| i |
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. The statements regarding Kisses from Italy, Inc. contained in this Report that are not historical in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “likely,” “expects,” “anticipates,” “estimates,” “believes” or “plans,” or comparable terminology, are forward-looking statements based on current expectations and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements.
Important factors known to us that could cause such material differences are identified in this Report. We undertake no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any future disclosures we make on related subjects in future reports to the SEC.
ITEM 1. BUSINESS
Overview and History
Kisses From Italy, Inc. (hereinafter referred to as “us,” “our,” “we,” the “Company” or “Kisses”) is a Florida corporation incorporated on March 7, 2013, which is 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. Thereafter, by April 2016 we opened three additional locations, all in Southern Florida, through a working relationship with Wyndham Hotels, where we have built two of our other locations. Other than our lease agreements for these locations we have no other agreement in place with Wyndham Hotels. While we have had discussions with their management about enhancing and expanding our working relationship with them, we have no agreement in place to create such a relationship with Wyndham or any other national chain of hotels or timeshare operators and there are no assurances that any such arrangement will become effective in the near future, or at all.
In September 2017, Hurricane Irma made landfall in Southern Florida, causing significant damage to the area. As a result, we closed all of our stores for renovation following the storm. Our Fort Lauderdale location was reopened in early November 2017. We reopened two of the hotel locations in Pompano Beach in January 2018 but elected not to reopen our 4th location, as this location suffered significant damage in the storm. See “Restaurant Development” below. Our intention is to own and operate up to 6 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 June 2017, we completed the sales of two franchise locations in Florida. We anticipate commencement of the building and development of these locations by the end of 2018
We strive to provide the highest level of service, high-quality ingredients, and products. Enveloped in our mission is our philosophy to support and partner with local producers and suppliers within the regions in order to provide a truly authentic experience to our customers. Our vision is to leverage the success of our flagship store and our initial hotel locations in the South Florida market and to expand into other regions on a local, state, national and global level. The main focus is doing so through our continued corporate owned store expansion, along with the development and sales of additional locations through the advancement of our franchise and territorial rights program.
In May 2018 we filed our initial registration statement on Form S-1 with the US Securities and Exchange Commission. On August 23, 2018, our registration statement was deemed effective by the Commission. We registered an aggregate of 22,201,250 shares of our Common Stock in the registration statement. Subsequently, a licensed broker-dealer filed an application to list our Common Stock for trading. As of the date of this Report, we are in the process of responding to various comments received from FINRA. If and when approved, we expect to trade our Common Stock on the OTC QB market.
| 1 |
Our principal offices are located at 80 SW 8th St. Suite 2000, Miami, Florida, 33130, telephone (305) 423-7024 and our website is www.kissesfromitaly.com.
Current Business Plan
Each of our restaurants has been and will continue to be designed to deliver great-tasting food in less than five minutes for in-restaurant dining or take-out orders. In addition, the restaurant’s menu and operating systems have been specifically designed for consistent quality, which we believe is necessary for high-growth franchising. Hours of operation are expected to be from 7:00 am to 11:00 pm, subject to change if additional hours are required based upon the respective location of our restaurants.
Our Menu
Our menu includes grilled paninis including an Italian style Panini, sausage, beef, sliced pork or chicken topped with quality natural “sott'olio” (grilled and marinated vegetable) products at prices ranging from $5.95 to $7.95. We also offer deli paninis including fresh cheese Panini, prosciutto, salami, calicollo, bresaola and turkey panini’s ranging in price from $5.95 to $7.95. All our panini’s include lettuce, tomato and one choice of cheese and three choices of marinated vegetables, or three choices of grilled vegetables.
We also will offer desserts including a Nutella sandwich, a variety of fresh Danish, cannoli, Italian biscotti, sfogliatelle or a corneti, ranging in price from $1.50 to $2.50. We will provide an egg sandwich for breakfast only.
We will also have a full coffee and tea favorites, including espresso, cappuccino and other coffee drinks, soft drinks, bottled water and juices, as well as various flavors of granite (ices).
Our vision is to transport true authentic and rustic taste from the provinces of Italy through a fresh Panini with an espresso, latte or cold slush espresso to go. We intend to offer products that will cater to all diets including gluten-free diets and emphasize fresh products with no preservatives.
All our sott'olio and coffee products are made in Italy. Our management is in constant communication with our product manufacturers and search for the high quality and authentic products from different regions from Southern Italy including Sicily, Calabria, Puglia, Napoli, Potenza, and Toscana. Ensuring freshness and quality, our representatives work closely with local farmers and ranchers for all meats and fresh vegetables. All our products are D.O.P. (Protected Designation of Origin) certified and defined in the European Commission Regulations.
Our Fast Food Restaurants
Between May 2015 and May 2016, we opened four (4) restaurants in Southern Florida. Each of our restaurants is owned by a wholly owned limited liability company. Our initial restaurant is located at 3146 NE 9th Street in Fort Lauderdale, Florida. This location is across the street from an Atlantic Ocean public beach and consists of approximately 1,000 square feet of a retail restaurant with seating for up to 25 guests. See “Part I, Item 2, Property,” below. This restaurant opened for business in May 2015. Subsequently, we opened three additional similar restaurants, all in Southern Florida.
Except for the Fort Lauderdale location, all of our restaurant locations arose out of a relationship we established with Wyndham Vacation Ownership, Inc., which operates timeshare apartment complexes. Of our three restaurants, two are located in Wyndham timeshare resort properties where they are the only restaurants on site. Our lease agreements provide for our restaurants to provide room service that can be charged to the customer’s room, as well as an opportunity to provide food and beverage service to various sales, orientations, marketing and owner events held by Wyndham on a regular basis on these properties. Wyndham remits payments for these services bi-weekly and charges us with a 5% administrative fee for processing costs.
| 2 |
In September 2017, Hurricane Irma caused significant damage to the area, which caused a significant setback in the implementation of our business plan. All of our locations were closed until January 2018 in order to renovate the premises from the damage done by the hurricane. We elected not to re-open our location at Wyndham-Royal Vista in Pompano Beach, FL and as a result, currently have 3 operating restaurants. However, discussions with the Wyndham Group have begun concerning re-occupying the space Kisses from Italy originally occupied in the Wyndham-Royal Vista property. The Wyndham Royal Vista location has remained closed through 2018 and continues through 2019 due to difficulties with the renovations needed from the damages caused by Hurricane Irma in September of 2017. We have estimated that we will begin the necessary steps to re-occupy the space by Q3 of 2019.
The initial relationship with Wyndham has provided us with an additional revenue stream that we had not considered when we originally began implementing our business plan. We have continued our discussions with Wyndham, as well as other similar companies and believe that our continued expansion of our restaurant concept will be enhanced as a result of our developing a more extensive relationship with Wyndham or another similar company. There are no assurances this will occur.
Our flagship location, at 3146 NE 9TH in Fort Lauderdale, suffered the greatest impact from the Hurricane of all of our locations. The commercial building where our restaurant was located sustained severe damage. We have remained as the sole tenant on the property since September 2017. Propriety repair from the Hurricane did not commence until well into the second half of 2018. The building remained in shambles as of this date of this Report. This has greatly reduced the foot traffic to the surrounding area thereby affecting our exposure to any potential walk-by customers. As repairs to the building finally commenced in mid-2018, we were asked by the building landlord to close for the entire month of July 2018. We complied and received a rent abatement for a period of four (4) months. The impact from these on-going repairs continued well in 2019 with no clear of estimated time as to when the repairs will be completed. While no assurances can be provided we are confident that once the repairs are complete the area will return to its once sought out status.
Each location is managed by one senior employee/manager and individually assessed based on foot traffic, seasonality, and other demographic factors. We abide by the standards and rules set forth by the State of Florida Department of Health. Michele Di Turi and Ross Golub have the Certified Food Manager accreditation and have the proper authority to provide necessary food safety courses.
Restaurant Franchising
In addition to opening our company-owned restaurants, we are engaged in franchising of our restaurant concept so that we can build market share and brand awareness. We retained legal counsel specializing in franchise operations, who has prepared our Franchise Agreement. In May 2017, we completed its 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. On June 23rd, 2017 we completed the sale of our initial two franchises at a price of $15,000 per location, each to be located in Florida. These locations are set to be developed at a later date. We anticipate commencement of the building and development of these locations by the end of 2019 or early 2020.
Each of our franchise restaurants are required to conform to a standard of interior design, featuring a distinctive and comfortable Italian décor. Our prior approval is required for each specific location of a proposed franchise restaurant, which includes a requirement that the same be in a clearly identifiable commercial location built out in accordance with our standards. Franchisees are also required to satisfactorily complete training and purchase certain equipment and supplies from us and other approved suppliers. We also require the purchase of a point-of-sale system and data polling services from a specified supplier and a computer system that meets established system standards.
Franchisees are required to purchase approximately 90% to 95% of their supplies and food inventory either directly from us, or from approved suppliers. We attempt to negotiate system-wide volume discounts and/or rebates for our franchisees from approved suppliers and if successful, pass such discounts and/or rebates on to franchisees based on the volume of their purchases from the suppliers providing the discounts.
| 3 |
The franchise agreement also requires our franchisee to pay royalties of 9% of gross sales, which are defined to be total actual charges for all products (food and non-food) and services, such as catering and delivery, sold to customers, exclusive of taxes, on a weekly basis. We retain 6% of this royalty and the remaining 3% goes towards a marketing fund. The marketing fund is broken down in two parts, 2% for local marketing and 1% for national marketing. We anticipate that until national coverage is warranted, local and/or regional marketing campaigns will be implemented.
We also require that our franchisee enter into a collateral assignment and assumption of lease through which we are granted a security interest in all of the furniture, removable trade fixtures, inventory, licenses and supplies located in the restaurant as collateral for (1) the payment of any obligation owed to us, (2) any default or breach under the terms of the lease, and (3) any default or breach of any of the terms and provisions of the franchise agreement. In the event of a breach of or default under the lease or a payment by a franchisee as a result of a breach or default, we may be entitled to possession of the restaurant and all of our rights, title and interest in and to the lease. We also enter into a conditional assignment of telephone numbers and listings that assigns us telephone numbers and directory listings upon termination or expiration of a franchisee relationship.
The initial term of a franchise agreement is ten years, with a renewal provision of between 2-5 years on the terms and conditions of the franchise agreement so long as there has been substantial compliance with the franchise agreement and pay a to-be-determined fee for each renewal.
Franchisees are also required to replace any franchise that terminates or expires or any restaurant that closes within the territory if necessary, to maintain the number of our named restaurants required in the development schedule. If a franchisee fails to meet the development schedule, we have the right to terminate the agreement or adjust that territory to eliminate any state in the territory where they have not achieved the minimum number required for that state.
We are required to perform the following services: