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Table of Contents
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:
September 30, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to
________________
Commission File Number: 000-52898
Kisses From Italy Inc.
(Exact name of registrant as specified in its charter)
Florida |
|
46-2388377 |
(State
or other jurisdiction of incorporation) |
|
(I.R.S.
Employer Identification No.) |
80 SW
8th Street
Suite 2000
Miami, Florida 33130
(Address of principal executive offices)
(305)
423-7129
(Registrant’s telephone number, including area code)
____________________________________________________________
Former name, former address and former fiscal year, if changed
since last report)
Securities registered pursuant to Section 12(b) of the Act:
None
Title
of each class |
Trading
Symbol(s) |
Name
of each exchange on which registered |
Not
applicable |
Not
applicable |
Not
applicable |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days:
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer”, “accelerated filer”,
“smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
|
Large
accelerated filer ☐ |
Accelerated
filer ☐ |
|
Non-accelerated filer ☒ |
Smaller
reporting company ☒ |
|
|
Emerging
growth company ☒ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act). ☐ Yes ☒ No
As of November 7, 2022, there were
189,216,582 shares of the registrant's common stock
outstanding.
TABLE OF
CONTENTS
PART I –
FINANCIAL INFORMATION
ITEM 1. |
FINANCIAL
STATEMENTS |
CAUTIONARY STATEMENT ON FORWARD-LOOKING
INFORMATION
The following discussion should be read in conjunction with our
unaudited 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 this report 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.
Factors that may cause or contribute actual results to differ from
these forward-looking statements include, but are not limited to,
for example:
|
· |
adverse
economic conditions; |
|
|
|
|
· |
the
Company’s ability to raise capital to fund its
operations; |
|
|
|
|
· |
industry
competition; |
|
|
|
|
· |
the
inability to attract and retain qualified senior
management; |
|
|
|
|
· |
other
risks and uncertainties related to the restaurant industry and our
business strategy; and |
|
|
|
|
· |
the
impact of the Covid-19 pandemic on our operations and franchise
expansion. |
All forward-looking statements speak only as of the date of this
Report. Except to the extent required by law, we undertake no
obligation to update any forward-looking statements or other
information contained herein. You should not place undue reliance
on these forward-looking statements. Although we believe that our
plans, intentions, and expectations reflected in or suggested by
the forward-looking statements in this Report are reasonable, we
cannot assure you that these plans, intentions or expectations will
be achieved.
Kisses
From Italy Inc.
Consolidated
Balance Sheets
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
435,076 |
|
|
$ |
139,485 |
|
Accounts
receivable |
|
|
17,429 |
|
|
|
12,900 |
|
Prepaid
expenses |
|
|
19,744 |
|
|
|
– |
|
Other
receivables |
|
|
51,076 |
|
|
|
48,443 |
|
Inventory |
|
|
12,809 |
|
|
|
5,270 |
|
Total current
assets |
|
|
536,134 |
|
|
|
206,098 |
|
Property and equipment, net |
|
|
4,213 |
|
|
|
5,793 |
|
Right of use assets |
|
|
496,627 |
|
|
|
– |
|
Other Assets |
|
|
2,745 |
|
|
|
2,745 |
|
Total
assets |
|
$ |
1,039,719 |
|
|
$ |
214,635 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
83,950 |
|
|
$ |
52,665 |
|
Accrued
liabilities |
|
|
163,649 |
|
|
|
134,505 |
|
Lease liability -
short term |
|
|
23,066 |
|
|
|
– |
|
Notes payable |
|
|
12,171 |
|
|
|
– |
|
Derivative liability |
|
|
109,411 |
|
|
|
– |
|
Total current
liabilities |
|
|
392,247 |
|
|
|
187,170 |
|
Lease liability -
long term |
|
|
473,561 |
|
|
|
– |
|
Notes payable -
long term |
|
|
250,000 |
|
|
|
12,171 |
|
Convertible notes
-long term |
|
|
560,000 |
|
|
|
10,000 |
|
Total
liabilities |
|
|
1,675,808 |
|
|
|
209,340 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity: |
|
|
|
|
|
|
|
|
Preferred stock, Series A $0.001 par value.
1,500,000
shares authorized; zero 0 shares shares issued
and outstanding |
|
|
– |
|
|
|
– |
|
Preferred stock, Series B $0.001 par value.
5,000,000
shares authorized; zero 0 shares 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 September 30, 2022 and December
31 2021, respectively |
|
|
145 |
|
|
|
240 |
|
Common
stock, $0.001 par value,
300,000,000
shares authorized; 185,520,582
and 180,913,582
shares issued and outstanding as of September 30, 2022 and December
31, 2021, respectively |
|
|
185,520 |
|
|
|
180,913 |
|
Additional paid-in capital |
|
|
13,884,722 |
|
|
|
13,702,813 |
|
Accumulated deficit |
|
|
(14,697,745 |
) |
|
|
(13,859,006 |
) |
Total Kisses From Italy Stockholders'
Deficit |
|
|
(627,358 |
) |
|
|
24,960 |
|
Non-controlling interest |
|
|
(8,731 |
) |
|
|
(19,665 |
) |
Total
stockholders' equity |
|
|
(636,089 |
) |
|
|
5,295 |
|
Total liabilities
and equity |
|
$ |
1,039,719 |
|
|
$ |
214,635 |
|
The accompanying notes
are an integral part of the consolidated financial statements.
Kisses
From Italy Inc.
Consolidated
Statements of Operations
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months |
|
|
Three
Months |
|
|
Nine
Months |
|
|
Nine
Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food
sales |
|
$ |
101,522 |
|
|
$ |
85,727 |
|
|
$ |
311,484 |
|
|
$ |
328,479 |
|
Total Revenue |
|
|
101,522 |
|
|
|
85,727 |
|
|
|
311,484 |
|
|
|
328,479 |
|
Cost of goods
sold |
|
|
56,179 |
|
|
|
43,644 |
|
|
|
162,125 |
|
|
|
155,953 |
|
Gross margin |
|
|
45,343 |
|
|
|
42,083 |
|
|
|
149,359 |
|
|
|
172,526 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
527 |
|
|
|
527 |
|
|
|
1,580 |
|
|
|
4,070 |
|
Stock based
compensation |
|
|
– |
|
|
|
– |
|
|
|
5,170 |
|
|
|
3,231,573 |
|
Payroll and other
expenses |
|
|
48,575 |
|
|
|
42,593 |
|
|
|
88,120 |
|
|
|
76,792 |
|
Rent |
|
|
27,694 |
|
|
|
46,219 |
|
|
|
96,675 |
|
|
|
99,646 |
|
Consulting and
professional fees |
|
|
43,786 |
|
|
|
23,278 |
|
|
|
164,637 |
|
|
|
116,903 |
|
General and
administrative |
|
|
93,716 |
|
|
|
44,549 |
|
|
|
199,942 |
|
|
|
117,439 |
|
Total operating
expenses |
|
|
214,298 |
|
|
|
157,166 |
|
|
|
556,125 |
|
|
|
3,646,423 |
|
Income (loss) from
operations |
|
|
(168,955 |
) |
|
|
(115,083 |
) |
|
|
(406,765 |
) |
|
|
(3,473,897 |
) |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
(expense), net |
|
|
(9,125 |
) |
|
|
(95,545 |
) |
|
|
(311,629 |
) |
|
|
(347,747 |
) |
Change in the fair
value of the derivative liability |
|
|
(109,411 |
) |
|
|
– |
|
|
|
(109,411 |
) |
|
|
– |
|
Total other income
(expense) |
|
|
(118,536 |
) |
|
|
(95,545 |
) |
|
|
(421,040 |
) |
|
|
(347,747 |
) |
Provision for
income taxes (benefit) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Net loss |
|
|
(287,491 |
) |
|
|
(210,628 |
) |
|
|
(827,805 |
) |
|
|
(3,821,644 |
) |
Less: net income
(loss) attributable to non-controlling interests |
|
|
(5,596 |
) |
|
|
(5,874 |
) |
|
|
10,934 |
|
|
|
10,286 |
|
Net loss
attributable to Kisses From Italy, Inc. |
|
$ |
(281,895 |
) |
|
$ |
(204,754 |
) |
|
$ |
(838,739 |
) |
|
$ |
(3,831,930 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
(loss) per common share |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.02 |
) |
Diluted
earnings (loss) per common share |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted -weighted average number of shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
185,520,582 |
|
|
|
168,615,951 |
|
|
|
184,730,359 |
|
|
|
164,399,707 |
|
Diluted |
|
|
185,520,582 |
|
|
|
168,615,951 |
|
|
|
184,730,359 |
|
|
|
164,399,707 |
|
The accompanying notes are an integral part of the consolidated
financial statements.
Kisses
from Italy
Consolidated
Statements of Changes in Stockholders' Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock |
|
|
Preferred
Stock |
|
|
Preferred
Stock |
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
Total |
|
|
|
Series
A |
|
|
Series
B |
|
|
Series
C |
|
|
Common
Stock |
|
|
Paid-in |
|
|
Non-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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(204,754 |
) |
|
|
(204,754 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest, net income (loss) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(5,874 |
) |
|
|
– |
|
|
|
(5,874 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for services |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options for services |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in private placement |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series C Preferred Stock |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
30,000 |
|
|
|
30 |
|
|
|
– |
|
|
|
– |
|
|
|
125,070 |
|
|
|
– |
|
|
|
– |
|
|
|
125,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Series C Preferred to Common stock |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(50,000 |
) |
|
|
(50 |
) |
|
|
1,201,316 |
|
|
$ |
1,201 |
|
|
|
(1,151 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2021 |
|
|
– |
|
|
$ |
– |
|
|
|
– |
|
|
$ |
– |
|
|
|
139,610 |
|
|
$ |
140 |
|
|
|
169,683,651 |
|
|
$ |
169,683 |
|
|
$ |
12,469,105 |
|
|
$ |
(12,766 |
) |
|
$ |
(12,748,823 |
) |
|
$ |
(122,661 |
) |
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
Total |
|
|
|
Series A |
|
|
Series B |
|
|
Series C |
|
|
Common Stock |
|
|
Paid-in |
|
|
Non-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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(281,895 |
) |
|
|
(281,895 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest, net income (loss) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(5,596 |
) |
|
|
– |
|
|
|
(5,596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants in connection with debt |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
3,214 |
|
|
|
– |
|
|
|
– |
|
|
|
3,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2022 |
|
|
– |
|
|
$ |
– |
|
|
|
– |
|
|
$ |
– |
|
|
|
145,080 |
|
|
$ |
145 |
|
|
|
185,520,582 |
|
|
$ |
185,520 |
|
|
$ |
13,884,722 |
|
|
$ |
(8,731 |
) |
|
$ |
(14,697,745 |
) |
|
$ |
(636,089 |
) |
The accompanying notes are an integral part of the consolidated
financial statements.
Kisses
From Italy Inc.
Consolidated
Statements of Cash Flows
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine
Months |
|
|
Nine
Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
Cash flows from operating activities
of continuing operations: |
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(827,805 |
) |
|
$ |
(3,821,644 |
) |
Adjustments to
reconcile net loss to cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
1,580 |
|
|
|
4,070 |
|
Stock-based
compensation for services |
|
|
5,170 |
|
|
|
3,231,573 |
|
Change in the fair
market value of derivative liability |
|
|
109,411 |
|
|
|
– |
|
Issuance of
financing commitment shares |
|
|
75,584 |
|
|
|
– |
|
Issuance of
financing commitment warrants |
|
|
100,667 |
|
|
|
– |
|
Beneficial
conversion feature of Preferred C Stock |
|
|
– |
|
|
|
344,760 |
|
Changes in
operating assets and liabilities: |
|
|
|
|
|
|
|
|
Other assets |
|
|
– |
|
|
|
(109 |
) |
Prepaid
expenses |
|
|
(19,744 |
) |
|
|
– |
|
Accounts
receivable |
|
|
(4,529 |
) |
|
|
(376 |
) |
Account
receivable-other |
|
|
(2,633 |
) |
|
|
(45,939 |
) |
Inventory |
|
|
(7,539 |
) |
|
|
(1,815 |
) |
Accounts
payable |
|
|
31,286 |
|
|
|
(9,859 |
) |
Accrued
liabilities |
|
|
29,144 |
|
|
|
(17,739 |
) |
Net cash used in
operating activities |
|
|
(509,408 |
) |
|
|
(317,079 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
Purchase of fixed assets |
|
|
– |
|
|
|
(1,910 |
) |
Net cash used in
financing activities |
|
|
– |
|
|
|
(1,910 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
Proceeds from
convertible notes |
|
|
550,000 |
|
|
|
– |
|
Proceeds from
notes payable |
|
|
250,000 |
|
|
|
– |
|
Proceeds from the
sale of common stock |
|
|
– |
|
|
|
175,000 |
|
Proceeds from the sale of preferred stock |
|
|
5,000 |
|
|
|
120,000 |
|
Net cash provided
by financing activities |
|
|
805,000 |
|
|
|
295,000 |
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents |
|
|
295,592 |
|
|
|
(23,989 |
) |
Cash and cash
equivalents at beginning of period |
|
|
139,485 |
|
|
|
37,336 |
|
Cash and cash
equivalents at end of period |
|
$ |
435,077 |
|
|
$ |
13,347 |
|
|
|
|
|
|
|
|
|
|
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 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 September 30, 2022, and December 31, 2021, our trade
receivables amounted to $17,429 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 September 30, 2022
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 September 30, 2022 and December 31, 2021, respectively, the
Company had a VAT net receivable from its Bari location amounting
to $-0- and
$4,839,
respectively.
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 September 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 September 30, 2022 and December 31, 2021, the
Company cash equivalents totaled $435,076 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.
Derivative Financial
Instruments
The Company evaluates its financial instruments to determine if
such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that
are accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the
consolidated statements of operations. The classification of
derivative instruments, including whether such instruments should
be recorded as liabilities or as equity, is evaluated at the end of
each reporting period. Derivative instrument liabilities are
classified in the balance sheet as current or non-current based on
whether or not the net-cash settlement of the derivative instrument
could be required within twelve months of the balance sheet date.
As of September 30, 2022 and December 31, 2021 the balance of the
derivative liability was $109,411 and $-0-,
respectively.
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
September 30, 2022 and December 31, 2021 was $12,809 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 September 30, 2022 the Company had cash on hand of $435,076 and an accumulated deficit of
$14,697,745.
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 September 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
September 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 September 30, 2022 and December 31,
2021.
Schedule of accrued and other
liabilities |
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
|
December 31,
2021 |
|
Sales tax payable |
|
$ |
11,573 |
|
|
$ |
4,666 |
|
Accrued interest payable |
|
|
58,317 |
|
|
|
4,363 |
|
Payroll tax
liabilities |
|
|
93,759 |
|
|
|
125,476 |
|
Total
accrued liabilities |
|
$ |
163,649 |
|
|
$ |
134,505 |
|
The Company is in arrears on its payroll tax payments as of
September 30, 2022. As of September 30, 2022 and December 31, 2021
“payroll tax liabilities” was approximately $38,557 and $55,202 in interest and
penalties, respectively.
NOTE 6 – PROMISSORY NOTES
PAYABLE
As of September 30, 2022 and December 31, 2021, the balance of
notes payable was $262,171 and $-0-,
respectively. The September 30, 2022 balance is comprised of two
unsecured 8%
notes payable amounting to $12,171 that mature in September 2023,
and an 8%, $250,000 unsecured loan that matures on
July 13, 2022.
NOTE 7 – CONVERTIBLE NOTES AND
DERIVATIVE LIABILITY
As of September 30, 2022 and December 31, 2021, the outstanding
principal balance of convertible notes was $560,000 and $10,000, respectively. The balance
of the derivative liability was $109,411 and $-0-,
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.
On July 26, 2022 the Company entered into a $70,000 convertible note agreement
with a maturity date of July 26, 2023 with Diagonal Lending.
Under the terms of the note agreement Diagonal had the right to
convert its note at a discount of 35% to the Company’s lowest
trading price in the 10 days prior to conversion.
The Company considered the current FASB guidance of “Contracts in
Entity’s Own Stock” which indicates that any adjustment to the
fixed amount (either conversion price or number of shares) of the
instrument regardless of the probability of whether or not within
the issuers’ control means the instrument is not indexed to the
issuer’s own stock. Accordingly, the Company determined that the
conversion prices of the Notes were not a fixed amount because they
were either subject to an adjustment based on the occurrence of
future offerings or events or the conversion price was variable. As
a result, the Company determined that the conversion features of
the Notes were not considered indexed to the Company’s own stock
and characterized the fair value of the conversion features as
derivative liabilities upon issuance.
The fair value of the
Company’s derivative liability of $109,411 as of September 30,
2022 was estimated using the Black-Scholes-Merton Option Pricing
model with a volatility of $188.1%, exercise price of $0.0101, using a one-year T-bill rate
of $4.05%.
During the three months ended
September 30, 2022, the Company granted an underwriter 162,000 warrants
exercisable for five 5
years at an exercise price of $0.11, and
56,250 warrants exercisable for five
5 years at $0.12
per share. Using the Black Scholes model, the Company recording a
financing expense of $3,214 for these
warrants.
As a result of the above transactions, the Company has recorded
$176,251 in total financing fees in
2022 on these warrants issued to the noteholders and the
underwriter.
NOTE 8 – STOCKHOLDERS
EQUITY
Common
Stock
The Company has authorized 300,000,000 shares
of common stock. On September 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 nine months ended September 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 September 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 September 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 September 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. |
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|
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|
· |
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. |
|
|
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· |
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 nine-year lease
which ends on May 5, 2024 and has an optional automatic renewal
provision for nine years. The Company is in the process of
negotiating new terms for the lease. Both parties
have agreed no rent payments will be submitted, until new terms are
agreed upon. |
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 nine months ended September 30, 2022 and 2021, the Company
recorded rent expenses related to lease obligations of $96,675
and $99,646
respectively. Rent expenses related to lease obligations in
operating expenses in the Company’s statement of operations.
ITEM 2. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
The following discussion should be read in conjunction with our
unaudited 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 this report 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 50 stores across Ontario
and Quebec, Canada.
In April of 2021, we entered into a 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 the share increase was to
make available additional shares of common stock to meet the
current obligations of the Company to issue common stock, including
under outstanding convertible securities.
Recent Developments
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, nine
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.
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 has had a negative
on the global economy, leading to disruptions and volatility in the
global financial markets. The continuing effect of the Covid-19
continues to be uncertain and subject to change. We do not know the
full extent of the effects on the economy, the markets we serve,
our business, or our operations in the future.
The Company’s two corporate-owned restaurants in Fort Lauderdale,
Florida and the Wyndham location in Pompano Beach, Florida, have
fully re-opened without any Covid-19 restrictions. The Company’s
Bari location in Italy remains closed due to such restrictions.
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.
Results of Operations
Three months ended September 30, 2022, and September 30,
2021
Revenue and Cost of
Sales
Total revenues for the three months ended September 30, 2022 were
$101,522 compared to $85,727 during the three months ended
September 30, 2021. The increase in revenue is primarily
attributable to higher sales at the Company’s Kisses-Palm Sea Royal
location based in Pompano Beach, Florida.
Cost of goods sold during the three months ended September 30,
2022, was $56,179 compared to $43,644 during the three months ended
September 30, 2021. This increase is attributable to higher sales
and increased costs due to the high inflationary trends in the food
industry.
Operating
expenses
Operating expenses were $214,298 for the three months ended
September 30, 2022, compared to $157,166 during the three months
ended September 30, 2021. The increase in expenses in the three
month period ended September 30, 2022 period is primarily
attributable to an increase in general and administrative expense
of $49,167 and an increase in consulting and professional fees of
$20,508 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 for the three months ended September 30, 2022 was
$118,536 compared to $95,545 during the three months ended
September 30, 2021. The increase in the 2022 period is due to a
change in the fair market value of the derivative liability of
$109,411 in the 2022 period compared to $-0- in the 2021 period,
offset by a reduction in interest expense in the 2022 period of
$86,420.
Net Loss
As a result of the foregoing during the three months ended
September 30, 2022, we incurred a net loss of $287,491 and a net
loss of $5,596 attributable to non-controlling interests in the
three months ended September 30, 2022, compared to a net loss of
$210,628 and a net loss of $5,874 attributable to non-controlling
interests for the three months ended September 30, 2021. The
increase in the net loss in the 2022 period compared to the 2021
period is attributable higher operating expenses and the recording
of a derivative liability in 2022.
Nine months ended September 30, 2022, and September 30,
2021
Revenue and Cost of
Sales
Total revenues for the nine months ended September 30, 2022 were
$311,484 compared to $328,479 during the nine months ended
September 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 nine months ended September 30, 2022,
was $162,125 compared to $155,953 during the three months ended
September 30, 2021. The increase in cost of sales is attributable
to higher food costs due to the high inflationary trends in the
food industry.
Operating
expenses
Operating expenses were $556,125 for the nine months ended
September 30, 2022, compared to $3,646,423 during the nine months
ended September 30, 2021. Non-cash stock-based compensation was
$5,170 and $3,231,573, respectively, for the nine months ended
September 30, 2022 and September 30, 2021. Excluding the
stock-based compensation in the nine months ended September 30,
2022 and 2021, operating expenses were $550,955 and $414,850
respectively. The increase in expenses in the nine month period
ended September 30, 2022 period is primarily attributable to an
increase in consulting and professional fees of $47,734 and an
increase in G&A expense of $82,503 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 and the change in the
fair value of the derivative liability was $421,040 for the nine
months ended September 30, 2022 compared to $347,747 during the
nine months ended September 30, 2021. The increase in the 2022
period is due to a derivative liability of $109,411 in 2022
compared to $-0- in the 2021 period, partially offset by a decline
in interest expense of $36,118.
Net Loss
As a result of the foregoing during the nine months ended September
30, 2022, we incurred a net loss of $827,805 and a net gain of
$10,934 attributable to non-controlling interests in 2022, compared
to a net loss of $3,821,644 and a net profit of $10,286
attributable to non-controlling interests for the nine months ended
September 30, 2021. The decrease in the net loss during the nine
months ended September 30, 2022 is primarily attributable to
$3,231,573 in stock based compensation in the nine months ended
September 30, 2021, compared to $5,170 in the nine months ended
September 30, 2022.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $435,076 as of
September 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 $509,408 during the nine
months ended September 30, 2022, compared to net cash used of
$317,079 during the nine months ended September 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 $232,564 net of non-cash stock based
compensation in the 2022 period.
Net cash provided by financing activities was $805,000 for the nine
months ended September 30, 2022, compared to $295,000 during the
nine months ended September 30, 2021. The increase in net cash
provided by financing activities is primarily attributable to
proceeds of $550,000 from the sale of convertible notes, and
$250,000 of proceeds from a note payable in the 2022 period,
compared to the sales of common stock and preferred stock in
private offering for proceeds of $295,000 in the nine months ended
September 30, 2021.
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.
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. Our significant accounting policies are more fully
discussed in Note 2 to our unaudited financial statements contained
herein.
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.
ITEM 3. |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company is a smaller reporting company and is not required to
provide this information.
ITEM 4. |
CONTROLS
AND PROCEDURES |
Disclosure Controls and
Procedures – Our management, with the participation
of our principal executive officer and principal financial officer,
has evaluated the effectiveness of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) as of the end of the period covered by this
Report.
These controls are designed to ensure that information required to
be disclosed in the reports we file or submit pursuant to the
Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the periods specified in the rules and forms of
the Securities and Exchange Commission, and that such information
is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, to
allow timely decisions regarding required disclosure.
Based on this evaluation, our principal executive officer and
principal financial officer have concluded that our disclosure
controls and procedures were effective as of September 30,
2022.
Inherent
Limitations – Our management, including our
principal executive officer and principal financial officer, does
not expect that our disclosure controls and procedures will prevent
all errors and all fraud. A control system, no matter how
well-conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are
met. The design of any system of controls is based in part upon
certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Further,
the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of
fraud, if any, within our company have been detected. These
inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdown can occur because
of simple error or mistake. In particular, many of our current
processes rely upon manual reviews and processes to ensure that
neither human error nor system weakness has resulted in erroneous
reporting of financial data.
Changes in Internal
Control over Financial Reporting –. During the
period covered by this report, there were no changes in our
internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II – OTHER
INFORMATION
ITEM 1. |
LEGAL
PROCEEDINGS |
There are no pending legal proceedings to which the Company is a
party or in which any director, officer or affiliate of the
Company, any owner of record or beneficially of more than 5% of any
class of voting securities of the Company, or security holder is a
party adverse to the Company or has a material interest adverse to
the Company. The Company's property is not the subject of any
pending legal proceedings.
We
are a smaller reporting company and are not required to provide
this information.
ITEM 2. |
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
There were no sales of equity securities during the period covered
by this Report that were not registered under the Securities Act
and were not previously reported in a Current Report on Form 8-K
filed by the Company.
ITEM 3. |
DEFAULTS
UPON SENIOR SECURITIES |
None.
ITEM 4. |
MINE
SAFETY DISCLOSURES |
Not Applicable.
ITEM 5. |
OTHER
INFORMATION |
None.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
KISSES
FROM ITALY INC. |
Date: November 8, 2022
|
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By: |
/s/ Michele Di
Turi |
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Michele Di Turi
Co-Chief Executive Officer and President
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(Principal
Executive Officer) |
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|
Date:
November 8, 2022 |
|
|
|
By: |
/s/ Claudio
Ferri |
|
|
Claudio Ferri
Co-Chief Executive Officer and Chief Investment Officer
(Principal Financial Officer and
|
|
|
Principal
Accounting Officer) |
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