As used herein, "Pineapple," the "Company," "our," "we" or "us" and similar
terms include Pineapple, Inc., unless the context indicates otherwise. The
following discussion and analysis of our business and results of operations for
the three and nine months ended September 30, 2021, and our financial conditions
at that date, should be read in conjunction with the condensed consolidated
financial statements and the notes thereto included elsewhere in this Quarterly
Report on Form 10-Q (the "Quarterly Report"). US Dollars are denoted herein by
"USD," "$" and "dollars."
General
This management discussion and analysis of the financial condition and results
of operations of the Company is for the three and nine months ended September
30, 2021, and 2020. It is supplemental to and should be read in conjunction with
the Company's unaudited condensed consolidated financial statements as of
September 30, 2021, and the consolidated financial statements for the year ended
December 31, 2020, included in our Annual Report on Form 10-K for the year ended
December 31, 2020, and filed with the U.S. Securities and Exchange Commission
and the accompanying notes for each respective period. The Company's financial
statements are prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP").
Disclaimer Regarding Forward-Looking Statements
Certain statements contained in this Quarterly Report (or otherwise made by us
or on our behalf from time to time in other reports, filings with the U.S.
Securities and Exchange Commission, news releases, conferences, internet
postings or otherwise) that are not statements of historical fact constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, notwithstanding that such statements are not specifically
identified. These forward-looking statements relate to expectations or forecasts
for future events, including without limitation our earnings, revenues, expenses
or other future financial or business performance or strategies, or the impact
of legal or regulatory matters on our business, results of operations or
financial condition. These statements may be preceded by, followed by or include
the words such as "may," "will," "expect," "believe," "anticipate," "intent,"
"could," "would," "should," "estimate," "might," "plan," "predict" or "continue"
or the negative or other variations thereof or comparable terminology intended
to identify forward-looking statements. These forward-looking statements are not
guarantees of future performance and are based on information available to us as
of the date of this Quarterly Report and on our current expectations, forecasts
and assumptions, and involve substantial risks and uncertainties. Actual results
may vary materially from those expressed or implied by the forward-looking
statements herein due to a variety of factors.
This Quarterly Report contains forward-looking statements, including statements
regarding, among other things:
? our ability to continue as a going concern;
? our anticipated needs for working capital;
? our ability to generate a profit;
? our heavy involvement with cannabis, which remains illegal under federal law;
? our ability to access the service of banks;
? our ability to obtain various insurances for our business;
? our ability to remain compliant with changing laws and regulations;
? our ability to obtain the relevant state and local licenses;
? our ability to successfully manage our growth;
3
? our ability to repay current debt in cash and obtain adequate new
financing;
? our dependence on third parties for services;
? our dependence on key executives;
? our ability to control costs;
? our ability to successfully implement our expansion strategies;
? our ability to obtain and maintain patent protection;
? our ability to recruit employees with regulatory, accounting and
finance expertise;
? the impact of government regulations, including United States Food and
Drug Administration (the "FDA") regulations;
? the impact of any future litigation;
? the availability of capital; and
? changes in economic, business, and competitive conditions.
Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including, without
limitation, the risks and uncertainties discussed in Item 1A. Risk Factors of
this Quarterly Report, section captioned "Risk Factors" of our annual report on
Form 10-K filed with the U.S. Securities and Exchange Commission (the "SEC") on
October 4, 2021, and matters described in this Quarterly Report generally. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this Quarterly Report will in fact
occur. We caution you not to place undue reliance on these forward-looking
statements. In addition to the information expressly required to be included in
this Quarterly Report, we will provide such further material information, if
any, as may be necessary to make the required statements, in light of the
circumstances under which they are made, not misleading. All subsequent written
and oral forward-looking statements attributable to our Company or to persons
acting on our behalf are expressly qualified in their entirety by these
cautionary statements. All forward-looking statements included in this Quarterly
Report are made only as of the date of this report or as indicated. Except as
required by law, we do not intend to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Introduction
The Company has spent the last several years recasting the direction of the
Company. We intend to take advantage of the opportunities that have been
identified in the cannabis sectors. The market opportunities that are opened to
a cannabis company include PVI's involvement with cannabis delivery, retail,
manufacturing, and cultivation. Our main focus has been to receive approximately
45% of all net income generated by PVI from its business ventures, as well as
selling the Top Shelf System to cannabis dispensaries.
Our Business
The Company was originally formed in the State of Nevada under the name Global
Resources, Ltd. on August 3, 1983. It changed its name to "Helixphere
Technologies Inc." on April 12, 1999, and to "New China Global Inc." on October
2, 2013. It reincorporated in Wyoming on October 30, 2013, and changed its name
to "Globestar Industries" on July 15, 2014. On August 24, 2015, the Company
entered into a share exchange agreement with Better Business Consultants, Inc.
("BBC" dba "MJ Business Consultants"), a corporation formed in California on
January 29, 2015, all of BBC's shareholders, and the Company's majority
shareholder at that time (the "BBC Share Exchange"). Pursuant to the BBC Share
Exchange, BBC became a wholly owned subsidiary of the Company. Upon consummation
of the BBC Share Exchange, the Company ceased its prior business of providing
educational services and continued the business of BBC as its sole line of
business. BBC has three wholly owned subsidiaries, Pineapple Express One LLC, a
California limited liability company, Pineapple Express Two LLC, a California
limited liability company, and Pineapple Properties Investments, LLC, a
Washington limited liability company. Better Business Consultants, Inc. has
since been sold by the Company. On September 3, 2015, the Company changed its
name to "Pineapple Express, Inc." from "Globestar Industries."
ln addition to having stakes in the foregoing business ventures, the Company was
also assigned a patent for the proprietary Top Shelf Safe Display System ("SDS")
for use in permitted cannabis dispensaries and delivery vehicles across the
United States and internationally (where permitted by law), on July 20, 2016, by
Sky Island, Inc. (the "SDS Patent") via a Patent Assignment Agreement (the
"Patent Assignment Agreement"). The SDS Patent was originally applied for and
filed on August 11, by Sky Island, Inc. and received its notice of allowance
from the United States Patent and Trademark Office on March 22, 2017. It is
anticipated that the Top-Shelf SDS product shall retail for $30,000 per unit.
Pineapple intends to sell the Top-Shelf SDS units to PVI for use in retail
storefronts and delivery vehicles as well as to sell the Top Shelf SDS
technology to other cannabis retail companies. The Company anticipates beginning
sales of the Top Shelf SDS system in the fourth quarter of 2021.
4
In 2019 the Company entered into a Share Exchange Agreement, as amended (the
"PVI Agreement"), with Pineapple Ventures, Inc. ("PVI") and PVI's stockholders.
In connection with the PVI Agreement, the Company acquired a total of 50,000
shares of PVI's outstanding capital stock, equaling 50% of the outstanding
shares of PVI. The Company's ownership interest in PVI was reduced to
approximately 45% in January 2020. As a result of the investment in PVI, the
Company entered the cannabis cultivation, production, and distribution sector
throughout California. PVI has several leased properties that are currently
being developed to provide these cannabis-related services.
During 2019, PVI took preliminary business steps towards a project with Nordhoff
Leases, Inc. ("Nordhoff"), a related party, in which Nordhoff subleased 38,875
square feet in a building to three 15% owned entities by PVI; however, the
contemplated project never matriculated and the planned contribution of Nordhoff
to PVI was nullified. In June and July of 2020 PVI sold its 15% investments in
three entities, including the cannabis licenses associated with them for $2.87
million to support its operations and assigned its three 15% owned entities'
subleases with Nordhoff to the buyer as part of the sale. PVI received 15% of
the proceeds of the sale of the entities and their cannabis licenses.
Pursuant to an Agreement and Plan of Merger ("Merger Agreement"), dated as of
April 6, 2020, by and between, Pineapple Express, Inc., a Wyoming corporation
("Pineapple Express"), and Pineapple, Inc., a Nevada corporation ("Pineapple")
and wholly-owned subsidiary of Pineapple Express, effective as of April 15, 2020
(the "Effective Date"), Pineapple Express merged with and into Pineapple, with
Pineapple being the surviving entity (the "Reincorporation Merger"). The
Reincorporation Merger was consummated to complete Pineapple Express'
reincorporation from the State of Wyoming to the State of Nevada. The Merger
Agreement, the Reincorporation Merger, the Name Change (as defined below) and
the Articles of Incorporation and Bylaws of Pineapple were duly approved by the
written consent of shareholders of Pineapple Express owning at least a majority
of the outstanding shares of Pineapple Express' common stock. Pursuant to the
Merger Agreement, the Company's corporate name changed from "Pineapple Express,
Inc." to "Pineapple, Inc."
The Company is based in Los Angeles, California. Through the Company's operating
subsidiary Pineapple Express Consulting, Inc. ("PEC"), as well as its PVI
portfolio asset, the Company provides capital to its canna-business clientele,
leases properties to those canna-businesses, takes equity positions and manages
those operations, and provides consulting and technology to develop, enhance, or
expand existing and newly formed infrastructures. Pineapple aims to become the
leading portfolio management company in the U.S. cannabis sector. The Company's
executive team blends enterprise-level corporate expertise with a combined three
decades of experience operating in the tightly regulated cannabis industry.
Pineapple's strategic asset integration has provided it with the infrastructure
to support its subsidiaries with cost-effective access to all segments of the
vertical: from cultivation and processing, to distribution, retail and delivery.
With its headquarters in Los Angeles, CA, Pineapple's portfolio company, PVI, is
rapidly increasing its footprint throughout the state and looking to scale into
underdeveloped markets. While PVI is generating revenues from the
above-mentioned means, PEC is currently still in development and is currently
not generating revenues. The Company receives monthly share equal to
approximately 45% of PVI's income that provide regular operating cash flows.
In October 2020, PNPXPRESS, Inc. (an entity managed by PVI) secured three
cannabis licenses, including consumer delivery and statewide distribution, from
the City of Los Angeles for a retail storefront location at the intersection of
Hollywood & Vine (1704 N. Vine Street). The lease was signed in October 2020.
Pineapple Express, a 3,460 square foot dispensary was opened in October of 2021.
PVI has received 30% equity and will receive a management fee of 10% of sales of
this entity.
Impact of COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel
coronavirus (COVID-19) as a pandemic, which continues to spread throughout the
United States. As a result, significant volatility has occurred in both the
United States and International markets. While the disruption is currently
expected to be temporary, there is uncertainty around the duration. To date, the
Company has experienced declining revenues, difficulty meeting debt covenants,
maintaining consistent service quality with reduced revenue, and a loss of
access to customers. Management expects this matter to continue to impact our
business, results of operations, and financial position, but the ultimate
financial impact of the pandemic on the Company's business, results of
operations, financial position, liquidity or capital resources cannot be
reasonably estimated at this time.
Recent Developments
None
Recent Accounting Pronouncements
Please see section captioned "Recent Accounting Pronouncements" in Note 1 to our
unaudited condensed consolidated financial statements included in this Quarterly
Report for a discussion of recently issued and adopted accounting
pronouncements.
5
Results of Operations
Summary of Results of Operations for the three months ended September 30, 2021,
and 2020:
(In dollars) September 30, 2021 September 30, 2020
Revenue $ - $ -
Operating expenses:
General and administrative 127,031 134,765
Depreciation 1,541 1,541
Total operating expenses 128,572 136,306
Operating loss (128,572 ) (136,306 )
Other expense:
Loss from equity method investment 227,822 101,917
Total other expense 227,822 101,917
Loss from operations before taxes (356,394 ) (238,223 )
Provision for income taxes - -
Net loss $ (356,394 ) $ (238,223 )
Revenue
Revenue from operations for the three months ended September 30, 2021, and 2020,
was $0. The Company has not yet generated any revenue.
General and Administrative
General and administrative expenses for the three months ended September 30,
2021, were $127,031, a decrease of approximately $7,700, or 5.8 %, from $134,765
during the three months ended September 30, 2020. Management does not consider
such decrease as material.
Depreciation
Depreciation expense was $1,541 in the three months ended September 30, 2021,
and 2020.
Operating Loss
Operating loss for the three months ended September 30, 2021, was $128,572, a
decrease of approximately $7,700, or approximately 5.8% from an operating loss
from continuing operations of $136,306 during the three months ended September
30, 2020. Such decrease is not considered material.
Other Expense
During the three months ended September 30, 2021, the Company has total other
expense of $227,822, consisting of losses from the Company's equity method
investment of $227,822.
During the three months ended September 30, 2020, the Company has total other
expense of $101,917, consisting of losses from the Company's equity method
investment of $101,917.
6
Net Loss
As a result of the foregoing, the Company recorded a net loss of $356,394 for
the three months ended September 30, 2021, as compared to a net loss of $238,223
for the three months ended September 30, 2020. Most of the decrease is
attributable to the loss from equity method investment.
Summary of Results of Operations for the nine months ended September 30, 2021,
and 2020:
(In dollars) September 30, 2021 September 30, 2020
Revenue $ - $ -
Operating expenses:
General and administrative 413,030 528,350
Consulting expense - Stock-based
compensation - related party 35,000 -
Depreciation 4,623 5,320
Total operating expenses 452,653 533,670
Operating loss (452,653 ) (533,670 )
Other expense:
Interest expense - 53,821
Loss from equity method investment 790,126 199,769
Total other expense 790.126 253,590
Loss from operations before taxes (1,242,779 ) (787,260 )
Provision for income taxes - -
Net loss $ (1,242,779 ) $ (787,260 )
Revenue
Revenue from operations for the nine months ended September 30, 2021, and 2020,
was $0. The Company has not yet generated any revenue.
General and Administrative
General and administrative expenses for the nine months ended September 30,
2021, were $413,030, a decrease of $115,320, or 21.9 %, from $528,350 during the
nine months ended September 30, 2020. The Company leased office space under an
operating lease expiring in June 2020, under ASU 2016-02. The Company recognized
$0 and approximately $42,000 of periodic lease expense in the nine months ended
September 30, 2021, and 2020, respectively. Professional fees and consulting
fees decreased by approximately $87,000 and $99,000, respectively, offset by an
increase in accounting fees by approximately $106,000.
Depreciation
Depreciation expense was $4,623 and $5,320 in the nine months ended September
30, 2021, and 2020, respectively. This is consistent with the depreciable asset
base which did not change for the nine months ended September 30, 2021, and
2020.
Consulting expense - stock-based compensation- related party
During the nine months ended September 30, 2021, the Company issued 350,000
shares of restricted stock to the Company's Directors and one officer for
aggregate fair value of $35,000.
7
Operating Loss
Operating loss for the nine months ended September 30, 2021, was $452,653, a
decrease of $81,017, or approximately 15.2% from an operating loss from
continuing operations of $533,670 during the nine months ended September 30,
2020. Most of the decrease is attributable to a decrease in periodic lease
expense, consulting fees and professional fees, offset by an increase in
accounting fees.
Other Expense
During the nine months ended September 30, 2021, the Company has total other
expense of $790,126, consisting of losses from the Company's equity method
investment of $790,126.
During the nine months ended September 30, 2020, the Company has total other
expense of $253,590, consisting of interest expense of $53,821 and losses from
the Company's equity method investment of $199,769.
Net Loss
As a result of the foregoing, the Company recorded a net loss of $1,242,779 for
the nine months ended September 30, 2021, as compared to a net loss of $787,260
for the nine months ended September 30, 2020.
Liquidity and Capital Resources
As of September 30, 2021, we had a working capital deficit of $3,037,966, and $0
in cash. As of September 30, 2021, the Company's current liabilities included
$734,077 in accounts payable and accrued liabilities, $126,481 in accounts
payable and accrued liabilities related party, $52,408 in accrued interest
payable, $858,986 in related party notes payable, $19,838 in other notes
payable, $615,000 in settlement payable related party, $169,000 in advances on
agreement, and $100,048 in contingent liabilities. We have funded our operations
since inception primarily through the issuance of our equity securities in
private placements to third parties, and/or promissory notes to related parties
for cash. The cash was used primarily for operating activities, including cost
of employees, management services, professional fees, consultant fees, and
travel. Our management expects that cash from operating activities will not
provide sufficient cash to fund normal operations, support debt service, or
undertake certain investments we anticipate prosecuting for our business
proposition both in the near and intermediate terms. We will continue to rely on
financing provided under notes from related and third-party party sources, as
well as sale of shares of our common stock in private placements, to fund our
expected cash requirements.
We intend to continue raising additional capital through related party loans.
Additionally, in 2021 the Company is planning to apply to have its common stock
quoted on the OTC Markets, at which point the Company plans to raise money
through issuances of debt and/or equity securities in private placements to
accredited investors. There can be no assurance that these funds will be
available on terms acceptable to us, if at all, or will be sufficient to enable
us to fully complete our development activities or sustain operations. If we are
unable to raise sufficient additional funds, we will have to develop and
implement a plan to further extend payables, reduce overhead and operations, or
scale back our current business plan until sufficient additional capital is
raised to support further operations. There can be no assurance that such a plan
will be successful.
Our consolidated financial statements included elsewhere in this quarterly
report have been prepared assuming that we will continue as a going concern,
which contemplates continuity of operations, realization of assets, and
liquidation of liabilities in the normal course of business. As reflected in
such consolidated financial statements, we had an accumulated stockholders'
deficit of $15.8 million, and had a net loss of $1,242,779, and utilized net
cash of $61,375 in operating activities for the nine months ended September 30,
2021. These factors raise substantial doubt about our ability to continue as a
going concern. In addition, our independent registered public accounting firms
in their audit reports to our consolidated financial statements for the fiscal
years ended December 31, 2020, and 2019, expressed substantial doubt about our
ability to continue as a going concern. Our ability to continue as a going
concern was raised due to our net losses and negative cash flows from operations
since inception and our expectation that these conditions may continue for the
foreseeable future. In addition, we will require additional financing to fund
future operations. Our condensed consolidated financial statements included
elsewhere in this quarterly report do not include any adjustments related to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should we be unable to
continue as a going concern.
Based on our management's estimates and expectation to continue to receive
short-term debt funding from a related party on as needed basis, we believe that
current funds on hand as of the date of issuance and proceeds of such loans will
be sufficient for us to continue operations beyond twelve months from the filing
of this Form 10-Q. Our ability to continue as a going concern is dependent on
our ability to execute our business strategy and in our ability to raise
additional funds. Management is currently seeking additional funds, primarily
through the issuance of equity and/or debt securities for cash to operate our
business; however, we can give no assurance that any future financing will be
available or, if at all, and if available, that it will be on terms that are
satisfactory to us. Even if we can obtain additional financing, it may contain
undue restrictions on our operations, in the case of debt financing, or cause
substantial dilution for our stockholders, in the case of equity and/or
convertible debt financing.
Sources and Uses of Cash
Operating Activities
During the nine months ended September 30, 2021, we used $61,375 of cash in
operating activities, primarily as a result of our net loss of $1,242,779, net
of non-cash operating expenses of $829,749, including depreciation expense of
$4,623, stock-based compensation of $35,000 and a loss from the Company's equity
method investment of $790,126. Operating liabilities increased by $351,655,
primarily due to an increase in balances due to affiliates of $271,571 an
increase in accounts payable and accrued liabilities (including related party)
of $80,084.
During the nine months ended September 30, 2020, we used $436,746 of cash in
operating activities, primarily as a result of our net loss of $787,260, net of
non-cash operating expenses of $285,022, including $80,300 in stock-based
compensation, depreciation expense of $5,320, and a loss from the Company's
equity method investment of $199,769. Operating assets and liabilities increased
by $65,492, primarily due to a decrease in security deposits of $7,944, a
decrease in accounts payable and accrued liabilities of $37,073, an increase in
accrued interest payable of $49,857, and an increase in balances due to
affiliates of $44,764.
8
Investing Activities
During the nine months ended September 30, 2021, and 2020, we had no cash flows
from investing activities.
Financing Activities
During the nine months ended September 30, 2021, we received $249,000 in cash
from private placement to third parties. Advances from affiliates totaled
$56,325 and repayment amounted to $243,950 in the nine months ended September
30, 2021.
During the nine months ended September 30, 2020, we received $436,746 in cash
from financing activities from net proceeds from related party notes payable.
Going Concern Qualification
The accompanying unaudited condensed consolidated financial statements have been
prepared assuming that the entity will continue as a going concern. As discussed
in Note 3 to the unaudited condensed consolidated financial statements, the
Company has suffered recurring losses from operations and has a net capital
deficiency that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 3. The unaudited condensed consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of September 30, 2021, and
December 31, 2020, that have or are reasonably likely to have a current or
future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources.
© Edgar Online, source Glimpses
PINEAPPLE, INC. 