Pineapple, Inc 10-Q for FY2021 Q3
Pineapple, Inc. (PNPL)
About this 10-Q
Pineapple, Inc filed this 10-Q on November 29, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $356.39K
- compared with a net loss of $238.22K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
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n/a
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Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: None.
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by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
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by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
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| Large-accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| ☐ |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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As of November 30, 2021, there were shares of the registrant’s common stock, $0.0000001 par value per share, issued and outstanding.
PINEAPPLE, INC. AND SUBSIDIARIES
Table of Contents
| Page | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Condensed Consolidated Financial Statements (Unaudited) | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 9 |
| Item 4. | Controls and Procedures | 9 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 11 |
| Item 1A. | Risk Factors | 13 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 13 |
| Item 3. | Defaults Upon Senior Securities | 13 |
| Item 4. | Mine Safety Disclosures | 13 |
| Item 5. | Other Information | 13 |
| Item 6. | Exhibits | 14 |
| Signatures | 17 | |
| 2 |
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
The following unaudited interim condensed consolidated financial statements of Pineapple, Inc. are included in this Quarterly Report on Form 10-Q:
INDEX TO FINANCIAL STATEMENTS
| F-1 |
Pineapple, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 30, 2021 (Unaudited) | December 31, 2020 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Total Current Assets | - | - | ||||||
| Property and equipment (net of depreciation) | ||||||||
| Other Assets: | ||||||||
| Equity method investment | ||||||||
| Deposit on stock purchase agreement – related party | - | |||||||
| Total Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accounts payable and accrued liabilities-related party | - | |||||||
| Accrued interest payable-related party | ||||||||
| Accrued interest payable other | ||||||||
| Settlement payable-related party | ||||||||
| Due to affiliates | ||||||||
| Notes payable- related party | ||||||||
| Note payable | ||||||||
| Advances on agreements | ||||||||
| Contingent liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (note 13) | - | - | ||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding | - | - | ||||||
| Series A Convertible Preferred stock, $ par value, shares authorized, shares issued and outstanding | - | - | ||||||
| Preferred stock value | - | - | ||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of September 30, 2021, and December 30, 2020, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-2 |
Pineapple, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Consulting expense- Stock-based compensation – related party | - | - | 35,000 | - | ||||||||||||
| Depreciation | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Expense | ||||||||||||||||
| Interest expense | - | - | - | |||||||||||||
| Loss from equity method investment | ||||||||||||||||
| Total Other Expense | ||||||||||||||||
| Loss from operations before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss Per Share – Basic and Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted Average Common Shares – Basic and Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-3 |
Pineapple, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
For the Three and Nine Months Ended September 30, 2021, and 2020
(Unaudited)
| Shares | Amount | Capital | Deficit | Payable | Equity | |||||||||||||||||
| Common Stock | Additional Paid-in- | Accumulated | Total Stockholders’ | |||||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||
| Balance as of December 31, 2019 | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Common stock issued for settlements of debt and payables | - | - | ||||||||||||||||||||
| Common stock issued for compensation and debt extinguishment | ||||||||||||||||||||||
| Common stock issued for compensation and debt extinguishment, shares | ||||||||||||||||||||||
| Common stock for cash to be issued | ||||||||||||||||||||||
| Common stock for cash to be issued, shares | ||||||||||||||||||||||
| Common Shares issued for services | ||||||||||||||||||||||
| Common Shares issued for services, shares | ||||||||||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||
| Common stock issued for cash, shares | ||||||||||||||||||||||
| Cancellation of common stock pursuant to arbitration agreement | ||||||||||||||||||||||
| Cancellation of common stock pursuant to arbitration agreement, shares | ||||||||||||||||||||||
| Issuance of common shares for equity method investment | - | |||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of March 31, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Common stock issued for compensation and debt extinguishment | - | - | ||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Shares | Amount | Capital | Deficit | Payable | Equity | |||||||||||||||||||
| Common Stock | Additional Paid-in- | Accumulated | Stock | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Payable | Equity | |||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | - | $ | |||||||||||||||||
| Common stock for cash to be issued | - | - | - | |||||||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Common Shares issued for services | - | - | - | |||||||||||||||||||||
| Common stock issued for cash | - | - | ( | ) | - | |||||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Cancellation of common stock pursuant to arbitration agreement | ( | ) | - | - | - | - | - | |||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-4 |
Pineapple, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| September 30, 2021 | September 30, 2020 | |||||||
| For the Nine Months Ended | ||||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Stock-based compensation | ||||||||
| Non-cash lease expense | - | ( | ) | |||||
| Loss from equity method investment | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts payable and accrued liabilities | ( | ) | ( | ) | ||||
| Security deposits | ||||||||
| Accounts payable and accrued liabilities related party | - | |||||||
| Accrued interest payable | - | |||||||
| Due to affiliates | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Common stock to be issued for cash | - | |||||||
| Proceeds from related party notes payable | ||||||||
| Repayments of related party notes payable | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net Change in Cash | - | - | ||||||
| Cash, Beginning of Period | - | - | ||||||
| Cash, End of Period | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-5 |
Pineapple, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Supplemental Disclosures of Cash Flow Information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental Disclosures of Non-Cash Investing and Financing Activities | ||||||||
| Common stock issued for services | $ | - | ||||||
| Deposit on stock purchase agreement | $ | - | ||||||
| Common stock issued for prior year equity method investment | $ | $ | ||||||
| Common stock issued for prior year settlements | $ | $ | ||||||
| Common stock issued for debt extinguishment | $ | $ | ||||||
| Equity method investment exchanged for forgiveness of related party note payable and accrued interest | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-6 |
PINEAPPLE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
Note 1 – Organization and Description of Business
Pineapple, Inc. (“Pineapple” or the “Company”) was originally formed in the state of Nevada under the name Global Resources, Ltd. on August 3, 1983. On April 12, 1999, the Company changed its name to “Helixphere Technologies Inc.” On October 2, 2013, the Company changed its name to “New China Global Inc.”
On October 30, 2013, the Company filed its Articles of Continuance with the Secretary of State of Wyoming pursuant to which the Company was re-domiciled from the State of Nevada to the State of Wyoming. On July 15, 2014, the Company filed an amendment to its Articles of Incorporation to change its name from “New China Global Inc.” to “Globestar Industries.”
On August 24, 2015, the Company entered into a Share Exchange Agreement (the “BBC Agreement”) with Better Business Consultants, Inc. (“BBC”), a corporation incorporated under the laws of California on January 29, 2015, and Shane Oei, a majority shareholder of the Company at the time. Pursuant to the terms of the BBC Agreement, BBC shareholders exchanged all of the issued and outstanding capital of BBC for an aggregate of newly and duly issued, fully paid and non-assessable shares of common stock of the Company. Upon closing, BBC became a wholly owned subsidiary of the Company. In addition, Mr. Oei and Gary Stockport, another former shareholder of the Company at the time, cancelled and shares of the Company’s common stock, respectively, in connection with the BBC Agreement. As the owners and management of BBC obtained voting and operating control of the Company after the share exchange and Globestar Industries was non-operating, the transaction was accounted for as a recapitalization of BBC, accompanied by the exchange of previously issued common stock for outstanding common stock of Globestar Industries, which was recorded at a nominal value. Upon consummation of the BBC Agreement, the Company ceased its prior business of providing educational services and continued the business of BBC as its sole line of business. BBC has three wholly owned subsidiaries, Pineapple Express One LLC, a California limited liability company, Pineapple Express Two LLC, a California limited liability company, and Pineapple Properties Investments, LLC, a Washington limited liability company.
On September 3, 2015, the Company changed its name to “Pineapple Express, Inc.” from “Globestar Industries.” The Company’s name had no relation to the 2008 motion picture produced by Columbia Pictures.
On February 12, 2016, the Company entered into an Agreement of Merger to acquire all of the assets and assume several liabilities of THC Industries, Inc. (“THC Parent”), a California corporation, through a two-step merger (the “THC Merger”) by and among the Company, THC Parent, the Company’s wholly owned subsidiary THC Industries, LLC (“THC”), a California limited liability company, and the Company’s former wholly owned subsidiary THCMergerCo., Inc., a California corporation. In June 2016, the Company began to anticipate significant difficulties in monetizing the value of the acquired intangible assets and recorded an impairment of those assets.
On August 5, 2016, the Company entered into a Forbearance Agreement with THC Industries, Inc. because of late payments. This sparked a temporary foreclosure of assets. On March 27, 2017, the Company entered into a Standstill and Waiver Agreement with THC Industries, Inc. because of additional late payments. On June 22, 2017, the Company successfully completed the conditions of the Standstill and Waiver Agreement signed between the parties on March 27, 2017. The Company made its payments and completed its conditions in full for the Forbearance Agreement. The Company gained back control of the assets relative to the purchase transaction.
ln addition to having stakes in the foregoing business ventures, the Company was also assigned a patent for the proprietary Top Shelf Safe Display System (“SDS”) for use in permitted cannabis dispensaries and delivery vehicles across the United States and internationally (where permitted by law), on July 20, 2016, by Sky Island, Inc. (the “SDS Patent”) via a Patent Assignment Agreement (the “Patent Assignment Agreement”). The SDS Patent was originally applied for and filed on August 11, 2015, by Sky Island, Inc. and received its notice of allowance from the United States Patent and Trademark Office on March 22, 2017.
It
is anticipated that the Top-Shelf SDS product shall retail for $
On March 14, 2017, the Company entered into a Share Purchase Agreement to sell BBC and its three wholly owned subsidiaries, Pineapple Express One LLC, Pineapple Express Two LLC, and Pineapple Property Investments, LLC to a related party, Jaime Ortega, in exchange for Mr. Ortega forgiving a debt of $ owed to Sky Island, Inc., a related party of the Company owned by Mr. Ortega, so that Mr. Ortega can fund and prosecute litigation claims and settle debts for the subsidiaries resulting from unconsummated parcel purchases which the Company feels was purposely circumvented by third parties involved in those transactions. Mr. Ortega, as an interested party, took these steps so the Company’s claims can be addressed against the parties at fault without negatively impacting or distracting the Company. The sale of BBC and its subsidiaries also included the transfer of liabilities owed by those entities. In accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, as this subsidiary was sold to an entity under common control of the Company, the $ in liabilities transferred, net of $ in consideration received, has been recorded as an increase to the Company’s additional paid-in-capital equity account. On January 27, 2018, the Company completed the sale of BBC, Pineapple Express One LLC, Pineapple Express Two LLC and Pineapple Property Investments, LLC to Mr. Ortega.
| F-7 |
On
April 7, 2017, Orr Builders, Prest-Vuksic Architects, Inc. and MSA Consulting, Inc. (all California corporations), as plaintiffs, filed
a complaint upon the Company, including subsidiaries Pineapple Express One LLC and BBC, and MJ Business Consultants; Clonenetics Laboratories
Cooperative, Inc.; United Pentecostal Church; and Healing Nature, LLC; within the Superior Court of the State of California for the County
of Riverside, Case No. PSC 1700746 (hereinafter referred to as the “Lead Case”), and a related and consolidated Case No.
PSC1702268, alleging, among other things: (i) breaches of contracts related to the DHS Project/Pineapple Park (property on which the
Company planned to build out space to lease to cultivators) in the amount of $
On March 16, 2017, the Company formed Pineapple Express Consulting, Inc. (“PEC”) as a wholly owned subsidiary. On August 3, 2017, a letter of intent was entered into between PEC and Sky Island, Inc., whereby all the assets of Pineapple Park, LLC, a California limited liability company controlled by Sky Island, Inc. holding lease deposits, were to be transferred through a related party transfer to PEC. On December 1, 2017, the Pineapple Park project of warehouses that were to be leased out to clients was terminated. Effective December 31, 2018, Pineapple Park, LLC pulled out of this project and signed a mutual release agreement for all lessees and Pineapple Park, LLC to terminate each party’s obligations and responsibilities under the leases and the parties’ relationship.
On March 19, 2019, the Company entered into a Share Exchange Agreement (the “PVI Agreement”) with PVI and the stockholders of PVI (the “PVI Stockholders”) in which the Company acquired a total of % of the outstanding shares of PVI, in consideration for shares of Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock may, from time to time, be converted by the holder into shares of the Company’s common stock in an amount equal to ten shares of common stock for each one share of Series A Convertible Preferred Stock. The PVI Stockholders elected to immediately convert the shares of Series A Convertible Preferred Stock into shares of common stock upon issuance. As a result of the investment in PVI, the Company now has a portfolio asset with which it has entered the cannabis cultivation, production and distribution sector throughout California. PVI has several leased properties that are currently being developed to provide these cannabis-related services. PVI, through its affiliates, has obtained various cannabis-related licenses throughout California.
On
January 17, 2020, the Company entered into an agreement with Jaime Ortega whereby in exchange for Mr. Ortega cancelling $
During
2019, PVI took preliminary business steps towards a project with Nordhoff Leases, LLC (“Nordhoff”), a related party, in which
Nordhoff subleased
Pursuant to an Agreement and Plan of Merger (“Merger Agreement”), dated as of April 6, 2020, by and between, Pineapple Express, Inc., a Wyoming corporation (“Pineapple Express”), and Pineapple, Inc., a Nevada corporation (“Pineapple”) and wholly-owned subsidiary of Pineapple Express, effective as of April 15, 2020 (the “Effective Date”), Pineapple Express merged with and into Pineapple, with Pineapple being the surviving entity (the “Reincorporation Merger”). The Reincorporation Merger was consummated to complete Pineapple Express’ reincorporation from the State of Wyoming to the State of Nevada. The Merger Agreement, the Reincorporation Merger, the Name Change (as defined below) and the Articles of Incorporation and Bylaws of Pineapple were duly approved by the written consent of shareholders of Pineapple Express owning at least a majority of the outstanding shares of Pineapple Express’ common stock, par value $ per share (the “PE Common Stock”). Pursuant to the Merger Agreement, the Company’s corporate name changed from “Pineapple Express, Inc.” to “Pineapple, Inc.”
| F-8 |
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States. As a result, significant volatility has occurred in both the United States and international markets. While the disruption is currently expected to be temporary, there is uncertainty around the duration. To date, the Company has experienced declining revenues, difficulty meeting debt covenants, maintaining consistent service quality with reduced revenue, and a loss of access to customers. Management expects this matter to continue to impact our business, results of operations, and financial position, but the ultimate financial impact of the pandemic on the Company’s business, results of operations, financial position, liquidity or capital resources cannot be reasonably estimated at this time.
In
October 2020, PNPXPRESS, Inc. (an entity managed by PVI) secured three cannabis licenses, including consumer delivery and statewide distribution,
from the City of Los Angeles for a retail storefront location at the intersection of Hollywood & Vine (1704 N. Vine Street). The
lease was signed in October 2020. Pineapple Express, a
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”). They do not include all of the information and footnotes required by GAAP for complete financial statements and, accordingly, certain information, footnotes, and disclosures normally included in the annual financial statements, prepared in accordance with GAAP, have been condensed or omitted in accordance with SEC rules and regulations. The accompanying financial information should be read in conjunction with the financial statements and the notes thereto in the Company’s most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on October 4, 2021. In the opinion of management, the financial data presented includes all adjustments necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. Results of interim periods should not be considered indicative of the results for the full year. These unaudited condensed consolidated financial statements include estimates and assumptions of management that affect the amounts reported in the unaudited condensed consolidated financial statements. Actual results could differ from these estimates.
Basis of Consolidation
The consolidated financial statements include the accounts of Pineapple, Inc. and its wholly owned subsidiaries, THC Industries, LLC and Pineapple Express Consulting, Inc., doing business as Pineapple Express and Pineapple Park, LLC. Intercompany accounts and transactions have been eliminated.
The Company’s consolidated subsidiaries and/or entities were as follows:
Schedule of Consolidated Subsidiaries and/or Entities
| Name of Consolidated Subsidiary or Entity | State or Other Jurisdiction of Incorporation or Organization |
Date of Incorporation or Formation (Date of Acquisition, if Applicable) |
Attributable Interest | |||||
2/16/2016 (acquired by us) |
% | |||||||
| % | ||||||||
| % | ||||||||
Use of Estimates in Financial Reporting
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. Significant estimates include the recoverability and useful lives of long-lived assets, assessment of legal accruals, the fair value of the Company’s stock, stock-based compensation and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.
| F-9 |
Fair Value of Financial Instruments
The Company follows the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for disclosures about fair value of its financial instruments and to measure the fair value of its financial instruments. The FASB ASC establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The carrying amounts of the Company’s financial assets and liabilities, including cash, accounts payable and accrued liabilities, and other current liabilities, approximate their fair values because of the short maturity of these instruments. The fair value of notes payable approximates their fair values since the current interest rates and terms on these obligations are the same as prevailing market rates.
Cash
The
Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash
equivalents are held in operating accounts at a major financial institution. Cash balances may exceed federally insured limits. Management
believes the financial risk associated with these balances is minimal and has not experienced any losses to date. As of September 30,
2021, and December 31, 2020, the Company had
Property and Equipment
Property
and equipment consist of furniture and fixtures and office equipment. They are recorded at cost, less accumulated depreciation. Depreciation
is computed using the
The estimated useful lives of the classes of property and equipment are as follows:
Schedule of Estimated Useful Lives of Property and Equipment
| Office equipment | ||
| Furniture and fixtures |
Investments – Equity Method
The Company accounts for equity method investments at cost, adjusted for the Company’s share of the investee’s earnings or losses, which are reflected in the consolidated statements of operations. The Company periodically reviews the investments for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. As of September 30, 2021, the Company believes the carrying value of its equity method investments were recoverable in all material respects.
Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the loss of the Company. In computing diluted loss per share, the treasury stock method assumes that outstanding options and warrants are exercised, and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants.
| F-10 |
At September 30, 2021, and December 31, 2020, the Company had warrants outstanding and no shares issuable for conversion of notes payable.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, the Company recognizes revenue when a customer obtains control of the promised goods or services. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods or services, net of any variable consideration (e.g., rights to return product, sales incentives, others) and any taxes collected from customers and subsequently remitted to governmental authorities.
Our service revenues arise from contracts with customers and include consulting related to the licensing, development, and compliance areas of the cannabis business and operational dispensary management. The Company also provides marketing and branding consulting services. We did not identify any costs incurred during the three and nine months ended September 30, 2021, and 2020, directly attributable to generating consulting revenue, and therefore have not categorized any costs as costs of sales. There were revenues during the three and nine months ended September 30, 2021, and 2020.
We recognize revenue when the following criteria are met:
The parties to the contract have approved the contract and are committed to perform their respective obligations – our customary practice is to obtain written evidence, typically in the form of a contract or purchase order.
Each party’s rights regarding the goods or services have been identified – we have rights to payment when services are completed in accordance with the underlying contract, or for the sale of goods when custody is transferred to our customers either upon shipment to or receipt at our customers’ locations, with no right of return or further obligations.
The payment terms for the goods or services have been identified – prices are typically fixed, and no price protections or variables are offered.
The contract has commercial substance – our practice is to only enter into contracts that will positively affect our future cash flows.
Collectability is probable – we often require a deposit for all or a portion of the goods or services to be delivered, as well as continually monitoring and evaluating customers’ ability to pay. Payment terms are typically zero to fifteen days within delivery of the good or service.
Customer
deposits are contract liabilities with customers that represent our obligation to either transfer goods or services in the future, or
refund the amount received. Where possible, we obtain customer deposits to lessen our risk of non-payment by our customers. Customer
deposits are recognized as revenue as we perform under the contract. As of September 30, 2021, and December 31, 2020, the Company did
Advertising/Promotion
The
Company’s advertising/promotion costs are expensed as incurred. The Company did
| F-11 |
Stock-based Compensation
The Company periodically issues restricted stock and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for restricted stock and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board (“FASB”) where the value of the award is measured on the date of grant and recognized as stock-based compensation expense on the straight-line basis over the vesting period.
The Company accounts for restricted stock and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB where the value of the stock-based compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete. In certain circumstances where there are no future performance requirements by the non-employee, restricted stock and warrants grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
The fair value of the Company’s warrant grants, including the put option liability from the THC Merger, are estimated using the Black-Scholes-Merton and Binomial Option Pricing models, which use certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton and Binomial Option Pricing models and based on actual experience. The assumptions used in the Black-Scholes-Merton and Binomial Option Pricing models could materially affect compensation expense recorded in future periods. In light of the very limited trading of our common stock, the market value of the shares issued was determined based on the then most recent price per share at which we sold common stock in a private placement during the periods then ended. As of September 30, 2021, and December 31,2020, there were no outstanding warrants.
Recently Adopted and Pending Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in the ASU are effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Board also specified that an entity should adopt the guidance as of the beginning of its annual fiscal year and is not permitted to adopt the guidance in an interim period. The Company does not believe adoption will have a material impact on its financial statements.
| F-12 |
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 removes certain exceptions to the general principle of ASC 740 in order to reduce the cost and complexity of its application. ASU 2019-12 is effective for public business entities for annual reporting periods beginning after December 15, 2020, and interim periods within those reporting periods. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company does not believe adoption will have a material impact on its financial statements.
In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The ASU amends and clarifies certain interactions between the guidance under Topic 321, Topic 323, and Topic 815, by reducing diversity in practice and increasing comparability of the accounting for these interactions. The amendments in the ASU should be applied on a prospective basis. The ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period for which financial statements have not yet been issued. The new standard has not had a material impact on the consolidated financial statements or disclosures.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statement presentation or disclosures.
Note 3 – Going Concern
The
Company’s condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern,
which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in its condensed consolidated financial statements, the Company has an accumulated deficit of approximately $
The
Company’s primary source of operating funds since inception has been cash proceeds from the private placements of its common stock
and from issuance of its short-term on demand loans, primarily from related parties. The Company intends to raise additional capital
in the short term through addition of demand loans and, once the up listing to a higher exchange is completed, through private placements
to sell restricted shares of common stock to investors. There can be no assurance that these funds will be available on terms acceptable
to the Company, or at all, or will be sufficient to enable the Company to fully complete its development activities or sustain operations.
During the nine months ended September 30, 2021, the Company raised approximately $
If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables, reduce overhead, scale back its current business plan or curtail operations until sufficient additional capital is raised to support further operations.
The Company’s ability to continue as a going concern is dependent on its ability to execute its strategy and on its ability to raise additional funds and/or to consummate a public offering. Management is currently seeking additional funds, primarily through the issuance of equity and/or debt securities for cash to operate the Company’s business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stockholders, in the case of equity and/or convertible debt financing.
Note 4 – Property and Equipment
Property and equipment as of September 30, 2021, and December 31, 2020, is summarized as follows:
Schedule of Property and Equipment
| September 30, 2021 | December 31, 2020 | |||||||
| Furniture and fixtures | $ | $ | ||||||
| Office equipment | ||||||||
| Subtotal | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the nine months ended September 30, 2021, and 2020 was $
| F-13 |
Note 5 – Equity Method Investment
In March 2019, the Company acquired a % investment in Pineapple Ventures, Inc. (“PVI”) in exchange for shares of the Company’s Series A Preferred stock, which upon issuance were immediately converted into shares of common stock. The investment has been accounted for under the equity method. In addition to having a direct investment, the Company also noted that common ownership with PVI represents an additional variable interest. However, it was determined that the Company does not have the power to direct the activities that most significantly impact PVI’s economic performance, and therefore, the Company is not the primary beneficiary of PVI and PVI has not been consolidated under the variable interest model.
On
January 17, 2020, the Company entered into an agreement with Jaime Ortega whereby in exchange for Mr. Ortega cancelling $
The
investment was recorded at cost, which was determined to be $
The following represents summarized financial information of PVI for the nine months ended September 30, 2021, and 2020, respectively:
Summary of Financial Information of Subsidiaries
| September 30, 2021 | September 30, 2020 | |||||||
| Revenue | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross margin | ||||||||
| Operating expenses | ||||||||
| Gain from the sale of investments | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
Based
on its 45.17% equity investment, the Company has recorded a loss from equity investment of $
Note 6 – Deposit on stock purchase agreement
On
August 7, 2021, the Company entered into a Stock Purchase Agreement, as amended on November 24, 2021 (the “CGI agreement”)
with Capital Growth Investments, Inc. (“CGI”), and one of its shareholders, Pineapple Ventures, Inc., an equity method investment
of the Company. Pursuant to the CGI agreement, the Company can acquire up to shares of CGI, which comprise
Note 7 – Leases
The
Company leases office space under an operating lease that expired in . The lease includes an option to extend for an additional
three-year term with rent adjusted to market rates. The Company did not exercise its option to extend the lease. Upon adopting ASU 2016-02
on January 1, 2019, the Company recorded a right-of-use asset and lease liability for $
In
accordance with ASC 842, Leases, the depreciation for the Company’s operating lease right-of-use asset is recorded in periodic
lease expense within the Company’s general and administrative expenses in the consolidated statements of operations. The periodic
lease expense recorded during the nine months ended September 30, 2021, and 2020, was $
| F-14 |
Upon
expiration of the lease term in June 2020, the Company’s security deposit was applied towards the final rent payment and the lease
reverted to a month-to-month basis until PVI entered into a new lease for the property in August 2020. The Company has agreed to pay
a rent allocation to PVI of $
Note 8 – Notes Payable, Related Party
Notes payable, related party, are comprised of the following as of September 30, 2021, and December 31, 2020:
Schedule of Notes Payable Related Party Transactions
| Noteholder | Due | Interest Rate |
Secured | September 30, 2021 |
December 31, 2020 |
|||||||||||
| Sky Island, Inc. | % | $ | $ | |||||||||||||
| Eric Kennedy | % | |||||||||||||||
| Rob Novinger | % | |||||||||||||||
| Neu-Ventures, Inc. | % | |||||||||||||||
| Total | $ | $ | ||||||||||||||
Sky Island, Inc.
From
January 1, 2020, to December 31, 2020, the Company decreased the Sky Island promissory notes from a beginning balance of $
On
December 17, 2020, the Company entered into an Intellectual Property Purchase Agreement with PVI pursuant to which the Company sold all
of the Company’s trade dress and trade names, logos, internet addresses and domain names, trademarks and service marks and related
registrations and applications, including any intent to use applications, supplemental registrations and any renewals or extensions in
exchange for Mr. Jaime Ortega, waiving and cancelling $
The
promissory note transactions were deemed a related party transaction because Jaime Ortega, owner, chief operating officer and director
of Sky Island, Inc., was a founding shareholder of the Company. Mr. Ortega has an aggregate ownership of
Accrued
interest payable on the Sky Island promissory notes as of September 30, 2021, and December 31, 2020, was $
There
was
Neu-Ventures, Inc.
Beginning in April 2019, the Company also began receiving advances from Neu-Ventures, Inc., another entity owned by our majority shareholder, Mr. Ortega. These advances are due on demand and do not incur interest.
Advances
from Neu-Ventures between January 2021 and September 2021 totaled $
| F-15 |
Eric Kennedy
In
May 2019, the Company agreed to a settlement with Eric Kennedy, a Company’s director, related to deferred cash compensation that
had been accrued for in the Company’s accounts payable and accrued liabilities to reduce the amount to $
The
note does not incur interest and was originally to be repaid through an initial $
Rob Novinger
As
of December 31, 2018, Rob Novinger has been paid $
Note 9 – Note Payable
The
Company, through our former subsidiary, BBC, entered into a $
Note 10 – Settlement payable-related party
At September 30, 2021 and December 31, 2020, settlement payable related party balance consist of the following:
Schedule of Settlement Payable
| Noteholder | September 30, 2021 | December 31, 2020 | ||||||
| Investor Three | ||||||||
| Settlement payable | $ | $ | ||||||
| F-16 |
Investor Three
In
December 2015, the Company entered into a Revenue Share Agreement for $ that was recorded as “advances on agreements”
liability. As per the Revenue Share Agreement, in the event that, for the period from February 5, 2016, through the three-year anniversary
of the Effective Date, if Lessee fails to pay the Company any Fixed Minimum Rent, the Company shall be required to pay to Investor Three,
in full, Investor Three’s share each month until the Company has paid Investor Three an aggregate of $ under this Revenue
Share Agreement. Thereafter, the Company shall have no further obligations or responsibilities to Investor Three in connection with this
Revenue Share Agreement. Due to the above clause, by reason of defaults on the DHS Project (as defined elsewhere herein), an additional
penalty of $ was incurred which was recorded as deferred finance cost. During the fiscal year 2018, the Company reduced $
Note 11 – Advances on Agreements
At September 30, 2021, and December 31, 2020, advances on agreements balance consist of the following:
Schedule of Advance on Agreement
| Noteholder | September 30, 2021 | December 31, 2020 | ||||||
| Investor One and Investor Two | ||||||||
| Advances on Agreements | $ | $ | ||||||
Investor One
On
February 16, 2016, the Company entered into a Binding Letter of Intent (“BLOI1”) with Investor One that the Company deemed
a financing agreement for the purchase of a certain property (APN: 665-030-044), and upon completion of development of the acquired property,
subsequently a revenue share agreement that was for the following considerations: (i) payment by Investor One of $
During
March 2016, the $
Investor Two
On
March 18, 2016, the Company entered into a Binding Letter of Intent (“BLOI2”), subsequently amended by a Real Property Purchase
and Sale Agreement and Joint Escrow Instructions (“Subsequent Land Purchase Agreement”) dated March 21, 2016, both of which
the Company deemed a financing agreement for the purchase of a certain property (APN: 665-030-043) for the following considerations:
(i) payment by Investor Two of $
On
March 22, 2016, Investor Two deposited $
| F-17 |
Note 12 – Stockholders’ Equity
The
Company is authorized to issue
During
the nine months ended September 30, 2021, the Company sold shares of common stock for total cash consideration of $
During
the nine months ended September 30, 2021, the Company issued shares for services to the Company’s directors and to one
of the Company’s officers for total fair value of $
During the nine months ended September 30, 2021, the Company cancelled shares of common stock pursuant to a settlement agreement (Note 13).
Note 13 – Commitments and Contingencies
From time to time, the Company is party to certain legal proceedings that arise in the ordinary course and are incidental to our business. Future events or circumstances, currently unknown to management, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods. The following is a list of current litigation:
Salem, et al. v. Pineapple Express, Inc., et al.
JAMS
Arbitration Reference Number: 1210035565 was filed July 13, 2018. This matter arises from a certain Agreement and Plan of Merger and
Reorganization dated February 12, 2016. Claimants sought forfeiture of certain IP rights, more specifically, Registered Mark “THC”
standard character mark (U.S. Trademark Reg. No. 1954405 registered on February 6, 1996) and Domain Name “www.thc.com”, together
with proceeds Respondents have received from any royalty or licensing payments relating to the IP rights from the date of Forfeiture,
as well as costs for reasonable attorneys’ fees. Arbitration was conducted on July 17-19, 2019. The arbitrator issued an award
on December 23, 2019, upholding the Claimants’ exercise of the put option as discussed in Note 10 and the transfer of the IP rights,
including the THC.com domain name and the “THC” trademark, attorney fees of $
| F-18 |
Pineapple Express, Inc. v. Ramsey Houston Salem
JAMS Arbitration Reference Number: 1220063897 was filed October 30, 2019 (the “second arbitration”). This matter arises from claims of breach of contract, more specifically the confidentiality provisions of certain Agreement and Plan of Merger and Reorganization dated February 12, 2016, entered into between the parties and arising from the disclosure of the interim arbitration award in the matter entitled and above-referenced as: Salem, et al. v. Pineapple Express, Inc., et al. JAMS Arbitration Reference Number: 1210035565, filed July 13, 2018, by Respondent. On April 8, 2021, the parties entered into a settlement agreement and mutual general release, under which the Company withdrew the second arbitration.
Hawkeye v. Pineapple Express, Inc., et al.
Los
Angeles Superior Court Case Number: BC708868 was filed June 6, 2018. Plaintiff claimed damages against Defendant in the excess of $
Sharper, Inc. v. Pineapple Express, Inc., et al.
Los
Angeles Superior Court Case Number: 18SMCV00149 was filed November 1, 2018. Complaint for money with an amount in controversy of $
Cunningham v. Pineapple Express, Inc.
Los
Angeles Superior Court Case Number: BS171779 Judgment, ordered by the Department of Industrial Relations, Labor Commissioner’s
Office, was entered by the Court on December 11, 2017. The amount of judgment entered was $
Pineapple Express, Inc. v. Cunningham
Los
Angeles Superior Court Case Number: SC 127731 was filed June 21, 2017. This action arose from certain complaint and cross-complaint which
were both dismissed. Defendant Cunningham pursued a cost judgment against Plaintiff and obtained a judgment in the amount of $
The Hit Channel, Inc. v. Pineapple Express, Inc.
Los
Angeles Superior Court Case Number: 19STCV09006 was filed in or about March 14, 2019. This action arose from certain complaint and cross-complaint
arising from certain licensing agreement entered into between the parties for the commercial exploitation of the URL and Domain Name
THC.com. The matter has since resolved pursuant to the confidential settlement agreement entered into by and between the parties. The
licensing agreement has been deemed terminated, and the matter has been dismissed with prejudice by order of the court on February 14,
2020. The Hit Channel was awarded $
| F-19 |
StoryCorp Consulting, dba Wells Compliance Group v. Pineapple Express, Inc.
JAMS
Arbitration Reference Number: 1210037058 was filed December 18, 2019. This matter arises from dispute over certain services agreement
entered into between the parties in or about January 31, 2019. In 2020, the parties agreed on a settlement amount of $
Russ Schamun v. Pineapple Express Consulting, Inc.
This
is a claim for $
Orr Builders, et. al. v. Pineapple Express, Inc.
This action is the culmination of a multiplicity of actions and cross-actions arising from the claims to title relating to certain real property more commonly known as 65241 San Jacinto Lane, Desert Hot Springs, California 92240-5014 and construction disputes for building projects thereon. The Company and its subsidiaries were dismissed from this action and the property was subsequently sold, fully releasing the Company from any further liability.
SRFF v. Pineapple Express, Inc.
This
matter resulted in a stipulated judgment whereas former SEC counsel claimed approximately $
Novinger v. Pineapple Express, Inc.
Los
Angeles Superior Court Case Number: 20CHLC10510 was filed in or about March 11, 2020. This is a limited jurisdiction action arising from
a claim for monies lent to Pineapple Express, Inc. without specificity as to the judgment debtor’s state of incorporation, for
the total of $
Note 14 – Subsequent Events
On November 26, 2021, the Company entered into
the first amendment to the stock purchase agreement (note 6) with Capital Growth Investments, Inc., one of its shareholders and Pineapple Ventures, Inc., pursuant
to which, the Company is to acquire
The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The Company determined that there were no reportable subsequent event(s) to be disclosed.
| F-20 |
SUPPLEMENTARY DATA
The Company is a smaller reporting Company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As used herein, “Pineapple,” the “Company,” “our,” “we” or “us” and similar terms include Pineapple, Inc., unless the context indicates otherwise. The following discussion and analysis of our business and results of operations for the three and nine months ended September 30, 2021, and our financial conditions at that date, should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”). US Dollars are denoted herein by “USD,” “$” and “dollars.”
General
This management discussion and analysis of the financial condition and results of operations of the Company is for the three and nine months ended September 30, 2021, and 2020. It is supplemental to and should be read in conjunction with the Company’s unaudited condensed consolidated financial statements as of September 30, 2021, and the consolidated financial statements for the year ended December 31, 2020, included in our Annual Report on Form 10-K for the year ended December 31, 2020, and filed with the U.S. Securities and Exchange Commission and the accompanying notes for each respective period. The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Disclaimer Regarding Forward-Looking Statements
Certain statements contained in this Quarterly Report (or otherwise made by us or on our behalf from time to time in other reports, filings with the U.S. Securities and Exchange Commission, news releases, conferences, internet postings or otherwise) that are not statements of historical fact constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, notwithstanding that such statements are not specifically identified. These forward-looking statements relate to expectations or forecasts for future events, including without limitation our earnings, revenues, expenses or other future financial or business performance or strategies, or the impact of legal or regulatory matters on our business, results of operations or financial condition. These statements may be preceded by, followed by or include the words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intent,” “could,” “would,” “should,” “estimate,” “might,” “plan,” “predict” or “continue” or the negative or other variations thereof or comparable terminology intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are based on information available to us as of the date of this Quarterly Report and on our current expectations, forecasts and assumptions, and involve substantial risks and uncertainties. Actual results may vary materially from those expressed or implied by the forward-looking statements herein due to a variety of factors.
This Quarterly Report contains forward-looking statements, including statements regarding, among other things:
| ● | our ability to continue as a going concern; | |
| ● | our anticipated needs for working capital; | |
| ● | our ability to generate a profit; | |
| ● | our heavy involvement with cannabis, which remains illegal under federal law; | |
| ● | our ability to access the service of banks; | |
| ● | our ability to obtain various insurances for our business; | |
| ● | our ability to remain compliant with changing laws and regulations; | |
| ● | our ability to obtain the relevant state and local licenses; | |
| ● | our ability to successfully manage our growth; |
| 3 |
| ● | our ability to repay current debt in cash and obtain adequate new financing; | |
| ● | our dependence on third parties for services; | |
| ● | our dependence on key executives; | |
| ● | our ability to control costs; | |
| ● | our ability to successfully implement our expansion strategies; | |
| ● | our ability to obtain and maintain patent protection; | |
| ● | our ability to recruit employees with regulatory, accounting and finance expertise; | |
| ● | the impact of government regulations, including United States Food and Drug Administration (the “FDA”) regulations; | |
| ● | the impact of any future litigation; | |
| ● | the availability of capital; and | |
| ● | changes in economic, business, and competitive conditions. |
Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks and uncertainties discussed in Item 1A. Risk Factors of this Quarterly Report, section captioned “Risk Factors” of our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on October 4, 2021, and matters described in this Quarterly Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Quarterly Report will in fact occur. We caution you not to place undue reliance on these forward-looking statements. In addition to the information expressly required to be included in this Quarterly Report, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading. All subsequent written and oral forward-looking statements attributable to our Company or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. All forward-looking statements included in this Quarterly Report are made only as of the date of this report or as indicated. Except as required by law, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Introduction
The Company has spent the last several years recasting the direction of the Company. We intend to take advantage of the opportunities that have been identified in the cannabis sectors. The market opportunities that are opened to a cannabis company include PVI’s involvement with cannabis delivery, retail, manufacturing, and cultivation. Our main focus has been to receive approximately 45% of all net income generated by PVI from its business ventures, as well as selling the Top Shelf System to cannabis dispensaries.
Our Business
The Company was originally formed in the State of Nevada under the name Global Resources, Ltd. on August 3, 1983. It changed its name to “Helixphere Technologies Inc.” on April 12, 1999, and to “New China Global Inc.” on October 2, 2013. It reincorporated in Wyoming on October 30, 2013, and changed its name to “Globestar Industries” on July 15, 2014. On August 24, 2015, the Company entered into a share exchange agreement with Better Business Consultants, Inc. (“BBC” dba “MJ Business Consultants”), a corporation formed in California on January 29, 2015, all of BBC’s shareholders, and the Company’s majority shareholder at that time (the “BBC Share Exchange”). Pursuant to the BBC Share Exchange, BBC became a wholly owned subsidiary of the Company. Upon consummation of the BBC Share Exchange, the Company ceased its prior business of providing educational services and continued the business of BBC as its sole line of business. BBC has three wholly owned subsidiaries, Pineapple Express One LLC, a California limited liability company, Pineapple Express Two LLC, a California limited liability company, and Pineapple Properties Investments, LLC, a Washington limited liability company. Better Business Consultants, Inc. has since been sold by the Company. On September 3, 2015, the Company changed its name to “Pineapple Express, Inc.” from “Globestar Industries.”
ln addition to having stakes in the foregoing business ventures, the Company was also assigned a patent for the proprietary Top Shelf Safe Display System (“SDS”) for use in permitted cannabis dispensaries and delivery vehicles across the United States and internationally (where permitted by law), on July 20, 2016, by Sky Island, Inc. (the “SDS Patent”) via a Patent Assignment Agreement (the “Patent Assignment Agreement”). The SDS Patent was originally applied for and filed on August 11, by Sky Island, Inc. and received its notice of allowance from the United States Patent and Trademark Office on March 22, 2017. It is anticipated that the Top-Shelf SDS product shall retail for $30,000 per unit. Pineapple intends to sell the Top-Shelf SDS units to PVI for use in retail storefronts and delivery vehicles as well as to sell the Top Shelf SDS technology to other cannabis retail companies. The Company anticipates beginning sales of the Top Shelf SDS system in the fourth quarter of 2021.
| 4 |
In 2019 the Company entered into a Share Exchange Agreement, as amended (the “PVI Agreement”), with Pineapple Ventures, Inc. (“PVI”) and PVI’s stockholders. In connection with the PVI Agreement, the Company acquired a total of 50,000 shares of PVI’s outstanding capital stock, equaling 50% of the outstanding shares of PVI. The Company’s ownership interest in PVI was reduced to approximately 45% in January 2020. As a result of the investment in PVI, the Company entered the cannabis cultivation, production, and distribution sector throughout California. PVI has several leased properties that are currently being developed to provide these cannabis-related services.
During 2019, PVI took preliminary business steps towards a project with Nordhoff Leases, Inc. (“Nordhoff”), a related party, in which Nordhoff subleased 38,875 square feet in a building to three 15% owned entities by PVI; however, the contemplated project never matriculated and the planned contribution of Nordhoff to PVI was nullified. In June and July of 2020 PVI sold its 15% investments in three entities, including the cannabis licenses associated with them for $2.87 million to support its operations and assigned its three 15% owned entities’ subleases with Nordhoff to the buyer as part of the sale. PVI received 15% of the proceeds of the sale of the entities and their cannabis licenses.
Pursuant to an Agreement and Plan of Merger (“Merger Agreement”), dated as of April 6, 2020, by and between, Pineapple Express, Inc., a Wyoming corporation (“Pineapple Express”), and Pineapple, Inc., a Nevada corporation (“Pineapple”) and wholly-owned subsidiary of Pineapple Express, effective as of April 15, 2020 (the “Effective Date”), Pineapple Express merged with and into Pineapple, with Pineapple being the surviving entity (the “Reincorporation Merger”). The Reincorporation Merger was consummated to complete Pineapple Express’ reincorporation from the State of Wyoming to the State of Nevada. The Merger Agreement, the Reincorporation Merger, the Name Change (as defined below) and the Articles of Incorporation and Bylaws of Pineapple were duly approved by the written consent of shareholders of Pineapple Express owning at least a majority of the outstanding shares of Pineapple Express’ common stock. Pursuant to the Merger Agreement, the Company’s corporate name changed from “Pineapple Express, Inc.” to “Pineapple, Inc.”
The Company is based in Los Angeles, California. Through the Company’s operating subsidiary Pineapple Express Consulting, Inc. (“PEC”), as well as its PVI portfolio asset, the Company provides capital to its canna-business clientele, leases properties to those canna-businesses, takes equity positions and manages those operations, and provides consulting and technology to develop, enhance, or expand existing and newly formed infrastructures. Pineapple aims to become the leading portfolio management company in the U.S. cannabis sector. The Company’s executive team blends enterprise-level corporate expertise with a combined three decades of experience operating in the tightly regulated cannabis industry. Pineapple’s strategic asset integration has provided it with the infrastructure to support its subsidiaries with cost-effective access to all segments of the vertical: from cultivation and processing, to distribution, retail and delivery. With its headquarters in Los Angeles, CA, Pineapple’s portfolio company, PVI, is rapidly increasing its footprint throughout the state and looking to scale into underdeveloped markets. While PVI is generating revenues from the above-mentioned means, PEC is currently still in development and is currently not generating revenues. The Company receives monthly share equal to approximately 45% of PVI’s income that provide regular operating cash flows.
In October 2020, PNPXPRESS, Inc. (an entity managed by PVI) secured three cannabis licenses, including consumer delivery and statewide distribution, from the City of Los Angeles for a retail storefront location at the intersection of Hollywood & Vine (1704 N. Vine Street). The lease was signed in October 2020. Pineapple Express, a 3,460 square foot dispensary was opened in October of 2021. PVI has received 30% equity and will receive a management fee of 10% of sales of this entity.
Impact of COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States. As a result, significant volatility has occurred in both the United States and International markets. While the disruption is currently expected to be temporary, there is uncertainty around the duration. To date, the Company has experienced declining revenues, difficulty meeting debt covenants, maintaining consistent service quality with reduced revenue, and a loss of access to customers. Management expects this matter to continue to impact our business, results of operations, and financial position, but the ultimate financial impact of the pandemic on the Company’s business, results of operations, financial position, liquidity or capital resources cannot be reasonably estimated at this time.
Recent Developments
None
Recent Accounting Pronouncements
Please see section captioned “Recent Accounting Pronouncements” in Note 1 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a discussion of recently issued and adopted accounting pronouncements.
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Results of Operations
Summary of Results of Operations for the three months ended September 30, 2021, and 2020:
| (In dollars) | September 30, 2021 | September 30, 2020 | ||||||
| Revenue | $ | - | $ | - | ||||
| Operating expenses: | ||||||||
| General and administrative | 127,031 | 134,765 | ||||||
| Depreciation | 1,541 | 1,541 | ||||||
| Total operating expenses | 128,572 | 136,306 | ||||||
| Operating loss | (128,572 | ) | (136,306 | ) | ||||
| Other expense: | ||||||||
| Loss from equity method investment | 227,822 | 101,917 | ||||||
| Total other expense | 227,822 | 101,917 | ||||||
| Loss from operations before taxes | (356,394 | ) | (238,223 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | $ | (356,394 | ) | $ | (238,223 | ) | ||
Revenue
Revenue from operations for the three months ended September 30, 2021, and 2020, was $0. The Company has not yet generated any revenue.
General and Administrative
General and administrative expenses for the three months ended September 30, 2021, were $127,031, a decrease of approximately $7,700, or 5.8 %, from $134,765 during the three months ended September 30, 2020. Management does not consider such decrease as material.
Depreciation
Depreciation expense was $1,541 in the three months ended September 30, 2021, and 2020.
Operating Loss
Operating loss for the three months ended September 30, 2021, was $128,572, a decrease of approximately $7,700, or approximately 5.8% from an operating loss from continuing operations of $136,306 during the three months ended September 30, 2020. Such decrease is not considered material.
Other Expense
During the three months ended September 30, 2021, the Company has total other expense of $227,822, consisting of losses from the Company’s equity method investment of $227,822.
During the three months ended September 30, 2020, the Company has total other expense of $101,917, consisting of losses from the Company’s equity method investment of $101,917.
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Net Loss
As a result of the foregoing, the Company recorded a net loss of $356,394 for the three months ended September 30, 2021, as compared to a net loss of $238,223 for the three months ended September 30, 2020. Most of the decrease is attributable to the loss from equity method investment.
Summary of Results of Operations for the nine months ended September 30, 2021, and 2020:
| (In dollars) | September 30, 2021 | September 30, 2020 | ||||||
| Revenue | $ | - | $ | - | ||||
| Operating expenses: | ||||||||
| General and administrative | 413,030 | 528,350 | ||||||
| Consulting expense - Stock-based compensation – related party | 35,000 | - | ||||||
| Depreciation | 4,623 | 5,320 | ||||||
| Total operating expenses | 452,653 | 533,670 | ||||||
| Operating loss | (452,653 | ) | (533,670 | ) | ||||
| Other expense: | ||||||||
| Interest expense | - | 53,821 | ||||||
| Loss from equity method investment | 790,126 | 199,769 | ||||||
| Total other expense | 790.126 | 253,590 | ||||||
| Loss from operations before taxes | (1,242,779 | ) | (787,260 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | $ | (1,242,779 | ) | $ | (787,260 | ) | ||
Revenue
Revenue from operations for the nine months ended September 30, 2021, and 2020, was $0. The Company has not yet generated any revenue.
General and Administrative
General and administrative expenses for the nine months ended September 30, 2021, were $413,030, a decrease of $115,320, or 21.9 %, from $528,350 during the nine months ended September 30, 2020. The Company leased office space under an operating lease expiring in June 2020, under ASU 2016-02. The Company recognized $0 and approximately $42,000 of periodic lease expense in the nine months ended September 30, 2021, and 2020, respectively. Professional fees and consulting fees decreased by approximately $87,000 and $99,000, respectively, offset by an increase in accounting fees by approximately $106,000.
Depreciation
Depreciation expense was $4,623 and $5,320 in the nine months ended September 30, 2021, and 2020, respectively. This is consistent with the depreciable asset base which did not change for the nine months ended September 30, 2021, and 2020.
Consulting expense – stock-based compensation- related party
During the nine months ended September 30, 2021, the Company issued 350,000 shares of restricted stock to the Company’s Directors and one officer for aggregate fair value of $35,000.
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Operating Loss
Operating loss for the nine months ended September 30, 2021, was $452,653, a decrease of $81,017, or approximately 15.2% from an operating loss from continuing operations of $533,670 during the nine months ended September 30, 2020. Most of the decrease is attributable to a decrease in periodic lease expense, consulting fees and professional fees, offset by an increase in accounting fees.
Other Expense
During the nine months ended September 30, 2021, the Company has total other expense of $790,126, consisting of losses from the Company’s equity method investment of $790,126.
During the nine months ended September 30, 2020, the Company has total other expense of $253,590, consisting of interest expense of $53,821 and losses from the Company’s equity method investment of $199,769.
Net Loss
As a result of the foregoing, the Company recorded a net loss of $1,242,779 for the nine months ended September 30, 2021, as compared to a net loss of $787,260 for the nine months ended September 30, 2020.
Liquidity and Capital Resources
As of September 30, 2021, we had a working capital deficit of $3,037,966, and $0 in cash. As of September 30, 2021, the Company’s current liabilities included $734,077 in accounts payable and accrued liabilities, $126,481 in accounts payable and accrued liabilities related party, $52,408 in accrued interest payable, $858,986 in related party notes payable, $19,838 in other notes payable, $615,000 in settlement payable related party, $169,000 in advances on agreement, and $100,048 in contingent liabilities. We have funded our operations since inception primarily through the issuance of our equity securities in private placements to third parties, and/or promissory notes to related parties for cash. The cash was used primarily for operating activities, including cost of employees, management services, professional fees, consultant fees, and travel. Our management expects that cash from operating activities will not provide sufficient cash to fund normal operations, support debt service, or undertake certain investments we anticipate prosecuting for our business proposition both in the near and intermediate terms. We will continue to rely on financing provided under notes from related and third-party party sources, as well as sale of shares of our common stock in private placements, to fund our expected cash requirements.
We intend to continue raising additional capital through related party loans. Additionally, in 2021 the Company is planning to apply to have its common stock quoted on the OTC Markets, at which point the Company plans to raise money through issuances of debt and/or equity securities in private placements to accredited investors. There can be no assurance that these funds will be available on terms acceptable to us, if at all, or will be sufficient to enable us to fully complete our development activities or sustain operations. If we are unable to raise sufficient additional funds, we will have to develop and implement a plan to further extend payables, reduce overhead and operations, or scale back our current business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.
Our consolidated financial statements included elsewhere in this quarterly report have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in such consolidated financial statements, we had an accumulated stockholders’ deficit of $15.8 million, and had a net loss of $1,242,779, and utilized net cash of $61,375 in operating activities for the nine months ended September 30, 2021. These factors raise substantial doubt about our ability to continue as a going concern. In addition, our independent registered public accounting firms in their audit reports to our consolidated financial statements for the fiscal years ended December 31, 2020, and 2019, expressed substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern was raised due to our net losses and negative cash flows from operations since inception and our expectation that these conditions may continue for the foreseeable future. In addition, we will require additional financing to fund future operations. Our condensed consolidated financial statements included elsewhere in this quarterly report do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Based on our management’s estimates and expectation to continue to receive short-term debt funding from a related party on as needed basis, we believe that current funds on hand as of the date of issuance and proceeds of such loans will be sufficient for us to continue operations beyond twelve months from the filing of this Form 10-Q. Our ability to continue as a going concern is dependent on our ability to execute our business strategy and in our ability to raise additional funds. Management is currently seeking additional funds, primarily through the issuance of equity and/or debt securities for cash to operate our business; however, we can give no assurance that any future financing will be available or, if at all, and if available, that it will be on terms that are satisfactory to us. Even if we can obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity and/or convertible debt financing.
Sources and Uses of Cash
Operating Activities
During the nine months ended September 30, 2021, we used $61,375 of cash in operating activities, primarily as a result of our net loss of $1,242,779, net of non-cash operating expenses of $829,749, including depreciation expense of $4,623, stock-based compensation of $35,000 and a loss from the Company’s equity method investment of $790,126. Operating liabilities increased by $351,655, primarily due to an increase in balances due to affiliates of $271,571 an increase in accounts payable and accrued liabilities (including related party) of $80,084.
During the nine months ended September 30, 2020, we used $436,746 of cash in operating activities, primarily as a result of our net loss of $787,260, net of non-cash operating expenses of $285,022, including $80,300 in stock-based compensation, depreciation expense of $5,320, and a loss from the Company’s equity method investment of $199,769. Operating assets and liabilities increased by $65,492, primarily due to a decrease in security deposits of $7,944, a decrease in accounts payable and accrued liabilities of $37,073, an increase in accrued interest payable of $49,857, and an increase in balances due to affiliates of $44,764.
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Investing Activities
During the nine months ended September 30, 2021, and 2020, we had no cash flows from investing activities.
Financing Activities
During the nine months ended September 30, 2021, we received $249,000 in cash from private placement to third parties. Advances from affiliates totaled $56,325 and repayment amounted to $243,950 in the nine months ended September 30, 2021.
During the nine months ended September 30, 2020, we received $436,746 in cash from financing activities from net proceeds from related party notes payable.
Going Concern Qualification
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 3 to the unaudited condensed consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of September 30, 2021, and December 31, 2020, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide the information by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) that are designed to reasonably ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 15d-15(e) under the Exchange Act. Management based its controls on the report, “2013 Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
At the end of the period covered by this Quarterly Report, we conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon the foregoing, and to the same extent as reported in our Annual Report on Form 10-K for the year ended December 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2021, the disclosure controls and procedures of our Company were not effective to ensure that the information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported on a timely basis because of the material weaknesses in internal control over financial reporting described below.
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Material Weaknesses and Corrective Actions
To the same extent as reported in our Annual Report on Form 10-K for the year ended December 31, 2020, we identified certain deficiencies relating to our internal control over financial reporting that constitute a material weakness under standards established by the Public Company Accounting Oversight Board (the “PCAOB”). The PCAOB defines a material weakness as 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 company’s annual or interim financial statements will not be prevented or detected on a timely basis. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
The following material weaknesses in our internal control over financial reporting continued to exist as of September 30, 2021:
| ● | The Company does not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); | |
| ● | The Company does not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our limited size and early-stage nature of operations, segregation of all conflicting duties may not always be possible and may not be economically feasible; however, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals; | |
| ● | The Company does not have an audit committee of our board of directors; and | |
| ● | Insufficient monitoring and review controls over the financial reporting closing process, including the lack of individuals with current knowledge of U.S. GAAP. |
To remediate the Company’s internal control weaknesses, management intends to implement the following measures, as finances allow:
| ● | Adding sufficient accounting personnel or outside consultants to properly segregate duties and to affect a timely, accurate preparation of the financial statements. | |
| ● | Developing and maintaining adequate written accounting policies and procedures, once additional accounting personnel or outside consultants are engaged. |
The additional hiring is contingent upon our efforts to obtain additional funding and the results of our operations.
Management expects to secure funds before the end of the current fiscal year but provides no assurances that it will be able to do so.
Notwithstanding the material weaknesses discussed above, our management, including the Company’s CEO and CFO, concluded that the condensed consolidated financial statements in this quarterly report fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows for the periods presented, in conformity with GAAP.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
CEO and CFO Certifications
Exhibit 31.1 to this Quarterly Report has the “Certifications” of our Chief Executive Officer and the Chief Financial Officer. These Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act (the “Section 302 Certifications”). This Item 4 of this Quarterly Report contains is the information concerning the Evaluation referred to in the Section 302 Certifications, and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
In the normal course of business, the Company is subject to various claims and litigation. While the outcome of any litigation is inherently unpredictable, the Company believes that it has valid defenses with respect to the legal matters pending against it and that the ultimate resolution of these matters will not have a materially adverse impact on its financial condition, results of operations, or cash flows. The following is a list of current litigation:
Salem, et al. v. Pineapple Express, Inc., et al.
JAMS Arbitration Reference Number: 1210035565 was filed July 13, 2018. This matter arises from a certain Agreement and Plan of Merger and Reorganization dated February 12, 2016. Claimants sought forfeiture of certain IP rights, more specifically, Registered Mark “THC” standard character mark (U.S. Trademark Reg. No. 1954405 registered on February 6, 1996) and Domain Name “www.thc.com”, together with proceeds Respondents have received from any royalty or licensing payments relating to the IP rights from the date of Forfeiture, as well as costs for reasonable attorneys’ fees. Arbitration was conducted on July 17-19, 2019. The arbitrator issued an award on December 23, 2019, upholding the Claimants’ exercise of the put option as discussed in Note 10 and the transfer of the IP rights, including the THC.com domain name and the “THC” trademark, attorney fees of $144,871 and costs of $66,076 (“Arbitration award”). Claimants/Plaintiffs then filed a Petition to Confirm Arbitration Award and Respondents/Defendants filed a Petition to Vacate Arbitration Award in the matter entitled, Pineapple Express, Inc., et al. v. Salem, et al., bearing Los Angeles Superior Court Case Number SC129690. Both Petitions were heard on October 8, 2020, and Claimants/Plaintiffs’ Petition to Confirm Arbitration Award was granted. Pineapple Express, Inc. filed a Notice of Appeal on the same date, which is currently pending briefing schedule. Based on the pending award, the Company initially accrued the $1,000,000 put option exercise amount and recorded a $1,000,000 stock subscription receivable. On April 8, 2021, the parties executed a settlement agreement and mutual general release, under which the Company dismissed the appeal. The Company represented that it has relinquished any claim, title and/or interest with respect to the IP, that it has not assigned any such claim, title, rights and/or interest with respect to the IP, and that it has not encumbered the IP. The Company settled the arbitration award for $100,000, which was recorded in Accounts payable and accrued liabilities as of December 31, 2020. The Company paid the arbitration award during the nine months ended September 30, 2021. Salem agreed to cancel an aggregate of 1,829,631 shares of the Company’s common stock, retaining 400,000 shares of the Company’s common stock. The Company cancelled the shares during the three months ended September 30, 2021. Based on the settlement agreement, the Company derecognized the $1,000,000 put option exercise amount along with the $1,000,000 stock subscription receivable as of September 30, 2021, and December 31, 2020.
Pineapple Express, Inc. v. Ramsey Houston Salem
JAMS Arbitration Reference Number: 1220063897 was filed October 30, 2019 (the “second arbitration”). This matter arises from claims of breach of contract, more specifically the confidentiality provisions of certain Agreement and Plan of Merger and Reorganization dated February 12, 2016, entered into between the parties and arising from the disclosure of the interim arbitration award in the matter entitled and above-referenced as: Salem, et al. v. Pineapple Express, Inc., et al. JAMS Arbitration Reference Number: 1210035565, filed July 13, 2018, by Respondent. On April 8, 2021, the parties entered into a settlement agreement and mutual general release, under which the Company withdrew the second arbitration.
Hawkeye v. Pineapple Express, Inc., et al.
Los Angeles Superior Court Case Number: BC708868 was filed June 6, 2018. Plaintiff claimed damages against Defendant in the excess of $900,000 arising from a series of successive amended and revised revenue sharing agreements pertaining to rental income from certain leasehold for premises more commonly known as 65421 San Jacinto Lane, Desert Hot Springs, CA 92240 which was not realized through no fault of Defendants, nor are Defendants contracting parties to the lease agreement or original revenue sharing agreement for which consideration was paid. Defendants deny all allegations of claims asserted in the Complaint. Notwithstanding, the parties settled the matter pursuant to a confidential settlement agreement in or about January 3, 2020. However, the matter was reduced to an entry of judgment by the court in or about February 21, 2020, for the amount of $615,000, which monies remain due and outstanding and are accrued for in the Company’s settlement payable related party as of September 30, 2021, and December 31, 2020. The parties are cooperating to resolve this matter pursuant to the terms of the agreed upon settlement.
Sharper, Inc. v. Pineapple Express, Inc., et al.
Los Angeles Superior Court Case Number: 18SMCV00149 was filed November 1, 2018. Complaint for money with an amount in controversy of $32,500. The matter arises from certain claim for goods and services rendered beyond the contract claim which is wholly disputed. The court case matter was stayed on February 11, 2019, pending the outcome of Arbitration. Finnegan & Diba was substituted out of the matter on June 14, 2019. The matter was arbitrated through other counsel and the arbitrator issued a final award in favor of Petitioner in or about September 4, 2019, for the principal amount of $15,375. The award was transitioned to an entry of judgment in the total amount of $18,692 on or about February 27, 2020, against Pineapple Express, Inc. without specificity as to the judgment debtor’s state of incorporation, and Pineapple Express Consulting Inc., which remains due and outstanding. The accrual in the Company’s contingent liabilities as of September 30, 2021, and December 31, 2020, is $18,692.
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Cunningham v. Pineapple Express, Inc.
Los Angeles Superior Court Case Number: BS171779 Judgment, ordered by the Department of Industrial Relations, Labor Commissioner’s Office, was entered by the Court on December 11, 2017. The amount of judgment entered was $47,674. Enforcement on the Judgment is continuing. Finnegan & Diba was retained to defend enforcement proceedings and substituted out of the matter in March 2019. This claim is accrued for in the Company’s contingent liabilities as of September 30, 2021, and December 31, 2020.
Pineapple Express, Inc. v. Cunningham
Los Angeles Superior Court Case Number: SC 127731 was filed June 21, 2017. This action arose from certain complaint and cross-complaint which were both dismissed. Defendant Cunningham pursued a cost judgment against Plaintiff and obtained a judgment in the amount of $2,367, which remains outstanding to date and since January 22, 2018. This amount has been accrued for in the Company’s contingent liabilities as of September 30, 2021, and December 31, 2020. Enforcement proceedings have ensued and said judgment remains outstanding to date. Finnegan & Diba was not the counsel of record when judgment was entered and only addressed enforcement proceedings until such time it was substituted out as counsel of record in or about June 14, 2019.
The Hit Channel, Inc. v. Pineapple Express, Inc.
Los Angeles Superior Court Case Number: 19STCV09006 was filed in or about March 14, 2019. This action arose from certain complaint and cross-complaint arising from certain licensing agreement entered into between the parties for the commercial exploitation of the URL and Domain Name THC.com. The matter has since resolved pursuant to the confidential settlement agreement entered into by and between the parties. The licensing agreement has been deemed terminated, and the matter has been dismissed with prejudice by order of the court on February 14, 2020. The Hit Channel was awarded $40,000 and 555,275 shares of the Company’s restricted stock as settlement, for which the Company has accrued $40,000 in contingent liabilities and $444,220 in stock subscriptions payable as of December 31, 2019. This settlement shares were issued and the $40,000 was paid in February 2020. The Company also received the website, “www.THCExpress.com”, from The Hit Channel as part of the settlement agreement.
StoryCorp Consulting, dba Wells Compliance Group v. Pineapple Express, Inc.
JAMS Arbitration Reference Number: 1210037058 was filed December 18, 2019. This matter arises from dispute over certain services agreement entered into between the parties in or about January 31, 2019. In 2020, the parties agreed on a settlement amount of $15,000. A final award from arbitration also awarded arbitration fees to the claimant, increasing the award from $15,000 to $23,805, which the Company has accrued in contingent liabilities as of September 30, 2021, and December 31, 2020. Claimant has since filed a Petition to Confirm Arbitration Award against Pineapple Express, Inc., a California Corporation, with the Los Angeles Superior Court bearing Case Number 20STCP04003, and has been awarded a judgment against a company not affiliated to the public company.
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Russ Schamun v. Pineapple Express Consulting, Inc.
This is a claim for $7,500 filed by an independent contractor. There was a hearing date on August 23, 2019, and judgment was awarded to Russ Schamun. This creditor will be satisfied once the Company is in a position to satisfy the judgment. The $7,500 has been accrued for as of September 30, 2021, and December 31, 2020, in the Company’s contingent liabilities.
Orr Builders, et. al. v. Pineapple Express, Inc.
This action is the culmination of a multiplicity of actions and cross-actions arising from the claims to title relating to certain real property more commonly known as 65241 San Jacinto Lane, Desert Hot Springs, California 92240-5014 and construction disputes for building projects thereon. The Company and its subsidiaries were dismissed from this action and the property was subsequently sold, fully releasing the Company from any further liability.
SRFF v. Pineapple Express, Inc.
This matter resulted in a stipulated judgment whereas former SEC counsel claimed approximately $60,000 in legal work that was not paid for. The Company claimed that the work being charged for (a registration statement to be filed with the SEC) was not completed. Regardless of this fact, the Company signed a payment plan and confession of judgment if the plan was not honored. The result was a judgment entered in favor of SRFF because of the confession. This creditor will be satisfied once the Company is in a position to satisfy the judgment. The settlement amount has been accrued for in the Company’s accounts payable and accrued liabilities balance as of September 30, 2021, and December 31, 2020.
Novinger v. Pineapple Express, Inc.
Los Angeles Superior Court Case Number: 20CHLC10510 was filed in or about March 11, 2020. This is a limited jurisdiction action arising from a claim for monies lent to Pineapple Express, Inc. without specificity as to the judgment debtor’s state of incorporation, for the total of $25,000, which is accrued for in the Company’s related party notes payable. On September 23, 2020, a default judgment was entered against the Company. The parties are working to resolve the matter or alternatively vacate and set aside the default judgment entered unbeknownst to the Company.
In addition to the above, from time to time, we may be involved in litigation in the ordinary course of business. Other than as set forth above, we are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. Other than as set forth above, to our knowledge, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of our executive officers or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or any of our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the nine months ended September 30, 2021, the Company issued 2,490,000 shares of common stock for total consideration of $249,000.
During the nine months ended September 30, 2021, the Company issued 350,000 shares of common stock for services for total fair value of $35,000.
All of the securities set forth above were sold pursuant to exemptions from registration under Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended, as transactions by an issuer not involving any public offering and/ or under Regulation S, as promulgated under the Securities Act of 1933. No general advertising or solicitation was used. And the investors were purchasing the Shares for investment purposes only, without a view to resale. All issued securities were affixed with appropriate legends restricting sales and transfers.
There were no other unregistered sales of the Company’s equity securities during the quarter ended September 30, 2021.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
There have been no events which are required to be reported under this Item.
Item 5. Other Information.
None.
| 13 |
Item 6. Exhibits.
| 14 |
| 15 |
| 16 |
SIGNATURES
Pursuant to the requirements 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.
| PINEAPPLE, INC. | ||
| Dated: November 29, 2021 | By: | /s/ Shawn Credle |
| Name: | Shawn Credle | |
| Title: | Chief Executive Officer (Principal Executive Officer) | |
| By: | /s/ Matthew Feinstein | |
| Name: | Matthew Feinstein | |
| Title: | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |
| 17 |
Exhibit 31.1
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Shawn Credle, certify that:
1. I have reviewed this Form 10-Q of Pineapple, Inc. for the period ended September 30, 2021.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly for the period in which this quarterly report is being prepared; | |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; | |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: November 29, 2021. | ||
| By: | /s/ Shawn Credle | |
| Shawn Credle | ||
| Chief Executive Officer | ||
Exhibit 31.2
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Matthew Feinstein, certify that:
1. I have reviewed this Form 10-Q of Pineapple, Inc. for the period ended September 30, 2021.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly for the period in which this quarterly report is being prepared; | |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; | |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: November 29, 2021. | ||
| By: | /s/ Matthew Feinstein | |
| Matthew Feinstein | ||
| Chief Financial Officer | ||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of Pineapple, Inc. (the “Company”), on Form 10-Q for the period ended September 30, 2021, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Shawn Credle, Chief Executive Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | Such Quarterly Report on Form 10-Q for the period ended September 30, 2021, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in such Quarterly Report on Form 10-Q for the period ended September 30, 2021, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 29, 2021. | ||
| By: | /s/ Shawn Credle | |
| Shawn Credle | ||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of Pineapple, Inc. (the “Company”), on Form 10-Q for the period ended September 30, 2021, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Matthew Feinstein, Chief Financial Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | Such Quarterly Report on Form 10-Q for the period ended September 30, 2021, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in such Quarterly Report on Form 10-Q for the period ended September 30, 2021, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 29, 2021. | ||
| By: | /s/ Matthew Feinstein | |
| Matthew Feinstein | ||
| Chief Financial Officer | ||