You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Forward-looking statements represent our management's beliefs and assumptions only as of the date of this Annual Report. Actual future results may be materially different from what we expect. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by federal securities and any other applicable law.





Overview

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 9th LLC, Kisses From Italy-Franchising LLC, Kisses From Italy, Inc. (Canada) (a company incorporated under the laws of Canada and registered in Quebec on December 23, 2020), and Kisses From Italy Italia SRLS (a limited liability company incorporated in Italy), and its 70% owned subsidiary, Kisses-Palm Sea Royal LLC.









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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 locations. 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 "KITL".

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, Inc. ("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.









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On March 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. The purpose 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 Sales

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.





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 of $36,547. 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.









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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. The decrease in other expenses is attributable to fewer conversions of equity instruments with beneficial conversion issues in which interest expense was recognized.





Net Loss

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.

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 31, 2020.

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.

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 results of our operations.









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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.

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.

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.









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