Forward-Looking Statements
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations section contains not only statements that are historical facts, but
also statements that are forward-looking. Forward-looking statements are, by
their very nature, uncertain and risky. These risks and uncertainties include
international, national, and local general economic and market conditions; our
ability to sustain, manage, or forecast growth; our ability to successfully make
and integrate acquisitions; new product development and introduction; existing
government regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
change in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; the risk of foreign currency exchange rate; and other risks that
might be detailed from time to time in our filings with the SEC.
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Although the forward-looking statements in this Annual Report reflect the good
faith judgment of our management, such statements can only be based on facts and
factors currently known by them. Consequently, and because forward-looking
statements are inherently subject to risks and uncertainties, the actual results
and outcomes may differ materially from the results and outcomes discussed in
the forward-looking statements. You are urged to carefully review and consider
the various disclosures made by us in this report as we attempt to advise
interested parties of the risks and factors that may affect our business,
financial condition, and results of operations and prospects. We do not
undertake any obligation to update forward-looking statements as a result of new
information, future events or developments or otherwise.
The following discussion of our financial condition and results of operations
should be read in conjunction with our financial statements and the related
notes, and other financial information included in this Annual Report.
The independent registered public accounting firms' reports on the Company's
financial statements as of December 31, 2022, and 2021, and for the years then
ended, includes a "going concern" explanatory paragraph that describes
substantial doubt about the Company's ability to continue as a going concern.
Introduction
The Company has spent the last several years recasting the direction of the
Company. We intend to take advantage of the opportunities that have been
identified in the ancillary services market for the cannabis sectors that are
"non plant-touching".
Our Business
The Company procures and leases properties to licensed cannabis operators and
provides nationwide hemp-derived CBD sales via online and in-store transactions.
Through the Company's operating subsidiary, Pineapple Express Consulting Inc.,
it also offers cannabis business licensing and consulting services. The
Company's executive team blends enterprise-level corporate expertise with
decades of combined experience operating in the tightly-regulated cannabis
industry.
ln addition to the foregoing business ventures, the Company was also assigned a
patent for the proprietary Top Shelf Safe Display System ("SDS") for use in
permitted cannabis dispensaries and delivery vehicles across the United States
and internationally (where permitted by law), on July 20, 2016, by Sky Island,
Inc. (the "SDS Patent") via a Patent Assignment Agreement (the "Patent
Assignment Agreement"). The SDS Patent was originally applied for and filed on
August 11, 2015, by Sky Island, Inc. and received its notice of allowance from
the United States Patent and Trademark Office on March 22, 2017. It is
anticipated that the Top-Shelf SDS product shall retail for $30,000 per unit.
Pineapple intends to sell the Top-Shelf SDS units for use in retail storefronts
and delivery vehicles operated by cannabis retail companies. The Company
anticipates beginning sales of the Top Shelf SDS system in the third quarter of
2023.
On March 10, 2023, the Company entered into an Amended Binding Letter of Intent
(the "Amended Letter Agreement"), effective as of December 31, 2022 (the
"Effective Date"), with its Co-Founder, Jaime Ortega ("Ortega") where the
Company agreed to sell 45.17% of its equity interest (the "PVI Interest") in
Pineapple Ventures, Inc. ("PVI"), in exchange for: (i) the purchase price of
twenty million (20,000,000) shares of the Company's common stock, $0.0000001 par
value per share (the "Common Stock") and (ii) the extinguishment of all of the
Company's debt to PVI and Neu-Ventures, Inc. ("NVI"), respectively, of which
both PVI and NVI are wholly owned by Ortega (the "Share Repurchase"). Following
the Share Repurchase, there are 71,163,569 shares of the Company's Common Stock,
issued and outstanding.
26
On August 24, 2015, the Company entered into a Share Exchange Agreement (the
"Agreement) with Better Business Consultants, Inc. ("BBC"), a corporation
incorporated under the laws of California on January 29, 2015, and Shane Oei, a
majority shareholder of the Company at the time. Pursuant to the terms of the
Agreement, BBC shareholders exchanged all of the issued and outstanding capital
of BBC for an aggregate of 50,000,000 newly and duly issued, fully paid and
non-assessable shares of common stock of the Company. Upon closing, BBC became a
wholly owned subsidiary of the Company. In addition, Mr. Oei and Gary Stockport,
another former shareholder of the Company at the time, cancelled 100,000,000 and
500,000 shares of the Company's common stock, respectively, in connection with
the Agreement. As the owners and management of BBC obtained voting and operating
control of the Company after the share exchange and Globestar Industries was
non-operating, the transaction was accounted for as a recapitalization of BBC,
accompanied by the exchange of previously issued common stock for outstanding
common stock of Globestar Industries, which was recorded at a nominal value. One
of the owners, Jaime Ortega, also entered into a Lockup Agreement under which he
could not sell his ownership in the Company through September 1, 2017.
On September 3, 2015, the Company changed its name from "Globestar Industries"
to "Pineapple Express, Inc." The Company's name has no relation to the 2008
motion picture produced by Columbia Pictures.
In September 2015, the Company had entered into agreements to issue 500,000
shares of Series A Convertible Preferred Stock to Sky Island, Inc. in exchange
for a patent and 100,000 shares of Series A Convertible Preferred Stock to
Christopher Plummer as compensation for taking on the role of Chief Compliance
Officer. However, both of these issuances were rescinded effective December 31,
2015.
On March 16, 2017, the Company formed Pineapple Express Consulting, Inc. ("PEC")
as a wholly owned subsidiary. On August 3, 2017, a letter of intent ("LOI") was
entered into between PEC and Sky Island, Inc., whereby all the assets of
Pineapple Park, LLC, a California limited liability company controlled by Sky
Island, Inc. holding lease deposits, were to be transferred through a related
party transfer to PEC in exchange for $100,000. On December 31, 2018, Pineapple
Park, LLC pulled out of this project and signed a mutual release agreement for
all lessees and Pineapple Park, LLC to terminate each party's obligations and
responsibilities under the Leases and the Parties' relationship. The Company had
planned on using revenue from operations, including license proceeds from
contracts already signed with licensees as well as rental payments due from
tenants. The Company was also in the process of developing a "franchise style"
model whereas it would license its trademark, brand name, and retail design
concept in exchange for a 5% perpetuity royalty. These revenue streams were to
provide the Company with long-term and short-term growth. However, after the
investment in PVI, the Company will now be receiving revenues from its 45.17%
ownership.
On March 19, 2019, the Company entered into a Share Exchange Agreement (the "PVI
Agreement") with PVI and the stockholders of PVI (the "PVI Stockholders"). Upon
execution of the PVI Agreement (the "Closing"), the Company acquired 20,000
shares of PVI's outstanding capital stock ("PVI Shares"), equaling 20% of the
outstanding shares of PVI. In consideration for the PVI Shares, the Company
agreed to issue 1,000,000 shares of its Series A Convertible Preferred Stock,
$0.0000001 par value per share ("Series A Convertible Preferred Stock"), to the
PVI Stockholders. Pursuant to the terms of the PVI Agreement and Amendment No. 1
dated June 26, 2019, upon the six-month anniversary of the PVI Agreement (the
"Second Closing"), and subject to the conditions to closing set forth in the PVI
Agreement, the Company was to acquire an additional 30,000 PVI Shares, equaling
30% of the outstanding shares of PVI, for a total of 50% of the outstanding
shares of PVI, in consideration for an additional 1,000,000 shares of Series A
Convertible Preferred Stock to be issued to the PVI Stockholders at the time of
the Second Closing. The Series A Convertible Preferred Stock may, from time to
time, be converted by the holder into shares of the Company's Common Stock, par
value $0.0000001 (the "Common Stock") in an amount equal to ten (10) shares of
Common Stock for each one (1) share of Series A Convertible Preferred Stock. On
July 5, 2019, the Company, PVI and the PVI Stockholders, and their respective
boards of directors waived the remaining conditions to closing as set forth in
the PVI Agreement and ratified and approved the Second Closing.
On January 17, 2020, the Company entered into an agreement with Jaime Ortega
whereby in exchange for Mr. Ortega cancelling $1,062,000 of existing loans
extended to the Company by Jaime Ortega, Neu-Ventures, Inc., and Sky Island,
Inc., the Company sold to Mr. Ortega 10,000 shares of capital stock of Pineapple
Ventures, Inc. ("PVI"). Subsequently, on February 11, 2021, the parties entered
into amended agreement pursuant to which the original number of shares sold to
Mr. Ortega were reduced from 10,000 shares of capital stock of PVI to 4,827
shares of capital stock of PVI. Accordingly, the Company currently owns 45,173
shares of capital stock of PVI. This amendment was entered into to properly
reflect the value of the Company's stock at the time of the initial agreement.
27
Pursuant to an Agreement and Plan of Merger ("Merger Agreement"), dated as of
April 6, 2020, by and between, Pineapple Express, Inc., a Wyoming corporation
("Pineapple Express"), and Pineapple, Inc., a Nevada corporation ("Pineapple")
and wholly owned subsidiary of Pineapple Express, effective as of April 15, 2020
(the "Effective Date"), Pineapple Express merged with and into Pineapple, with
Pineapple being the surviving entity (the "Reincorporation Merger"). The
Reincorporation Merger was consummated to complete Pineapple Express'
reincorporation from the State of Wyoming to the State of Nevada. The Merger
Agreement, the Reincorporation Merger, the Name Change (as defined below) and
the Articles of Incorporation and Bylaws of Pineapple were duly approved by the
written consent of shareholders of Pineapple Express owning at least a majority
of the outstanding shares of Pineapple Express' common stock, par value
$0.0000001 per share (the "PE Common Stock"). Pursuant to the Merger Agreement,
the Company's corporate name changed from "Pineapple Express, Inc." to
"Pineapple, Inc."
In March 2020, the World Health Organization declared the outbreak of a novel
coronavirus (COVID-19) as a pandemic, which continues to spread throughout the
United States. As a result, significant volatility has occurred in both the
United States and international markets. While the disruption is currently
expected to be temporary, there is uncertainty around the duration. To date, the
Company has experienced declining revenues, difficulty meeting debt covenants,
maintaining consistent service quality with reduced revenue, and a loss of
access to customers. Management expects this matter to continue to impact our
business, results of operations, and financial position, but the ultimate
financial impact of the pandemic on the Company's business, results of
operations, financial position, liquidity or capital resources cannot be
reasonably estimated at this time.
On August 7, 2021, the Company entered into a Stock Purchase Agreement (the "CGI
Agreement") with Capital Growth Investments, Inc., a California corporation
("CGI") and PVI, the Company's equity-method investee. Pursuant to the
Agreement, the Company can acquire up to 50,000 shares of CGI (the "Shares"),
which comprise 50% of its issued and outstanding capital stock, from PVI for an
aggregate purchase price of $1,000,000. As of December 31, 2021, $100,000 was
paid by the Company, which was recorded and presented in Deposit - Stock
purchase agreement related party in the Company's consolidated balance sheets as
of December 31, 2021. No shares of CGI will be issued until the full purchase
price is paid. Due to a re-evaluation of the asset, the Company cancelled the
transaction on August 22, 2022.
On September 28, 2022, the Company sold 100% interest in the Pineapple Park, LLC
entity to related party and prior majority shareholder Jaime Ortega for a
purchase price of $10,000 paid at execution of a Binding Letter of Intent.
As reported on the Q3 2022 financials, due to circumstances surrounding the
California cannabis industry, the Company fully impaired the PVI equity method
investment resulting in a $10,787,652 expense transaction on the Company's
books. On March 10, 2023, the Company entered into an Amended Binding Letter of
Intent (the "Amended Letter Agreement"), effective as of December 31, 2022 (the
"Effective Date"), with its Co-Founder, Jaime Ortega ("Ortega") where the
Company agreed to sell 45.17% of its equity interest (the "PVI Interest") in
Pineapple Ventures, Inc. ("PVI"), in exchange for: (i) the purchase price of
twenty million (20,000,000) shares of the Company's common stock, $0.0000001 par
value per share (the "Common Stock") and (ii) the extinguishment of all of the
Company's debt to PVI and Neu-Ventures, Inc. ("NVI"), respectively, of which
both PVI and NVI are wholly owned by Ortega (the "Share Repurchase"). Following
the Share Repurchase, there are 71,163,569 shares of the Company's Common Stock,
issued and outstanding.
Impact of COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel
coronavirus (COVID-19) as a pandemic, which continues to spread throughout the
United States. As a result, significant volatility has occurred in both the
United States and International markets. While the disruption is currently
expected to be temporary, there is uncertainty around the duration. To date, the
Company has experienced declining revenues, difficulty staffing interpreters,
difficulty meeting debt covenants, maintaining consistent service quality with
reduced revenue, and a loss of customers. Management expects this matter to
continue to impact our business, results of operations, and financial position,
but the ultimate financial impact of the pandemic on the Company's business,
results of operations, financial position, liquidity, or capital resources
cannot be reasonably estimated at this time.
Results of Operations
The following summary of our results of operations should be read in conjunction
with our audited financial statements for the year ended December 31, 2022 and
2021, which are included herein.
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Year Ended December 31, 2022, Compared to the Year Ended December 31, 2021
Year Ended
December 31,
2022 2021 Changes %
Revenue $ - $ - $ - -
Operating Expenses
General and
administrative (23,421 ) (20,587 ) (2,834 ) 14 %
Professional fees (210,828 ) (392,406 ) 181,578 (46 )%
Professional fees -
related parties - (340,000 ) 340,000 100 %
Management consulting
fees - related parties (233,000 ) (217,000 ) (16,000 ) 7 %
Depreciation (6,165 ) (6,393 ) 228 (4 )%
(473,414 ) (976,386 ) 502,972 (52 )%
Other Income (Expenses)
Income (loss) from
equity-method investment 1,499,355 (200,318 ) 1,699,673 -
Gain on forgiveness of
related party note
payable 30,000 - 30,000 100 %
Gain on sale of
subsidiary - related
party 386,287 - 386,287 -
Gain on settlement of
debt - 77,360 (77,360 ) (100 )%
Other expense - (5,475 ) 5,475 100 %
Loss on impairment of
equity-method investment (10,787,652 ) - (10,787,652 ) (100 )%
Gain on forgiveness of
debt to related party 12,000 - 12,000 100 %
Gain on extinguishment of
debt- related parties 1,477,032 - 1,477,032 100 %
(7,382,978 ) (128,433 ) (7,254,545 ) 5649 %
Net Loss $ (7,856,392 ) $ (1,104,819 ) $ (6,751,573 ) 611 %
Revenues
The Company did not recognize any revenue during the year ended December 31,
2022 and 2021.
Operating Expenses
The Company incurred operating expenses of $473,414 for the year ended December
31, 2022, a decrease of 52% from operating expenses of $976,386 for the year
ended December 31, 2021 mainly due to the decrease in professional fees. During
the year ended December 31, 2021, the Company issued 1,570,000 shares for
services to the Company's directors, consultants and officers for total fair
value of $340,000 recorded under professional fees to related parties in the
statements of operations. The decrease in professional fees also attributed to
the decrease in legal and accounting fees.
29
Other Income (Expenses)
The Company incurred other expenses of $7,382,978 for the year ended December
31, 2022, an increase of $7.2M from other expenses of $128,433 for the year
ended December 31, 2021. During the year ended December 31, 2022, the Company
incurred loss on impairment of equity investment in PVI of $10,787,652, offset
by income from equity investment in PVI of $1,499,355 during the nine months
ended September 30, 2022 prior to full impairment of the equity investment, gain
on extinguishment on of debt to PVI and NVI from disposal of the equity
investment in PVI of $1,477,032, gain on sale of the Company's wholly owned
subsidiary Pineapple Park, LLC, gain on forgiveness of related party note to the
Company's former director of $30,000 and gain on forgiveness of debt to the
former director of the Company upon her resignation. During the year ended
December 31, 2021, the Company incurred loss from the equity investment in PVI
of $200,318 and other expense of $5,475, offset by gain on debt settlement of
$77,360.
Net Loss
The Company incurred net loss of $7,856,392 for the year ended December 31,
2022, an increase of $6.7M from net loss of $1,104,819 for the year ended
December 31, 2021. The increase in net loss was mainly due to loss on impairment
of equity investment in PVI of $10.8M.
Liquidity and Financial Condition
Working Capital
As of As of
December 31, December 31,
2022 2021 Changes %
Current Assets $ - $ 100,000 $ (100,000 ) (100 %)
Current Liabilities $ 1,376,972 $ 3,065,044 $ (1,688,072 ) (55 %)
Working Capital Deficiency $ (1,376,972 ) $ (2,965,044 ) $ 1,588,072 (54 %)
Our total current assets decreased from $100,000 as of December 31, 2021 to $0
as of December 31, 2022 due primarily to the decrease in deposit on stock
purchase agreement to related party of $100,000. The Company does not have any
cash as of December 31, 2022 and 2021.
Our total current liabilities decreased from $3,065,044 as of December 31, 2021
to $1,376,972 as of December 31, 2022 due primarily to the decrease in notes
payable to related party and due to affiliates due to debt extinguishment of
debts resulted from the disposal of the equity investment in PVI and the
decrease in accounts payable and accrued liabilities.
Our working capital deficit on December 31, 2022 was $1,376,972 as compared to
working capital deficit of $2,965,044 as of December 31, 2021. The decrease in
working capital deficit was mainly attributed to the decrease in amount due to
PVI and NVI group and accounts and accrued liabilities.
The Company have funded our operations since inception primarily through the
issuance of our equity securities in private placements to third parties, and/or
promissory notes to related parties for cash. The cash was used primarily for
operating activities, including cost of employees, management services,
professional fees, consultant fees, and travel. Our management expects that cash
from operating activities will not provide sufficient cash to fund normal
operations, support debt service, or undertake certain investments we anticipate
prosecuting for our business proposition both in the near and intermediate
terms. We will continue to rely on financing provided under notes from related
and third-party party sources, as well as sale of shares of our common stock in
private placements, to fund our expected cash requirements.
We intend to continue raising additional capital through the issuance of equity
and debt securities for cash .There can be no assurance that these funds will be
available on terms acceptable to us, if at all, or will be sufficient to enable
us to fully complete our development activities or sustain operations. If we are
unable to raise sufficient additional funds, we will have to develop and
implement a plan to further extend payables, reduce overhead and operations, or
scale back our current business plan until sufficient additional capital is
raised to support further operations. There can be no assurance that such a plan
will be successful.
30
Our audited consolidated financial statements included in this annual report
have been prepared assuming that we will continue as a going concern, which
contemplates continuity of operations, realization of assets, and liquidation of
liabilities in the normal course of business. As reflected in such consolidated
financial statements, we had an accumulated stockholders' deficit of $23,528,700
and had a net loss of $7,856,392 and utilized net cash of $207,265 in operating
activities as of and for the year ended December 31, 2022. These factors raise
substantial doubt about our ability to continue as a going concern. In addition,
our independent registered public accounting firms in their audit reports to our
consolidated financial statements for the fiscal years ended December 31, 2022,
and 2021, expressed substantial doubt about our ability to continue as a going
concern. Our ability to continue as a going concern was raised due to our net
losses and negative cash flows from operations since inception and our
expectation that these conditions may continue for the foreseeable future. In
addition, we will require additional financing to fund future operations. Our
consolidated financial statements included in this annual report do not include
any adjustments related to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be
necessary should we be unable to continue as a going concern.
Based on our management's estimates and expectation to continue to receive
short-term debt funding from a related party on as needed basis, we believe that
current funds on hand as of the date of issuance and proceeds of such loans will
be sufficient for us to continue operations beyond twelve months from the filing
of this Form 10-K. Our ability to continue as a going concern is dependent on
our ability to execute our business strategy and in our ability to raise
additional funds. Management is currently seeking additional funds, primarily
through the issuance of equity and/or debt securities for cash to operate our
business; however, we can give no assurance that any future financing will be
available or, if at all, and if available, that it will be on terms that are
satisfactory to us. Even if we can obtain additional financing, it may contain
undue restrictions on our operations, in the case of debt financing, or cause
substantial dilution for our stockholders, in the case of equity and/or
convertible debt financing.
Cash Flows
Year Ended
December 31,
2022 2021 Changes %
Cash flows used in
operating activities $ (207,265 ) $ (53,125 ) $ (154,140 ) 290 %
Cash flows used in
investing activities - - - -
Cash flows provided by
financing activities 207,265 53,125 154,140 290 %
Net changes in cash $ - $ - $ - -
Operating Activities
Net cash used in operating activities was $207,265 for the year ended December
31, 2022, compared with $53,125 net cash used in operating activities during the
year ended December 31, 2021.
During the year ended January 31, 2023, net cash used in operating activities
was attributed to net loss of $7,856,392, increased by income from equity
investment of $1,499,355, gain on debt extinguishment of $1,477,032, gain on
forgiveness of related party note of $30,000 and gain on debt forgiveness of
$12,000, and was offset by loss on impairment of equity investment of
$10,787,652 and depreciation of $6,165 and increased by a net change in
operating assets and liabilities of $126,303.
During the year ended December 31, 2021, net cash used in operating activities
was attributed to net loss of $1,104,819, increased by gain on debt settlement
of $77,360, and offset by stock-based compensation of $340,000, loss from equity
investment of $200,318 and a net change in operating assets and liabilities of
$582,34.
Investing Activities
During the year ended December 31, 2022 and 2021, the Company did not have any
investing activities.
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Financing Activities
During the year ended December 31, 2022, net cash from financing activities was
$207,265 compared to $53,125 during the year ended December 31, 2021.
Proceeds from financing activities during the year ended December 31, 2022, were
derived from proceeds from stock subscription of $150,000 and proceeds from
related party notes of $119,285, offset by repayments of related party notes of
$62,020.
Proceeds from financing activities during the year ended December 31, 2021, were
derived from proceeds for issuance common stock of $284,000 and proceeds from
related party notes of $58,075, offset from repayment of related party notes of
$288,950.
Off-Balance Sheet Arrangements
During the fiscal year ended December 31, 2022, the Company did not have any
transactions, obligations or relationships that could be considered off-balance
sheet arrangements.
Critical Accounting Estimates
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates include the
recoverability and useful lives of long-lived assets, assessment of legal
accruals, the fair value of our stock, stock-based compensation and the
valuation allowance related to deferred tax assets. Actual results may differ
from these estimates.
Stock-based Compensation
The fair value of stock options is estimated on the grant date using the
Black-Scholes option pricing model, based on weighted average assumptions.
Expected volatility is based on historical volatility of our common stock. The
Company has elected to use the simplified method described in the Securities and
Exchange Commission Staff Accounting Bulletin Topic 14C to estimate the expected
term of employee stock options. The risk-free rate is based on the U.S. Treasury
yield curve in effect at the time of grant. The value of restricted stock awards
is determined using the fair value of the Company's common stock on the date of
grant. The Company accounts for forfeitures as they occur. Compensation expense
is recognized on a straight-line basis over the requisite service period of the
award. As of the fiscal year ended December 31, 2022, and 2021, there were no
outstanding warrants or options.
Investments - Equity Method
The Company accounts for its equity method investment ("PVI") at cost, adjusted
for the Company's share of the investee's earnings or losses, which are
reflected in the consolidated statements of operations. The Company periodically
reviews the investment for other than temporary declines in fair value below
cost and more frequently when events or changes in circumstances indicate that
the carrying value of an asset may not be recoverable. As of December 31, 2022,
management has identified indicators of other-than-temporary impairment that
have led to the conclusion that the carrying value of its equity method
investment is not recoverable. As a result, the Company has recorded an
impairment write-down in the consolidated statements of operations for the year
ended December 31, 2022.
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PINEAPPLE, INC. 
