As used herein, "Pineapple," the "Company," "our," "we" or "us" and similar
terms include Pineapple, Inc., unless the context indicates otherwise. The
following discussion and analysis of our business and results of operations for
the three and nine months ended September 30, 2022, 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, 2022, and 2021. It is supplemental to and should be read in conjunction with
the Company's unaudited condensed consolidated financial statements as of
September 30, 2022, and the consolidated financial statements for the year ended
December 31, 2021, included in our Annual Report on Form 10-K for the year ended
December 31, 2021, 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.
20
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 6, 2022, and amended on May 18, 2022, and matters described in this
quarterly report generally. In light of these risks and uncertainties, there can
be no assurance that the forward-looking statements contained in this quarterly
report will in fact occur. We caution you not to place undue reliance on these
forward-looking statements. In addition to the information expressly required to
be included in this quarterly report, we will provide such further material
information, if any, as may be necessary to make the required statements, in
light of the circumstances under which they are made, not misleading. All
subsequent written and oral forward-looking statements attributable to our
Company or to persons acting on our behalf are expressly qualified in their
entirety by these cautionary statements. All forward-looking statements included
in this quarterly report are made only as of the date of this report or as
indicated. Except as required by law, we do not intend to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Introduction
The Company has spent the last several years recasting the direction of the
Company. We intend to take advantage of the opportunities that have been
identified in the cannabis sectors. The market opportunities that are opened to
a cannabis company include PVI's involvement with cannabis delivery, retail,
manufacturing, and cultivation. Our main focus has been to receive 45.17% of all
net income (loss) generated by PVI from its business ventures, as well as
selling the Top Shelf System to cannabis dispensaries.
Our Business
The Company was originally formed in the state of Nevada under the name Global
Resources, Ltd. on August 3, 1983. It changed its name to "Helixphere
Technologies Inc." on April 12, 1999, and to "New China Global Inc." on October
2, 2013. It reincorporated in Wyoming on October 30, 2013, changed its name to
"Globestar Industries" on July 15, 2014. On August 24, 2015, the Company entered
into a share exchange agreement with Better Business Consultants, Inc. ("BBC"
dba "MJ Business Consultants"), a corporation formed in California on January
29, 2015, all of BBC's shareholders, and the Company's majority shareholder at
that time (the "BBC Share Exchange"). Pursuant to the BBC Share Exchange, BBC
became a wholly owned subsidiary of the Company. Upon consummation of the BBC
Share Exchange, the Company ceased its prior business of providing educational
services and continued the business of BBC as its sole line of business. BBC has
three wholly owned subsidiaries, Pineapple Express One LLC, a California limited
liability company, Pineapple Express Two LLC, a California limited liability
company, and Pineapple Properties Investments, LLC, a Washington limited
liability company. Better Business Consultants, Inc. has since been sold by the
Company. On September 3, 2015, the Company changed its name to "Pineapple
Express, Inc." from "Globestar Industries." Currently, the Company is in the
process of seeking regulatory approval from the Financial Industry Regulatory
Authority ("FINRA") to change its name to Pineapple, Inc.
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 20th, 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
to PVI for use in retail storefronts and delivery vehicles as well as to sell
the Top Shelf SDS technology to other cannabis retail companies. The Company
anticipates beginning sales of the Top Shelf SDS system in the third quarter of
2023.
21
On March 19, 2019, the Company entered into a Share Exchange Agreement (the "PVI
Agreement") with Pineapple Ventures, Inc. ("PVI"), the Company's equity-method
investment, and the stockholders of PVI (the "PVI Stockholders") in which the
Company acquired a total of 50% of the outstanding shares of PVI, in
consideration for 2,000,000 shares of Series A Convertible Preferred Stock. The
Series A Convertible Preferred Stock may, from time to time, be converted by the
holder into shares of the Company's Common Stock, par value $0.0000001 (the
"Common Stock"), in an amount equal to ten (10) shares of Common Stock for each
one share of Series A Convertible Preferred Stock. The PVI Stockholders elected
to immediately convert the 2,000,000 shares of Series A Convertible Preferred
Stock into 20,000,000 shares of common stock upon issuance
On January 17, 2020, the Company entered into an agreement with Jaime Ortega
whereby in exchange for Mr. Ortega cancelling $1,062,000 of existing loans
extended to the Company by Jaime Ortega, Neu-Ventures, Inc., and Sky Island,
Inc., the Company transferred to Mr. Ortega 10,000 shares of capital stock of
PVI. Subsequently, on February 11, 2021, the parties entered into amended
agreement pursuant to which the original number of shares sold to Mr. Ortega was
reduced from 10,000 shares of capital stock of PVI to 4,827 shares of capital
stock of PVI. Accordingly, the Company currently owns 45,173 shares of capital
stock of PVI. This amendment was entered into to correct the original agreement
and properly reflect the value of the Company's stock at the time of the initial
agreement. As of September 30, 2022, and December 31, 2021, the Company has a
45.17% ownership interest in PVI, its equity-method investment. As of September
30, 2022, this investment has been fully impaired.
Pursuant to an Agreement and Plan of Merger ("Merger Agreement"), dated as of
April 6, 2020, by and between, Pineapple Express, Inc., a Wyoming corporation
("Pineapple Express"), and Pineapple, Inc., a Nevada corporation ("Pineapple")
and wholly-owned subsidiary of Pineapple Express, effective as of April 15, 2020
(the "Effective Date"), Pineapple Express merged with and into Pineapple, with
Pineapple being the surviving entity (the "Reincorporation Merger"). The
Reincorporation Merger was consummated to complete Pineapple Express'
reincorporation from the State of Wyoming to the State of Nevada. The Merger
Agreement, the Reincorporation Merger, the Name Change (as defined below) and
the Articles of Incorporation and Bylaws of Pineapple were duly approved by the
written consent of shareholders of Pineapple Express owning at least a majority
of the outstanding shares of Pineapple Express' common stock. Pursuant to the
Merger Agreement, the Company's corporate name changed from "Pineapple Express,
Inc." to "Pineapple, Inc."
The Company is based in Los Angeles, California. Through the Company's operating
subsidiary Pineapple Express Consulting, Inc. ("PEC"), as well as its PVI
portfolio asset, the Company has historically provided capital to its
canna-business clientele, leases properties to those canna-businesses, takes
equity positions and manages those operations, and provides consulting and
technology to develop, enhance, or expand existing and newly formed
infrastructures. As of September 1, 2022, PVI shifted its primary focus to being
a "non-plant touching" entity through development of cannabis assets and resale
of the same for a profit in partnership with its affiliate entities, hemp CBD
retail management services for a fee, and leasing and subleasing cannabis retail
properties for a profit. PVI no longer operates or partially owns cannabis
assets and acts only as a consultant for the purpose of facilitating development
and future equity sales of those assets through PNPL holdings, the sales of
which PVI will continue to earn. The cannabis assets are developed under PNPL
Holdings, Inc., an affiliate of PVI that is not owned by PVI. PVI no longer
receives a 10% management fee for these cannabis entities and is now completely
a non-plant touching ancillary service provider to the cannabis industry.
Pineapple aims to become the leading portfolio management company in the U.S.
cannabis sector. The Company's executive team blends enterprise-level corporate
expertise with a combined three decades of experience operating in the tightly
regulated cannabis industry. While PVI is generating revenues from the
above-mentioned means, PEC is currently still in development and is currently
not generating revenues.
Impact of COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel
coronavirus (COVID-19) as a pandemic, which continues to spread throughout the
United States. As a result, significant volatility has occurred in both the
United States and International markets. While the disruption is currently
expected to be temporary, there is uncertainty around the duration. To date, the
Company has experienced declining revenues, difficulty staffing interpreters,
difficulty meeting debt covenants, maintaining consistent service quality with
reduced revenue, and a loss of customers. Management expects this matter to
continue to impact our business, results of operations, and financial position,
but the ultimate financial impact of the pandemic on the Company's business,
results of operations, financial position, liquidity, or capital resources
cannot be reasonably estimated at this time.
Recent Developments
None
Recent Accounting Pronouncements
Please see section captioned "Recent Accounting Pronouncements" in Note 1 to our
unaudited condensed consolidated financial statements included in this Quarterly
Report for a discussion of recently issued and adopted accounting
pronouncements.
22
Results of Operations
Summary of Results of Operations for the three months ended September 30, 2022,
and 2021:
September 30, September 30,
(In dollars) 2022 2021
Revenue $ - $ -
Operating expenses:
General and administrative 125,090 127,031
Depreciation 933 1,541
Total operating expenses 126,023 128,572
Operating loss (126,023 ) (128,572 )
Other income (expense):
Income (loss) from equity method investment 757,991 (227,822 )
Gain on sale of subsidiary 386,287 -
Loss on impairment of equity-method investment (10,787,652 ) -
Total other income (expense) (9,643,374 ) (227,822 )
Income (loss) from operations before taxes (9,769,397 ) (356,394 )
Provision for income taxes - -
Net income (loss) $ (9,769,397 ) $ (356,394 )
Revenue
Revenue from operations for the three months ended September 30, 2022, and 2021
was $0. The Company has not yet generated any revenue.
General and administrative
General and administrative expenses for the three months ended September 30,
2022, were $125,090, a decrease of $1,941, or 1.5%, from $127,031 during the
three months ended September 30, 2021. Management does not consider such
decrease as material.
Depreciation
Depreciation expense was $933 and $1,541 in the three months ended September 30,
2022, and 2021, respectively. Management does not consider such decrease as
material.
Operating loss
Operating loss for the three months ended September 30, 2022, was $126,023, a
decrease of $2,549, or 2% from an operating loss of $128,572 during the three
months ended September 30, 2021. Management does not consider such decrease as
material.
Other income (expense)
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.
23
During the three months ended September 30, 2021, the Company has total other
expense of $227,822, consisting of losses from the Company's equity method
investment. The net loss is primarily comprised of $13,339 of management fees
and rental income, offset by $233,303 of general and administrative expenses and
$8,475 of depreciation expense.
Net income (loss)
As a result of the foregoing, the Company recorded a net loss of $9,769,397 for
the three months ended September 30, 2022, as compared to a net loss of $356,394
for the three months ended September 30, 2021.
Summary of Results of Operations for the nine months ended September 30, 2022,
and 2021:
September 30, September 30,
(In dollars) 2022 2021
Revenue $ - $ -
Operating expenses:
General and administrative 380,553 448,030
Depreciation 4,129 4,623
Total operating expenses 384,682 452,653
Operating loss (384,682 ) (452,653 )
Other income (expense):
Income (loss) from equity method investment 1,499,355 (790,126 )
Gain on forgiveness of related party note payable 30,000 -
Gain on sale of subsidiary 386,287 -
Loss on impairment of equity-method investment (10,787,652 ) -
Total other income (expense) (8,872,010 ) (790,126 )
Income (loss) from operations before taxes (9,256,692 ) (1,242,779 )
Provision for income taxes - -
Net income (loss) $ (9,256,692 ) $ (1,242,779 )
Revenue
Revenue from operations for the nine months ended September 30, 2022, and 2021,
was $0. The Company has not yet generated any revenue.
General and administrative
General and administrative expenses for the nine months ended September 30,
2022, were $380,553, a decrease of $67,477, or 15.1%, from $448,030 during the
nine months ended September 30, 2021. This is primarily attributable to a
decrease in legal and professional fees of $25,755, a decrease in accounting
fees of $10,622, and a decrease in stock-based compensation of $35,000.
24
Depreciation
Depreciation expense was $4,129 and $4,623 in the nine months ended September
30, 2022, and 2021, respectively. Management does not consider such decrease as
material.
Operating loss
Operating loss for the nine months ended September 30, 2022, was $384,682, a
decrease of $67,971, or 15% from an operating loss of $452,653 during the nine
months ended September 30, 2021. This is due to the foregoing decrease in
general and administrative expenses.
Other income (expense)
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.
During the nine months ended September 30, 2021, the Company has total other
expense of $790,126 consisting of losses from the Company's equity method
investment. The net loss is primarily comprised of $50,388 of management fees
and rental income, offset by $832,896 of general and administrative expenses and
$8,475 of depreciation expense.
Net income (loss)
As a result of the foregoing, the Company recorded a net loss of $9,256,692 for
the nine months ended September 30, 2022, as compared to a net loss of
$1,242,779 for the nine months ended September 30, 2021.
Liquidity and Capital Resources
As of September 30, 2022, we had a working capital deficit of $2,779,311 and no
cash. As of September 30, 2022, the Company's current liabilities included
$367,124 in accounts payable and accrued liabilities, $47,500 in accounts
payable and accrued liabilities related party, $6,771 in accrued interest
payable, $763,739 in related party notes payable, $19,838 in other notes
payable, $615,000 in settlement payable related party, $169,000 in advances on
agreement, $105,523 in contingent liabilities and $684,816 due to affiliates. We
have funded our operations since inception primarily through the issuance of our
equity securities in private placements to third parties, and/or promissory
notes to related parties for cash. The cash was used primarily for operating
activities, including cost of employees, management services, professional fees,
consultant fees, and travel. Our management expects that cash from operating
activities will not provide sufficient cash to fund normal operations, support
debt service, or undertake certain investments we anticipate prosecuting for our
business proposition both in the near and intermediate terms. We will continue
to rely on financing provided under notes from related and third-party party
sources, as well as sale of shares of our common stock in private placements, to
fund our expected cash requirements.
We intend to continue raising additional capital through related party loans and
future sale of equity interest. 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.
25
Our condensed consolidated financial statements included elsewhere in this
quarterly report have been prepared assuming that we will continue as a going
concern, which contemplates continuity of operations, realization of assets, and
liquidation of liabilities in the normal course of business. As reflected in
such condensed consolidated financial statements, we had an accumulated
stockholders' deficit of $24,929,002 and had a net loss of $9,256,692 and
utilized net cash of $103,885 in operating activities as of and for the nine
months ended September 30, 2022. These factors raise substantial doubt about our
ability to continue as a going concern. In addition, our independent registered
public accounting firms in their audit reports to our consolidated financial
statements for the fiscal years ended December 31, 2021, and 2020, expressed
substantial doubt about our ability to continue as a going concern. Our ability
to continue as a going concern was raised due to our net losses and negative
cash flows from operations since inception and our expectation that these
conditions may continue for the foreseeable future. In addition, we will require
additional financing to fund future operations. Our condensed consolidated
financial statements included elsewhere in this quarterly report do not include
any adjustments related to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be
necessary should we be unable to continue as a going concern.
Based on our management's estimates and expectation to continue to receive
short-term debt funding from a related party on as needed basis, we believe that
current funds on hand as of the date of issuance and proceeds of such loans will
be sufficient for us to continue operations beyond twelve months from the filing
of this Form 10-Q. Our ability to continue as a going concern is dependent on
our ability to execute our business strategy and in our ability to raise
additional funds. Management is currently seeking additional funds, primarily
through the issuance of equity and/or debt securities for cash to operate our
business; however, we can give no assurance that any future financing will be
available or, if at all, and if available, that it will be on terms that are
satisfactory to us. Even if we can obtain additional financing, it may contain
undue restrictions on our operations, in the case of debt financing, or cause
substantial dilution for our stockholders, in the case of equity and/or
convertible debt financing.
Sources and Uses of Cash
Operating Activities
During the nine months ended September 30, 2022, we used $103,885 of cash in
operating activities, primarily as a result of our net loss of $9,256,692, net
of depreciation expense of $4,129, and income from the Company's equity-method
investment of $1,499,355. Net change in operating assets and liabilities
increased by $276,668, primarily due to an increase in balances due to related
parties of $154,868 and an increase in accounts payable and accrued liabilities
(including related party) of $121,800.
During the nine months ended September 30, 2021, we used $61,375 of cash in
operating activities, primarily as a result of our net loss of $1,242,779, net
of non-cash operating expenses of $829,749, including depreciation expense of
$4,623, stock-based compensation of $35,000, and a loss from the Company's
equity method investment of $790,126. Operating liabilities increased by
$351,655, primarily due to an increase in balances due to related parties of
$271,571 and increase in accounts payable and accrued liabilities (including
related party) of $80,084.
Investing Activities
There were no cash flows from investing activities during the nine months ended
September 30, 2022 and 2021.
Financing Activities
During the nine months ended September 30, 2022, we received $150,000 in cash
from private placement to third parties for shares to be issued. Advances from
related parties totaled $5,885 and repayment amounted to $52,000 in the nine
months ended September 30, 2022.
During the nine months ended September 30, 2021, we received $249,000 in cash
from private placement to third parties. Advances from related parties totaled
$56,325 and repayment amounted to $243,950 in the nine months ended September
30, 2021.
26
Going Concern Qualification
The accompanying unaudited condensed consolidated financial statements have been
prepared assuming that the entity will continue as a going concern. As discussed
in Note 3 to the unaudited condensed consolidated financial statements, the
Company has suffered recurring losses from operations and has a net capital
deficiency that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 3. The unaudited condensed consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of September 30, 2022, and
December 31, 2021, that have or are reasonably likely to have a current or
future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources.
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