Kisses From Italy Inc. 10-Q

10-Q 1 kisses_10q-093019.htm FORM 10-Q Table of Contents U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Under the Securities Exchange Act of 1934 For Quarter Ended: September 30, 2019 Commission File Number: 000-52898 Kisses From Italy, Inc. (Exact name of small business issuer as specified in its charter) Florida 46-2388377 (State or other jurisdiction of incorporation) (IRS Employer ID No.) 80 SW 8 th ST. Suite 2000 Miami, Florida 33130 (Address of principal executive offices) 305 423-7129 (Issuer’s Telephone Number) Securities registered pursuant to Section 12(b) of the Act: 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, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting 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 The number of shares of the registrant’s only class of common stock issued and outstanding as of November 18, 2019, was 92,074,455 shares. TABLE OF CONTENTS 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 5 Item 3. Quantitative and Qualitative Disclosures About Market Risk 9 Item 4. Controls and Procedures 9 PART II OTHER INFORMATION Item 1. Legal Proceedings 10 Item 1A. Risk Factors 10 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Mine Safety Disclosures 10 Item 5. Other Information 10 Item 6. Exhibits 10 Signatures 11 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; and · other risks and uncertainties related to the restaurant industry and our business strategy. All forward-looking statements speak only as of the date of this Report. We undertake no obligation to update any forward-looking statements or other information contained herein. Stockholders and potential investors 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 stockholders and potential investors that these plans, intentions or expectations will be achieved. These forward-looking statements represent our intentions, plans, expectations, assumptions, and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Considering these risks, uncertainties, and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise. 3 PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Our unaudited consolidated financial statements included in this Form 10-Q are as follows: F-1 Unaudited Consolidated Balance Sheets as of September 30, 2019, and December 31, 2018 F-2 Interim Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019, and 2018 F-3 Unaudited Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2019, and 2018 F-4 Interim Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019, and 2018 F-5 Notes to Interim Unaudited Consolidated Financial Statements 4 Kisses From Italy Inc. Unaudited Consolidated Balance Sheets September 30, December 31, 2019 2018 ASSETS Current assets: Cash and cash equivalents $ 97,366 $ 22,877 Total current assets 97,366 22,877 Property and equipment, net 64,865 90,348 Other Assets 1,092 1,093 Total assets $ 163,323 $ 114,318 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 79,504 $ 50,374 Accrued liabilities 131,214 158,089 Loans payable 4,533 5,643 Total current liabilities 215,251 214,106 Convertible Notes 10,000 277,650 Total liabilities 225,251 491,756 Commitments and contingencies – – Stockholders' Equity: Preferred stock, $0.001 par value. 25,000,000 shares authorized; zero shares issued and outstanding – – Common stock, $0.001 par value, 200,000,000 shares authorized; 92,074,455 issued and outstanding as of September 30, 2019 and 81,780,170 issued and outstanding as of December 31, 2018 92,074 81,780 Additional paid-in capital 2,443,615 1,638,253 Retained earnings deficit (2,612,035 ) (2,124,631 ) Total Kisses From Italy Stockholders' Equity (76,346 ) (404,598 ) Non-controlling interest 14,418 27,160 Total stockholders' equity (61,928 ) (377,438 ) Total liabilities and equity $ 163,323 $ 114,318 The accompanying notes are an integral part of the consolidated financial statements. F- 1 Kisses From Italy Inc. Unaudited Consolidated Statements of Operations Three months Three months Nine months Nine months ended ended ended ended September September September September 2019 2018 2019 2018 Sales $ 93,834 $ 114,993 $ 371,835 $ 352,103 Cost of goods sold 39,659 65,355 166,593 168,688 Gross margin 54,175 49,638 205,242 183,415 Operating expenses: Depreciation and amortization 10,983 9,939 32,241 29,815 Executive compensation – – – 16,953 Payroll and other expenses 63,933 59,489 202,739 140,557 Rent 17,127 12,630 82,001 56,214 Consulting and professional fees 56,157 64,825 87,770 106,492 General and administrative 32,687 40,951 137,964 99,644 Total operating expenses 180,887 187,834 542,715 449,673 Income (loss) from operations (126,711 ) (138,196 ) (337,473 ) (266,258 ) Other income (expense) Other income – 33,732 – 33,732 Interest income (expense), net (88,988 ) (23,297 ) (162,673 ) (80,794 ) Total other income (expense) (88,988 ) 10,435 (162,673 ) (47,062 ) Income (loss) before income taxes (215,700 ) (127,760 ) (500,146 ) (313,319 ) Provision for income taxes (benefit) – – – – Net loss (215,700 ) (127,760 ) (500,146 ) (313,319 ) Less: net gain (loss) attributable to non-controlling interests (3,168 ) (10,151 ) (12,742 ) (19,661 ) Net loss attributable to Kisses From Italy, Inc. $ (212,532 ) $ (117,609 ) $ (487,404 ) $ (293,660 ) Basic and diluted earnings (loss) per common share $ (0.00 ) $ (0.00 ) $ (0.01 ) $ (0.00 ) Weighted-average number of common shares outstanding: Basic and diluted 81,892,064 81,780,170 81,817,878 81,780,170 The accompanying notes are an integral part of the consolidated financial statements. F- 2 Kisses from Italy Unaudited Consolidated Statements of Changes in Stockholders' Equity Additional Non- Total Preferred Stock Common Stock Paid-in controlling Retained Stockholders' Shares Value Shares Value Capital Interest Earnings Equity Balance, January 1, 2018 – $ – 81,780,170 $ 81,780 $ 1,545,796 $ 52,734 $ (1,679,183 ) $ 1,127 Net income (loss) (1,029 ) (63,176 ) (64,205 ) Balance, March 31. 2018 – $ – 81,780,170 $ 81,780 $ 1,545,796 $ 51,705 $ (1,742,359 ) $ (63,078 ) Net income (loss) (8,480 ) (112,875 ) (121,355 ) Beneficial conversion feature of convertible notes 49,452 49,452 Balance, June 30, 2018 – $ – 81,780,170 $ 81,780 $ 1,595,248 $ 43,225 $ (1,855,234 ) $ (134,981 ) Net income (loss) (10,151 ) (117,609 ) (127,760 ) Beneficial conversion feature of convertible notes 19,814 19,814 Balance September 30, 2018 – $ – 81,780,170 $ 81,780 $ 1,615,062 $ 33,074 $ (1,972,843 ) $ (242,927 ) Additional Non- Total Preferred Stock Common Stock Paid-in controlling Retained Stockholders' Shares Value Shares Value Capital Interest Earnings Equity Balance January 1, 2019 – $ – 81,780,170 $ 81,780 $ 1,638,253 $ 27,160 $ (2,124,631 ) $ (377,438 ) Beneficial conversion feature of convertible notes 33,633 33,633 Net loss (6,197 ) (135,962 ) (142,159 ) Balance March 31, 2019 – $ – 81,780,170 $ 81,780 $ 1,671,886 $ 20,963 $ (2,260,593 ) $ (485,964 ) Beneficial conversion feature of convertible notes 20,913 20,913 Net income (loss) (3,377 ) (138,909 ) (142,286 ) Balance June 30, 2019 – $ – 81,780,170 $ 81,780 $ 1,692,799 $ 17,586 $ (2,399,503 ) $ (607,338 ) Net income (loss) (3,168 ) (212,532 ) (215,700 ) Retirement of convertible debt 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 $ (2,612,035 ) $ (61,928 ) The accompanying notes are an integral part of the consolidated financial statements. F- 3 Kisses From Italy Inc. Unaudited Consolidated Statements of Cash Flows September 30, September 30, 2019 2018 Cash flows from operating activities of continuing operations: Net income (loss) $ (487,404 ) $ (293,660 ) Net income loss attributable to non-controlling interest (12,742 ) (19,661 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 32,241 29,815 Amortization of debt discount 129,386 69,266 Changes in operating assets and liabilities: Accounts receivable – (2,704 ) Accounts payable 29,127 24,012 Accrued liabilities 3,199 (1,039 ) Net cash provided by (used in) operating activities (306,193 ) (193,971 ) 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: Repayment of loans payable, net (1,110 ) (45,199 ) Proceeds from the sale of convertible notes 388,549 208,150 Net cash provided by (used in) financing activities 387,439 162,951 Net increase (decrease) in cash and cash equivalents 74,489 (31,020 ) Cash and cash equivalents at beginning of period 22,877 51,955 Cash and cash equivalents at end of period $ 97,366 $ 20,935 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. F- 4 Kisses From Italy, Inc. Notes to Consolidated Unaudited Financial Statements For the Three and Nine Months Ended September 30, 2019, and 2018 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 Ft. Lauderdale, Florida. Three additional restaurants, which were 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 hurricane damage and permanently closed that location in 2018. On May 30, 2019, the Company announced that it was working on opening its inaugural corporate-owned Italian location. The new location is expected to enable the Company to build its European franchise program and distribution network, as well as creating efficiencies in its planned product distributions that can be scaled across the various business units. The new restaurant, located at Strada Provinciale 70 #100, Via Vittorio Veneto, 100 Ceglie del Campo, Bari, Italia, which opened on October 24th is also expected to become the Company’s training facility for future franchises in Europe. Expenses associated with opening the new location included the Company’s financial statements for the nine-month period ended September 30, 2019, were not material. 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, 2018, and 2017 filed with the SEC on April 16, 2019. 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 9 th LLC, Kisses from Italy-Franchising LLC; its 70% owned subsidiary, Kisses-Palm Sea Royal LLC and Kisses from Italy – Franchising LLC. All intercompany accounts and transactions are eliminated in consolidation. F- 5 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-month period 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, as an interim measure to finance working capital needs and may continue to raise additional capital through the sale of Common Stock or other securities and obtaining some short-term loans. The Company will be required to continue to 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 revenue recognition, 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, 2019, and the year ended December 31, 2018, respectively, the consolidated financial statements were not materially impacted as a result of the application of Topic 606. 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. F- 6 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. At September 30, 2019 and December 31, 2018, the Company’s cash equivalents totaled $97,366 and $22,877, respectively. Property and equipment Property and equipment are stated at cost or fair value. During 2018 the Company permanently closed one of its locations and removed all property and detachable leaseholds. The Company believes that this equipment and leaseholds which are in excellent condition can be used at existing and new locations and that the undepreciated book value is equivalent to its fair market value, thus no impairment was recorded. 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. 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. Stock-based Compensation The Company accounts 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. F- 7 Leases The Company follows the guidance in ASC 840 “ Leases ,” which requires us 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. As an emerging growth company, we have until December 15, 2019, to adopt ASC 842. 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. NOTE 3 – GOING CONCERN AND LIQUIDITY As of September 30, 2019, and December 31, 2018, the Company had $97,366 and $22,877 in cash on hand respectively and for the nine-month periods ended September 30, 2019, and 2018, the Company recorded revenues of $371,835 and $352,103 respectively. Additionally, as of September 30, 2019, the Company had a working capital deficit of $117,885; and negative stockholders equity of $(61,928). In the Company’s financial statements for the fiscal years ended December 31, 2018, and 2017, the Reports of the Independent Registered Public Accounting Firm 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. Based on the Company’s current financial projections, it believes it does not have sufficient existing cash resources to fund its current operations. It is the Company’s current intention to raise debt and/or equity financing to fund ongoing operating expenses. There is no assurance that these events will be satisfactorily completed or at terms acceptable to the Company. Any issuance of equity securities, if accomplished, could cause substantial dilution to existing stockholders. Any failure by the Company to successfully implement these plans would have a material adverse effect on its business, including the possible inability to continue operations. F- 8 NOTE 4 – PROPERTY AND EQUIPMENT The following table sets forth the components of the Company’s property and equipment at September 30, 2019, and December 31, 2018: September 30, 2019 December 31, 2018 Cost Accumulated Depreciation Net Book Value Cost Accumulated Depreciation Net Book Value Capital assets subject to depreciation: Furniture and equipment $ 59,424 (42,720 ) 16,704 $ 52,868 (35,200 ) 17,668 Leasehold improvements 175,917 (127,756 ) 48,161 175,716 (103,036 ) 72,680 Total fixed assets $ 235,341 (170,476 ) 64,865 $ 228,584 (138,236 ) 90,348 For the nine-month periods ended September 30, 2019, and 2018, respectively the Company recorded depreciation and amortization of $32,241 and $29,815 respectively. NOTE 5 – ACCRUED AND OTHER LIABILITIES The following table sets forth the components of the Company’s accrued liabilities at September 30, 2019, and December 31, 2018. September 30, 2019 December 31, 2018 Sales tax payable $ 3,881 $ 12,605 Accrued interest payable 2,966 21,728 Accrued rent – 12,114 Payroll tax liabilities 124,367 109,642 Accrued other – 2,000 Total accrued liabilities $ 131,214 $ 158,089 The Company is in arrears on its payroll tax payments as of September 30, 2019. Included in the “payroll tax liabilities” as of September 30, 2019, is approximately $29,774 in interest and penalties. NOTE 6 – LOANS PAYABLE The Company has one asset-based line of credit of $4,533. The amount of credit available to be accessed is dependent on the amount of documented credit receipts received by the Company’s restaurants. The due dates on these credit advances are typically between 90 and 180 days. The interest rate on the facility is approximately 32%, plus additional processing fees of approximately 5%. As of September 30, 2019, and December 31, 2018, loan payable balances were $4,533 and $5,643 respectively. The amount of loans outstanding was significantly reduced due to proceeds from less expensive (in terms of the interest rate) convertible debt that was applied against loan balances. F- 9 NOTE 7 – CONVERTIBLE NOTES As of September 30, 2019, and December 31, 2018, the balance of convertible notes was $10,000 and $277,650, respectively. In April 2018, the Company commenced a private offering of up to $700,000 in convertible debenture (the “Debentures”), to non-residents of the US. These notes accrue interest at the rate of 8% per annum and are convertible into shares of the Company’s Common Stock and are only convertible until such time as the Company’s Common Stock is approved for trading, of which there is no assurance, at a conversion rate of $0.0667 per share. Interest is payable annually, on or before February 15 of each year. The Debentures mature three years after the issuance date. Since the Company’s shares were previously sold in a private placement at a price of $0.10 per share, the difference in price is considered a beneficial conversion feature. Since the holders of the Notes have the right to convert immediately, the beneficial conversion feature of $221,843 has been immediately expensed and recorded as interest expense. During the three month period ended September 30, 2019, convertible noteholders holding $656,195 of convertible notes along with accrued interest of $30,074 converted their notes into 10,294,285 shares of Common Stock. NOTE 8 – STOCKHOLDERS EQUITY Capital Stock On September 30, 2019, and December 31, 2018, there were 92,074,455 and 81,780,170 shares of Common Stock issued and outstanding, respectively, with a $0.001 par value. 25,000,000 shares of Preferred Stock, with a par value of $0.01 per share, are authorized, none of which has been issued or was outstanding as of September 30, 2019, and December 31, 2018, respectively. 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 Shares to 200,000,000, par value $0.01 per share. Common Stock Issued in Private Placements During the nine months ended September 30, 2019, and 2018, respectively 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, 2019, and 2018, respectively the Company did not issue any shares of its Common Stock for services. F- 10 NOTE 9 – COMMITMENTS AND CONTINGENCIES As of September 30, 2019, and December 31, 2018, the Company had three operating store locations. The Company leases these spaces based upon the following schedules: · Kisses From Italy 9 th LLC based in Fort Lauderdale, Fl. leases approximately 990 square feet of space at a cost of $2,650 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 it will be reduced to $3,274 per month. The increased rent amount of $5,773 includes an additional payment of $2,500 per month for these 8 months, arising out of a $20,000 dispute settlement related to a rent dispute. For financial statement purposes, this amount for the months of September and August 2018 ($5,000) was recorded as “rent expense” on the Company’s financial statements for the year ended December 31, 2018. The lease ends on December 9, 2020. · Kisses From Italy-Palm Aire based in Pompano Beach, Florida leases approximately 2,300 square feet of space at a cost of $3,600 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 of space at a cost of $546 per month. The lease ended on August 1, 2018, and was renewed on the same terms. The Company has a one-year automatic renewal provision for this lease but is not obligated to exercise this renewal provision. · The annual rent on the Company’s new location in Italy is $1,400 euros per month pursuant to a one year lease with an optional automatic renewal provision . The Company also rents professional and furnished space on a month to month basis in Miami, Florida at a cost of $223 per month, which has been designated the Company’s principal place of business. NOTE 10 – SUBSEQUENT EVENTS The Company’s new restaurant, located at Strada Provinciale 70 #100, Via Vittorio Veneto 100 Ceglie del Campo, Bari, Italia, opened for business on October 24, 2019. F- 11 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 in 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 and History We are a Florida corporation incorporated on March 7, 2013, focused on developing a fast, casual food dining chain restaurant business. We commenced operations by opening our initial corporately owned location in Fort Lauderdale, Florida, in May 2015. We opened three additional locations by April 2016, all in Southern Florida, through a working relationship with Wyndham Hotels. In September 2017, Hurricane Irma caused significant damage to the area. As a result of the damage from the Hurricane, our hotel locations closed due to the fact that the Wyndham hotel group had to halt operations at the respective hotel properties in order to begin the necessary repairs and renovations following the storm. All but one of our restaurants are located in timeshare developments. The storm impacted travel to Florida during this time and is just now reaching prior levels. 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 4 th location, as the damages were too excessive. If we are able to raise additional capital, of which there is no assurance, our intention is to own and operate up to 10 of our restaurants and utilize them as a showcase in the marketing of our proposed franchise operations. In May 2017, we completed our National Franchise License and now have the ability to sell franchises in all of the states in the US except for New York, Virginia, and Maryland which we intend to add at later dates if sufficient demand exists. In September 2017, we completed the sales of two franchise locations in Florida. We anticipate the commencement of the building and development of these locations by early 2020. On May 30, 2019, we announced that we were working on opening our inaugural corporate-owned Italian location. We are both hopeful and confident this will be the first of many new outlets across the European continent. Italian traditions and culture have always been the source of inspiration behind our culinary concept. It is expected to allow us to establish and build our European franchise program and distribution network, as well as creating efficiencies, in our planned product distributions, that can be scaled across the various business units. The new restaurant, located at Strada Provinciale 70 #100, Via Vittorio Veneto 100 Ceglie del Campo, Bari, Italia, is also expected to become our training facility for future franchises in Europe. We opened the location for business on October 24, 2019. We have never been subject to any bankruptcy proceeding. Our principal offices are located at 80 SW 8 th St. Suite 2000, Miami, Florida, 33130, telephone (305) 423-7129 and our website is www.kissesfromitaly.com. 5 Results Of Operations Comparison of Results of Operations for the nine months ended September 30, 2019, and 2018 Revenue and Cost of Sales During the nine-month period ended September 30, 2019, our revenues increased from $371,835 in the 2018 period to $352,103, an increase of $19,732, approximately 5.6%. Cost of goods sold during the three month period ended September 30, 2019, was $166,593 compared to $168,688 during the same period. Cost of sales as a percentage of sales was 44.8% and 47.9% for the periods ended September 30, 2019, and 2018, respectively. We are more efficient in terms of cost of sales at higher revenue levels. We expect our cost of sales as a percentage of sales to be reduced as sales levels increase, of which there is no assurance. Operating expenses Operating expense increased during this period, to $542,715 in the nine months ended September 30, 2019, compared to $449,673 during the same period in 2018, an increase of $93,042. The increase is attributable to an increase in payroll, rent and G&A expenses offset by a reduction in consulting and professional fees, and executive compensation. Other income and expense Other expense was $162,673 during the nine months ended September 30, 2019, compared to $47,062 during the same period in 2018. The significant increase is attributable to increased borrowing on convertible notes issued in the 2019 period compared to 2018. Since these notes have been issued at a discount there is a beneficial conversion period requiring immediate expensing of discount which is charged to interest expense. At higher levels of borrowing, there is more discount and interest expense. See Note 7. Convertible Notes. Net Loss During the nine months ended September 30, 2019, we incurred a net loss attributable to Kisses from Italy Inc. of ($487,404) or $0.01 per share and a net loss attributable to non-controlling interests of ($19,691); compared to net losses of ($313,319) or $0.00 per share and a $(12,742) a net loss attributable to non-controlling interests; respectively, for the same nine-month period in 2018. The significant increase in the net loss is attributable to an increase in operating and interest expense, offset by an increase in gross margin. Comparison of Results of Operations for the three months ended September 30, 2019, and 2018 Revenue and Cost of Sales During the three-month period ended September 30, 2019, our revenues decreased from $114,993 in the 2018 period to $93,834, a decrease of $21,159 approximately 18.4%. Cost of goods sold during the three month period ended September 30, 2019, was $39,659 compared to $65,355 during the same period. Cost of sales as a percentage of sales was 42.3% and 56.8% for the periods ended September 30, 2019, and 2018, respectively. 6 Operating expenses Operating expense increased during this period decreased from 187,834 in the three months ended September 30, 2018, compared to $180,887 during the same three month period ended September 30, 2019. The decrease is attributable to a reduction in consulting and professional fees and general and administrative expenses, offset by an increase in payroll. Other income and expense Other expense was $88,988 during the three months ended September 30, 2019, compared to other income of 10,435 during the same period in 2018. The significant increase is attributable to increased borrowing on convertible notes issued in the 2019 period compared to 2018. Since these notes have been issued at a discount there is a beneficial conversion period requiring immediate expensing of discount which is charged to interest expense. At higher levels of borrowing, there is more discount and interest expense. See Note 7. Convertible Notes. Net Loss During the three months ended September 30, 2019, we incurred a net loss attributable to Kisses from Italy Inc. of ($215,700) or $0.00 per share and a net loss attributable to non-controlling interests of ($3,168); compared to net losses of ($127,760) or $0.00 per share and a $(10,151) a net loss attributable to non-controlling interests; respectively, for the same three-month period in 2018. The significant increase in operating loss is attributable to increased interest expense offset by a decrease in operating expenses and an improvement in gross margins. Going forward interest expense will be significantly reduced to nominal levels since all nut $10,000 of interest-bearing convertible instruments was converted to equity during the three month period ended September 30, 2019. Liquidity and Capital Resources On September 30, 2019, we had $97,366 in cash and cash equivalents. Net cash used in operating activities was $306,193 during the nine-month period ended September 30, 2019, compared to $97,735 during the nine months ended September 30, 2018. This increase in the cash used in the nine months ended September 30, 2019, compared to the similar period in 2018 was primarily attributable to our increased operating loss. Cash flows used in investing activities were $6,757 during the nine months ended September 30, 2019, compared to $0 in 2018 due to the purchase of equipment in the 2019 period. Net cash provided by financing activities was $387,439 for the period ended September 30, 2019, compared to 111,636 during the same period in September 30, 2018. The increase is primarily attributable to proceeds from convertible notes of $388,549 in 2019 compared to $148,649 in 2018. The amount of capital we raise will vary from period to period based on the effectiveness of our fundraising efforts. Our audited consolidated financial statements for the year ended December 31, 2018, were prepared assuming we 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-month period following the date of these financial statements. We have incurred annual losses since inception and expect we may incur additional losses in future periods. 7 We have one asset-based line of credit for $4,533 with one lender. The amount of credit available to be accessed is dependent on the amount of documented credit receipts received by our restaurants. The due dates on these credit advances are typically between 90 and 180 days. The interest rates on these facilities are approximately 31 to 38% respectively, plus additional processing fees of approximately 5%. In order to continue our business development, including opening additional company-owned restaurants and continuing to develop and enhance the marketing of our franchise concept, we estimate we will need approximately $1 million in additional capital. We believe we can open at least 2 additional locations for approximately $300,000. We intend to use the balance of the funds to either open additional locations or use the balance of the funds on franchise marketing. We believe that by continuing to open company-owned restaurants we can use these locations to market other locations. We can provide no assurance that additional funding will be available on a timely basis, on terms acceptable to us, or at all. While we have had discussions with potential investors and investment bankers, we have no agreement with any third party to provide us this additional financing and there can be no assurances that we will obtain this financing, either debt or equity or both, on favorable terms, or at all. Our inability to receive this financing may have a significant negative impact on our continued development and results of our operations. In April 2018, we commenced a private offering of convertible debentures (the “Debentures”) to non-residents of the US. These Debentures accrue interest at the rate of 8% per annum and are convertible into shares of our Common Stock beginning upon issuance until such time as our Common Stock is approved for trading, of which there is no assurance, at a conversion rate of $0.0667 per share. Interest is payable annually, on or before February 15 of each year. Each Debenture matures 3 years after the issuance date. As of the date hereof, an aggregate of $441,450 in Debentures have been issued. None have been converted. These funds have been used primarily to cover our operating losses. Our common stock began trading on the OTC on November 11, 2019. Our management recently began scouting locations throughout the different regions of Italy and have found what they consider to be interesting locations with great potential in the regions of Rome and further south in the region of Puglia. We have deemed these locations as opportunities for additional corporate-owned and franchise program 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. Inflation Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the nine-month period ended September 30, 2019. Critical Accounting Estimates The 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. 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. Off-Balance Sheet Arrangements None 8 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 time 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 CEO and CFO to allow timely decisions regarding required disclosure. Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of September 30, 2019, at a reasonable assurance level. We believe that our financial statements presented in this quarterly report on Form 10-Q fairly presents, in all material respects, our financial position, results of operations, and cash flows for all periods presented herein. 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 error 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 – There were no changes in our internal control over financial reporting during the nine-month period ended September 30, 2019, which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 9 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are not involved in any material legal proceedings, nor are we aware of any legal proceedings threatened or in which any director or officer or any of their affiliates is a party adverse to our Company or has a material interest adverse to us. 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 During the nine months ended September 30, 2019, we did not issue any of our equity securities. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURES Not Applicable. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS Exhibit No. Description 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 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* ______________________ * Pursuant to Rule 406T of Regulation S-T, these interactive data files are not deemed filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act or Section 18 of the Securities Exchange Act and otherwise not subject to liability. 10 SIGNATURES Pursuant to the requirements of Section 12 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 19, 2019. KISSES FROM ITALY, INC. By: /s/ Michele Di Turi Michele Di Turi, Principal Executive Officer By: /s/ Claudio Ferri Claudio Ferri Principal Financial Officer and Principal Accounting Officer 11