darbie & Co., Inc. disclaims beneficial ownership over the securities
listed except to the extent of his pecuniary interest therein. The principal business address of J.H. Darbie & Co., Inc. is 48 Wall
Street, Suite 1206, New York, New York 10005.
Other than
as disclosed above, none of the Selling Stockholders has had a material relationship with us or any of our affiliates other than as a
stockholder at any time within the past three years.
PLAN OF DISTRIBUTION
The Selling Stockholders and any of their respective
pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on any trading
market, stock exchange or other trading facility on which the securities are traded or in private transactions. These sales may be at
fixed or negotiated prices. The Selling Stockholders may use any one or more of the following methods when selling securities:
|
· |
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
|
· |
block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
|
· |
purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
|
· |
an exchange distribution in accordance with the rules of the applicable exchange; |
|
· |
privately negotiated transactions; |
|
· |
settlement of short sales; |
|
· |
in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security; |
|
· |
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
|
· |
a combination of any such methods of sale; or |
|
· |
any other method permitted pursuant to applicable law. |
The Selling Stockholders may also sell securities
under Rule 144 under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders
may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders
(or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except
as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission
in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with the sale of the securities
covered hereby, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which
may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also
sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers
that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers
or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other
financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling
Stockholders and any broker-dealers or agents that are involved in selling the securities will (in the case of MacRab) or may (in the
case of Talos, Blue Lake, and Fourth Man) be deemed to be “underwriters” within the meaning of the Securities Act in connection
with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities
purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. We are requesting that each Selling
Stockholder inform us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to
distribute the securities. We will pay certain fees and expenses incurred by us incident to the registration of the securities.
Because the
Selling Stockholders will or may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject
to the prospectus delivery requirements of the Securities Act, including Rule 172 thereunder. In addition, any securities covered by
this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this
prospectus. We are requesting that each Selling Stockholder confirm that there is no underwriter or coordinating broker acting in connection
with the proposed sale of the resale securities by the Selling Stockholders.
We intend to keep this prospectus effective until
the earlier of (i) the date on which the securities may be resold by the Selling Stockholders without registration and without regard
to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with the current
public information requirement under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities
have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities
will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in
certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the
Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities
with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution.
In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder,
including Regulation M, which may limit the timing of purchases and sales of the common stock by the Selling Stockholders or any other
person. We will make copies of this prospectus available to the Selling Stockholders and are informing the Selling Stockholders of the
need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172
under the Securities Act).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
The following
discussion should be read in conjunction with our consolidated financial statements and notes thereto included herein. In connection with,
and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of
1995, we caution readers regarding certain forward-looking statements in the following discussion and elsewhere in herein and any other
statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements
are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments.
Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic
and competitive uncertainties, and contingencies, many of which are beyond our control and many of which, with respect to future business
decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ
materially from those expressed in any forward-looking statements made by, or on our behalf. We disclaim any obligation to update forward-looking
statements.
Overview
Kisses From
Italy Inc. (together with its subsidiaries), hereinafter referred to as “us,” “our,” “we,” or the
“Company”) was incorporated in the State of Florida on March 7, 2013, with a focus on developing a fast, casual food dining
chain restaurant business.
The Company
operates through its wholly-owned subsidiaries, Kisses From Italy 9th LLC, Kisses From Italy-Franchising LLC, Kisses
From Italy, Inc. (Canada) (a company incorporated under the laws of Canada and registered in Quebec on December 23, 2020), and Kisses
From Italy Italia SRLS (a limited liability company incorporated in Italy), and its 70% owned subsidiary, Kisses-Palm Sea Royal LLC.
We commenced
operations by opening our initial corporate-owned restaurant in Fort Lauderdale, Florida in May 2015. By April 2016, we opened three
additional restaurants located in various Wyndham Hotel properties in the Pompano Beach, Florida area. In September 2017, Hurricane Irma
caused significant damage to the area, which resulted in Wyndham halting operations at its hotel properties for repairs and renovations
and the closure of our Wyndham hotel locations. In December 2017, we vacated one of our restaurants in the Wyndham Hotel properties due
to damage from the hurricane and have not re-opened such restaurant. During the first half of 2021, we consolidated the remaining two
Wyndham stores into one location.
While our
Fort Lauderdale location was reopened in early November 2017, we were only able to reopen two of the hotel locations in Pompano Beach
in late January 2018. We also elected not to reopen our fourth location, as the damages were too excessive. If we can raise additional
capital, of which there is no assurance, we intend to own and operate up to 10 restaurants and utilize them as a showcase in the marketing
of our proposed franchise operations.
In May 2017,
we completed our National Franchise License which permits us to sell franchises in all of the states in the United States except for
New York, Virginia, and Maryland, which licenses we hope to obtain if sufficient demand exists in the future.
We opened
our first European location in Ceglie del Campo, Bari, Italy, in October 2019. The Bari location closed in April 2020 due to the Covid-19
pandemic, briefly re-opened and has not re-opened as of the date of this Report. Such location was intended to serve as the distribution
center for products for European locations, as well as to be used as a training facility for European franchises. However, this initiative
has been severely curtailed due to the onset and lingering impact of Covid -19 in Europe.
Our two corporate-owned
restaurants, one located in Fort Lauderdale, Florida, and one within the Wyndham location in Pompano Beach, Florida, have fully re-opened
without limitation or any social distancing requirement.
In September
2019, the Company's common stock was approved for trading by FINRA and in October 2019 was approved for uplisting by the OTC Markets
Group to the OTCQB under the symbol “KITL”.
In June of
2020, the Company entered into a multi-unit development agreement (the “Development Agreement”) pursuant to which it granted
development rights to Demasar Management, Inc. (“Demasar”) to open and operate up to 100 restaurants in Canada. Under
this Development Agreement, the developer is obligated to open a minimum of 20 restaurants by June 17, 2025. On November 20, 2021, we
opened a franchise location under the Development Agreement in Montreal, Quebec, Canada.
In September
of 2020, we entered retail food and grocery stores with Kisses From Italy branded products in Canada. The product launch began in November
of 2020 and Kisses From Italy branded products were in nine retail stores by the end of 2020. Currently, Kisses From Italy branded products
are in 40 stores across Ontario and Quebec, Canada.
In April
of 2021, we entered into a Consulting Agreement, as amended (the “Consulting Agreement”), with Fransmart, LLC, a Delaware
limited liability company (“Fransmart”), pursuant to which we engaged Fransmart as our exclusive global franchise developer
and representative for a period of ten years.
In June of
2021, the Company’s first franchise location opened in Chino, California. In November of 2021, the Company opened its second franchise
location in Montreal, Canada.
Recent Developments
On April
11, 2022, the Company entered into a securities purchase agreement, dated as of April 6, 2022, (the “Talos Purchase Agreement”)
with Talos Victory Fund, LLC, a Delaware limited liability company (“Talos”), pursuant to which the Company issued to Talos
a promissory note in the principal amount of $165,000.00 (the “Talos Note”). The Company received $148,500 gross proceeds
from Talos due to the original issue discount on the Talos Note. In connection with the execution and delivery of the Talos Purchase
Agreement and the issuance of the Talos Note, the Company issued to Talos 500,000 commitment shares and a warrant to purchase an additional
1,650,000 shares of common stock of the Company.
On April
13, 2022, the Company entered into a securities purchase agreement, dated as of April 11, 2022, (the “Blue Lake Purchase Agreement”)
with Blue Lake Partners, LLC, a Delaware limited liability company (“Blue Lake”), pursuant to which the Company issued to
Blue Lake a promissory note in the principal amount of $165,000.00 (the “Blue Lake Note”). The Company received $148,500
gross proceeds from Blue Lake due to the original issue discount on the Blue Lake Note. In connection with the execution and delivery
of the Blue Lake Purchase Agreement and the issuance of the Blue Lake Note, the Company issued to Blue Lake 500,000 commitment shares
and a warrant to purchase an additional 1,650,000 shares of common stock of the Company.
On May 11,
2022, the Company entered into a Securities Purchase Agreement (the “Fourth Man Purchase Agreement”) with Fourth Man, LLC,
a Nevada limited liability company (“Fourth Man”), pursuant to which the Company issued to Fourth Man a promissory note in
the principal amount of $150,000.00 (the “Fourth Man Note”). The Company received $135,000 gross proceeds from Fourth Man
due to the original issue discount on the Fourth Man Note. In connection with the execution and delivery of the Fourth Man Purchase Agreement
and the issuance of the Fourth Man Note, the Company issued to Fourth Man 607,000 commitment shares and a warrant to purchase an additional
1,500,000 shares of common stock of the Company.
On July 25, 2022,
the Company entered into a Securities Purchase Agreement (the “1800 Diagonal Purchase Agreement”) with 1800 Diagonal Lending
LLC, a Virginia limited liability company (“1800 Diagonal”), pursuant to which the Company issued to 1800 Diagonal a promissory
note in the principal amount $70,000.00 (the “1800 Diagonal Note”). The Company received $70,000 gross proceeds from 1800
Diagonal in exchange for the 1800 Diagonal Note. The 1800 Diagonal Note bears interest at a rate of 9% per annum and is due and payable
no later than July 26, 2023. Upon default of the Note, the interest increases to 22%. The Company has the right to prepay the 1800 Diagonal
Note in full at any time upon three trading days’ prior written notice, subject to a prepayment penalty if the 1800 Diagonal Note
is prepaid on or before January 22, 2023 (180 days from the date of the 1800 Diagonal Note). The prepayment penalty is equal to 20% of
the outstanding principal and interest balance of the 1800 Diagonal Note for prepayments made on or before September 24, 2022 (60 days
following the date of the 1800 Diagonal Note), 25% of the outstanding principal and interest balance of the Note for prepayments made
between September 25, 2022 and November 23, 2022 (61-120 days following the date of the 1800 Diagonal Note), and 29% of the outstanding
principal and interest balance of the 1800 Diagonal Note for prepayments made between September 26, 2022 and January 22, 2023 (121-180
days from the date of the 1800 Diagonal Note). The 1800 Diagonal Note is convertible at the option of 1800 Diagonal at any time after
January 22, 2023 (180 days from the date of the Note) at a variable conversion price equal to 65% of the lowest closing bid price of the
Company’s common stock on the OTCQB market or other applicable exchange during the ten trading days preceding the conversion date
(the “Conversion Price”), representing a 35% discount to market value.
Covid-19
Pandemic
On March 11, 2020, the World Health Organization
declared the Covid-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic is having a
negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Most US states and
many countries have issued policies intended to stop or slow the further spread of the disease.
Covid-19
and the U.S’s response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance
as to the effect the Covid-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject
to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our operations.
The Company’s
two corporate-owned restaurants in Fort Lauderdale, Florida and the Wyndham location in Pompano Beach, Florida, have fully re-opened.
The Company’s Bari location in Italy remains closed.
Going forward
there can be no assurance that our restaurants will be allowed to remain open or if open, at full capacity, or that we can achieve historic
sales levels.
Our principal offices are located at 80 SW 8th
St. Suite 2000, Miami, Florida, 33130, and our phone number is (305) 423-7024. Our website is www.kissesfromitaly.com
Results of Operations
Comparison of Results of Operations for the three months ended
June 30, 2022, and June 30, 2021
Revenue and Cost of Sales
Total revenues for
the three months ended June 30, 2022 were $112,135 compared to $128,974 during the three months ended June 30, 2021. The decrease in
revenue is primarily attributable to lower sales at the Company’s Kisses From Italy 9th LLC’s restaurant based in Fort Lauderdale,
Florida.
Cost of goods sold
during the three months ended June 30, 2022, was $60,769 compared to $59,641 during the three months ended June 30, 2021. This increase
despite lower sales is attributable to higher food costs due to the high inflationary trends in the food industry.
Operating expenses
Operating expenses
were $138,377 for the three months ended June 30, 2022, compared to $3,008,664 during the three months ended June 30, 2021. Non-cash
stock-based compensation was $-0- and $2,931,573, for the periods ended June 30, 2022 and June 30, 2021, respectively. Excluding
the stock-based compensation in the three months ended June 30, 2021, operating expenses were $138,377 and $77,091, respectively. The
increase in expenses in the three month period ended June 30, 2022 period is primarily attributable to an increase in rent of $10,772,
an increase in consulting and professional fees of $29,874 and an increase in G&A expense of $10,372, over 2021 levels. The increases
are due to higher expenses due to inflationary trends, as well as increased professional fees associated with raising capital to fund
the Company’s operations.
Other income and
expense
Other expense was
comprised of interest expense was $300,211 for the three months ended June 30, 2022 compared to $250,106 during the three months ended
June 30, 2021. The increase in the 2022 period is due to costs associated with the Company’s convertible note financings.
Net Loss
As a result of the
foregoing during the three months ended June 30, 2022, we incurred a net loss of $387,220 and a net gain of $19,419 attributable to non-controlling
interests in the three months ended June 30, 2022, compared to a net loss of $3,190,337 and a net profit of $14,977 attributable to non-controlling
interests for the three months ended June 30, 2021. The decrease in the net loss during the three months ended June 30, 2022 is primarily
attributable to $2,931,573 in stock based compensation in the three months ended June 30, 2021, compared to zero in 2021.
Comparison of Results of Operations
for the six months ended June 30, 2022, and June 30, 2021
Revenue and Cost
of Sales
Total revenues for
the six months ended June 30, 2022 were $209,962 compared to $242,752 during the six months ended June 30, 2021. The decrease in revenue
is primarily attributable to lower sales at the Company’s Kisses From Italy 9th LLC’s restaurant based in Fort Lauderdale,
Florida.
Cost of goods sold
during the six months ended June 30, 2022, was $105,945 compared to $112,309 during the three months ended June 30, 2021. This decrease
in cost of sales is attributable to lower sales offset by higher food costs due to the high inflationary trends in the food industry.
Operating expenses
Operating expenses
were $341,828 for the six months ended June 30, 2022, compared to $3,489,257 during the six months ended June 30, 2021. Non-cash stock-based
compensation was $5,170 and $3,231,573 for the six months ended June 30, 2022 and June 30, 2021, respectively. Excluding the stock-based
compensation in the six months ended June 30, 2022 and 2021, operating expenses were $336,658 and $257,684, respectively. The increase
in expenses in the six month period ended June 30, 2022 period is attributable to an increase in rent of $15,554, an increase in consulting
and professional fees of $27,277 and an increase in G&A expense of $33,337 over 2021 levels. The increases are due to higher expenses
due to inflationary trends, as well as increased professional fees associated with raising capital to fund the Company’s operations.
Other income and expense
Other expenses comprised
of interest expense was $302,504 for the six months ended June 30, 2022 compared to $252,202 during the six months ended June 30, 2021.
The increase in the 2022 period is due to costs associated with the Company’s convertible note financings.
Net Loss
As a result of the
foregoing during the six months ended June 30, 2022, we incurred a net loss of $535,144 and a net gain of 16,530 attributable to non-controlling
interests in 2022, compared to a net loss of $3,611,016 and a net profit of $16,160 attributable to non-controlling interests for the
six months ended June 30, 2021. The decrease in the net loss during the six months ended June 30, 2022 is primarily attributable to $3,231,573
in stock based compensation in the six months ended June 30, 2021, compared to $5,170 in the six months ended June 30, 2021.
Liquidity
and Capital Resources
The Company had cash
and cash equivalents of $277,205 as of June 30, 2022.
The Company has historically
financed its operations through convertible notes and equity issuances.
The COVID-19 pandemic
has caused significant disruptions to the global financial markets. The full impact of the COVID-19 outbreak continues to evolve, is
highly uncertain and subject to change. The Company continues to estimate the effects of the COVID-19 outbreak on its operations and
financial condition. While significant uncertainty remains, the Company believes that the COVID-19 outbreak will continue to have a negative
impact on the ability to raise financing and access capital.
Net cash used in
operating activities was $347,280 during the six months ended June 30, 2022, compared to net cash used of $204,594 during the six months
ended June 30, 2021. The increased net cash used in operating activities for the 2022 period compared to 2021 is primarily attributable
to a decrease in profitability of approximately $155,000, net of non-cash stock based compensation in the 2022 period.
Net cash provided
by financing activities was $485,000 for the six months ended June 30, 2022, compared to $255,000 during the six months ended June 30,
2021. The increase in net cash provided by financing activities is primarily attributable to proceeds of $480,000 from the sale of convertible
notes in the 2022 period, compared to the sales of common stock and preferred stock in private offering for proceeds of $255,000 in the
six months ended June 30, 2021.
We estimate
that we will need approximately $1,000,000 to fully effectuate our business development plans, including opening additional company-owned
restaurants and continuing to develop and enhance the marketing of our franchise concept. Subject to the continued impact of Covid-19,
we currently believe that we can open at least two additional restaurants for approximately $300,000.
There can
be no assurances that additional financing, either through equity or debt, will be available on a timely basis, on favorable terms or
at all. While we have had discussions with potential investors and investment bankers, we have no agreement with any third party to provide
additional financing. Our inability to obtain additional financing may have a significant negative impact on our continued development
and results of our operations.
Covid-19
has also caused significant disruptions to the global financial markets, which impacts our ability to raise additional capital. If the
Company is unable to obtain adequate capital due to the continued spread of Covid-19, the Company may be required to reduce the scope,
delay, or eliminate some or all of its planned operations.
Comparison of Results of Operations
for the years ended December 31, 2021 and 2020
Revenue
and Cost of Sales
Total revenues
for the year ended December 31, 2021 were $400,662 compared to $514,038 during the year ended December 31, 2020. Revenues for the year
ended December 31, 2021 was comprised of $364,662 in food sales and $36,116 in sales of branded products to retail locations in Canada,
which the Company began selling in the fourth quarter of 2020; compared to food sales of $222,453 and franchise sales of $291,585 during
the year ended December 31, 2020. The decrease in total revenues in 2021 compared to 2020 is due to $291,585 in franchise sales in the
2020 period compared to no franchise sales in 2021, offset to a lesser extent by the increase in food sales in the year ended December
31, 2021 due to the mitigation of the impact of Covid-19.
Cost of goods
sold during the year ended December 31, 2021 was $203,121 compared to $114,101 during the year ended December 31, 2020. This increase
is attributable to higher food sales volumes in the year ended December 31, 2021 and franchise sales in the year ended December 31, 2020
with no cost of goods sold associated with those sales.
Operating
expenses
Operating
expenses were $4,337,390 for the year ended December 31, 2021, compared to $3,640,846 during the year ended December 31, 2020. Non-cash
stock-based compensation was $3,765,591 and $2,978,201 for the years ended December 31, 2021 and December 31, 2020, respectively. Excluding
the stock-based compensation in both periods, operating expenses were $571,999 for the year ended December 31, 2021 compared to $662,645
for the year ended December 31, 2021. This decrease is primarily attributable to a decrease in depreciation expense of $47,373 and a
decrease in payroll of $36,547. The decrease in payroll is attributable to employee retention tax credits enacted by the government due
to Covid-19, available to employers in the restaurant industry to reduce the employer’s share of certain payroll taxes.
Other
income and expense
Other expenses
comprising interest expense was $798,877 for the year ended December 31, 2021 compared to $497,613 during the year December 31, 2021.
The decrease in other expenses is attributable to fewer conversions of equity instruments with beneficial conversion issues in which
interest expense was recognized.
Net Loss
As a result
of the forgoing, the net loss attributable to Kisses From Italy Inc. for the year ended December 31, 2021 was $4,942,113 for the year
ended December 31, 2021 compared to a net loss attributable to Kisses of Italy, Inc of $3,709,402 for same period ended December 31,
2020.
Liquidity and Capital Resources
On December
31, 2021, we had $139,485 in cash and cash equivalents.
Net cash
used in operating activities was $451,591 during the year ended December 31, 2021, compared to net cash used of $169,984 during the year
ended December 31, 2020. The increase in net cash used in operating activities of $273,000 is primarily attributable to an increase in
net loss, net of non-cash stock based compensation, in the year ended December 31, 2021 compared to the year ended December 31, 2020.
Net cash
provided by financing activities was $555,650 for the year ended December 31, 2021 compared to $181,761 during the year ended December
31, 2020. The increase in net cash provided by financing activities is primarily attributable to sales of common stock of $435,650 in
2021 compared to $19,990 in the year ended December 31, 2020.
Net cash
used in investing activities was $1,910 due to the purchase of fixed assets during the year ended December 31, 2021 compared to $1,136
during the period ended December 30, 2020.
During the
next year, we estimate that we will need approximately $1,000,000 to fully effectuate our business development plans, including opening
additional company-owned restaurants and continuing to develop and enhance the marketing of our franchise concept. Subject to the continued
impact of Covid-19, we currently believe that we can open at least two additional restaurants for approximately $300,000. We believe
that continuing to open company-owned restaurants will assist us to market other locations.
There can be no
assurances that additional financing, either through equity or debt, will be available on a timely basis, on favorable terms or at all.
While we have had discussions with potential investors and investment bankers, we have no agreement with any third party to provide additional
financing. Our inability to obtain additional financing may have a significant negative impact on our continued development and results
of our operations.
Covid-19 has also caused significant disruptions
to the global financial markets, which impacts our ability to raise additional capital. If the Company is unable to obtain adequate capital
due to the continued spread of Covid-19, the Company may be required to reduce the scope, delay, or eliminate some or all of its planned
operations.
Going
Concern
Our consolidated
financial statements were prepared assuming that we will continue as a going concern and do not include adjustments for the recoverability
and the realization of assets and the satisfaction of liabilities in the normal course of business for the twelve months following the
date of these financial statements that may be necessary should we be unable to continue in operation. . In addition, the Company continues
to experience negative cash flows from operations. Also, if the Company is unable to obtain adequate capital due to the continued spread
of Covid-19, the Company may be required to further reduce the scope, delay, or eliminate some or all of its planned operations. These
factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Subsequent to June 30, 2022, we raised $70,000
in gross proceeds as described in Subsequent Events, Note 10.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Estimates
Management’s
discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based 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. Our critical accounting policies are defined as those policies that we believe are
the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult,
subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.
See notes to our financial statements, Note 2 – Summary Of Significant Accounting Policies.
Recent Accounting Pronouncements
There were
various accounting standards and interpretations issued recently, none of which are expected to have a material effect on the Company's
operations, financial position, or cash flows.
DESCRIPTION OF BUSINESS
Overview
and History
Kisses From
Italy Inc. (together with its subsidiaries, hereinafter referred to as “us,” “our,” “we,” or the
“Company”) was incorporated in the State of Florida on March 7, 2013, with a focus on developing a fast, casual food dining
chain restaurant business.
The Company
operates through its wholly-owned subsidiaries, Kisses From Italy 9th LLC, Kisses From Italy-Franchising LLC, Kisses
From Italy, Inc. (Canada) (a company incorporated under the laws of Canada and registered in Quebec on December 23, 2020), and Kisses
From Italy Italia SRLS (a limited liability company incorporated in Italy), and its 70% owned subsidiary, Kisses-Palm Sea Royal LLC.
We commenced
operations by opening our initial corporate-owned restaurant in Fort Lauderdale, Florida in May 2015. By April 2016, we opened three
additional restaurants located in various Wyndham Hotel properties in the Pompano Beach, Florida area. In September 2017, Hurricane Irma
caused significant damage to the area, which resulted in Wyndham halting operations at its hotel properties for repairs and renovations
and the closure of our Wyndham hotel locations. In December 2017, we vacated one of our restaurants in the Wyndham Hotel properties due
to damage from the hurricane and have not re-opened such restaurant. During the first half of 2021, we consolidated the remaining two
Wyndham stores into one location.
While our
Fort Lauderdale location was reopened in early November 2017, we were only able to reopen two of the hotel locations in Pompano Beach
in late January 2018. We also elected not to reopen our fourth location, as the damages were too excessive. If we can raise additional
capital, of which there is no assurance, we intend to own and operate up to 10 restaurants and utilize them as a showcase in the marketing
of our proposed franchise operations.
In May 2017,
we completed our National Franchise License which permits us to sell franchises in all of the states in the United States except for
New York, Virginia, and Maryland, which licenses we hope to obtain if sufficient demand exists in the future.
We opened
our first European location in Ceglie del Campo, Bari, Italy, in October 2019. The Bari location closed in April 2020 due to the Covid-19
pandemic, briefly re-opened and has not re-opened as of the date of this Report. Such location was intended to serve as the distribution
center for products for European locations, as well as to be used as a training facility for European franchises. However, this initiative
has been severely curtailed due to the onset and lingering impact of Covid -19 in Europe.
Our two corporate-owned
restaurants, one located in Fort Lauderdale, Florida, and one within the Wyndham location in Pompano Beach, Florida, have fully re-opened
without limitation or any social distancing requirement.
In September
2019, the Company's common stock was approved for trading by FINRA and in October 2019 was approved for uplisting by the OTC Markets
Group to the OTCQB under the symbol “KITL”.
In June of
2020, the Company entered into a multi-unit development agreement (the “Development Agreement”) pursuant to which it granted
development rights to Demasar Management, Inc. (“Demasar”) to open and operate up to 100 restaurants in Canada. Under
this Development Agreement, the developer is obligated to open a minimum of 20 restaurants by June 17, 2025. On November 20, 2021, we
opened a franchise location under the Development Agreement in Montreal, Quebec, Canada.
In September
of 2020, we entered retail food and grocery stores with Kisses From Italy branded products in Canada. The product launch began in November
of 2020 and Kisses From Italy branded products were in nine retail stores by the end of 2020. Currently, Kisses From Italy branded products
are in 40 stores across Ontario and Quebec, Canada.
In April
of 2021, we entered into a Consulting Agreement (the “Consulting Agreement”) with Fransmart, LLC, a Delaware limited liability
company (“Fransmart”), pursuant to which we engaged Fransmart as our exclusive global franchise developer and representative
for a period of ten years.
In June of
2021, the Company’s first franchise location opened in Chino, California. In November of 2021, the Company opened its second franchise
location in Montreal, Canada.
On March 9, 2022,
Articles of Amendment to the Company’s Articles of Incorporation to increase the number of its authorized common stock from 200,000,000
shares to 300,000,000 shares became effective. Such action was approved by the Board of Directors on January 25, 2022 and a majority
of the Company’s shareholders on January 27, 2022. The purpose of share increase is to make available additional shares of
common stock for issuance of all the current obligations of the Company to issue common stock, including under outstanding convertible
securities.
COVID-19
On March
11, 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak to be a global pandemic. In addition to the
devastating effects on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions and
volatility in the global financial markets. Most U.S. states and many countries have issued policies intended to stop or slow the further
spread of the disease.
COVID-19
and the U.S.’s response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance
as to the effect the COVID-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject
to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our operations.
The Company’s
two US based locations are fully opened without any Covid-19 limitation. Our location in Bari, Italy remains closed due to Covid-19 restrictions.
Our principal offices are located at 80 SW 8th
St. Suite 2000, Miami, Florida, 33130, and our phone number is (305) 423-7024. Our website is www.kissesfromitaly.com
Our Strategy
We strive to provide the highest level of service,
high-quality ingredients, and products. Enveloped in our mission is our philosophy to support and partner with local producers and suppliers
within the regions in order to provide a truly authentic experience to our customers. Our vision is to leverage the success of our flagship
store and our initial hotel location in the South Florida market and to expand into other regions on a local, state, national, and global
level. The main focus is doing so through our continued corporate-owned store expansion, along with the development and sales of additional
locations through the advancement of our franchise and territorial rights program.
Our Menu
Our menu includes grilled paninis including an
Italian-style Panini, sausage, beef, sliced pork, or chicken topped with quality natural “sott’olio” (grilled and marinated
vegetable) products. We also offer deli paninis including fresh cheese Panini, prosciutto, salami, capocollo, bresaola, and turkey paninis.
All of our paninis include lettuce, tomato, and one choice of cheese and three choices of marinated vegetables, or three choices of grilled
vegetables. We also offer desserts including a Nutella sandwich, a variety of fresh Danish, cannoli, Italian biscotti, sfogliatelle or
a corneti. Our breakfast menu is served all day. We also have a full menu of coffee and tea favorites, including espresso, cappuccino,
and other coffee drinks, soft drinks, bottled water, and juices, as well as various flavors of granite (ices).
Our vision is to transport true authentic and
rustic taste from the provinces of Italy through our menu items. We intend to offer products that will cater to all diets, including gluten-free
diets, and emphasize fresh products with no preservatives.
All of our sott’olio and coffee products
are made in Italy. Our management is in constant communication with our product manufacturers and search for high quality and authentic
products from different regions from Southern Italy, including Sicily, Calabria, Puglia, Napoli, Potenza, and Toscana. Ensuring freshness
and quality, our representatives work closely with local farmers and ranchers for all meats and fresh vegetables. All our products are
D.O.P. (Protected Designation of Origin) certified and defined in the European Commission Regulations.
Quick Service Restaurants
Our initial
restaurant is located at 3146 NE 9th Street in Fort Lauderdale, Florida. This location is across the street from an Atlantic
Ocean public beach and consists of approximately 1,000 square feet of a retail restaurant with seating for up to 25 guests. Subsequently,
we opened three additional similar restaurants, all in Southern Florida.
Except for
the Fort Lauderdale location, all of our restaurant locations arose out of a relationship we established with Wyndham Vacation Ownership,
Inc., which operates timeshare apartment complexes. Of our three restaurants, two are located in Wyndham timeshare resort properties
where they are the only restaurants on site. Our lease agreements provide for our restaurants to provide room service that can be charged
to the customer’s room, as well as an opportunity to provide food and beverage service to various sales, orientations, marketing,
and owner events held by Wyndham regularly on these properties. Wyndham remits payments for these services bi-weekly and charges us with
a 5% administrative fee for processing costs.
Each location is managed
by one senior employee/manager and individually assessed based on foot traffic, seasonality, and other demographic factors. Our U.S. locations
abide by the standards and rules set forth by the State of Florida Department of Health, and our Italian location abides by the standards
and rules set forth by Italy’s Ministry of Health and the Puglia (Apulia) region’s legislative/administrative authority. Michele
Di Turi, our CEO, possesses the Certified Food Manager accreditation and has the proper authority to provide necessary food safety courses.
Restaurant Franchising
In addition
to opening our company-owned restaurants, we are engaged in franchising of our restaurant concept so that we can build market share and
brand awareness. In May 2017, we completed our National Franchise License which permits us to sell franchises in all of the states in
the United States except for New York, Virginia, and Maryland which we intend to obtain if sufficient demand exists in the future.
In January
of 2020, the Company completed its first franchise agreement for a restaurant in the State of California. In June 2021, we opened our
first franchise in Chino, California. Due to the onset of Covid-19, we temporarily waived any franchise fees so that the franchisee could
well establish its operations at such location.
In June of
2020, the Company entered into the Development Agreement pursuant to which it granted development rights to Demasar to open and operate
up to 100 restaurants in Canada. Under the Development Agreement, among other things, Demasar is obligated to open a minimum of
20 restaurants by June 17, 2025. Demasar will be taking the lead for franchise expansion and assisting in the Canadian brand building
for the Kisses From Italy brand. In November 2021, we opened a franchise location under the Development Agreement in Montreal, Quebec,
Canada.
Each of our
franchise restaurants are required to conform to a standard of interior design, featuring a distinctive and comfortable Italian décor.
Our prior approval is required for each specific location of a proposed franchise restaurant, which includes a requirement that the same
be in a clearly identifiable commercial location built out in accordance with our standards. Franchisees are also required to satisfactorily
complete training and purchase certain equipment and supplies from us and other approved suppliers. We also require the purchase of a
point-of-sale system and data polling services from a specified supplier and a computer system that meets established system standards.
Franchisees will be required to purchase approximately
90% to 95% of their supplies and food inventory either directly from us or from approved suppliers. We attempt to negotiate system-wide
volume discounts and/or rebates for our franchisees from approved suppliers and, if successful, pass such discounts and/or rebates on
to franchisees based on the volume of their purchases from the suppliers providing the discounts.
Our franchise
agreement with franchisees also requires our franchisee to pay royalties of 9% of gross sales, which are defined to be total actual charges
for all products (food and non-food) and services, such as catering and delivery, sold to customers, exclusive of taxes. We retain 6%
of this royalty and the remaining 3% goes towards local and national marketing. We anticipate that until national coverage is warranted,
only local and/or regional marketing campaigns will be implemented.
We also require
that our franchisee enter into a collateral assignment and assumption of lease through which we are granted a security interest in all
of the furniture, removable trade fixtures, inventory, licenses, and supplies located in the restaurant as collateral for the payment
of any obligation owed to us, any default or breach under the terms of the lease, and any default or breach of any of the terms and provisions
of the franchise agreement. In the event of a breach of or default under the lease or payment by a franchisee as a result of a breach
or default, we may be entitled to take possession of the restaurant and all of our rights, title, and interest in and to the lease. We
also entered into a conditional assignment of telephone numbers and listings that assigns us telephone numbers and directory listings
upon termination or expiration of a franchise relationship.
The initial
term of a franchise agreement is ten years, with a renewal provision of between 2-5 years on the terms and conditions of the franchise
agreement so long as there has been substantial compliance with the franchise agreement and pay a to-be-determined fee for each renewal.
Franchisees are also required to replace any franchise
that terminates or expires or any restaurant that closes within the territory if necessary, to maintain the number of our named restaurants
required in the development schedule. If a franchisee fails to meet the development schedule, we have the right to terminate the franchise
agreement or adjust that territory to eliminate any state in the territory where they have not achieved the minimum number of restaurants
required for that state.
We are required to perform the following services:
|
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Solicitation of new franchise owners - Actively and continuously market and promote through advertising and solicit prospective franchise owners in their territory according to an annual plan and budget that a franchisee develops and submits for our approval. |
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· |
Site selection, leasing, and build-out - Consult and advise franchise owners with site selection and lease negotiation of the restaurants. Develop and maintain relationships with landlords for purposes of obtaining sites for restaurants and coordinating efforts with franchise owners to lease such sites. Develop relationships with landlords, contractors, equipment suppliers, and service providers in the territory and assist in the supervision of the build-out for the restaurants in our territory. |
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Training - Provide all initial training to the franchise owners, as well as supplemental and refresher training at our training restaurant. Schedule and coordinate all training of all franchise owners with our required mode of operations. |
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· |
Opening assistance - Provide grand opening support, including coordinating marketing with local television, radio, newspapers, and trade publications. Provide franchise owners with supervisory assistance and guidance in connection with the opening and initial operations of their restaurants. Provide pre-opening and post-opening assistance for each new restaurant. |
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Monitoring, audit, and inspection - Monthly monitoring of the operation of their restaurants, including monitoring and reporting of the sales volume and other data as determined from time to time. Monitor and communicate to our franchisee the marketing efforts of our restaurants. Conduct or assist franchisees with inspecting or auditing restaurants and their owners, with visits no less than monthly and in-depth reports at least quarterly. |
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Vendors and suppliers - Notify vendors and, if necessary, locate new vendors for the franchises and coordinate distribution and purchasing programs. Assist franchisees in developing programs for suppliers and distributors of approved products. Maintain positive relationships and evaluate additional incentive programs and marketing programs from approved and preferred suppliers, vendors, and other designated parties. |
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Continuing assistance to franchise owners - Provide continuing operating assistance and assist in facilitating transfers and renewals of franchises. |
We also require our franchisees to maintain certain
staffing levels. For the first development year, we require each location to have 2 corporate employees, increasing to 3 in the fifth
development year.
If a franchisee fails to perform services and
we need to assume such tasks, we require that they pay us an amount equal to 125% of the expenditures incurred by us, and we have the
right to terminate the agreement after notice of a 30-day cure period.
Each franchisee must refer all inquiries for franchises
in their territory to us. Under the terms of an Area Representative Agreement, we have the sole right to grant franchises in all of our
unsold territories, terminate a franchise agreement, and approve site selections, leases, and other franchise real estate transactions.
Franchise Marketing
Our marketing strategy for establishing multi-unit
franchises is to contact individuals or entities that have previously developed franchises in other concepts. This strategy allows us
to find people with the proper knowledge, experience, and financial resources to develop a successful franchise operation in a timely
fashion.
We seek individuals or groups with the skills
and financial strength to operate multi-unit franchise organizations within specific geographic territories. We anticipate that
a franchise territory will consist of areas that are either cities or counties depending on population. We seek to identify people with
considerable experience in the management of food service venues who also have sufficient start-up capital to open several of our restaurants.
We will consider the skills and investment capital
that each potential multiple franchise owner presents to determine the size and nature of the territory and the minimum number of our
restaurants that the franchise owner will be required to maintain in the territory in order keep the exclusive rights to that territory.
We will review the demographics of each proposed location to consider the appropriate number of restaurants in each area based upon population
and other factors, including per capita income, and then set the minimum number of restaurants at half the amount. Franchisees will not
be restricted from opening additional restaurants beyond the minimum for their territory.
Retail
Products
In September
of 2020, we entered retail food and grocery stores with Kisses From Italy branded products in Canada. The product launch began in November
of 2020 and Kisses From Italy branded products were in nine retail stores by the end of 2020. Currently, Kisses From Italy branded products
are in 40 stores across Ontario and Quebec, Canada.
Commissary System
We plan to develop centralized commissary facilities
that will serve all of the restaurants that we own in a given region. We believe that a commissary that serves a region of restaurants
will improve efficiency and consistency for the restaurant concept. We also believe that a commissary system will allow our restaurants
to be approximately 500 square feet smaller than they would otherwise be. We plan to build commissaries in areas with lower rent. In this
manner, we plan to save the difference between the 500 fewer square feet that retail rental space would cost and the commissary’s
costs located in a lower rent area. Our commissary will have storage space for paper products as well as walk-in coolers to store food.
Food preparation for sauces, salad dressings, and other base ingredients will be done in the commissary “clean room” and then
delivered to local restaurants daily. We believe central food preparation of sauces and base ingredients will maintain the consistency
of our restaurants’ products and possibly reduce labor costs.
Restaurant Advertising
Our advertising
has and will consist primarily of newspaper print ads, direct mailing efforts and social media outlets, including Facebook and Twitter.
We also intend to use other forms of advertising, such as an airplane to advertise our Kisses banner to the Fort Lauderdale beach crowd,
offering promotional free coffee and T-shirts. Our ads will contain a coupon for a free coffee with the purchase of any meal item.
As we open
restaurants in new markets we plan to duplicate the advertising effort we employed in Fort Lauderdale and to spend initially approximately
2% to 3% of monthly revenue for local advertising on a per company-owned restaurant basis. Since we plan to build multiple restaurants
simultaneously within a specific geographic region, we believe our advertising cost as a percentage of revenue will decrease as we increase
the number of restaurants within a region. There are no assurances we will successfully open multiple restaurants in the future.
Employees
We currently
have five full-time employees, plus our two officers. We do not have any part-time employees. Employees include 4 chefs, 3 baristas and
an inventory manager. Our employees work at will and are not represented by a collective bargaining unit. We believe our relationship
with our employees is excellent in most cases. We require all our employees and consultants to sign a confidentiality and non-disclosure
agreement. Our success relies on our ability to hire additional employees, particularly on the local sales side. We believe there are
numerous quality people to choose from throughout our area of targeted expansion.
As we grow,
we anticipate we will require a franchise director and a chief financial officer/controller, as well as various administrative support
personnel.
Competition
The fast-food segment of the restaurant industry
is highly competitive and fragmented. In addition, fast food restaurants compete against other segments of the restaurant industry, including
fast-casual restaurants and casual dining restaurants. The number, size, and strength of our competitors vary by region. Our competitors
also compete based on a number of factors, including taste, the speed of service, value, name recognition, restaurant location, and customer
service.
The restaurant industry is often affected by changes
in consumer tastes; national, regional, or local economic conditions; currency fluctuations; demographic trends; traffic patterns; the
type, number, and location of competing food retailers and products; and disposable purchasing power. Our restaurant concept is expected
to compete with international, national, and regional restaurant chains as well as locally-owned restaurants. We will compete not only
for customers, but also for management and hourly personnel, suitable real estate sites, and qualified franchisees.
We believe that each of the following restaurants
may provide competition to our restaurants because they are franchise operations that sell sandwiches and coffee:
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Jimmy John’s |
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Subway |
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Chipotle Mexican Grill |
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Miami Subs Grill |
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Starbucks |
Of the above-listed restaurants, all are larger
and have significantly greater financial resources than we currently have available.
Government
Regulations
We are subject to various federal, state, and
local laws affecting our business. Our restaurants must comply with licensing and regulation by a number of governmental authorities,
which include health, sanitation, safety, and fire agencies in the state or municipality in which the restaurant is located. In addition,
we must comply with various state laws that regulate the franchisor/franchisee relationship.
We are also subject to federal and state laws
governing employment and pay practices, overtime, tip credits, and working conditions. The bulk of our employees are paid on an hourly
basis at rates related to the federal and state minimum wages.
In addition, we are subject to federal and state
child labor laws which, among other things, prohibit the use of certain “hazardous equipment” by employees 18 years of age
or younger. Under the Americans with Disabilities Act, we could be required to expend funds to modify our restaurants to better provide
service to, or make reasonable accommodation for the employment of disabled persons. We continue to monitor our facilities for compliance
with the Americans with Disabilities Act in order to conform to its requirements. We believe future expenditures for such compliance would
not have a material adverse effect on our operations.
As a franchisor, we will be soliciting prospects
for franchises and are subject to federal and state laws pertaining to franchising. These laws require that certain information be provided
to franchise prospects at certain times and regulate what can be said and done during the offering process. Some states require the franchise
offering circular to be registered and renewed on an annual basis.
Trademarks and Patents
We have applied for and received a registered
trademark of our logo in Italy, No. 0001 528191. This trademark expires in September 2029. We have also obtained the registered trademark
of our logo in the United States (the United States Patent and Trademark Office) Serial No. 87138230. This trademark expires in August
2026. Both trademarks are subject to automatic renewal upon payment of renewal fees.
Property
Our principal place of business is located at
80 SW 8th St. Suite 2000, Miami, Florida, 33130, which is an executive virtual office. This location consists of approximately
1,000 square feet of office and conference room space. The relevant lease expired March 1, 2014, but we have reverted to a month-to-month
tenancy. We pay a monthly rent of $223. We do not anticipate that we will need to expand the office facility for the next 12 months.
As of the date of this Prospectus, the Company
had three operating company-owned store locations. The Company leases these spaces based upon the following schedules:
|
· |
Kisses From Italy 9th LLC
based in Fort Lauderdale, Florida leases approximately 990 square feet and has paid $3,273 per month since 2018, pending
completion of the required renovations to the exterior and interior of the property necessitated due to hurricane damage that occurred
to the location in 2018. The landlord has been very slow in making these changes. It was agreed upon that when work was completed,
and approved by the City of Fort Lauderdale, the rent would be increased to the market rate at that time. Beginning on May 1, 2021,
the rent increased to $5,857.50 per month and was renewed by the Company for an additional five-year term with standard annual escalator
costs. |
|
· |
Kisses Palm Sea Royal LLC based in Pompano Beach,
Florida leases approximately 2,300 square feet for $3,933 per month. The Company has a one-year automatic renewal provision
for this lease on May 1st of each year under the same terms. |
|
· |
Kisses From Italy Italia SRLS based in Bari,
Italy, leases approximately 2,200 square feet of space for 1,400 euros per month under the terms of a six-year lease which ends on
May 5, 2024 and has an optional automatic renewal provision for six years. |
Legal Proceedings
We are not involved in any material legal proceedings,
nor are we aware of any legal proceedings threatened or in which any director or officer or any of their affiliates is a party adverse
to our Company or has a material interest adverse to us.
Industry
Overview
The National Restaurant Association projects that
restaurant industry sales will reach $789.0 billion in 2021, a 19.7 percent gain over the industry’s estimated sales of $659.0 billion
in 2020.
The global fast food and quick service restaurant
market reached a value of $260 billion in 2020. Looking forward, the market is expected to grow at a CAGR of 5.1% during 2021-2026. The
majority of this large market comprises on-premises restaurants and drive-thrus, with the remaining consisting of off-premises dining
(take out) and cafeterias and buffets. In 2019, there were an estimated 194,395 franchised quick service restaurants in the
United States.
The fast food market
and QSR (Quick Service Restaurant) is mainly driven by the rise in the pace of life of the urban population and their requirement for
inexpensive and faster options for their meals. It is also driven by the population that expects meals delivered to their doorstep. However,
rising health awareness among consumers may impede the growth of the fast food industry in the foreseeable future. Even so, the rise in
trend of online ordering and app-based companies offering delivery services has opened more opportunities. Moreover, easily accessible,
healthy fast food may provide options to the health conscious populace, bolstering the fast food market growth in upcoming years.
According
to the 2021 Franchise Business Outlook, franchise establishments are projected to grow by approximately 3.5 percent to approximately 780,188
establishments in 2021, after decreasing by approximately 2.6 percent in 2020, while employment is projected to increase by approximately
10.2 percent to approximately 8.2 million workers in 2021, after decreasing by approximately 11.2 percent in 2020. The gross domestic
product of the sector is forecast to increase by approximately 7.0 percent to approximately $477.4 billion in 2021. Franchise business
output is also projected to increase by approximately 16.4 percent to approximately $780.0 billion in 2021. The forecast follows a year
of decline in 2020 due to the Covid-19 pandemic.
MANAGEMENT
Executive Officers, Directors
and Key Personnel
The following table sets forth information regarding our executive
officers and directors:
Name |
|
Age |
|
Position |
Michele Di Turi |
|
46 |
|
Co-Chief Executive Officer, President, and Chairman of the Board |
Claudio Ferri |
|
46 |
|
Co-Chief Executive Officer, Chief Investment Officer, and a director |
Leonardo Fraccalvieri |
|
39 |
|
Chief Operating Officer and Director |
The above-listed officers and directors will serve
until the next annual meeting of the shareholders or until their death, resignation, retirement, removal, or disqualification, or until
their successors have been duly elected and qualified. Vacancies in the existing Board of Directors are filled by majority vote of the
remaining Directors. Officers serve at the will of the Board of Directors.
Michele Di Turi has served
as our Co-Chief Executive Officer, President and a director since our inception in March 2013. In addition, Mr. Di Turi has been Chief
Operating Officer and a Director of Sunshine Biopharma, Inc., a publicly held biotech company since October 15, 2009. Since November 2008,
Mr. Di Turi has also been President of Sunshine Bio Investments, Inc., a privately held Canadian corporation engaged in the sale of non-regulated
biotechnology and medical products. Prior thereto, from February 2003 through November 2008, Mr. Di Turi was employed by Mazda President,
Inc., Montreal, Canada, as a sales representative and director of customer service. This experience led to Mr. Di Turi’s appointment
to the Board.
Claudio Ferri has served as
our Co-Chief Executive Officer, Chief Investment Officer and a director since our inception in March 2013. From May 2001 through September
2013, Mr. Ferri was employed by State Street Global Advisors, Montreal, Canada as Vice President, Senior Portfolio Manager and Trader
where his responsibilities included the management of Canadian government bonds and provincial/agency investment strategies and trading
for active and enhanced fixed income portfolios. Mr. Ferri received a Bachelor of Commerce degree from Concordia University in 2001 with
a major in finance. This experience led to Mr. Ferri’s appointment to the Board.
Leonardo Fraccalvieri has served
as our Chief Operating Officer and a director since our inception in March 2013. From April 2013 through January 2014, he served as the
Business Development Manager at Italy-America Chamber of Commerce, West LA, CA, where he was responsible for management of project development
and evaluation of Italian companies seeking to expand in the U.S. From June 2012 through December 2013, Mr. Fraccalvieri was a business
analyst at 10EQS Management Consulting where he was responsible for market strategy. From May 2009 through June 2011, he was a Business
Development specialist at BusinessviaItaly, where he worked with companies seeking to expand their business internationally to find new
commercial partners abroad, as well as providing new business opportunities for foreign nationals. Mr. Fraccalvieri attended Universita’
Commerciale Luigi Bocconi Milano and received an undergraduate degree in Economics of International Market and New Technologies in Milan
and a graduate degree from 2 Universita’ Commerciale Luigi Bocconi Milano in Milan where he received a Masters’ degree in
International Management and Business Administration, specializing in Management Consulting and Strategy. This experience led to Mr. Fraccalvieri’s
appointment to the Board.
Board Committees
The Company has no nominating, audit, or compensation
committees. The entire Board participates in the nomination and audit oversight processes and considers executive and director compensation.
Given the size of the Company and its stage of development, the entire Board is involved in such decision-making processes. Thus, there
is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation,
nominations, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our
executive officers or directors.
Family Relationships
There are no family relationships between any of our officers and directors.
Involvement in Certain Legal
Proceedings
Our directors and executive officers have not been involved in any
of the following events during the past ten years:
· |
Any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
· |
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
· |
Being subject to any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities, or banking activities or to be associated with any person practicing in banking or securities activities; |
· |
Being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
· |
Being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended, or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
· |
Being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity, or organization that has disciplinary authority over its members or persons associated with a member. |
Director Independence
Our Board is currently composed of three members.
Our Common Stock is not currently listed for trading on a national securities exchange and, as such, we are not subject to any director
independence standards. No member of our Board of Directors is considered an independent director. We evaluated independence in accordance
with the rules of The New York Stock Exchange, Inc., which generally provides that a director is not independent if: (i) the director
is, or in the past three years has been, an employee of ours; (ii) a member of the director’s immediate family is, or in the past
three years has been, an executive officer of ours; (iii) the director or a member of the director’s immediate family has received
more than $120,000 per year in direct compensation from us other than for service as a director (or for a family member, as a non-executive
employee); (iv) the director or a member of the director’s immediate family is, or in the past three years has been, employed in
a professional capacity by our independent public accountants, or has worked for such firm in any capacity on our audit; (v) the director
or a member of the director’s immediate family is, or in the past three years has been, employed as an executive officer of a company
where one of our executive officers serves on the compensation committee; or (vi) the director or a member of the director’s immediate
family is an executive officer of a company that makes payments to, or receives payments from, us in an amount which, in any twelve-month
period during the past three years, exceeds the greater of $1,000,000 or 2% of that other company’s consolidated gross revenues.
Code of Ethics
Our board of directors has not adopted a code of ethics but plans to
do so in the near future.
EXECUTIVE COMPENSATION
The following table sets forth information concerning
all cash and non-cash compensation awarded to, earned by, or paid to our Chief Executive Officer and the other executive officer with
compensation exceeding $100,000 during fiscal 2020 (each a "Named Executive Officer").
SUMMARY COMPENSATION TABLE
Name and
principal position |
|
Year |
|
|
Salary
($) |
|
|
Bonus($) |
|
|
Stock
Awards ($) (e) |
|
|
Option
Awards
($) |
|
Non-Equity
Incentive Plan
Compensation
($) |
|
Nonqualified
Deferred
Compensation
Earnings ($) |
|
All
Other
Compensation
($) |
|
Total
($) |
Michele Di Turi, |
|
2021 |
|
|
21,327 |
|
|
-0- |
|
|
993,600 (a) |
|
|
-0- |
|
-0- |
|
-0- |
|
-0- |
|
1,014,927 |
Co-CEO and President, and Chairman |
|
2020 |
|
|
17,361 |
|
|
-0- |
|
|
360,000 (b) |
|
|
-0- |
|
-0- |
|
-0- |
|
-0- |
|
377,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claudio Ferri |
|
2021 |
|
|
-0- |
|
|
-0- |
|
|
993,600 (c) |
|
|
-0- |
|
-0- |
|
-0- |
|
-0- |
|
993,600 |
Co-CEO and CIO |
|
2020 |
|
|
-0- |
|
|
-0- |
|
|
360,000 (d) |
|
|
-0- |
|
-0- |
|
-0- |
|
-0- |
|
360,000 |
________________________
|
(a) |
Represents a bonus award of 7,000,000
shares for services performed |
|
(b) |
Represents a stock award of 3,600,000 for services performed |
|
(c) |
Represents a bonus award of 7,000,000 shares
for services performed |
|
(d) |
Represents a stock award of 3,600,000 for services performed |
|
(e) |
The value of these shares was calculated by multiplying the number of
shares times the closing price of the Company’s stock on the date the shares were awarded. |
Compensation
of Directors
During the
year ended December 31, 2021, no compensation has been paid to our directors in consideration for their services rendered in their capacities
as directors.
Stock
Plan
We have not adopted a stock plan but may do so
in the future.
Employment
Agreements
None of our executive officers are party to any
employment agreement with us.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the ownership of Common Stock as of the date of this prospectus by (i) each
person known to us to own more than 5% of our outstanding Common Stock as of the date of this prospectus, (ii) each of our
directors, (iii) each of our executive officers, and (iv) all of our directors and executive officers as a group. Unless otherwise
indicated, all shares are owned directly and the indicated person has sole voting and investment power. The information provided is
based upon 185,520,582 Common Stock issued and outstanding as of the date of this prospectus.
Class
of Shares |
|
Name
and Address |
|
#
of Shares |
|
%
of Class |
|
|
|
|
|
|
|
Common |
|
Michele Di Turi(1)
80 SW 8th St.
Suite 2000
Miami, Florida 33130 |
|
65,600,000 |
|
35.4% |
|
|
|
|
|
|
|
Common |
|
Claudio Ferri(1)(2)
80 SW 8th St.
Suite 2000
Miami, Florida 33130 |
|
43,010,000 |
|
23.2% |
|
|
|
|
|
|
|
Common |
|
Leonardo Fraccalvieri(1)
80 SW 8th St.
Suite 2000
Miami, Florida 33130 |
|
1,000,000 |
|
* |
|
|
|
|
|
|
|
Common |
|
All Officers and Directors as a Group (3 persons) |
|
109,200,000 |
|
58.9% |
|
|
|
|
|
|
|
5% Holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
Denis Senecal Holdings (3) |
|
21,671,153 |
|
11.7% |
* |
Less than 1% |
(1) |
Officer and director of our Company. |
(2) |
Includes 410,000 shares of common stock held in the name of Mr. Ferri’s
wife. Excludes 15,100 shares of Series C Stock held by Mr. Ferri and 5,000 shares of Series C Stock held by Mr. Ferri’s
spouse, which based upon the closing price of $0.0545 of the Company’s common stock on April 11, 2022, are convertible into
453,000 shares and 150,000 shares, respectively, of the Company’s common stock. The Series C Stock does not have voting rights. |
(3) |
Denis Senecal has voting and dispositive authority over these shares |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transactions
During 2020, the Company issued 3,600,000 shares
to each of its co-executive officers, which were valued at $360,000 each.
On April
19, 2021, we issued 5,000,000 shares of common stock to Mr. DiTuri, our Co-Chief Executive Officer, President and a director, as bonus
compensation.
On April
19, 2021, we issued 5,000,000 shares of common stock to Mr. Ferri, our Co-Chief Executive Officer, Chief Investment Officer and a director,
as bonus compensation.
On September
27, 2021 and October 1, 2021, we issued 692,841 and 4,102,097 shares to Senecal, a 10% shareholder, upon the conversion of 30,000 and
150,000 shares, respectively of Series C Stock.
On December
15, 2021, we issued 2,000,000 shares of common stock to Mr. DiTuri, our Co-Chief Executive Officer, President and a director, as bonus
compensation.
On December
15, 2021, we issued 2,000,000 shares of common stock to Mr. Ferri, our Co-Chief Executive Officer, Chief Investment Officer and a director,
as bonus compensation.
Director Independence
None of our current directors are deemed “independent”
pursuant to SEC rules. We anticipate appointing independent directors in the foreseeable future.
DESCRIPTION OF SECURITIES
Common
Stock
As of the date of this prospectus, there are
300,000,000 shares of Common Stock, $0.001 par value, authorized, with 185,520,582 shares issued
and outstanding and 25,000,000 shares of Preferred Stock, par value $0.010 per share, authorized. As of the date of this
Prospectus, there were 139,610 shares Series C Preferred outstanding, respectively, which were purchased at a price of $1.00 per
share. The holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders.
Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of outstanding Preferred Stock, which may be
authorized and issued in the future. Upon a liquidation, dissolution or winding up of our Company the holders of Common Stock are
entitled to receive ratably the net assets available after the payment of all debts and other liabilities, and subject further only
to the prior rights of any outstanding Preferred Stock which may be authorized and issued in the future. The holders of Common Stock
have no preemptive, subscription, redemption or conversion rights. The outstanding shares of Common Stock are, and the shares
offered herein will be, when issued and paid for, fully paid and non-assessable. Cumulative voting in the election of directors is
not permitted and the holders of a majority of the number of outstanding shares will be in a position to control the election of
directors at a general shareholder meeting and may elect all of the directors standing for election. We have no present intention to
pay cash dividends to the holders of Common Stock.
Preferred
Stock
On
December 19, 2019, the Company filed a Certificate of Designation with the State of Florida to set up three categories of preferred
stock: Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock (the “Certificate of
Designation”). The Certificate of Designation designated 1,500,000 shares of the Company’s authorized
preferred stock as Series A Preferred Stock (“Series A Stock”), 5,000,000 shares as Series B Preferred Stock
(“Series B Stock”) and 1,000,000 shares as Series C Preferred Stock (“Series C Stock”).
A summary
of the material provisions of the Certificate of Designation governing the Series A Stock, the Series B Stock and the Series C Stock is
as follows:
Series
A Stock
The Series
A Stock is not convertible. Each share of Series A Stock shall entitle the holder to three hundred (300) votes for each share of Series
A Stock. Any amendment to the Certificate of Designation requires the consent of the holders of at least two-thirds of the shares of Series
A Stock then outstanding. The holders of Series A Stock are not entitled to dividends until and unless determined by the Board of Directors
of the Company.
Liquidation
Preference
No distribution
shall be made to holders of shares of capital stock ranking junior to the Series A Preferred Stock upon liquidation, dissolution or winding-up
of the Company. The Series A Stock ranks pari passu with the Series C Stock.
As of the
date of this Prospectus, there are no shares of Series A Stock outstanding.
Series
B Stock
The Series
B Stock is convertible at any time by the holder into the number of shares of common stock of the Company based on two times the price
paid by the holder paid for the shares. The Board has the authorization to establish a minimum price for the price the Series B Stock
(so that if the market price of the common stock of the Company drops below the issuance price, the conversion rate will then be based
on the minimum price established by the Board and not the price paid for the shares). The holders of the Series B Stock shall not be entitled
to voting rights except as otherwise provided for in the law. The holders of Series B Stock are not entitled to dividends until and unless
determined by the Board.
Liquidation
Preference
The holders
of Series B Stock shall not be entitled to any distributions upon a liquidation of the Company.
Restrictions
of Transferability
The shares
of the Series B Stock shall not, directly, or indirectly, be sold, hypothecated, transferred, assigned, or disposed of in any manner without
the prior written consent of the Board and applicable securities laws.
As of the
date of this Prospectus, there are no shares of Series B Stock outstanding.
Series
C Stock
The Series
C Stock is convertible at any time by the holder into the number of shares of common stock of the Company on the basis of three times
the price paid for the shares divided by the floor price of $0.10 established by the Board of Directors. The holders of the Series C Stock
shall not be entitled to voting rights except as otherwise provided for in the law. The holders of Series C Stock are not entitled to
dividends until and unless determined by the Board.
Liquidation
Preference
Upon any
liquidation of the Company, the holders of Series C Stock shall be entitled to the amount paid for the shares of Series C Stock prior
to the holders of shares ranking junior to the Series C Stock. Upon the holders of the Series C Stock and any series of stock ranking
pari passu with the Series C Stock having received distributions to which they are entitled, the remaining assets of the Company shall
be distributed to the other holders pro rata in proportion to the shares held by each holder.
Restrictions
of Transferability
The shares
of the Series C Preferred Stock shall not, directly, or indirectly, be sold, hypothecated, transferred, assigned, or disposed of in any
manner without the prior written consent of the Board and applicable securities laws.
As of the
date of this Prospectus, there were 240,080 shares Series C Preferred outstanding which were purchased at a price of $1.00 per share.
Transfer
Agent and Registrar
We have retained ClearTrust Stock Transfer, Inc.,
16540 Pointe Village Drive, Suite 205, Lutz, FL 33558, phone (813) 235-4490 as the transfer agent for our Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Market sales of shares of our Common Stock after
this Offering and from time to time, and the availability of shares for future sale, may reduce the market price of our Common Stock.
Sales of substantial amounts of our Common Stock, or the perception that these sales could occur, could adversely affect prevailing market
prices for our Common Stock and could impair our future ability to obtain capital, especially through an offering of equity securities.
After the effective date of the registration statement of which this Prospectus is a part, all of the shares registered in this Offering
will be freely tradable without restrictions or further registration under the Securities Act of 1933, unless the shares are purchased
by our affiliates, as that term is defined in Rule 144 under the Securities Act. The balance of shares which are not being registered
will be eligible for sale pursuant to exemptions from registration. However, these shares not being registered are held by our management
and other affiliates who are limited to selling only 1% of our issued and outstanding shares every 90 days.
Our Common Stock is considered a “penny
stock” and will continue to be considered a penny stock so long as it trades below $5.00 per share and, as such, 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. In addition, broker-dealers must disclose commissions
payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional
burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from recommending transactions in our securities,
which could severely limit the liquidity of our securities and consequently adversely affect the market price for our securities. In addition,
few broker or dealers are likely to undertake these compliance activities. Other risks associated with trading in penny stocks could also
be price fluctuations and the lack of a liquid market. See “RISK FACTORS.”
Rule
144
In general, under Rule 144, a person who has beneficially
owned restricted shares for at least six months would be entitled to sell those securities provided that (1) such person is not deemed
to have been one of our affiliates at the time of, or at any time during the 90 days preceding, a sale and (2) we have been subject to
the Exchange Act periodic reporting requirements for at least 90 days before the sale and are current in filing our periodic reports.
Persons who have beneficially owned restricted shares of common stock for at least six months but who are our affiliates at the time of,
or any time during the 90 days preceding, a sale, would be subject to additional restrictions, by which such person would be entitled
to sell within any three-month period only a number of securities that does not exceed 1% of the number of shares of common stock outstanding.
Such sales by affiliates must also comply with the manner of sale and notice provisions of Rule 144 and to the availability of current
public information about us.
LEGAL MATTERS
The validity of the Common Stock offered hereby
will be passed upon by The Crone Law Group, P.C.
EXPERTS
The financial
statements of Kisses From Italy Inc. as of and for the years ended December 31, 2021 and 2020 included herein have been audited by BF
Borgers CPA PC, independent registered public accountants, as indicated in their reports with respect thereto, and are in reliance upon
the authority of said firm as experts in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
In the opinion of the Securities and Exchange
Commission, indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore
unenforceable.
ADDITIONAL INFORMATION
We have filed with the SEC this registration statement
on Form S-1 under the Securities Act with respect to the shares of Common Stock being offered by this Prospectus. This Prospectus, which
constitutes a part of this registration statement, does not contain all of the information in this registration statement and its exhibits.
For further information with respect to us and the Common Stock offered by this Prospectus, you should refer to this registration statement
and the exhibits filed as part of that document. Statements contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed
as an exhibit to this registration statement. Each of these statements is qualified in all respects by this reference.
We are subject to the informational requirements
of the Exchange Act and file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read
our SEC filings, including this registration statement, over the Internet at the SEC’s website at http://www.sec.gov. You may also
read and copy any document we file with the SEC at its public reference facilities at 100 F Street, N.E., Washington, D.C. 20549. You
may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.
You may also request a copy of these filings, at no cost, by writing or telephoning us at: Kisses From Italy Inc., 80 SW 8th St.,
Suite 2000, Miami, Florida 33130, telephone: 305-423-7129.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED
IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING
TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS,
OR OF ANY SALE OF OUR COMMON STOCK.
KISSES FROM ITALY INC.
Financial Statements
Table of Contents
Kisses From Italy Inc.
Condensed Consolidated
Balance Sheets
(unaudited)
| |
| | |
| |
| |
June 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 277,205 | | |
$ | 139,485 | |
Accounts receivable | |
| 15,089 | | |
| 12,900 | |
Prepaid expenses | |
| 19,744 | | |
| – | |
Other receivables | |
| 54,029 | | |
| 48,443 | |
Inventory | |
| 16,833 | | |
| 5,270 | |
Total current assets | |
| 382,900 | | |
| 206,098 | |
Property and equipment, net | |
| 4,740 | | |
| 5,793 | |
Right of use assets | |
| 519,048 | | |
| – | |
Other Assets | |
| 2,745 | | |
| 2,745 | |
Total assets | |
$ | 909,433 | | |
$ | 214,635 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 84,358 | | |
$ | 52,665 | |
Accrued liabilities | |
| 155,668 | | |
| 134,505 | |
Lease liability - short term | |
| 45,487 | | |
| – | |
Notes payable | |
| 12,171 | | |
| – | |
Convertible notes | |
| 490,000 | | |
| – | |
Total current liabilities | |
| 787,684 | | |
| 187,170 | |
Lease liability- long term | |
| 473,561 | | |
| | |
Notes payable-long term | |
| – | | |
| 12,171 | |
Convertible notes -long term | |
| – | | |
| 10,000 | |
Total liabilities | |
| 1,261,245 | | |
| 209,340 | |
| |
| | | |
| | |
Commitments and contingencies | |
| – | | |
| – | |
| |
| | | |
| | |
Stockholders' Equity: | |
| | | |
| | |
Preferred stock, Series A $0.001 par
value. 1,500,000 shares
authorized; zero 0shares issued and outstanding | |
| – | | |
| – | |
Preferred stock, Series B $0.001
par value. 5,000,000
shares authorized; zero 0shares shares issued and outstanding | |
| – | | |
| – | |
Preferred stock, Series C, $0.001 par value 1,000,000 shares authorized; 145,080 shares and 240,080 shares issued and outstanding as of June 30, 2022 and December 31 2021, respectively | |
| 145 | | |
| 240 | |
Common stock, $0.001 par value, 200,000,000 shares authorized; 185,520,582 and 180,913,582 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | |
| 185,520 | | |
| 180,913 | |
Additional paid-in capital | |
| 13,881,508 | | |
| 13,702,813 | |
Accumulated deficit | |
| (14,415,850 | ) | |
| (13,859,006 | ) |
Total Kisses From Italy Stockholders' Deficit | |
| (348,677 | ) | |
| 24,960 | |
Non-controlling interest | |
| (3,135 | ) | |
| (19,665 | ) |
Total stockholders' equity | |
| (351,812 | ) | |
| 5,295 | |
Total liabilities and equity | |
$ | 909,433 | | |
$ | 214,635 | |
The accompanying notes
are an integral part of the condensed consolidated financial statements.
Kisses From Italy Inc.
Condensed Consolidated
Statements of Operations
(unaudited)
| |
| | | |
| | | |
| | | |
| | |
| |
Three Months | | |
Three Months | | |
Six Months | | |
Six Months | |
| |
Ended | | |
Ended | | |
Ended | | |
Ended | |
| |
June 30, | | |
June 30, | | |
June 30, | | |
June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Food sales | |
$ | 112,135 | | |
$ | 128,074 | | |
$ | 209,962 | | |
$ | 242,752 | |
Total Revenue | |
| 112,135 | | |
| 128,074 | | |
| 209,962 | | |
| 242,752 | |
Cost of goods sold | |
| 60,769 | | |
| 59,641 | | |
| 105,945 | | |
| 112,309 | |
Gross margin | |
| 51,366 | | |
| 68,433 | | |
| 104,017 | | |
| 130,443 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization | |
| 526 | | |
| 527 | | |
| 1,053 | | |
| 3,543 | |
Stock based compensation - related party | |
| – | | |
| – | | |
| 5,170 | | |
| – | |
Stock based compensation | |
| – | | |
| 2,931,573 | | |
| – | | |
| 3,231,573 | |
Payroll and other expenses | |
| (6,288 | ) | |
| (16,556 | ) | |
| 39,545 | | |
| 34,199 | |
Rent | |
| 36,093 | | |
| 25,321 | | |
| 68,981 | | |
| 53,427 | |
Consulting and professional fees | |
| 59,748 | | |
| 29,874 | | |
| 120,852 | | |
| 93,625 | |
General and administrative | |
| 48,297 | | |
| 37,925 | | |
| 106,227 | | |
| 72,890 | |
Total operating expenses | |
| 138,377 | | |
| 3,008,664 | | |
| 341,828 | | |
| 3,489,257 | |
Income (loss) from operations | |
| (87,010 | ) | |
| (2,940,231 | ) | |
| (237,811 | ) | |
| (3,358,814 | ) |
Other income (expense) | |
| | | |
| | | |
| | | |
| | |
Interest income (expense), net | |
| (300,211 | ) | |
| (250,106 | ) | |
| (302,504 | ) | |
| (252,202 | ) |
Total other income (expense) | |
| (300,211 | ) | |
| (250,106 | ) | |
| (302,504 | ) | |
| (252,202 | ) |
Income (loss) before income taxes | |
| (387,220 | ) | |
| (3,190,337 | ) | |
| (540,314 | ) | |
| (3,611,016 | ) |
Provision for income taxes (benefit) | |
| – | | |
| – | | |
| – | | |
| – | |
Net loss | |
| (387,220 | ) | |
| (3,190,337 | ) | |
| (540,314 | ) | |
| (3,611,016 | ) |
Less: net income (loss) attributable to non-controlling interests | |
| 19,419 | | |
| 14,977 | | |
| 16,530 | | |
| 16,160 | |
Net loss attributable to Kisses From Italy, Inc. | |
$ | (406,639 | ) | |
$ | (3,205,314 | ) | |
$ | (556,844 | ) | |
$ | (3,627,176 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic earnings (loss) per common share | |
$ | (0.00 | ) | |
$ | (0.02 | ) | |
$ | (0.00 | ) | |
$ | (0.02 | ) |
Diluted earnings (loss) per common share | |
$ | (0.00 | ) | |
$ | (0.02 | ) | |
$ | (0.00 | ) | |
$ | (0.02 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted -weighted average number of shares outstanding: | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 185,101,890 | | |
| 167,077,939 | | |
| 184,328,698 | | |
| 162,256,644 | |
Diluted | |
| 185,101,890 | | |
| 167,077,939 | | |
| 184,328,698 | | |
| 162,256,644 | |
The accompanying notes
are an integral part of the condensed consolidated financial statements.
Kisses from Italy
Condensed
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Preferred Stock | | |
Preferred Stock | | |
Preferred Stock | | |
| | |
| | |
Additional | | |
Non- | | |
| | |
Total | |
| |
Series A | | |
Series B | | |
Series C | | |
Common Stock | | |
Paid-in | | |
controlling | | |
Accumulated | | |
Stockholders' | |
| |
Shares | | |
Value | | |
Shares | | |
Value | | |
Shares | | |
Value | | |
Shares | | |
Value | | |
Capital | | |
Interest | | |
Deficit | | |
Equity | |
Balance, December 31, 2020 | |
| – | | |
$ | – | | |
| – | | |
$ | – | | |
| 79,610 | | |
$ | 80.00 | | |
| 154,832,335 | | |
$ | 154,832 | | |
$ | 8,612,683 | | |
$ | (23,052 | ) | |
$ | (8,916,893 | ) | |
$ | (172,350 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| | | |
| – | | |
| | | |
| – | | |
| | | |
| – | | |
| | | |
| – | | |
| – | | |
| – | | |
| (421,862 | ) | |
| (421,862 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Non-controlling interest, net income (loss) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 1,183 | | |
| | | |
| 1,183 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock in a private placement | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 1,450,000 | | |
| 1,450 | | |
| 143,550 | | |
| | | |
| | | |
| 145,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock for services | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 1,500,000 | | |
| 1,500 | | |
| 298,500 | | |
| | | |
| | | |
| 300,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, March 31, 2021 | |
| – | | |
$ | – | | |
| – | | |
$ | – | | |
| 79,610 | | |
$ | 80 | | |
| 157,782,335 | | |
$ | 157,782 | | |
$ | 9,054,733 | | |
$ | (21,869 | ) | |
$ | (9,338,755 | ) | |
$ | (148,029 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
| | | |
| – | | |
| | | |
| – | | |
| | | |
| – | | |
| | | |
| – | | |
| – | | |
| – | | |
| (3,205,314 | ) | |
| (3,205,314 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Non-controlling interest, net income (loss) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 14,977 | | |
| | | |
| 14,977 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock for services | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 10,100,000 | | |
$ | 10,100 | | |
| 1,681,650 | | |
| | | |
| | | |
| 1,691,750 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of stock options for services | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 1,239,823 | | |
| | | |
| | | |
| 1,239,823 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock in private placement | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 300,000 | | |
$ | 300 | | |
| 29,700 | | |
| | | |
| | | |
| 30,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of Series C Preferred Stock | |
| | | |
| | | |
| | | |
| | | |
| 90,000 | | |
| 90 | | |
| | | |
| | | |
| 339,570 | | |
| | | |
| | | |
| 339,660 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of Series C Preferred to Common stock | |
| | | |
| | | |
| | | |
| | | |
| (10,000 | ) | |
| (10 | ) | |
| 300,000 | | |
$ | 300 | | |
| (290 | ) | |
| | | |
| | | |
| – | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, June 30, 2021 | |
| – | | |
$ | – | | |
| – | | |
$ | – | | |
| 159,610 | | |
$ | 160 | | |
| 168,482,335 | | |
$ | 168,482 | | |
$ | 12,345,186 | | |
$ | (6,892 | ) | |
$ | (12,544,069 | ) | |
$ | (37,133 | ) |
| |
Preferred Stock | | |
Preferred Stock | | |
Preferred Stock | | |
| | |
| | |
Additional | | |
Non- | | |
| | |
Total | |
| |
Series A | | |
Series B | | |
Series C | | |
Common Stock | | |
Paid-in | | |
controlling | | |
Accumulated | | |
Stockholders' | |
| |
Shares | | |
Value | | |
Shares | | |
Value | | |
Shares | | |
Value | | |
Shares | | |
Value | | |
Capital | | |
Interest | | |
Deficit | | |
Equity | |
Balance, December 31, 2021 | |
| – | | |
| – | | |
| – | | |
| | | |
| 240,080 | | |
$ | 240 | | |
| 180,913,582 | | |
$ | 180,913 | | |
| 13,702,813 | | |
$ | (19,665 | ) | |
$ | (13,859,006 | ) | |
$ | 5,295 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| | | |
| – | | |
| | | |
| – | | |
| | | |
| – | | |
| | | |
| – | | |
| – | | |
| – | | |
| (150,205 | ) | |
| (150,205 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Non-controlling interest, net income (loss) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (2,889 | ) | |
| | | |
| (2,889 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock based compensation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 5,170 | | |
| | | |
| | | |
| 5,170 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of Series C Preferred Stock | |
| | | |
| | | |
| | | |
| | | |
| 5,000 | | |
| 5 | | |
| | | |
| | | |
| 4,995 | | |
| | | |
| | | |
| 5,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of Series C Preferred to common stock | |
| | | |
| | | |
| | | |
| | | |
| (100,000 | ) | |
| (100 | ) | |
| 3,000,000 | | |
| 3,000 | | |
| (2,900 | ) | |
| | | |
| | | |
| – | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, March 31, 2022 | |
| – | | |
$ | – | | |
| – | | |
$ | – | | |
| 145,080 | | |
$ | 145 | | |
| 183,913,582 | | |
$ | 183,913 | | |
| 13,710,078 | | |
$ | (22,554 | ) | |
$ | (14,009,211 | ) | |
$ | (137,629 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| | | |
| – | | |
| | | |
| – | | |
| | | |
| – | | |
| | | |
| – | | |
| – | | |
| – | | |
| (406,639 | ) | |
| (406,639 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Non-controlling interest, net income (loss) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 19,419 | | |
| | | |
| 19,419 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock as financing commitment shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 1,607,000 | | |
| 1,607 | | |
| 73,977 | | |
| | | |
| | | |
| 75,584 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of warrants in connection with debt | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 97,453 | | |
| | | |
| | | |
| 97,453 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, June 30, 2022 | |
| – | | |
$ | – | | |
| – | | |
$ | – | | |
| 145,080 | | |
$ | 145 | | |
| 185,520,582 | | |
$ | 185,520 | | |
| 13,881,508 | | |
$ | (3,135 | ) | |
$ | (14,415,850 | ) | |
$ | (351,812 | ) |
The accompanying notes are
an integral part of the condensed consolidated financial statements.
Kisses From Italy Inc.
Condensed Consolidated
Statements of Cash Flows
(unaudited)
| |
| | |
| |
| |
Six Months | | |
Six Months | |
| |
Ended | | |
Ended | |
| |
June 30, | | |
June 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Cash flows from operating activities of continuing operations: | |
| | | |
| | |
Net income (loss) | |
$ | (540,314 | ) | |
$ | (3,611,016 | ) |
Adjustments to reconcile net loss to cash used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 1,053 | | |
| 3,543 | |
Stock-based compensation for services | |
| 5,170 | | |
| 3,231,573 | |
Issuance of financing commitment shares | |
| 75,584 | | |
| – | |
Issuance of financing commitment warrants | |
| 97,453 | | |
| – | |
Beneficial conversion feature of Preferred C Stock | |
| – | | |
| 249,660 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Other assets | |
| (19,744 | ) | |
| (109 | ) |
Prepaid expenses | |
| | | |
| | |
Accounts receivable | |
| (2,189 | ) | |
| (4,786 | ) |
Account receivable-other | |
| (5,586 | ) | |
| (60,008 | ) |
Inventory | |
| (11,563 | ) | |
| (4,238 | ) |
Accounts payable | |
| 31,693 | | |
| (8,843 | ) |
Accrued liabilities | |
| 21,163 | | |
| (370 | ) |
Net cash used in operating activities | |
| (347,280 | ) | |
| (204,594 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of fixed assets | |
| (0 | ) | |
| (1,910 | ) |
Net cash used in financing activities | |
| (0 | ) | |
| (1,910 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from convertible notes | |
| 480,000 | | |
| – | |
Proceeds from the sale of common stock | |
| – | | |
| 175,000 | |
Proceeds from the sale of preferred stock | |
| 5,000 | | |
| 80,000 | |
Net cash provided by financing activities | |
| 485,000 | | |
| 255,000 | |
| |
| | | |
| | |
Net increase in cash and cash equivalents | |
| 137,720 | | |
| 48,496 | |
Cash and cash equivalents at beginning of period | |
| 139,485 | | |
| 37,336 | |
Cash and cash equivalents at end of period | |
$ | 277,205 | | |
$ | 85,832 | |
| |
| | | |
| | |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | – | | |
$ | – | |
Cash paid for income taxes | |
$ | – | | |
$ | – | |
The accompanying
notes are an integral part of the condensed consolidated financial statements.
KISSES FROM ITALY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION
OF BUSINESS
Kisses From Italy Inc. (the “Company”)
was incorporated in Florida on March 7, 2013. The Company’s main focus is to develop a fast, casual food dining chain restaurant
business of corporate-owned restaurants and expanding through a nationwide/international franchise and territory sales program. The Company
commenced operations in May 2015 by opening its first location in Fort Lauderdale, Florida. Three additional restaurants, located in various
Wyndham Hotel properties in the Pompano Beach, Florida area, were then opened within the following ten months. All locations, which are
in leased facilities, were fully operational by April 2016. In December 2017, the Company vacated one of its restaurants due to a hurricane
and has not re-opened that location. In June 2021, the Company consolidated its two Wyndham stores into one location to become more efficient.
The Company opened its inaugural European location in Ceglie del Campo, Bari, Italy, in October 2019. The Bari location closed in April
2020 due to the Covid-19 pandemic, briefly re-opened and has not re-opened as of the date of this Report. Such location was intended to
serve as the distribution center for products for European locations, as well as to be used as a training facility for European franchises.
However, this initiative has been severely curtailed due to the onset and lingering impact of Covid -19 in Europe.
In June 2021 and November 2021 the Company opened
its first two franchise locations in Chino, California and Montreal, Canada, respectively. Due to the onset of Covid-19 the Company has
temporarily waived any franchise fees at both locations so that the franchisees could establish operations at each of those locations.
The Company’s accounting year-end is December
31.
COVID-19
On March 11, 2020, the World Health Organization
declared the Covid-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic has had a negative
ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Most US states and many countries
have issued policies intended to stop or slow the further spread of the disease.
Covid-19 and we believe, the US’s response
to the pandemic has significantly affected the economy. There are no comparable events that provide guidance as to the effect the Covid-19
pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know
the full extent of the effects on the economy, the markets we serve, our business, or our operations.
Except for our Bari location which remains closed,
our US locations are now open and are operating at near pre-Covid revenue levels.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation and Principles of
Consolidation
The consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). This basis of
accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned, and expenses
and losses or recognized when incurred. The consolidated financials include the accounts of the Company and its wholly-owned subsidiaries;
Kisses From Italy 9th LLC, Kisses From Italy-Franchising LLC, Kisses From Italy, Inc. (Canada) (a company incorporated
under the laws of Canada and registered in Quebec on December 23, 2020), and Kisses From Italy Italia SRLS (a limited liability company
incorporated in Italy), and its 70% owned subsidiary, Kisses-Palm Sea Royal LLC.
All intercompany accounts and transactions are
eliminated in consolidation.
Management’s Representation of Interim
Financial Statements
The accompanying unaudited consolidated financial
statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”) have been condensed or omitted as allowed by such rules and regulations,
and management believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial
statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of financial position
and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of
results for a full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial
statements at and as of December 31, 2021, filed as part of the Company’s Annual Report on Form 10-K with the SEC on April 15, 2022.
Going Concern
The accompanying unaudited consolidated financial
statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business for the twelve months following the date of these financial statements.
On a consolidated basis, the Company has incurred significant operating losses since inception.
Because the Company does not expect that existing
operational cash flow will be sufficient to fund presently anticipated operations, this raises substantial doubt about the Company’s
ability to continue as a going concern. Therefore, the Company will need to raise additional funds and is currently exploring alternative
sources of financing. Historically, the Company has raised capital through private placements of equity and convertible debt as interim
measures to finance working capital needs and may continue its efforts to raise additional capital through the sale of common stock or
other securities and obtain short-term loans. The Company will be required to continue to do so until its consolidated operations become
profitable. Also, the Company has, in the past, paid for consulting services with its common stock to maximize working capital, and intends
to continue this practice where feasible.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of 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. The most significant estimates relate to revenue recognition, valuation of accounts receivable and the allowance for doubtful
accounts, inventories, purchase price allocation of acquired businesses, impairment of long-lived assets and goodwill, valuation of financial
instruments, income taxes, and contingencies. The Company bases its estimates on historical experience, known or expected trends and various
other assumptions that are believed to be reasonable given the quality of information available as of the date of these financial statements.
The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are
not readily apparent from other sources. Actual results could differ from these estimates.
Accounts Receivable and Allowance for Doubtful
Accounts
Accounts receivables are recorded at the net value
of face amount less any allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the
amount of probable credit losses in its existing accounts receivable. The Company reviews the allowance for doubtful accounts on
a regular basis, and all past due balances are reviewed individually for collectability. Account balances are charged against the allowance
when placed for collection. Recoveries of receivables previously written off are recorded when received. Interest is not charged on past
due accounts. These receivables are related to the sale of our private label branded products sold in retail and grocery stores in Canada.
As of June 30, 2022, and December 31, 2021, our
trade receivable amounted to $15,089 and $12,900
respectively, with an allowance for doubtful accounts of $-0-
for both periods.
Other Receivables
Other receivables are comprised of three components,
a receivable from a franchisee, and a receivable from the government for Employee Retention Credits (“ERC”) and Value Added
Tax at the Company’s Bari location in Italy.
ERC Credits
The purpose of the ERC is to encourage employers
to keep employees on the payroll, even if they are not working during the covered period due to the effects of the coronavirus outbreak.
The updated ERC provides a refundable credit of up to $5,000 for each full-time equivalent employee a company retained from March 13,
2020, to December 31, 2020, and up to $14,000 for each retained employee from January 1, 2021, to June 30, 2021. The Company qualifies
as an employer if it was ordered to fully or partially shut down or if the Company’s gross receipts fell below 50% for the same
quarter in 2019 (for 2020) and below 80% (for 2021). As of June 30, 2021 and December 31, 2021 the Company had ERC credits receivable
of $27,190 and $41,717 credits receivable, respectively.
Valued Added Tax (“VAT”)
The Valued Added Tax (“VAT”) VAT
is a broadly-based consumption tax which is assessed to the value that is added to goods and services. The Value Added Tax (“VAT”),
applies to nearly all goods and services that are bought and sold within the European Union. In Italy where the Company operates, the
VAT tax ranges between 4% and 10% for food products and alcohol. As of June 30, 2022 and December 31, 2021, respectively, the Company
had a VAT net receivable from its Bari location amounting to $4,839.
Franchisee Receivable
In order to assist the Company’s franchisee
in California, the Company extended a $22,000 demand loan at a 1% interest rate to the franchisee. As of June 30, 2022 and December 31,
2021 the balance on the franchisee receivable was $22,000 and $-0-, respectively.
Foreign Currency Translation
The functional and reporting currency of the Company’s
Bari location in Italy is the Euro. Management has adopted ASC 830 “Foreign Currency Matters” for transactions that occur
in foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing at the balance
sheet date. Average monthly rates are used to translate revenues and expenses. To date, this difference has been immaterial for the Bari
location.
Transactions denominated in currencies other than
the functional currency, such as the Company’s current retails sales in Canada for Kisses From Italy branded products, are translated
into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign
currency transactions are included in the determination of net income for the respective periods.
Assets and liabilities of the Company’s
operations are translated into the reporting currency, United States dollars, at the exchange rate in effect at the balance sheet dates.
Revenue and expenses are translated at average rates in effect during the reporting periods. Equity transactions are recorded at the historical
rate when the transaction occurred.
Revenue Recognition
The Company recognizes revenue under the guidelines
of ASC 606. Sales, as presented in the Company’s consolidated statement of earnings, represent franchise revenue; and food and beverage
product sold which is presented net of discounts, coupons, employee meals and complimentary meals. Revenue is recognized using the five
step approach required under the guidelines of ASC 606.
Non-controlling interest
Non-controlling interest represents third-party
ownership in the net assets of one of our consolidated subsidiaries. For financial reporting purposes, the assets and liabilities of our
majority-owned subsidiary consolidated with those of the Company’s wholly-owned subsidiaries, with any third-party investor’s
interest shown as non-controlling interest.
Cash and Cash Equivalents
The Company considers all highly liquid temporary
cash investments with an original maturity of three months or less to be cash equivalents. On June 30, 2022 and December 31, 2021, the
Company cash equivalents totaled $277,205 and $139,485, respectively.
Property and equipment
Depreciation is computed by the straight-line
method and is charged to operations over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred.
The carrying amount and accumulated depreciation of assets sold or retired are removed from the accounts in the year of disposal and any
resulting gain or loss is included in results of operations. The estimated useful lives of property and equipment are as follows:
Estimated useful lives of property |
|
Computers, software, and office equipment |
1 – 6 years |
Machinery and equipment |
3 – 5 years |
Leasehold improvements |
Lesser of lease term or estimated useful life |
Income taxes
The Company accounts for income taxes under
the Financial Accounting Standards Board (“FASB”) ASC 740, “Accounting for Income Taxes”. Under FASB
ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the enactment date. FASB ASC 740-10-05,“Accounting
for Uncertainty in Income Taxes” prescribes a recognition threshold and a measurement attribute for the financial
statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be
recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.
The amount recognized is measured as the largest
amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company assesses the validity
of its conclusions regarding uncertain tax positions on a quarterly basis to determine if facts or circumstances have arisen that might
cause it to change its judgment regarding the likelihood of a tax position’s sustainability under audit.
On December 18, 2019, FASB released Accounting Standards
Update (“ASU”) 2019-12, which affects general principles within Topic 740, Income Taxes. The amendments of ASU 2019-12 are
meant to simplify and reduce the cost of accounting for income taxes. The FASB has stated that the ASU is being issued as part of its
Simplification Initiative, which is meant to reduce complexity in accounting standards by improving certain areas of GAAP without compromising
information provided to users of financial statements. The Company adopted this guidance on January 1, 2021 which had no impact on the
Company’s financial statements.
Stock-based Compensation
The Company accounts for stock-based compensation
using the fair method following the guidance set forth in Section 718-10 of the FASB Accounting Standards Codification for disclosure
about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for
an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized
over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually
the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.
Leases
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets
and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The amended
guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption
permitted. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the new lease standard.
The FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases in July 2018. Also in 2018, the FASB issued ASU 2018-11, Leases
(Topic 842) Targeted Improvements, which provides an optional transition method whereby the new lease standard is applied at the adoption
date and recognized as an adjustment to retained earnings. The amendments have the same effective date and transition requirements as
the new lease standard. On November 15, 2019, the FASB issued ASU 2019-10, which amends the effective dates for three major accounting
standards. The ASU defers the effective dates for the credit losses, derivatives, and lease standards for certain companies. Since the
Company is classified as a small reporting company and emerging growth company and has a calendar-year end, the Company was eligible for
deferring the adoption of ASC 842 to January 1, 2022.
In the first quarter of fiscal 2022, we
adopted ASU 2016-02. The most significant impact of adoption was the recognition of right of use operating lease assets and right of
use operating lease liabilities of approximately $562,000
each, respectively. We expect the impact of adoption to be immaterial to our consolidated statements of operations and consolidated
statements of cash flows on an ongoing basis. See Note 9. Leases, for additional information regarding additional lease
disclosures.
Inventory
Inventory is comprised of wholesale food inventory
at our retail operations in Canada and alcoholic beverages at our Bari location in Italy. Our US locations do not have liquor licenses.
During the three months ended March 31, 2022 we wrote off $1,951 alcoholic beverage inventory since the Bari location had been closed
since the onset of Covid in March 2020. The balance of inventory at June 30, 2022 and December 31, 2021 was $16,833 and $5,270, respectively.
Net Loss per Share
Net loss per common share is computed by dividing
net loss by the weighted average shares of common stock outstanding during the period as defined by Financial Accounting Standards, ASC
Topic 260, “Earnings per Share.” Basic earnings per common share (“EPS”) calculations are determined by dividing
net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations
are determined by dividing net income by the weighted average number of shares of common stock and dilutive common share equivalents outstanding.
Recent Accounting Pronouncements
In August 2020, FASB issued ASU 2020-06 Accounting
for Convertible Instruments and Contracts in an Entity; Own Equity (“ASU 2020-06”), as part of its overall simplification
initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information
provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt
that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated
and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will
no longer separately present such embedded conversion features in equity, and will instead account for the convertible debt wholly as
debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible
debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The
Company adopted this guidance on January 1, 2022.
In June 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and
also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, “Topic
326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The Company will be
required to adopt this ASU for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.
The adoption of Topic 326 is not expected to have a material effect on the Company’s financial statements and financial
statement disclosures.
NOTE 3 – GOING CONCERN AND LIQUIDITY
As of June 30, 2022 the Company had cash on hand
of $277,205 and an accumulated deficit of $14,415,850.
Management has concluded that these financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business.
It is the Company’s current intention to
raise debt and/or equity financing to fund ongoing operating expenses. There is no assurance that financing, whether debt or equity, will
be available to the Company, satisfactorily completed or on terms favorable to the Company. Any issuance of equity securities, if accomplished,
could cause substantial dilution to existing stockholders and any debt financing may contain covenants limiting certain corporate actions.
Any failure by the Company to successfully raise additional financing would have a material adverse effect on its business, including
the possible inability to continue operations.
NOTE 4 – PROPERTY AND EQUIPMENT
As of June 30, 2022 and December 31, 2021, the
Company had $4,740 and $5,793 in property and equipment, all located at its Bari location in Italy. As of June 30, 2022 all
property and equipment and leaseholds at its US locations had been fully depreciated.
NOTE 5 – ACCRUED LIABILITIES
The following table sets forth the components
of the Company’s accrued liabilities on June 30, 2022 and December 31, 2021.
Schedule of accrued and other liabilities | |
| | |
| |
| |
June 30, 2022 | | |
December 31, 2021 | |
Sales tax payable | |
$ | 10,849 | | |
$ | 4,666 | |
Accrued interest payable | |
| 52,406 | | |
| 4,363 | |
Payroll tax liabilities | |
| 92,413 | | |
| 125,476 | |
Total accrued liabilities | |
$ | 155,668 | | |
$ | 134,505 | |
The Company is in arrears on its payroll tax
payments as of June 30, 2022. As of June 30, 2022 and December 31, 2021 “payroll tax liabilities” was approximately
$53,856 and $43,001 in interest and penalties, respectively.
NOTE 6 – PROMISSORY NOTES PAYABLE
As of June 30, 2022 and December 31, 2021, we
had two unsecured 8% notes payable amounting to $12,171 that mature in June 2023.
NOTE 7 – CONVERTIBLE NOTES
As of June 30, 2022 and December 31, 2021, the
outstanding principal balance of convertible notes was $490,000 and $10,000, respectively.
On April 11, 2022, the Company entered into a
securities purchase agreement, dated as of April 6, 2022, (the “Talos Purchase Agreement”) with Talos Victory Fund, LLC, a
Delaware limited liability company (“Talos”), pursuant to which the Company issued to Talos a promissory note in the principal
amount of $165,000 (the “Talos Note”). The Company received $148,500 gross proceeds from Talos due to the original issue discount
on the Talos Note. In connection with the execution and delivery of the Talos Purchase Agreement and the issuance of the Talos Note, the
Company issued to Talos 500,000 commitment shares and a warrant to purchase an additional 1,650,000 shares of common stock of the Company.
On April 13, 2022, the Company entered into a
securities purchase agreement, dated as of April 11, 2022, (the “Blue Lake Purchase Agreement”) with Blue Lake Partners, LLC,
a Delaware limited liability company (“Blue Lake”), pursuant to which the Company issued to Blue Lake a promissory note in
the principal amount of $165,000.00 (the “Blue Lake Note”). The Company received $148,500 gross proceeds from Blue Lake due
to the original issue discount on the Blue Lake Note. In connection with the execution and delivery of the Blue Lake Purchase Agreement
and the issuance of the Blue Lake Note, the Company issued to Blue Lake 500,000 commitment shares and a warrant to purchase an additional
1,650,000 shares of common stock of the Company.
On May 13, 2022, the Company entered into a securities
purchase agreement, dated as of May 11, 2022, (the “Fourth Man Purchase Agreement”) with Fourth Man, LLC (“Fourth Man”),
pursuant to which the Company issued to Fourth Man a promissory note in the principal amount of $150,000 (the “Fourth Man Note”).
The Company received $135,000 gross proceeds from Fourth Man due to the original issue discount on the Fourth Man Note. In connection
with the execution and delivery of the Fourth Man Purchase Agreement and the issuance of the Fourth Man Note, the Company issued to Fourth
Man, 607,000 commitment shares and a warrant to purchase an additional 1,500,000 shares of common stock of the Company.
Each of the notes bear interest at 12% and has
a fixed price conversion to common stock at $0.025 per share.
As a result of the above transactions, the Company
recorded $173,037 in financing fees on these transactions
NOTE 8 – STOCKHOLDERS EQUITY
Common Stock
The Company has authorized 200,000,000
shares of common stock. On June 30, 2022 and December 31, 2021, there were 185,520,582
and 180,913,582 shares of common stock
issued and outstanding, respectively, with a $0.001
par value per share.
During the six months ended June 30, 2022, the
Company issued the following shares of stock:
|
· |
3,000,000
shares upon the conversion of Series C Stock |
| · | 1,607,000 shares for financing commitments valued
at $97,453 |
During the year ended December 31, 2021, the Company
issued the following shares of common stock:
|
· |
14,000,000
shares to its executive officers valued at $1,987,200 |
|
· |
4,408,334
shares to service providers valued at $538,568 |
|
· |
1,750,000
shares to accredited investors for gross proceeds of $175,000 |
|
· |
5,922,903
shares upon the conversion of Series C Stock |
These shares were valued based on the trading
price of the Company’s stock on the date of approval of the respective share issuances by the Company’s Board of Directors
times the number of shares issued.
Preferred Stock
On December 19, 2019, the Company filed a Certificate
of Designation with the State of Florida to designate 1,500,000 shares of the Company’s authorized preferred stock as
Series A Preferred Stock (“Series A Stock”), 5,000,000 shares as Series B Preferred Stock (“Series B Stock”)
and 1,000,000 shares as Series C Preferred Stock (“Series C Stock”).
A summary of the material provisions of the Certificate
of Designation governing the Series A Stock, the Series B Stock and the Series C Stock is as follows:
Series A Stock
The Series A Stock is not convertible. Each share
of Series A Stock shall entitle the holder to three hundred votes for each share of Series A Stock. Any amendment to the Certificate of
Designation requires the consent of the holders of at least two-thirds of the shares of Series A Stock then outstanding. The holders of
Series A Stock are not entitled to dividends until and unless determined by the Board of Directors of the Company.
Liquidation Preference
No distribution shall be made to holders of shares
of capital stock ranking junior to the Series A Preferred Stock upon liquidation, dissolution or winding-up of the Company. The Series
A Stock ranks pari passu with the Series C Stock.
There were no shares of Series A Stock
outstanding as of June 30, 2022 and December 31, 2021.
Series B Stock
The Series B Stock is convertible at any time
by the holder into the number of shares of common stock of the Company based on two times the price paid by the holder for the shares.
The Board has the authorization to establish a minimum price for the conversion price of the Series B Stock (so that if the market price
of the common stock of the Company drops below the issuance price, the conversion rate will then be based on the minimum price established
by the Board and not the price paid for the shares). The holders of the Series B Stock shall not be entitled to voting rights except as
otherwise provided by applicable law. The holders of Series B Stock are not entitled to dividends until and unless determined by the Board.
Liquidation Preference
The holders of Series B Stock shall not be entitled
to any distributions upon a liquidation of the Company.
Restrictions of Transferability
The shares of the Series B Stock shall not, directly,
or indirectly, be sold, hypothecated, transferred, assigned, or disposed of in any manner without the prior written consent of the Board
and applicable securities laws.
There were no shares of Series B Stock
outstanding as of June 30, 2022.
Series C Stock
The Series C Stock is convertible at any time
by the holder into the number of shares of common stock of the Company on the basis of three times the price paid for the shares divided
by the floor price of $0.10 established by the Board of Directors. The holders of the Series C Stock shall not be entitled to voting rights
except as otherwise provided for by applicable law. The holders of Series C Stock are not entitled to dividends until and unless determined
by the Board.
Liquidation Preference
Upon any liquidation of the Company, the holders
of Series C Stock shall be entitled to the amount paid for the shares of Series C Stock prior to the holders of shares ranking junior
to the Series C Stock. Upon the holders of the Series C Stock and any series of stock ranking pari passu with the Series C Stock having
received distributions to which they are entitled, the remaining assets of the Company shall be distributed to the other holders pro rata
in proportion to the shares held by each holder.
Restrictions of Transferability
The Series C Stock shall not, directly, or indirectly,
be sold, hypothecated, transferred, assigned, or disposed of in any manner without the prior written consent of the Board and applicable
securities laws.
As of June 30, 2022 and December 31, 2021 there
were 145,080 and 240,080 shares of Series C Stock outstanding, respectively, which were purchased at a price of $1.00 per
share.
NOTE 9 – LEASES
As of December 31, 2021 the Company had three
operating restaurants. The Company leases these spaces based upon the following schedules:
|
· |
Kisses From
Italy 9th LLC based in Fort Lauderdale, Florida leases approximately 990 square
feet and has paid $3,273 per month since 2018, pending completion of the required renovations to the exterior and interior of the
property necessitated due to hurricane damage that occurred to the location in 2018. The landlord has been very slow in making these
changes. It was agreed upon that when work was completed, and approved by the City of Fort Lauderdale, the rent would be increased
to the market rate at that time. Beginning on May 1, 2021, the rent increased to $5,857.50 per month and was renewed by the Company
for an additional five-year term with standard annual escalator costs. |
|
· |
Kisses-Palm
Sea Royal LLC based in Pompano Beach, Florida leases approximately 2,300
square feet for $3,933 per month. The Company
has a one-year automatic renewal provision for this lease on May 1st of each year under the same terms. |
|
|
|
|
· |
Kisses From Italy Italia
SRLS based in Bari, Italy, leases approximately 2,200
square feet of space for 1,400 euros per month under the terms of a six-year lease which ends on May 5, 2024 and has an
optional automatic renewal provision for six years. |
During the three months ended March 31,
2022, the Company adopted ASC 842, and based on the present value of the lease payments for the remaining average lease term of the
Company’s existing leases noted above, the Company recognized $562,030
in noncurrent ROU assets, $88,469
in current lease liabilities and $473,561 in
noncurrent lease liabilities from operating leases.
For the six months ended June 30, 2022 and
2021, the Company recorded rent expenses related to lease obligations of $68,981
and $53,427
respectively. Rent expenses related to lease obligations in operating expenses in the Company’s statement of operations.
NOTE 10 – SUBSEQUENT EVENTS
On July 26, 2022, the Company entered into a securities
purchase agreement (the “Purchase Agreement”) with 1800 Diagonal Lending LLC, a Virginia limited liability company (the “Lender”),
pursuant to which the Company issued the Lender a promissory note in the principal amount $70,000.00 (the “Note”). The Note
bears interest at a rate of 9% per annum and is due and payable on July 26, 2023. Upon an event of default under the Note, the interest
increases to 22%.
The Company has the right to prepay the Note in
full at any time upon three trading days’ prior written notice, subject to a prepayment penalty if the Note is prepaid on or before
January 22, 2023. The prepayment penalty is equal to 20% of the outstanding principal and interest under the Note for prepayment made
on or before September 24, 2022, 25% of the outstanding principal and interest under the Note for prepayment made between September 25,
2022 and November 23, 2022 and 29% of the outstanding principal and interest under the Note for prepayment made between September 26,
2022 and January 22, 2023.
The Note is convertible at the option of the Lender
at any time after January 22, 2023 at a conversion price equal to 65% of the lowest closing bid price of the Company’s common stock
on the OTCQB market or other applicable exchange during the ten trading days preceding the conversion date, provided that no such conversion
may result in the Lender and its affiliates beneficially owning more than 4.99% of the then outstanding shares of the common stock of
the Company. For as long as the Note is outstanding, the Company must have authorized and reserved, free of preemptive rights, six times
the number of shares issuable upon full conversion of the Note (initially 25,846,153 shares), subject to the 4.99% beneficial ownership
limitation.
Kisses From Italy Inc.
Index to Consolidated
Financial Statements
Report of Independent
Registered Public Accounting Firm
To the shareholders and the board of directors
of Kisses From Italy, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Kisses From Italy, Inc. as of December 31, 2021 and 2020, the related statements of operations, stockholders' equity
(deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements").
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States.
Substantial Doubt about the Company’s
Ability to Continue as a Going Concern
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has
suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience
negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting 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.
Our audit included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/S/ BF Borgers CPA PC
We have served as the Company's auditor since
2018
Lakewood, CO
April 15, 2022
Kisses From Italy Inc.
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
139,485 |
|
|
$ |
37,336 |
|
Accounts receivable |
|
|
12,900 |
|
|
|
5,761 |
|
Other receivable |
|
|
48,443 |
|
|
|
4,839 |
|
Inventory |
|
|
5,270 |
|
|
|
4,051 |
|
Total current assets |
|
|
206,098 |
|
|
|
51,987 |
|
Property and equipment, net |
|
|
5,793 |
|
|
|
8,480 |
|
Other Assets |
|
|
2,745 |
|
|
|
2,635 |
|
Total assets |
|
$ |
214,635 |
|
|
$ |
63,102 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
52,665 |
|
|
$ |
64,762 |
|
Accrued liabilities |
|
|
134,505 |
|
|
|
148,519 |
|
Total current liabilities |
|
|
187,170 |
|
|
|
213,281 |
|
Notes payable |
|
|
12,171 |
|
|
|
12,171 |
|
Convertible Notes |
|
|
10,000 |
|
|
|
10,000 |
|
Total liabilities |
|
|
209,341 |
|
|
|
235,451 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity: |
|
|
|
|
|
|
|
|
Preferred stock, Series A $0.001 par value. 1,500,000 shares authorized; zero shares issued and outstanding |
|
|
– |
|
|
|
– |
|
Preferred stock, Series B $0.001 par value. 5,000,000 shares authorized; zero shares issued and outstanding |
|
|
– |
|
|
|
– |
|
Preferred stock, Series C, $0.001 par value 1,000,000 shares authorized; 240,080 shares and 79,610 shares issued and outstanding as of December 31, 2021 and December 31 2020, respectively |
|
|
240 |
|
|
|
80 |
|
Common stock, $0.001 par value, 200,000,000 shares authorized; and 180,913,582 and 154,832,335 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively |
|
|
180,913 |
|
|
|
154,832 |
|
Additional paid-in capital |
|
|
13,702,813 |
|
|
|
8,612,683 |
|
Accumulated deficit |
|
|
(13,859,006 |
) |
|
|
(8,916,893 |
) |
Total Kisses From Italy Stockholders' Deficit |
|
|
24,960 |
|
|
|
(149,298 |
) |
Non-controlling interest |
|
|
(19,665 |
) |
|
|
(23,052 |
) |
Total stockholders' equity |
|
|
5,295 |
|
|
|
(172,350 |
) |
Total liabilities and equity |
|
$ |
214,635 |
|
|
$ |
63,101 |
|
The accompanying notes are
an integral part of the consolidated financial statements.
Kisses From Italy Inc.
Consolidated Statements of
Operations
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
Food sales |
|
$ |
400,662 |
|
|
$ |
222,453 |
|
Franchise sales |
|
|
– |
|
|
|
291,585 |
|
Total Revenue |
|
|
400,662 |
|
|
|
514,038 |
|
Cost of goods sold |
|
|
203,121 |
|
|
|
114,101 |
|
Gross margin |
|
|
197,540 |
|
|
|
399,937 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
4,597 |
|
|
|
51,970 |
|
Executive compensation |
|
|
21,327 |
|
|
|
17,631 |
|
Stock based compensation -related party |
|
|
1,987,200 |
|
|
|
720,000 |
|
Stock based compensation |
|
|
1,778,390 |
|
|
|
2,258,201 |
|
Payroll and other expenses |
|
|
86,532 |
|
|
|
123,079 |
|
Rent |
|
|
130,198 |
|
|
|
125,644 |
|
Consulting and professional fees |
|
|
171,865 |
|
|
|
189,826 |
|
General and administrative |
|
|
157,280 |
|
|
|
154,495 |
|
Total operating expenses |
|
|
4,337,390 |
|
|
|
3,640,846 |
|
Income (loss) from operations |
|
|
(4,139,849 |
) |
|
|
(3,240,909 |
) |
Other income (expense) |
|
|
|
|
|
|
|
|
Interest income (expense), net |
|
|
(798,877 |
) |
|
|
(497,613 |
) |
Total other income (expense) |
|
|
(798,877 |
) |
|
|
(497,613 |
) |
Income (loss) before income taxes |
|
|
(4,938,727 |
) |
|
|
(3,738,522 |
) |
Provision for income taxes (benefit) |
|
|
– |
|
|
|
– |
|
Net loss |
|
|
(4,938,727 |
) |
|
|
(3,738,522 |
) |
Less: net gain(loss) attributable to non-controlling interests |
|
|
3,387 |
|
|
|
(29,120 |
) |
Net loss attributable to Kisses From Italy Inc. |
|
$ |
(4,942,113 |
) |
|
$ |
(3,709,402 |
) |
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per common share |
|
$ |
(0.03 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
168,615,951 |
|
|
|
140,515,422 |
|
The accompanying notes are
an integral part of the consolidated financial statements.
Kisses from Italy Inc.
Consolidated Statements of
Changes in Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
|
|
|
|
|
|
Additional |
|
|
Non- |
|
|
|
|
|
Total |
|
|
|
Series A |
|
|
Series B |
|
|
Series C |
|
|
Common Stock |
|
|
Paid-in |
|
|
controlling |
|
|
Accumulated |
|
|
Stockholders' |
|
|
|
Shares |
|
|
Value |
|
|
Shares |
|
|
Value |
|
|
Shares |
|
|
Value |
|
|
Shares |
|
|
Value |
|
|
Capital |
|
|
Interest |
|
|
Deficit |
|
|
Equity |
|
Balance, December 31, 2019 |
|
|
– |
|
|
$ |
– |
|
|
|
– |
|
|
$ |
– |
|
|
|
50,000 |
|
|
$ |
50 |
|
|
|
126,550,535 |
|
|
$ |
126,550 |
|
|
$ |
4,945,109 |
|
|
$ |
6,068 |
|
|
$ |
(5,207,491 |
) |
|
$ |
(129,714 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(3,709,402 |
) |
|
|
(3,709,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest, net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(29,120 |
) |
|
|
– |
|
|
|
(29,120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series C Preferred Stock |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
155,600 |
|
|
|
156 |
|
|
|
– |
|
|
|
– |
|
|
|
155,691 |
|
|
|
– |
|
|
|
– |
|
|
|
155,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series C Preferred Stock to common stock |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(125,990 |
) |
|
|
(126 |
) |
|
|
2,690,000 |
|
|
|
2,690 |
|
|
|
(2,361 |
) |
|
|
– |
|
|
|
– |
|
|
|
203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature of Series C Preferred Stock |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
491,645 |
|
|
|
– |
|
|
|
– |
|
|
|
491,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private placement of common stock |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
200,000 |
|
|
|
200 |
|
|
|
19,790 |
|
|
|
– |
|
|
|
– |
|
|
|
19,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for services |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
25,391,800 |
|
|
|
25,392 |
|
|
|
3,002,809 |
|
|
|
– |
|
|
|
– |
|
|
|
3,028,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020 |
|
|
– |
|
|
$ |
– |
|
|
|
– |
|
|
$ |
– |
|
|
|
79,610 |
|
|
$ |
80 |
|
|
|
154,832,335 |
|
|
$ |
154,832 |
|
|
$ |
8,612,683 |
|
|
$ |
(23,052 |
) |
|
$ |
(8,916,893 |
) |
|
$ |
(172,350 |
) |
Kisses from Italy Inc,
Consolidated Statements of
Changes in Stockholders' Equity (continued)
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
|
|
|
|
|
|
Additional |
|
|
Non- |
|
|
|
|
|
Total |
|
|
|
Series A |
|
|
Series B |
|
|
Series C |
|
|
Common Stock |
|
|
Paid-in |
|
|
controlling |
|
|
Retained |
|
|
Stockholders' |
|
|
|
Shares |
|
|
Value |
|
|
Shares |
|
|
Value |
|
|
Shares |
|
|
Value |
|
|
Shares |
|
|
Value |
|
|
Capital |
|
|
Interest |
|
|
Earnings |
|
|
Equity |
|
Balance, December 31, 2020 |
|
|
– |
|
|
$ |
– |
|
|
|
– |
|
|
$ |
– |
|
|
|
79,610 |
|
|
$ |
80 |
|
|
|
154,832,335 |
|
|
$ |
154,832 |
|
|
$ |
8,612,683 |
|
|
$ |
(23,052 |
) |
|
$ |
(8,916,893 |
) |
|
$ |
(172,350 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in private placement |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,750,000 |
|
|
|
1,750 |
|
|
|
173,250 |
|
|
|
– |
|
|
|
– |
|
|
|
175,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock options for services |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,239,823 |
|
|
|
– |
|
|
|
– |
|
|
|
1,239,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series C Preferred Stock |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
380,650 |
|
|
|
381 |
|
|
|
– |
|
|
|
– |
|
|
|
1,175,400 |
|
|
|
– |
|
|
|
– |
|
|
|
1,175,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series C Preferred to common stock |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(220,180 |
) |
|
|
(220 |
) |
|
|
5,922,913 |
|
|
|
5,923 |
|
|
|
(5,702 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
18,408,334 |
|
|
|
18,408 |
|
|
|
2,507,359 |
|
|
|
– |
|
|
|
– |
|
|
|
2,525,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest, net income |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
3,387 |
|
|
|
– |
|
|
|
3,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(4,942,113 |
) |
|
|
(4,942,113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2021 |
|
|
– |
|
|
$ |
– |
|
|
|
– |
|
|
$ |
– |
|
|
|
240,080 |
|
|
$ |
240 |
|
|
|
180,913,582 |
|
|
$ |
180,913 |
|
|
$ |
13,702,813 |
|
|
$ |
(19,665 |
) |
|
$ |
(13,859,006 |
) |
|
$ |
5,295 |
|
Kisses From Italy Inc.
Consolidated Statements of
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
Cash flows from operating activities of continuing operations: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(4,942,113 |
) |
|
$ |
(3,709,402 |
) |
Net income (loss) attributable to non-controlling interest |
|
|
3,387 |
|
|
|
(29,120 |
) |
Adjustments to reconcile net loss to cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
4,597 |
|
|
|
51,970 |
|
Stock-based compensation for services |
|
|
3,765,591 |
|
|
|
3,028,201 |
|
Beneficial conversion feature of Preferred C Stock |
|
|
795,131 |
|
|
|
491,645 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Other assets |
|
|
(110 |
) |
|
|
29 |
|
Accounts receivable |
|
|
(7,139 |
) |
|
|
(5,761 |
) |
Account receivable-other |
|
|
(43,603 |
) |
|
|
(2,064 |
) |
Inventory |
|
|
(1,219 |
) |
|
|
– |
|
Accounts payable |
|
|
(12,099 |
) |
|
|
(724 |
) |
Accrued liabilities |
|
|
(14,014 |
) |
|
|
5,243 |
|
Net cash used in operating activities |
|
|
(451,591 |
) |
|
|
(169,984 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of fixed assets |
|
|
(1,910 |
) |
|
|
(1,136 |
) |
Net cash used in financing activities |
|
|
(1,910 |
) |
|
|
(1,136 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds/payments from short term borrowings-net |
|
|
– |
|
|
|
(6,000 |
) |
Proceeds from notes payable, net |
|
|
– |
|
|
|
12,171 |
|
Proceeds from the sale of common stock |
|
|
435,650 |
|
|
|
19,990 |
|
Proceeds from the sale of preferred stock |
|
|
120,000 |
|
|
|
155,600 |
|
Net cash provided by financing activities |
|
|
555,650 |
|
|
|
181,761 |
|
|
|
|
|
|
|
|
|
|
Impact of foreign exchange |
|
|
– |
|
|
|
(146 |
) |
Net increase in cash and cash equivalents |
|
|
102,149 |
|
|
|
10,495 |
|
Cash and cash equivalents at beginning of period |
|
|
37,336 |
|
|
|
26,841 |
|
Cash and cash equivalents at end of period |
|
$ |
139,485 |
|
|
$ |
37,336 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
– |
|
|
$ |
– |
|
Cash paid for income taxes |
|
$ |
– |
|
|
$ |
– |
|
The accompanying notes are an integral part of
the consolidated financial statements.
Kisses From Italy Inc.
Notes to Unaudited Consolidated Financial Statements
For the Year Ended December 31, 2021 and 2020
NOTE 1 – ORGANIZATION AND DESCRIPTION
OF BUSINESS
Kisses From Italy Inc. (the “Company”)
was incorporated in Florida on March 7, 2013. The Company’s main focus is to develop a fast, casual food dining chain restaurant
business of corporate-owned restaurants and expanding through a nationwide/international franchise and territory sales program. The Company
commenced operations in May 2015 by opening its first location in Fort Lauderdale, Florida. Three additional restaurants, located in various
Wyndham Hotel properties in the Pompano Beach, Florida area, were then opened within the following ten months. All locations, which are
in leased facilities, were fully operational by April 2016. In December 2017, the Company vacated one of its restaurants due to a hurricane
and has not re-opened that location. In June 2021, the Company consolidated its two Wyndham stores into one location to become more efficient.
The Company opened its inaugural European location in Ceglie del Campo, Bari, Italy, in October 2019. The Bari location closed in April
2020 due to the Covid-19 pandemic, briefly re-opened and has not re-opened as of the date of this Report. Such location was intended to
serve as the distribution center for products for European locations, as well as to be used as a training facility for European franchises.
However, this initiative has been severely curtailed due to the onset and lingering impact of Covid -19 in Europe.
In June 2021 and November 2021 the Company opened
its first two franchise locations in Chino, California and Montreal, Canada, respectively. Due to the onset of Covid-19 the Company has
temporarily waived any franchise fees at both locations so that the franchisees could establish operations at each of those locations.
The Company’s accounting year-end is December
31.
COVID-19
On March 11, 2020, the World Health Organization
declared the Covid-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic has had a negative
ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Most US states and many countries
have issued policies intended to stop or slow the further spread of the disease.
Covid-19 and we believe, the US’s response
to the pandemic has significantly affected the economy. There are no comparable events that provide guidance as to the effect the Covid-19
pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know
the full extent of the effects on the economy, the markets we serve, our business, or our operations.
Except for our Bari location which remains closed,
our US locations are now open and are operating at near pre-Covid revenue levels.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation and Principles of
Consolidation
The consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). This basis of
accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned, and expenses
and losses or recognized when incurred. The consolidated financials include the accounts of the Company and its wholly-owned subsidiaries;
Kisses From Italy 9th LLC, Kisses From Italy-Franchising LLC, Kisses From Italy, Inc. (Canada) (a company incorporated under
the laws of Canada and registered in Quebec on December 23, 2020), and Kisses From Italy Italia SRLS (a limited liability company incorporated
in Italy), and its 70% owned subsidiary, Kisses-Palm Sea Royal LLC.
All intercompany accounts and transactions are
eliminated in consolidation.
Going Concern
The accompanying unaudited consolidated financial
statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business for the twelve months following the date of these financial statements.
On a consolidated basis, the Company has incurred significant operating losses since inception.
Because the Company does not expect that existing
operational cash flow will be sufficient to fund presently anticipated operations, this raises substantial doubt about the Company’s
ability to continue as a going concern. Therefore, the Company will need to raise additional funds and is currently exploring alternative
sources of financing. Historically, the Company has raised capital through private placements of equity and convertible debt as interim
measures to finance working capital needs and may continue its efforts to raise additional capital through the sale of common stock or
other securities and obtain short-term loans. The Company will be required to continue to do so until its consolidated operations become
profitable. Also, the Company has, in the past, paid for consulting services with its common stock to maximize working capital, and intends
to continue this practice where feasible.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of 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. The most significant estimates relate to revenue recognition, valuation of accounts receivable and the allowance for doubtful
accounts, inventories, purchase price allocation of acquired businesses, impairment of long-lived assets and goodwill, valuation of financial
instruments, income taxes, and contingencies. The Company bases its estimates on historical experience, known or expected trends and various
other assumptions that are believed to be reasonable given the quality of information available as of the date of these financial statements.
The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are
not readily apparent from other sources. Actual results could differ from these estimates.
Accounts Receivable and Allowance for Doubtful
Accounts
Accounts receivables are recorded at the net value
of face amount less any allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the
amount of probable credit losses in its existing accounts receivable. The Company reviews the allowance for doubtful accounts on
a regular basis, and all past due balances are reviewed individually for collectability. Account balances are charged against the allowance
when placed for collection. Recoveries of receivables previously written off are recorded when received. Interest is not charged on past
due accounts. These receivables are related to the sale of our private label branded products sold in retail and grocery stores in Canada.
As of December 31, 2021, and December 31, 2020,
our trade receivable amounted to $12,900 and $5,761, respectively, with an allowance for doubtful accounts of $-0- for both periods.
Other Receivables
Other receivables are comprised of two components,
a receivable from the government for Employee Retention Credits (“ERC”) and Value Added Tax at the Company’s Bari location
in Italy.
The purpose of the ERC is to encourage employers
to keep employees on the payroll, even if they are not working during the covered period due to the effects of the coronavirus outbreak.
The updated ERC provides a refundable credit of up to $5,000 for each full-time equivalent employee a company retained from March 13,
2020, to December 31, 2020, and up to $14,000 for each retained employee from January 1, 2021, to June 30, 2021. The Company qualifies
as an employer if it was ordered to fully or partially shut down or if the Company’s gross receipts fell below 50% for the same
quarter in 2019 (for 2020) and below 80% (for 2021). As of December 31, 2021 and December 31, 2020 the Company had ERC credits receivable
of $41,717 and no ERC credits receivable, respectively.
Valued Added Tax (“VAT”)
The Valued Added Tax (“VAT”)
VAT is a broadly-based consumption tax which is assessed to the value that is added to goods and services. The Value Added Tax (“VAT”),
applies to nearly all goods and services that are bought and sold within the European Union. In Italy where the Company operates, the
VAT tax ranges between 4% and 10% for food products and alcohol. As of December 31, 2021 and December 31, 2020, respectively, the Company
had a VAT net receivable from its Bari location amounting to $4,839.
Foreign Currency Translation
The functional and reporting currency of the Company’s
Bari location in Italy is the Euro. Management has adopted ASC 830 “Foreign Currency Matters” for transactions that occur
in foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing at the balance
sheet date. Average monthly rates are used to translate revenues and expenses. To date, this difference has been immaterial for the Bari
location.
Transactions denominated in currencies other than
the functional currency, such as the Company’s current retails sales in Canada for Kisses From Italy branded products, are translated
into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign
currency transactions are included in the determination of net income for the respective periods.
Assets and liabilities of the Company’s
operations are translated into the reporting currency, United States dollars, at the exchange rate in effect at the balance sheet dates.
Revenue and expenses are translated at average rates in effect during the reporting periods. Equity transactions are recorded at the historical
rate when the transaction occurred.
Since the Company began the branded retail products
operations initiative in Canada in late 2020, the difference in the exchange rate and the average monthly rate did not have a material
impact on the Company’s financial statements.
Revenue Recognition
The Company recognizes revenue under the guidelines
of ASC 606. Sales, as presented in the Company’s consolidated statement of earnings, represent franchise revenue; and food and beverage
product sold which is presented net of discounts, coupons, employee meals and complimentary meals. Revenue is recognized using the five
step approach required under the guidelines of ASC 606.
Non-controlling interest
Non-controlling interest represents third-party
ownership in the net assets of one of our consolidated subsidiaries. For financial reporting purposes, the assets and liabilities of our
majority-owned subsidiary consolidated with those of the Company’s wholly-owned subsidiaries, with any third-party investor’s
interest shown as non-controlling interest.
Cash and Cash Equivalents
The Company considers all highly liquid temporary
cash investments with an original maturity of three months or less to be cash equivalents. On December 31, 2021 and December 31, 2020,
the Company cash equivalents totaled $139,485 and $37,336, respectively.
Property and equipment
Depreciation is computed by the straight-line
method and is charged to operations over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred.
The carrying amount and accumulated depreciation of assets sold or retired are removed from the accounts in the year of disposal and any
resulting gain or loss is included in results of operations. The estimated useful lives of property and equipment are as follows:
|
|
Computers, software, and office equipment |
1 – 6 years |
Machinery and equipment |
3 – 5 years |
Leasehold improvements |
Lesser of lease term or estimated useful life |
Income taxes
The Company accounts for income taxes under the
Financial Accounting Standards Board (“FASB”) ASC 740, “Accounting for Income Taxes”. Under FASB ASC
740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. FASB ASC 740-10-05,“Accounting for Uncertainty in Income Taxes”
prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions
taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be
sustained upon examination by taxing authorities.
The amount recognized is measured as the largest
amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company assesses the validity
of its conclusions regarding uncertain tax positions on a quarterly basis to determine if facts or circumstances have arisen that might
cause it to change its judgment regarding the likelihood of a tax position’s sustainability under audit.
On Dec. 18, 2019, FASB released Accounting Standards
Update (“ASU”) 2019-12, which affects general principles within Topic 740, Income Taxes. The amendments of ASU 2019-12 are
meant to simplify and reduce the cost of accounting for income taxes. The FASB has stated that the ASU is being issued as part of its
Simplification Initiative, which is meant to reduce complexity in accounting standards by improving certain areas of GAAP without compromising
information provided to users of financial statements. The Company adopted this guidance on January 1, 2021 which had no impact on the
Company’s financial statements.
Stock-based Compensation
The Company accounts for stock-based compensation
using the fair method following the guidance set forth in Section 718-10 of the FASB Accounting Standards Codification for disclosure
about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for
an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized
over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually
the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.
Leases
The Company currently follows the guidance in
ASC 840 “Leases,” which requires us to evaluate the lease agreements the Company enters into to determine whether they
represent operating or capital leases at the inception of the lease.
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets
and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The amended
guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption
permitted. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the new
lease standard. The FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases in July 2018. Also in 2018, the
FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides an optional transition method whereby the
new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. The amendments have the same
effective date and transition requirements as the new lease standard On November 15, 2019, the FASB has issued ASU 2019-10, which amends
the effective dates for three major accounting standards. The ASU defers the effective dates for the credit losses, derivatives,
and lease standards for certain companies. Since the Company is classified as a small reporting company and has a calendar-year end companies
the Company eligible for deferring the adoption of ASC 842 to December 15, 2021.
We expect that the adoption of this guidance will
have no impact on our financial statements.
Canadian Government and Provincial Sales Tax (“G.S.T.”
and “P.S.T.”)
The Company does not collect any Canadian G.S.T.
(Government Sales Tax) and P.S.T. (Provincial Sales Tax) as the Company acts as product distributor and not as a final sales retailer.
Inventory
Inventory is comprised of alcoholic beverages
at our Bari location in Italy which opened in 2019 and inventory for retail sales held in Canada. Our US locations do not have liquor
licenses. The balance of inventory at December 31, 2021 and December 31, 2020 was $5,270 and $4,051, respectively.
Net Loss per Share
Net loss per common share is computed by dividing
net loss by the weighted average shares of common stock outstanding during the period as defined by Financial Accounting Standards, ASC
Topic 260, “Earnings per Share.” Basic earnings per common share (“EPS”) calculations are determined by dividing
net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations
are determined by dividing net income by the weighted average number of shares of common stock and dilutive common share equivalents outstanding.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets
and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The amended
guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption
permitted. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the new lease
standard. The FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases in July 2018. Also in 2018, the FASB
issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides an optional transition method whereby the new lease
standard is applied at the adoption date and recognized as an adjustment to retained earnings. The amendments have the same effective
date and transition requirements as the new lease standard. On November 15, 2019, the FASB has issued ASU 2019-10, which amends the effective
dates for three major accounting standards. The ASU defers the effective dates for the credit losses, derivatives, and leases standards
for certain companies. Since the Company is classified as a small reporting company and has a calendar-year end, the Company is eligible
for deferring the adoption of ASC 842 to December 15, 2021.
While we continue to evaluate the impact of the
new standard, we expect the adoption of this guidance will have not have any impact on our financial statements.
NOTE 3 –GOING CONCERN AND LIQUIDITY
As of December 31, 2021 the Company had cash on
hand of $139,485 and an accumulated deficit of $13,859,006.
Management has concluded that these financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business.
It is the Company’s current intention to
raise debt and/or equity financing to fund ongoing operating expenses. The Company believes it will be successful in raising sufficient
capital to operate for the next 12 months, however, there is no assurance that financing, whether debt or equity, will be available to
the Company, satisfactorily completed or on terms favorable to the Company. Any issuance of equity securities, if accomplished, could
cause substantial dilution to existing stockholders and any debt financing may contain covenants limiting certain corporate actions. Any
failure by the Company to successfully raise additional financing would have a material adverse effect on its business, including the
possible inability to continue operations.
NOTE 4 –PROPERTY AND EQUIPMENT
As of December 31, 2021 and December 31, 2020,
the Company had $5,793 and $8,480 in property and equipment, all located at its Bari location in Italy. As of March 31, 2021 all property
and equipment and leaseholds at its US locations had been fully depreciated.
NOTE 5 –ACCRUED AND OTHER LIABILITIES
The following table sets forth the components
of the Company’s accrued liabilities on December 31, 2021 and December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
Sales tax payable |
|
$ |
4,666 |
|
|
$ |
3,804 |
|
Accrued interest payable |
|
|
4,363 |
|
|
|
2,067 |
|
Payroll tax liabilities |
|
|
125,476 |
|
|
|
142,648 |
|
Total accrued liabilities |
|
$ |
134,505 |
|
|
$ |
148,519 |
|
The Company is in arrears on its payroll tax payments
as of December 31, 2021. Included in the “payroll tax liabilities” as of December 31, 2021 is approximately $43,001 in
interest and penalties.
NOTE 6 –PROMISSORY NOTES PAYABLE
As of December 31, 2021 and December 31, 2020,
we had two unsecured 8% notes payable amounting to $12,171 that mature in June 2023.
NOTE 7 –CONVERTIBLE NOTES
As of December 31, 2021 and December 31, 2020,
the outstanding principal balance of convertible notes was $10,000.
NOTE 8 – STOCKHOLDERS EQUITY
Common Stock
The Company has authorized 200,000,000 shares
of common stock. On December 31, 2021 and December 31, 2020, there were 180,913,582 and 154,832,335 shares of common stock issued and
outstanding, respectively, with a $0.001 par value per share.
During the year ended December 31, 2021, the Company
issued the following shares of common stock:
|
· |
14,000,000 shares to its executive officers valued at $1,987,200 |
|
· |
4,408,334 shares to service providers valued at $538,568 |
|
· |
1,750,000 shares to accredited investors for gross proceeds of $175,000 |
|
· |
5,922,903 shares upon the conversion of Series C Stock |
These shares were valued based on the trading
price of the Company’s stock on the date of approval of the respective share issuances by the Company’s Board of Directors
times the number of shares issued.
Preferred Stock
On December 19, 2019, the Company filed a Certificate
of Designation with the State of Florida to designate 1,500,000 shares of the Company’s authorized preferred stock as Series A Preferred
Stock (“Series A Stock”), 5,000,000 shares as Series B Preferred Stock (“Series B Stock”) and 1,000,000
shares as Series C Preferred Stock (“Series C Stock”).
A summary of the material provisions of the Certificate
of Designation governing the Series A Stock, the Series B Stock and the Series C Stock is as follows:
Series A Stock
The Series A Stock is not convertible. Each share
of Series A Stock shall entitle the holder to three hundred votes for each share of Series A Stock. Any amendment to the Certificate of
Designation requires the consent of the holders of at least two-thirds of the shares of Series A Stock then outstanding. The holders of
Series A Stock are not entitled to dividends until and unless determined by the Board of Directors of the Company.
Liquidation Preference
No distribution shall be made to holders of shares
of capital stock ranking junior to the Series A Preferred Stock upon liquidation, dissolution or winding-up of the Company. The Series
A Stock ranks pari passu with the Series C Stock.
There were no shares of Series
A Stock outstanding as of December 31, 2021 and December 31, 2020.
Series B Stock
The Series B Stock is convertible at any time
by the holder into the number of shares of common stock of the Company based on two times the price paid by the holder for the shares.
The Board has the authorization to establish a minimum price for the conversion price of the Series B Stock (so that if the market price
of the common stock of the Company drops below the issuance price, the conversion rate will then be based on the minimum price established
by the Board and not the price paid for the shares). The holders of the Series B Stock shall not be entitled to voting rights except as
otherwise provided by applicable law. The holders of Series B Stock are not entitled to dividends until and unless determined by the Board.
Liquidation Preference
The holders of Series B Stock shall not be entitled
to any distributions upon a liquidation of the Company.
Restrictions of Transferability
The shares of the Series B Stock shall not, directly,
or indirectly, be sold, hypothecated, transferred, assigned, or disposed of in any manner without the prior written consent of the Board
and applicable securities laws.
There were no shares of Series B Stock outstanding
as of December 31, 2021.
Series C Stock
The Series C Stock is convertible at any time
by the holder into the number of shares of common stock of the Company on the basis of three times the price paid for the shares divided
by the floor price of $0.10 established by the Board of Directors. The holders of the Series C Stock shall not be entitled to voting rights
except as otherwise provided for by applicable law. The holders of Series C Stock are not entitled to dividends until and unless determined
by the Board.
Liquidation Preference
Upon any liquidation of the Company, the holders
of Series C Stock shall be entitled to the amount paid for the shares of Series C Stock prior to the holders of shares ranking junior
to the Series C Stock. Upon the holders of the Series C Stock and any series of stock ranking pari passu with the Series C Stock having
received distributions to which they are entitled, the remaining assets of the Company shall be distributed to the other holders pro rata
in proportion to the shares held by each holder.
Restrictions of Transferability
The Series C Stock shall not, directly, or indirectly,
be sold, hypothecated, transferred, assigned, or disposed of in any manner without the prior written consent of the Board and applicable
securities laws.
As of December 31, 2021 and December 31, 2020
there were 240,080 shares and 79,610 shares of Series C Stock outstanding, respectively, which were purchased at a price of $1.00 per
share.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
As of December 31, 2021 the Company had three
operating restaurants. The Company leases these spaces based upon the following schedules:
|
· |
Kisses From Italy 9th LLC based in Fort Lauderdale, Florida leases approximately 990 square feet and has paid $3,273 per month since 2018, pending completion of the required renovations to the exterior and interior of the property necessitated due to hurricane damage that occurred to the location in 2018. The landlord has been very slow in making these changes. It was agreed upon that when work was completed, and approved by the City of Fort Lauderdale, the rent would be increased to the market rate at that time. Beginning on May 1, 2021, the rent increased to $5,857.50 per month and was renewed by the Company for an additional five-year term with standard annual escalator costs. |
|
· |
Kisses-Palm Sea Royal LLC based in Pompano Beach, Florida leases approximately 2,300 square feet for $3,933 per month. The Company has a one-year automatic renewal provision for this lease on May 1st of each year under the same terms. |
|
|
|
|
· |
Kisses From Italy Italia SRLS based in Bari, Italy, leases approximately 2,200 square feet of space for 1,400 euros per month under the terms of a six-year lease which ends on May 5, 2024 and has an optional automatic renewal provision for six years. |
NOTE 10 – SUBSEQUENT EVENTS
For the period from January 1, 2022 through the
date of this Report, the Company received $143,090 in proceeds from the sale of a 12% convertible promissory note due in April 11, 2023.
In connection with the issuance of the note, the Company issued 500,000 common shares as a commitment fee. Additionally the Company issued
3,000,000 common shares upon the conversion of 100,000 Series C Preferred shares. Also, a Company officer purchased 5,000 Preferred C
shares for $5,000.
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