Pineapple, Inc 10-K for FY2022
Pineapple, Inc. (PNPL)
About this 10-K
Pineapple, Inc filed this 10-K on May 5, 2023, covering the fiscal year ended December 31, 2022 (FY2022).
Headline figures
Fiscal year ended December 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $7.86M
- compared with a net loss of $1.1M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended
or
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Pineapple Express, Inc.
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.0000001 par value
Common stock, par value $0.0000001
(Title of each class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒
Indicate
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
the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large-accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large-accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large-accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth 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. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
The
aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price as of
the last business day of the registrant’s most recently completed second fiscal quarter ended June 30, 2022, was approximately
$
As of May 1, 2023, there were shares of the registrant’s common stock, $0.0000001 par value per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
INDEX
| 2 |
Use of Market and Industry Data
This Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (this “Annual Report”) includes market and industry data that we have obtained from third-party sources, including industry publications, as well as industry data prepared by our management on the basis of its knowledge of and experience in the industries in which we operate (including our management’s estimates and assumptions relating to such industries based on that knowledge). Management has developed its knowledge of such industries through its experience and participation in these industries. While our management believes the third-party sources referred to in this Annual Report are reliable, neither we nor our management have independently verified any of the data from such sources referred to in this Annual Report or ascertained the underlying economic assumptions relied upon by such sources. Furthermore, references in this Annual Report to any publications, reports, surveys, or articles prepared by third parties should not be construed as depicting the complete findings of the entire publication, report, survey, or article. The information in any such publication, report, survey, or article is not incorporated by reference in this Annual Report.
Forecasts and other forward-looking information obtained from these sources involve risks and uncertainties and are subject to change based on various factors, including those discussed in sections entitled “Forward-Looking Statements,” “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.
Trademarks, Service Marks and Trade Names
This Annual Report contains references to our trademarks, service marks and trade names and to trademarks, service marks and trade names belonging to other entities. Solely for convenience, trademarks, service marks and trade names referred to in this Annual Report, including logos, artwork, and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trade names, service marks or trademarks or any artists’ or other individuals’ names to imply a relationship with, or endorsement or sponsorship of us by, any other companies or persons.
PART I
ITEM 1. BUSINESS
This Annual Report (including, but not limited to, the following disclosures regarding our Business) contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements but are not the exclusive means of identifying forward-looking statements in this Annual Report. Additionally, statements concerning future matters such as the development of new products, enhancements or technologies, sales levels, expense levels and other statements regarding matters that are not historical are forward-looking statements.
Forward-looking statements in this Annual Report reflect our good faith judgment based on facts and factors currently known to us. Forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report. Readers are urged to carefully review and consider the various disclosures made in this Annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
| 3 |
Overview
Pineapple, Inc. (f/k/a Pineapple Express, Inc). (“Pineapple”, the “Company,” “we,” “us” or “our”) is based in Los Angeles, California. The Company procures and leases properties to licensed cannabis operators and provides nationwide hemp-derived CBD sales via online and in-store transactions. Through the Company’s operating subsidiary, Pineapple Express Consulting Inc., it also offers cannabis business licensing and consulting services. The Company’s executive team blends enterprise-level corporate expertise with decades of combined experience operating in the tightly-regulated cannabis industry.
ln addition to 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 $30,000 per unit. Pineapple intends to sell the Top-Shelf SDS units for use in retail storefronts and delivery vehicles operated by cannabis retail companies. The Company anticipates beginning sales of the Top Shelf SDS system in the third quarter of 2023.
On March 10, 2023, the Company entered into an Amended Binding Letter of Intent (the “Amended Letter Agreement”), effective as of December 31, 2022 (the “Effective Date”), with its Co-Founder, Jaime Ortega (“Ortega”) where the Company agreed to sell 45.17% of its equity interest (the “PVI Interest”) in Pineapple Ventures, Inc. (“PVI”), in exchange for: (i) the purchase price of twenty million (20,000,000) shares of the Company’s common stock, $0.0000001 par value per share (the “Common Stock”) and (ii) the extinguishment of all of the Company’s debt to PVI and Neu-Ventures, Inc. (“NVI”), respectively, of which both PVI and NVI are wholly owned by Ortega (the “Share Repurchase”). Following the Share Repurchase, there are 71,163,569 shares of the Company’s Common Stock, issued and outstanding.
Company Background
Pineapple shares of common stock are still quoted on the OTC Pink Market under the symbol “PNPL”. As of the date of this Annual Report, OTC Markets has designated the Company’s trading symbol as “Caveat Emptor” by placing a skull and crossbones icon next to the symbol. This designation occurred when the Company was issued an Order of Suspension of Trading from the U.S. Securities and Exchange Commission (the “SEC”) on April 28th, 2016, because of “recent, unusual and unexplained market activity in the Company’s stock that raises concerns about the adequacy of publicly-available information regarding the Company”. The Company was released from suspension two weeks later. The Company was not charged with any wrong-doing and believes the unusual spike in stock activity was related to an enormous amount of press received by the Company because a famous cultural icon invested in the Company stock. The Company was not fully reporting with the SEC yet when this occurred.
The Company regained current status with its filing obligations in the fourth quarter of 2021, and a licensed broker filed a Form 15c2-11 application in order to remove the caveat emptor symbol and resume quotations on the OTC marketplace. The Company recently cleared the FINRA 15c2-11 process to quote its shares of common stock on the OTC Markets “Current Information” Pink platform, and no longer on the OTC Grey platform.
On August 24, 2015, the Company entered into a Share Exchange Agreement (the “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 Agreement, BBC shareholders exchanged all of the issued and outstanding capital of BBC for an aggregate of 50,000,000 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 100,000,000 and 500,000 shares of the Company’s common stock, respectively, in connection with the 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. One of the owners, Jaime Ortega, also entered into a Lockup Agreement under which he could not sell his ownership in the Company through September 1, 2017.
On September 3, 2015, the Company changed its name from “Globestar Industries” to “Pineapple Express, Inc.” The Company’s name has no relation to the 2008 motion picture produced by Columbia Pictures.
| 4 |
In September 2015, the Company had entered into agreements to issue 500,000 shares of Series A Convertible Preferred Stock to Sky Island, Inc. in exchange for a patent and 100,000 shares of Series A Convertible Preferred Stock to Christopher Plummer as compensation for taking on the role of Chief Compliance Officer. However, both of these issuances were rescinded effective December 31, 2015.
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 (“LOI”) 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 in exchange for $100,000. On 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. The Company had planned on using revenue from operations, including license proceeds from contracts already signed with licensees as well as rental payments due from tenants. The Company was also in the process of developing a “franchise style” model whereas it would license its trademark, brand name, and retail design concept in exchange for a 5% perpetuity royalty. These revenue streams were to provide the Company with long-term and short-term growth. However, after the investment in PVI, the Company will now be receiving revenues from its 45.17% ownership.
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”). Upon execution of the PVI Agreement (the “Closing”), the Company acquired 20,000 shares of PVI’s outstanding capital stock (“PVI Shares”), equaling 20% of the outstanding shares of PVI. In consideration for the PVI Shares, the Company agreed to issue 1,000,000 shares of its Series A Convertible Preferred Stock, $0.0000001 par value per share (“Series A Convertible Preferred Stock”), to the PVI Stockholders. Pursuant to the terms of the PVI Agreement and Amendment No. 1 dated June 26, 2019, upon the six-month anniversary of the PVI Agreement (the “Second Closing”), and subject to the conditions to closing set forth in the PVI Agreement, the Company was to acquire an additional 30,000 PVI Shares, equaling 30% of the outstanding shares of PVI, for a total of 50% of the outstanding shares of PVI, in consideration for an additional 1,000,000 shares of Series A Convertible Preferred Stock to be issued to the PVI Stockholders at the time of the Second Closing. The Series A Convertible Preferred Stock may, from time to time, be converted by the holder into shares of the Company’s Common Stock, par value $0.0000001 (the “Common Stock”) in an amount equal to ten (10) shares of Common Stock for each one (1) share of Series A Convertible Preferred Stock. On July 5, 2019, the Company, PVI and the PVI Stockholders, and their respective boards of directors waived the remaining conditions to closing as set forth in the PVI Agreement and ratified and approved the Second Closing.
On January 17, 2020, the Company entered into an agreement with Jaime Ortega whereby in exchange for Mr. Ortega cancelling $1,062,000 of existing loans extended to the Company by Jaime Ortega, Neu-Ventures, Inc., and Sky Island, Inc., the Company sold to Mr. Ortega 10,000 shares of capital stock of Pineapple Ventures, Inc. (“PVI”). Subsequently, on February 11, 2021, the parties entered into amended agreement pursuant to which the original number of shares sold to Mr. Ortega were reduced from 10,000 shares of capital stock of PVI to 4,827 shares of capital stock of PVI. Accordingly, the Company currently owns 45,173 shares of capital stock of PVI. This amendment was entered into to properly reflect the value of the Company’s stock at the time of the initial agreement.
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 $0.0000001 per share (the “PE Common Stock”). Pursuant to the Merger Agreement, the Company’s corporate name changed from “Pineapple Express, Inc.” to “Pineapple, Inc.”
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.
| 5 |
On August 7, 2021, the Company entered into a Stock Purchase Agreement (the “CGI Agreement”) with Capital Growth Investments, Inc., a California corporation (“CGI”) and PVI, the Company’s equity-method investee. Pursuant to the Agreement, the Company can acquire up to 50,000 shares of CGI (the “Shares”), which comprise 50% of its issued and outstanding capital stock, from PVI for an aggregate purchase price of $1,000,000. As of December 31, 2021, $100,000 was paid by the Company, which was recorded and presented in Deposit – Stock purchase agreement related party in the Company’s consolidated balance sheets as of December 31, 2021. No shares of CGI will be issued until the full purchase price is paid. Due to a re-evaluation of the asset, the Company cancelled the transaction on August 22, 2022.
On September 28, 2022, the Company sold 100% interest in the Pineapple Park, LLC entity to related party and prior majority shareholder Jaime Ortega for a purchase price of $10,000 paid at execution of a Binding Letter of Intent.
As reported on the Q3 2022 financials, due to circumstances surrounding the California cannabis industry, the Company fully impaired the PVI equity method investment resulting in a $10.8 million one-time impairment expense transaction on the Company’s books. On March 10, 2023, the Company entered into an Amended Binding Letter of Intent (the “Amended Letter Agreement”), effective as of December 31, 2022 (the “Effective Date”), with its Co-Founder, Jaime Ortega (“Ortega”) where the Company agreed to sell 45.17% of its equity interest (the “PVI Interest”) in Pineapple Ventures, Inc. (“PVI”), in exchange for: (i) the purchase price of twenty million (20,000,000) shares of the Company’s common stock, $0.0000001 par value per share (the “Common Stock”) and (ii) the extinguishment of all of the Company’s debt to PVI and Neu-Ventures, Inc. (“NVI”), respectively, of which both PVI and NVI are wholly owned by Ortega (the “Share Repurchase”). Following the Share Repurchase, there are 71,163,569 shares of the Company’s Common Stock, issued and outstanding.
Regulatory Overview
As of the date of this filing, 37 states and four (4) territories allow for the medical use of cannabis products, while 17 of those states, the District of Columbia, the Northern Mariana Islands, and Guam have also legalized the adult-use of cannabis. Although legalized in some states, cannabis is a “Schedule 1” drug under the Controlled Substances Act (21 U.S.C. § 811) (“CSA”) and is illegal under federal law.
On August 29, 2013, the Department of Justice set out its prosecutorial priorities in light of various states legalizing cannabis for medicinal and/or recreational use. The “Cole Memorandum” provided that when states have implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale, and possession of cannabis, conduct in compliance with those laws and regulations is less likely to threaten the federal priorities. Indeed, a robust system may affirmatively address those priorities by, for example, implementing effective measures to prevent diversion of cannabis outside of the regulated system and to other states, prohibiting access to cannabis by minors, and replacing an illicit cannabis trade that funds criminal enterprises with a tightly regulated market in which revenues are tracked and accounted for. In those circumstances, consistent with the traditional allocation of federal-state efforts in this area, the Cole Memorandum provided that enforcement of state law by state and local law enforcement and regulatory bodies should remain the primary means of addressing cannabis-related activity. If state enforcement efforts are not sufficiently robust to protect against the harms set forth above, the federal government may seek to challenge the regulatory structure itself in addition to continuing to bring individual enforcement actions, including criminal prosecutions, focused on those harms.
On January 4, 2018, Attorney General Jeff Sessions issued a memorandum for all United States Attorneys concerning cannabis enforcement under the Controlled Substances Act (CSA). Mr. Sessions rescinded all previous prosecutorial guidance issued by the Department of Justice regarding cannabis, including the August 29, 2013 “Cole Memorandum”.
| 6 |
In rescinding the Cole Memorandum, Mr. Sessions stated that U.S. Attorneys must decide whether or not to pursue prosecution of cannabis activity based upon factors including: the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community. Mr. Sessions reiterated that the cultivation, distribution, and possession of marijuana continues to be a crime under the U.S. Controlled Substances Act.
On March 23, 2018, President Donald J. Trump signed into law a $1.3 trillion-dollar spending bill that included an amendment known as “Rohrabacher-Blumenauer,” which prohibits the Justice Department from using federal funds to prevent certain states “from implementing their own State laws that authorize the use, distribution, possession or cultivation of medical cannabis.”
On December 20, 2018, President Donald J. Trump signed into law the Agriculture Improvement Act of 2018, otherwise known as the “Farm Bill”. Prior to its passage, hemp, a member of the cannabis family, was classified as a Schedule 1 controlled substance, and so illegal under the federal CSA.
With the passage of the Farm Bill, hemp cultivation is now broadly permitted. The Farm Bill explicitly allows the transfer of hemp-derived products across state lines for commercial or other purposes. It also puts no restrictions on the sale, transport, or possession of hemp-derived products, so long as those items are produced in a manner consistent with the law.
Under Section 10113 of the Farm Bill, hemp cannot contain more than 0.3 percent THC. THC refers to the chemical compound found in cannabis that produces the psychoactive “high” associated with cannabis. Any cannabis plant that contains more than 0.3 percent THC would be considered non-hemp cannabis—or marijuana—under the CSA and would not be legally protected under this new legislation and would be treated as an illegal Schedule 1 drug.
Additionally, there will be significant, shared state-federal regulatory power over hemp cultivation and production. Under Section 10113 of the Farm Bill, state departments of agriculture must consult with the state’s governor and chief law enforcement officer to devise a plan that must be submitted to the Secretary of the United States Department of Agriculture (hereafter referred to as the “USDA”). A state’s plan to license and regulate hemp can only commence once the Secretary of USDA approves that state’s plan. In states opting not to devise a hemp regulatory program, USDA will construct a regulatory program under which hemp cultivators in those states must apply for licenses and comply with a federally run program. This system of shared regulatory programming is similar to options states had in other policy areas, such as health insurance marketplaces under the Affordable Care Act, or workplace safety plans under the Occupational Health and Safety Act—both of which had federally-run systems for states opting not to set up their own systems.
The Farm Bill outlines actions that are considered violations of federal hemp law (including such activities as cultivating without a license or producing cannabis with more than 0.3 percent THC). The Farm Bill details possible punishments for such violations, pathways for violators to become compliant, and even which activities qualify as felonies under the law, such as repeated offenses.
One of the goals of the previous 2014 Farm Bill was to generate and protect research into hemp. The 2018 Farm Bill continues this effort. Section 7605 re-extends the protections for hemp research and the conditions under which such research can and should be conducted. Further, section 7501 of the Farm Bill extends hemp research by including hemp under the Critical Agricultural Materials Act. This provision recognizes the importance, diversity, and opportunity of the plant and the products that can be derived from it, but also recognizes that there is a still a lot to learn about hemp and its products from commercial and market perspectives.
On January 21, 2021, Joseph R. Biden, Jr. was sworn in as President of the United States. President Biden’s Attorney General, Merrick Garland, was confirmed by the United States Senate on March 10, 2021. It is not yet known whether the Department of Justice (“DOJ”), under President Biden and Attorney General Garland, will re-adopt the Cole Memorandum or announce a substantive marijuana enforcement policy. During his Senate confirmation, Merrick Garland told Senator Cory Booker (D-NJ), “It does not seem to me useful the use of limited resources that we have to be pursuing prosecutions in states that have legalized and are regulating the use of marijuana, either medically or otherwise.” Such statements are not official declarations or policies of the DOJ and are not binding on the DOJ, any United States Attorney, or the United States federal courts. Substantial uncertainty regarding United States federal enforcement remains. To date, there have been no new federal cannabis memorandums issued by the Biden Administration or any published change in federal enforcement policy.
| 7 |
Business Overview
Pineapple, Inc. (f/k/a Pineapple Express, Inc). (“Pineapple”, the “Company,” “we,” “us” or “our”) is based in Los Angeles, California. The Company procures and leases properties to licensed cannabis operators and provides nationwide hemp-derived CBD sales via online and in-store transactions. Through the Company’s operating subsidiary, Pineapple Express Consulting Inc., it also offers cannabis business licensing and consulting services. The Company’s executive team blends enterprise-level corporate expertise with decades of combined experience operating in the tightly-regulated cannabis industry.
ln addition to 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 $30,000 per unit. Pineapple intends to sell the Top-Shelf SDS units for use in retail storefronts and delivery vehicles operated by cannabis retail companies. The Company anticipates beginning sales of the Top Shelf SDS system in the third quarter of 2023.
Obstacles and the Pineapple Solution
One obstacle to a national retail chain is producing and transporting the product. Due to existing federal laws, marijuana-based products cannot be transported across state lines. While cannabis remains illegal at the federal level, the federal government has by written policy set forth a safe harbor framework to allow the states limited independence to experiment with cannabis legalization in various forms. States have been careful to craft their local regulations to not run afoul of interstate transportation restrictions. State regulations generally require that cannabis must be grown locally (some states require retailers to grow their own product,) and that cannabis-related products, including marijuana-infused edibles, oils, lotions, or salves, cannot be transported across state lines. For larger manufacturers, state regulations generally require establishing local manufacturing in each state; this translates to securing a local state-issued license, a challenging task in jurisdictions with limited licenses. The alternative approaches to establishing national retail chains are either through contract manufacturing or licensing. These approaches create challenges with product consistency and the complications for the manufacturer of managing so many relationships and monitoring quality. PVI has found an opportunity in the obstacle.
Consulting Services
The Pineapple management team understands the consulting, licensing, development, and compliance areas of the cannabis business and has hands-on operational experience in dispensary management from previous employment in the cannabis industry. Currently, the Company is not pursuing any consulting revenue. The Company anticipates selling the Top Shelf Safe Display System in the third fiscal quarter of 2023.
On October 12, 2016, Better Business Consultants, Inc.’s, Pineapple Express One, LLC’s (“PE1”), and Pineapple Express Two, LLC’s (“PE2”) rights under a purchase contract with United Pentecostal Church of Desert Hot Springs (“UPCDHS”) to purchase 3.78 acres and existing building structures was terminated by UPCDHS. BBC, PE1, and PE2 were unsuccessful in recouping any of the $1.5 million in costs associated with deposits to UPCDHS towards the acquisition of the parcel, as well as paid and unpaid development costs expended regarding the parcel. BBC, PE1, and PE2 attempted to resolve the matter amicably with UPCDHS and the ultimate acquirer of the parcel, which gained the benefit of the development costs expended by BBC, PE1, and PE2 in improving the value of the parcel as well as the conditional use permit tied to the real estate. As a result, BBC, PE1, and PE2 were sold by us to a related party and our prior majority shareholder, Jaime Ortega. Mr. Ortega, the new owner of BBC, PE1, and PE2, advised management that he would address the matter with UPCDHS as well as the purchaser of the parcel, and also resolve any debts to vendors that went unpaid, through litigation. As of this date, this action was found to be 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. BBC, PE1 and PE2 were dismissed from this action and will only be subject to a deficiency judgment, if any, when the property is sold.
| 8 |
On April 5, 2017, the Company entered into a real estate purchase transaction for a 1.26-acre parcel of land in Desert Hot Springs, CA (the “Desert Hot Springs Property”). The Desert Hot Springs Property purchase was finalized on July 24, 2017, for $700,000 and the Company took possession of the Desert Hot Springs Property. In order to finance this purchase, the Company borrowed $700,000 from a related party entity, Sky Island, Inc., controlled by our prior majority shareholder, Jaime Ortega.
On June 20, 2017, the Desert Hot Springs Property was sold to Hawkeye, LLC in order to reduce a debt owed to them by the Company.
Employees
As of December 31, 2022, the Company had no full-time employees, four independent contractors, and no part-time employees.
ITEM 1A. RISK FACTORS
Risks Related to Our Company and Our Business
We have a limited operating history and operate in a new industry, and we may not succeed.
We have a limited operating history and may not succeed. We are subject to all risks inherent in a developing business enterprise. Our likelihood of continued success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with manufacturing specialty products and the competitive and regulatory environment in which we operate. For example, the cannabis industry is a new industry that may not succeed, particularly should the Federal government change course and decide to prosecute those dealing in medical or recreational cannabis. In such event, there may not be an adequate market for our products. As a new industry, there are few established players whose business models we can follow. Similarly, there is little information about comparable companies for potential investors to review in making a decision about whether to invest in the Company.
Potential investors should consider, among other factors, our prospects for success in light of the risks and uncertainties encountered by companies that, like us, are in their early stages. For example, unanticipated expenses, unexpected problems, and technical difficulties may occur and they may result in material delays in the operation of our business, in particular with respect to our new products. We may not successfully address these risks and uncertainties or successfully implement our operating strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations and could impair the value of our Common Stock to the point investors may lose their entire investment.
We have incurred significant losses since our inception, have generated minimal revenues to date and anticipate that we will continue to incur significant losses for the foreseeable future; our auditors have included in their audit report for the fiscal year ended December 31, 2022, an explanatory paragraph as to substantial doubt as to our ability to continue as a going concern.
We have incurred significant net losses in each year since our inception, including net losses of $7,856,392 for the fiscal year ended December 31, 2022, and $1,104,819 for the fiscal year ended December 31, 2021. As of December 31, 2022, we had an accumulated deficit of $23,528,700. We anticipate incurring additional losses until such time we can generate significant revenues, and/or reduce operating costs. To date, we have generated minimal revenues and have financed our operations exclusively through the sale of our equity and debt securities. The size of our future net losses will depend, in part, on the rate of future expenditures and our ability to generate revenue. We expect a continued increase in our expenses associated with our operations as we are currently a reporting publicly traded company. We may incur significant losses in the future for a number of other reasons, including unsuccessful acquisitions, costs of integrating new businesses and assets, expenses, difficulties, complications, delays and other unknown events. As a result of the foregoing, we expect to continue to incur significant losses for the foreseeable future and we may not be able to achieve or sustain profitability.
| 9 |
Our auditors have included in their audit reports for the fiscal years ended December 31, 2022, and 2021, a “going concern” explanatory paragraph as to substantial doubt as to our ability to continue as a going concern. Our ability to meet our total liabilities of $1,376,972 as of December 31, 2022, and to continue as a going concern, is dependent on us generating substantial revenues and/or obtaining adequate capital to fund operating losses until we become profitable. We may never achieve profitability, and even if we do, we may not be able to sustain being profitable. As a result of our going concern qualification, there is an increased risk that you could lose the entire amount of your investment in our Company, which assumes the realization of our assets and the satisfaction of our liabilities and commitments in the normal course of business.
Uncertainty of profitability.
Our business strategy may result in increased volatility of revenues and earnings. As we will only develop a limited number of products and services at a time, our overall success will depend on a limited number of products and services, which may cause variability and unsteady profits and losses depending on the products and services offered and their market acceptance.
Our revenues and our profitability may be adversely affected by economic conditions and changes in the market for medical and recreational marijuana. Our business is also subject to general economic risks that could adversely impact the results of operations and financial condition.
Because of the anticipated nature of the products and services that we offer and attempt to develop, it is difficult to accurately forecast revenues and operating results and these items could fluctuate in the future due to a number of factors. These factors may include, among other things, the following:
| ● | Our ability to raise sufficient capital to take advantage of opportunities and generate sufficient revenues to cover expenses. | |
| ● | Our ability to source strong opportunities with sufficient risk adjusted returns. | |
| ● | Our ability to manage our capital and liquidity requirements based on changing market conditions generally and changes in the developing legal medical marijuana and recreational marijuana industries. | |
| ● | The acceptance of the terms and conditions of our services. | |
| ● | The amount and timing of operating and other costs and expenses. | |
| ● | The nature and extent of competition from other companies that may reduce market share and create pressure on pricing and investment return expectations. | |
| ● | Adverse changes in the national and regional economies in which we will participate, including, but not limited to, changes in our performance, capital availability, and market demand. | |
| ● | Adverse changes in the projects in which we plan to invest which result from factors beyond our control, including, but not limited to, a change in circumstances, capacity and economic impacts. | |
| ● | Adverse developments in the efforts to legalize marijuana or increased federal enforcement. | |
| ● | Changes in laws, regulations, accounting, taxation, and other requirements affecting our operations and business. | |
| ● | Our operating results may fluctuate from year to year due to the factors listed above and others not listed. At times, these fluctuations may be significant. |
| 10 |
Cannabis remains illegal under federal law.
Cannabis is a categorized as a Schedule I controlled substance by the Drug Enforcement Agency and the United States Department of Justice and is illegal to grow, possess and consume under federal law. Even in those jurisdictions in which the use of medical cannabis has been legalized at the state level, its use remains a violation of federal law. The United States Supreme Court has ruled in United States v. Oakland Cannabis Buyers’ Coop. and Gonzales v. Raich that it is the federal government that has the right to regulate and criminalize cannabis, even for medical purposes. Therefore, federal law criminalizing the use of cannabis preempts state laws that legalize its use for medicinal or adult-retail purposes. Strict enforcement of federal law regarding cannabis would likely result in our inability to proceed with our business plan.
The previous Obama administration has effectively stated that it is not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis. In furtherance thereof, on August 29, 2013, the Department of Justice provided guidance to all U.S. federal prosecutors with respect to the enforcement of laws regarding cannabis via the publication of a memorandum authored by former US Attorney General James M. Cole (the “Cole Memo”). The Cole Memo stated that enforcement should be focused on eight priorities, which is to prevent: (1) distribution of cannabis to minors; (2) revenue from sale of cannabis to criminal enterprises, gangs and cartels; (3) transfer of cannabis from states where it is legal to states where it is illegal; (4) cannabis activity from being a pretext for trafficking of other illegal drugs or illegal activity; (5) violence of use of firearms in cannabis growth and distribution; (6) drugged driving and adverse public health consequences from cannabis use; (7) growth of cannabis on federal lands; and (8) cannabis possession or use on federal property.
On January 4, 2017, the U.S. Attorney General Jeff Sessions rescinded the Cole Memo and restored the “rule of law.” Such rescission essentially shifts federal policy from the hands-off approach adopted under the Obama administration to allowing federal prosecutors across the U.S. to decide individually how to prioritize resources to crack down on pot possession, distribution and cultivation of the drug in states where it is legal. Furthermore, the Trump administration has previously indicated that it will pursue the enforcement of federal cannabis laws.
While we do not believe our current activities involve those enumerated in the Cole Memo, in light of the rescission of the memo by the current Attorney General, federal prosecutors will now have significant discretion on their interpretation of these priorities, and no assurances can be given that federal prosecutors will agree with our position. We therefore cannot provide assurance that our actions are in full compliance with the Cole Memo or any other state or federal laws or regulations. In addition, there is no guarantee that the current administration will not further change its policy regarding the strict enforcement of federal laws or the eight listed priorities. Additionally, any new administration that follows could change this policy and decide to enforce the federal laws even stronger. Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to us and our shareholders.
Some of the Company’s former equity-method investee, PVI’s, business activities and the business activities of some of PVI’s customers, while believed to be compliant with applicable state law, are illegal under federal law because they violate the Federal Controlled Substances Act. If we or our customers are closed by law enforcement authorities, it will materially and adversely affect our business.
As of the date of this filing, 37 states and 4 territories allow for the medical use of cannabis products., and four U.S. Territories Puerto Rico and Guam while 18 of those states, the District of Columbia, the Northern Mariana Islands, and Guam have also legalized the adult-use of cannabis. Although legalized in some states, cannabis is a “Schedule 1” drug under the Controlled Substances Act (21 U.S.C. § 811) (“CSA”) and is illegal under federal law.
The Federal Controlled Substances Act, the possession, use, cultivation, marketing, and transfer of cannabis is illegal. The federal, and in some cases state, law enforcement authorities have frequently closed down dispensaries and investigated and/or closed physician offices that provide medicinal cannabis recommendations. To the extent that we our customers’ dispensary or factory is closed, it will negatively affect our revenue, and to the extent that it prevents or discourages other similar businesses from entering the cannabis industry, our potential customer base would contract, leading to a material negative effect on our business and operations.
| 11 |
The cannabis industry faces strong opposition.
It is believed by many that large well-funded businesses may have a strong economic opposition to the cannabis industry. We believe that the pharmaceutical industry does not want to cede control of any product that could generate significant revenue. For example, medical cannabis will likely adversely impact the existing market for medicines sold by mainstream pharmaceutical companies that contain active ingredients from cannabis. Furthermore, the medical marijuana industry could face a material threat from the pharmaceutical industry, should marijuana displace other drugs or encroach upon the pharmaceutical industry’s products. The pharmaceutical industry is well funded with a strong and experienced lobby that eclipses the funding of the medical cannabis movement. Any inroads the pharmaceutical industry could make in halting or impeding the cannabis industry could have a detrimental impact on our proposed business.
Additionally, we are substantially dependent on continued market acceptance and proliferation of consumers of cannabis, medical marijuana, and recreational marijuana. We believe that as marijuana becomes more accepted the stigma associated with marijuana use will diminish and as a result consumer demand will continue to grow. While we believe that the market and opportunity in the marijuana space continues to grow, we cannot predict the future growth rate and size of the market. Any negative outlook on the marijuana industry will adversely affect our business operations.
There is uncertainty regarding the availability of U.S. federal patent and trademark protection.
As long as cannabis remains illegal under U.S. federal law, the benefit of certain federal laws and protections which may be available to most businesses, such as federal trademark and patent protection regarding the intellectual property of a business, may not be available to us. As a result, our intellectual property may never be adequately or sufficiently protected against the use or misappropriation by third parties. In addition, since the regulatory framework of the cannabis industry is in a constant state of flux, we can provide no assurance that it will ever obtain any protection of its intellectual property, whether on a federal, state, or local level.
There may be a U.S. Food and Drug Administration (“FDA”) risk.
If legalization occurs federally, the FDA could impose additional regulations or risks on cannabis.
We could experience difficulty enforcing our contracts.
Due to the nature of our business and the fact that our former equity method investee, PVI’s, contracts involve cannabis and other activities that are not legal under U.S. federal law and in some jurisdictions, we may face difficulties in enforcing our contracts in federal and certain state courts. The inability to enforce any of our contracts could have a material adverse effect on our business, operating results, financial condition, or prospects.
We and our customers and clients may have difficulty accessing the service of banks, which may make it difficult for them to operate.
Since the use of cannabis is illegal under federal law, there is a compelling argument that banks cannot accept for deposit funds from businesses involved with cannabis. While the Financial Crimes Enforcement Network (“FinCEN”) has provided guidance to financial institutions on how to provide services to marijuana-related businesses consistent with their Bank Secrecy Act obligations, the decision to open, close, or refuse accounts and/or relationships are made at the discretion of the banking institution. Consequently, businesses involved in the cannabis industry often have trouble finding a bank willing to accept their business. The inability to open bank accounts may make it difficult for us and our clients to operate.
Due to our ancillary involvement in the cannabis industry, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose us to additional risk and financial liability.
Insurance that is otherwise readily available, such as general liability, and directors and officer’s insurance, is more difficult for us to find, and more expensive, because we are service providers to companies in the cannabis industry. There are no guarantees that we will be able to find such insurances in the future, or that the cost will be affordable to us. If we are forced to go without such insurances, it may prevent us from entering into certain business sectors, may inhibit our growth, and may expose us to additional risk and financial liabilities.
| 12 |
The cannabis industry is relatively new.
We are operating in a relatively new industry and market. In addition to being subject to general business risks, we must continue to build brand awareness in this industry and market share through significant investments in our strategy, production capacity, quality assurance and compliance with regulations. Research in the United States and internationally regarding the medical benefits, viability, safety, efficacy and dosing of cannabis or isolated cannabinoids, such as cannabidiol, or CBD, and tetrahydrocannabinol, or THC, remains in relatively early stages. Few clinical trials on the benefits of cannabis or isolated cannabinoids have been conducted. Future research and clinical trials may draw opposing conclusions to statements contained in the articles, reports and studies currently favored, or could reach different or negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing or other facts and perceptions related to medical cannabis, which could adversely affect social acceptance of cannabis and the demand for our products and dispensary services.
Accordingly, there is no assurance that the cannabis industry and the market for medicinal and/or adult-use cannabis will continue to exist and grow as currently anticipated or function and evolve in a manner consistent with management’s expectations and assumptions. Any event or circumstance that adversely affects the cannabis industry, such as the imposition of further restrictions on sales and marketing or further restrictions on sales in certain areas and markets could have a material adverse effect on our business, financial condition, and results of operations.
We face risks due to industry immaturity or limited comparable, competitive, or established industry best practices.
As a relatively new industry, there are not many established operators in the medical and adult use cannabis industries whose business models we can follow or build upon. Similarly, there is no or limited information about comparable companies available for potential investors to review in making a decision about whether to invest in us.
Shareholders and investors should consider, among other factors, our prospects for success in light of the risks and uncertainties encountered by companies, like us, that are in their early stages. For example, unanticipated expenses and problems or technical difficulties may occur, which may result in material delays in the operation of our business. We may fail to successfully address these risks and uncertainties or successfully implement our operating strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations and could impair the value of the Subordinate Voting Shares to the extent that investors may lose their entire investments.
Our ability to grow our medical and adult-use cannabis product offerings and dispensary services may be limited.
As we introduce or expand our medical and adult-use cannabis product offerings and dispensary services, we may incur losses or otherwise fail to enter certain markets successfully. Our expansion into new markets may place us in competitive and regulatory environments with which we are unfamiliar and involve various risks, including the need to invest significant resources and the possibility that returns on those investments will not be achieved for several years, if at all. In attempting to establish new product offerings or dispensary services, we may incur significant expenses and face various other challenges, such as expanding our work force and management personnel to cover these markets and complying with complicated cannabis regulations that apply to these markets. In addition, we may not successfully demonstrate the value of these product offerings and dispensary services to consumers, and failure to do so would compromise our ability to successfully expand these additional revenue streams.
Laws and regulations affecting the cannabis industry are constantly changing, which could detrimentally affect our business, and we cannot predict the impact that future regulations may have on us.
Local, state and federal medical cannabis laws and regulations are broad in scope, and they are subject to evolving interpretations, which could require our licensees to incur substantial costs associated with compliance or to alter one or more of their sales or marketing practices. For example, the rescission of the Cole Memo by U.S. Attorney General Jeff Sessions on January 4, 2018. In addition, violations of these laws, or allegations of such violations, could disrupt our license business and result in a material adverse effect on our revenues under our license agreements, which would negatively affect our profitability and financial condition.
| 13 |
In addition, it is possible that regulations may be enacted in the future that will be directly applicable to us and our business. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business. These potential effects could include, however, requirements for the revisions to our business model to meet new standards, the recall or discontinuance of certain products, or additional record keeping and reporting requirements. Any or all of these requirements could have a material adverse effect on our business, financial condition, and results of operations.
We may not obtain the required state and local licenses required to conduct our business.
Where applicable, we apply for state and/or licenses that are necessary to conduct our business in compliance with local laws. While we are not required to obtain governmental approval in connection with providing the services we offer or for manufacturing the products we sell, establishing an operating dispensary requires governmental approval, usually at the local and state level. Such approval is obtained through a complex licensing process that is newly adopted by the states in almost all cases, which we monitor on behalf of our clients. If we are not granted necessary licenses by the relevant governing bodies, it could have a material adverse effect on our business, financial condition, and results of operations.
We are subject to complex laws and regulations, including environmental laws and regulations, which can adversely affect the cost, manner and feasibility of doing business.
We are subject to complex laws and regulations, including environmental laws and regulations, which can adversely affect the cost, manner and feasibility of doing business. The operations and facilities of our facilities will be subject to extensive federal, state, and local laws and regulations relating to the growth of cannabis and the manufacture and distribution of products containing cannabis (and/or its psychoactive compound, THC). Such existing laws or regulations regarding cannabis and its psychoactive compound, as currently interpreted or reinterpreted in the future, or future laws or regulations, may adversely affect our businesses and sales. Consequently, our revenues would thereby decrease, which may have a material adverse effect on our results of operations.
Ordinary and necessary business deduction other than the cost of goods sold are disallowed by the Internal Revenue Service for Cannabis companies under the Internal Revenue Code (the “IRC”) Section 280E.
IRC Section 280E prohibits our businesses from deducting ordinary and necessary business expenses pertaining to cannabis sale, forcing the Company to contend with higher effective federal tax rates than similar companies in other industries. This onerous tax burden significantly impacts the profitability of the Company and may make the pricing of its products less competitive.
If no additional states allow the medicinal or adult-retail use of cannabis, or if one or more states that currently allow it, reverse their position, we may not be able to continue our growth, or the market for our products and services may decline.
As of December 31, 2022, 37 states and the District of Columbia, the Northern Mariana Islands, Guam and Puerto Rico have passed laws allowing some degree of medical use of cannabis, while eighteen (18) of those states and the District of Columbia, the Northern Mariana Islands, and Guam, have also legalized the adult-use of cannabis. There can be no assurance that number of states that allow the use of medicinal and recreational cannabis will grow, and if it does not, there can be no assurance that the 37 existing states and/or the District of Columbia will not reverse their position and make medicinal and recreational cannabis illegal again. If either of these things happens, then not only will the growth of our business be materially impacted, but we may experience declining revenue as the market for our products and services declines.
Arizona, Montana, New Jersey, South Dakota, New York, Virginia, Connecticut, and New Mexico passed laws allowing recreational (adult-use) marijuana and Mississippi and Alabama passed an initiative allowing medical marijuana.
| 14 |
We may not be able to effectively control and manage our growth.
Our strategy envisions a period of potentially rapid growth. We currently maintain nominal administrative and personnel capacity due to the startup nature of our business, and our expected growth may impose a significant burden on our future planned administrative and operational resources. The growth of our business may require significant investments of capital and increased demands on our management, workforce and facilities. We will be required to substantially expand our administrative and operational resources and attract, train, manage and retain qualified management and other personnel. Failure to do so or satisfy such increased demands would interrupt or would have a material adverse effect on our business and results of operations.
Our industry is highly competitive, and we have less capital and resources than many of our competitors which may give them an advantage in developing and marketing products similar to ours or make our products obsolete.
We are involved in a highly competitive industry where we may compete with numerous other companies who offer alternative methods or approaches, who may have far greater resources, more experience, and personnel perhaps more qualified than we do. Such resources may give our competitors an advantage in developing and marketing products similar to ours or products that make our products obsolete. There can be no assurance that we will be able to successfully compete against these other entities.
The success of our new and existing partnerships, products, and services is uncertain, and large resources may be required to sustain our current business model.
We have committed, and expect to continue to commit, significant resources and capital to develop and market existing partnership, product, and service enhancements as well as new partnerships, products and services. These partnerships, products and services are relatively new and untested, and we cannot assure you that we will achieve market acceptance for these partnerships, products, and services, or other new partnerships, products and services that we may offer in the future. Moreover, these and other new partnerships, products and services may be subject to significant competition with offerings by new and existing competitors in our sector. In addition, new partnerships, products, services and enhancements may pose a variety of technical challenges and require us to attract additional qualified employees. The failure to successfully develop and market these new partnerships, products, services, or enhancements could seriously harm our business, financial condition and results of operations.
Our business is dependent upon continued market acceptance by consumers.
We are substantially dependent on continued market acceptance of our products and our licensees’, lessee’s, or tenant’s products by consumers. Although we believe that the use of cannabis in the United States is gaining stronger consumer acceptance, we cannot predict the future growth rate and size of this market.
If we fail to successfully introduce new partnerships or products, we may lose market position.
New partnerships, products, and product improvements, and line extensions will be an important factor in our sales growth. If we fail to identify emerging consumer and technological trends, to maintain and improve the competitiveness of our existing partnerships and products or to successfully introduce new products on a timely basis, we may lose market position. Continued business development, product development, and marketing efforts have all the risks inherent in the development of new partnerships, products, and line extensions, including development delays, the failure of new partnerships, products and line extensions to achieve anticipated levels of market acceptance and the cost of failed product introductions.
We are dependent upon key personnel whose loss may adversely impact our business.
We rely heavily on the expertise, experience and continued services of Matthew Feinstein, our Chief Financial Officer, Shawn Credle, our Chief Executive Officer, Joshua Eisenberg, our Chief Operating Officer, and Marco Rullo, our Chief Strategy Consultant. The loss of Mr. Feinstein, Mr. Credle, Mr. Eisenberg, or Mr. Rullo, or an inability to attract or retain other key individuals, could materially adversely affect us. We seek to compensate and motivate Mr. Feinstein, Mr. Credle, Mr. Eisenberg, and Mr. Rullo, as well as other personnel, through competitive cash and equity compensation, but there can be no assurance that these programs will allow us to retain key personnel or hire new key personnel. As a result, if any member of our key personnel were to leave, we could face substantial difficulty in hiring a qualified successor and could experience a loss in productivity while any such successor obtains the necessary training and experience. Mr. Feinstein, Mr. Credle, Mr. Eisenberg, and Mr. Rullo were the only key persons that we were dependent upon as of December 31, 2022.
| 15 |
Our services have never been provided on a mass market commercial basis, and we do not know whether they will be accepted by the market.
The market for cannabis products is at a relatively early stage of development and the extent to which its use will be widely adopted is uncertain. If our services are not accepted by the market, our business plans, prospects, results of operations and financial condition will suffer. Moreover, jurisdictions that have not approved the medicinal and/or adult-retail use of cannabis products may decide not to permit the use of such products. The development of a successful market for our proposed operations and our ability to license our intellectual property and implement our business plan may be affected by a number of factors, many of which are beyond our control. If our proposed operations fail to gain sufficient market acceptance, our business plans, prospects, results of operations and financial condition will suffer.
We may be unable to adequately protect or enforce our patents and proprietary rights.
Our continuing success depends, in part, on our ability to protect our intellectual property and maintain the proprietary nature of our technology through a combination of patents, trademarks, licenses and other intellectual property arrangements, without infringing the proprietary rights of third parties. We cannot assure that these patents, trademarks, licenses and other intellectual property arrangements will be held valid if challenged, or that other parties will not claim rights in or ownership of our patent and other proprietary rights. We also cannot assure that our pending patents will be issued. Moreover, patents issued to us or those we license patents from may be circumvented or fail to provide adequate protection.
Unfavorable outcomes in legal proceedings may adversely affect our business, financial conditions and results of operations.
Our results may be affected by the outcome of future litigation. Unfavorable rulings in our legal proceedings may have a negative impact on us that may be greater or smaller depending on the nature of the rulings. In addition, from time to time in the future we may be subject to various claims, investigations, legal and administrative cases and proceedings (whether civil or criminal) or lawsuits by governmental agencies or private parties, including as described in the immediately preceding risk factor. For example, see “Item 3. Legal Proceedings” regarding our ongoing and recently resolved litigation. If the results of these investigations, proceedings or suits are unfavorable to us or if we are unable to successfully defend against third party lawsuits, we may be required to pay monetary damages or may be subject to fines, penalties, injunctions or other censure that could have a material adverse effect on our business, financial condition and results of operations. Even if we adequately address the issues raised by an investigation or proceeding or successfully defend a third-party lawsuit or counterclaim, we may have to devote significant financial and management resources to address these issues, which could harm our business, financial condition and results of operations.
Litigation brought by third parties claiming infringement of their intellectual property rights or trying to invalidate intellectual property rights owned or used by us may be costly and time consuming.
We may face lawsuits from time to time alleging that our intellectual property infringes on third-party intellectual property, and/or seeking to invalidate or limit our ability to use our intellectual property.
If we become involved in litigation, we may incur substantial expense defending these claims and the proceedings may divert the attention of management, even if we prevail. An adverse determination in proceedings of this type could subject us to significant liabilities, allow our competitors to market competitive products without a license from us, prohibit us from marketing our products or require us to seek licenses from third parties that may not be available on commercially reasonable terms, if at all.
| 16 |
If we are deemed an investment company under the Investment Company Act, applicable restrictions could have an adverse effect on our business.
The Investment Company Act contains substantive legal requirements that regulate the manner in which “investment companies” are permitted to conduct their business activities. We believe that we have conducted our business in a manner that does not result in being characterized as an “investment company” under the Investment Company Act because we are primarily engaged in a non-investment company business. Although a portion of our assets may constitute investments in non-controlled entities, namely our subsidiary, PEC, provided capital to canna-related business clientele, we believe that we are not an investment company as defined by the Investment Company Act. While we intend to conduct our operations such that we will not be deemed an investment company, such a determination would require us to initiate burdensome compliance requirements and comply with restrictions imposed by the Investment Company Act that would limit our activities, including limitations on our capital structure and our ability to transact with affiliates, which would have an adverse effect on our financial condition. To avoid such a determination, we may be required to conduct our business in a manner that does not subject us to the requirements of the Investment Company Act, which could have an adverse effect on our business. For example, we may be required to sell certain of our assets and pay significant taxes upon the sale or transfer of such assets.
Damage from catastrophic weather and other natural events and climate change could result in losses to our Company.
Our buildings and land are susceptible to natural disaster type of events that could interrupt and halt our tenant’s ability to grow and cultivate marijuana. They are located in areas that may experience catastrophic weather and other natural events from time to time, including fires, windstorms or hurricanes, earthquakes, flooding or other severe weather. These adverse weather and natural events could cause substantial damages or losses to our properties which could exceed our insurance coverage. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected property, as well as anticipated future revenue from that property. We could also continue to be obligated to repay any obligations related to the property. Any such loss could materially and adversely affect our business and our financial condition and results of operations. In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing properties and could also require us to spend more on our new development properties without a corresponding increase in revenue.
We may be required to recognize impairment charges that could materially affect our results of operations.
We assess our goodwill and other intangible assets, and our other long-lived assets as and when required by accounting principles generally accepted in the United States (“GAAP”) to determine whether they are impaired. If they are impaired, we would record appropriate impairment charges. It is possible that we may be required to record significant impairment charges in the future and, if we do so, our results of operations could be materially adversely affected.
Our industry is subject to intense competition.
The Company has entered the cannabis distribution business as a result of the PVI share exchange. There is potential that PVI will face intense competition from other companies, some of which can be expected to have longer operating histories and more financial resources and experience than the Company. Increased competition by larger and better-financed competitors could materially and adversely affect the business, financial condition, results of operations or prospects of the PVI.
Because of the early stage of the industry in which the PVI operates, the Company expects to face additional competition from new entrants. To become and remain competitive, PVI will require research and development, marketing, sales and support. PVI may not have sufficient resources to maintain research and development, marketing, sales and support efforts on a competitive basis which could materially and adversely affect the business, financial condition, results of operations or prospects of the Company.
As well, the legal landscape for medical and recreational marijuana is changing internationally. More countries have passed laws that allow for the production and distribution of medical marijuana in some form or another. We have some international partnerships in place, which may be affected if more countries legalize medical marijuana. Increased international competition might lower the demand for our products on a global scale.
| 17 |
New well-capitalized entrants into our industry may develop large-scale operations which will make it difficult for our business to compete and remain profitable.
Currently, the marijuana industry generally is comprised of individuals and small to medium-sized entities, however, the risk remains that large conglomerates and companies who also recognize the potential for financial success through investment in this industry could strategically purchase or assume control of larger dispensaries and cultivation facilities. In doing so, these larger competitors could establish price setting and cost controls which would effectively “price out” many of the individuals and small to medium-sized entities who currently make up the bulk of the participants in the varied businesses operating within and in support of the medical marijuana industry. While the trend in most state laws and regulations seemingly deters this type of takeover, this industry remains quite nascent, so what the landscape will be in the future remains largely unknown, which in itself is a risk.
Our proposed business plan is subject to all business risks associated with new business enterprises, including the absence of any significant operating history upon which to evaluate an investment. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the formation of a new business, the development of new strategy and the competitive environment in which the Company will operate. It is possible that the Company will incur losses in the future. There is no guarantee that the Company will be profitable.
Risks Related to Ownership of Our Common Stock
The OTC Markets Group identified our common stock with a caveat-emptor.
Prior to April 28, 2016, our common stock was quoted on the OTC Pink Marketplace. On April 28, 2016, the SEC suspended the trading of our Common Stock due to unexplained market activity. It is management’s belief that such activity was spawned by news of a public figure investing into the Company. The trading suspension ended on May 11, 2016 and as of the date hereof, a licensed broker filed a Form 15c2-11 to resume quotations on the OTC marketplace, since the Company regained current status with its filing obligations. That application was deemed complete by FINRA which resulted in public quotations to commence on the OTC Markets platform as of February 2023.
On March 31, 2016, the OTC Markets Group identified our securities with a caveat emptor symbol due to trading activity that caused our stock price to rise from a low of $10.10 on March 24, 2016, to a high of $42.38 on March 31, 2016. The caveat emptor symbol is intended to inform investors that there may be reason to exercise additional care and perform thorough due diligence in making investment decisions in an issuer.
We regained current status with our filing obligations in the fourth quarter of 2021, and a licensed broker filed a Form 15c2-11 application that was deemed complete in order to remove the caveat emptor symbol and resume quotations on the OTC marketplace. Should the OTC Markets Group refuse to remove the caveat emptor symbol, our common stock may never be able to transition from the OTC Pink Market, the trading price of our common stock could suffer, the trading market for our common stock may be less liquid and our stock price may be subject to increased volatility, making it difficult or impossible for you to resell shares of our common stock.
Due to our connection to the cannabis industry, there can be no assurance that our shares of common stock will ever be approved for listing on a national securities exchange.
Currently, shares of our common stock are traded on the OTC Pink Market and are not listed on any national securities exchange, such as the New York Stock Exchange or the NASDAQ Stock Market. Even if we desire to have our shares listed on a national securities exchange, the fact that our business is associated with the use of cannabis, the legal status of which is uncertain in some states and at the federal level, may make any efforts to become listed on a securities exchange more problematic as we believe national exchanges may be reluctant to list shares of companies whose business is associated with the recreational use of cannabis. While we plan to work with NASDAQ or other exchanges in an attempt to change their views of responsible cannabis related businesses, there can be no assurance that our common stock will ever be listed on NASDAQ or any other national securities exchange. As a result, our common stock may never develop an active trading market which may limit our investors’ ability to liquidate their investments or cause our stock price to be particularly volatile.
| 18 |
Our stock may be traded infrequently and in low volumes, so you may be unable to sell your shares at or near the quoted bid prices if you need to sell your shares.
Until our common stock is listed on a national securities exchange, our common stock may only trade on one of the OTC Markets (if we are successful in applying to trade on such marketplaces) or on the OTC Pink Market. In those markets, however, the shares of our common stock may trade infrequently and in low volumes, meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent. An investor may find it difficult to obtain accurate quotations as to the market value of our common stock or to sell his or her shares at or near bid prices or at all. In addition, if we fail to meet the criteria set forth in SEC reporting regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. This would also make it more difficult for us to raise capital.
There currently is no active public market for our common stock and there can be no assurance that an active public market will ever develop. Failure to develop or maintain a trading market could negatively affect the value of our common stock and make it difficult or impossible for you to sell your shares.
There is currently no active public market for shares of our common stock, and one may never develop. Our common stock is currently traded on the OTC Pink Market. The OTC Pink Market is a thinly traded market and lacks the liquidity of certain other public markets with which some investors may have more experience. We may not ever be able to satisfy the requirements to be quoted on the OTC Markets or satisfy the listing requirements to be listed on a national securities exchange, which are often more widely traded and liquid markets. Some, but not all, of the factors which may delay or prevent the quotation or listing of our common stock on a more widely-traded and liquid market include the following: our stockholders’ equity may be insufficient; the market value of our outstanding securities may be too low; our net income from operations may be too low; our common stock may not be sufficiently widely held; we may not be able to secure market makers for our common stock; and we may fail to meet the rules and requirements mandated by the several exchanges and markets to have our common stock listed. Should we fail to satisfy the initial listing standards of the national exchanges or OTC Markets, or our common stock is otherwise rejected for listing or quotation, and remains traded on the OTC Pink Market, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid, and our common stock price may be subject to increased volatility, making it difficult or impossible to sell shares of our common stock.
We do not intend to pay dividends in the foreseeable future.
We do not intend to pay any cash dividends in the foreseeable future. We do not plan on making any cash distributions in the manner of a dividend or otherwise. Our Board of Directors presently intends to follow a policy of retaining earnings, if any.
Investors may experience dilution of their ownership interests because of the future issuance of additional shares of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.
In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We are authorized to issue an aggregate of 500,000,000 shares of common stock and 20,000,000 shares of “blank check” preferred stock. We may issue additional shares of our common stock or other securities that are convertible into or exercisable for our common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock may create downward pressure on the trading price of the common stock. We will need to raise additional capital in the near future to meet our working capital needs, and there can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with these capital raising efforts, including at a price (or exercise or conversion prices) below the price an investor paid for stock.
| 19 |
Being a public company is expensive and administratively burdensome.
As a company whose common stock is registered under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are fully subject to the information and reporting requirements of the Exchange Act and other federal securities laws, rules and regulations related thereto, including compliance with the Sarbanes-Oxley Act. Complying with these laws and regulations requires the time and attention of our Board of Directors and management and increases our expenses.
Among other things, we are required to:
| ● | maintain and evaluate a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board; | |
| ● | maintain policies relating to disclosure controls and procedures; | |
| ● | prepare and distribute periodic reports in compliance with our obligations under federal securities laws; | |
| ● | institute a more comprehensive compliance function, including corporate governance; and | |
| ● | involve, to a greater degree, our outside legal counsel and accountants in the above activities. |
The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders are expensive and much greater than that of a privately-held company, and compliance with these rules and regulations may require us to hire additional financial reporting, internal controls and other finance personnel, and will involve a material increase in regulatory, legal and accounting expenses and the attention of management. There can be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all. In addition, being a public company makes it more expensive for us to obtain director and officer liability insurance. In the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage.
Our common stock is subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.
Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
| 20 |
Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts of our common stock in the public market, including upon the expiration of any lockup periods or the statutory holding period under Rule 144, or issued upon the conversion of preferred stock, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
An investment in our securities is speculative and there can be no assurance of any return on any such investment.
An investment in our securities is speculative and there is no assurance that investors will obtain any return on their investment. Investors will be subject to substantial risks involved in an investment in our Company, including the risk of losing their entire investment.
Our Articles of Incorporation provide that, unless we consent in writing to the selection of an alternative forum, the Eighth Judicial District Court of Clark County, Nevada will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our Articles of Incorporation provide that, unless we consent in writing to the selection of an alternative forum, the Eighth Judicial District Court of Clark County, Nevada will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Nevada Revised Statutes, our Articles of Incorporation or our bylaws. This choice of forum provision does not preclude or contract the scope of exclusive federal or concurrent jurisdiction for any actions brought under the Securities Act or the Exchange Act. Accordingly, our exclusive forum provision will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.
Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to these provisions. These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees.
If a court were to find the choice of forum provision contained in our Articles of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management and other employees.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our shared headquarters is located in Los Angeles, California, where we lease office space of approximately 2,300 sq ft pursuant to a new two-year lease effective July 29, 2020, at a monthly lease amount of approximately $9,000 of which $8,000 per month has been paid by our co-tenant Pineapple Ventures, Inc., through year-end 2022. The above property was leased by Pineapple Inc. from May 2016 up to July 2022. PVI then took over the lease obligation as of July 2022. We have been at this location for seven years.
| 21 |
ITEM 3. 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, 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 a final award for transfer of the IP rights and the exercise of a put option in or about December 23, 2019, in favor of Claimants. 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. The Company filed a Notice of Appeal on the same date, which is currently pending briefing schedule. 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. The Company reported the settlement in accounts payable as of December 31, 2020. 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. 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 December 31, 2020.
Pineapple Express v. Ramsey Salem. JAMS Arbitration Reference Number: 1220063897, filed October 30, 2019. 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. The matter is presently pending before JAMS and set for arbitration to be conducted on March 22, 2021, but the matter was continued as the parties executed a settlement agreement resolving all claims on a global basis. 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 Case Number: BC708868, filed June 6, 2018. Plaintiff claims damages against Defendant in 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 management asserts was not the fault of the Company. Nor are Defendants contracting parties to the lease agreement or original revenue sharing agreement for which consideration was paid. The Company denied all allegations of claims asserted in the Complaint. Notwithstanding, the parties settled the matter pursuant to a confidential settlement agreement on or about January 3, 2020. However, the matter was reduced to an entry of judgment by the court on or about February 21, 2020, for the amount of $615,000, which monies remain due and outstanding as of December 31, 2021. The Company reported the settlement agreement in settlement payable as of December 31, 2021. As of the date of the filing of this Annual Report, the parties are cooperating to resolve this matter pursuant to the terms of the agreed upon settlement.
| 22 |
Sharper, Inc. v. Pineapple Express, Inc., et al., Los Angeles Superior Court Case Number: 18SMCV00149, 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. The matter was arbitrated, and the arbitrator issued a final award in favor Petitioner in or about September 4, 2019, for the principal amount of $15,375. The award was reduced to an entry of judgment in the total amount of $18,692 on or about February 27, 2020, against the Company 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 December 31, 2022, and 2021, is $105,523.
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 was accrued for in the Company’s contingent liabilities as of December 31, 2022, and 2021.
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 December 31, 2021, and 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 v. Pineapple Express, Inc. Los Angeles Superior Court Case Number: 19STCV09006, 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, 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. The parties self-represented in arbitration and a final arbitration award was issued in the amount $23,805 on or about October 27, 2020, against the Company. 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, set for hearing on April 12, 2021. On information and belief, Pineapple Express Inc., a California Corporation, is not affiliated with Pineapple Inc., a Nevada Corporation, formerly known as Pineapple Express, Inc., a Wyoming Corporation. Claimant amended its complaint on or about February 3, 2021, to include Defendant Pineapple Express, Inc., a Wyoming corporation. A default judgement was entered on May 11, 2021, against Pineapple Express, Inc., in the amount of $29,280. Defendant, Pineapple Inc., a Nevada Corporation, is not a party to the pending matter to date. The parties hope to engage in settlement discussions and resolve this matter. The $29,280 has been accrued for as of December 31, 2022, in the Company’s contingent liabilities.
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. Management intends for the creditor to be satisfied once the Company is in a position to satisfy the judgment. The $7,500 has been accrued for as of December 31, 2022, and 2021, in the Company’s contingent liabilities.
| 23 |
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. Management intends for the creditor to 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 at December 31, 2022, and 2021.
Novinger v. Pineapple Express, Inc. Los Angeles Superior Court Case Number: 20CHLC10510, filed in or about March 11, 2020. This is a limited jurisdiction action arising from a claim for monies lent to the Company without specificity as to the judgment debtor’s state of incorporation, for the total of $30,851. On September 23, 2020, a default judgment was entered against Pineapple Express, Inc. The parties are working to resolve the matter or alternatively vacate and set aside the default judgment entered unbeknownst to Defendant. The settlement amount of $30,851 has been accrued for in notes payable, related party as of December 31, 2022, and 2021.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information and Holders
Our common stock trades on the OTC Pink Market under the ticker symbol “PNPL”. As of December 31, 2022, there were 376 holders of record of our common stock. The following table sets forth, for the periods indicated, the high and low closing sales prices of our common stock:
| 2021 | High | Low | ||||||
| Quarter ended December 31 | $ | 0.75 | $ | 0.00 | ||||
| Quarter ended September 30 | $ | 1.00 | $ | 0.05 | ||||
| Quarter ended June 30 | $ | 0.05 | $ | 0.00 | ||||
| Quarter ended March 31 | $ | 1.00 | $ | 0.00 | ||||
| 2022 | High | Low | ||||||
| Quarter ended December 31 | $ | 0.12 | $ | 0.00 | ||||
| Quarter ended September 30 | $ | 0.28 | $ | 0.01 | ||||
| Quarter ended June 30 | $ | 0.02 | $ | 0.01 | ||||
| Quarter ended March 31 | $ | 0.02 | $ | 0.01 | ||||
Dividend Policy
We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on our common stock. Instead, we currently anticipate that we will retain all of our future earnings, if any, to fund the operation and expansion of our business and to use as working capital and for other general corporate purposes. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our Board of Directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects, and other factors our Board of Directors may deem relevant.
| 24 |
Recent Sales of Unregistered Securities
Other than as set forth below and as reported in our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, there have been no other sales or issuances of unregistered securities since April 1, 2017, that were not registered under the Securities Act of 1933, as amended (the “Securities Act”).
For the fiscal year ended December 31, 2022
The Company received stock subscriptions totaling $150,000 for 400,000 shares at $0.25 per share during Q1 2022 and 100,000 shares at $0.50 per share during Q2 2022. As of December 31, 2022, the shares were not yet issued, and the Company recorded the shares to be issued of $150,000. The shares were issued in February 2023.
The Company believes the offers, sales and issuances of the securities described above were exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated under Regulation D under the Securities Act as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof. Each of the recipients of securities in these transactions was an accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act and had adequate access, through employment, business or other relationships, to information about us. The sales of these securities were made without any general solicitation or advertising.
Securities Authorized for Issuance Under Equity Compensation Plans
See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters — Securities Authorized for Issuance Under Equity Compensation Plans.”
Choice of Forum Provision in Articles of Incorporation
Our Articles of Incorporation provide that, unless we consent in writing to he selection of an alternative forum, the Eighth Judicial District Court of Clark County, Nevada is the exclusive forum for the following types of actions or proceedings: (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any director, officer, employee or agent of the Corporation to the Corporation or the Corporation’s stockholders, creditors or other constituents, (c) any action asserting a claim arising pursuant to any provision of the NRS or these Articles of Incorporation or the Bylaws, (d) any action to interpret, apply, enforce or determine the validity of these Articles of Incorporation or the Bylaws or (e) any action asserting a claim governed by the internal affairs doctrine, in each case subject to said Eighth Judicial District Court of Clark County, Nevada having personal jurisdiction over the indispensable parties named as defendants therein; provided that, if and only if the Eighth Judicial District Court of Clark County, Nevada dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Nevada.
Despite the fact that the Articles of Incorporation provide for this exclusive forum provision to be applicable to the fullest extent permitted by applicable law, Section 27 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder and Section 22 of the Securities Act of 1933, as amended (the “Securities Act”), creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. As a result, this provision of the Company’s Articles of Incorporation would not apply to claims brought to enforce a duty or liability created by the Securities Act, Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction.
Any person or entity purchasing or otherwise acquiring any interest in our securities shall be deemed to have notice of and consented to these provisions. Our exclusive forum provision will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our shareholders will not be deemed to have waived our compliance with these laws, rules and regulations.
ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national, and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; change in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; the risk of foreign currency exchange rate; and other risks that might be detailed from time to time in our filings with the SEC.
| 25 |
Although the forward-looking statements in this Annual Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects. We do not undertake any obligation to update forward-looking statements as a result of new information, future events or developments or otherwise.
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes, and other financial information included in this Annual Report.
The independent registered public accounting firms’ reports on the Company’s financial statements as of December 31, 2022, and 2021, and for the years then ended, includes a “going concern” explanatory paragraph that describes substantial doubt about the Company’s ability to continue as a going concern.
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 ancillary services market for the cannabis sectors that are “non plant-touching”.
Our Business
The Company procures and leases properties to licensed cannabis operators and provides nationwide hemp-derived CBD sales via online and in-store transactions. Through the Company’s operating subsidiary, Pineapple Express Consulting Inc., it also offers cannabis business licensing and consulting services. The Company’s executive team blends enterprise-level corporate expertise with decades of combined experience operating in the tightly-regulated cannabis industry.
ln addition to 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 $30,000 per unit. Pineapple intends to sell the Top-Shelf SDS units for use in retail storefronts and delivery vehicles operated by cannabis retail companies. The Company anticipates beginning sales of the Top Shelf SDS system in the third quarter of 2023.
On March 10, 2023, the Company entered into an Amended Binding Letter of Intent (the “Amended Letter Agreement”), effective as of December 31, 2022 (the “Effective Date”), with its Co-Founder, Jaime Ortega (“Ortega”) where the Company agreed to sell 45.17% of its equity interest (the “PVI Interest”) in Pineapple Ventures, Inc. (“PVI”), in exchange for: (i) the purchase price of twenty million (20,000,000) shares of the Company’s common stock, $0.0000001 par value per share (the “Common Stock”) and (ii) the extinguishment of all of the Company’s debt to PVI and Neu-Ventures, Inc. (“NVI”), respectively, of which both PVI and NVI are wholly owned by Ortega (the “Share Repurchase”). Following the Share Repurchase, there are 71,163,569 shares of the Company’s Common Stock, issued and outstanding.
| 26 |
On August 24, 2015, the Company entered into a Share Exchange Agreement (the “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 Agreement, BBC shareholders exchanged all of the issued and outstanding capital of BBC for an aggregate of 50,000,000 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 100,000,000 and 500,000 shares of the Company’s common stock, respectively, in connection with the 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. One of the owners, Jaime Ortega, also entered into a Lockup Agreement under which he could not sell his ownership in the Company through September 1, 2017.
On September 3, 2015, the Company changed its name from “Globestar Industries” to “Pineapple Express, Inc.” The Company’s name has no relation to the 2008 motion picture produced by Columbia Pictures.
In September 2015, the Company had entered into agreements to issue 500,000 shares of Series A Convertible Preferred Stock to Sky Island, Inc. in exchange for a patent and 100,000 shares of Series A Convertible Preferred Stock to Christopher Plummer as compensation for taking on the role of Chief Compliance Officer. However, both of these issuances were rescinded effective December 31, 2015.
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 (“LOI”) 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 in exchange for $100,000. On 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. The Company had planned on using revenue from operations, including license proceeds from contracts already signed with licensees as well as rental payments due from tenants. The Company was also in the process of developing a “franchise style” model whereas it would license its trademark, brand name, and retail design concept in exchange for a 5% perpetuity royalty. These revenue streams were to provide the Company with long-term and short-term growth. However, after the investment in PVI, the Company will now be receiving revenues from its 45.17% ownership.
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”). Upon execution of the PVI Agreement (the “Closing”), the Company acquired 20,000 shares of PVI’s outstanding capital stock (“PVI Shares”), equaling 20% of the outstanding shares of PVI. In consideration for the PVI Shares, the Company agreed to issue 1,000,000 shares of its Series A Convertible Preferred Stock, $0.0000001 par value per share (“Series A Convertible Preferred Stock”), to the PVI Stockholders. Pursuant to the terms of the PVI Agreement and Amendment No. 1 dated June 26, 2019, upon the six-month anniversary of the PVI Agreement (the “Second Closing”), and subject to the conditions to closing set forth in the PVI Agreement, the Company was to acquire an additional 30,000 PVI Shares, equaling 30% of the outstanding shares of PVI, for a total of 50% of the outstanding shares of PVI, in consideration for an additional 1,000,000 shares of Series A Convertible Preferred Stock to be issued to the PVI Stockholders at the time of the Second Closing. The Series A Convertible Preferred Stock may, from time to time, be converted by the holder into shares of the Company’s Common Stock, par value $0.0000001 (the “Common Stock”) in an amount equal to ten (10) shares of Common Stock for each one (1) share of Series A Convertible Preferred Stock. On July 5, 2019, the Company, PVI and the PVI Stockholders, and their respective boards of directors waived the remaining conditions to closing as set forth in the PVI Agreement and ratified and approved the Second Closing.
On January 17, 2020, the Company entered into an agreement with Jaime Ortega whereby in exchange for Mr. Ortega cancelling $1,062,000 of existing loans extended to the Company by Jaime Ortega, Neu-Ventures, Inc., and Sky Island, Inc., the Company sold to Mr. Ortega 10,000 shares of capital stock of Pineapple Ventures, Inc. (“PVI”). Subsequently, on February 11, 2021, the parties entered into amended agreement pursuant to which the original number of shares sold to Mr. Ortega were reduced from 10,000 shares of capital stock of PVI to 4,827 shares of capital stock of PVI. Accordingly, the Company currently owns 45,173 shares of capital stock of PVI. This amendment was entered into to properly reflect the value of the Company’s stock at the time of the initial agreement.
| 27 |
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 $0.0000001 per share (the “PE Common Stock”). Pursuant to the Merger Agreement, the Company’s corporate name changed from “Pineapple Express, Inc.” to “Pineapple, Inc.”
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.
On August 7, 2021, the Company entered into a Stock Purchase Agreement (the “CGI Agreement”) with Capital Growth Investments, Inc., a California corporation (“CGI”) and PVI, the Company’s equity-method investee. Pursuant to the Agreement, the Company can acquire up to 50,000 shares of CGI (the “Shares”), which comprise 50% of its issued and outstanding capital stock, from PVI for an aggregate purchase price of $1,000,000. As of December 31, 2021, $100,000 was paid by the Company, which was recorded and presented in Deposit – Stock purchase agreement related party in the Company’s consolidated balance sheets as of December 31, 2021. No shares of CGI will be issued until the full purchase price is paid. Due to a re-evaluation of the asset, the Company cancelled the transaction on August 22, 2022.
On September 28, 2022, the Company sold 100% interest in the Pineapple Park, LLC entity to related party and prior majority shareholder Jaime Ortega for a purchase price of $10,000 paid at execution of a Binding Letter of Intent.
As reported on the Q3 2022 financials, due to circumstances surrounding the California cannabis industry, the Company fully impaired the PVI equity method investment resulting in a $10,787,652 expense transaction on the Company’s books. On March 10, 2023, the Company entered into an Amended Binding Letter of Intent (the “Amended Letter Agreement”), effective as of December 31, 2022 (the “Effective Date”), with its Co-Founder, Jaime Ortega (“Ortega”) where the Company agreed to sell 45.17% of its equity interest (the “PVI Interest”) in Pineapple Ventures, Inc. (“PVI”), in exchange for: (i) the purchase price of twenty million (20,000,000) shares of the Company’s common stock, $0.0000001 par value per share (the “Common Stock”) and (ii) the extinguishment of all of the Company’s debt to PVI and Neu-Ventures, Inc. (“NVI”), respectively, of which both PVI and NVI are wholly owned by Ortega (the “Share Repurchase”). Following the Share Repurchase, there are 71,163,569 shares of the Company’s Common Stock, issued and outstanding.
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 staffing interpreters, difficulty meeting debt covenants, maintaining consistent service quality with reduced revenue, and a loss of 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.
Results of Operations
The following summary of our results of operations should be read in conjunction with our audited financial statements for the year ended December 31, 2022 and 2021, which are included herein.
| 28 |
Year Ended December 31, 2022, Compared to the Year Ended December 31, 2021
| Year Ended | ||||||||||||||||
| December 31, | ||||||||||||||||
| 2022 | 2021 | Changes | % | |||||||||||||
| Revenue | $ | - | $ | - | $ | - | - | |||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | (23,421 | ) | (20,587 | ) | (2,834 | ) | 14 | % | ||||||||
| Professional fees | (210,828 | ) | (392,406 | ) | 181,578 | (46 | )% | |||||||||
| Professional fees - related parties | - | (340,000 | ) | 340,000 | 100 | % | ||||||||||
| Management consulting fees - related parties | (233,000 | ) | (217,000 | ) | (16,000 | ) | 7 | % | ||||||||
| Depreciation | (6,165 | ) | (6,393 | ) | 228 | (4 | )% | |||||||||
| (473,414 | ) | (976,386 | ) | 502,972 | (52 | )% | ||||||||||
| Other Income (Expenses) | ||||||||||||||||
| Income (loss) from equity-method investment | 1,499,355 | (200,318 | ) | 1,699,673 | - | |||||||||||
| Gain on forgiveness of related party note payable | 30,000 | - | 30,000 | 100 | % | |||||||||||
| Gain on sale of subsidiary – related party | 386,287 | - | 386,287 | - | ||||||||||||
| Gain on settlement of debt | - | 77,360 | (77,360 | ) | (100 | )% | ||||||||||
| Other expense | - | (5,475 | ) | 5,475 | 100 | % | ||||||||||
| Loss on impairment of equity-method investment | (10,787,652 | ) | - | (10,787,652 | ) | (100 | )% | |||||||||
| Gain on forgiveness of debt to related party | 12,000 | - | 12,000 | 100 | % | |||||||||||
| Gain on extinguishment of debt– related parties | 1,477,032 | - | 1,477,032 | 100 | % | |||||||||||
| (7,382,978 | ) | (128,433 | ) | (7,254,545 | ) | 5649 | % | |||||||||
| Net Loss | $ | (7,856,392 | ) | $ | (1,104,819 | ) | $ | (6,751,573 | ) | 611 | % | |||||
Revenues
The Company did not recognize any revenue during the year ended December 31, 2022 and 2021.
Operating Expenses
The Company incurred operating expenses of $473,414 for the year ended December 31, 2022, a decrease of 52% from operating expenses of $976,386 for the year ended December 31, 2021 mainly due to the decrease in professional fees. During the year ended December 31, 2021, the Company issued 1,570,000 shares for services to the Company’s directors, consultants and officers for total fair value of $340,000 recorded under professional fees to related parties in the statements of operations. The decrease in professional fees also attributed to the decrease in legal and accounting fees.
| 29 |
Other Income (Expenses)
The Company incurred other expenses of $7,382,978 for the year ended December 31, 2022, an increase of $7.2M from other expenses of $128,433 for the year ended December 31, 2021. During the year ended December 31, 2022, the Company incurred loss on impairment of equity investment in PVI of $10,787,652, offset by income from equity investment in PVI of $1,499,355 during the nine months ended September 30, 2022 prior to full impairment of the equity investment, gain on extinguishment on of debt to PVI and NVI from disposal of the equity investment in PVI of $1,477,032, gain on sale of the Company’s wholly owned subsidiary Pineapple Park, LLC, gain on forgiveness of related party note to the Company’s former director of $30,000 and gain on forgiveness of debt to the former director of the Company upon her resignation. During the year ended December 31, 2021, the Company incurred loss from the equity investment in PVI of $200,318 and other expense of $5,475, offset by gain on debt settlement of $77,360.
Net Loss
The Company incurred net loss of $7,856,392 for the year ended December 31, 2022, an increase of $6.7M from net loss of $1,104,819 for the year ended December 31, 2021. The increase in net loss was mainly due to loss on impairment of equity investment in PVI of $10.8M.
Liquidity and Financial Condition
Working Capital
| As of | As of | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2022 | 2021 | Changes | % | |||||||||||||
| Current Assets | $ | - | $ | 100,000 | $ | (100,000 | ) | (100 | %) | |||||||
| Current Liabilities | $ | 1,376,972 | $ | 3,065,044 | $ | (1,688,072 | ) | (55 | %) | |||||||
| Working Capital Deficiency | $ | (1,376,972 | ) | $ | (2,965,044 | ) | $ | 1,588,072 | (54 | %) | ||||||
Our total current assets decreased from $100,000 as of December 31, 2021 to $0 as of December 31, 2022 due primarily to the decrease in deposit on stock purchase agreement to related party of $100,000. The Company does not have any cash as of December 31, 2022 and 2021.
Our total current liabilities decreased from $3,065,044 as of December 31, 2021 to $1,376,972 as of December 31, 2022 due primarily to the decrease in notes payable to related party and due to affiliates due to debt extinguishment of debts resulted from the disposal of the equity investment in PVI and the decrease in accounts payable and accrued liabilities.
Our working capital deficit on December 31, 2022 was $1,376,972 as compared to working capital deficit of $2,965,044 as of December 31, 2021. The decrease in working capital deficit was mainly attributed to the decrease in amount due to PVI and NVI group and accounts and accrued liabilities.
The Company 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 the issuance of equity and debt securities for cash .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.
| 30 |
Our audited consolidated financial statements included in this annual 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 $23,528,700 and had a net loss of $7,856,392 and utilized net cash of $207,265 in operating activities as of and for the year ended December 31, 2022. 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, 2022, and 2021, 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 consolidated financial statements included in this annual 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-K. 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.
Cash Flows
| Year Ended | ||||||||||||||||
| December 31, | ||||||||||||||||
| 2022 | 2021 | Changes | % | |||||||||||||
| Cash flows used in operating activities | $ | (207,265 | ) | $ | (53,125 | ) | $ | (154,140 | ) | 290 | % | |||||
| Cash flows used in investing activities | - | - | - | - | ||||||||||||
| Cash flows provided by financing activities | 207,265 | 53,125 | 154,140 | 290 | % | |||||||||||
| Net changes in cash | $ | - | $ | - | $ | - | - | |||||||||
Operating Activities
Net cash used in operating activities was $207,265 for the year ended December 31, 2022, compared with $53,125 net cash used in operating activities during the year ended December 31, 2021.
During the year ended January 31, 2023, net cash used in operating activities was attributed to net loss of $7,856,392, increased by income from equity investment of $1,499,355, gain on debt extinguishment of $1,477,032, gain on forgiveness of related party note of $30,000 and gain on debt forgiveness of $12,000, and was offset by loss on impairment of equity investment of $10,787,652 and depreciation of $6,165 and increased by a net change in operating assets and liabilities of $126,303.
During the year ended December 31, 2021, net cash used in operating activities was attributed to net loss of $1,104,819, increased by gain on debt settlement of $77,360, and offset by stock-based compensation of $340,000, loss from equity investment of $200,318 and a net change in operating assets and liabilities of $582,34.
Investing Activities
During the year ended December 31, 2022 and 2021, the Company did not have any investing activities.
| 31 |
Financing Activities
During the year ended December 31, 2022, net cash from financing activities was $207,265 compared to $53,125 during the year ended December 31, 2021.
Proceeds from financing activities during the year ended December 31, 2022, were derived from proceeds from stock subscription of $150,000 and proceeds from related party notes of $119,285, offset by repayments of related party notes of $62,020.
Proceeds from financing activities during the year ended December 31, 2021, were derived from proceeds for issuance common stock of $284,000 and proceeds from related party notes of $58,075, offset from repayment of related party notes of $288,950.
Off-Balance Sheet Arrangements
During the fiscal year ended December 31, 2022, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
Critical Accounting Estimates
Use of Estimates
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 our stock, stock-based compensation and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.
Stock-based Compensation
The fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model, based on weighted average assumptions. Expected volatility is based on historical volatility of our common stock. The Company has elected to use the simplified method described in the Securities and Exchange Commission Staff Accounting Bulletin Topic 14C to estimate the expected term of employee stock options. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The value of restricted stock awards is determined using the fair value of the Company’s common stock on the date of grant. The Company accounts for forfeitures as they occur. Compensation expense is recognized on a straight-line basis over the requisite service period of the award. As of the fiscal year ended December 31, 2022, and 2021, there were no outstanding warrants or options.
Investments – Equity Method
The Company accounts for its equity method investment (“PVI”) 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 investment 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 December 31, 2022, management has identified indicators of other-than-temporary impairment that have led to the conclusion that the carrying value of its equity method investment is not recoverable. As a result, the Company has recorded an impairment write-down in the consolidated statements of operations for the year ended December 31, 2022.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting Company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
| 32 |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| As of and for the Years Ended December 31, 2022 and 2021 | ||
| Report of Independent Registered Public Accounting Firm (PCAOB |
F-1 | |
| Consolidated Balance Sheets | F-3 | |
| Consolidated Statements of Operations | F-4 | |
| Consolidated Statements of Stockholders’ Equity (Deficit) | F-5 | |
| Consolidated Statements of Cash Flows | F-6 | |
| Notes to Consolidated Financial Statements | F-7 |
| 33 |
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders of
Pineapple, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Pineapple, Inc. (the “Company”) as of December 31, 2022 and 2021, and the consolidated related statements of operations, stockholders’ equity(deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph - Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue. 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. 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 it. 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.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| F-1 |
Completeness of litigation and claims accruals
As disclosed in Note 12 to the consolidated financial statements, the Company is involved in various legal proceedings. The Company assesses the need to make a provision or to disclose a contingent liability on a case-by-case basis considering the underlying facts of each litigation. The eventual outcome of the litigations is uncertain and estimation at the balance sheet date involves extensive judgement of management including input from legal counsel due to the complexity of each litigation.
Adverse outcomes could significantly impact the Company’s reported operations and balance sheet position. Considering the judgement involved in determining the need to make a provision or disclose litigation, the matter is considered a Critical Audit Matter.
Our audit procedures included, among others, obtaining a list of litigation Company’s management and legal counsel, identifying material litigations from the aforementioned list and performing inquiries with the said counsel, obtaining and reading the underlying documents to assess the assumptions used by management in arriving at the conclusions; circulating, obtaining, and reading legal confirmations from the Company’s external legal counsels in respect of material litigations and considered that in our assessment; and verifying the disclosures related to provisions and contingent liabilities in the financial statements to assess consistency with underlying documents.
/s/ BF Borgers CPA PC
We have served as Pineapple, Inc. auditor since 2021.
May 4, 2022
| F-2 |
PINEAPPLE, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2022 and 2021
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Deposit on stock purchase agreement – related party | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net of depreciation | ||||||||
| Equity-method investment | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accounts payable - related party | ||||||||
| Accrued interest payable | ||||||||
| Settlement payable - related party | ||||||||
| Due to affiliates | ||||||||
| Notes payable-related party | ||||||||
| Notes payable | ||||||||
| Advances on agreements | ||||||||
| Contingent liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (note 12) | ||||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding | ||||||||
| Series A Convertible Preferred stock, $ par value, shares authorized, shares issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized, shares and shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively | ||||||||
| Subscription received – shares to be issued | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity(Deficit) | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
PINEAPPLE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2022 and 2021
| 2022 | 2021 | |||||||
| For the Year Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue | $ | $ | ||||||
| Operating Expenses | ||||||||
| General and administrative | ||||||||
| Professional fees | ||||||||
| Professional fees - related parties | ||||||||
| Management consulting fees - related parties | ||||||||
| Depreciation | ||||||||
| Total Operating Expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other Income (Expense) | ||||||||
| Income (loss) from equity-method investment | ( | ) | ||||||
| Gain on forgiveness of related party note payable | ||||||||
| Gain on sale of subsidiary - related party | ||||||||
| Gain on settlement of debt | ||||||||
| Other expense | ( | ) | ||||||
| Loss on impairment of equity-method investment | ( | ) | ||||||
| Gain on forgiveness of debt to related party | ||||||||
| Gain on extinguishment of debt– related parties | ||||||||
| 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 consolidated financial statements.
| F-4 |
PINEAPPLE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
For the Years Ended December 31, 2022 and 2021
| Shares | Amount | Capital | Deficit | Payable | (Deficit) | |||||||||||||||||||
| Common Stock | Additional Paid in | Accumulated | Subscriptions received, shares to | Total Stockholders’ Equity | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | be issued | (Deficit) | |||||||||||||||||||
| Balance as of January 1, 2021 | $ | | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||||
| Cancellation of common stock pursuant to arbitration agreement | ( | ) | ||||||||||||||||||||||
| Common stock issued against earned compensation | ||||||||||||||||||||||||
| Common stock issued against related party debt | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Common stock subscription received | - | |||||||||||||||||||||||
| Cancellation of common stock pursuant to equity investment sale agreement | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
PINEAPPLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2022 and 2021
| 2022 | 2021 | |||||||
| For the Year Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | ( | ) | |||
| Adjustments to reconcile net (loss) to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Gain on debt forgiveness | ( | ) | ||||||
| Gain on debt settlement | ( | ) | ||||||
| Gain on debt extinguishment | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Loss (income) from equity-method investment | ( | ) | ||||||
| Gain on forgiveness of related party note payable | ( | ) | ||||||
| Loss on impairment of equity-method investment | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Accounts payable related party | ||||||||
| Contingent liabilities | ||||||||
| Due from affiliates | ||||||||
| Due to affiliates | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds for issuance from common stock | ||||||||
| Proceeds from stock subscriptions | ||||||||
| 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 Year | ||||||||
| Cash, End of Year | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental Disclosures of Non-Cash Financing Activities | ||||||||
| Liabilities settled by affiliate | $ | $ | ||||||
| Gain on forgiveness of related party note payable | $ | $ | ||||||
| Gain on sale of subsidiary | $ | $ | ||||||
| Termination of stock purchase agreement | $ | $ | ||||||
| Cancellation of common stock pursuant to equity investment sale agreement | $ | $ | ||||||
| Deposit on stock purchase agreement | $ | $ | ||||||
| Common stock issued to settle payable | $ | $ | ||||||
| Related party debt issued for relief of accounts payable | $ | $ | ||||||
| Common stock issued as settlement of related party debt | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-6 |
PINEAPPLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 1 – Organization and Description of Business
Pineapple,
Inc. (“Pineapple” or the “Company”) was originally formed in the State of
On March 19, 2019, the Company entered into a Share Exchange Agreement (the “PVI Agreement”) with Pineapple Ventures, Inc. (“PVI”), the Company’s equity-method investment, 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, par value $ (the “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.
On
January 17, 2020, the Company entered into an agreement with Jaime Ortega whereby in exchange for Mr. Ortega cancelling $
On
March 10, 2023, the Company entered into an Amended Binding Letter of Intent effective as of December 31, 2022 with Mr. Ortega where
the Company agreed to sell
On
September 28th, 2022, the Company signed a letter of intent with Jaime Ortega for the sale of
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements as of December 31, 2022 have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
| F-7 |
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. 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.
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 and cash equivalents
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 December 31,
2022 and 2021, the Company had
| F-8 |
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 straight-line method over the estimated useful lives of the related assets. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.
The estimated useful lives of the classes of property and equipment are as follows:
Schedule of Estimated Useful Lives Property and Equipment
| Office equipment | ||
| Furniture and fixtures |
Investment – Equity Method
The Company accounts for its equity method investment (“PVI”) 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 investment 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 December 31, 2022, management has identified indicators of other-than-temporary impairment that have led to the conclusion that the carrying value of its equity method investment is not recoverable. As a result, the Company has recorded an impairment write-down in the consolidated statements of operations for the year ended December 31, 2022. Refer to Note 6 for disclosures relating to impairment of the Company’s equity method investment.
Basic income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income (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 income (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. At December 31, 2022 and 2021, the Company had options or warrants outstanding and shares issuable for conversion of notes payable.
Income Taxes
The asset and liability method is used in the Company’s accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.
Deferred tax assets and liabilities are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. In estimating future tax consequences, all expected future events are considered other than enactment of changes in the tax law or rates.
The Company adopted ASC 740 “Income Taxes,” which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits.
| F-9 |
The determination of recording or releasing tax valuation allowance is made, in part, pursuant to an assessment performed by management regarding the likelihood that the Company will generate future taxable income against which benefits of its deferred tax assets may or may not be realized.
Stock-based Compensation
The value of restricted stock awards is determined using the fair value of the Company’s common stock on the date of grant. The Company accounts for forfeitures as they occur.
Recently Adopted and Pending Accounting Pronouncements
In June 2022, the FASB issued ASU 2022-03, ASC Subtopic “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments in this update are effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.
The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements.
Note 3 – Going Concern
The
Company’s 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 consolidated financial statements, the Company has an accumulated deficit of $
The Company has incurred net losses in all prior years including year end 2022. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date that the consolidated financial statements are issued. The Company’s consolidated financial statements 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 the Company be unable to continue as a going concern.
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 year ended December 31, 2022, 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 and/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. 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 it. 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.
| F-10 |
Note 4 – Deposit on Stock Purchase Agreement – Related Party
On
August 7, 2021, the Company entered into a Stock Purchase Agreement (the “CGI Agreement”) with Capital Growth Investments,
Inc., a California corporation (“CGI”) and PVI, the Company’s equity-method investee. Pursuant to the Agreement, the
Company can acquire up to shares of CGI (the “Shares”), which comprise % of its issued and outstanding capital stock,
from PVI for an aggregate purchase price of $
Within 60 days of execution of the Agreement, the remaining balance of $ is to be paid in exchange for the full % of the Shares of the Company. Contemporaneously with the execution of the CGI Agreement, the parties entered into a Shareholder Agreement with CGI (the “Shareholder Agreement”). Pursuant to the Shareholder Agreement, the Company was granted certain anti-dilution rights, as well certain monthly distributions of net cash from the operations of CGI, along with other voting and indemnification rights. Pursuant to an Amendment to Stock Purchase Agreement, dated November 26, 2021, the Company, CGI and PVI have acknowledged that the Purchase Price was to be paid in exchange for the entirety of the Shares on or before March 31, 2022. Should the Company be unable to fund the balance of $ by March 31, 2022, the transaction shall be cancelled and the refundable deposit of $ shall be returned to the Company. In March 2022, all parties agreed to extend the closing to June 30, 2022 (“revised closing date”). Should the Company be unable to fund the balance of $ by June 30, 2022, the transaction will be cancelled, and all deposits would be returned to the Company.
In
June 2022, both parties agreed to extend the closing date to August 5, 2022. On August 8, 2022, both PVI and CGI mutually agreed to terminate
the Stock Purchase Agreement.
As
of December 31, 2022 and 2021, the deposit on stock purchase agreement – related party was $
Note 5 – Property and Equipment
Property and equipment as of December 31, 2022 and 2021 is summarized as follows:
Schedule of Property and Equipment
| December 31, 2022 | December 31, 2021 | |||||||
| Furniture and fixtures | $ | $ | ||||||
| Office equipment | ||||||||
| Total property and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense for the years ended December 31, 2022 and 2021 was $
Note 6 – 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.
| F-11 |
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 $
In November 2021, PNPL Holdings Inc., was created for the sole purpose of holding direct equity in the Los Angeles cannabis businesses. The City of Los Angeles passed a provision stating that management companies cannot directly hold equity in the operations they manage. As such, PNPL Holdings, Inc. was set up as an affiliate of PVI that is not owned by PVI for PVI’s equity in the operations of dispensaries in the following California locations: Hollywood and Vine, West Los Angeles, South Los Angeles, Northeast Los Angeles, and San Pedro. CGI and UHC remain unaffected since these dispensaries are not in the City of Los Angeles.
Previously, PVI has invested in established cannabis businesses, funded cannabis start-up businesses, managed the aforementioned businesses for a management fee, and in some instances subleased property to these businesses for a profit. However, as of September 1, 2022, PVI shifted its primary focus to being a “non-plant touching” entity through development of cannabis assets and resale of the same for a profit in partnership with its affiliate entities, hemp CBD retail management services for a fee, and leasing and subleasing cannabis retail properties for a profit. PVI no longer operates or partially owns cannabis assets and acts only as a consultant for the purpose of facilitating development of those assets through PNPL Holdings, Inc. PNPL Holdings, Inc. is wholly-owned by Matthew Feinstein and, as such, is a related party to Pineapple, Inc. PVI no longer receives a 10% management fee for these cannabis entities and is now completely a non-plant touching ancillary service provider to the cannabis industry. As of September 30, 2022, PVI carries no ownership of any cannabis assets. However, PVI did own the following cannabis assets as of September 30, 2022 (these portions of ownership were transferred to PNPL Holdings, Inc.):
| ● | Capital
Growth Investments, Inc. (“CGI”): | |
| ● | Universal
Herbal Center, Inc (“UHC”): | |
| ● | PNPLXPRESS,
Inc. (“PXI”): | |
| ● | PNPLXPRESS
II, Inc (“Northeast LA Dispensary”): |
During September 2022, the ownership percentages previously owned by PVI were transferred to PNPL Holdings, Inc. During the nine months ended September 30, 2022, three of the above cannabis assets (CGI, UHC and PXI) generated revenue while PVI held ownership. As noted above, as of September 30, 2022, PVI no longer has any ownership in these entities.
The following represents summarized financial information of PVI as of and for the nine months ended September 30, 2022, and 2021, respectively:
Summary of Financial Information of Subsidiaries
| Income statement | 2022 | 2021 | ||||||
| Revenue | $ | $ | ||||||
| Cost of goods sold | ( | ) | ||||||
| Gross margin | ||||||||
| Operating expenses | ( | ) | ( | ) | ||||
| Gain on dispensary equity sale | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Balance sheet | ||||||||
| Current assets | $ | $ | ||||||
| Non-current assets | $ | $ | ||||||
| Current liabilities | $ | ( | ) | $ | ( | ) | ||
| Non-Current liabilities | $ | ( | ) | $ | ( | ) | ||
| F-12 |
The
Company has recorded an income from equity investment of $
Management reviews its equity investment for impairment if and when circumstances indicate that a decline in fair value below its carrying amount may have occurred. PNPL determined that a triggering event occurred in September 2022 with respect to its equity method investment in PVI, due to the change in business strategy as of September 1, 2022 and the general adverse developments in the California cannabis industry, both of which have negatively impacted the investment’s strategic direction. After completing its impairment assessment, management determined that the carrying amount exceeded its estimated fair value and the impairment condition was considered other than temporary. The assumptions that most significantly affected the fair value determination included projected cash flows and the discount rate. The Company-specific inputs for measuring fair value are considered “Level 3” or unobservable inputs that are not corroborated by market data under applicable fair value authoritative guidance, as quoted market prices are not available.
As
such, PNPL has recorded an impairment charge of $
On
March 10, 2023, the Company entered into an Amended Binding Letter of Intent effective as of December 31, 2022 with Mr. Ortega where
the Company agreed to sell
As of December 31, 2022, the Company did not hold any equity investments.
Note 7 – Notes Payable, Related Party
Notes payable-related party, are comprised of the following as of December 31, 2022 and 2021:
Schedule of Notes Payable Related Party Transactions
| Noteholder | Due | Interest Rate | Secured | December 31, 2022 | December 31, 2021 | |||||||||||
| Eric Kennedy | % | |||||||||||||||
| Rob Novinger | % | |||||||||||||||
| Neu-Ventures, Inc. | % | |||||||||||||||
| Total | $ | $ | ||||||||||||||
Eric Kennedy (former director)
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 $
| F-13 |
The
note does not incur interest and was originally to be repaid through an initial $
During
the year ended December 31, 2022, Eric Kennedy forgave the amount due from the Company, as he was not awaiting repayment for any funding
he had provided to the Company during previous years. This settlement has been recorded as a gain on forgiveness of related party note
payable in the Consolidated Statements of Operations. The balance of the former related party notes payable is
Rob Novinger (shareholder)
Rob
Novinger is a shareholder and creditor to the Company. There was
Neu-Ventures, Inc. (The owner is the largest shareholder of the Company)
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 in the three and nine months ended September 30, 2022, totaled $
In
pursuant to the agreement for the disposal of
Note 8 – Note Payable
The
Company, through our former subsidiary, BBC, entered into a $
Note 9 – Settlement Payable-Related Party
At December 31, 2022 and 2021, the settlement payable related party balance consists of the following:
Schedule of Settlement Payable Related Party
| Noteholder | December 31, 2022 | December 31, 2021 | ||||||
| Investor Three | ||||||||
| Settlement payable | $ | $ | ||||||
| F-14 |
Investor Three
In
December 2015, the Company entered into a Revenue Share Agreement for $
Note 10 – Advances on Agreements
At December 31, 2022 and 2021, advances on agreements balance consist of the following:
Schedule of Advance on Agreement
| Noteholder | December 31, 2022 | December 31, 2021 | ||||||
| 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-15 |
Investment Accounting Treatments for Investors One and Two
The escrow agreement closed and Investor Two took title to property. There is no provision in BLOI2, or in the Subsequent Land Purchase Agreement, that would impose any continuing liability on the Company other than the loss of the Company’s escrow deposit.
As
no terms and conditions were established to characterize the $
In
February 2019, the Company entered into a settlement agreement with Investor One which required the issuance of shares of the
Company’s common stock and established an additional principal sum for repayment of $
Note 11 – Stockholders’ Equity
The
Company is authorized to issue
During the year ended December 31, 2022, the Company cancelled shares of common stock at $ par value in pursuant to equity investment disposal agreement with Pineapple Ventures, Inc.
During
the year ended December 31, 2021, the Company sold shares of common stock for total cash consideration of $
During
the year ended December 31, 2021, the Company issued shares for services to the Company’s directors, consultants and
to the Company’s officers for total fair value of $
During
the year ended December 31, 2021, the Company issued shares to a Company’s director with fair value of $
During
the year ended December 31, 2021, the Company cancelled
During
the year ended December 31, 2021, the Company issued shares of common stock as settlement of a related party (Neu Venture, Inc.)
debt. The fair value of these shares totaled $
As of December 31, 2022 and 2021, the issued and outstanding common stock was shares and shares, respectively.
| F-16 |
Subscription received - shares to be issued
During the year ended December 31, 2022, the Company received stock subscriptions totaling $ for shares at $per share during Q1 2022 and shares at $ per share during Q2 2022. As of December 31, 2022, the shares were not yet issued, and the Company recorded the shares to be issued of $.
Note 12 – 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:
Pineapple Express v. Ramsey Salem
JAMS Arbitration Reference Number: 1220063897 was filed December 4, 2019. 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 $
| F-17 |
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 $
StoryCorp Consulting, dba Wells Compliance Group v. Pineapple Express, Inc.
JAMS
Arbitration Reference Number: 1210037058, 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 small claims matter for $
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 13 – Income Taxes
The Company utilizes FASB ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
| F-18 |
The
Company generated a deferred tax asset through net operating loss carryforwards. Based upon Management’s evaluation, a valuation
allowance of
Deferred income taxes arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes arising from temporary differences that are related to an asset or liability are classified as current or noncurrent depending on the periods in which the temporary differences are expected to reverse. The Company does not have any uncertain tax positions as of December 31, 2022, and 2021.
No federal tax provision has been provided for the years ended December 31, 2022 and 20201 due to the losses incurred during such periods. Reconciled below is the difference between the income tax rate computed by applying the U.S. federal statutory rate and the effective tax rate for the years ended December 31, 2022 and 2021.
The reconciliation of the federal statutory rate to the effective tax rate is as follows as of December 31, 2022 and 2021:
Schedule of Effective Income Tax
| 2022 | 2021 | |||||||
| U.S federal statutory tax rate | % | % | ||||||
| State tax, net of deferral tax benefit | % | % | ||||||
| Related party interest | % | % | ||||||
| Change in valuation allowance | ( | )% | ( | )% | ||||
| Other | % | % | ||||||
| Total deferred tax assets | % | % | ||||||
The principal components of deferred tax assets and liabilities are as follows as of December 31, 2022 and 2021:
Schedule of Deferred Tax Assets
| 2022 | 2021 | |||||||
| Net operating loss carryforwards | $ | $ | ||||||
| Stock-based compensation | ||||||||
| Accruals and reserves | ||||||||
| Other | ||||||||
| Fixed assets | ||||||||
| Total deferred tax assets | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
At
December 31, 2022, the Company has available net operating loss carryforwards for federal and state income tax purposes of approximately
$
For U.S. purposes, the Company has not completed its evaluation of NOL utilization limitations under Internal Revenue Code (“IRC”), Section 382, change of ownership rules. If the Company has had a change in ownership, the NOL’s would be limited as to the amount that could be utilized each year, based on the Code.
For U.S. purposes, the Company has not completed its evaluation of IRC Section 280E, Expenditures in connection with the illegal sale of drugs. No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which are prohibited by Federal law or the law of any State in which such trade or business is conducted. If IRC 280E applies to the Company, such expenditures would not be deductible or limited.
Note 14 – Subsequent Events
The Company has evaluated subsequent events through the filing of this Annual Report on Form 10-K and has determined that there have been no events that have occurred that would require adjustments to the disclosures in the condensed consolidated financial statements, other than those described below and the binding letter of intent detailed in Note 2.
On
September 28, 2022, the Company signed a letter of intent with Mathew Feinstein, a related party and
On February 16, 2023, the Company issued shares common stock for stock subscription of $ received during the year ended December 31, 2022.
| F-19 |
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 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the fiscal year ended December 31, 2022, the Company carried out an evaluation (the “Evaluation”), under the supervision and with the participation of its management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2022, because of the material weaknesses in internal control over financial reporting described in Management’s Annual Report on Internal Control Over Financial Reporting below.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, 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. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management, with the participation of its CEO and CFO, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, the end of its fiscal year. The Company’s management based its assessment on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation and testing of the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and its overall control environment.
Based on management’s assessment, management has concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2022, due to material weaknesses that existed in its internal controls. A material weakness is a deficiency, or 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.
| 34 |
The following material weaknesses in the Company’s internal control over financial reporting continued to exist at December 31, 2022:
| ● | The Company does not have written documentation of its 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”); | |
| ● | Due to the size of the Company and available resources, there are limited personnel to assist with the accounting and financial reporting functions, which results in lack of sufficient segregation of duties within accounting functions, which is a basic internal control. Due to the Company’s 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 independent audit committee of its 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 corporate finances allow:
| ● | Adding sufficient accounting personnel or outside consultants to properly segregate duties and to affect a timely, accurate preparation of the financial statements once the Company is able to secure additional financing and operations reach specific level to allow |
| ● | 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 in the coming 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 consolidated financial statements in this Annual 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.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the exemption provided to issuers that are not “large-accelerated filers” nor “accelerated filers” under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Changes in Internal Control over Financial Reporting
There was no change to our internal controls or in other factors that could affect these controls during the year ended December 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, our management is currently seeking to improve our controls and procedures in an effort to remediate the deficiencies described above.
CEO and CFO Certifications
Exhibits 31.1 and 31.2 to this Annual Report are the Certifications of our CEO and CFO, respectively. These certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act (the “Section 302 Certifications”). This Item 9A. of this Annual Report, which you are currently reading, is the information concerning the Evaluation referred to above and 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.
| 35 |
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
PART III.
ITEM 10. Directors, Executive Officers, and Corporate Governance
Directors and Executive Officers
Set forth below are the names, ages, present principal occupations or employment, and material occupations, positions, offices or employments for the past two years of current directors and executive officers as of December 31, 2022.
| Name | Age | Position | ||
| Shawn Credle | 41 | Chief Executive Officer | ||
| Joshua Eisenberg | 35 | Chief Operating Officer | ||
| Matthew Feinstein | 53 | Chief Financial Officer, Director | ||
| Dr. Randy Hurwitz | 71 | Director |
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our Board of Directors and hold office until removed by the Board of Directors. All officers and directors listed above will remain in office until the next annual meeting of our stockholders, and until their successors have been duly elected and qualified. There are no agreements with respect to the election of directors. Our Board of Directors appoints officers annually and each executive officer serves at the discretion of our Board of Directors.
Shawn Credle. Mr. Credle is an experienced manager and leader with strong attention to detail and extensive education. The Company believes Mr. Credle will effectively disseminate the Company’s culture and purpose for its business model, as well as bring forth and articulate the vision of the Company to all employees, clients, and the public. Since December 2018, Mr. Credle has been serving as the Chief Executive Officer of Pineapple Ventures, Inc. (“Pineapple Ventures”). From November 2012 until January 2019, Mr. Credle served as the owner/operator and a Master Certified Personal Trainer/Nutrition Specialist of Semper Fi Fitness, LLC. From July 2006 until July 2007, Mr. Credle worked as a Senior Compliance/Quality Analyst for a global surgical medical device company, as well from April 2008 until December 2012 overseeing regulatory activities for all the company’s entities in the southeast regional states. In 1999, Mr. Credle enlisted in the United States Marine Corps. While in the Marines, Mr. Credle was involved in the combat readiness of “Operation Enduring Freedom,” a military operation aimed to respond to the events of September 11, 2001. Mr. Credle was later honorably discharged from the United States Marine Corps in 2003. Since 2014, Mr. Credle has also taught in college university courses on leadership and entrepreneurship at the senior bachelor level. Mr. Credle received a B.A. in Business Management and a B.A. in Management Information Systems (M.I.S.) from Albertus Magnus College, both with honors. He received his Master’s Degree (MBA) in Business Management (with honors), a Master’s Degree in Business Intelligence/Analytics, and a Master’s Degree in Information Privacy/Cybersecurity from Barry University and Nova Southeastern University, respectively.
Joshua Eisenberg. Mr. Eisenberg is a skilled executive with extensive financial and operational experience in building, managing and scaling cannabis-related businesses. Mr. Eisenberg has displayed superior leadership and management ability and his managerial and marketing experience with the dynamic delivery cannabis model gives him unparalleled experience as well as insight into the needs of all demographic segments. In September 2018, Mr. Eisenberg joined Pineapple Ventures as its Chief Operating Officer to continue his vision of building a successful cannabis retail service. From July 2011 until September 2018, Mr. Eisenberg served as the founder and President of On Deck Cooperative, Inc., a medical marijuana retail distributor in the city of Santa Clarita, California. From August 2011 until December 2018, Mr. Eisenberg founded and built a successful cannabis retail business located in the California area. From November 2010 until May 2011, Mr. Eisenberg worked as a social media strategist for IntoMobile, a leading phone news website. Mr. Eisenberg holds a B.S. from the Wharton School, University of Pennsylvania.
| 36 |
Matthew Feinstein. Mr. Feinstein, a founder of the Company, has been actively involved in the cannabis industry since 2013. At the Company, Mr. Feinstein serves as a Director and our interim Chief Financial Officer. Mr. Feinstein is further responsible for human resources, sourcing investment opportunities, and joint venture relationships. He also assists in developing the Company’s objectives. Prior to forming Better Business Consultants, Inc., which was acquired by the Company on August 24, 2015, Mr. Feinstein was associated with Medbox, Inc. in various capacities as a consultant and employee from June 2013 to December 2014, and served as Vice President from February 2014 through December 2014 and on the board of directors from April 2014 through October 2014. At Medbox, Inc., Mr. Feinstein responsibilities included developing client relationships and assisting these clients through the licensing process for canna-businesses. Upon securing a license, he would manage the process of site selection, site construction, and training for each client. During his tenure, Feinstein assisted clients to secure canna-business licenses in Nevada, California, Washington, Oregon, and Illinois. He resigned as Vice President of Medbox, Inc. in December 2014.
Mr. Feinstein has over 30 years of experience in consumer product manufacturing, distribution, and national retail operations. He served as the Director of Technical Service Operations at Minute Key, Inc. from 2011 to 2012, Operational Supervisor at Redbox, Inc. from 2009 to 2011, President and founder of Starlight Home Entertainment, a leading independent DVD sales, marketing, and distribution company from 2001 to 2008, Managing Director of Consumer Services at Urbanfetch from 1999 to 2000, and Vice President of the Franchisor Military Rent-All and Marbles Entertainment retail chains from 1991 to 1999. Mr. Feinstein and Starlight Home Entertainment separately filed bankruptcy petitions in 2007. The bankruptcies were discharged in 2008. Mr. Feinstein earned his undergraduate degree in Political Science in 1991 from the University of California, Berkeley. Mr. Feinstein’s background and many years of experience in retail operations and rolling out retail chains provides the Company with experience and knowledge in this area. When combining these duties with his added and more recent experience in the cannabis industry and his ability to source investors for the Company, Mr. Feinstein lends himself to be an ideal candidate to head the Company and serve on the Board of Directors as its Chairman at the critical and early stages of the Company’s lifecycle.
Dr. Randy Hurwitz. Dr. Hurwitz is a clinical psychologist and an attorney admitted to the bar in the State of Arizona, where he has remained in good standing for over 20 years. From 1995 until 2005, Dr. Hurwitz was a partner with Anderson, Hurwitz & Harward, P.C. where he successfully represented hundreds of clients as well as bringing two cases to the Arizona Supreme Court, changing the law in Arizona to protect consumer rights. In 2007, Dr. Hurwitz formed his own law firm, expanding to several locations including Gilbert, Mesa, and Scottsdale, Arizona. Dr. Hurwitz has operated his own law firm at several locations, supervising staff and managing the practice. In addition to his legal work, Dr. Hurwitz has been a small business owner, working in real estate acquisition, development, marketing and management. Dr. Hurwitz advised and worked with major builders, including UDC Homes, Watt Homes, & Richmond American Homes, holding positions as Sales Manager and subsequently, Vice President of Sales & Marketing. Currently, he is a Member of BARR & Associates, LLC, a real estate investment firm, where he has been in charge of acquisitions, home building and remodeling since 2004. Ever since medical marijuana was placed on the ballot in Arizona, Dr. Hurwitz has followed the emerging marijuana sector, both in Arizona and nationally, participating mostly as an investor and consultant. Dr. Hurwitz believes we are currently in the infancy stage in this sector, with immense growth potential ahead. Our Board of Directors has concluded that Dr. Hurwitz is well-qualified to serve on our Board of Directors and has the requisite qualifications, skills and perspectives based on, among other factors, his professional background and experience in various business endeavors and his ability to relate to people in diverse settings.
Code of Ethics; Financial Expert
Because of the small size and limited resources of the Company, we do not currently have a Code of Ethics applicable to our principal executive, financial and accounting officers. We do not have a “financial expert” on the Board of Directors or an audit committee or nominating committee.
| 37 |
Potential Conflicts of Interest
Since we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our directors. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executives or directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires executive officers and directors of the Company and persons who own more than 10% of a registered class of the Company’s equity securities to file reports of ownership and changes in their ownership with the SEC, and forward copies of such filings to the Company. All of our executive officers and directors have complied with the Section 16(a) filing requirements.
Involvement in Certain Legal Proceedings
There are no legal proceedings that have occurred within the past ten years concerning our directors, or control persons which involved a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one’s participation in the securities or banking industries, or a finding of securities or commodities law violations.
ITEM 11. Executive Compensation
Our named executive officers, consisting of our principal executive officers as of the fiscal years ended December 31, 2022, and December 31, 2021 (the “Named Executive Officers”) were:
| ● | Matthew Feinstein, Chief Financial Officer, Chairman, Secretary, and a director. | |
| ● | Shawn Credle, Chief Executive Officer, and a director. | |
| ● | Joshua Eisenberg, Chief Operating Officer. |
| 38 |
Summary Compensation Table
The following table sets forth, for the fiscal years ended December 31, 2022, and 2021, compensation awarded/accrued or paid to our Named Executive Officers.
| Name and Principal Position | Fiscal Year ended December 31 | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
| Matthew Feinstein, | ||||||||||||||||||||||||||||||||||||
| Chief Financial Officer, Secretary, Chairman of the Board and | 2022 | $ | 108,000 | - | - | - | - | - | - | $ | 108,000 | |||||||||||||||||||||||||
| Director | 2021 | $ | 108,000 | - | - | — | - | - | $ | 108,000 | ||||||||||||||||||||||||||
| Shawn Credle, Chief Executive | 2022 | $ | 48,000 | - | 125,000 | - | - | - | - | $ | 173,000 | |||||||||||||||||||||||||
| Officer and Director | 2021 | $ | 48,000 | - | — | - | - | - | $ | 48,000 | ||||||||||||||||||||||||||
| Joshua Eisenberg, Chief Operating | 2022 | $ | 48,000 | - | 50,000 | - | - | - | - | $ | 98,000 | |||||||||||||||||||||||||
| Officer | 2021 | $ | 48,000 | - | - | - | - | - | - | $ | 48,000 | |||||||||||||||||||||||||
Named Executive Officer and Other Officer Consulting Agreements and Arrangements
Matthew Feinstein
For the fiscal years ended December 31, 2022, and 2021, Matthew Feinstein received $27,000 per quarter or $108,000 per year. $3,000 of this quarterly compensation is paid through PVI, the Company’s equity-method investee and $3,600 of this quarterly compensation is paid directly to his landlord.
Shawn Credle
For the fiscal years ended December 31, 2022, and 2021, Shawn Credle receives $48,000 per year as the Company’s Chief Executive Officer.
On December 20, 2021, the Company issued 500,000 shares of the Company’s common stock as bonus for a total fair value of $125,000.
Joshua Eisenberg
For the fiscal years ended December 31, 2022, and 2021, Joshua Eisenberg receives $48,000 per year as Chief Operation Officer.
| 39 |
Outstanding Equity Awards at Fiscal Year End
As of the fiscal year ended December 31, 2022, none of our directors or executive officers has held unexercised options, stock that had not vested, or equity incentive plan awards.
Director Compensation for Fiscal Year Ended December 31, 2022
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All
Other Compensation ($) | Total ($) | |||||||||||||||||||||
| Dr. Randy Hurwitz (2) | $ | 18,000 | - | - | - | - | $ | 18,000 | ||||||||||||||||||||
| Shawn Credle (1) | - | - | - | - | - | - | - | |||||||||||||||||||||
| Matthew Feinstein (1) | - | - | - | - | - | - | - | |||||||||||||||||||||
| (1) | Directors do not receive any additional compensation for their services on our Board of Directors. | |
| (2) | Pursuant to his director agreement, Dr Randy Hurwitz is entitled to $1,500 per month or $18,000 per year. |
Director – Randy Hurwitz
The Company incurred $18,000 of director fees during the year ended December 31, 2022.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table lists, as of May 3, 2023, the number of shares of common stock of our Company that are beneficially owned by (i) each person or entity known to our Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each executive officer and director of our Company; and (iii) all executive officers and directors as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the SEC rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
| 40 |
The percentages below are calculated on the basis of 71,763,569 shares of Common Stock of the Company, issued and outstanding as of May 3, 2023, together with such number of shares of Series A Convertible Preferred Stock which may be converted into Common Stock as of the date hereof or within 60 days thereafter, representing an aggregate of 71,763,569 shares of Common Stock. No shares of Series A convertible preferred stock have been issued as of May 3, 2023.The Company does not have any outstanding options, warrants, or other securities exercisable for or convertible into shares of its Common Stock.
| Name of Beneficial Owner | Amount of Common Stock Beneficially Owned and Nature of Beneficial Ownership | Percentage of Class | ||||||
| 5% or Greater Stockholders | ||||||||
| Matthew Feinstein | 27,890,000 | 38.8 | % | |||||
| Anna Mikhaylova | 7,273,000 | 10.0 | % | |||||
| Directors and Executive Officers | ||||||||
| Shawn Credle | 1,000,000 | 1.3 | % | |||||
| Joshua Eisenberg | 5,200,000 | 5.7 | % | |||||
| Dr. Randy Hurwitz | 992,000 | 1.3 | % | |||||
| Gianmarco Rullo | 1,000,000 | 1.3 | % | |||||
| Katherine Hill | 40,000 | * | ||||||
| All current directors and executive officers as a group (5 persons) | 15,332,000 | 21.3 | % | |||||
* Represents beneficial ownership of less than one percent.
Securities Authorized for Issuance Under Equity Compensation Plans
As of the fiscal year ended December 31, 2022, and 2021, the Company did not have any equity compensation plans.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and Related Transactions
Notes Payable
Notes payable-related party, are comprised of the following as of December 31, 2022 and 2021:
| Noteholder | Due | Interest Rate | Secured | December 31, 2022 |
December 31, 2021 |
|||||||||||
| Eric Kennedy | Demand | 0 | % | No | - | 30,000 | ||||||||||
| Rob Novinger | Demand | 0 | % | No | 30,851 | 30,851 | ||||||||||
| Neu-Ventures, Inc. | Demand | 0 | % | No | - | 826,067 | ||||||||||
| Total | $ | 30,851 | $ | 886,918 | ||||||||||||
Eric Kennedy (former director)
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 $35,000, resulting in a gain on settlement of related party payables of $36,000, which was recorded in the consolidated statements of stockholders’ (deficit) equity. Therefore, the $35,000 was reclassified to related party notes payable.
The note does not incur interest and was originally to be repaid through an initial $10,000 payment with monthly payments of $5,000 thereafter, but the Company was only able to make one $5,000 payment, reducing the balance to $30,000 as of December 31, 2020. The Company did not make any payment during the year ended December 31, 2021.
During the year ended December 31, 2022, Eric Kennedy forgave the amount due from the Company, as he was not awaiting repayment for any funding he had provided to the Company during previous years. This settlement has been recorded as a gain on forgiveness of related party note payable in the Consolidated Statements of Operations. The balance of the former related party notes payable is zero as of December 31, 2022. There has been no activity during the year ended December 31, 2022.
Rob Novinger (shareholder)
Rob Novinger is a shareholder and creditor to the Company. There was no activity during the year ended December 31, 2022. The balance of the related party note payable is $30,851 as of December 31, 2022 and 2021.
Neu-Ventures, Inc. (The owner is the largest shareholder of the Company)
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 in the three and nine months ended September 30, 2022, totaled $1,700 and $5,885, respectively, offset by cash repayments of $0 and $52,000, respectively. Neu-Ventures also paid $27,387 and $62,935, respectively, of corporate expenses on behalf of the Company during the three and nine months ended September 30, 2022.
In pursuant to the agreement for the disposal of 45.17% equity investment in Pineapple Venture, Inc. effective as of December 31, 2022, the loan to Neu-Ventures was fully extinguished.
Settlement Payable
At December 31, 2022 and 2021, the settlement payable related party balance consists of the following:
| Noteholder | December 31, 2022 | December 31, 2021 | ||||||
| Investor Three | 615,000 | 615,000 | ||||||
| Settlement payable | $ | 615,000 | $ | 615,000 | ||||
| 41 |
Investor Three
In December 2015, the Company entered into a Revenue Share Agreement for $750,000 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 $825,000 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 $75,000 was incurred which was recorded as deferred finance cost. During the fiscal year 2018, the Company reduced $200,000 of principal by transferring land to Investor Three. During the fiscal year 2018, the Company also recorded a loss on settlement of debt in the consolidated statements of operations increasing the balance by $97,800 to $615,000 at December 31, 2018. There has been no activity during the year ended December 31, 2022. This balance remains outstanding as of December 31, 2022 and 2021, and is classified as settlement payable-related party on the Company’s consolidated balance sheets.
Other
During the year ended December 31, 2021, the Company issued 1,570,000 shares for services to the Company’s directors, consultants and to the Company’s officers for total fair value of $340,000.
On January 17, 2020, the Company entered into an agreement with Jaime Ortega whereby in exchange for Mr. Ortega cancelling $1,062,000 of existing loans extended to the Company by Jaime Ortega, Neu-Ventures, Inc., and Sky Island, Inc., the Company transferred to Mr. Ortega 10,000 shares of capital stock of PVI. Subsequently, on February 11, 2021, the parties entered into amended agreement pursuant to which the original number of shares sold to Mr. Ortega was reduced from 10,000 shares of capital stock of PVI to 4,827 shares of capital stock of PVI. Accordingly, the Company owned 45,173 shares of capital stock of PVI representing 45.17% ownership interest in PVI. This amendment was entered into to correct the original agreement and properly reflected the value of the Company’s stock at the time of the initial agreement. In September 2022, the Company recorded full impairment on the equity investment of $10,787,652.
On March 10, 2023, the Company entered into an Amended Binding Letter of Intent effective as of December 31, 2022 with Mr. Ortega where the Company agreed to sell 45.17% of its equity interest in Pineapple Ventures, Inc., in exchange for the purchase price of 20,000,000 shares of the Company’s common stock at $0.0000001 par value per share and the extinguishment of all of the Company’s debt to PVI and Neu-Ventures, Inc., respectively, of which both PVI and NVI are wholly owned by Ortega.
On September 28, 2022, the Company signed a letter of intent with Jaime Ortega for the sale of 100% interest of Pineapple Park, LLC (“PP”), in exchange for forgiveness of $10,000 of the existing note due to Ortega’s 100% owned entity, Neu-Ventures, Inc. The Entity has accordingly been removed from the Company’s basis of consolidation consolidated financial statements, which resulted in a decrease in the consolidated balance of accounts payable of $376,287 and a decrease in related party notes payable of $10,000. The sale of the Entity resulted in a gain of $386,287, which has been recorded in the consolidated statement of operations for the year ended December 31, 2022.
Employment Arrangements
The relationships and related party transactions described herein are in addition to any employment and consulting arrangements with our executive officers and directors, which are described above under “Executive Compensation — Named Executive Officer and Other Officer Employment Agreements and Arrangements.”
Indemnification Agreements
Our Bylaws provide that none of our officers or directors shall be personally liable for any obligations of our Company or for any duties or obligations arising out of any acts or conduct of said officer or director performed for or on behalf of our Company, including without limitation, acts of negligence or contributory negligence. In addition, our Bylaws provide that we shall indemnify and hold harmless each person and their heirs and administrators who shall serve at any time hereafter as a director or officer of our Company from and against any and all claims, judgments and liabilities to which such persons shall become subject by reason of their having heretofore or hereafter been a director or officer of our Company, or by reason of any action alleged to have heretofore or hereafter taken or omitted to have been taken by him or her as such director or officer, and that we shall reimburse each such person for all legal and other expenses reasonably incurred by him or her in connection with any such claim, judgment or liability, including our power to defend such persons from all suits or claims as provided for under the provisions of the Delaware General Corporation Law; provided, however, that no such persons shall be indemnified against, or be reimbursed for, any expense incurred in connection with any claim or liability arising out of his (or her) own willful misconduct. In addition, we intend to enter into indemnification agreements with our directors and officers and some of our executives may have certain indemnification rights arising under their employment agreements with us. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers.
The limitation of liability and indemnification provisions in our Bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Policies and Procedures for Transactions with Related Persons
We intend to adopt a written related-person transactions policy that will set forth our policies and procedures regarding the identification, review, consideration and oversight of “related-person transactions.” For purposes of this policy only, a “related-person transaction” shall be a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we and any “related person” are participants involving an amount that exceeds $120,000.
Director Independence
We are not subject to listing requirements of any national securities exchange or national securities association and, as a result, we are not at this time required to have our board comprised of a majority of “independent directors.” The Company does not believe that any of the directors of the Company meet the definition of “independent” as such term is defined by SEC rules adopted pursuant to the requirements of the Sarbanes-Oxley Act of 2002 and as determined in accordance with Rule 4200(a)(15) of the Marketplace Rules of the NASDAQ Stock Market, Inc.
ITEM 14. Principal Accounting Fees and Services
Our principal independent accountant for the fiscal years ended December 31, 2022, and 2021, is BF Borgers, CPA. The amount of fees billed to the Company are set forth below:
| December 31, 2022 | December 31, 2021 | |||||||
| Audit Fees | $ | 95,000 | $ | 100,650 | ||||
| Audit Related Fees | $ | - | $ | - | ||||
| Tax Fees | $ | - | $ | - | ||||
| All Other Fees | $ | - | $ | - | ||||
As of December 31, 2022, the Company did not have a formal documented pre-approval policy for the fees of the principal independent accountant. The Company does not have an audit committee.
| 42 |
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
| 43 |
| 44 |
| † | Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to the requirements of Item 15(a)(3) of Form 10-K. |
| * | Filed herewith. |
| ** | Furnished herewith. |
| # | The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document |
ITEM 16. FORM 10-K SUMMARY
The Company has elected not to provide summary information.
| 45 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PINEAPPLE, INC. | ||
| Dated: May 5, 2023 | By: | /s/ Shawn Credle |
| Name: | Shawn Credle | |
| Title: | Chief Executive Officer (Principal Executive Officer) | |
| PINEAPPLE, INC. | ||
| Dated: May 5, 2023 | By: | /s/ Matthew Feinstein |
| Name: | Matthew Feinstein | |
| Title: | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Matthew Feinstein | Chief Financial Officer, Chairman and Director | May 5, 2023 | ||
| Matthew Feinstein | ||||
| /s/ Randy Hurwitz | Director | May 5, 2023 | ||
| Randy Hurwitz |
| 46 |
Exhibit 31.1
CERTIFICATION OF CEO PURSUANT TO RULE 13a-14(a) OR 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Shawn Credle, certify that:
1. I have reviewed this Annual Report on Form 10-K of Pineapple, Inc. (the “Registrant”):
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 Registrant as of, and for, the periods presented in this report.
4. The Registrant’s other certifying officer(s) 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 control over financial reporting (as defined in Exchange Act Rules 13-a13a-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 during the period in which this 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; and
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 (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Dated: May 5, 2023
| By: | /s/ Shawn Credle | |
| Shawn Credle | ||
| Chief Executive Officer and Director |
Exhibit 31.2
CERTIFICATION OF CEO
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Matthew Feinstein, certify that:
1. I have reviewed this Annual Report on Form 10-K of Pineapple, Inc. (the “Registrant”):
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 Registrant as of, and for, the periods presented in this report.
4. The Registrant’s other certifying officer(s) 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 control over financial reporting (as defined in Exchange Act Rules 13-a13a-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 during the period in which this 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; and
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 (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Dated: May 5, 2023
| By: | /s/ Matthew Feinstein | |
| Matthew Feinstein | ||
| Chairman and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF CEO PURSUANT TO
18 U. S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Annual Report of Pineapple, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Shawn Credle, as the Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 5, 2023
| By: | /s/ Shawn Credle | |
| Shawn Credle | ||
| Chief Executive Officer and Director |
This Certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Exhibit 32.2
CERTIFICATION OF CFO PURSUANT TO
18 U. S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Annual Report of Pineapple, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew Feinstein, as the Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 5, 2023
| By: | /s/ Matthew Feinstein | |
| Matthew Feinstein | ||
| Chairman and Chief Financial Officer |
This Certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.