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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-04-15 · 143 added, 176 removed, 28 unchanged (92% of the section changed)

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis

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by federal securities and any other applicable law.

Kisses From Italy Inc.

(together with its subsidiaries),

hereinafter referred to as “us,” “our,” “we,” or the “Company”) was incorporated in the

State of Florida on March 7, 2013, with a focus on developing a fast, casual food dining chain restaurant business.

The Company operates through its wholly-owned

subsidiaries, Kisses From Italy 9 th 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.

We commenced operations by opening our initial

corporate-owned restaurant in Fort Lauderdale, Florida in May 2015.

By April 2016, we opened three additional restaurants located in various

Wyndham Hotel properties in the Pompano Beach, Florida area.

In September 2017, Hurricane Irma caused significant damage to the area,

which resulted in Wyndham halting operations at its hotel properties for repairs and renovations and the closure of our Wyndham hotel

In December 2017, we vacated one of our restaurants in the Wyndham Hotel properties due to damage from the hurricane and have

not re-opened such restaurant.

During the first half of 2021, we consolidated the remaining two Wyndham stores into one location.

While our Fort Lauderdale location was reopened

in early November 2017, we were only able to reopen two of the hotel locations in Pompano Beach in late January 2018.

We also elected

not to reopen our fourth location, as the damages were too excessive.

If we can raise additional capital, of which there is no assurance,

we intend to own and operate up to 10 restaurants and utilize them as a showcase in the marketing of our proposed franchise operations.

In May 2017, we completed our National Franchise

License which permits us to sell franchises in all of the states in the United States except for New York, Virginia, and Maryland, which

licenses we hope to obtain if sufficient demand exists in the future.

We opened our first 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 location was intended to serve as the distribution center for 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.

Our two corporate-owned

restaurants, one located in Fort Lauderdale, Florida, and one within the Wyndham location in Pompano Beach, Florida, have fully re-opened

without limitation or any social distancing requirement.

In September 2019, the Company's common stock

was approved for trading by FINRA and in October 2019 was approved for uplisting by the OTC Markets Group to the OTCQB under the symbol

In June of 2020, the Company entered into a multi-unit

development agreement (the “Development Agreement”) pursuant to which it granted development rights to Demasar Management,

(“Demasar”) to open and operate up to 100 restaurants in Canada.

Under this Development

Agreement, the developer is obligated to open a minimum of 20 restaurants by June 17, 2025.

On November 20, 2021, we opened a franchise

location under the Development Agreement in Montreal, Quebec, Canada.

In September of 2020, we entered retail food and

grocery stores with Kisses From Italy branded products in Canada.

The product launch began in November of 2020 and Kisses From Italy branded

products were in nine retail stores by the end of 2020.

Currently, Kisses From Italy branded products are in 40 stores across Ontario

and Quebec, Canada.

In April of 2021, we entered

into a Consulting Agreement (the “Consulting Agreement”) with Fransmart, LLC, a Delaware limited liability company (“Fransmart”),

pursuant to which we engaged Fransmart as our exclusive global franchise developer and representative for a period of ten years.

In June of 2021, the Company’s first franchise location opened

in Chino, California.

In November of 2021, the Company opened its second franchise location in Montreal, Canada.

9, 2022, Articles of Amendment to the Company’s Articles of Incorporation to increase

the number of its authorized common stock from 200,000,000 shares to 300,000,000 shares became effective.

Such action was approved by

the Board of Directors on January 25, 2022 and a majority of the Company’s shareholders on January 27, 2022.

of share increase is to make available additional shares of common stock for issuance of all the current obligations of the Company to

issue common stock, including under outstanding convertible securities.

Covid-19 Pandemic

On March 11, 2020, the World Health Organization

declared the Covid-19 outbreak to be a global pandemic.

In addition to the devastating effects on human life, the pandemic is having a

negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets.

Most US states and

many countries have issued policies intended to stop or slow the further spread of the disease.

Covid-19 and the U.S’s response to the pandemic

are significantly affecting the economy.

There are no comparable events that provide guidance as to the effect the Covid-19 pandemic may

have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change.

We do not yet know the full extent

of the effects on the economy, the markets we serve, our business, or our operations.

The Company’s two corporate-owned restaurants

in Fort Lauderdale, Florida and the Wyndham location in Pompano Beach, Florida, have fully re-opened.

The Company’s Bari location

in Italy remains closed.

Results of Operations

Comparison of Results of Operations for the years ended December

31, 2021 and 2020

Revenue and Cost of

Total revenues for the

year ended December 31, 2021 were $400,662 compared to $514,038 during the year ended December 31, 2020.

Revenues for the year ended December

31, 2021 was comprised of $364,662 in food sales and $36,116 in sales of branded products to retail locations in Canada, which the Company

began selling in the fourth quarter of 2020;

compared to food sales of $222,453 and franchise sales of $291,585 during the year ended

December 31, 2020.

The decrease in total revenues in 2021 compared to 2020 is due to $291,585 in franchise sales in the 2020 period compared

to no franchise sales in 2021, offset to a lesser extent by the increase in food sales in the year ended December 31, 2021 due to the

mitigation of the impact of Covid-19.

Cost of goods sold during

the year ended December 31, 2021 was $203,121 compared to $114,101 during the year ended December 31, 2020.

This increase is attributable

to higher food sales volumes in the year ended December 31, 2021 and franchise sales in the year ended December 31, 2020 with no cost

of goods sold associated with those sales.

Comparison of Results of Operations for the years ended December 31, 2022, and 2021

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

$4,337,390 for the year ended December 31, 2021, compared to $3,640,846 during the year ended December 31, 2020.

Non-cash stock-based

compensation was $3,765,591 and $2,978,201 for the years ended December 31, 2021 and December 31, 2020, respectively.

Excluding the stock-based

compensation in both periods, operating expenses were $571,999 for the year ended December 31, 2021 compared to $662,645 for the year

ended December 31, 2021.

This decrease is primarily attributable to a decrease in depreciation expense of $47,373 and a decrease in payroll

The decrease in payroll is attributable to employee retention tax credits enacted by the government due to Covid-19, available

to employers in the restaurant industry to reduce the employer’s share of certain payroll taxes.

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 was $798,877 for the year ended December 31, 2021 compared to $497,613 during the year December 31, 2021.

in other expenses is attributable to fewer conversions of equity instruments with beneficial conversion issues in which interest expense

was recognized.

As a result of the forgoing, the net loss attributable

to Kisses From Italy Inc.

for the year ended December 31, 2021 was $4,942,113 for the year ended December 31, 2021 compared to a net loss

attributable to Kisses of Italy, Inc of $3,709,402 for same period ended December 31, 2020.

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,

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.

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, 2021, we had $139,485 in cash

and cash equivalents.

Net cash used in operating activities was $451,591

during the year ended December 31, 2021, compared to net cash used of $169,984 during the year ended December 31, 2020.

The increase in

net cash used in operating activities of $273,000 is primarily attributable to an increase in net loss, net of non-cash stock based compensation,

in the year ended December 31, 2021 compared to the year ended December 31, 2020.

Net cash provided by financing activities was

$555,650 for the year ended December 31, 2021 compared to $181,761 during the year ended December 31, 2020.

The increase in net cash provided

by financing activities is primarily attributable to sales of common stock of $435,650 in 2021 compared to $19,990 in the year ended December

Net cash used in investing activities was $1,910

due to the purchase of fixed assets during the year ended December 31, 2021 compared to $1,136 during the period ended December 30, 2020.

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.

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

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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.

There can be no assurances that additional financing, either through

equity or debt, will be available on a timely basis, on favorable terms, or at all.

While we have had discussions with potential investors

and investment bankers, we have no agreement with any third party to provide additional financing.

Our inability to obtain additional

financing may have a significant negative impact on our continued development and results of our operations.

Covid-19 has also caused significant disruptions

to the global financial markets, which impacts our ability to raise additional capital.

If the Company is unable to obtain adequate capital

due to the continued spread of Covid-19, the Company may be required to reduce the scope, delay, or eliminate some or all of its planned

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

assuming that we will continue as a going concern and do not include adjustments for the recoverability and the realization of assets

and the satisfaction of liabilities in the normal course of business for the twelve months following the date of 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.

Also, if the Company is unable to obtain adequate capital due to the continued spread of Covid-19, the Company may be

required to further reduce the scope, delay, or eliminate some or all of its planned operations.

These factors, among others, raise substantial

doubt about the Company's ability to continue as a going concern.

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.

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.

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 Estimates

Management’s discussion and analysis of

our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with

accounting principles generally accepted in the United States.

The preparation of these financial statements requires us to make estimates

and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be

reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities

that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

Our critical accounting policies are defined as those policies that we believe are the most important to the portrayal of our financial

condition and results of operations and that require management’s most difficult, subjective, or complex judgments, often as a result

of the need to make estimates about the effects of matters that are inherently uncertain.

See Note 2 – Summary Of Significant Accounting

Policies to our Financial Statements.

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.

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

There were various accounting standards and interpretations

issued recently, none of which are expected to have a material effect on the Company's operations, financial position, or cash flows.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK.

As a smaller reporting company and are not required

to provide the information under this Item.

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.

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.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis