Pineapple, Inc 10-Q for FY2023 Q3
Pineapple, Inc. (PNPL)
About this 10-Q
Pineapple, Inc filed this 10-Q on January 12, 2024, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $90
- down 72.8% from $331 a year earlier
- Net loss
- $516.51K
- compared with a net loss of $9.77M a year earlier
- Diluted EPS
- -$0.01
- compared with -$0.11 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
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)
n/a
(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 Securities Exchange Act of 1934:
Common stock, par value $0.0000001
(Title of class)
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.
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,” “non-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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of January 12, 2024, there were shares of the registrant’s common stock, $0.0000001 par value per share, issued and outstanding.
PINEAPPLE, INC.
Table of Contents
| Page | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Condensed Consolidated Financial Statements (Unaudited) | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 11 |
| Item 4. | Controls and Procedures | 11 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 13 |
| Item 1A. | Risk Factors | 14 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 14 |
| Item 3. | Defaults Upon Senior Securities | 14 |
| Item 4. | Mine Safety Disclosures | 14 |
| Item 5. | Other Information | 14 |
| Item 6. | Exhibits | 15 |
| Signatures | 18 | |
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:
| ● | our projected financial position and estimated cash burn rate; | |
| ● | our estimates regarding expenses, future revenues and capital requirements; | |
| ● | our ability to continue as a going concern; | |
| ● | our need to raise substantial additional capital to fund our operations; | |
| ● | our ability to compete in the global space industry; | |
| ● | our ability to obtain and maintain intellectual property protection for our current products and services; | |
| ● | our ability to protect our intellectual property rights and the potential for us to incur substantial costs from lawsuits to enforce or protect our intellectual property rights; | |
| ● | the possibility that a third party may claim we have infringed, misappropriated or otherwise violated their intellectual property rights and that we may incur substantial costs and be required to devote substantial time defending against these claims; | |
| ● | our reliance on third-party suppliers and manufacturers; | |
| ● | the success of competing products or services that are or become available; | |
| ● | our ability to expand our organization to accommodate potential growth and our ability to retain and attract key personnel; | |
| ● | the potential for us to incur substantial costs resulting from lawsuits against us and the potential for these lawsuits to cause us to limit our commercialization of our products and services; |
All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q may contain estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this annual report on Form 10-Q from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty, including those discussed in “Risk Factors.” We caution you not to give undue weight to such projections, assumptions, and estimates. Further, industry and general publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these publications, studies, and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source.
| 3 |
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
The following unaudited interim condensed consolidated financial statements of Pineapple, Inc. are included in this Quarterly Report on Form 10-Q:
INDEX TO FINANCIAL STATEMENTS
| F-1 |
PINEAPPLE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (As Adjusted) | ||||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Inventory | $ | $ | ||||||
| Total Current Assets | ||||||||
| Security deposits | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ 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 | ||||||||
| Operating lease liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (note 14) | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding | ||||||||
| Series A Convertible Preferred stock, $ par value, shares authorized, shares issued and outstanding | ||||||||
| Preferred stock value | ||||||||
| Common stock, $ par value, shares authorized, shares and shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | ||||||||
| Subscription received – shares to be issued | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-2 |
PINEAPPLE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| For
the Three Months Ended September 30, | For
the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (As Adjusted) | (As Adjusted) | |||||||||||||||
| Revenue | ||||||||||||||||
| Sublease revenue - related parties | $ | $ | $ | $ | ||||||||||||
| Lease expense | ||||||||||||||||
| Sublease revenue | ( | ) | ( | ) | ||||||||||||
| Sales revenue | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit excluding sublease revenue | ||||||||||||||||
| Gross Profit (Loss) | ( | ) | ( | ) | ||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Lease expense | ||||||||||||||||
| Management consulting fees - related parties | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Income from equity-method investment | ||||||||||||||||
| Gain on forgiveness of related party note payable | ||||||||||||||||
| Impairment of inventory | ( | ) | ||||||||||||||
| Gain on sale of subsidiary | ||||||||||||||||
| Loss on impairment of equity-method investment | ( | ) | ( | ) | ||||||||||||
| Total Other Income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss Per Share – Basic and Diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted Average Common Shares – Basic and Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-3 |
PINEAPPLE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
Nine Months Ended September 30, 2023
| Shares | Amount | Capital | Deficit | be issued | Deficit | |||||||||||||||||||
| Subscriptions | ||||||||||||||||||||||||
| Common Stock | Additional Paid in | Accumulated | received, shares to | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | be issued | Deficit | |||||||||||||||||||
| *Balance as of December 31, 2022 (As Adjusted)* | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Common stock issued on subscription received | ( | ) | ||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| *Balance as of March 31, 2023* | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||||
| Common stock issued for acquisition of corporation under common control | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| * |
Nine Months Ended September 30, 2022
| Additional | Subscriptions received, | Total Stockholders’ | ||||||||||||||||||||||
| Common Stock |
Paid in | Accumulated | shares to | Equity | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | be issued | (Deficit) | |||||||||||||||||||
| *Balance as of December 31, 2021* | $ | $ | $ | ( | ) | $ | $ | | ||||||||||||||||
| Common stock subscription received | - | |||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| *Balance as of March 31, 2022* | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Common stock subscription received | - | |||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| *Balance as of June 30, 2022* | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Common stock subscription received | - | |||||||||||||||||||||||
| Common stock issued on subscription received | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net income (loss) | - | ( | ) | ( | ) | |||||||||||||||||||
| *Balance as of September 30, 2022* | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| F-4 |
PINEAPPLE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| 2023 | 2022 | |||||||
| For
the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| (As Adjusted) | ||||||||
| Cash Flows from Operating Activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Impairment of inventory | ||||||||
| Depreciation of property and equipment | ||||||||
| Income from equity-method investment | ( | ) | ||||||
| Gain on forgiveness of related party note payable | ( | ) | ||||||
| Loss on impairment of equity-method investment | ||||||||
| Gain on sale of subsidiary | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventory | ( | ) | ( | ) | ||||
| Security deposits | ( | ) | ||||||
| Right-of-use assets | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Accounts payable - related party | ||||||||
| Operating lease liabilities | ( | ) | ||||||
| Due to affiliates | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from related parties | ||||||||
| Repayment to related parties | ( | ) | ||||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from stock subscription | ||||||||
| Proceeds from related party notes payable | ||||||||
| Repayments of related party notes payable | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net Change in Cash | ||||||||
| Cash, Beginning of Period | ||||||||
| Cash, End of Period | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental Disclosures of Non-Cash Investing and Financing Activities | ||||||||
| Recognition of right-of-use assets | $ | $ | ||||||
| Common stock issued on subscription received | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-5 |
PINEAPPLE, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(Unaudited)
Note 1 – Organization and Description of Business
Pineapple,
Inc. (“Pineapple” or the “Company”) was originally formed in the State of
On
March 10, 2023, the Company entered into an Amended Binding Letter Agreement with Mr. Ortega, effective as of December 31, 2022
amending a prior Binding Letter Agreement executed January 4, 2023, where the Company agreed to sell
On
June 12, 2023, the Company entered into an Amendment to the Letter of Intent, by and between the Company and Matthew Feinstein (the
“Amended LOI”), which amends the Binding Letter of Intent, dated September 28, 2022. Pursuant to the Amended LOI, the
Company shall acquire
| F-6 |
Presently, 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.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”). They do not include all of the information and footnotes required by GAAP for complete financial statements and, accordingly, certain information, footnotes, and disclosures normally included in the annual financial statements, prepared in accordance with GAAP, have been condensed or omitted in accordance with SEC rules and regulations. The accompanying financial information should be read in conjunction with the financial statements and the notes thereto in the Company’s most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on May 5, 2023. In the opinion of management, the financial data presented includes all adjustments necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. Results of interim periods should not be considered indicative of the results for the full year. These unaudited condensed consolidated financial statements include estimates and assumptions of management that affect the amounts reported in the unaudited condensed consolidated financial statements. Actual results could differ from these estimates.
Basis of Consolidation
The consolidated financial statements include the accounts of Pineapple, Inc. and its wholly owned subsidiaries, THC Industries, LLC and Pineapple Express Consulting, Inc. and Pineapple Wellness, Inc., doing business as Pineapple Wellness. Intercompany accounts and transactions have been eliminated.
The Company’s consolidated subsidiaries and/or entities are 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 the Company) |
% | |||||||
| % | ||||||||
| % | ||||||||
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, Incremental borrowing rate (“IBR”) used for leases and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.
During
the third quarter ended September 30, 2023, we completed an assessment of the IBR used on our operating leases entered into during the
nine months ended September 30, 2023. We determined to modify the general rate we applied to all leases of
Reclassifications
Certain prior period amounts have been reclassified to conform with the current period presentation. (Note 13)
| F-7 |
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.
Acquisition Under Common Control
Under ASC 805-50-30-5, when accounting for a transfer of assets or exchange of shares between entities under common control, the receiving entity shall recognize the assets and liabilities transferred at their historical cost and under ASC 805-50-45-5 the financial statements presented for prior years shall be retrospectively adjusted for the periods during which the entities were under common control.
Security Deposits
As
of September 30, 2023, security deposits relate to security deposits paid for ten office premises of $
Inventory
Inventory is stated at lower of cost or net realizable value, with cost being determined on the first-in, first-out (“FIFO”) method.
During
the nine months ended September 30, 2023, the Company acquired inventory of hemp CBD wellness products of $
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 |
| F-8 |
Investment – Equity Method
The
Company accounted 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 identified
indicators of other-than-temporary impairment that at that period 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. During the nine months ended September 30, 2023 and September 30, 2022, the Company
recorded income from equity method investment of $
and $
Related Party Balances and Transactions
The Company follows FASB ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions. (Note 8)
Leases
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities - current, and operating lease liabilities - noncurrent on the balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Non-lease components such as common area maintenance (“CAM”), variable expenses, and late fees were excluded from calculation for ROU assets and lease liabilities. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease expense is reported under cost of sales in the Consolidated Statements of Operations in line with the Company’s main operation of procuring and leasing properties to licensed cannabis operators. For office premises that are not used for subleasing, leases expense is reported under lease expense of operating expenses in the Consolidated Statements of Operations.
Sublease
Under ASC 842, income for a sublessor operating lease is recognized as a single lease income item on a straight-line basis over the lease term and reflected in the appropriate income statement line item based on the lease asset’s function. For transactions where the company is considered the sublessor, revenue for operating leases is recognized on a monthly basis over the term of the lease. Sublessor revenue relates to operating leases that the Company is subleasing. The Company recognizes sublease revenue on a gross basis. (see note 9)
Revenue Recognition
The Company’s revenue derives from sublease revenue and sales of CBD products.
The Company recognizes revenue from the sale of CBD products in accordance with ASC 606, “Revenue Recognition” following the five steps procedure:
Step 1: Identify the contract(s) with customers
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to performance obligations
Step 5: Recognize revenue when the entity satisfies a performance obligation
| F-9 |
For
the nine months ended September 30, 2023 and 2022, the Company recognized revenue from the sale of CBD products of $
The Company recognizes revenue from subleasing of office premises in accordance with ASC842, “Lease Accounting”. The Company recognizes sublease revenue on monthly straight-line basis over the lease term on gross basis.
For
the nine months ended September 30, 2023 and 2022, the Company recognized sublease revenue from related parties of $
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 September 30, 2023 and December 31, 2022, the Company had options or warrants outstanding and shares issuable for conversion of notes payable.
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 during the nine months ended September 30, 2023 and in all prior years. 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.
| F-10 |
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.
Note 4 – Property and Equipment
Property and equipment as of September 30, 2023 and December 31, 2022 is summarized as follows:
Schedule of Property and Equipment
| September 30, 2023 | December 31, 2022 | |||||||
| Furniture and fixtures | $ | $ | ||||||
| Office equipment | ||||||||
| Total property and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense for the nine months ended September 30, 2023 and 2022 was $
Note 5 – Notes Payable, Related Party
Notes payable-related party, are comprised of the following as of September 30, 2023 and December 31, 2022:
Schedule of Notes Payable Related Party Transactions
| Noteholder | Due | Interest Rate | Secured | September
30, 2023 | December
31, 2022 | |||||||||||||||
| Rob Novinger | % | $ | | $ | ||||||||||||||||
| Neu-Ventures, Inc. | % | $ | $ | |||||||||||||||||
| $ | $ | |||||||||||||||||||
Rob Novinger (shareholder)
Rob
Novinger is a shareholder and creditor to the Company. There was
Neu-Ventures, Inc.
Neu-Ventures,
Inc. is an entity owned by our former majority shareholder and current shareholder, Mr. Ortega. These advances are due on demand and
do not incur interest. The balance of the related party note payable is $
| F-11 |
Note 6 – Note Payable
The
Company, through our former subsidiary, Better Business Consultants, Inc., entered into a $
Note 7 – Settlement Payable-Related Party
At September 30, 2023 and December 31, 2022, the settlement payable related party balance consists of the following:
Schedule of Settlement Payable Related Party
| Noteholder | September 30, 2023 | December 31, 2022 | ||||||
| Investor Three | ||||||||
| Settlement payable | $ | $ | ||||||
Investor Three
In
December 2015, the Company entered into a Revenue Share Agreement for $
Note 8 – Related Party Transactions
During
the nine months ended September 30, 2023, the Company recognized sublease revenue of $
During
the nine months ended September 30, 2023, the Company recognized sublease revenue of $
During
the nine months ended September 30, 2023 and 2022, the Company incurred management consulting fees of $
During
the nine months ended September 30, 2023, Pineapple Consolidated, Inc. (“PCI”), a company controlled by the Director of Pineapple,
Inc., advanced $
| F-12 |
During
the nine months ended September 30, 2023, PVI, a company owned and controlled by shareholder
Jaime Ortega, made lease payment of $
The loans from the related parties are due on demand and non-interest bearing.
As
of September 30, 2023 and December 31, 2022, the total amount due to affiliates is $
Note 9 – Leases
Schedule of Leases
| As
of September 30, 2023 | Nine
months ended Lease Expense | Nine months ended September 30, | ||||||||||||||||||||||||||||||
| Location | Entity | Nature | Start | End | Security Deposit | ROU Assets | Lease Liabilities | COGS | Operating Expense | Sublease Revenue | ||||||||||||||||||||||
| 8707 Venice Blvd, Los Angeles, CA 90034 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| 8912 Reseda Blvd, Northridge, CA 91324 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| 467 S.La Brea Ave., Los Angeles, CA 90036 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| 4830 Huntington Drive South Los Angeles CA 90032 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| 8342-8344 West 3rd St Los Angeles CA 90048 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| 19841 Ventura Blvd. Woodland Hills CA 91364 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| 7542-7544 Balboa Blvd. Lake Balboa, CA | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| 2378 Westwood Boulevard, Los Angeles CA 90064 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| 1485 W.Sunset Blvd., Los Angeles, CA | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| 1704 N.Vine St. Unit 102 Hollywood CA 90028 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| 12301 Wilshire Blvd. Suite 302 Los Angeles CA | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| 8783 W.Pico Blvd., Los Angeles, CA 90035 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
On
January 11, 2023, the Company entered into a lease agreement for an office premise located at 8912 Reseda Blvd, Northridge, CA 91324
under a -year
term with two 5-year extension options upon expiry and monthly lease payment of $
On
March 10, 2023, the Company entered into a lease agreement for an office premise located at 8707 Venice Blvd, Los Angeles, CA 90034
under a -year
term with two 5-year extension options upon expiry and monthly lease payment of $
On
May 1, 2023, the Company entered into a lease agreement for an office premise located at 467 S.La Brea Ave., Los Angeles, CA 90036
under a -year
term and monthly lease payment of $
On
April 10, 2023, the Company entered into a lease agreement for an office premise located at 8342-8344 West 3rd St Los Angeles CA
90048 under a -year
term with a 5-year extension option upon expiry and monthly lease payment of $
On
April 1, 2023, the Company was assigned from PVI for lease obligation for an office premise
located at 7542-7544 Balboa Blvd. Lake Balboa, CA under monthly lease payment of $
On
May 15, 2023, the Company entered into a lease agreement for an office premise located at 1485 W. Sunset Blvd., Los Angeles, CA
under a
On
June 1, 2023, the Company was assigned from PVI for lease obligation for an office premise
located at 1704 N. Vine St. Unit 102 Hollywood CA 90028 with monthly lease payment of $
| F-13 |
On
May 23, 2023, the Company entered into a lease agreement for an office premise located at 19841 Ventura Blvd. Woodland Hills CA
91364 under a
On
June 2, 2023, the Company entered into a lease agreement for an office premise located at 4830 Huntington Drive South Los Angeles CA
90032 under a -year term. The lease was delayed due
to city permit granting issue and was then cancelled on August 28, 2023. The Company has made lease payment of $
On
August 25, 2023, the Company entered into a lease agreement for an office premise located at 2378 Westwood Boulevard, Los Angeles CA
90064, with a commencement date of September 1, 2023, under a -year
term with a 5-year extension option upon expiry, monthly lease payment of $
On
July 20, 2023, the Company entered into a lease agreement for an office premise located at 12301 Wilshire Blvd. Suite 302 Los
Angeles CA as headquarter of the Company, with a commencement date of August 1, 2023, under a
On July 1, 2023, Pineapple Wellness was assigned
from PVI for leasing of an office premise located at 8783 W. Pico Blvd., Los Angeles, CA
90035 as Retail Store of the Company, with remaining
The components of operating leases were as follows:
As of September 30, 2023 and December 31, 2022, the Company had the following lease obligations:
Schedule of Operating Lease Liability
| Discount | September 30, | December 31, | ||||||||||||||
| Rate | Maturity | 2023 | 2022 | |||||||||||||
| Current | % | $ | $ | |||||||||||||
| Non-current | % | |||||||||||||||
| $ | $ | |||||||||||||||
| Balance - December 31, 2022 | $ | |||
| Lease liability additions | ||||
| Repayment of lease liability | ( | ) | ||
| Imputed interest | ||||
| Balance - September 30, 2023 | $ |
The following table summarizes the maturity of our lease liabilities as of September 30, 2023:
Schedule of Maturity of Lease Liabilities
| Year Ending December 31, | ||||
| 2023 (excluding the nine months ended September 30, 2023) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Lease liabilities | $ |
| F-14 |
The following summarizes other supplemental information about the Company’s operating leases as of September 30, 2023:
Schedule of Supplemental Information on Operating Leases
| Weighted average discount rate | ||
| Weighted average remaining lease term (years) |
Lease Cost
| Office premises under sublease: | ||||
Nine months ended | ||||
| Operating lease cost: | September 30, 2023 | |||
| Fixed lease cost | $ | |||
| Variable lease cost | ||||
| Non-lease component | ||||
| Total Operating lease cost | ||||
| Sublease income | ( | ) | ||
| Total lease cost, net | $ | |||
During
the nine months ended September 30, 2023, the Company incurred lease expense of $
| Office premises not under sublease: | ||||
Nine months ended | ||||
| Operating lease cost: | September 30, 2023 | |||
| Fixed lease cost | $ | |||
| Variable lease cost | ||||
| Non-lease component | ||||
| Total lease cost | $ | |||
During
the nine months ended September 30, 2023, the Company incurred lease expense of $
Sublease
On
January 15, 2023, the Company, the sublessor, entered into a sub-lease agreement with a sublessee for an office premise located at 8912
Reseda Blvd, Northridge, CA 91324 under a -year term and monthly lease payment of $
On
June 1, 2023, the Company was assigned from PVI sub-lease agreement with a sublessee for an
office premise located at 1704 N. Vine St. Unit 102 Hollywood CA 90028. The sublease agreement will expire on
During
the nine months ended September 30, 2023, the Company recognized sublease revenue from related parties of $
Note 10 – Advances on Agreements
At September 30, 2023 and December 31, 2022, advances on agreements balance consist of the following:
Schedule of Advance on Agreement
| Noteholder | September 30, 2023 | December 31, 2022 | ||||||
| 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 $
| F-15 |
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 $
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 nine months ended September 30, 2023, the Company issued shares common stock for stock subscription of $ received during the year ended December 31, 2022.
| F-16 |
During
the nine months ended September 30, 2023, the Company issued shares of common stock for cash proceeds of $
On
June 12, 2023, the Company issued shares of common stock valued at $ per share, the Company’s stock price on the date of acquisition, to acquire
During
the nine months ended September 30, 2022, the Company received proceeds from stock subscriptions of $
As of September 30, 2023 and December 31, 2022, the total issued and outstanding common stock was shares and shares, respectively.
Note 12 - Equity Method Investment
In March 2019, the Company acquired a % investment in PVI in exchange for shares of the Company’s Series A Preferred stock, which upon issuance were immediately converted into shares of common stock. The investment has been accounted for under the equity method. In addition to having a direct investment, the Company also noted that common ownership with PVI represents an additional variable interest. However, it was determined that the Company does not have the power to direct the activities that most significantly impact PVI’s economic performance, and therefore, the Company is not the primary beneficiary of PVI and PVI has not been consolidated under the variable interest model.
On
January 17, 2020, the Company entered into an agreement with Jaime Ortega whereby in exchange for Mr. Ortega cancelling $
The
investment was recorded at cost, which was determined to be $
| F-17 |
The following represents summarized financial information of PVI as of and for the nine months ended September 30, 2022:
Summary of Financial Information of Subsidiaries
| Income statement | 2022 | |||
| 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 | $ | ( | ) | |
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 $
Note 13 – Acquisition Under Common Control
On June 12, 2023, the Company issued 1,000,000 shares of common stock to acquire PW, a California corporation controlled by Matthew Feinstein who serves as the Chief Financial Officer, Director and Shareholder of PW. As the transaction was between entities under common control, the Company was required to recognize the assets and liabilities transferred at their historical cost and the financial statements presented for prior years were retrospectively adjusted for the periods during which the entities were under common control. commencing from the date of inception at June 24, 2019.
| F-18 |
The Company’s Consolidated Balance Sheet as of December 31, 2022, Statement of Operations for the three months and nine months ended September 30, 2022, Statement of Cash Flow for the nine months ended September 30, 2022 and Statement of Shareholders’ Deficit for the nine months ended September 30, 2022 contain retrospective presentation for the consolidation of Pineapple Wellness accounts from its date of inception with the Company’s accounts resulted from the acquisition of the entity under common control on June 12, 2023. (Note 1)
Schedule of Restatement of Consolidated Balance Sheets and Operations
| Originally Reported | Common Control | As Adjusted | ||||||||||
| December 31, 2022 | ||||||||||||
| Acquired Entry Under | ||||||||||||
| Originally Reported | Common Control | As Adjusted | ||||||||||
| Assets | ||||||||||||
| Current Assets: | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Prepaid expense | ||||||||||||
| Lease receivable | ||||||||||||
| Inventory | ||||||||||||
| Total Current Assets | ||||||||||||
| Security deposits | ||||||||||||
| Property and equipment, net | ||||||||||||
| Operating lease right-of-use assets, net | ||||||||||||
| Total Assets | $ | $ | $ | |||||||||
| Liabilities and Stockholders’ 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 | ||||||||||||
| Operating lease liability | ||||||||||||
| Total Current Liabilities | ||||||||||||
| Operating lease liability, non-current | ||||||||||||
| Total Liabilities | ||||||||||||
| Commitments and contingencies (note 13) | ||||||||||||
| Stockholders’ Deficit: | ||||||||||||
| Preferred stock, $ par value, shares authorized, no shares issued and outstanding | ||||||||||||
| Series A Convertible Preferred stock, $ par value, shares authorized, no shares issued and outstanding | ||||||||||||
| Preferred stock value | ||||||||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding | ||||||||||||
| Subscription received – shares to be issued | ||||||||||||
| Additional paid-in-capital | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | $ | |||||||||
| F-19 |
Originally Reported | Common Control | As Adjusted | Originally Reported | Common Control | As Adjusted | |||||||||||||||||||
| For
the Three Months Ended September 30, 2022 | For
the Nine Months Ended September 30, 2022 | |||||||||||||||||||||||
| Acquired Entry Under | Acquired Entry Under | |||||||||||||||||||||||
Originally Reported | Common Control | As Adjusted | Originally Reported | Common Control | As Adjusted | |||||||||||||||||||
| Revenue | ||||||||||||||||||||||||
| Sublease revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Sales revenue | ||||||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||
| Gross Profit | ||||||||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||
| Lease expense | ||||||||||||||||||||||||
| Management consulting fees - related parties | ||||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Other Income (Expense) | ||||||||||||||||||||||||
| Income from equity-method investment | ||||||||||||||||||||||||
| Gain on forgiveness of related party note payable | ||||||||||||||||||||||||
| Gain on sale of subsidiary | ||||||||||||||||||||||||
| Loss on impairment of equity-method investment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Income (Loss) before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Provision for income taxes | ||||||||||||||||||||||||
| Net Income (Loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Net Income (Loss) Per Share – Basic and Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net Income (Loss) Per Share – Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||
| Weighted Average Common Shares – Basic and Diluted | ||||||||||||||||||||||||
| Weighted Average Common Shares – Basic | ||||||||||||||||||||||||
| F-20 |
| Originally Reported | Common
Control | As Adjusted | ||||||||||
| For the Nine Months Ended September 30, 2022 | ||||||||||||
| Acquired
Entry Under | ||||||||||||
| Originally Reported | Common
Control | As Adjusted | ||||||||||
| Cash Flows from Operating Activities | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||||||
| Depreciation of property and equipment | ||||||||||||
| Income from equity-method investment | ( | ) | ( | ) | ||||||||
| Gain on forgiveness of related party note payable | ( | ) | ( | ) | ||||||||
| Loss on impairment of equity-method investment | ||||||||||||
| Gain on sale of subsidiary | ( | ) | ( | ) | ||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Inventory | ( | ) | ( | ) | ||||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||||||
| Accounts payable related party | ||||||||||||
| Due to affiliates | ||||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash Flows from Financing Activities | ||||||||||||
| Proceeds from stock subscription | ||||||||||||
| Proceeds from related party notes payable | ||||||||||||
| Repayments of related party notes payable | ( | ) | ( | ) | ||||||||
| Net cash provided by financing activities | ||||||||||||
| Net Change in Cash | ||||||||||||
| Cash, Beginning of Period | ||||||||||||
| Cash, End of Period | $ | $ | $ | |||||||||
| F-21 |
Note 14 – 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:
Hawkeye v. Pineapple Express, Inc., et al.
Los
Angeles Superior Court Case Number: BC708868 was filed June 6, 2018. Plaintiff claimed damages against Defendant in the excess of $
Sharper, Inc. v. Pineapple Express, Inc., et al.
Los
Angeles Superior Court Case Number: 18SMCV00149 was filed November 1, 2018. Complaint for money with an amount in controversy of $
Cunningham v. Pineapple Express, Inc.
Los
Angeles Superior Court Case Number: BS171779: Judgment, ordered by the Department of Industrial Relations, Labor Commissioner’s
Office was entered by the Court on December 11, 2017. The amount of judgment entered was $
Pineapple Express, Inc. v. Cunningham
Los
Angeles Superior Court Case Number: SC 127731 was filed June 21, 2017. This action arose from certain complaint and cross-complaint which
were both dismissed. Defendant Cunningham pursued a cost judgment against Plaintiff and obtained a judgment in the amount of $
| F-22 |
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 15 – Subsequent Events
Subsequent to September 30, 2023, and through the date that these financials were issued, the Company had no subsequent events to disclose.
| F-23 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As used herein, “Pineapple,” the “Company,” “our,” “we” or “us” and similar terms include Pineapple, Inc., unless the context indicates otherwise. The following discussion and analysis of our business and results of operations for the three months ended September 30, 2023, and our financial conditions at that date, should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”). US Dollars are denoted herein by “USD,” “$” and “dollars.”
General
This management discussion and analysis of the financial condition and results of operations of the Company is for the three and nine months ended September 30, 2023, and 2022. It is supplemental to and should be read in conjunction with the Company’s unaudited condensed consolidated financial statements as of September 30, 2023, and the consolidated financial statements for the year ended December 31, 2022, included in our Annual Report on Form 10-K for the year ended December 31, 2022, and filed with the U.S. Securities and Exchange Commission and the accompanying notes for each respective period. The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Disclaimer Regarding Forward-Looking Statements
Certain statements contained in this Quarterly Report (or otherwise made by us or on our behalf from time to time in other reports, filings with the U.S. Securities and Exchange Commission, news releases, conferences, internet postings or otherwise) that are not statements of historical fact constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, notwithstanding that such statements are not specifically identified. These forward-looking statements relate to expectations or forecasts for future events, including without limitation our earnings, revenues, expenses or other future financial or business performance or strategies, or the impact of legal or regulatory matters on our business, results of operations or financial condition. These statements may be preceded by, followed by or include the words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intent,” “could,” “would,” “should,” “estimate,” “might,” “plan,” “predict” or “continue” or the negative or other variations thereof or comparable terminology intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are based on information available to us as of the date of this Quarterly Report and on our current expectations, forecasts and assumptions, and involve substantial risks and uncertainties. Actual results may vary materially from those expressed or implied by the forward-looking statements herein due to a variety of factors.
This quarterly report contains forward-looking statements, including statements regarding, among other things:
| ● | our ability to continue as a going concern; | |
| ● | our anticipated needs for working capital; | |
| ● | our ability to generate a profit; | |
| ● | our heavy involvement with cannabis, which remains illegal under federal law; | |
| ● | our ability to access the service of banks; | |
| ● | our ability to obtain various insurances for our business; | |
| ● | our ability to remain compliant with changing laws and regulations; | |
| ● | our ability to obtain the relevant state and local licenses; | |
| ● | our ability to successfully manage our growth; | |
| ● | our ability to repay current debt in cash and obtain adequate new financing; | |
| ● | our dependence on third parties for services; | |
| ● | our dependence on key executives; | |
| ● | our ability to control costs; | |
| ● | our ability to successfully implement our expansion strategies; | |
| ● | our ability to obtain and maintain patent protection; | |
| ● | our ability to recruit employees with regulatory, accounting and finance expertise; | |
| ● | the impact of government regulations, including United States Food and Drug Administration (the “FDA”) regulations; | |
| ● | the impact of any future litigation; | |
| ● | the availability of capital; and | |
| ● | changes in economic, business, and competitive conditions. |
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Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks and uncertainties discussed in Item 1A. Risk Factors of this quarterly report, section captioned “Risk Factors” of our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 5, 2023 and matters described in this quarterly report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this quarterly report will in fact occur. We caution you not to place undue reliance on these forward-looking statements. In addition to the information expressly required to be included in this quarterly report, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading. All subsequent written and oral forward-looking statements attributable to our Company or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. All forward-looking statements included in this quarterly report are made only as of the date of this report or as indicated. Except as required by law, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Introduction
The Company has spent the last several years recasting the direction of the Company. We intend to take advantage of the opportunities that have been identified in the ancillary cannabis sectors. The market opportunities that are opened to a ancillary service provider to the cannabis company include hemp CBD sales, property rentals to cannabis operators at a profit and selling the proprietary Top Shelf System to cannabis dispensaries.
Our Business
Pineapple, Inc. (f/k/a Pineapple Express, Inc). (“Pineapple”, the “Company,” “we,” “us” or “our”) is based in Los Angeles, California and has a web presence of Pineappleinc.com. The Company procures and leases properties to licensed cannabis operators and provides nationwide hemp-derived CBD sales via online and in-store transactions, through Pineapple Wellness, Inc., which the Company acquired on June 12, 2023. The purpose of the acquisition was to have a fully functioning e-commerce platform, brand name of Pineapple Wellness, and domain of pineapplewellness.com to sell hemp-based CBD products. The acquisition also came with the opportunity to lease a CBD focused retail storefront near Beverly Hills, which the Company is currently in the process of making ready for in-store hemp-based CBD transactions. The Company will be assuming the lease on the retail storefront referenced herein as of October 1, 2023.
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.
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Recent Developments
With relations to the Pineapple Wellness, Inc. acquisition, to make up for the expired Hemp-CBD inventory, the Company ordered new Hemp-CBD inventory from its supplier, and commenced working on the retail Hemp-CBD storefront at 8783 W. Pico Blvd., Los Angeles, CA.
On August 17th, the Company gave 30 days’ notice to Chief Operations Officer, Joshua Eisenberg, that Mr. Eisenberg’s services would no longer be needed as of September 17, 2023. On September 1, 2023, Mr. Eisenberg resigned effective immediately and the Company accepted the resignation as of that date.
On September 15th, 2023, the Company appointed Marco Rullo as an independent director on the Company’s board of directors.
Recent Accounting Pronouncements
Please see section captioned “Recent Accounting Pronouncements” in Note 1 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a discussion of recently issued and adopted accounting pronouncements.
Results of Operations
The following summary of our results of operations should be read in conjunction with our unaudited condensed financial statements for the three and nine months ended September 30, 2023 and 2022, which are included herein.
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
| Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2023 | 2022 | Changes | % | |||||||||||||
| Revenue | $ | 105,090 | $ | 331 | $ | 104,759 | 31,649 | % | ||||||||
| Cost of sales | 474,996 | 268 | 474,728 | 117,137 | % | |||||||||||
| Operating Expenses | 146,604 | 126,072 | 20,532 | 16 | % | |||||||||||
| Operating Loss | (516,510 | ) | (126,009 | ) | (390,501 | ) | 310 | % | ||||||||
| Other Income (Expenses) | - | (9,643,374 | ) | 9,643,374 | (100 | )% | ||||||||||
| Net Income (Loss) | $ | (516,510 | ) | $ | (9,769,383 | ) | $ | 9,252,873 | (95 | )% | ||||||
Revenues
During the three months ended September 30, 2023, the Company recognized sublease revenue of $105,000 from two office premises and incurred lease expense of $474,996 from ten office premises, one of which is no longer leased, which is reported under cost of sales in the Consolidated Statements of Operations.
During the three months ended September 30, 2023 and 2022, revenue from CBD sales was $90 and $331, and cost of sales was $0 and $268, respectively.
Operating Expenses
The Company incurred operating expenses of $146,604 for the three months ended September 30, 2023, an increase of 16% from operating expenses of $126,072 for the three months ended September 30, 2022 mainly due to an increase in lease expense and management consulting fees. During the three months ended September 30, 2023, the Company incurred lease expense of $48,253 reported under operating expense in the Consolidated Statements of Operations for two leased office premises that are not planned to be subleased.
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Other Income (Expenses)
The Company had no other expenses for the three months ended September 30, 2023. During the three months ended September 30, 2022, the Company has total other expense of $9,643,374 consisting of $757,991 of income from the Company’s equity method investment, $386,287 from gain on the sale of Pineapple Park, and $10,787,652 from loss on impairment of the equity-method investment. The income from the Company’s equity-method investee is primarily comprised of the following: gain of $2,347,653 from the sale of equity interest from previously acquired dispensaries, in excess of the carrying cost of the original acquisition, $177,019 of management fees and rental income, offset by $842,891 of general and administrative expenses and $6,710 of depreciation expense.
Net Loss
Net loss for the three months ended September 30, 2023 was $516,510 compared to $9,769,383 for the three months ended September 30, 2022. The decrease in net loss was mainly due to the decrease in other expenses during the three months ended September 30, 2023.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2023 | 2022 | Changes | % | |||||||||||||
| Revenue | $ | 157,590 | $ | 1,153 | $ | 156,437 | 13,568 | % | ||||||||
| Cost of sales | 798,130 | 756 | 797,374 | 105,473 | % | |||||||||||
| Operating Expenses | 355,734 | 385,767 | (30,033 | ) | (8 | )% | ||||||||||
| Operating Loss | (996,274 | ) | (385,370 | ) | (610,904 | ) | 159 | % | ||||||||
| Other Income (Expenses) | (27,336 | ) | (8,872,010 | ) | 8,844,674 | (100 | )% | |||||||||
| Net Income (Loss) | $ | (1,023,610 | ) | $ | (9,257,380 | ) | $ | 8,233,770 | (89 | )% | ||||||
Revenues
During the nine months ended September 30, 2023, the Company recognized sublease revenue of $157,500 from two office premises and incurred lease expense of $798,130 from nine office premises which is reported under cost of sales in the Consolidated Statements of Operations as all of the nine leased office premises will be subleased by Q4 ended December 31, 2023.
During the nine months ended September 30, 2023 and 2022, revenue from CBD sales was $90 and $1,153, and cost of sales was $0 and $756, respectively.
Operating Expenses
The Company incurred operating expenses of $355,734 for the nine months ended September 30, 2023, a decrease of 8% from operating expenses of $385,767 for the nine months ended September 30, 2022 mainly due to a decrease in audit fees and legal fees.
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Other Income (Expenses)
During the nine months ended September 30, 2023, the Company had other expense of $27,336 from impairment of inventory. During the nine months ended September 30, 2022, the Company has total other expense of $8,872,010, consisting of $1,499,355 of income from the Company’s equity method investment, $30,000 recognized for gain on forgiveness of a related party note payable due to Eric Kennedy, $386,287 from gain on the sale of Pineapple Park, and $10,787,652 from loss on impairment of the equity-method investment. The $1,499,355 of income from the Company’s equity-method investee is primarily comprised of the following: gain of $4,965,510 from the sale of equity interest from previously acquired dispensaries, in excess of the carrying cost of the original acquisition, $487,993 of management fees and rental income, offset by $2,113,324 of general and administrative expenses and $20,130 of depreciation expense.
Net Loss
Net loss for the nine months ended September 30, 2023 was $1,023,610 compared to the nine months ended September 30, 2022 of $9,257,380. The decrease in net loss was mainly due to the decrease in other expenses during the nine months ended September 30, 2023.
Liquidity and Financial Condition
Working Capital
| As of | As of | |||||||||||||||
| September 30, | December 31, | |||||||||||||||
| 2023 | 2022 | Changes | % | |||||||||||||
| Current Assets | $ | 4,710 | $ | 27,336 | $ | (22,626 | ) | (83 | %) | |||||||
| Current Liabilities | $ | 3,925,392 | $ | 1,414,372 | $ | 2,511,020 | 178 | % | ||||||||
| Working Capital Deficiency | $ | (3,920,682 | ) | $ | (1,387,036 | ) | $ | (2,533,646 | ) | 183 | % | |||||
Our total current assets decreased to $4,710 as of September 30, 2023 from $27,336 as of December 31, 2022 due primarily to a decrease in inventory.
Our total current liabilities increased to $3,925,392 as of September 30, 2023 from $1,414,372 as of December 31, 2022 due primarily to the increase in operating lease liability and amount due to affiliates for payment made to vendors on behalf of the Company.
Our working capital deficit on September 30,2023 was $3,920,682 as compared to working capital deficit of $1,387,036 as of December 31, 2022. The increase in working capital deficit was mainly attributed to the increase in operating lease liability and amount due to affiliates for payment made to vendors on behalf of the Company.
The Company has 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.
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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.
Our condensed consolidated financial statements included in this quarterly report have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in such consolidated financial statements, we had an accumulated stockholders’ deficit of $24,562,374 and had a net loss of $1,023,610 for the nine months ended September 30, 2023. 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 year ended December 31, 2023 and 2022 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 quarterly report do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Based on our management’s estimates and expectation to continue to receive short-term debt funding from a related party on as needed basis, we believe that current funds on hand as of the date of issuance and proceeds of such loans will be sufficient for us to continue operations beyond twelve months from the filing of this Form 10-Q. Our ability to continue as a going concern is dependent on our ability to execute our business strategy and in our ability to raise additional funds. Management is currently seeking additional funds, primarily through the issuance of equity and/or debt securities for cash to operate our business; however, we can give no assurance that any future financing will be available or, if at all, and if available, that it will be on terms that are satisfactory to us. Even if we can obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity and/or convertible debt financing.
Cash Flows
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2023 | 2022 | Changes | % | |||||||||||||
| Cash flows provided by operating activities | $ | 63,131 | $ | (103,995 | ) | $ | 167,126 | (161) | % | |||||||
| Cash flows used in investing activities | - | - | - | - | ||||||||||||
| Cash flows used in financing activities | (63,131 | ) | 103,995 | (167,126 | ) | (161) | % | |||||||||
| Net changes in cash | $ | - | $ | - | $ | - | - | |||||||||
Operating Activities
Net cash provided by operating activities was $63,131 for the nine months ended September 30, 2023, compared with $103,995 net cash used in operating activities during the nine months ended September 30, 2022.
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During the nine months ended September 30, 2023, net cash provided by operating activities was attributed to net loss of $1,023,610, decreased by depreciation of equipment of $2,358, impairment of inventory of $27,336 and net changes in operating assets and liabilities of $1,057,047.
During the nine months ended September 30, 2022, net cash used in operating activities was attributed to net loss of $9,257,380, increased by income from equity method investment of $1,499,355, gain on forgiveness of related party note payable of $30,000, gain on sale of subsidiary of $386,287 and decreased by depreciation of property and equipment of $4,129, loss on impairment of equity method investment of $10,787,652 and net changes in operating assets and liabilities of $277,246.
Investing Activities
During the nine months ended September 30, 2023 and 2022, the Company did not have any investing activities.
Financing Activities
During the nine months ended September 30, 2023, net cash used in financing activities was $63,131, comprised of repayment to related parties of $234,372, offset by proceeds from related parties of $86,241 and proceeds from issuance of common stock of $85,000.
During the nine months ended September 30 2022, net cash provided by financing activities of $103,995, derived from proceeds for common stock subscription of $150,000 and proceeds from related party notes of $5,995, offset by repayment of related party notes of $52,000.
Off-Balance Sheet Arrangements
During the nine months ended September 30, 2023, 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, Incremental borrowing rate (“IBR”) used for leases and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.
Leases
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities - current, and operating lease liabilities - noncurrent on the balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Non-lease components such as CAM, variable expenses, and late fees were excluded from the calculation for ROU assets and lease liabilities. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease expense is reported under cost of sales in the Consolidated Statements of Operations in line with the Company’s main operation of procuring and leasing properties to licensed cannabis operators. For office premises that are not used for subleasing, leases expense is reported under lease expense of operating expenses in the Consolidated Statements of Operations.
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Sublease
Income for a sublessor operating lease is recognized as a single lease income item on a straight-line basis over the lease term and reflected in the appropriate income statement line item based on the lease asset’s function. For transactions where the company is considered the sublessor, revenue for operating leases is recognized on a monthly basis over the term of the lease. Sublessor revenue relates to operating leases that the Company is subleasing. The Company recognizes sublease revenue on a gross basis. (see note 9)
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide the information by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) that are designed to reasonably ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 15d-15(e) under the Exchange Act. Management based its controls on the report, “2013 Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
At the end of the period covered by this Quarterly Report, we conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon the foregoing, and to the same extent as reported in our Annual Report on Form 10-K for the year ended December 31, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023, the disclosure controls and procedures of our Company were not effective to ensure that the information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported on a timely basis because of the material weaknesses in internal control over financial reporting described below.
Material Weaknesses and Corrective Actions
To the same extent as reported in our Annual Report on Form 10-K for the year ended December 31, 2022, we identified certain deficiencies relating to our internal control over financial reporting that constitute a material weakness under standards established by the Public Company Accounting Oversight Board (the “PCAOB”). The PCAOB defines a material weakness as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
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The following material weaknesses in our internal control over financial reporting continued to exist as of September 30, 2023:
| ● | The Company does not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); | |
| ● | 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; and | |
| ● | The Company does not have an audit committee of our board of directors. |
To remediate the Company’s internal control weaknesses, management intends to implement the following measures, as finances 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 before the end of the current fiscal year but provides no assurances that it will be able to do so.
Notwithstanding the material weaknesses discussed above, our management, including the Company’s CEO and CFO, concluded that the condensed consolidated financial statements in this quarterly report fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows for the periods presented, in conformity with GAAP.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
CEO and CFO Certifications
Exhibit 31.1 to this Quarterly Report has the “Certifications” of our Chief Executive Officer and the Chief Financial Officer. These Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act (the “Section 302 Certifications”). This Item 4 of this Quarterly Report contains is the information concerning the Evaluation referred to in the Section 302 Certifications, and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
In the normal course of business, the Company is subject to various claims and litigation. While the outcome of any litigation is inherently unpredictable, the Company believes that it has valid defenses with respect to the legal matters pending against it and that the ultimate resolution of these matters will not have a materially adverse impact on its financial condition, results of operations, or cash flows. The following is a list of current litigation:
Hawkeye v. Pineapple Express, Inc., et al.
Los Angeles Superior Court Case Number: BC708868 was filed June 6, 2018. Plaintiff claimed damages against Defendant in the excess of $900,000 arising from a series of successive amended and revised revenue sharing agreements pertaining to rental income from certain leasehold for premises more commonly known as 65421 San Jacinto Lane, Desert Hot Springs, CA 92240 which was not realized through no fault of Defendants, nor are Defendants contracting parties to the lease agreement or original revenue sharing agreement for which consideration was paid. Defendants deny all allegations of claims asserted in the Complaint. Notwithstanding, the parties settled the matter pursuant to a confidential settlement agreement in or about January 3, 2020. However, the matter was reduced to an entry of judgment by the court in or about February 21, 2020, for the amount of $615,000, which monies remain due and outstanding and are accrued for in the Company’s settlement payable as of September 30, 2023 and December 31, 2022. The parties are cooperating to resolve this matter pursuant to the terms of the agreed upon settlement.
Sharper, Inc. v. Pineapple Express, Inc., et al.
Los Angeles Superior Court Case Number: 18SMCV00149 was filed November 1, 2018. Complaint for money with an amount in controversy of $32,500. The matter arises from certain claim for goods and services rendered beyond the contract claim which is wholly disputed. The court case matter was stayed on February 11, 2019, pending the outcome of Arbitration. Finnegan & Diba was substituted out of the matter on June 14, 2019. The matter was arbitrated through other counsel and the arbitrator issued a final award in favor of Petitioner in or about September 4, 2019, for the principal amount of $15,375, which has been accrued for in the Company’s contingent liabilities as of December 31, 2018. The award was transitioned to an entry of judgment in the total amount of $18,692 on or about February 27, 2020, against Pineapple Express, Inc. without specificity as to the judgment debtor’s state of incorporation, and Pineapple Express Consulting Inc., which remains due and outstanding. The accrual in the Company’s contingent liabilities as of September 30, 2023 and December 31, 2022 is $18,692.
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 $47,684. 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 September 30, 2023 and December 31, 2022.
Pineapple Express, Inc. v. Cunningham
Los Angeles Superior Court Case Number: SC 127731 was filed June 21, 2017. This action arose from certain complaint and cross-complaint which were both dismissed. Defendant Cunningham pursued a cost judgment against Plaintiff and obtained a judgment in the amount of $2,367, which remains outstanding to date and since January 22, 2018. This amount has been accrued for in the Company’s contingent liabilities as of September 30, 2023 and December 31, 2022. 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.
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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 September 30, 2023 and December 31, 2022, in the Company’s contingent liabilities.
Russ Schamun v. Pineapple Express Consulting, Inc.
This is a small claims matter for $7,500 filed by an independent contractor. There was a hearing date on August 23, 2019, and judgment was awarded to Russ Schamun. This creditor will be satisfied once the Company is in a position to satisfy the judgment. The $7,500 has been accrued for as of September 30, 2023 and December 31, 2022, in the Company’s contingent liabilities.
SRFF v. Pineapple Express, Inc.
This matter resulted in a stipulated judgment whereas former SEC counsel claimed approximately $60,000 in legal work that was not paid for. The Company claimed that the work being charged for (a registration statement to be filed with the SEC) was not completed. Regardless of this fact, the Company signed a payment plan and confession of judgment if the plan was not honored. The result was a judgment entered in favor of SRFF because of the confession. This creditor will be satisfied once the Company is in a position to satisfy the judgment. The settlement amount has been accrued for in the Company’s accounts payable and accrued liabilities balance at September 30, 2023 and December 31, 2022.
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 $30,851, which is accrued for in the Company’s related party notes payable (Note 7) as of September 30, 2023 and December 31, 2022. On September 23, 2020, a default judgment was entered against the Company. The parties are working to resolve the matter or alternatively vacate and set aside the default judgment entered unbeknownst to the Company.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On or about June 27, 2023, the Company issued 340,000 shares common stock for stock subscription totaling $85,000 that was used for operating capital.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
There have been no events which are required to be reported under this Item.
Item 5. Other Information.
None.
| 14 |
Item 6. Exhibits.
| 15 |
| 16 |
| * | 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 |
| 17 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PINEAPPLE, INC. | ||
| Dated: January 12, 2024 | By: | /s/ Shawn Credle |
| Name: | Shawn Credle | |
| Title: | Chief Executive Officer (Principal Executive Officer) | |
| By: | /s/ Matthew Feinstein | |
| Name: | Matthew Feinstein | |
| Title: | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |
| 18 |
Exhibit 31.1
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Shawn Credle, certify that:
1. I have reviewed this Form 10-Q of Pineapple, Inc. for the period ended September 30, 2023.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly for the period in which this quarterly report is being prepared; | |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; | |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: January 12, 2024 | ||
| By: | /s/ Shawn Credle | |
| Shawn Credle | ||
| Chief Executive Officer | ||
Exhibit 31.2
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Matthew Feinstein, certify that:
1. I have reviewed this Form 10-Q of Pineapple, Inc. for the period ended September 30, 2023.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly for the period in which this quarterly report is being prepared; | |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; | |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: January 12, 2024 | ||
| By: | /s/ Matthew Feinstein | |
| Matthew Feinstein | ||
| Chief Financial Officer | ||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of Pineapple, Inc. (the “Company”), on Form 10-Q for the period ended September 30, 2023, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Shawn Credle, Chief Executive Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | Such Quarterly Report on Form 10-Q for the period ended September 30, 2023, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in such Quarterly Report on Form 10-Q for the period ended September 30, 2023, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: January 12, 2024 | ||
| By: | /s/ Shawn Credle | |
Shawn Credle Chief Executive Officer |
||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of Pineapple, Inc. (the “Company”), on Form 10-Q for the period ended September 30, 2023, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Matthew Feinstein, Chief Financial Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | Such Quarterly Report on Form 10-Q for the period ended September 30, 2023, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in such Quarterly Report on Form 10-Q for the period ended September 30, 2023, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: January 12, 2024 | ||
| By: | /s/ Matthew Feinstein | |
| Matthew Feinstein | ||
| Chief Financial Officer | ||