Sun Pacific Holding Corp. - Annual Report: 2016 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2016

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-51935

EXOlifestyle, Inc.

(Exact name of registrant as specified in its charter)

(Registrant’s telephone number, including area code): (561) 939-2520

Securities registered under Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Act: Common Stock, $0.001 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

[  ] Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Ruble 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold as of the last business day of the registrant’s most recently completed second fiscal quarter. $0 on March 31, 2016.

As of January 3, 2017, there were 94,813,785 shares of the registrant’s common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Table of Contents

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, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Securities and Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This annual report on Form 10-K and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. Factors that could cause our actual results of operations and financial condition to differ materially are discussed in greater detail under Item 1A - “Risk Factors” of this annual report on Form 10-K.

We caution that the factors described herein and other factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

PART I

ITEM 1. BUSINESS

Our Company

EXOlifestyle, Inc. (“we,” “us,” “our,” “EXO,” or the “Company) was organized as a Nevada corporation on April 5, 2005 under the name Tomi Holdings, Inc. In October 2005, we changed our name to InfraBlue (US), Inc., and in October 2007, changed our name to NextGen Bioscience, Inc. (“NextGen”). NextGen was a biotechnology company focused on the research, development and commercialization of novel therapeutic proteins. In December 2008, we changed our name to Kalahari Greentech, Inc. (“Kalahari”). Kalahari was a U.S. based minerals exploration company with a primary focus on projects with prior exploration and production history. On May 26, 2015, the Company amended its Articles of Incorporation to change its name from Kalahari Greentech, Inc. to PF Hospitality Group, Inc. and effected a 2,000-for-1 reverse stock split of its issued and outstanding shares of common stock, $0.0001 par value. All per share amounts and number of shares in the consolidated financial statements and related notes have been retroactively restated to reflect the reverse stock split.

Effective July 1, 2015, we merged with Pizza Fusion Holdings, Inc. (“Pizza Fusion”), a franchisor of organic fare pizza restaurants. As a result of the merger, we became a management firm to create, cultivate, and operate innovative and healthy lifestyle brands within the restaurant and retail industries. Following our December 16, 2015 acquisition of EXO:EXO, Inc., a designer and producer of active wear brands offered in national fitness retailers in the U.S., we sell the “Exosleeve” compression knee sleeves and other active wear products that are utilized in functional athletic fitness, powerlifting, Olympic weightlifting, endurance training, boot camps, circuit training programs, and strength training protocols, and are sold by major online retailers.

On December 16, 2015, we acquired EXO:EXO, Inc. (“EXO, Inc.”), a designer and producer of active wear brands offered in national fitness retailers in the U.S. pursuant to the terms of a stock exchange agreement dated December 16, 2015 (the “Stock Exchange Agreement”) with EXO, Inc. and Sloane McComb (EXO, Inc.’s sole shareholder) on December 16, 2015. Pursuant to the Stock Exchange Agreement, we acquired all of the issued and outstanding shares of EXO, Inc. common stock from Ms. McComb in exchange for (i) the issuance to Ms. McComb of 500,000 shares of our unregistered common stock, (ii) a payment of $25,000 to Ms. McComb, (iii) the payment of up to $20,000 to a third party for the payment of certain debts of EXO, Inc., and (iv) contingent consideration of up to 700,000 shares of our unregistered common stock in the following amounts upon attainment of EXO, Inc. gross sales targets in any calendar year following the closing: 100,000 shares if EXO, Inc. attains gross sales of at least $250,000 but less than $500,000, an additional 150,000 shares if EXO, Inc. attains gross sales of at least $500,000 but less than $750,000, an additional 200,000 shares if EXO, Inc. attains gross sales of at least $750,000 but less than $1,000,000 and an additional 250,000 shares if EXO, Inc. attains gross sales of at least $1,000,000 (the “Contingent Consideration”). In order earn the Contingent Consideration, Ms. McComb must be employed by us for the full calendar year during which the annual performance target has been achieved unless such target has been met prior to her separation. In addition to the purchase price, we agreed to invest $50,000 into EXO, Inc. for inventory, marketing and working capital purposes. Pursuant to the Stock Exchange Agreement, EXO, Inc. became our wholly owned subsidiary upon the closing of the Stock Exchange.

In connection with the closing under the Stock Exchange Agreement, EXO, Inc. entered into an employment agreement with Ms. McComb, pursuant to which Ms. McComb has been engaged as the President of EXO for a term commencing on the closing and ending on December 21, 2018, subject to automatic extensions if neither party has given the other notice that it does not wish to extend the agreement. Ms. McComb will receive an initial salary based on an annual rate to $40,000 for 2016 and $45,000 for 2017 and $50,000 for 2018, and will receive a quarterly bonus equal to 20% EXO, Inc.’s EBITDA in the prior quarter, and other benefits as determined by our board of directors.

In connection with our efforts to expand and rebrand our identity, on September 1, 2016 we amended our Articles of Incorporation to change our corporate name from PF Hospitality, Inc. to EXOlifestyle, Inc. These actions were approved by our board of directors by written consent in lieu of a meeting on September 1, 2016, and the holders of a majority of our common stock by written consent in lieu of a meeting on September 1, 2016 (the “Written Consent”) in accordance with the relevant sections of the Nevada Revised Statutes. On September 23, 2016, the Amendment of the Articles of Incorporation and the change of our trading symbol to EXOL became effective following approval by the Financial Information Regulatory Association, Inc. (“FINRA”).

We have three wholly owned operating subsidiaries, each of which is described below:

We are a designer, marketer and producer of functional sports gear and apparel that is available through various retail outlets worldwide. Our offerings include our original product, an innovative compression knee sleeve collection offered in a variety of custom prints and colorful patterns, knee wraps, wrist wraps, weight belts targeted to the high-performance athletic market including CrossFit^®, weightlifting, endurance training, boot camps, circuit training programs, powerlifting, Olympic weightlifting and other strength training protocols. In the past year, we have strategically planned and grown sales in our EXO products from a single-line compression knee sleeve company to a multi-line apparel brand offering wrist wraps, weight belts, apparel and active wear.

We derive a portion of our revenue from operating the all-natural and organic pizza franchise, Pizza Fusion, which operates under Pizza Fusion Holdings, Inc.

BUSINESS STRATEGY

We are focused on developing and marketing consumer fitness products to help people achieve healthier lives. Our products are targeted to meet the needs of a broad range of consumers, including fitness enthusiasts and individuals who are seeking the benefits of regular exercise. We plan to expand our product portfolio of high quality fitness products into multiple product lines utilizing our increasingly recognized brand name, EXO. We are focused on consumer markets and specialty and commercial distribution channels, and view the continual innovation of our product offerings as a key aspect of our business strategy. We are looking to expand our existing product lines by offering new technologies and materials, and focus significant effort and resources on the development or acquisition of innovative new fitness products for introduction to the marketplace at periodic intervals. We intend to continue to increase net revenues by strengthening our position in the sports gear and apparel market and growing our market. Specific elements of our strategy for continued growth include the following:

● Build Our Core Business. The cornerstone of our business has historically been our compression knee sleeve offerings. We are focused on growing that core business with our existing base of retail partners by working to increase exposure and brand awareness while continuing to innovate through quality and technology. We will continue to align ourselves with brand ambassadors in several sports which will enable us to continue to expand our presence in the fitness space. EXO was one of the first compression knee sleeve companies to incorporate custom prints and colors into our designs and this will remain as a focus for seasonal offerings as well. We have seen success in building our B2B customer base and we expect to continue this growth by through expanded relationships with strategic retail partners.

● Target Additional Consumer Segments. We continually seek to target new consumer segments for our performance products. We are expanding our offering for women and will be launching a higher-end “activewear” apparel line in Q2 of 2017. This launch is expected to take the brand’s reach well outside our core market of strength training, CrossFit^® and weightlifting and open us up to the multi-billion-dollar yoga, Pilates and Zumba^® segments. Additionally, we intend to target additional consumers by expanding our direct-to-consumer presence through our website and partners’ retail outlets. We are also developing branded knee sleeve prototypes for various NCAA Division I-A colleges in hopes to not only offer our functional gear to the athletes but to also increase sales through possible licensing agreements with the schools. We are currently working with Ohio State University as our first pilot school.

We have recently launched a sales channel on the Amazon.com market place and we hope we see significant sales growth reaching a much broader customer base through one of the most trusted retailers in the world at Amazon. Amazon will be handing all of the fulfillment, returns and customer feedback through the Fulfillment by Amazon program. Outsourcing this aspect of our business will allow us to allocated human resources to growing other facets of our business.

● Broaden Product Offering. We seek to develop and introduce new and innovative products. Through our various existing product lines, we provide branded offerings throughout our retailers’ selling seasons, and we continue to expand these lines to address consumer demands by expanding the fits, styles and colors of our current offerings. We intend to expand our offerings to multiple price points, enabling us to compete more successfully and grow our consumer base. In just the last year alone, our product offerings have grown from a single compression knee sleeve product to a multi-line athletic gear and apparel brand offering wrist wraps, weight belts, apparel and active wear.

● Expand Our Presence Globally. We believe the trend toward performance athletic products is global, and we are working to introduce our products to fitness fanatics throughout the world. Consistent with our domestic branding strategy, we are working with professional athletes and teams to gain more brand awareness in key growth markets. We already do business in Canada, Mexico, UK, UAE, New Zealand and Australia directly with consumers via our website as well as through newly establish retail partnerships. We are targeting Q3 of 2017 to launch our International Amazon marketplaces, opening us up to the world’s largest e-commerce communities. These would be including, but not limited to Amazon Canada, Mexico, UK, Spain, France, Italy and Germany. Q1 of 2018 we will move into the Asian marketplaces. We will utilize a global fulfillment partner, that can scale with our business over time. These planned strategic partnerships will position us for growth without any significant additional overhead.

INDUSTRY OVERVIEW

According to a report by Allied Market Research titled, “World Sports Apparel - Market Opportunities and Forecasts, 2014-2020”, the world sports apparel market is expected to generate revenue of $184.6 billion by 2020, growing at a cumulative annual growth rate (CAGR)of 4.3% during the forecast period, 2015-2020. Growing health awareness, increasing disposable income and a surge in female participation in sports are the major factors driving the growth of the world sports apparels market. Based on the mode of sale; retail segment accounted for significant market share in 2014. Some of the prominent companies have focused on opening retail stores in the emerging economies to expand their geographical presence and increase their customer base. The retail segment is comprised of supermarkets, brand outlets and discount stores. Online platforms, especially e-commerce sites like EXOsleeve.com, have exhibited a robust growth Europe and Australia, owing to the ease of accessibility and availability of a wide range of products at a competitive price. The online mode of sale segment is expected grow at a CAGR of 9.5% during the forecast period.

When drilling down specifically into the compression segment, a recent study from Persistence Market Research predicts the global compression therapy industry will expand at a compounded annual growth rate of 5.2% between 2014 and 2020. The study concluded that the industry, which was valued at $2.38 billion in 2014, will balloon to $3.23 billion in 2020. While its products are sold around the world, the compression therapy market is dominated by the United States and Canada. North America contributed $1.1 billion in 2014, approximately 46% of the global market.

Also, there has been a proliferation of offerings on a variety of media including YouTube, Instagram and other video programing of instructions and tutorials by trainers and professionals on a variety of exercises from yoga poses to the proper way to do lunges. There are also full-length, targeted workouts are available on these channels for cardio, strength, flexibility, and other fitness-related routines of interest to a health conscious consumer.

Sporting goods sales are also increasing at an accelerated rate. According to Statista, total global sporting goods revenues increased to $146.5 billion in 2014 from $130.2 billion in 2013 and $129.9 billion in 2012. U.S. sporting goods revenues increased to $64.8 billion in 2014 from $63.7 billion in 2013 and $62.6 billion in 2012.

According to the International Health, Racquet and Sportsclub Association (IHRSA), two significant developments are continuing to drive the growth experienced by the fitness industry: obesity continues in endemic proportions and the healthcare industry continues its trend towards prevention versus treatment. According to the U.S. Center for Disease Control, almost 70% of Americans over the age of 20 are overweight, including 35% that are considered obese according to their November 2015 report. Also, First Lady Michelle Obama developed the Let’s Move program to promote healthy lifestyles in order to curb childhood obesity and improper nutrition. Furthermore, population growth, particularly among individuals aged 20 to 64, which composes the largest gym-going demographic, has also impacted the increased demand for health club memberships, according to IBISworld report dated May 2016. As the focus on exercise and overall healthy lifestyles continue to impact the health club industry, increased availability of health related programing and instruction and increasing spending of sporting goods, we believe the market for compression wear is likely to expand faster than the overall performance apparel category.

The use of compression wear has become popular among athletes, and among those who engage in recreational exercise. We believe this is largely as a result of a growing awareness of the importance of maintaining a healthy lifestyle, combined with heavy commercial promotion. Further supporting our belief is the continued increase in U.S. fitness club industry revenues and sporting goods sales. We can benefit from these dynamics as we position ourselves as a top consumer brand of choice within the functional fitness market.

SALES

We currently sell our products through a number of channels, including business-to-business, through distributors and direct to consumer via our website www.EXOsleeve.com and various sporting events and expos. We actively ship to over 10 countries through relationships with international partners and retailers. We are also actively seeking to establish relationships with select national sporting goods retailers for the sale of our products in their stores.

In our business-to-business channel, we sell our products worldwide through a network of retail companies, consisting of sporting goods stores, Internet retailers, small specialty retailers, and independent gyms. Some of our retailers include:

We offer programs that provide price discounts to our retail and wholesale customers for ordering container-sized shipments or placing orders early enough in the season to allow for more efficient manufacturing by our suppliers. These programs are designed to reduce our shipping and handling costs, with much of the savings being passed on to our customers. In addition, we often offer other types of sales incentives to our retail customers, including volume discounts and various forms of rebates or allowances, which generally are intended to increase product exposure and availability for consumers, reduce transportation costs, and encourage marketing and promotion of our brands or specific products.

MARKETING

Our marketing efforts are based on an integrated combination of digital and traditional media, social media, event sponsorships, athlete sponsorship/ brand ambassador programs and direct consumer contact. We utilize Internet advertising, product websites, and our sponsored athlete program. Marketing and media effectiveness is measured continuously based on sales inquiries generated, cost-per-lead, conversion rates, return on investment and other performance metrics and we strive to optimize the efficiency of our marketing expenditures based on this data. Almost all of our direct customer orders are received either on our Internet website at www.exosleeve.com. or our Amazon store.

Our marketing and promotion efforts begin with a strategy of “seeding” our products among athletes and teams in order to gain recognition through the use of our products “on the field” and in the gym. In addition to the brand recognition and authenticity that this strategy provides, we have entered into endorsement agreements with a limited number of athletes and brand ambassadors with significant social media influence in their respective sports. We also sponsor and/or showcase at several regional and national events. We seek to sponsor these events to drive awareness and brand authenticity from a grassroots level. We have also relied on a well-established social media presence to generate awareness for our products, such as Instagram, Facebook, Twitter, Pinterest, and YouTube.

We intend to focus our marketing strategies on the following areas:

Consumer: We will seek to deploy consistent brand messaging and campaigns to build engagement with our consumers using a combination of marketing mediums including but not limited to catalog and digital marketing, social networks, rewards programs, affiliate programs, print, point-of-sale marketing, public relations, and sponsorship and event participation. We expect to utilize these channels to also distribute content, education in our efforts to build the global awareness, purchase intent, conversion, and ultimately, demand through brand loyalty.

Athlete Sponsorship Program: We intend to expand our network of influencers brand ambassadors to generate brand awareness.

Sponsored Athletes & Brand Ambassadors include:

PRODUCT DESIGN AND INNOVATION

Innovation is a vital part of the growth of our business, and we seeking to expand and diversify our product offerings by searching for new innovations that will help us grow our business through higher sales. To accomplish this objective, we seek out ideas and concepts both within our company and from outside designers.

As a consumer-driven company, we plan to employ qualitative and quantitative consumer research to help us assess new product concepts. If we determine that a third-party innovation concept meets certain financial criteria, we may enter into a licensing arrangement to utilize the technology or, in certain circumstances, purchase the technology for our own use.

SEASONALITY AND VARIABILITY OF BUSINESS

EXO. Our business is affected by the general seasonal trends common to the industry, including seasonal weather and discretionary consumer shopping and spending patterns. Our products are marketed on a seasonal basis and our sales are weighted substantially toward the third and fourth quarters, while our operating costs are more equally distributed throughout the year. The expansion of our direct-to-consumer operations has increased the proportion of sales, profits and cash flows that we generate in the fourth calendar quarter.

We generally solicit orders from wholesale customers and independent distributors for the fall and spring seasons based on seasonal ordering deadlines that we establish to aid our efforts to plan manufacturing volumes to meet demand. We typically ship the majority of our advance fall season orders to customers beginning in July and continuing through December. Similarly, we typically ship the majority of our advance spring season orders to customers beginning in January and continuing through June. Generally, orders are subject to cancellation prior to the date of shipment.

Pizza Fusion. We expect that our sales volumes will fluctuate seasonally. We expect that our average sales will be highest in the spring and winter, followed by the summer, and lowest in the fall, and that holidays, changes in the economy, severe weather and similar conditions may impact sales volumes seasonally in some regions. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Generally. Results of operations in any period should not be considered indicative of the results to be expected for any future period, particularly in light of persistent volatility in global economic and geopolitical conditions and volatility of foreign currency exchange rates which, when combined with seasonal weather patterns and inflationary or volatile input costs, reduce the predictability of our business.

MERCHANDISE SOURCING

All of our EXO products are produced by third-party manufacturers, and all of our manufacturing partners were primarily located in China. Lead times for inventory purchases from our suppliers, from order placement to receipt of goods, generally range from approximately 8 to 12 weeks, of which standard transit time represents 3 to 4 weeks. The length of our lead times requires us to place advance manufacturing orders based on management forecasts of future demand for our products. We attempt to compensate for our long replenishment lead times by maintaining adequate levels of inventory.

Our third-party manufacturing contracts are generally sourced on the basis of individual purchase orders. Our manufacturing relationships are non-exclusive, and we are permitted to procure our products from other sources at our discretion. None of our manufacturing contracts include production volume or purchase commitments on the part of either party. Our third-party manufacturers are responsible for the sourcing of raw materials and finished products to our specifications.

LOGISTICS

Our warehouse and distribution facility is located in Boca Raton, Florida . In addition to our Company-operated distribution center, we plan to utilize third-party warehouses and logistics providers to fulfill orders as we expand our operations. In our direct business, we strive to maintain inventory levels that will allow us to ship our products shortly after receiving a customer’s order. We use common carriers for substantially all of our merchandise shipments to direct customers.

In our retail business, we manage our inventory levels to accommodate anticipated seasonal changes in demand. Generally, we maintain higher inventory levels at the end of the third and fourth quarters to satisfy relatively higher consumer demand in the fourth and first quarters of each year. Many of our retail customers place orders well in advance of peak periods of consumer demand to ensure an adequate supply for the anticipated selling season.

We use various commercial truck lines for our merchandise shipments to retail customers.

COMPETITION

EXO. The markets for all of our active wear products are highly competitive. We believe the principal competitive factors affecting our business are quality, brand recognition, innovation and pricing. We believe we are well positioned to compete in markets in which we can take advantage of our strong brand name, and that our focus on innovative product design, quality, and performance distinguishes our products from the competition.

Our products compete directly with those offered by a large number of companies that market consumer active wear apparel. As the use of Internet websites for product sales by traditional retailers has increased, our competitors have become increasingly similar across our Direct and Retail sales channels.

Our principal competitors include Rock Tape, Workt, Rehband, Sling Shot and Nike.

Pizza Fusion. We believe that our direct competitors in this aspect of our business, pizza restaurants using natural and organic ingredients, constitute a small minority of operators within the pizza industry. We consider anyone in the fast-casual pizza space as competition and consider operators such as Blaze, Pie Five, Modmarket and Zpizza as our direct competitors within the natural and organic market.

In addition, the restaurant industry generally is intensely competitive with respect to the type and quality of food, price, service, restaurant location, personnel, brand, attractiveness of facilities, and effectiveness of advertising and marketing. The restaurant business is often affected by changes in consumer tastes; national, regional or local economic conditions; demographic trends; traffic patterns; the type, number and location of competing restaurants; and consumers’ discretionary purchasing power. Our franchisees compete within each market with national and regional chains and locally-owned restaurants for guests, management and hourly personnel and suitable real estate sites. We and our franchisees also face growing competition from the supermarket industry, which offers “convenient meals” in the form of improved entrées and side dishes from the deli section. In addition, improving product offerings at fast casual restaurants and quick-service restaurants, together with negative economic conditions, could cause consumers to choose less expensive alternatives. We expect intense competition to continue in all of these areas.

PIZZA FUSION

Pizza Fusion was incorporated under the laws of the State of Florida on November 6, 2006. This company franchises restaurants emphasizing the preparation of food with high quality organic and fresh ingredients for pizza and other menu items. Management has made the determination that its Pizza Fusion hospitality operations are not aligned with the company’s fitness apparel operations.

As of September 30, 2016, we franchised a total of 11 Pizza Fusion locations (six in the U.S., two in United Arab Emirates and three in Saudi Arabia. We have seen a reduction of four of the seven locations in Saudi Arabia as a result of weakening demand stemming from reductions in discretionary spending due to continued world-wide reductions in the price of and demand for crude oil. Royalty income was $166,055 as of September 30, 2016, a reduction of $44,678 from the same period in 2015. As a result of these factors, management believes that its resources can be better utilized in its other businesses and is currently evaluating strategic alternatives for its franchise operations including the partial or full sale of its interest in this business. Presently we do not have a timetable for when or if this business will be sold.

Franchise and Development Agreements

We have historically attempted to sell franchises to third parties, but as of November 2016, the Board of Directors and management of the Company determined not to continue to pursue this line of business. We will continue to be involved in the franchises that we have sold to date, and we will continue to sell license agreements to larger third parties, that will permit these parties to use the “Pizza Fusion” name, trademarks, etc.

In connection with our franchising operations, we receive initial franchise fee (typically $30,000), area development fees ( historically $250,000 to $300,000 per territory and a reduced franchise fee per location of $5,000 to $7,500 per location depending on the territory), franchise deposits and royalties of 5% of gross revenues of sales at franchised restaurants as defined in the franchise agreement. The term of the franchise agreement is generally for 10 years and may be renewed for two additional terms of 10 years subject to certain conditions, including the payment of a discounted franchise fee. We are currently operating six stores under franchise agreements.

Under the terms of our franchise agreement, we provide training, opening assistance and an operating manual, have the right to require franchisees source food items, equipment, supplies and certain services from approved suppliers, the right to approve any new menu items and make available to our franchisees information about new developments, techniques, and improvements in the areas of operations, management, and marketing. We also maintain a website for the benefit of ourselves and our franchisees. We have the right, but not the obligation, to establish, maintain, and administer a fund for the marketing of the “Pizza Fusion” brand and restaurants. If we establish a marketing fund, a franchisee is obligated to contribute an amount equal to 3% of its gross revenue for a local marketing fund plus an additional 2% of gross revenue if we establish a regional fund to cover a geographical area we have the right to designate. Further, franchisee’s are obligated to spend an amount equal to 3% of their gross revenues on their own local marketing. We have the right at any time prior to six months before the end of the term of any franchise agreement to inspect a franchised business and require the franchisee to maintain, refurbish, renovate, and upgrade (including purchasing one or more new delivery vehicles).

In January 2009, we entered into a ten year area development agreement with a third party to open a total of 10 Pizza Fusion locations in Saudi Arabia in return for a $250,000 development fee. Seven locations have been opened under the terms of this agreement.

In March 2011, we entered into a restaurant development agreement with a third party to open a total of 38 Pizza Fusion locations by 2019 in the countries of Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Tunisia and the United Arab Emirates. Two locations have been opened under the terms of this agreement and we have agreed to defer the development schedule under this agreement indefinitely. This development agreement expires on December 31, 2023.

The natural and organic food industry has grown significantly since we created the concept in 2006. A majority of the products needed to provide natural and organic offerings are readily available through national distribution partners as well as regional and local distribution sources. Fluctuations in commodity costs are expected, are present in all restaurant concepts, and are not unique to operators of natural and organic restaurant concepts. We endeavor to monitor the market pricing of our major commodity items, such as tomatoes, cheese and flour, and seek to secure long-term contracts based on futures pricing. Notwithstanding these efforts, fluctuations in commodity prices, particularly when prices increase precipitously, could adversely affect the operations of our franchisees.

Other Agreements

As disclosed in the Company’s Form 8-K filed on September 20, 2016, on September 15, 2016, the Company and Midam Ventures, LLC (“Consultant”) entered into an Engagement Letter pursuant to which the Consultant shall provide to the Company, among other services, the following services: (i) investor relations and public relations, (ii) product marketing; (iii) product development; (iv) product awareness, (v) business advisory and consulting services for the purpose of creating market awareness, etc. (the “Services”). As consideration for the Services, the Company is obligated to pay to Consultant a total of $150,000 cash compensation, payable $75,000 on or before September 19, 2016 and $75,000 no later than September 30, 2016. The term of the agreement is six weeks, with the first two weeks to be dedicated to a “ramp up period” and the remaining four weeks to be dedicated to “marketing”. In addition, the agreement contains customary terms relating to payment of expenses, confidentiality, indemnification and other matters. The agreement expired in accordance with its terms on October 30, 2016.

Research and Development

We do not engage in any material research and development activities. However, we do engage in ongoing studies to assist with food and menu development. Additionally, we conduct consumer research to determine customers’ preferences, trends, and opinions, as well as to better understand other competitive brands.

Government Regulation

We and our franchisees are subject to various federal, state and local laws affecting our business. We are subject to a variety of federal, state, and international laws governing franchise sales and the franchise relationship. In general, these laws and regulations impose certain disclosure and registration requirements prior to the offer and sale of franchises. Each of our franchisees’ restaurants must comply with licensing requirements and regulations by a number of governmental authorities, which include health, safety and fire agencies in the state or municipality in which the restaurant is located. The development and operation of restaurants depends on selecting and acquiring suitable sites, which are subject to zoning, land use, environmental, alcoholic beverage control, traffic and other regulations.

Seasonality

We expect that our sales volumes will fluctuate seasonally. We expect that our average sales will be highest in the spring and winter, followed by the summer, and lowest in the fall, and that holidays, changes in the economy, severe weather and similar conditions may impact sales volumes seasonally in some regions. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Trademarks and Service Marks

We own the service marks for “Pizza Fusion” and “Pizza Fusion Fresh, Organic Earth Friendly”. These service marks are registered in the United States. We granted our area franchisee in the Middle East the right to register the Pizza Fusion trademark for the term of its franchise agreement with us in certain countries in the Middle East where the franchisee has the right to open Pizza Fusion restaurants. We expect that the service marks and trademarks related to our restaurant businesses will have significant value and be important to our marketing efforts. Registration of the Pizza Fusion and Pizza Fusion Fresh, Organic Earth Friendly service marks expire in our 2018 and 2019 fiscal years, respectively, unless renewed. We expect to renew these registrations at the appropriate time.

Employees

As of January 3, 2017, we had six full-time employees. None of our employees is represented by a collective bargaining agreement and we consider our relations with our employees to be good.

Financings

July 27, 2015 Financing

Under the terms of the securities purchase agreement dated July 27, 2015, we issued and sold a $1,333,334 principal amount of convertible debentures due July 27, 2020 for a price of $1,200,000. Proceeds from this debenture will be paid to the company as follows: $140,000 upon signing with the balance payable in five consecutive monthly installments of $212,000 commencing on September 1, 2015. The company agreed to pay interest for the first 12 months at the rate of 10% per annum on the amounts advanced payable in cash in six equal tranches, the first of which is due on date the company closed on the financing and remainder will be due on each of the first five monthly anniversaries of such date. As of September 30, 2016, $477,000 has been advanced under this debenture and we are in discussions with the investors about the timing for resumption of payments of the remaining $723,000 due.

Under the terms of a Registration Rights Agreement entered into as part of the offering, the company agreed to file a registration statement with the Securities and Exchange Commission within 60 days of the closing date covering the public resale of the shares of common stock underlying the debentures, and to use its best efforts to cause the registration statement to be declared effective within 180 days from the closing date. Should the number of shares of common stock the company is permitted to include in the initial registration statement be limited pursuant to Rule 415 of the Securities Act of 1933, the company further agreed to file additional registration statements with the SEC to register any remaining shares. We will pay all costs associated with the registration statements, other than underwriting commissions and discounts. The parties to the Registration Rights Agreement have agreed to defer our obligation to file a registration statement until further notice by the holders of the convertible debt.

The terms of the Securities Purchase Agreement contain certain negative covenants by the company, unless consent of purchasers holding at least 75% of the aggregate principal amount of the outstanding debentures, including prohibitions on: incurrence of certain indebtedness and liens, amendment to our articles of incorporation or bylaws, repayment or repurchase of the company’s common stock or debts, sell substantially all of its assets or merger with another entity, pay cash dividends or enter into any related party transactions. We granted investors certain pro-rata rights of first refusal on future offerings by the company for as long as the investor(s) beneficially own any of the debentures.

The debentures are convertible into shares of the company’s common stock at a conversion price equal to 65% of the lowest traded price of its common stock for the twenty trading days prior to each conversion date subject to adjustment. The conversion price of the debentures is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. In addition, the conversion price is subject to adjustment if the company issues or sells shares of its common stock for a consideration per share less than the conversion price then in effect, or issue options, warrants or other securities convertible or exchange for shares of its common stock at a conversion or exercise price less than the conversion price of the debentures then in effect. If either of these events should occur, the conversion price is reduced to the lowest price at which these securities were issued or are exercisable. The debentures shares are not convertible to the extent that (a) the number of shares of the company’s common stock beneficially owned by the holder and (b) the number of shares of the company’s common stock issuable upon the conversion of the debentures or otherwise would result in the beneficial ownership by holder of more than 4.99% of the company’s then outstanding common stock. This ownership limitation can be increased or decreased to any percentage not exceeding 9.99% by the holder upon 61 days’ notice to the company.

On July 26, 2016, in conjunction with the funding of $50,000 under the convertible debentures by one of the holders of the convertible notes, we entered into an agreement with all of the holders of such notes to amend the conversion price to equal 50% of the lowest traded price of our common stock for the twenty trading days prior to each conversion date subject to adjustment. In addition, our Chief Executive Office, Vaughn Dugan and its President, Randy Romano, agreed to pledge as collateral for the Convertible Debt 4,800,000 and 4,920,873 shares, respectively, of our common stock they own to the investor who funded the $50,000 payment. The number of shares pledged are subject to reduction in an amount equal to the reduction in the principal amount of the convertible debentures held by the investor divided by $55,555.55 (plus interest on such amount which accrues commencing on the date of the Convertible Debenture) and multiplying the result by the number of pledged shares until the number of pledged shares is zero (the “Pledged Share Reduction”). The Pledged Share Reduction shall be computed no less frequently than within 30 days after the last day of each fiscal quarter.

July 20, 2016 Financing

On July 20, 2016 we issued a $200,000.00 principal amount convertible debenture due July 20, 2021 (the “Convertible Debenture”) which we sold at par value to an unrelated third party investor (the “Investor”). The terms of the Convertible Debenture include:

Maturity Date, Interest and Prepayment. The principal amount of the Convertible Note and accrued interest shall have been paid no later than November 30, 2020 (the “Maturity Date”). The note bears interest at an annual rate of 10.00% on the principal balance. Interest shall be accrued and added to the principal amount of the Convertible Note. The principal amount and any accrued interest due under the Convertible Note may be prepaid, in whole or in part at any time upon ten days written notice to the Investor. If the Company exercises its right to prepay any portion of the Convertible Note, the Company shall make payment to the Investor of an amount in cash equal to the sum of the then outstanding principal amount of this Convertible Debenture being prepaid and accrued interest thereon multiplied by 130%.

Optional Conversion. The Investor may at any time convert the amount due under the Convertible Debenture into shares of common stock (“Conversion Shares”) at a conversion price (“Conversion Price”) equal to the product of 50% multiplied by the lowest traded price of the Common Stock for the twenty trading days prior to the conversion date subject to adjustment as noted below.

Ownership Limitations. The Convertible Debenture is not convertible to the extent that (a) the number of shares of our common stock beneficially owned by the Investor and (b) the number of shares of our common stock issuable upon the conversion of the Convertible Debenture or otherwise would result in the beneficial ownership by Investor of more than 4.99% of our then outstanding common stock. This ownership limitation can be increased or decreased to any percentage not exceeding 9.99% by the Investor upon 61 days’ notice to us.

Certain Adjustments and Subsequent Rights Offerings. The conversion price of the Convertible Debenture is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. In addition, if at any time the Company grants, issues or sells any common stock equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Company’s Common Stock (the “Purchase Rights”), then the Investor will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Investor could have acquired if the Investor had held the number of shares of Common Stock acquirable upon complete conversion of the Convertible Debenture (without regard to any limitations on exercise hereof, including without limitation, the beneficial ownership limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record Investors of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Investor’s right to participate in any such Purchase Right would result in the Investor exceeding the beneficial ownership limitation, then the Investor shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Investor until such time, if ever, as its right thereto would not result in the Investor exceeding the beneficial ownership limitation).

Negative Covenants. As long as the Convertible Debenture is outstanding, unless the holders of at least 75% of the then outstanding principal amount of the Convertible Debenture shall have otherwise given prior written consent, we agreed that we will not amend our charter documents and bylaws in any manner that materially and adversely affects any rights of the holder, repurchase our common stock or certain other securities, pay dividends or distributions on any securities junior to the Convertible Debenture, sell, lease or otherwise dispose of any significant portion of our assets outside the ordinary course of business, enter into any related party transactions or enter into any agreement with respect to any of the foregoing.

Pledge of Shares. Pursuant to the terms of a stock pledge agreement, our Chief Executive Office, Vaughn Dugan and its President, Randy Romano, agreed to pledge as collateral for the Convertible Debt 19,200,000 and 19,683,492 shares, respectively, of our common stock they own to the Investor. The number of shares pledged are subject to reduction in an amount equal to the reduction in the principal amount of the Convertible Debentures held by Investor divided by $200,000.00 (plus interest on such amount which accrues commencing on the date of the Convertible Debenture) and multiplying the result by the number of pledged shares until the number of pledged shares is zero (the “Pledged Share Reduction”). The Pledged Share Reduction shall be computed no less frequently than within 30 days after the last day of each fiscal quarter.

Emerging Growth Company and Smaller Reporting Company Status

Emerging Growth Company

We are an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We intend to take advantage of all of these exemptions.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, and delay compliance with new or revised accounting standards until those standards are applicable to private companies. We have elected to take advantage of the benefits of this extended transition period.

We could be an emerging growth company until the last day of the first fiscal year following the fifth anniversary of our first common equity offering, although circumstances could cause us to lose that status earlier if our annual revenues exceed $1.0 billion, if we issue more than $1.0 billion in non-convertible debt in any three-year period or if we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act.

Smaller Reporting Company

We also qualify as a “smaller reporting company” under Rule 12b-2 of the Exchange Act, which is defined as a company with a public equity float of less than $75 million. To the extent that we remain a smaller reporting company at such time as are no longer an emerging growth company, we will still have reduced disclosure requirements for our public filings, some of which are similar to those of an emerging growth company, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and the reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

ITEM 1A. RISK FACTORS

The risk factors in this section describe the material risks to our business, prospects, results of operations, financial condition or cash flows, and should be considered carefully. In addition, these factors constitute our cautionary statements under the Private Securities Litigation Reform Act of 1995 and could cause our actual results to differ materially from those projected in any forward-looking statements (as defined in such act) made in this annual report on Form 10-K. Investors should not place undue reliance on any such forward-looking statements. Any statements that are not historical facts and that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “intends,” “plans,” “believes” and “projects”) may be forward-looking and may involve estimates and uncertainties which could cause actual results to differ materially from those expressed in the forward-looking statements.

Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Risks Related to Our Business and Our Industry

Not applicable for a smaller reporting company.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

As of September 30, 2015, we do not own any real property. We lease office space of approximately 2,300 square feet in Boca Raton, Florida pursuant to a lease that expires on August 31, 2019. We pay base rent of $2,800 per month. Rent is subject to increases of 5% each year.

We believe our current space is adequate for our operations at this time.

ITEM 3. LEGAL PROCEEDINGS

Occasionally, we may be involved in litigation matters relating to claims arising from the ordinary course of business. We do not believe that there are any claims or actions pending or threatened against us, the ultimate disposition of which would have a material adverse effect on our business, results of operations and financial condition.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

Market Information

Our common stock is currently quoted on OTC Market Group, Inc.’s OTC Pink tier under the symbol, “EXOL.” The OTC Market is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current “bids” and “asks”, as well as volume information.

The following table sets forth the range of high and low closing bid quotations for our common stock for each of the periods indicated as reported by the OTC Markets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. As of May 26, 2015, we effected a 2,000-for-1 stock split. All prices in the following table reflect post-split prices.

Fiscal Year Ended September 30, 2015

Fiscal Year Ended September 30, 2016

On January 2, 2017, the closing price for our common stock on the OTC Markets was $0.0192 per share.

Until recently, the volume of shares traded on the OTC Markets was insignificant and therefore, historic prices may not represent a reliable indication of the fair market value of these shares.

Holders of Common Stock

As of January 3, 2017, there were 451 record holders of our common stock. The number of record holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.

We have no securities authorized for issuance under equity compensation plans.

Dividends

We have never declared or paid dividends on our common stock. Moreover, we currently intend to retain any future earnings for use in our business and, therefore, do not anticipate paying any dividends on our common stock in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable to a smaller reporting company.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements, and notes thereto, included elsewhere in this annual report on Form 10-K. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future.

Fiscal Year Periods

We have defined various periods that are covered in this report as follows:

Overview

EXO:EXO

Through our wholly-owned subsidiary, EXO:EXO, we area designer, marketer and producer of functional sports gear and apparel that is available through various retail outlets worldwide. Our offerings include our original product, an innovative compression knee sleeve collection offered in a variety of custom prints and colorful patterns, knee wraps, wrist wraps, weight belts targeted to the high-performance athletic market including CrossFit^®, weightlifting, endurance training, boot camps, circuit training programs, powerlifting, Olympic weightlifting and other strength training protocols. In the past year, we have strategically planned and grown sales in our EXO products from a single-line compression knee sleeve company to a multi-line apparel brand offering wrist wraps, weight belts, apparel and active wear.

PIZZA FUSION

As of September 30, 2016, we franchised a total of 11 Pizza Fusion locations (six in the U.S., two in United Arab Emirates and three in Saudi Arabia. We have seen a reduction of four of the seven locations in Saudi Arabia as a result of weakening demand stemming from reductions in discretionary spending due to continued world-wide reductions in the price of and demand for crude oil. As a result of these factors, management believes that its resources can be better utilized in its other businesses and is currently evaluating strategic alternatives for its franchise operations including the partial or full sale of its interest in this business. Presently we do not have a timetable for when or if this business will be sold.

Results of Operations

Year Ended September 30, 2016 Compared to Year Ended September 30, 2015

Total Revenue. For fiscal 2016, total revenue increased by $337,343 to $547,976 compared to $210,633 in the same period in fiscal 2015, primarily as a result of sales of $381,919 from EXO, Inc. which we acquired on December 16, 2015. Total revenue was comprised of royalty and franchise fees of $166,055 and product sales of $381,919 for fiscal 2016 as compared to $210,633 and $-0- for fiscal 2015, respectively.

Cost of Sales. For fiscal 2016, cost of sales of $219,282 was comprised of cost of product sold, packaging, and shipping costs from the manufacturer. We did not have cost of sales in fiscal 2015.

Associated gross margins were $328,692 (60.0%) and $210,633 (100.0%) for the fiscal 2016 and 2015, respectively. For fiscal 2016, gross margins associated with the sale of our product from EXO, Inc. were $162,637 (42.6%) as compared to $-0- for fiscal 2015.

Total Operating Expenses. For fiscal 2016, total operating expenses increased 93.3% to $1,442,337 compared to $746,337 for same period in fiscal 2015. This increase was primarily due to selling, general and administrative expenses of $945,810 in the current period as compared to $339,444 in the prior year, due to our acquisition of EXO subsidiary. Lastly we incurred additional selling, general and administrative expense due to our acquisition of Pizza Fusion Holdings, Inc., SEC reporting obligations and compliance with our SEC filing obligations.

Net Loss. As a result of the above, the net loss for fiscal 2016 increased $578,020, or 107.9%, to $1,113,724 compared to $535,704 in the same period in fiscal 2015.

Liquidity and Capital Resources

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements.

Year Ended September 30, 2016 Compared to Year Ended September 30, 2015

As of September 30, 2015, our working capital deficit amounted to $1,117,056, a reduction of $172,566, a reduction of as compared to working capital deficit of $944,490 as of September 30, 2015. This decrease is primarily a result of a $107,803 increase in total current liabilities partially offset by a $29,874 increase in cash. Working capital at September 30, 2016 included primarily cash and cash equivalents of $29,874 and accounts payable and accrued liabilities of $1,028,629, advances of $218,361 and convertible notes payable of $283,529.

Cash used in operating activities of $686,770 during fiscal 2016 was primarily attributable to a gain on change in fair value of derivative liabilities of $1,361,092 and an increase of $2,035,762 of non-cash interest.

Cash used in investing activities was $36,453 during fiscal 2016, and principally related to design and related costs associated with a planned new restaurant.

Cash provided by financing activities of $497,662 during fiscal 2016 was attributable to proceeds from issuance of convertible notes, proceeds from advances and sale of common stock. Cash provided by financing activities of $462,988 during fiscal 2014 was attributable to proceeds from issuance of convertible notes, proceeds from advances, sale of common stock and series A preferred stock.

Capital Resources

We expect to incur a minimum of $500,000 in expenses during the next twelve months of operations as we expand our EXO operations, acquisition of new restaurant concepts and manage our current franchise operations. We estimate that this will be comprised of approximately $300,000 towards inventory and marketing costs and approximately $200,000 will be needed for general overhead expenses such as for corporate legal and accounting fees, office overhead and general working capital.

We have not determined the amount of funds needed to finance our growth plans. In the event we run into cost overruns or lower than anticipated revenues, we will have to raise the funds to pay for these expenses. We potentially will have to issue debt or equity, or enter into a strategic arrangement with other third parties.

In July 2016, we received an aggregate of $250,000.00 principal amount convertible note due November 30, 2020, of which $50,000 was under the securities purchase agreement dated July 27, 2015. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. There can be no assurance that additional capital will be available to us. Since we have no other such arrangements or plans currently in effect, our inability to raise funds for the above purposes that exceed our current working capital will have a severe negative impact on our ability to remain a viable company.

Off-Balance Sheet Arrangements

As of September 30, 2016, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

Going Concern Consideration

The accompanying unaudited condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has reported, as of the year ended September 30, 2016, net losses of $1,859,500, accumulated deficit of $10,862,378 and total current liabilities in excess of current assets of $1,117,056.

The Company’s revenue from operations is not sufficient to meet its working capital needs and will be dependent on funds raised to satisfy its ongoing capital requirements for at least the next 12 months. The Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all.

In any of these events, the Company may be unable to implement its current plans for expansion or respond to competitive pressures, any of these circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.

The independent auditor’s report on our September 30, 2015 consolidated financial statements states that the Company’s historical losses and accumulated deficiency raise substantial doubts about the Company’s ability to continue as a going concern, due to the losses incurred and deficiency. If we are unable to develop our business, we will have to reduce, discontinue operations or cease to exist, which would be detrimental to the value of the Company’s common stock. We can make no assurances that our business operations will develop and provide us with significant cash to continue operations.

In order to continue as a going concern, we will need, among other things, additional capital resources. Management’s plan is to obtain such resources for our capital needs by obtaining capital from management and significant shareholders sufficient to meet its operating expenses and planned expansion and seeking equity and/or debt financing. However, management cannot provide any assurances that we will be successful in accomplishing any of our plans.

Our ability to continue as a going concern is dependent upon our ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern.

Critical Accounting Policies

We have identified the following policies below as critical to its business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.

Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Impairment of Long-Lived Assets. The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.

Fair value of Financial Instruments. The fair value of cash and cash equivalents, royalties receivable, prepaid expenses and other assets, accounts payable and accrued liabilities, deferred income, approximates the carrying amount of these financial instruments due to their short-term nature. The fair value of long-term debt, which approximates its carrying value, is based on current rates at which we could borrow funds with similar remaining maturities.

Derivative Liability. The Company accounts for derivatives in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At September 30, 2016 and September 30, 2015, the Company did not have any derivative instruments that were designated as hedges.

Stock-based Compensation. The Company follows the provisions of ASC 718 which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. The Company uses the Black-Scholes pricing model for determining the fair value of stock-based compensation.

Revenue Recognition Revenue is recognized when persuasive evidence of an arrangement exists, delivery of the product or service has occurred, all obligations have been performed pursuant to the terms of the agreement, the sales price is fixed or determinable, and collectability is reasonably assured.

Royalty income

In connection with its franchising operations, the Company receives initial franchise fees, area development fees, franchise deposits and royalties which are based on sales at franchised restaurants.

Franchise fees, which are typically received prior to completion of the revenue of the revenue recognition process, are deferred when received. Such fees are recognized as income when substantially all services to be performed by the Company and conditions related to the sale of the franchise have been performed or satisfied, which generally occurs when the franchised restaurant commences operations.

Development agreements require the developer to open a specified number of restaurants in the development area within a specified time period or the agreements may be cancelled by the Company. Fees from development agreements are deferred when received and recognized as income as restaurants in the development area commence operations on a pro rata basis to the minimum number of restaurants required to be open.

Deferred franchise fees and development fees are classified as current or long term in the financial statements based on the projected opening date of the restaurants. Royalty fees, which are based upon a percentage of franchise sales, are made by the franchisee.

Sales

Sales are generated from an online process either through a web site or through third party providers such as Amazon. Collections are received at the point of sales.

During the year ended September 30, 2016, sales were comprised of sports products from or wholly owned subsidiary, EXO:EXO, Inc.

Recent Accounting Pronouncements

We implemented all new accounting standards that are in effect and that may impact its consolidated financial statements. We do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on the consolidated financial position or results of operations.

Off-Balance Sheet Arrangements

As of September 30 , 2016, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Financial Statements and Financial Statement Schedules appearing on pages F-1 through F-20 of this annual report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including our Chief Executive Officer and President who acts as our chief financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosures. Our Chief Executive Officer and President evaluated the effectiveness of disclosure controls and procedures as of September 30, 2016 pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and President concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective to ensure that information required to be included in our periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for the preparation of our consolidated financial statements and related information. Management uses its best judgment to ensure that the consolidated financial statements present fairly, in material respects, our financial position and results of operations in conformity with generally accepted accounting principles. Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in the Securities Exchange Act of 1934, as amended. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal controls including the possibility of human error and overriding of controls. Consequently, an ineffective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information.

Our internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that, in reasonable detail, accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles and that the receipts and expenditures of company assets are made in accordance with our management and directors authorization; and (iii) provide reasonable assurance regarding the prevention of or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

Under the supervision of management, including our Chief Executive Officer and President, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and subsequent guidance prepared by the Commission specifically for smaller public companies. Based on that evaluation, our management concluded that our internal control over financial reporting were not effective as of September 30, 2016 for the reasons discussed below.

A significant deficiency is a deficiency, or combination of deficiencies in internal control over financial reporting, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control. A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

Management identified the following material weakness and significant deficiencies in its assessment of the effectiveness of internal control over financial reporting as of September 30, 2016:

We expect to be materially dependent upon a third party to provide us with accounting consulting services for the foreseeable future. Until such time as we have a chief financial officer with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses and significant deficiencies in our disclosure controls and procedures and internal control over financial reporting will not result in errors in our financial statements which could lead to a restatement of those financial statements.

Our management, including our Chief Executive Officer and President, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

No changes were made to our internal control over financial reporting during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Effective as of September 23, 2016, the Financial Information Regulatory Association, Inc. (FINRA) approved the Company’s name change from PF Hospitality Group, Inc. to EXOlifestyle, Inc. The Company’s ticker symbol on the OTCQB tier of the OTC Markets Group, Inc. has been changed to “EXOL”.

Between October 1, 2016 and November 14, 2016, the Company issued a total of 4,689,169 shares of its common stock to a total of four entities in exchange for the conversion of notes or debt. Of the total shares issued, 1,050,000 shares were issued for consideration of $0.0015228 per share, 2,450,000 shares were issued for consideration of $0.0015375 per share, and 1,189,169 were issued for consideration of $0.04875 per share.

On or about October 20, 2016, we issued 1,282,051 shares of its common stock in settlement of $55,555 of convertible debentures.

On or about December 15, 2016 we issued 3,940,110 shares of our common stock pursuant to a conversion of a convertible promissory note, at a conversion price of $0.0015228. On or about December 16, 2016 we issued 2,600,000 shares of our common stock pursuant to a conversion of a convertible promissory note at a conversion price of $0.0015375.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Members of our board of directors are elected by the stockholders to a term of one year and serve until their successors are elected and qualified. Our officers are appointed by our board to a term of one year and serve until their successors are duly appointed and qualified, or until the officer is removed from office. Our board has no nominating, audit or compensation committees.

Set forth below is certain information regarding our directors and executive officers.

Vaughan Dugan. Mr. Dugan has served as our Chief Executive Officer and as a member of our board of directors since July 2015. From 2006 to 2015, Mr. Dugan was the Chief Executive Officer and founder of Pizza Fusion, a franchisor of fast casual restaurants which offers a healthy alternative to traditional pizza restaurants. Mr. Dugan currently serves as the vice chairman on the Florida Atlantic University College of Education Advisory Board. He has also served as vice-chairman of the City of Boca Raton’s Green Living Advisory Board since 2011.

Randy Romano. Mr. Romano has served as our President, Chief Financial and Accounting Officer and as a member of our board of directors since July 2015. From 2006 to 2015, Mr. Romano was the President/Founder of Pizza Fusion. Mr. Romano has extensive experience in the fields of franchise development, franchise operations and franchise training. His 30 year plus franchise experience includes serving as the president/founder of a retail franchise Treasure Cache, Inc., and president/founder of a service franchise American College Planning Service that franchised its college planning centers throughout the United States.

There are no family relationships between any of the executive officers and directors.

Involvement in Certain Legal Proceedings

None of our directors, executive officers, significant employees or control persons has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.

Corporate Governance

Our board of directors has not established any committees, including an audit committee, a compensation committee or a nominating committee, or any committee performing a similar function. The functions of those committees are being undertaken by our board. Because we do not have any independent directors, our board believes that the establishment of committees of our board would not provide any benefits to our company and could be considered more form than substance.

We do not have a policy regarding the consideration of any director candidates that may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our officers and directors established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our officers and directors have not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our board of directors.

Given our relative size and lack of directors’ and officers’ insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all current members of our board will participate in the consideration of director nominees.

As with most small, early stage companies until such time as we further develop our business, achieve a stronger revenue base and have sufficient working capital to purchase directors’ and officers’ insurance, we do not have any immediate prospects to attract independent directors. When we are able to expand our board to include one or more independent directors, we intend to establish an audit committee of our board of directors. It is our intention that one or more of these independent directors will also qualify as an audit committee financial expert. Our securities are not quoted on an exchange that has requirements that a majority of our board members be independent and we are not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our board of directors include “independent” directors, nor are we required to establish or maintain an audit committee or other committee of our board.

Code of Ethics

We expect that we will adopt a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. Once adopted, we will make the code of business conduct and ethics available on our website at www.EXOlifestyle.com. We intend to post any amendments to the code, or any waivers of its requirements, on our website.

Board Structure

Our board has not chosen to separate the positions of Chief Executive Officer and Chairman of the Board in recognition of the fact that our operations are sufficiently limited that such separation would not serve any useful purpose.

Role of Board in Risk Oversight Process

Management is responsible for the day-to-day management of risk and for identifying our risk exposures and communicating such exposures to our board. Our board is responsible for designing, implementing and overseeing our risk management processes. The board does not have a standing risk management committee, but administers this function directly through the board as a whole. The whole board considers strategic risks and opportunities and receives reports from its officers regarding risk oversight in their areas of responsibility as necessary. We believe our board’s leadership structure facilitates the division of risk management oversight responsibilities and enhances the board’s efficiency in fulfilling its oversight function with respect to different areas of our business risks and our risk mitigation practices.

Communications with the Board of Directors

Stockholders with questions about the Company are encouraged to contact the Company by sending communications to the attention of the Chief Executive Officer at 136 N.W. 16th Street, Boca Raton, FL 33432. If stockholders feel that their questions have not been sufficiently addressed through communications with the Chief Executive Officer, they may communicate with the board of directors by sending their communications to the Board of Directors, c/o the Chief Executive Officer at the same address.

Director Compensation

Historically, our non-employee directors have not received compensation for their service outside the compensation set forth in the Summary Compensation Table below, but we may compensate our directors for their service in the future. We reimburse our non-employee directors for reasonable travel expenses incurred in attending board and committee meetings. We also intend to allow our non-employee directors to participate in any equity compensation plans that we adopt in the future.

Procedures for Nominating Directors

There have been no material changes to the procedures by which security holders may recommend nominees to the Board during the quarter ended September 30, 2015.

ITEM 11. EXECUTIVE COMPENSATION

The following table summarizes all compensation recorded by us in the past two fiscal years for:

For definitional purposes, these individuals are sometimes referred to as the “named executive officers.”

2016 Summary Compensation Table

Executive Employment Agreements

Vaughan Dugan

On June 1, 2013, Pizza Fusion entered into an employment agreement with Mr. Dugan to serve as its Chief Executive Officer for a term that expires on May 30, 2020. The agreement provides for a base annual salary of $150,000 subject to a minimum increase at an annual compound rate of 5% and may be adjusted by the Company’s board of directors from time-to-time in its discretion but in no event shall the base salary be reduced below $150,000 plus annual increases without the Executive’s prior consent. In addition, Mr. Dugan is eligible for the same perquisites and benefits as are made available to other senior executive employees of the Company, as well as such other perquisites or benefits as may be specified from time to time by the Company including an automobile allowance, health insurance and a mobile telephone. Mr. Dugan is also eligible for an annual cash and equity bonus based on Company’s achievement of financial and other goals approved by its board of directors. As of the date of this annual report on Form 10-K, the board has not established any financial goals for purposes of determining bonuses.

If Mr. Dugan’s employment is terminated by us, with or without cause, or he resigns for any reason, he is entitled to be paid his compensation through the end of the remaining term, but in no event less than one year plus a pro-rata portion of any bonus awarded. During the term of his employment and for a period of one year thereafter, Mr. Dugan agreed to refrain from soliciting significant employees of the company or its franchisees. In addition, Mr. Dugan agreed to keep certain information of the Company confidential.

Randy Romano

On June 1, 2013, Pizza Fusion entered into an employment agreement with Mr. Romano to serve as its President for a term that expires on May 30, 2020. The agreement provides for a base annual salary of $150,000 subject to a minimum increase at an annual compound rate of 5% and may be adjusted by the Company’s board of directors from time-to-time in its discretion but in no event shall the base salary be reduced below $150,000 plus annual increases without the Executive’s prior consent. In addition, Mr. Romano is eligible for the same perquisites and benefits as are made available to other senior executive employees of the Company, as well as such other perquisites or benefits as may be specified from time to time by the Company including an automobile allowance, health insurance and a mobile telephone. Mr. Romano is also eligible for an annual cash and equity bonus based on Company’s achievement of financial and other goals approved by its board of directors. As of the date of this annual report on Form 10-K, the board has not established any financial goals for purposes of determining bonuses.

If Mr. Romano’s employment is terminated by us, with or without cause, or he resigns for any reason, he is entitled to be paid his compensation through the end of the remaining term, but in no event less than one year plus a pro-rata portion of any bonus awarded. During the term of his employment and for a period of one year thereafter, Mr. Romano agreed to refrain from soliciting significant employees of the company or its franchisees. In addition, Mr. Romano agreed to keep certain information of the Company confidential.

Long-Term Incentive Plans

There are no arrangements or plans in which the Company would provide pension, retirement or similar benefits for directors or executive officers.

Compensation Committee

We currently do not have a compensation committee of our board of directors. The board as a whole determines executive compensation.

Director Independence

Our board of directors is currently composed of two members, neither of whom qualifies as an independent director in accordance with the published listing requirements of the NASDAQ Global Market. The NASDAQ independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director, nor any of his family members has engaged in various types of business dealings with us. In addition, our board has not made a subjective determination as to each director that no relationships exist which, in the opinion of our board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, though such subjective determination is required by the NASDAQ rules. Had our board of directors made these determinations, our board would have reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management.

Outstanding Equity Awards at 2016 Fiscal Year-End

The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of September 30, 2016:

Limitation on Liability

Under the Nevada Revised Statutes and our Articles of Incorporation, as amended, our directors will have no personal liability to us or our stockholders for monetary damages incurred as the result of the breach or alleged breach by a director of his “duty of care”. This provision does not apply to the directors’ (i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) approval of any transaction from which a director derives an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director’s duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the corporation or its shareholders, (v) acts or omissions that constituted an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation or its shareholders, or (vi) approval of an unlawful dividend, distribution, stock repurchase or redemption. This provision would generally absolve directors of personal liability for negligence in the performance of duties, including gross negligence.

The statute does not affect a director’s responsibilities under any other law, such as the Federal securities laws. The effect of the foregoing is to require our company to indemnify our officers and directors for any claim arising against such persons in their official capacities if such person acted in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

Insofar as the limitation of, or indemnification for, liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling us pursuant to the foregoing, or otherwise, we have been advised that, in the opinion of the SEC, such limitation or indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

At January 3, 2017, there were 94,813,785 shares of our common stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of our common stock as of January 3, 2017 for:

Information on beneficial ownership of securities is based upon a record list of our stockholders and we have determined beneficial ownership in accordance with the rules of the SEC. We believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws, except as otherwise provided below.

Unless otherwise indicated, the business address of each person listed is in care of EXOlifestyle, Inc., 136 N.W. 16th Street, Boca Raton, FL 33432.

Series A Preferred Stock

(1) Calculated on the basis of 2,000,000 issued and outstanding Series A preferred shares as of January 3, 2017. Holders of our Series A preferred stock are entitled to 125 votes per share.

(2) Gives effect to the beneficial ownership of common stock (see table below) and Series A preferred stock.

Common Stock

(1) Gives effect to the beneficial ownership of common stock and Series A preferred stock (see preceding table).

(2) Includes 24,000,000 shares owned directly, 87,183 shares owned by each of Mr. Dugan’s wife and son, 2,108,667 shares of common stock issuable upon exercise of warrants exercisable at $0.25 per share which expire in June 2018 and 100,000 shares of common stock issuable upon exercise of warrants exercisable at $2.00 per share which expire in June 2018.

(3) Includes 24,604,365 shares owned directly, 2,108,667 shares of common stock issuable upon exercise of warrants exercisable at $0.25 per share which expire in June 2018 and 100,000 shares of common stock issuable upon exercise of warrants exercisable at $2.00 per share which expire in June 2018.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Effective July 1, 2015, we merged with Pizza Fusion. Under the terms of the merger with Pizza Fusion, we issued 17,117,268 shares of our common stock (after giving effect to the reverse stock split) for 100% of our common shares and equivalents, and a warrant to purchase an aggregate of 11,411,512 shares of common stock, exercisable at $0.25 per share for a period of three years. Vaughan Dugan, who became our Chief Executive Officer and a Director at the closing of the merger, and Randy Roman, who became our President and a Director at the closing of the merger, each received 3,162,999 shares of common stock, warrants to purchase 2,108,667 shares of common stock in the merger at $0.25 per share and 100,000 shares of common stock at $2.00 per share, all of which expire in June 2018. In addition, Messrs. Dugan and Romano each purchased 21,441,366 shares of our common stock and 1,000,000 shares of our Series A preferred stock, at a price of $0.0001 per share.

As of September 30, 2016 and 2015, accrued compensation due officers and executives included in accounts payable was $796,496 and $670,839, respectively.

Policy Regarding Transactions with Related Persons

We do not have a formal, written policy for the review, approval or ratification of transactions between us and any director or executive officer, nominee for director, 5% stockholder or member of the immediate family of any such person that are required to be disclosed under Item 404(a) of Regulation S-K. However, our policy is that any activities, investments or associations of a director or officer that create, or would appear to create, a conflict between the personal interests of such person and our interests must be assessed by our Chief Executive Officer and must be at arms’ length.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table shows the fees that were billed for the audit and other services provided by KLJ & Associates, LLP for the fiscal years ended September 30, 2016 and 2015.

Audit Fees - This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.

Audit-Related Fees - This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the SEC, other accounting consulting and other audit services.

Tax Fees - This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.

All Other Fees - This category consists of fees for other miscellaneous items.

Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

The consolidated financial statements and Report of Independent Registered Public Accounting Firm are listed in the “Index to Financial Statements and Schedules” on page F-1 and included on pages F-2 through F-19.

(2) Financial Statement Schedules

All schedules for which provision is made in the applicable accounting regulations of the SEC are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein.

(3) Exhibits.

+ Management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

EXOLIFESTYLE, INC.

CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders EXOlifestyle , Inc.

We have audited the accompanying balance sheets of EXOlifestyle, Inc. (f/k/a PF Hospitality Group, Inc.) (the “Company”) as of September 30, 2016 and 2015 and the related statements of operations, stockholders’ equity (deficit) , and cash flows for the years ended. EXO lifestyle, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PF Hospitality Group, Inc.as of September 30, 2016 and 2015, and the results of its operations and its cash flows for years ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, The Company has suffered net losses and has had negative cash flows from operating activities during the years ended September 30, 2016 and 2015. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

The accompanying notes are an integral part of these consolidated financial statements

The accompanying notes are an integral part of these consolidated financial statements

The accompanying notes are an integral part of these consolidated financial statements