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Item 7. Management’s Discussion and Analysis

2024-07-15 compared with 2023-03-31 · 311 added, 167 removed, 4 unchanged (99% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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.

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.

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis below of the financial

condition and results of operations for the Company and should be read in conjunction with the consolidated financial statements and the

notes to such financial statements (pages F-1 to F-19), “Forward-looking Statements” (page ii) and Risk Factors

set forth in Item 1A.

The Company’s main

focus is to develop a fast, casual food dining chain restaurant business of corporate-owned restaurants and expanding through a nationwide/international

franchise and territory sales program.

The Company commenced operations in May 2015 by opening its first location in Fort Lauderdale,

Florida, which is the only operating restaurant as of the date of this Annual Report.

The Company also opened in 2016 three additional

restaurants, located in various Wyndham Hotel properties in the Pompano Beach, Florida area, but these restaurants are no longer operational

(in December 2017, the Company vacated one of its restaurants due to a hurricane;

in June 2021, the Company consolidated its two Wyndham

restaurants into one location to become more efficient, and in May 2023, the Company made the decision not to renew a lease in Wyndham

Palm Aire location and to close its operations there.

The Company opened its

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 permanently closed on December 31, 2023.

Such a location was intended to serve as the distribution center for future

products for European locations, as well as to be used as a training facility for European franchises.

However, this initiative has been

severely curtailed due to the onset and lingering impact of Covid-19 in Europe.

The Company’s relationship with MediaCom SAS for

distribution and importing of European products remains intact and the distribution hub has been moved to Naples, Italy at the MediaCom

In September 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 90 stores across Ontario and Quebec, Canada.

In April 2021, we entered

into a 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 2021 and November

2021, the Company opened its first two franchise locations in Chino, California and Montreal, Canada, respectively.

Due to the difficulty

of opening new retail food establishments with proper levels of staffing, and ongoing inflationary pressures and supply chain constraints

due to COVID, the Chino, California location was unable to generate profitable operations and was closed as of December 31, 2023.

economic environment in Quebec, Canada continued its decline, the Montreal location assets were sold to a non-franchisee third party.

During the time these locations were open, the Company did not generate any franchising fees.

On November 29, 2021,

the Company entered into a Standby Equity Commitment Agreement (the “Purchase Agreement”), dated November 22, 2021, together

with a registration rights agreement (the “Registration Rights Agreement”) with MacRab, pursuant to which the Company has

the right to sell to the Investor up to $7,500,000 in shares of the Company’s Common Stock, subject to certain limitations listed

In connection with the Purchase Agreement, the Company issued to MacRab a five-year warrant (the “MacRab Warrant”)

to purchase 750,000 shares of Common Stock (the “Warrant Shares”) with stand anti-dilution provisions and cashless exercise.

On March 29, 2023, the Company and MacRab entered into the First Amendment to the Purchase Agreement.

The Purchase Agreement, as amended

by Amendment #1, reduced the minimum price per share in the Purchase Agreement from $0.10 per share to $0.001, so that the closing price

of the Company’s Common Stock during each of the six trading days immediately preceding the respective “put date” must

not be lower than $0.001 per share.

On December 5, 2023, the Company and MacRab entered into the Second Amendment to the Purchase Agreement,

for the purpose of extending the commitment period under the Purchase Agreement.

The Purchase Agreement, as amended by Amendment #2, changed

the definition of the “Commitment Period” extending the it to 36 months from the date of the Purchase Agreement and removing

a condition that if the initial registration statement is no longer effective, it will trigger an earlier termination.

On April 26, 2023, the

Company sold and issued to MacRab 1,502,502 shares of its Common Stock to MacRab under the Purchase Agreement at the purchase price of

$0.0333, and on August 17, 2023, the Company sold and issued to MacRab a second tranche of 890,914 shares of its Common Stock at the purchase

price of $0.02223 per share.

On May 11, 2022, the Company entered into a Securities

Purchase Agreement (the “Fourth Man Purchase Agreement”) with Fourth Man, pursuant to which the Company received $135,000

in gross proceeds and issued to Fourth Man a promissory note in the principal amount of $150,000.00 (the “Fourth Man Note”).

Pursuant to the Fourth Man Purchase Agreement, Fourth Man was granted a right of first refusal on all issuances by the Company, as well

as a most favored nations on all securities to be issued by the Company until the Fourth Man Note is paid in full.

In connection with

the execution and delivery of the Fourth Man Purchase Agreement and the issuance of the Fourth Man Note, the Company issued to Fourth

Man 607,000 commitment shares (the “Fourth Man Commitment Shares”) and a warrant to purchase an additional 1,500,000 shares

of common stock of the Company (the “Fourth Man Warrant”) at an exercise price of $0.10 per share.

On April 12, 2023, Fourth

Man Note converted the outstanding balance and accrued interest under the Fourth Man Note to 3,456,000 shares of our Common Stock.

December 26, 2023, all Fourth Man Warrant Shares were issued upon exercise of Fourth Man Warrants, including 6,954,545 Warrant Shares

that were issued on a cashless basis exercise.

On May 24, 2023, the

Company, entered into a Securities Purchase Agreement (the “JSC Purchase Agreement”) with Jefferson Street Capital LLC, a

New Jersey limited liability company (“JSC”), pursuant to which the Company received $100,000.00 in gross proceeds and issued

to JSC a promissory note in the principal amount of $110,000.00 (the “JSC Note”).

The JSC Note bears interest at a rate of 10%

per annum and is due and payable no later than February 9, 2024.

The JSC Note is convertible at a fixed conversion price of $0.01 (the

“JSC Conversion Price”), subject to standard adjustments.

If the Company issues securities for less than the JSC Conversion

Price, the JSC Conversion Price shall be reduced to such an amount.

In connection with the

execution and delivery of the Purchase Agreement and the issuance of the Note, the Company issued to JSC 500,000 commitment

shares (the “JSC Commitment Shares”) and a warrant to purchase an additional 1,000,000 shares of common stock of

the Company at an exercise price of $0.10 per share (the “JSC Warrant”), exercisable on the earlier of 180 days from

the date it was issued or when a registration statement covering the JSC Warrant Shares is declared effective.

On June 21, 2023, the Company

entered into an amendment (the “Amendment”) to the JSC Warrant with JSC, pursuant to which the parties provided that any stock

issuances to MacRab LLC officers, directors, vendors, and suppliers of the Company in satisfaction of amounts owed to such parties, would

not result in an adjustment to the exercise price.

In consideration for the Amendment, the Company issued 3,000,000 shares of

Common Stock to JSC.

On June 6, 2023, the

Company entered into a Securities Purchase Agreement (the “Firstfire Purchase Agreement”), effective as of June 12, 2023,

with Firstfire, pursuant to which the Company received $100,000 in gross proceeds and issued to Firstfire a promissory note in the principal

amount of $110,000.00 (the “Firstfire Note”).

The Firstfire Note bears interest at a rate of 10% per annum and is due

and payable on June 5, 2024.

Although the Company has the right to prepay the Firstfire Note without penalty, the annual interest is due

if the Firstfire Note is paid in full by the Company prior to maturity.

Upon default of the Firstfire Note, the interest increases to

the lesser of 18% per annum or the maximum amount permitted by law.

The Firstfire Note is convertible at the option of Firstfire,

at any time at a fixed conversion price of $0.01 (the “Firstfire Conversion Price”), subject to standard adjustments.

If the Company issues securities for less than the Firstfire Conversion Price, the Firstfire Conversion Price shall be reduced to such

In connection with the

execution and delivery of the Firstfire Purchase Agreement and the issuance of the Firstfire Note, the Company issued to Firstfire 500,000 commitment

shares and a warrant (the “Firstfire Warrant”) to purchase of up to 1,000,000 shares of the Company’s common

stock (the “Firstfire Warrant Shares”) at an exercise price of $0.10 per share.

The Firstfire Warrant is exercisable

commencing on the date of issuance and ending on the five-year anniversary of the date of issuance.

On July 11, 2023, the

Company entered into a Securities Purchase Agreement (the “CS Capital Purchase Agreement”) with GS Capital Partners, LLC (“CS

Capital Partners”) pursuant to which the Company received $105,000.00 in gross proceeds and issued to CS Capital Partners a promissory

note in the principal amount of $115,000.00 (the “Note”).

The Note bears interest at a rate of 10% per annum, at a fixed conversion

price of $0.01 (the “Conversion Price”) and is due and payable no later than July 11, 2024.

The Note may be prepaid at an

amount equal to 110% of the principal plus accrued interest within 180 days.

In connection with the execution and delivery of the Purchase

Agreement and the issuance of the Note, the Company issued to CS Capital Partners 500,000 commitment shares (the “Commitment Shares”)

and a warrant to purchase an additional 862,500 shares of common stock of the Company (the “Warrant Shares”) at an exercise

price of $0.10 per share (the “Exercise Price”).

exercisable at any time on or after the date of the issuance and terminating

on the five-year anniversary of the Issue Date.

The Company also issued 1,500,000 returnable shares to CS Capital Partners (the “Returnable

Shares”), which are held in book-entry and returnable to the Company by CS Capital Partners unless there is an uncured default during

the 12-month term of the Note.

On August 22, 2023, the

Company entered into a Securities Purchase Agreement (the “Coventry Purchase Agreement”) with Coventry Enterprises, LLC, (“Coventry”),

pursuant to which the Company received $105,000 in gross proceeds and issued to Coventry a 10% promissory note in the principal amount

of $115,000 (the “Coventry Note”).

In connection with the execution and delivery of the Coventry Purchase Agreement and the

issuance of the Coventry Note, the Company issued to Coventry 500,000 commitment shares (the “Coventry Commitment Shares”)

and a warrant to purchase an additional 862,500 shares of Common Stock (the “Coventry Warrant”) at an exercise price of $0.10

per share (the “Exercise Price”).

In addition to the Coventry Commitment Shares, the Company issued 1,500,000 returnable shares

to Coventry, which are held in book-entry and returnable to the Company by Coventry unless there is an uncured default during the 12-month

term of the Coventry Note.

The Coventry Note bears interest at a rate of 10% per annum, at a fixed conversion price of $0.01 (the “Conversion

Price”) and is due and payable no later than August 22, 2024.

Between December 5, 2023 and December 24, 2023, the Company issued

an aggregate of 3,800,000 shares to Jefferson Street Capital LLC upon conversion of the JSC Note.

On September 30, 2023 the Company’s Wyndham

Palm-Aire location closed its store but remained as an operating entity.

Management is actively evaluating current market conditions and

exploring the possibility of relocating our operations to other areas within South Florida.

This decision stems from our ongoing commitment

to strategic growth and optimizing our operational footprint.

The consideration to relocate is driven by several factors, including but

not limited to:

Market Dynamics:

Analysis of market trends and opportunities suggests

potential advantages in certain geographic locations within South Florida that align more closely with our strategic objectives.

Operational Efficiency:

Evaluating alternative locations may provide

opportunities to enhance operational efficiency, reduce costs, and improve service delivery to our customers.

Infrastructure and Resources:

Assessing the availability of suitable

infrastructure, resources, and talent pool in different areas to support our long-term growth plans.

At this time it has not been considered discontinued operations in

accordance with ASC 205-20 because the division has not been disposed of nor is disposal in the plan.

Results of Operations

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.

Comparison of Results

of Operations for the years ended December 31, 2023, and 2022

Revenue and Cost of

Total revenues for the

year ended December 31, 2023, were $225,953 compared to $391,447 during the year ended December 31, 2022.

The revenues in 2023 decreased

due to the closing of the Company’s Wyndham Palm-Aire location on September 30, 2023.

Cost of goods sold during

the year ended December 31, 2023 was $118,005 compared to $213,106 during the year ended December 31, 2022.

This decrease in cost of sales

in 2023 over 2022 levels is attributable due to lower sales levels in 2023 compared to 2022.

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.

Operating expenses were

$3,669,458 for the year ended December 31, 2023 compared to $676,580 for the year ended December 31, 2022.

Non-cash stock-based compensation

was $2,793,843, including $2,481,300 stock-based compensation to related parties, and $5,170 for the years ended December 31, 2023 and

December 31, 2022, respectively.

Excluding the stock-based compensation in both periods, operating expenses were $878,057 for the year

ended December 31, 2023 compared to $671,410 for the year ended December 31, 2022.

This is primarily attributable to an increase in payroll

and consulting fees of approximately $146,000 in the 2023 period compared to 2022.

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,

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, 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

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.

Other expenses comprising

interest expense and change in the fair value of the derivative liability were $1,310,036 for the year ended December 31, 2023 compared

to $362,466 for the year ended December 31, 2022.

The increase in other expenses is attributable to a material increase in interest expense

and financing fees of approximately $1,132,000.

As a result of the forgoing, the net loss attributable

to Kisses From Italy Inc.

for the year ended December 31, 2023 was $4,871,545 compared to net loss attributable to Kisses of Italy, Inc

of $847,385 for same period ended December 31, 2022.

The increase in the net loss in the 2023 period is primarily attributable to an increase

of $2,788,673 of non-cash stock based compensation, increase of other expenses offset by a slight decrease in general and administrative

Liquidity and Capital

On December 31, 2023,

we had $24,842 in cash and cash equivalents.

Net cash used in operating

activities was $835,051 during the year ended December 31, 2023, compared to net cash used of $579,142 during the year ended December

The increase in net cash used in operating activities of $255,911 is primarily attributable to increased operating losses net

of non-cash items compared to the year ended December 31, 2022.

Net cash used in investing

activities was $-0- during the year ended December 31, 2023, compared $40,852 during the year ended December 31, 2022, due to the purchase

of $40,852 in equipment in 2022 compared 2023.

Net cash provided by

financing activities was $535,399 for the year ended December 31, 2023, compared to $805,000 for the year ended December 31, 2022.

difference in the 2023 period compared to 2022 is attributable $65,073 from proceeds of the sale of common stock under the Company’s

equity line of credit;

$450,000 from proceeds in convertible notes, offset with $70,000 repayment of convertible notes and $12,171 repayment

of notes payable in 2023;

compared to $550,000 from proceeds in convertible notes and $250,000 from proceeds in notes payable in 2022.

During the next year,

we are solely focusing on acquisition transactions and we estimate that we will need approximately $1,000,000 to fully effectuate our

business development plans.

We do not believe our former restaurant expansion plan is viable in the current economy.

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.

have had discussions with potential investors and investment bankers, we have no agreement with any third party to provide additional

Our inability to obtain additional financing may have a significant negative impact on our continued development and the results

of our 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.

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.

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.

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.

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

We have no off-balance

sheet arrangements.

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.

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 became 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.

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

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.

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

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