10-Q: Pineapple, Inc. Reports Q3 2023 Results: Sublease Revenue Grows Amid Ongoing Financial Challenges

Pineapple, Inc.'s Q3 2023 results show increased sublease revenue but continued net losses and concerns about its ability to operate as a going concern.

Summary

• Pineapple, Inc. reported results for the quarter ended September 30, 2023.
• The company's net loss for the quarter was $516,510, compared to a net loss of $9,769,383 for the same period in 2022.
• Sublease revenue increased to $105,000, while revenue from CBD sales remained minimal at $90.
• Operating expenses increased by 16% to $146,604, driven by lease expenses and management consulting fees.
• For the nine months ended September 30, 2023, the net loss was $1,023,610, compared to $9,257,380 for the same period in 2022.
• The company's financial statements have been prepared assuming it will continue as a going concern, but substantial doubt exists about its ability to do so.
• The company is seeking additional funding through equity and debt securities.
• The company acquired Pineapple Wellness, Inc. on June 12, 2023, to expand its hemp-derived CBD sales.
• The company is leasing properties to licensed cannabis operators and subleasing them for revenue.
• The company is also developing the Top Shelf Safe Display System for cannabis dispensaries.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While sublease revenue increased and the net loss decreased compared to the previous year, the company faces significant financial challenges, including a substantial working capital deficiency, material weaknesses in internal controls, and substantial doubt about its ability to continue as a going concern. The need for additional capital raises further contributes to the negative sentiment.

Positives

• Sublease revenue increased, indicating a potential revenue stream.
• Net loss decreased significantly compared to the previous year.
• The acquisition of Pineapple Wellness, Inc. provides a platform for expanding CBD sales.
• The company is actively seeking additional funding to support operations.

Negatives

• The company has a working capital deficiency of $3,920,682 as of September 30, 2023.
• The company's auditors have expressed substantial doubt about its ability to continue as a going concern.
• The company has material weaknesses in its internal control over financial reporting.
• The company is involved in several legal proceedings.

Risks

• The company's ability to continue as a going concern is uncertain.
• The company relies on external financing, which may not be available on acceptable terms.
• The company has material weaknesses in its internal control over financial reporting.
• The company is involved in several legal proceedings, which could result in significant costs.
• The company's heavy involvement with cannabis, which remains illegal under federal law, poses regulatory risks.

Future Outlook

The company intends to raise additional capital through the issuance of equity and debt securities to fund its operations and execute its business strategy.

Industry Context

The company operates in the ancillary cannabis sector, which includes hemp CBD sales, property rentals to cannabis operators, and selling proprietary systems to cannabis dispensaries. The company faces risks associated with the cannabis industry, including regulatory uncertainty and competition.

Management Changes

Legal Proceedings

• The company is involved in several legal proceedings, including Hawkeye v. Pineapple Express, Inc., Sharper, Inc. v. Pineapple Express, Inc., Cunningham v. Pineapple Express, Inc., Pineapple Express, Inc. v. Cunningham, StoryCorp Consulting, dba Wells Compliance Group v. Pineapple Express, Inc., Russ Schamun v. Pineapple Express Consulting, Inc., SRFF v. Pineapple Express, Inc., and Novinger v. Pineapple Express, Inc.

Related Party Transactions

• During the nine months ended September 30, 2023, the Company recognized sublease revenue of $ 17,500 and recorded sublease receivable of $ 17,500 for an office premise located at 8912 Reseda Blvd, Northridge, CA 91324 in pursuant to sublease agreement entered with a cannabis company who is affiliated with the Director of Pineapple, Inc.
• During the nine months ended September 30, 2023, the Company recognized sublease revenue of $ 140,000 and for an office premise located at 1704 N.Vine St. Unit 102 Hollywood CA 90028 in pursuant to sublease agreement entered with an entity who is affiliated with the Director of Pineapple, Inc.
• During the nine months ended September 30, 2023 and 2022, the Company incurred management consulting fees of $ 219,500 and $ 177,000 , respectively.
• During the nine months ended September 30, 2023, Pineapple Consolidated, Inc. (PCI), a company controlled by the Director of Pineapple, Inc., advanced $ 86,241 to the Company, made lease payment, security deposit payment, management consulting fees and other operating expenses of $ 1,042,637 on behalf of the Company and was repaid for $ 234,282 .
• During the nine months ended September 30, 2023, PVI, a company owned and controlled by shareholder Jaime Ortega, made lease payment of $ 44,280 on behalf of the Company and was repaid for $ 90 .

Stakeholder Impact

• Shareholders face the risk of dilution due to potential equity offerings.
• Employees may be affected by cost-cutting measures or changes in business strategy.
• Customers of Pineapple Wellness, Inc. may benefit from expanded CBD product offerings.
• Suppliers and creditors face the risk of delayed payments or potential defaults.
• The company's ability to continue as a going concern impacts all stakeholders.

Next Steps

• The company intends to raise additional capital through the issuance of equity and debt securities.
• The company plans to implement measures to remediate its internal control weaknesses.
• The company will continue to pursue its business strategy in the ancillary cannabis sector.

Key Dates

Keywords

sublease revenue, cannabis, CBD, financial results, going concern, Pineapple Inc, legal proceedings, material weakness, operating loss, acquisition