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 May 23, 2023, 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 | 8 |
| Item 4. | Controls and Procedures | 8 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 10 |
| Item 1A. | Risk Factors | 11 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 11 |
| Item 3. | Defaults Upon Senior Securities | 11 |
| Item 4. | Mine Safety Disclosures | 11 |
| Item 5. | Other Information | 11 |
| Item 6. | Exhibits | 12 |
| Signatures | 15 | |
| 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)
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Prepaid expense | $ | $ | ||||||
| Lease receivable | ||||||||
| 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 | $ | $ | ||||||
| Accrued interest payable | ||||||||
| Settlement payable - related party | ||||||||
| 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 12) | ||||||||
| 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 | ||||||||
| Common stock, $ par value, shares authorized, shares and shares issued and outstanding as of March 31, 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)
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | ||||||||
| Sublease revenue | $ | $ | ||||||
| Operating Expenses | ||||||||
| General and administrative | ||||||||
| Lease expense | ||||||||
| Management consulting fees - related parties | ||||||||
| Depreciation | ||||||||
| Total Operating Expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other Income | ||||||||
| Income from equity-method investment | ||||||||
| Total Other Income | ||||||||
| Income (Loss) before taxes | ( | ) | ||||||
| Provision for income taxes | ||||||||
| Net Income (Loss) | $ | ( | ) | $ | ||||
| Net Income (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)
| Common Stock | Additional Paid in | Accumulated | Subscriptions received, shares to | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | be issued | Deficit | |||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Common stock issued on subscription received | ( | ) | ||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Common Stock | Additional Paid in | Accumulated | Subscriptions received, shares to | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | be issued | Equity | |||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Common stock subscription received | - | |||||||||||||||||||||||
| Net loss | - | |||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
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)
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Income (Loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation of property and equipment | ||||||||
| Amortization of right-of-use assets | ||||||||
| Income from equity-method investment | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expense and security deposits | ( | ) | ||||||
| Lease receivable | ( | ) | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Accounts payable related party | ||||||||
| Operating lease liability | ( | ) | ||||||
| Due to affiliates | ||||||||
| Net cash used in) operating activities | ( | ) | ||||||
| Cash Flows from Investing Activities | ||||||||
| Deposit on stock purchase agreement | ( | ) | ||||||
| Net cash used in investing 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 | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental Disclosures of Non-Cash 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
March 31, 2023
(Unaudited)
Note 1 – Organization and Description of Business
Pineapple,
Inc. (“Pineapple” or the “Company”) was originally formed in the State of
On March 19, 2019, the Company entered into a Share Exchange Agreement (the “PVI Agreement”) with Pineapple Ventures, Inc. (“PVI”), the Company’s equity-method investment, and the stockholders of PVI (the “PVI Stockholders”) in which the Company acquired a total of % of the outstanding shares of PVI, in consideration for shares of Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock may, from time to time, be converted by the holder into shares of the Company’s Common Stock, par value $ (the “Common Stock”), in an amount equal to ten () shares of Common Stock for each one share of Series A Convertible Preferred Stock. The PVI Stockholders elected to immediately convert the shares of Series A Convertible Preferred Stock into shares of common stock upon issuance.
On
January 17, 2020, the Company entered into an agreement with Jaime Ortega whereby in exchange for Mr. Ortega cancelling $
On
March 10, 2023, the Company entered into an Amended Binding Letter of Intent effective as of December 31, 2022 with Mr. Ortega, amending
the prior Letter of Intent executed January 4, 2023, where the Company agreed to sell
On
September 28th, 2022, the Company signed a letter of intent with Jaime Ortega for the sale of
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. 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 $
| F-6 |
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., doing business as Pineapple Express. Intercompany accounts and transactions have been eliminated.
The Company’s consolidated subsidiaries and/or entities were as follows:
| Name of Consolidated Subsidiary or Entity | State or Other Jurisdiction of Incorporation or Organization | Date of Incorporation or Formation (Date of Acquisition, if Applicable) | Attributable Interest | |||||
2/16/2016 (acquired by us) | % | |||||||
| % | ||||||||
Use of Estimates in Financial Reporting
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the recoverability and useful lives of long-lived assets, assessment of legal accruals, the fair value of the Company’s stock IBR used for leases and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.
Fair Value of Financial Instruments
The Company follows the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for disclosures about fair value of its financial instruments and to measure the fair value of its financial instruments. The FASB ASC establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy are described below:
| Level 1- | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2- | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3- | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The carrying amounts of the Company’s financial assets and liabilities, including cash, accounts payable and accrued liabilities, and other current liabilities, approximate their fair values because of the short maturity of these instruments. The fair value of notes payable approximates their fair values since the current interest rates and terms on these obligations are the same as prevailing market rates.
| F-7 |
Prepaid Expense and Security Deposits
Prepaid
expenses relate to prepaid rent for an office premise 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:
| Office equipment | ||
| Furniture and fixtures |
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 has identified indicators of other-than-temporary
impairment that have led to the conclusion that the carrying value of its equity method investment is not recoverable. As a result, the
Company has recorded an impairment write-down in the consolidated statements of operations for the year ended December 31, 2022. During
the three months ended March 31, 2023 and March 2022, the Company recognized 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 transaction. (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. 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.
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)
Revenue Recognition
ASC 606 “Revenue Recognition” does not apply to rental income that the Company recognized through sub-lease during the three months ended March 31, 2023.
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 March 31, 2023 and December 31, 2022, the Company had options or warrants outstanding and shares issuable for conversion of notes payable.
| F-8 |
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 three months ended March 31, 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.
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 March 31, 2023 and December 31, 2022 is summarized as follows:
March 31, 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 three months ended March 31, 2023 and 2022 was $
| F-9 |
Note 5 – Notes Payable, Related Party
Notes payable-related party, are comprised of the following as of March 31, 2023 and December 31, 2022:
| Noteholder | Due | Interest Rate | Secured | March 31, 2023 | December 31, 2022 | |||||||||||
| Rob Novinger | % | $ | $ | |||||||||||||
Rob Novinger (shareholder)
Rob Novinger is a shareholder and creditor to the Company. There was activity during the year ended December 31, 2022. The balance of the related party note payable is $ as of March 31, 2023 and December 31, 2022.
Note 6 – Note Payable
The
Company, through our former subsidiary, BBC, entered into a $
Note 7 – Settlement Payable-Related Party
At March 31, 2023 and December 31, 2022, the settlement payable related party balance consists of the following:
| Noteholder | March 31, 2023 | December 31, 2022 | ||||||
| Investor Three | ||||||||
| Settlement payable | $ | $ | ||||||
Investor Three
In
December 2015, the Company entered into a Revenue Share Agreement for $
| F-10 |
Note 8 – Related Party Transactions
During
the three months ended March 31, 2023 and 2022, the Company incurred management consulting fees of $
During
the three months ended March 31, 2023, Pineapple Consolidated, Inc. (“PCI”), a company controlled by the Director of Pineapple,
Inc., advanced $
During
the three months ended March 31, 2023, Pineapple Ventures, Inc. (“PVI”) advanced $
The loans from the related parties are due on demand and non-interest bearing.
As
of March 31, 2023 and December 31, 2022, the amount is $
Note 9 – Leases
As of March 31, 2023 and December 31, 2022, the Company had the following lease obligations:
| Discount | March 31, | December 31, | ||||||||||||||
| Rate | Maturity | 2023 | 2022 | |||||||||||||
| Current | % | $ | $ | |||||||||||||
| Non-current | % | |||||||||||||||
| $ | $ | |||||||||||||||
| Balance - December 31, 2022 | $ | |||
| Lease liability additions | ||||
| Repayment of Lease liability | ( | ) | ||
| Imputed interest | ||||
| Balance - March 31, 2023 | $ |
On
January 11, 2023, the Company entered into a lease agreement for an office premise located in 8912 Reseda Blvd, Northridge, CA 91324
under a five-year term with two 5-year extension options upon expiry and monthly lease payment of $
The following table summarizes the maturity of our lease liabilities as of March 31, 2023:
| Year Ended December 31, | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Lease liabilities | $ |
| F-11 |
As of March 31, 2023, the Company has right-of-use assets as follows:
| Balance - December 31, 2022 | $ | |||
| Additions | ||||
| Amortization | ( | ) | ||
| Balance - March 31, 2023 | $ |
Sublease
On
January 15, 2023, the Company, the sublessor, entered into a sub-lease agreement with a sublessee for an office premise located in
8912 Reseda Blvd, Northridge, CA 91324 under a -year
term and monthly lease payment of $
During the three months ended March 31, 2023, the Company recorded lease receivable and recognized sublease revenue of $
Note 10 – Advances on Agreements
At March 31, 2023 and December 31, 2022, advances on agreements balance consist of the following:
| Noteholder | March 31, 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 $
During
March 2016, the $ in financing from Investor One, in addition to $
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.
| F-12 |
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
On February 16, 2023, the Company issued shares common stock for stock subscription of $ received during the year ended December 31, 2022.
During the three months ended March 31, 2022, the Company received proceed from stock subscriptions of $
As of March 31, 2023 and December 31, 2022, the issued and outstanding common stock was shares and shares, respectively.
Note 12 – Commitments and Contingencies
From time to time, the Company is party to certain legal proceedings that arise in the ordinary course and are incidental to our business. Future events or circumstances, currently unknown to management, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity, or results of operations in any future reporting periods. The following is a list of current litigation:
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 $
| F-13 |
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 $
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 $
| F-14 |
SRFF v. Pineapple Express, Inc.
This
matter resulted in a stipulated judgment whereas former SEC counsel claimed approximately $
Novinger v. Pineapple Express, Inc.
Los
Angeles Superior Court Case Number: 20CHLC10510 was filed in or about March 11, 2020. This is a limited jurisdiction action arising from
a claim for monies lent to Pineapple Express, Inc. without specificity as to the judgment debtor’s state of incorporation, for
the total of $
Note 13 – Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and has determined that there have been no events that have occurred that would require adjustments to the disclosures in the condensed consolidated financial statements, other than those described below and the binding letter of intent detailed in Note 2.
On
September 28, 2022, the Company signed a letter of intent with Mathew Feinstein, a related party and
On
March 10, 2023, the Company entered into a lease agreement for an office premise located in 8707 Venice Boulevard, Los Angeles, CA 90034
under a five-year term with two 5-year extension options upon expiry and monthly lease payment of $
SUPPLEMENTARY DATA
The Company is a smaller reporting Company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
| F-15 |
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 March 31, 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 months ended March 31, 2023, and 2022. It is supplemental to and should be read in conjunction with the Company’s unaudited condensed consolidated financial statements as of March 31, 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. |
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.
| 4 |
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. The Company procures and leases properties to licensed cannabis operators and provides nationwide hemp-derived CBD sales via online and in-store transactions. Through the Company’s operating subsidiary, Pineapple Express Consulting Inc., it also offers cannabis business licensing and consulting services. The Company’s executive team blends enterprise-level corporate expertise with decades of combined experience operating in the tightly-regulated cannabis industry.
ln addition to the foregoing business ventures, the Company was also assigned a patent for the proprietary Top Shelf Safe Display System (“SDS”) for use in permitted cannabis dispensaries and delivery vehicles across the United States and internationally (where permitted by law), on July 20, 2016, by Sky Island, Inc. (the “SDS Patent”) via a Patent Assignment Agreement (the “Patent Assignment Agreement”). The SDS Patent was originally applied for and filed on August 11, 2015, by Sky Island, Inc. and received its notice of allowance from the United States Patent and Trademark Office on March 22, 2017. It is anticipated that the Top-Shelf SDS product shall retail for $30,000 per unit. Pineapple intends to sell the Top-Shelf SDS units for use in retail storefronts and delivery vehicles operated by cannabis retail companies. The Company anticipates beginning sales of the Top Shelf SDS system in the third quarter of 2023.
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.
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 months ended March 31, 2023 and 2022, which are included herein.
| 5 |
Three Months Ended March 31, 2023, Compared to Three Months Ended March 31, 2022
| Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2023 | 2022 | Changes | % | |||||||||||||
| Revenue | $ | 45,600 | $ | - | $ | 45,600 | 100 | % | ||||||||
| Operating Expenses | 113,119 | 128,921 | (15,802 | ) | (12 | )% | ||||||||||
| Operating Loss | (67,519 | ) | (128,921 | ) | 61,402 | (48 | )% | |||||||||
| Other Income | - | 504,136 | (504,136 | ) | (100 | )% | ||||||||||
| Net Income (Loss) | $ | (67,519 | ) | $ | 375,215 | $ | (442,734 | ) | (118 | )% | ||||||
Revenues
The Company recognized sublease revenue of $45,600 during the three months ended March 31, 2023 and had no revenue during the three months ended March 31, 2022.
Operating Expenses
The Company incurred operating expenses of $113,119 for the three months ended March 31, 2023, a decrease of 12% from operating expenses of $128,921 for the three months ended March 31, 2022 mainly due to the decrease in professional fees.
Other Income (Expenses)
The Company had no other income for the three months ended March 31, 2023 as compared to other income of $504,136 for the three months ended March 31, 2022. During the three months ended March 31, 2022, the Company recognized income from equity investment in PVI of $504,136.
Net Loss
Net loss for the three months ended March 31, 2023 was $67,519 compared to net income for the three months ended March 31, 2022 of $375,215. The decrease in net income was mainly due to the recognition of equity income from equity investment in PVI of $504,136.
Liquidity and Financial Condition
Working Capital
| As of | As of | |||||||||||||||
| March 31, | December 31, | |||||||||||||||
| 2023 | 2022 | Changes | % | |||||||||||||
| Current Assets | $ | 50,600 | $ | - | $ | 50,600 | 100 | % | ||||||||
| Current Liabilities | $ | 1,635,465 | $ | 1,376,972 | $ | 258,493 | 19 | % | ||||||||
| Working Capital Deficiency | $ | (1,584,865 | ) | $ | (1,376,972 | ) | $ | (207,893 | ) | 15 | % | |||||
Our total current assets increased to $50,600 as of March 31, 2023 from $0 as of December 31, 2022 due primarily to lease receivable of $45,600 and prepaid expense of $5,000. Company does not have any cash as of March 31, 2023 and December 31, 2022.
Our total current liabilities increased to $1,635,465 as of March 31, 2023 from $1,376,972 as of December 31, 2022 due primarily to the increase in due to affiliates for payment made to vendors on behalf of the Company and operating lease liability.
Our working capital deficit on March 31, 2023 was $1,584,865 as compared to working capital deficit of $1,376,972 as of December 31, 2022. The increase in working capital deficit was mainly attributed to in due to affiliates for payment made to vendors on behalf of the Company and operating lease liability.
The Company have funded our operations since inception primarily through the issuance of our equity securities in private placements to third parties, and/or promissory notes to related parties for cash. The cash was used primarily for operating activities, including cost of employees, management services, professional fees, consultant fees, and travel. Our management expects that cash from operating activities will not provide sufficient cash to fund normal operations, support debt service, or undertake certain investments we anticipate prosecuting for our business proposition both in the near and intermediate terms. We will continue to rely on financing provided under notes from related and third-party party sources, as well as sale of shares of our common stock in private placements, to fund our expected cash requirements.
We intend to continue raising additional capital through the issuance of equity and debt securities for cash. There can be no assurance that these funds will be available on terms acceptable to us, if at all, or will be sufficient to enable us to fully complete our development activities or sustain operations. If we are unable to raise sufficient additional funds, we will have to develop and implement a plan to further extend payables, reduce overhead and operations, or scale back our current business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.
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 $23,596,219 and had a net loss of $67,519 for the three months ended March 31, 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, 2022 and 2021 expressed substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern was raised due to our net losses and negative cash flows from operations since inception and our expectation that these conditions may continue for the foreseeable future. In addition, we will require additional financing to fund future operations. Our consolidated financial statements included in this 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.
| 6 |
Cash Flows
| Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2023 | 2022 | Changes | % | |||||||||||||
| Cash flows used in operating activities | $ | - | $ | (3,629 | ) | $ | 3,629 | (100 | )% | |||||||
| Cash flows used in investing activities | - | (95,000 | ) | 95,000 | (100 | )% | ||||||||||
| Cash flows provided by financing activities | - | 98,650 | (98,650 | ) | (100 | )% | ||||||||||
| Net changes in cash | $ | - | $ | 21 | $ | (21 | ) | (100 | )% | |||||||
Operating Activities
Net cash used in operating activities was $0 for the three months ended March 31, 2023, compared with $3,629 net cash used in operating activities during the three months ended March 31, 2022.
During the three months ended March 31, 2023, net cash provided by operating activities was attributed to net loss of $67,519, decreased by depreciation of equipment of $1,541, amortization of right-of-use assets of $26,414 and net changes in operating assets and liabilities of $39,564.
During the three months ended March 31, 2022, net cash provided by operating activities was attributed to net income of $375,215, decreased by income from equity-method investment of $504,136 and increased by depreciation of equipment of $1,600 and net changes in operating assets and liabilities of $123,692.
Investing Activities
During the three months ended March 31, 2023, the Company did not have any investing activities. During the three months ended March 31, 2022, the Company made deposit on stock purchase agreement of $95,000.
Financing Activities
During the three months ended March 31, 2023, net cash provided by financing activities was $0 compared to net cash provided by financing activities of $98,650 during the three months ended March 31, 2022.
Proceeds from financing activities during the three months ended March 31, 2022, were derived from proceeds for common stock subscription of $10,000 and proceeds from related party notes of $2,650, offset by repayment of related party notes of $4,000.
Off-Balance Sheet Arrangements
During the three months ended March 31, 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, 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.
| 7 |
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. 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.
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 March 31, 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.
| 8 |
The following material weaknesses in our internal control over financial reporting continued to exist as of March 31, 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 March 31, 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.
| 9 |
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 March 31, 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 March 31, 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 March 31, 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 March 31, 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.
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 March 31, 2023 and December 31, 2021, in the Company’s contingent liabilities.
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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 March 31, 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 March 31, 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 March 31, 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 February 16, 2023, the Company issued 600,000 shares common stock for stock subscription of $150,000 received during the year ended December 31, 2022.
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.
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Item 6. Exhibits.
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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: May 26, 2023 | 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) | |
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