You should read the following discussion and analysis of our financial condition
and results of operations together with our financial statements and related
notes appearing in this Annual Report. Some of the information contained in this
discussion and analysis or set forth elsewhere in this Annual Report, including
information with respect to our plans and strategy for our business, includes
forward-looking statements that involve risks and uncertainties. As a result of
many factors, our actual results could differ materially from the results
described in or implied by the forward-looking statements contained in the
following discussion and analysis. Forward-looking statements represent our
management's beliefs and assumptions only as of the date of this Annual Report.
Actual future results may be materially different from what we expect. We
undertake no obligation to update such statements to reflect events that occur
or circumstances that exist after the date on which they are made, except as
required by federal securities and any other applicable law.
Results of Operations
Comparison of Results of Operations for the years ended December 31, 2022, and
2021
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Revenue and Cost of Sales
Total revenues for the year ended December 31, 2022, were $391,447 compared to
$400,662 during the year ended December 31, 2021. Revenues for the year ended
December 31, 2022 was comprised of $365,970 in food sales and $25,477 in sales
of branded products to retail locations in Canada; compared to food sales of
$364,662 and franchise sales of $36,116 during the year ended December 31, 2021.
The revenues in 2022 were comparable to 2021 due to no change in the retail
environment for our products. We are working on new concepts and menu changes
but there can be no assurances that these changes will be successful.
Cost of goods sold during the year ended December 31, 2022 was $213,106 compared
to $203,121 during the year ended December 31, 2021. This slight increase in
cost of sales in 2022 over 2021 levels is attributable to higher food costs in
2022, offset by improved operating efficiencies.
Operating expenses
Operating expenses were $675,579 for the year ended December 31, 2022, compared
to $4,337,390 during the year ended December 31, 2021. Non-cash stock-based
compensation was $5,170 and $3,765,5911 for the years ended December 31, 2022
and December 31, 2021, respectively. Excluding the stock-based compensation in
both periods, operating expenses were $675,579 for the year ended December 31,
2022 compared to $571,999 for the year ended December 31, 2021. This is
primarily attributable to increased general and administrative expenses due to
inflationary factors as well increased corporate activity.
Other income and expense
Other expenses comprising interest expense and change in the fair value of the
derivative liability was $362,467 for the year ended December 31, 2022 compared
to $798,877 during the year December 31, 2021. The decrease in other expenses is
attributable to fewer conversions of equity instruments with beneficial
conversion issues in which interest expense was recognized in 2021 compared to
2022, a gain of $34,373 from the extinguishment of debt, partially offset by an
increase of $73,398 due to the recognition of a derivative liability in 2022
compared to zero in the 2021 period.
Net Loss
As a result of the forgoing, the net loss attributable to Kisses From Italy Inc.
for the year ended December 31, 2022 was $847,385 compared to a net loss
attributable to Kisses of Italy, Inc of $4,942,113 for same period ended
December 31, 2021. The decrease in the net loss in the 2022 period is primarily
attributable to a decrease of $3,760,421 of non-cash stock based compensation,
decreased other expense in 2022 partially offset by increased general and
administrative expenses .
Liquidity and Capital Resources
On December 31, 2022, we had $324,493 in cash and cash equivalents.
Net cash used in operating activities was $579,140 during the year ended
December 31, 2022, compared to net cash used of $451,591 during the year ended
December 31, 2021. The increase in net cash used in operating activities of
$127,459 is primarily attributable to increased operating losses net of non-cash
items compared to the year ended December 31, 2021.
Net cash used in investing activities was $40,852 due to the purchase of fixed
assets during the year ended December 31, 2022, compared to $1,910 during the
period ended December 30, 2021.
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Net cash provided by financing activities was $805,000 for the year ended
December 31, 2022, compared to $555,650 during the year ended December 31, 2021.
The difference in the 2022 period compared to 2021 is attributable to proceeds
of $550,000 from convertible notes, $250,000 from proceeds in notes payable,
compared to $435,650 in proceeds from the sale of common stock and $120,000 in
proceeds from the sale of preferred stock.
During the next year, 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 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 the 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 to assume 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 the
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. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Critical accounting estimates - The discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these consolidated
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. The
following represents a summary of our critical accounting policies, 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.
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Stock-based Compensation - We account for stock-based compensation using the
fair value 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 - We follow the guidance in ASC 840 "Leases," which requires us to
evaluate the lease agreements we enter into to determine whether they represent
operating or capital leases at the inception of the lease.
On November 15, 2019, the FASB has 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 leases standards (ASC
842) for certain companies. Since we are classified as a "emerging growth
company" and we have a calendar-year end we are eligible for deferring the
adoption of ASC 842 to December 15, 2021.
ASC 842 will be effective for us beginning on December 15, 2021. While we
continue to evaluate the impact of the new standard, we expect the adoption of
this guidance will have not have any impact on our financial statements.
Recent Accounting Pronouncements
Under the Jumpstart Our Business Startups Act, or the JOBS Act, we meet the
definition of an "emerging growth company." We have irrevocably elected to opt
out of the extended transition period for complying with new or revised
accounting standards pursuant to Section 107(b) of the JOBS Act. As a result, we
will comply with new or revised accounting standards on the relevant dates on
which adoption of such standards is required for non- emerging growth
companies.
On January 1, 2018, we adopted Accounting Standards Codification ("ASC") Topic
606, Revenue from Contracts with Customers ("ASC 606"), using the modified
retrospective method applied to those contracts which were not completed as of
January 1, 2018. Results for reporting periods beginning after January 1, 2018
are presented under ASC 606, while prior period amounts are not adjusted and
continue to be reported in accordance with our historic accounting under ASC
605. As of and for the year ended December 31, 2018, our consolidated financial
statements were not materially impacted as a result of the application of Topic
606 compared to Topic 605.
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 leases standards (ASC 842) for certain
companies. Since we are classified as a "emerging growth company" and we have a
calendar-year end we are eligible for deferring the adoption of ASC 842 to
December 15, 2021. While we continue to evaluate the impact of the new standard,
we expect the adoption of this guidance will have not have any impact on our
financial statements.
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