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".
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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.
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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.
20
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.
21
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.
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