The following discussion should be read in conjunction
with our unaudited consolidated financial statements and notes thereto included herein. In connection with, and because we desire to take
advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward-looking statements in the following discussion and elsewhere in this report and any other statement made by, or on our
behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based
on historical information and which relate to future operations, strategies, financial results, or other developments. Forward-looking
statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive
uncertainties, and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are
subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially
from those expressed in any forward-looking statements made by, or on our behalf. We disclaim any obligation to update forward-looking
statements.
Factors that may cause or contribute actual results
to differ from these forward-looking statements include, but are not limited to, for example:
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.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION
OF BUSINESS
Kisses From Italy Inc. (the “Company”)
was incorporated in Florida on March 7, 2013. The Company’s main focus is to develop a fast, casual food dining chain restaurant
business of corporate-owned restaurants and expanding through a nationwide/international franchise and territory sales program. The Company
commenced operations in May 2015 by opening its first location in Fort Lauderdale, Florida. Three additional restaurants, located in various
Wyndham Hotel properties in the Pompano Beach, Florida area, were then opened within the following ten months. All locations, which were
in leased facilities, were fully operational by April 2016. In December 2017, the Company vacated one of its restaurants due to a hurricane
and has not re-opened that location. In June 2021, the Company consolidated its two Wyndham stores into one location to become more efficient.
The Company opened its inaugural European location in Ceglie del Campo, Bari, Italy, in October 2019. The Bari location closed in April
2020 due to the Covid-19 pandemic, briefly re-opened and has not re-opened as of the date of this Report. Such a location was intended
to serve as the distribution center for future products for European locations, as well as to be used as a training facility for European
franchises. However, this initiative has been severely curtailed due to the onset and lingering impact of Covid-19 in Europe.
In June 2021 and November 2021, the Company opened
its first two franchise locations in Chino, California and Montreal, Canada, respectively. Since the onset of Covid-19 the Company has
temporarily waived any franchise fees at both locations so that the franchisees could establish operations at each of those locations.
The Company’s accounting year-end is December
31.
COVID-19
On March 11, 2020, the World Health Organization declared
the Covid-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic has had a negative ripple
effect on the global economy, leading to disruptions and volatility in the global financial markets. Most US states and many countries
have issued policies intended to stop or slow the further spread of the disease.
Covid-19 and we believe, the US’s response to
the pandemic has significantly affected the economy. There are no comparable events that provide guidance as to the effect the Covid-19
pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know
the full extent of the effects on the economy, the markets we serve, our business, or our operations.
Except for our Bari location which remains closed,
our US locations are now open and are operating at near pre-Covid revenue levels.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). This basis of
accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned, and expenses
and losses or recognized when incurred. The consolidated financials include the accounts of the Company and its wholly-owned subsidiaries;
Kisses From Italy 9th LLC, Kisses From Italy-Franchising LLC, Kisses From Italy, Inc. (Canada) (a company incorporated
under the laws of Canada and registered in Quebec on December 23, 2020), and Kisses From Italy Italia SRLS (a limited liability company
incorporated in Italy), and its 70% owned subsidiary, Kisses-Palm Sea Royal LLC.
All intercompany accounts and transactions are eliminated
in consolidation.
Management’s Representation of Interim Financial Statements
The accompanying unaudited consolidated financial
statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”) have been condensed or omitted as allowed by such rules and regulations,
and management believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial
statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of financial position
and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of
results for a full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial
statements at and as of December 31, 2022, filed as part of the Company’s Annual Report on Form 10-K with the SEC on March 31, 2023.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. The most significant estimates relate to revenue recognition, valuation of accounts receivable and the allowance for doubtful
accounts, inventories, valuation of financial instruments, income taxes, and contingencies. The Company bases its estimates on historical
experience, known or expected trends and various other assumptions that are believed to be reasonable given the quality of information
available as of the date of these financial statements. The results of these assumptions provide the basis for making estimates about
the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these
estimates.
Accounts Receivable and Allowance for Doubtful
Accounts
Accounts receivables are recorded at the net value
of the face amount less any allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate
of the amount of probable credit losses in its existing accounts receivable. The Company reviews the allowance for doubtful accounts
on a regular basis, and all past due balances are reviewed individually for collectability. Account balances are charged against the allowance
when placed for collection. Recoveries of receivables previously written off are recorded when received. Interest is not charged on past
due accounts. These receivables are related to the sale of our private label branded products sold in retail and grocery stores in Canada.
As of March 31, 2023, and December 31, 2022, our
trade receivables amounted to $13,672
and $13,470 respectively,
with an allowance for doubtful accounts of $-0-
for both periods.
Other Receivables
Other receivables are comprised of two components,
a receivable from a franchisee, and a receivable from the government for Employee Retention Credits (“ERC”).
ERC Credits
The purpose of the ERC is to encourage employers
to keep employees on the payroll, even if they are not working during the covered period due to the effects of the coronavirus
outbreak. The updated ERC provides a refundable credit of up to $5,000 for each full-time equivalent employee a company retained
from March 13, 2020, to December 31, 2020, and up to $14,000 for each retained employee from January 1, 2021, to June 30, 2021. The
Company qualifies as an employer if it was ordered to fully or partially shut down or if the Company’s gross receipts fell
below 50% for the same quarter in 2019 (for 2020) and below 80% (for 2021). As of March 31, 2023 and December 31, 2022 the Company
had ERC credits receivable of $27,190
and $27,190
in ERC credits receivable, respectively.
Valued Added Tax (“VAT”)
The Valued Added Tax (“VAT”) VAT
is a broadly-based consumption tax which is assessed to the value that is added to goods and services. The Value Added Tax (“VAT”),
applies to nearly all goods and services that are bought and sold within the European Union. In Italy where the Company operates, the
VAT tax ranges between 4% and 10% for food products and alcohol. As of March 31, 2023 and December 31, 2022, respectively, the Company
had a VAT net receivable from its Bari location amounting to $-0- and $-0- respectively.
Franchisee Receivable
In order to assist the Company’s franchisee
in California, the Company extended a $22,000 demand loan at a 1% interest rate to the franchisee. As of March 31, 2023 and December 31,
2022 the balance on the franchisee receivable was $22,000 and $22,000, respectively.
Foreign Currency Translation
The functional and reporting currency of the Company’s
Bari location in Italy is the Euro. Management has adopted ASC 830 “Foreign Currency Matters” for transactions that occur
in foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing at the balance
sheet date. Average monthly rates are used to translate revenues and expenses. To date, this difference has been immaterial for the Bari
location.
Transactions denominated in currencies other than
the functional currency, such as the Company’s current retails sales in Canada for Kisses From Italy branded products, are translated
into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign
currency transactions are included in the determination of net income for the respective periods.
Assets and liabilities of the Company’s operations
are translated into the reporting currency, United States dollars, at the exchange rate in effect at the balance sheet dates. Revenue
and expenses are translated at average rates in effect during the reporting periods. Equity transactions are recorded at the historical
rate when the transaction occurs.
Revenue Recognition
The Company recognizes revenue under the guidelines
of ASC 606. Sales, as presented in the Company’s consolidated statement of earnings, represent franchise revenue; and food and beverage
products sold which is presented net of discounts, coupons, employee meals and complimentary meals. Revenue is recognized using the five
step approach required under the guidelines of ASC 606:
1. Identify the contract with the client,
2. Identify the performance obligations in the contract,
3. Determine the transaction price,
4. Allocate the transaction price to performance obligations
in the contract
5. Recognize revenues when or as the Company satisfies
a performance obligation
At the corporate owned restaurants all five steps
of revenue recognition occur almost simultaneously. The customer orders food from a menu, it is prepared, delivered to the customer who
then pays for the food order at the cash register. Our restaurant business represented approximately 90-95% of our revenue for the year
ended December 31, 2022 and three months ended March 31, 2023.
For our branded retail products goods sold in Canada,
the Company receives a detailed purchase order from grocery store retailers that specifies the goods ordered, their price, payment terms
and the required delivery date. Once the delivery of items on the purchase order is made to the client and title passes to the retailer,
the Company has met its performance obligation and recognizes revenue.
Non-controlling interest
Non-controlling interest represents third-party ownership
in the net assets of one of our consolidated subsidiaries. For financial reporting purposes, the assets and liabilities of our majority-owned
subsidiary consolidated with those of the Company’s wholly-owned subsidiaries, with any third-party investor’s interest shown
as non-controlling interest.
Cash and Cash Equivalents
The Company considers all highly liquid temporary
cash investments with an original maturity of three months or less to be cash equivalents. On March 31, 2023 and December 31, 2022, the
Company’s cash equivalents totaled $34,255 and $324,493, respectively.
Property and equipment
Depreciation is computed by the straight-line method
and is charged to operations over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred.
The carrying amount and accumulated depreciation of assets sold or retired are removed from the accounts in the year of disposal and any
resulting gain or loss is included in the results of operations. The estimated useful lives of property and equipment are as follows:
Estimated useful lives of property |
|
Computers, software, and office equipment |
1 – 6 years |
Machinery and equipment |
3 – 5 years |
Leasehold improvements |
Lesser of lease term or estimated useful life |
Income taxes
The Company accounts for income taxes under the Financial
Accounting Standards Board (“FASB”) ASC 740, “Accounting for Income Taxes”. Under FASB ASC 740, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under
FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date. FASB ASC 740-10-05,“Accounting for Uncertainty in Income Taxes” prescribes a recognition threshold
and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in
a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing
authorities.
The amount recognized is measured as the largest amount
of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company assesses the validity of its
conclusions regarding uncertain tax positions on a quarterly basis to determine if facts or circumstances have arisen that might cause
it to change its judgment regarding the likelihood of a tax position’s sustainability under audit.
On December 18, 2019, FASB released Accounting Standards
Update (“ASU”) 2019-12, which affects general principles within Topic 740, Income Taxes. The amendments of ASU 2019-12 are
meant to simplify and reduce the cost of accounting for income taxes. The FASB has stated that the ASU is being issued as part of its
Simplification Initiative, which is meant to reduce complexity in accounting standards by improving certain areas of GAAP without compromising
information provided to users of financial statements. The Company adopted this guidance on January 1, 2021 which had no impact on the
Company’s financial statements.
Derivative Financial Instruments
The Company evaluates its financial instruments to
determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments
that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the consolidated statements of operations. The classification of derivative
instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting
period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not the net-cash
settlement of the derivative instrument could be required within twelve months of the balance sheet date. As of March 31, 2023 and December
31, 2022, the balance of the derivative liability was $139,740 and $73,398, respectively.
Stock-based Compensation
The Company accounts for stock-based compensation
using the fair method following the guidance set forth in Section 718-10 of the FASB Accounting Standards Codification for disclosure
about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for
an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized
over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually
the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.
Leases
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets
and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The amended
guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption
permitted. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the new lease standard.
The FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases in July 2018. Also in 2018, the FASB issued ASU 2018-11, Leases
(Topic 842) Targeted Improvements, which provides an optional transition method whereby the new lease standard is applied at the adoption
date and recognized as an adjustment to retained earnings. The amendments have the same effective date and transition requirements as
the new lease standard. On November 15, 2019, the FASB issued ASU 2019-10, which amends the effective dates for three major accounting
standards. The ASU defers the effective dates for the credit losses, derivatives, and lease standards for certain companies. Since the
Company is classified as a small reporting company and emerging growth company and has a calendar-year end, the Company was eligible for
deferring the adoption of ASC 842 to January 1, 2022.
In the first quarter of fiscal 2022, we adopted
ASU 2016-02 related solely to operating leases at our store locations. The most significant impact of adoption was the recognition
of right of use operating lease assets and right of use operating lease liabilities of approximately $562,000
each, respectively.
Inventory
Inventory is comprised of wholesale food inventory
at our retail operations. The value of the food at our US locations is very minimal at any one time and is charged to cost of sales as
soon as it arrives at the store. Our US locations do not have liquor licenses. During the three months ended March 31, 2022 we wrote off
$1,951 alcoholic beverage inventory since the Bari location had been closed since the onset of Covid in March 2020. The balance of inventory
on March 31, 2023 and December 31, 2022 was $15,500 and $14,359, respectively.
Net Loss per Share
Net loss per common share is computed by dividing
net loss by the weighted average shares of common stock outstanding during the period as defined by Financial Accounting Standards, ASC
Topic 260, “Earnings per Share.” Basic earnings per common share (“EPS”) calculations are determined by dividing
net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations
are determined by dividing net income by the weighted average number of shares of common stock and dilutive common share equivalents outstanding.
Due to the Company’s net losses for the three months ended March 31, 2023 and March 31, 2022, all of its outstanding stock options,
warrants, and shares issuable if convertible notes or Preferred C shares was converted to common stock; are all considered anti-dilutive.
The number of these anti-dilutive equivalents was not calculated and are excluded from the calculation of net loss per share.
Recent Accounting Pronouncements
In August 2020, FASB issued ASU 2020-06 Accounting
for Convertible Instruments and Contracts in an Entity; Own Equity (“ASU 2020-06”), as part of its overall simplification
initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information
provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt
that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated
and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will
no longer separately present such embedded conversion features in equity, and will instead account for the convertible debt wholly as
debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible
debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The
Company adopted this guidance on January 1, 2022.
In June 2016, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and also issued subsequent amendments to the initial
guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition
of expected credit losses for financial assets held. The Company will be required to adopt this ASU for fiscal years beginning after December
15, 2022, including interim periods within those fiscal years. The adoption of Topic 326 is not expected to have a material effect on
the Company’s financial statements and financial statement disclosures.
NOTE 3 – GOING CONCERN AND LIQUIDITY
As of March 31, 2023 the Company had cash on
hand of $34,255,
negative working capital of $603,107
and an accumulated deficit of $15,656,889.
Management has concluded that these financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments
in the normal course of business. It is the Company’s current intention to raise debt and/or equity financing to fund ongoing operating
expenses. There is no assurance that financing, whether debt or equity, will be available to the Company, satisfactorily completed or
on terms favorable to the Company. Any issuance of equity securities, if accomplished, could cause substantial dilution to existing stockholders
and any debt financing may contain covenants limiting certain corporate actions. Any failure by the Company to successfully raise additional
financing would have a material adverse effect on its business, including the possible inability to continue operations.
NOTE 4 – PROPERTY AND EQUIPMENT
As of March 31, 2023 and December 31, 2022, the
Company had $3,160
and $3,687
in property and equipment, all located at its Bari location in Italy. As of December 31, 2022 all property and equipment and
leaseholds at its US locations had been fully depreciated.
NOTE 5 – ACCRUED LIABILITIES
The following table sets forth the components of the
Company’s accrued liabilities on March 31, 2023 and December 31, 2022.
Schedule of accrued and other liabilities | |
| | |
| |
| |
March 31, 2023 | | |
December 31, 2022 | |
Sales tax payable | |
$ | 7,829 | | |
$ | 3,957 | |
Accrued interest payable | |
| 28,177 | | |
| 50,330 | |
Payroll tax liabilities | |
| 96,452 | | |
| 95,106 | |
Total accrued liabilities | |
$ | 132,458 | | |
$ | 149,393 | |
The Company is in arrears on its payroll tax
payments as of March 31, 2023. As of March 31, 2023 the “payroll tax liabilities” were comprised of approximately $49,455
in tax due, and $46,997
in interest and penalties, respectively.
NOTE 6 – PROMISSORY NOTES PAYABLE
As of March 31, 2023 and December 31, 2022, the
balance of notes payable was $262,171 and
$262,171 respectively. The 2022 balance is
comprised of two unsecured 8%
notes payable amounting to $12,171
that mature in September 2023, and an 8%, $250,000
unsecured loan that matures on July
13, 2024.
NOTE 7 – CONVERTIBLE NOTES AND DERIVATIVE
LIABILITY
As of March 31, 2023 and December 31, 2022, the
outstanding principal balance of convertible notes was $314,400 and
$488,400 respectively. The
balance of the derivative liability was $139,740
and 73,398
respectively.
On April 11, 2022, the Company entered into a
securities purchase agreement, dated as of April 6, 2022, (the “Talos Purchase Agreement”) with Talos Victory Fund, LLC,
a Delaware limited liability company (“Talos”), pursuant to which the Company issued to Talos a promissory note in the
principal amount of $165,000
(the “Talos Note”). The Company received $148,500
gross proceeds from Talos due to the original issue discount on the Talos Note. In connection with the execution and delivery of the
Talos Purchase Agreement and the issuance of the Talos Note, the Company issued to Talos 500,000 commitment
shares and a warrant to purchase an additional 1,650,000 shares
of common stock of the Company at an exercise price of $0.10.
On April 13, 2022, the Company entered into a
securities purchase agreement, dated as of April 11, 2022, (the “Blue Lake Purchase Agreement”) with Blue Lake Partners,
LLC, a Delaware limited liability company (“Blue Lake”), pursuant to which the Company issued to Blue Lake a promissory
note in the principal amount of $165,000
(the “Blue Lake Note”). The Company received $148,500 gross
proceeds from Blue Lake due to the original issue discount on the Blue Lake Note. In connection with the execution and delivery of
the Blue Lake Purchase Agreement and the issuance of the Blue Lake Note, the Company issued to Blue Lake 500,000 commitment
shares and a warrant to purchase an additional 1,650,000
shares of common stock of the Company at an exercise price of $0.10.
On May 13, 2022, the Company entered into a
securities purchase agreement, dated as of May 11, 2022, (the “Fourth Man Purchase Agreement”) with Fourth Man, LLC
(“Fourth Man”), pursuant to which the Company issued to Fourth Man a promissory note in the principal amount of $150,000
(the “Fourth Man Note”). The Company received $135,000
gross proceeds from Fourth Man due to the original issue discount on the Fourth Man Note. In connection with the execution and
delivery of the Fourth Man Purchase Agreement and the issuance of the Fourth Man Note, the Company issued to Fourth Man, 607,000
commitment shares and a warrant to purchase an additional 1,500,000
shares of common stock of the Company.
Each of the notes bear interest at 12% and has a fixed
price conversion to common stock at $0.025 per share.
Using the Black Scholes model, the Company
recording a financing expense of $97,453
for the total of 4,800,000
warrants issued on the Talos Note, Blue Lake Note and the Fourth Man Note.
During the three months ended September 30,
2022, the Company granted an underwriter 162,000
warrants exercisable for five years at an exercise price of $0.11,
and 56,250
warrants exercisable for five 5
years at $0.12
per share. Using the Black Scholes model, the Company recording a financing expense of $3,214
for these warrants.
As a result of the above transactions, the
Company has recorded $100,167
in total financing fees in 2022 on these warrants issued to the noteholders and the underwriter.
During the three months ended March 31, 2023 the Talos,
Fourth Man and Blue Lake converted $172,000 in note principal and $37,800 in accrued interest into 8,552,000 common shares. As a result
of these conversion the company recorded a loss of $168,060 on the conversion of this debt.
On July 26, 2022 the Company entered into a
$70,000
convertible note agreement at 9%
interest with a maturity date of July
26, 2023 with Diagonal Lending. Under the terms of the note agreement Diagonal had the right to convert its note at a
discount of 35%
to the Company’s lowest trading price in the 10
days prior to conversion.
On January 23, 2023 the Company paid off this $70,000
convertible note along with accrued interest of $3,863 and a $20,000 prepayment penalty for a total payment of $93,863. On February 13,
2023 the Company entered into a new $70,000 note with a 180 maturity on the same terms as the previous $70,000 note.
The Company considered the current FASB guidance of
“Contracts in Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or
number of shares) of the instrument regardless of the probability of whether or not within the issuers’ control means the instrument
is not indexed to the issuer’s own stock. Accordingly, the Company determined that the conversion prices of the Notes were not a
fixed amount because they were either subject to an adjustment based on the occurrence of future offerings or events or the conversion
price was variable. As a result, the Company determined that the conversion features of the Notes were not considered indexed to the Company’s
own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance.
The fair value of the Company’s derivative
liability of $139,740 as of March 31, 2023 was estimated using the Black-Scholes-Merton Option Pricing model with a volatility of
246.8%, exercise price of $0.0084, using a one-year T-bill rate of $4.73%.
NOTE 8 – STOCKHOLDERS EQUITY
Common Stock
The Company has authorized 300,000,000
shares of common stock. On March 31, 2023 and December 31, 2022, there were 210,220,534 and 189,216,582 shares of common stock
issued and outstanding, respectively, with a $0.001 par value per share.
During the three months ended March 31, 2023, the
Company issued the following shares of stock:
|
· |
6,000,000 shares for services
valued at $206,700 |
|
· |
6,000,000 shares for financing commitments
valued at $198,000 |
|
· |
8,552,000 shares upon the conversion of convertible notes and accrued
interest valued at $381,860
|
|
· |
451,952 shares to pay off an accounts payable balance of $15,050 |
During the year ended December 31, 2022, the Company
issued the following shares of stock:
|
· |
3,000,000 shares upon the
conversion of Series C Stock |
|
· |
1,607,000 shares for financing commitments
valued at $97,453 |
|
· |
3,696,000 shares upon the conversion of convertible notes valued at
$58,027 |
Preferred Stock
On December 19, 2019, the Company filed a Certificate
of Designation with the State of Florida to designate 1,500,000 shares of the Company’s authorized preferred stock as
Series A Preferred Stock (“Series A Stock”), 5,000,000 shares as Series B Preferred Stock (“Series B Stock”)
and 1,000,000 shares as Series C Preferred Stock (“Series C Stock”).
A summary of the material provisions of the Certificate
of Designation governing the Series A Stock, the Series B Stock and the Series C Stock is as follows:
Series A Stock
The Series A Stock is not convertible. Each share
of Series A Stock shall entitle the holder to three hundred votes for each share of Series A Stock. Any amendment to the Certificate of
Designation requires the consent of the holders of at least two-thirds of the shares of Series A Stock then outstanding. The holders of
Series A Stock are not entitled to dividends until and unless determined by the Board of Directors of the Company.
Liquidation Preference
No distribution shall be made to holders of shares
of capital stock ranking junior to the Series A Preferred Stock upon liquidation, dissolution or winding-up of the Company. The Series
A Stock ranks pari passu with the Series C Stock.
There were no shares of Series A Stock outstanding
as of March 31, 2023 and December 31, 2022
Series B Stock
The Series B Stock is convertible at any time by the
holder into the number of shares of common stock of the Company based on two times the price paid by the holder for the shares. The Board
has the authorization to establish a minimum price for the conversion price of the Series B Stock (so that if the market price of the
common stock of the Company drops below the issuance price, the conversion rate will then be based on the minimum price established by
the Board and not the price paid for the shares). The holders of Series B Stock shall not be entitled to voting rights except as otherwise
provided by applicable law. The holders of Series B Stock are not entitled to dividends until and unless determined by the Board.
Liquidation Preference
The holders of Series B Stock shall not be entitled
to any distributions upon a liquidation of the Company.
Restrictions of Transferability
The shares of the Series B Stock shall not, directly,
or indirectly, be sold, hypothecated, transferred, assigned, or disposed of in any manner without the prior written consent of the Board
and applicable securities laws.
There were no shares of Series B Stock outstanding
as of March 31, 2023 or December 31, 2022.
Series C Stock
The Series C Stock is convertible at any time by the
holder into the number of shares of common stock of the Company on the basis of three times the price paid for the shares divided by the
floor price of $0.10 established by the Board of Directors. The holders of the Series C Stock shall not be entitled to voting rights except
as otherwise provided for by applicable law. The holders of Series C Stock are not entitled to dividends until and unless determined by
the Board.
Liquidation Preference
Upon any liquidation of the Company, the holders of
Series C Stock shall be entitled to the amount paid for the shares of Series C Stock prior to the holders of shares ranking junior to
the Series C Stock. Upon the holders of the Series C Stock and any series of stock ranking pari passu with the Series C Stock having received
distributions to which they are entitled, the remaining assets of the Company shall be distributed to the other holders pro rata in proportion
to the shares held by each holder.
Restrictions of Transferability
The Series C Stock shall not, directly, or indirectly,
be sold, hypothecated, transferred, assigned, or disposed of in any manner without the prior written consent of the Board and applicable
securities laws.
As of March 31, 2023 and December 31, 2022 there were 145,080 and 145,080 shares
of Series C Stock outstanding, respectively, which were purchased at a price of $1.00 per share.
Stock Purchase Warrants
Stock purchase warrants are accounted for as equity
in accordance with ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s
Own Stock, Distinguishing Liabilities from Equity.
The following table reflects all outstanding and exercisable
warrants on March 31, 2023 and December 31, 2022. All warrants are exercisable for a period of three to five years from the date of issuance:
Schedule of warrant activity | |
| | |
| | |
| |
| |
Number of Warrants Outstanding | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Life (Yrs.) | |
| |
| | | |
| | | |
| | |
Balance January 1, 2021 | |
| – | | |
$ | – | | |
| – | |
Warrants issued | |
| – | | |
| – | | |
| – | |
Warrants exercised | |
| – | | |
| – | | |
| – | |
Warrants forfeited | |
| – | | |
| – | | |
| – | |
December 31, 2021 | |
| – | | |
$ | – | | |
| – | |
| |
| | | |
| | | |
| | |
Warrants issued | |
| 5,018,000 | | |
$ | 0.10055 | | |
| – | |
Warrants exercised | |
| – | | |
| – | | |
| – | |
Warrants forfeited | |
| – | | |
| – | | |
| – | |
Balance December 31, 2022 | |
| 5,018,000 | | |
$ | 0.10055 | | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued |
|
|
– |
|
|
$ |
– |
|
|
|
– |
|
Warrants exercised |
|
|
– |
|
|
|
– |
|
|
|
– |
|
Warrants forfeited |
|
|
– |
|
|
|
– |
|
|
|
– |
|
Balance March 31, 2023 |
|
|
5,018,000 |
|
|
$ |
0.10055 |
|
|
|
4.00 |
|
As of March 31, 2023 the outstanding stock purchase
warrants had an aggregate intrinsic value of $0.
Stock Options
As of March 31, 2023 there were 16,000,000
vested 10 year stock options outstanding. 5,333,334
options had a strike price of $0.07, 5,333,333
had a strike price of $0.25 and 5,333,333
had a strike price of $0.50 and a remaining life of 8.25
years. All options were immediately expensed during the second quarter of 2022 and the Company recorded an expense of $1,239,823
related to these options. There have been no stock option issuances since June 30, 2021. As of March 31, 2023, these options had no
intrinsic value.
NOTE 9 – LEASES
As of March 31, 2023 the Company had two operating
restaurants. The Company leases these spaces based upon the following schedules:
|
· |
Kisses From Italy 9th LLC based in Fort Lauderdale, Florida leases approximately 990 square feet and has paid $3,273 per month since 2018, pending completion of the required renovations to the exterior and interior of the property necessitated due to hurricane damage that occurred to the location in 2018. The landlord has been very slow in making these changes. It was agreed upon that when work was completed, and approved by the City of Fort Lauderdale, the rent would be increased to the market rate at that time. Beginning on May 1, 2021, the rent increased to $5,857.50 per month and was renewed by the Company for an additional five-year term with standard annual escalator costs. |
|
|
|
|
· |
Kisses-Palm Sea Royal LLC based in Pompano Beach, Florida leases approximately 2,300 square feet for $3,933 per month. The Company has a one-year automatic renewal provision for this lease on May 1st of each year under the same terms. |
|
|
|
|
· |
Kisses From Italy Italia SRLS based in Bari, Italy, leases approximately 2,200 square feet of space for 1,400 euros per month under the terms of a nine-year lease which ends on May 5, 2024 and has an optional automatic renewal provision for nine years. The Company is in the process of negotiating new terms for the lease. Both parties have agreed no rent payments will be submitted, until new terms are agreed upon. |
During the three months ended March 31, 2023,
the Company adopted ASC 842, and based on the present value of the lease payments for the remaining average lease term of the
Company’s existing leases noted above, the Company recognized $562,030
in noncurrent ROU assets, $88,469
in current lease liabilities and $473,561
in noncurrent lease liabilities from operating leases.
For the three months ended March 31, 2023 and
2022, the Company recorded rent expenses related to lease obligations of $32,357
and $32,888,
respectively. Rent expenses related to lease obligations in operating expenses in the Company’s statement of operations.
NOTE 10 – SUBSEQUENT EVENTS
Subsequent to March 31, 2023, the company issued
7,000,000 common shares ot executive officers, 1,501,502 common shares as financing fees, and 6,503,890 shares to reduce convertible debt.