Kisses From Italy Inc. - Quarter Report: 2020 September (Form 10-Q)
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, 2020
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 13, 2020, there were 151,902,335 shares of the registrant's common stock outstanding.
| Page No. | ||||||
| PART I | ||||||
| FINANCIAL INFORMATION | ||||||
| Item 1. | Financial Statements | 4 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 23 | ||||
| Item 4. | Controls and Procedures | 23 | ||||
| PART II | ||||||
| OTHER INFORMATION | ||||||
| Item 1. | Legal Proceedings | 25 | ||||
| Item 1A. | Risk Factors | 25 | ||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 25 | ||||
| Item 3. | Defaults Upon Senior Securities | 25 | ||||
| Item 4. | Mine Safety Disclosures | 25 | ||||
| Item 5. | Other Information | 25 | ||||
| Item 6. | Exhibits | 26 | ||||
| Signatures | 27 | |||||
| 2 |
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon our current assumptions, expectations, and beliefs concerning future developments and their potential effect on our business. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology, although the absence of these words does not necessarily mean that a statement is not forward-looking. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any 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 a portion of 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 |
| · | the impact of the Covid-19 pandemic on our operations. |
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.
| 3 |
PART I – FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
Kisses From Italy Inc.
(Unaudited) Consolidated Balance Sheets
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 99,838 | $ | 26,841 | ||||
| Other receivable | 4,642 | 4,442 | ||||||
| Inventory | 2,076 | 1,987 | ||||||
| Total current assets | 106,556 | 33,270 | ||||||
| Property and equipment, net | 20,302 | 59,114 | ||||||
| Other Assets | 2,635 | 2,664 | ||||||
| Total assets | $ | 129,493 | $ | 95,048 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 46,630 | $ | 65,486 | ||||
| Accrued liabilities | 138,770 | 143,276 | ||||||
| Loans payable | – | 6,000 | ||||||
| Total current liabilities | 185,400 | 214,762 | ||||||
| Notes payable | 12,171 | |||||||
| Convertible Notes | 10,000 | 10,000 | ||||||
| Total liabilities | 207,571 | 224,762 | ||||||
| Commitments and contingencies | – | – | ||||||
| Stockholders' Equity: | ||||||||
| Preferred stock, Series A $0.001 par value. 1,500,000 shares authorized; zero shares issued and outstanding | – | – | ||||||
| Preferred stock, Series B $0.001 par value. 5,000,000 shares authorized; zero shares issued and outstanding | – | – | ||||||
| Preferred stock, Series C, $0.001 par value 1,000,000 shares authorized; 59,610 shares and 50,000 shares issued and outstanding as of September 30, 2020 and December 31 2019, respectively | 60 | 50 | ||||||
| Common stock, $0.001 par value, 200,000,000 shares authorized; 152,112,335 and 126,550,335 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | 152,112 | 126,550 | ||||||
| Additional paid-in capital | 8,335,553 | 4,945,109 | ||||||
| Retained earnings deficit | (8,565,803 | ) | (5,207,491 | ) | ||||
| Total Kisses From Italy Inc. Stockholders' Equity (Deficit) | (78,078 | ) | (135,782 | ) | ||||
| Non-controlling interest | – | 6,068 | ||||||
| Total stockholders' equity | (78,078 | ) | (129,714 | ) | ||||
| Total liabilities and equity | $ | 129,493 | $ | 95,048 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
| 5 |
Kisses From Italy Inc.
(Unaudited) Consolidated Statements of Operations
| Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Food sales | $ | 44,331 | $ | 93,834 | $ | 163,413 | $ | 371,835 | ||||||||
| Franchise sales | – | 291,585 | – | |||||||||||||
| Total Revenue | 44,331 | 93,834 | 454,998 | 371,835 | ||||||||||||
| Cost of goods sold | 29,164 | 39,659 | 80,649 | 166,593 | ||||||||||||
| Gross margin | 15,167 | 54,175 | 374,349 | 205,242 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Depreciation and amortization | 12,992 | 10,983 | 38,977 | 32,241 | ||||||||||||
| Executive compensation | 4,950 | – | 17,631 | – | ||||||||||||
| Stock based compensation -related party | 720,000 | – | 720,000 | – | ||||||||||||
| Stock based compensation | – | – | 2,018,240 | – | ||||||||||||
| Payroll and other expenses | 29,576 | 63,933 | 88,126 | 202,739 | ||||||||||||
| Rent | 49,269 | 17,127 | 107,872 | 82,001 | ||||||||||||
| Consulting and professional fees | 85,648 | 56,157 | 155,392 | 87,770 | ||||||||||||
| General and administrative | 38,419 | 32,687 | 95,124 | 137,964 | ||||||||||||
| Total operating expenses | 940,854 | 180,887 | 3,241,362 | 542,715 | ||||||||||||
| Income (loss) from operations | (925,687 | ) | (126,712 | ) | (2,867,013 | ) | (337,473 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest income (expense), net | (34,943 | ) | (88,988 | ) | (497,367 | ) | (162,673 | ) | ||||||||
| Total other income (expense) | (34,943 | ) | (88,988 | ) | (497,367 | ) | (162,673 | ) | ||||||||
| Income (loss) before income taxes | (960,630 | ) | (215,700 | ) | (3,364,380 | ) | (500,146 | ) | ||||||||
| Provision for income taxes (benefit) | – | – | – | – | ||||||||||||
| Net loss | (960,630 | ) | (215,700 | ) | (3,364,380 | ) | (500,146 | ) | ||||||||
| Less: net gain(loss) attributable to non-controlling interests | (6,365 | ) | (3,168 | ) | (6,068 | ) | (12,742 | ) | ||||||||
| Net loss attributable to Kisses From Italy Inc. | $ | (954,265 | ) | $ | (212,532 | ) | $ | (3,358,312 | ) | $ | (487,404 | ) | ||||
| Basic and diluted earnings (loss) per common share | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.01 | ) | ||||
| Weighted-average number of common shares outstanding: | ||||||||||||||||
| Basic and diluted | 150,776,792 | 81,892,064 | 135,992,240 | 81,817,878 | ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| 6 |
Kisses from Italy Inc.
(Unaudited) Consolidated Statements of Changes in Stockholders' Equity
September 30, 2020 and September 30, 2019
| Preferred Stock | Preferred Stock | Preferred Stock | ||||||||||||||||||||||
| Series A | Series B | Series C | ||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||
| December 31, 2018 | – | $ | – | – | $ | – | – | $ | – | |||||||||||||||
| Net income (loss) | – | – | – | – | – | – | ||||||||||||||||||
| Non-controlling interest, net income (loss) | – | – | – | – | – | – | ||||||||||||||||||
| Beneficial conversion feature of convertible notes | – | – | – | – | – | – | ||||||||||||||||||
| Balance, March 31, 2019 | – | $ | – | – | $ | – | – | $ | – | |||||||||||||||
| Net loss | – | – | – | – | – | – | ||||||||||||||||||
| Beneficial conversion feature of convertible notes | – | – | – | – | – | – | ||||||||||||||||||
| Balance, June 30, 2019 | – | $ | – | – | $ | – | – | $ | – | |||||||||||||||
| Net income (loss) | – | – | – | – | – | – | ||||||||||||||||||
| Retirement of convertible dent and accrued interest with common stock | – | – | – | – | – | – | ||||||||||||||||||
| Balance, September 30, 2019 | – | $ | – | – | $ | – | – | $ | – | |||||||||||||||
| Balance, December 31, 2019 | – | $ | – | – | $ | – | 50,000 | $ | 50 | |||||||||||||||
| Net income (loss) | ||||||||||||||||||||||||
| Non-controlling interest, net income (loss) | – | – | – | – | – | – | ||||||||||||||||||
| Issuance of Series C Preferred stock | – | – | – | – | 66,000 | 66 | ||||||||||||||||||
| Beneficial conversion feature of Series C Preferred stock | – | – | – | – | – | – | ||||||||||||||||||
| Stock issued for services | – | – | – | – | – | – | ||||||||||||||||||
| Balance, March 31, 2020 | – | $ | – | – | $ | – | 116,000 | $ | 116 | |||||||||||||||
| Net income (loss) | – | – | – | – | – | – | ||||||||||||||||||
| Non-controlling interest, net income (loss) | – | – | – | – | – | – | ||||||||||||||||||
| Beneficial conversion feature of Series C Preferred stock | – | – | – | – | – | – | ||||||||||||||||||
| Issuance of Series C Preferred stock | – | – | – | – | 32,600 | 33 | ||||||||||||||||||
| Conversion of Series C Preferred stock to common stock | – | – | – | – | (118,990 | ) | (119 | ) | ||||||||||||||||
| Stock issued for services | – | – | – | – | – | – | ||||||||||||||||||
| Balance, June 30, 2020 | – | $ | – | – | $ | – | 29,610 | $ | 30 | |||||||||||||||
| Net income (loss) | – | – | – | – | – | – | ||||||||||||||||||
| Non-controlling interest, net income (loss) | – | – | – | – | – | – | ||||||||||||||||||
| Beneficial conversion feature of Series C Preferred stock | – | – | – | – | – | – | ||||||||||||||||||
| Issuance of Series C Preferred stock | – | – | – | – | 37,000 | 37 | ||||||||||||||||||
| Conversion of Series C Preferred stock to common stock | – | – | – | – | (7,000 | ) | (7 | ) | ||||||||||||||||
| Beneficial conversion feature of Series C Preferred stock | – | – | – | – | – | – | ||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||||||
| Balance, September 30, 2020 | – | $ | – | – | $ | – | 59,610 | $ | 60 | |||||||||||||||
(Continued)
| 7 |
Kisses From Italy Inc.
(Unaudited) Consolidated Statements of Changes in Stockholders' Equity
September 30, 2020 and September 30, 2019
(Continued)
| Additional | Non- | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | controlling | Retained | Stockholders' | ||||||||||||||||||||
| Shares | Value | Capital | Interest | Earnings | Equity | |||||||||||||||||||
| December 31, 2018 | 81,780,170 | $ | 81,780 | $ | 1,638,253 | $ | 27,160 | $ | (2,124,631 | ) | $ | (377,438 | ) | |||||||||||
| Net income (loss) | – | – | – | – | (135,962 | ) | (135,962 | ) | ||||||||||||||||
| Non-controlling interest, net income (loss) | – | – | – | (6,197 | ) | – | (6,197 | ) | ||||||||||||||||
| Beneficial conversion feature of convertible notes | – | – | 33,633 | – | – | 33,633 | ||||||||||||||||||
| Balance, March 31, 2019 | 81,780,170 | $ | 81,780 | $ | 1,671,886 | $ | 20,963 | $ | (2,260,593 | ) | $ | (485,964 | ) | |||||||||||
| Net loss | – | – | – | (3,377 | ) | $ | (138,909 | ) | (142,286 | ) | ||||||||||||||
| Beneficial conversion feature of convertible notes | – | – | 20,913 | – | – | 20,913 | ||||||||||||||||||
| Balance, June 30, 2019 | 81,780,170 | $ | 81,780 | $ | 1,692,799 | $ | 17,586 | $ | (2,399,502 | ) | $ | (607,338 | ) | |||||||||||
| Net income (loss) | – | – | – | (3,168 | ) | (212,532 | ) | (215,700 | ) | |||||||||||||||
| Retirement of convertible dent and accrued interest with common stock | 10,294,285 | 10,294 | 750,816 | – | – | 761,110 | ||||||||||||||||||
| Balance, September 30, 2019 | 92,074,455 | $ | 92,074 | $ | 2,443,615 | $ | 14,418 | $ | (2,612,034 | ) | $ | (61,928 | ) | |||||||||||
| Balance, December 31, 2019 | 126,550,535 | $ | 126,550.00 | $ | 4,945,109 | $ | 6,068 | $ | (5,207,491 | ) | $ | (129,714 | ) | |||||||||||
| Net income (loss) | ||||||||||||||||||||||||
| Non-controlling interest, net income (loss) | – | – | – | 2,004 | – | 2,004 | ||||||||||||||||||
| Issuance of Series C Preferred stock | – | – | 66,424 | – | – | 66,490 | ||||||||||||||||||
| Beneficial conversion feature of Series C Preferred stock | – | – | 351,920 | – | – | 351,920 | ||||||||||||||||||
| Stock issued for services | 541,800 | 542 | 35,759 | – | – | 36,301 | ||||||||||||||||||
| Balance, March 31, 2020 | 127,092,335 | $ | 127,092 | $ | 5,399,212 | $ | 8,072 | $ | (5,707,396 | ) | $ | (172,905 | ) | |||||||||||
| Net income (loss) | – | – | – | – | (1,904,142 | ) | (1,905,849 | ) | ||||||||||||||||
| Non-controlling interest, net income (loss) | – | – | – | (1,707 | ) | – | (1,707 | ) | ||||||||||||||||
| Beneficial conversion feature of Series C Preferred stock | – | – | 106,300 | – | – | 106,300 | ||||||||||||||||||
| Issuance of Series C Preferred stock | – | – | 32,567 | – | – | 32,600 | ||||||||||||||||||
| Conversion of Series C Preferred stock to common stock | 2,480,000 | 2,480 | (2,361 | ) | – | – | – | |||||||||||||||||
| Stock issued for services | 14,630,000 | 14,630 | 1,967,370 | – | – | 1,982,000 | ||||||||||||||||||
| Balance, June 30, 2020 | 144,202,335 | $ | 144,202 | $ | 7,503,088 | $ | 6,365 | $ | (7,611,538 | ) | $ | 42,147 | ||||||||||||
| Net income (loss) | – | – | – | – | (954,265 | ) | (954,265 | ) | ||||||||||||||||
| Non-controlling interest, net income (loss) | – | – | – | (6,365 | ) | – | (6,365 | ) | ||||||||||||||||
| Beneficial conversion feature of Series C Preferred stock | – | – | 33,425 | – | – | 33,425 | ||||||||||||||||||
| Issuance of Series C Preferred stock | – | 36,740 | – | – | 36,777 | |||||||||||||||||||
| Conversion of Series C Preferred stock to common stock | 210,000 | 210 | – | – | – | 203 | ||||||||||||||||||
| Beneficial conversion feature of Series C Preferred stock | – | – | – | – | – | – | ||||||||||||||||||
| Stock issued for services | 7,700,000 | 7,700 | 762,300 | 770,000 | ||||||||||||||||||||
| Balance, September 30, 2020 | 152,112,335 | $ | 152,112 | $ | 8,335,553 | $ | (0 | ) | $ | (8,565,803 | ) | $ | (78,078 | ) | ||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| 8 |
Kisses From Italy Inc.
(Unaudited) Consolidated Statements of Cash Flows
| Nine Months | Nine Months | |||||||
| Ended | Ended | |||||||
| September 30, | September 30, | |||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities of continuing operations: | ||||||||
| Net income (loss) | $ | (3,358,312 | ) | $ | (487,404 | ) | ||
| Net income loss attributable to non-controlling interest | (6,068 | ) | (12,742 | ) | ||||
| Common stock issued for services | ||||||||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Depreciation and amortization | 38,977 | 32,241 | ||||||
| Amortization of debt discount | 491,645 | 129,386 | ||||||
| Stock-based compensation for services | 2,788,301 | – | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Other assets | 29 | – | ||||||
| Other receivable | (200 | ) | – | |||||
| Prepaid expenses | – | – | ||||||
| Inventory | (89 | ) | – | |||||
| Accounts payable | (18,856 | ) | 29,127 | |||||
| Accrued liabilities | (4,506 | ) | 3,199 | |||||
| Net cash provided by (used in) operating activities | (69,079 | ) | (306,193 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of fixed assets | – | (6,757 | ) | |||||
| Net cash provided by (used in) financing activities | – | (6,757 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds/payments from short term borrowings-net | (6,000 | ) | (1,110 | ) | ||||
| Proceeds from notes payable, net | 12,171 | – | ||||||
| Proceeds from the sale of convertible notes | – | 388,549 | ||||||
| Proceeds from the sale of preferred stock | 136,070 | – | ||||||
| Net cash provided by (used in) financing activities | 142,241 | 387,439 | ||||||
| Impact of foreign exchange | (165 | ) | – | |||||
| Net increase (decrease) in cash and cash equivalents | 73,162 | 74,489 | ||||||
| Cash and cash equivalents at beginning of period | 26,841 | 22,877 | ||||||
| Cash and cash equivalents at end of period | $ | 99,838 | $ | 97,366 | ||||
| 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.
| 9 |
Kisses From Italy Inc.
Notes to Unaudited Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2020, and 2019
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
As of September 30, 2020, and December 31, 2019, the Company had $99,838 and $26,841 in cash on hand, respectively, and for the nine-month periods ended September 30, 2020, and 2019, the Company generated revenues of $454,998 and $371,835 and had losses of $3,358,312 and $487,404, respectively. As of September 30, 2020, the Company had a working capital deficiency of $78,843 and a stockholders deficiency of $78,078. The Company received a non-refundable fee of $291,585 USD (400,000 CAD) in connection with a multi-unit development agreement entered into in June 2020. Management believes that with the receipt of these funds, the Company can continue operations for the next 12 months.
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 is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Most US states and many countries have issued policies intended to stop or slow the further spread of the disease.
Covid-19 and the U.S’s response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance as to the effect the Covid-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our operations. If our restaurants are required to be closed or only allowed to operate at less than full capacity, we will continue to incur certain fixed expenses such as rent payments currently of approximately $10,000 per month.
All of the Company’s four corporate-owned restaurants which are located in Fort Lauderdale, Florida, Bari, Italy, and within the Wyndham Palm Aire and the Wyndham Sea Gardens Hotels and Resorts in Pompano Beach, Florida, have all fully re-opened subject to recommended social distancing guidelines. The Company’s hotel locations were closed longer than other sites due to CDC recommendations. The Company’s flagship Fort Lauderdale restaurant re-opened on May 1, 2020, its Bari, Italy location re-opened on June 20, 2020, The Wyndham Palm Aire location re-opened on July 11, 2020 and the Wyndham Sea Gardens location re-opened on July 22, 2020.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 December 31, 2019, and 2018, filed as part of the Company’s Annual Report on Form 10-K and Form 10-K/A filed with the SEC on May 18, 2020, and May 29, 2020, respectively.
| 10 |
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Company have been prepared in accordance with 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, and Kisses from Italy Bari, Italy and its 70% owned subsidiary, Kisses-Palm Sea Royal LLC.
All intercompany accounts and transactions are eliminated in consolidation.
Going Concern
The accompanying unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the twelve months following the date of these financial statements. On a consolidated basis, the Company has incurred significant operating losses since inception.
Because the Company does not expect that existing operational cash flow will be sufficient to fund presently anticipated operations, this raises substantial doubt about the Company’s ability to continue as a going concern. Therefore, the Company will need to raise additional funds and is currently exploring alternative sources of financing. Historically, the Company has raised capital through private placements of equity and convertible debt as interim measures to finance working capital needs and may continue its efforts to raise additional capital through the sale of common stock or other securities and obtain short-term loans. The Company will be required to continue to do so until its consolidated operations become profitable. Also, the Company has, in the past, paid for consulting services with its common stock to maximize working capital, and intends to continue this practice where feasible.
Use of Estimates
The preparation of financial statements in conformity with US 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 impairment of long-lived assets, 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.
Revenue Recognition
Sales, as presented in the Company’s consolidated statement of earnings, represents food and beverage product sold and is presented net of discounts, coupons, employee meals, and complimentary meals. Revenue from restaurant sales is recognized when food and beverage products are sold.
On January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). For the nine months ended September 30, 2020, and September 30, 2019, the consolidated financial statements were not materially impacted as a result of the application of Topic 606.
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Inventory
The inventory is comprised of alcoholic beverages at the Company’s new Bari location in Italy which opened in 2019. Our US locations do not have liquor licenses. The balance of inventory at September 30, 2020 and 2018 was $2,076 and $1,987, respectively.
Value Added Tax
The Value Added Tax (“VAT”) is a broadly-based consumption tax which is assessed to the value that is added to goods and services. 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 ranges between 4% and 10% for food products and alcohol. As of September 30, 2020 and September 30, 2019, the Company had a VAT net receivable of $4,642 and $4,442, respectively, which was classified as “Other Receivables” on its balance sheet.
Non-controlling interest
Non-controlling interest represents third-party ownership in the net assets of one of the Company’s consolidated subsidiaries. For financial reporting purposes, the assets and liabilities of our majority-owned subsidiary is 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, 2020, and December 31, 2019, the Company’s cash equivalents totaled $99,838 and $26,841, respectively.
Property and equipment
Property and equipment are stated at cost or fair value. 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 the results of operations. The estimated useful lives of property and equipment are as follows:
| Computers, software, and office equipment | 1 – 6 years | |
| Machinery and equipment | 3 – 5 years | |
| Leasehold improvements | Lesser of the lease term or estimated useful life |
Income taxes
The Company accounts for income taxes under 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.
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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 every quarter 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.
Stock-based Compensation
The Company accounts for stock-based compensation using the fair value method following the guidance outlined 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. During the nine months ended September 30, 2020, and September 30, 2019, stock-based compensation was $2,738,420 and $-0-, respectively.
Leases
The Company follows the guidance in ASC 840 “Leases,” which requires the Company to evaluate the lease agreements the Company enters into to determine whether they represent operating or capital leases at the inception of the lease.
Net Loss per Share
Net loss per common share is computed by dividing net loss by the weighted average common shares 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 common shares and dilutive common share equivalents outstanding.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the new lease standard. The FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases in July 2018. Also in 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides an optional transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. The amendments have the same effective date and transition requirements as the new lease standard.
In November 2019 the FASB issued ASU 2019-10 which superseded ASU 2019-02 and deferred the effective date for the implementation of lease standards per Topic 842. As an emerging growth company, the Company has until the fiscal year beginning after December 15, 2020, to adopt ASC 842. While the Company continues to evaluate the impact of the new standard, the Company expects the adoption of this guidance will have not have any impact on its financial statements.
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NOTE 3 – GOING CONCERN AND LIQUIDITY
As of September 30, 2020, and December 31, 2019, the Company had $99,838 and $26,841 in cash on hand, respectively, and for the nine-month periods ended September 30, 2020, and 2019, the Company generated revenues of $454,998 and $371,835 and had losses of $3,358,312 and $487,404, respectively. As of September 30, 2020, the Company had a working capital deficiency of $78,843 and a stockholders deficiency of $78,078. During the three months ended June 30, 2020, the Company entered into a multi-unit development agreement pursuant to which, among other things, the Company granted development rights to open and operate up to 100 Kisses From Italy Italian restaurants in Canada using the Company’s proprietary recipes, formulae, techniques, trade dress, trademarks and logos (each a “Restaurant”) at locations approved by the Company. Under the terms of the Agreement The Company received a non-refundable fee of $291,585 USD (400,000 CAD) in connection with a multi-unit development agreement entered into in June 2020. Management believes that with the receipt of these funds, the Company can continue operations for the next 12 months.
The reports of the Company’s independent registered public accounting firm in the Company’s financial statements for the years ended December 31, 2019, and 2018, include an explanatory paragraph that describes substantial doubt about the Company’s ability to continue as a going concern. 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
The following table sets forth the components of the Company’s property and equipment at September 30, 2020, and December 31, 2019:
| September 30, 2020 | December 31, 2019 | |||||||||||||||||||||||
| Cost | Accumulated Depreciation | Net Book Value | Cost | Accumulated Depreciation | Net Book Value | |||||||||||||||||||
| Capital assets subject to depreciation: | ||||||||||||||||||||||||
| Furniture and equipment | $ | 65,371 | (54,798 | ) | 10,573 | $ | 64,781 | $ | (45,587 | ) | $ | 19,194 | ||||||||||||
| Leasehold improvements | 175,514 | (165,785 | ) | 9,729 | 175,916 | (135,996 | ) | 39,920 | ||||||||||||||||
| Total fixed assets | $ | 240,885 | (220,583 | ) | 20,302 | $ | 240,697 | $ | (181,583 | ) | $ | 59,114 | ||||||||||||
For the nine-month periods ended September 30, 2020, and 2019, the Company recorded depreciation and amortization of $38,977 and $32,241, respectively.
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NOTE 5 – ACCRUED AND OTHER LIABILITIES
The following table sets forth the components of the Company’s accrued liabilities at September 30, 2020, and December 31, 2019.
| September 30, 2020 | December 31, 2019 | |||||||
| Sales tax payable | $ | 1,225 | $ | 7,630 | ||||
| Accrued interest payable | 1,823 | 2,940 | ||||||
| Payroll tax liabilities | 135,722 | 132,706 | ||||||
| Total accrued liabilities | $ | 138,770 | $ | 143,276 | ||||
The Company is in arrears on its payroll tax payments as of September 30, 2020. Included in the “payroll tax liabilities” as of September 30, 2020, is approximately $42,908 in interest and penalties.
NOTE 6 – LOANS PAYABLE
On an as-needed basis, the Company secures lines of credit of approximately $10,000 to $25,000. The amount of credit available to be accessed is dependent on the amount of documented credit card receipts received by the Company’s restaurants. The due dates on these credit advances are typically between 90 and 180 days and the interest rates on these facilities are typically, approximately 32%, plus additional processing fees of approximately 5%.
As of September 30, 2020, and December 31, 2019, loan payable balances were $0 and $6,000, respectively. Currently, the Company has no lines of credit outstanding and there can be no assurances that previous lenders will extend new lines of credit to the Company.
NOTE 7 – CONVERTIBLE NOTES
As of September 30, 2020, and December 31, 2019, the outstanding principal balance of the Company’s 8% unsecured convertible notes was $10,000 and $10,000, respectively. These notes are convertible into the Company’s common stock at a conversion price of $.0667 per share.
NOTE 8 – PROMISSORY NOTES
During the three months ended June 30, 2020, the Company issued three unsecured promissory notes in the aggregate principal amount of $47,171. The notes mature in three years and have an 8% interest rate. During the three months ended September 30, 2020 one of the notes for $35,000 was paid off. As of September 30, 2020 and September 30, 2019, the outstanding principal balance of these notes were $12,171 and $-0-, respectively.
NOTE 9 – STOCKHOLDERS EQUITY
Common Stock
On September 30, 2020, and December 31, 2019, there were 152,112,335 and 126,550,335 shares of common stock issued and outstanding, respectively, par value $0.001 per share.
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In May 2018, the Company’s Board of Directors and shareholders approved an amendment to the Company’s Articles of Incorporation, increasing the number of authorized common stock to 200,000,000, par value $0.001 per share.
Common Stock Issued in Private Placements
During the nine months ended September 30, 2020, and 2019, the Company did not accept any subscription agreements to purchase its common stock.
Common Stock Issued in Exchange for Services
During the nine months ended September 30, 2020, the Company issued 22,871,000 shares of common stock for services that were valued at $2,788,301. During the nine months ended September 30, 2019, the Company did not issue any shares of its common stock for services.
Common Stock Issued Upon the Conversion of Series C Preferred to Common Stock
During the nine months ended September 30, 2020, holders of an aggregate of 125,990 shares of Series C Stock converted their shares into an aggregate of 2,690,000 shares of common stock. There were no conversions during the nine month period ended September 30, 2019.
Preferred Stock
On December 19, 2019, the Company filed a Certificate of Designation with the State of Florida designating 1,500,000 shares of the Company’s 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”), par value $0.001 per share.
Series A Stock
The Series A Stock is not convertible. Each share of Series A Stock entitles 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.
No distribution will be made to holders of shares of capital stock ranking junior to the Series A 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, 2020, and December 31, 2019.
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 purchase price of the shares. The Board may establish a minimum conversion price (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 are not be entitled to voting rights except as otherwise required by law. The holders of Series B Stock are not entitled to dividends until and unless determined by the Board.
There were no shares of Series B Stock outstanding as of September 30, 2020, and December 31, 2019.
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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 based on three times the purchase price of the shares. The Board has established a minimum price for the price paid of $0.10 per share. The holders of the Series C Stock are not be entitled to voting rights except as otherwise required by law. The holders of Series C Stock are not entitled to dividends until and unless determined by the Board.
There were 59,610 shares and 50,000 shares of Series C Stock, which were purchased at $1.00 per share, outstanding as of September 30, 2020, and December 31, 2019, respectively.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
As of September 30, 2020, and December 31, 2019, the Company had four 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 for $3,273.00 per month through the period ended July 31, 2018. Beginning on August 1, 2018, the rent increased to $5,773 per month for eight months, and then was reduced to $3,274 per month. The lease ends on December 9, 2020. The lease has an optional automatic renewal provision. |
| · | Kisses From Italy-Palm Aire based in Pompano Beach, Florida leases approximately 2,300 square feet for $3,933.00 per month. The Company has a one-year automatic renewal provision for this lease on May 1st of each year under the same terms. |
| · | Kisses From Italy – Sea Gardens based in Pompano Beach, Florida leases approximately 600 square feet for $578.06 per month. The lease ended on August 1, 2018, and was renewed on the same terms. The Company has a one-year optional automatic renewal provision for this lease. |
| · | Kisses From Italy – based in Bari, Italy, leases approximately 2,200 square feet of space for 1,400 euros per month under the terms of a six year lease which ends on May 5, 2024 and has an optional automatic renewal provision for six years. |
The Company also rents furnished office space on a month to month basis in Miami, Florida for $223 per month which serves as its principal executive offices. The Company will remain responsible for rent payments for its restaurant space even if its restaurants are required to close or are permitted to open at limited occupancy, due to the continuing Covid-19 outbreak.
NOTE 11 – SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10, Subsequent Events, the Company has analyzed its operations subsequent to September 30, 2020 to the date these consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements.
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| 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
We were incorporated in the State of Florida on March 7, 2013, with a focus on developing a fast, casual food dining chain restaurant business. We commenced operations by opening our initial corporately 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. The Hurricane also impacted travel to Florida during this time. 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 United States, except New York, Virginia, and Maryland which licenses we hope to obtain if sufficient demand exists in the future. In September 2017, we completed the purchase of two franchise locations in Florida. We currently anticipate the commencement of the building and development of these locations by mid-2021.
On October 24, 2019, we opened our first restaurant in Italy, at Strada Provinciale 70 #100, Via Vittorio Veneto 100 Ceglie del Campo, Bari, Italia which we intend to also use as a training facility for franchises in Europe.
Management recently began scouting various locations in regions of Italy and believes that the regions of Rome and Puglia may offer opportunities for additional corporate-owned and franchise expansion. However, there are no agreements in place as of the date of this Report to open any new facilities, either Company-owned or franchises, and no assurances can be provided that we will expand our operations accordingly.
In September 2019, the Company's common stock was approved for trading by FINRA and in mid-October 2019 was approved for up-listing by the OTC Markets Group to the OTCQB under the symbol “KITL”.
The Company opened its inaugural European location in Ceglie del Campo, Bari, Italy, in October 2019.
In January of 2020, the Company completed its first franchise agreement for a restaurant in the State of California. As a result of the COVID-19 pandemic, the opening of this restaurant has been delayed and is currently expected to begin operating in December 2020.
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Recent Developments
On June 18, 2020, Kisses From Italy Franchising LLC entered into a multi-unit development agreement (the “Development Agreement”) pursuant to which it granted development rights to Demasar Management Inc., a Canadian corporation (“Developer”) to open and operate up to 100 Kisses From Italy Italian restaurants in Canada. Under the Agreement, Developer is obligated to open a minimum of 20 restaurants by June 17, 2025.
In consideration of the development rights, the Development Agreement provides for a franchise fee of $4,000 Canadian dollars (“CAD”) for each restaurant. Upon execution of the Development Agreement, the Developer paid $400,000 CAD to the Company, and the Company issued Denis Senecal, a director of the Developer, 9,500,000 shares of common stock of the Company.
The Developer will have a right of first refusal to obtain the development rights to additional restaurants in Canada if it is in compliance with the Development Agreement and has opened the minimum 20 restaurants. If the Developer receives a bona fide offer from an unaffiliated third party to purchase the Developer’s rights under the Development Agreement, Kisses From Italy-Franchising LLC will have the option, exercisable for 30 days to purchase such business, If Kisses From Italy Franchising LLC does not exercise such option, the Developer may sell its rights to said third party for a $5,000 transfer fee.
The Agreement contains certain non-competition and non-solicitation provisions.
The Company and Developer will share profits for all locations developed and agreed to an allocation of franchise royalties.
On June 17, 2020, the Company entered into a five-year distribution-financing-lead generation agreement (“Advisory Agreement”) with Denis Senecal pursuant to which he will provide business development, financial advisory and franchise lead generation services to the Company in consideration for the issuance of 9,500,000 shares of the Company’s common stock. Such common stock has “piggyback” registration rights for one year from the date of issuance for one registration statement. The Advisory Agreement will automatically be renewed for an additional five-year term unless either party notifies the other within 180 days prior to the expiration of the initial term that it desires not to renew the Agreement.
Covid-19 Pandemic
On March 11, 2020, the World Health Organization declared the Covid-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Many states and countries have issued policies intended to stop or slow the further spread of the disease.
There are no comparable events that provide guidance as to the effect the Covid-19 pandemic may have, and, as a result, the full impact of the pandemic continues to evolve, is highly uncertain, and is subject to change. Management is actively monitoring the situation but given the daily evolution of the Covid-19 outbreak, the Company is not currently able to estimate the full effects on the economy, the markets we serve, our business, or on our operations and financial condition.
As a result of Covid-19, our two restaurants located in Florida in the Wyndham hotels closed on March 17, 2020 and re-opened on July 11, 2020 and July 22, 2020 for the Wyndham Palm Aire and the Wyndham Sea Gardens, respectively. Our Fort Lauderdale location closed on April 1, 2020 and re-opened on May 1, 2020. The only restrictions currently imposed on our business are recommended social distancing guidelines along with the requirements that our employees wear masks. Our restaurant in Bari, Italy closed on March 1, 2020, and re-opened on July 1, 2020 and. may be subject to future closure due to Covid-19. As a result of these closures, revenue from our restaurants were severely impacted during the three months ended September 30, 2020.
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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 in the near future.
Results of Operations
Comparison of Results of Operations for the three months ended September 30, 2020, and 2019
Revenue and Cost of Sales
During the three months ended September 30, 2020, our revenues from food sales at our restaurants were $44,331 compared to $93,834 for the three months ended September 30, 2019, representing a decrease of $49,503. We believe the decrease in revenue is attributable to the Covid-19 mandated capacity restrictions of all of our locations, as well as the general public reluctance to dine out due to the threat of contracting Covid 19.
Cost of goods sold during the three months ended September 30, 2020, was $29,164 compared to $39,659 during the three months ended September 30, 2019. This decrease in cost of sales is attributable to lower sales volumes.
Operating expenses
Operating expense increased to $941,550 during the three months ended September 30, 2020, compared to $180,887 during the three months ended September 30, 2019. The increase is primarily attributable to $720,000 in non-cash, stock-based compensation expense in the three months ended September 30, 2020, compared to no stock-based compensation in the three months ended September 30, 2019. The stock-based compensation during the three months ended September 30, 2020 was comprised primarily of $720,000 in stock-based compensation to Company officers. Excluding $720,000 in stock-based compensation to officers and $50,000 in legal fees paid for with common stock,, operating expenses in the three months ended September 30, 2020 were $170,854 compared to $180,887 in the three months ended September 30, 2019. This decrease is attributable to payroll expense reductions due to fewer personnel required at Company locations due to the impact of Covid-19 on sales levels, offset by increases in rent, legal fees and general and administrative expenses.
Other income and expense
Other expense was $34,943 during the three months ended September 30, 2020, compared to $88,988 during the three months ended September 30, 2019. The decrease in other expenses is attributable to the Company’s financing from convertible notes in the three months ended September 30, 2019 with higher beneficial conversion features, compared to lower beneficial conversion features as a result of the issuance of Series C preferred stock in the three months ended September 30, 2020. Both beneficial conversion features were charged to interest expense during the three months ended September 30, 2020 and September 30, 2019, respectively.
Net Loss
During the three months ended September 30, 2020, we incurred a net loss of $960,630 and a net loss of $6,365 attributable to non-controlling interests, compared to a net loss of $215,700 and a $3,168 net loss attributable to non-controlling interests for the three months ended September 30, 2019. The significant increase in the net loss during the three months ended September 30, 2020 is attributable to a lower gross margin of $39,008 due to reduced sales levels, an increase in operating expenses of $759,967, partially offset by a reduction in interest expense of $54,045.
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Comparison of Results of Operations for the nine months ended September 30, 2020, and 2019
Revenue and Cost of Sales
During the nine months ended September 30, 2020, our revenues from food sales at our restaurants were $163,413 compared to $371,835 for the nine months ended September 30, 2019, representing a decrease of $208,422. We believe the decrease in revenue is attributable to the Covid-19 mandated shutdowns for three months as well as capacity restrictions of all of our locations.
As discussed above in Recent Developments, we entered into a Development Agreement in which we received a fee of 400,000 CAD, or $291,585. This fee falls under the guidelines of ASC 606 which states that the entire amount of revenue can be recognized because we have no future performance obligations associated with the Agreement, and the fee is non-refundable. As a result, we recorded the entire amount as revenue during the nine months ended September 30, 2020. Franchise sales for the nine months ended September 30, 2020 were $291,585 compared to no franchise sales during the nine months ended September 30, 2019.
Cost of goods sold during the nine months ended September 30, 2020, was $80,649 compared to $166,953 during the nine months ended September 30, 2019. This decrease is attributable to lower sales volumes due to the impact of Covid-19.
Operating expenses
Operating expense increased to $3,241,362 during the nine months ended September 30, 2020, compared to $542,715 during the nine months ended September 30, 2019. The increase is primarily attributable to 2,788,301 in stock-based compensation expense in the nine months ended September 30, 2020, compared to no stock-based compensation in the nine months ended September 30, 2019. The stock-based compensation during the nine months ended September 30, 2020 was comprised primarily of $480,000 related to compensation under investor relations agreements, $1,425,000 related to the Advisory Agreement, $720,000 in stock-based compensation to executive officers and $50,000 for legal expenses. Excluding the stock-based compensation, operating expenses were $453,061 for the nine months ended September 30, 2020 compared to $542,715 for the nine months ended September 30, 2019, representing a decrease of $89,654. This decrease is primarily attributable to a reduction in payroll expenses of $114,613 due to the impact of Covid-19 on sales levels.
Other income and expense
Other expense was $497,367 during the nine months ended September 30, 2020, compared to $162,673 during the nine months ended September 30, 2019. The significant increase in other expenses is attributable to increased interest expense due to the issuance of Series C preferred stock with a beneficial conversion features of $106,300 that was charged to interest expense during the nine months ended September 30, 2020.
Net Loss
During the nine months ended September 30, 2020, we incurred a net loss of $3,364,380 and a net loss of $6,068 attributable to non-controlling interests, compared to a net loss of $500,146 and a net loss of $12,742 attributable to non-controlling interests for the nine months ended September 30, 2019. The significant increase in the net loss during the nine months ended September 30, 2020 is primarily attributable to an increase in operating expenses of $2,698,647 an increase in interest expense of $334,694, offset by an increase of $169,107 in gross profit margin.
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Liquidity and Capital Resources
On September 30, 2020, we had $99,838 in cash and cash equivalents.
Net cash used in operating activities was $69,079 during the nine months ended September 30, 2020, compared to net cash used of $306,193 during the nine months ended September 30, 2019. The decrease in net cash used in operating activities is primarily attributable to our receipt of $291,585 in franchise fees during the nine months ended September 30, 2020.
There was no cash used in investing activities during the nine months ended September 30, 2020, compared to net cash of $6,757 used in investing activities during the nine months ended September 30, 2019, in which we purchased $6,757 worth of equipment for the Bari location in Italy.
Net cash provided by financing activities was $142,241 for the nine months ended September 30, 2020, compared to $387,439 during the nine months ended September 30, 2019. The decrease in net cash provided by financing activities is primarily attributable to the sale of Series C preferred stock of $136,070 and the issuance of $12,171 in promissory notes, net of repayment in the nine months ended September 30, 2020, compared to proceeds of $388,549 from the sale of convertible notes in the nine months ended September 30, 2020.
We currently believe that due to the $400,000 CAD or approximately $291,000 USD we received in connection with the Development Agreement described above, we can continue operations for the next 12 months.
We estimate that we will need approximately $1,000,000 to fully effectuate our business development plans, including opening additional company-owned restaurants and continuing to develop and enhance the marketing of our franchise concept. Subject to the continued impact of Covid-19, we currently believe that we can open at least two additional restaurants for approximately $300,000. We may use some of the cash we received from the Development Agreement to open additional locations or for franchise marketing. We believe that continuing to open company-owned restaurants will assist us to market other locations.
There can be no assurances that additional financing, either through equity or debt, will be available on a timely basis, on favorable terms or at all. While we have had discussions with potential investors and investment bankers, we have no agreement with any third party to provide additional financing. Our inability to obtain additional financing may have a significant negative impact on our continued development and results of our operations.
Covid-19 has also caused significant disruptions to the global financial markets, which impacts our ability to raise additional capital. If the Company is unable to obtain adequate capital due to the continued spread of Covid-19, the Company may be required to reduce the scope, delay, or eliminate some or all of its planned operations.
Going Concern
Our consolidated financial statements were prepared assuming that we will continue as a going concern and do not include adjustments for the recoverability and the realization of assets and the satisfaction of liabilities in the normal course of business for the twelve months following the date of these financial statements that may be necessary should we be unable to continue in operation. Our report from our independent registered public accounting firm for the fiscal year ended December 31, 2019, includes an explanatory paragraph stating that the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. 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, among others, raise substantial doubt about the Company's ability to continue as a going concern, 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.
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Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Estimates
Management’s discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. See notes to our financial statements, Note 2 – Summary Of Significant Accounting Policies.
Recent Accounting Pronouncements
There were various accounting standards and interpretations issued recently, none of which are expected to have a material effect on the Company's operations, financial position, or cash flows.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.
| ITEM 4. | CONTROLS AND PROCEDURES. |
Disclosure Controls and Procedures – Our management, with the participation of our Chief Executive Officer and Chief 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 Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2020.
We believe that our financial statements presented in this quarterly report on Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows for all periods presented herein.
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Inherent Limitations – Our management, including our Chief Executive Officer and Chief 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.
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| 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.
| ITEM 1A. | RISK FACTORS |
We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Except as set forth below, 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 by the Company.
On July 13, 2020, the Company issued an aggregate of 7,200,000 shares to executive officers of the Company as compensation for their services.
On July 22, 2020, the Company issued 500,000 shares of its common stock as payment for legal fees.
On August 21, 2020, the Company sold 14,563 shares of its Series C preferred stock to an accredited investor in a private offering for $14,563,
On September 25, 2020, the Company sold 15,327 shares of its Series C preferred stock to an accredited investor in a private offering for $15,327.
On September 25, 2020, the Company sold 7,000 shares of its Series C preferred stock to an accredited investor in a private offering for $7,000.
The above issuances did not involve any underwriters, underwriting discounts or commissions, or any public offering and we believe is exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof and/or Regulation D promulgated thereunder.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not Applicable.
| ITEM 5. | OTHER INFORMATION |
None.
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| ITEM 6. | EXHIBITS |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Schema Document | |
| 101.CAL | XBRL Calculation Linkbase Document | |
| 101.DEF | XBRL Definition Linkbase Document | |
| 101.LAB | XBRL Label Linkbase Document | |
| 101.PRE | XBRL Presentation Linkbase Document |
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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 on November 13, 2020.
|
KISSES FROM ITALY INC. | ||
| By: | /s/ Michele Di Turi | |
|
Michele Di Turi Co-Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
| 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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