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
The Company's main focus is to develop a fast, casual food dining chain
restaurant business of corporate-owned restaurants and expanding through a
nationwide/international franchise and territory sales program. The Company
commenced operations in May 2015 by opening its first location in Fort
Lauderdale, Florida. Three additional restaurants, which are located in various
Wyndham Hotel properties in the Pompano Beach, Florida area, were then opened
within the following ten months. All locations, which are in leased facilities,
were fully operational by April 2016. In December 2017, the Company vacated one
of its restaurants due to a hurricane and did not re-open. During the three
months ended June 30, 2021, the Company consolidated its two Wyndham stores into
one location to become more efficient. The Company opened its inaugural European
location in Ceglie del Campo, Bari, Italy, in October 2019. Such location will
serve as the distribution center for products for European locations. The Bari
location was closed in the fourth quarter of 2020 and currently remains closed
as of the date of this Report due to Covid-19.
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.
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 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.
15
Recent Developments
Development Agreement
On June 18, 2020, Kisses From Italy Franchising LLC, the Company's wholly-owned
subsidiary, 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 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.
Advisory Agreement
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.
Fransmart Consulting Agreement
On April 22, 2021, Kisses from Italy-Franchising, LLC ("Franchisor") entered
into a consulting agreement (the "Consulting Agreement") with Fransmart, LLC, a
Delaware limited liability company ("Fransmart"), effective as of April 16,
2021, pursuant to which Fransmart will serve as Franchisor's exclusive global
franchise developer and representative for a period of ten years.
In consideration for its services, Fransmart is entitled to certain fees,
royalties, and commissions contingent upon Fransmart achieving certain agreed
upon milestones. In addition, Fransmart was granted a stock option to purchase
16,000,000 shares of the Company's common stock, exercisable by Fransmart on a
cashless basis.
16
Opening of New Franchise Location
On May 28, 2021 the Company opened its first franchise in Chino, California. Due
to the onset of Covid-19 the Company has waived any franchise fees so that the
franchisee could well establish the operations at that location.
Covid-19 Pandemic
On March 11, 2020, the World Health Organization declared the Covid-19 outbreak
to be a global pandemic. In addition to the devastating effects on human life,
the pandemic is having a negative ripple effect on the global economy, leading
to disruptions and volatility in the global financial markets. Most US states
and many countries have issued policies intended to stop or slow the further
spread of the disease.
Covid-19 and the U.S's response to the pandemic are significantly affecting the
economy. There are no comparable events that provide guidance as to the effect
the Covid-19 pandemic may have, and, as a result, the ultimate effect of the
pandemic is highly uncertain and subject to change. We do not yet know the full
extent of the effects on the economy, the markets we serve, our business, or our
operations.
The Company's two corporate-owned restaurants in Fort Lauderdale, Florida and
the Wyndham location in Pompano Beach, Florida, have fully re-opened subject to
recommended social distancing guidelines. The Company's Bari location in Italy
remains closed.
Except for our Bari location, our US locations are now open and are operating at
near pre-Covid revenue levels.
Results of Operations
Comparison of Results of Operations for the three months ended September 30,
2021 and 2020
Revenue and Cost of Sales
Total revenues for the three months ended September 30, 2021 were $85,727
compared to $44,331 during the three months ended September 30, 2020. Revenues
for the three months ended September 30, 2021 was comprised of $82,371 in food
sales and $3,356 in sales of branded products to retail locations in Canada,
which the Company began selling in the fourth quarter of 2020, compared to food
sales of $44,331 during the three months ended September 30, 2020. The
significant increase in food sales in the three months ended September 30, 2021
compared to the three months ended September 30, 2020 is due to the mitigation
of some of the impact of Covid-19 on the restaurant industry.
Cost of goods sold during the three months ended September 30, 2021 was $43,644
compared to $29,164 during the three months ended September 30, 2020. This
increase is attributable to higher sales volumes in the 2021 period.
Operating expenses
Operating expenses were $157,166 for the three months ended September 30, 2021,
compared to $940,854 during the three months ended September 30, 2020. Non-cash
stock-based compensation was $-0- and $770,000, for the periods ended September
30, 2021 and September 30, 2020, respectively. Excluding the stock-based
compensation in both periods, operating expenses were $157,166 for the three
months ended September 30, 2021 compared to $170,854 for the three months ended
September 30, 2020. The reduction in operating expenses for the three months
ended September 30, 2021 is attributable to a reduction of consulting fees of
$12,370, a reduction of depreciation expense of $12,465, and a reduction of
executive compensation of $4,950; offset by an increase in payroll of $13,017
and an increase in general and administrative expenses of $6,130.
17
Other income and expense
Other expenses comprising interest expense on debt and interest expense related
to the beneficial conversion feature of Preferred C stock was $95,545 for the
three months ended September 30, 2021 compared to $34,943 during the three
months ended September 30, 2020. The increase in other expenses is attributable
to the recording of approximately $95,100 in the beneficial conversion features
of Preferred C Stock.
Net Loss/Net Profit
As a result of the forgoing, the net loss attributable to Kisses from Italy,
Inc. for the three month period ended September 30, 2021 was $204,754 for the
period ended September 30, 2021 compared to a loss of $954,265 for same period
ended September 30, 2020.
Comparison of Results of Operations for the nine months ended September 30, 2021
and 2020
Revenue and Cost of Sales
Total revenues for the nine months ended September 30, 2021 were $328,479
compared to $454,998 during the nine months ended September 30, 2020. Revenues
for the nine months ended September 30, 2021 comprises $302,176 in food sales
and $26,303 in sales of branded products to retail locations in Canada, which
the Company began selling in the fourth quarter of 2020, compared to food sales
of $163,413 and franchise sales of $291,585 during the nine months ended
September 30, 2020. The decrease in total revenue in 2021 compared to 2020 is
due to $291,585 in franchise sales in the 2020 period compared to zero in 2021,
offset to a lesser extent by the increase in food sales in the nine months ended
September 30, 2021 due to the mitigation of the impact of Covid-19.
Cost of goods sold during the nine months ended September 30, 2021 was $155,953
compared to $80,649 during the nine months ended September 30, 2020. This
increase is attributable to higher food sales volumes in 2021 and franchise
sales in 2020 with no cost of goods sold associated with those sales.
Operating expenses
Operating expenses were $3,646,423 for the nine months ended September 30, 2021,
compared to $3,241,362 during the nine months ended September 30, 2020. Non-cash
stock-based compensation was $3,231,573 and $2,788,301 for the nine month
periods ended September 30, 2021 and September 30, 2020, respectively. Excluding
the stock-based compensation in both periods, operating expenses were $414,850
for the nine months ended September 30, 2021 compared to $453,122 for the nine
months ended September 30, 2020. This decrease is primarily attributable to a
decrease in depreciation expense of $34,907, a decrease in executive
compensation of $17,631, a decrease of $11,334 in payroll, a decrease of rent of
$8,226; offset by an increase in consulting and professional fees of $11,511 and
an increase in general and administrative expenses of $22,315.
Other income and expense
Other expenses comprising interest expense was $347,747 for the nine months
ended September 30, 2021 compared to $497,367 during the nine months ended
September 30, 2020. The decrease in other expenses is attributable to fewer
conversions of equity instruments with beneficial conversion issues in which
interest expense was recognized.
Net Loss
As a result of the forgoing, the net loss attributable to Kisses from Italy,
Inc. for the period ended September 30, 2021 was $3,831,930 for the period ended
September 30, 2021 compared to a loss of $3,358,312 for same period ended
September 30, 2020.
18
Liquidity and Capital Resources
On September 30, 2021, we had $13,347 in cash and cash equivalents.
Net cash used in operating activities was $317,079 during the nine months ended
September 30, 2021, compared to net cash used of $69,079 during the nine months
ended September 30, 2020. The increase in net cash used in operating activities
of $248,000 is primarily attributable to our increase in losses in the nine
months ended September 30, 2021 compared to the nine months ended September 30,
2020 after subtracting non-cash items in both periods.
Net cash provided by financing activities was $295,000 for the nine months ended
September 30, 2021, compared to $142,261 during the nine months ended September
30, 2020. The increase in net cash provided by financing activities is primarily
attributable to sales of common stock of $175,000 in 2021 compared to zero in
the same period in 2020.
Net cash used in investing activities was $1,910 due to the purchase of fixed
assets during the nine months ended September 30, 2021 compared to $-0- during
the period ended September 30, 2020.
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. 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.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
19
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.
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KISSES FROM ITALY INC. 
