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 |
|
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. |
| |
|
|
| Common Stock outstanding before the Offering |
|
185,520,582 shares of Common Stock |
| |
|
|
| Common Stock outstanding after the Offering (assuming all of
the shares offered in the Offering have been issued and
sold) |
|
282,007,832 shares of Common Stock |
| |
|
|
| OTCQB symbol |
|
KITL |
| |
|
|
| Use
of Proceeds |
|
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. |
| |
|
|
| Risk
Factors |
|
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:
| |
· |
|
identify
available, appropriate and attractive restaurant sites; |
| |
· |
|
compete
for restaurant sites; |
| |
· |
|
reach
acceptable agreements regarding the lease or purchase of restaurant
sites; |
| |
· |
|
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; |
| |
· |
|
respond
to unforeseen engineering or environmental problems with our
selected restaurant sites; |
| |
· |
|
respond
to landlord delays and the failure of landlords to timely deliver
real estate to us; |
| |
· |
|
mitigate
the impact of inclement weather, natural disasters and other
calamities on the development of restaurant sites; |
| |
· |
|
hire,
train and retain the skilled management and other team members
necessary to meet staffing needs of new restaurants; |
| |
· |
|
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 |
| |
· |
|
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:
| |
· |
|
consumer
awareness and understanding of our brand; |
| |
· |
|
general
economic conditions, which can affect restaurant traffic, local
labor costs and prices we pay for the food products and other
supplies we use; |
| |
· |
|
consumption
patterns and food preferences that may differ from region to
region; |
| |
· |
|
changes
in consumer preferences and discretionary spending; |
| |
· |
|
difficulties
obtaining or maintaining adequate relationships with distributors
or suppliers in new markets; |
| |
· |
|
increases
in prices for commodities; |
| |
· |
|
inefficiency
in our labor costs as the staff gains experience; |
| |
· |
|
competition,
either from our competitors in the restaurant industry or our own
restaurants; |
| |
· |
|
temporary
and permanent site characteristics of new restaurants; |
| |
· |
|
changes
in government regulation; and |
| |
· |
|
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:
| |
· |
acceptance
of our restaurant concept and market penetration; |
| |
· |
the
amount and timing of capital expenditures and other costs relating
to the implementation of our business plan; |
| |
· |
the
introduction of new products by our competitors; |
| |
· |
seasonality
applicable to our geographic location; and |
| |
· |
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:
| |
· |
competitive
pricing pressures; |
| |
· |
our
ability to market our services on a cost-effective and timely
basis; |
| |
· |
our
inability to obtain working capital financing, if
needed; |
| |
· |
changing
conditions in the market; |
| |
· |
changes
in market valuations of similar companies; |
| |
· |
stock
market price and volume fluctuations generally; |
| |
· |
regulatory
developments; |
| |
· |
fluctuations
in our quarterly or annual operating results; |
| |
· |
additions
or departures of key personnel; and |
| |
· |
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:
| |
· |
pertain
to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets
of the Company; |
| |
· |
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 |
| |
· |
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:
| |
· |
Actual
or anticipated variations in our quarterly and annual operating
results or those of companies perceived to be similar to
us; |
| |
· |
Weather
conditions; |
| |
· |
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; |
| |
· |
Fluctuations
in the market valuations of companies perceived by investors to be
comparable to us; |
| |
· |
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; |
| |
· |
Speculation
about our business in the press or the investment
community; |
| |
· |
Future
sales of our shares; |
| |
· |
Actions
by our competitors; |
| |
· |
Additions
or departures of members of our senior management or other key
personnel; and |
| |
· |
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:
| |
· |
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. |
| |
· |
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. |
| |
· |
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. |
| |
· |
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. |
| |
· |
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. |
| |
· |
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. |
| |
· |
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:
| |
· |
Jimmy
John’s |
| |
· |
Subway |
| |
· |
Chipotle
Mexican Grill |
| |
· |
Miami
Subs Grill |
| |
· |
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.
Kisses from Italy (QB) (USOTC:KITL)
Historical Stock Chart
From Mar 2023 to Mar 2023
Kisses from Italy (QB) (USOTC:KITL)
Historical Stock Chart
From Mar 2022 to Mar 2023
