# Pineapple Financial Inc.: Form 10-Q for the period ended May 31, 2024

- Company: [Pineapple Financial Inc.](/companies/papl.md) (CIK 1938109)
- Form: 10-Q
- Filed: 2024-07-15
- Accepted by EDGAR: Jul 15, 2024, 20:53 ET
- Period: 2024-05-31
- Accession: 0001493152-24-027861
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1938109/000149315224027861/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1938109/000149315224027861/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-05-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-03-01 to 2024-05-31 | $736.4k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-09-01 to 2024-05-31 | $2.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 9 months, 2023-09-01 to 2024-05-31 | $994.3k | us-gaap:CostOfRevenue |
| Selling, general and administrative | 3 months, 2024-03-01 to 2024-05-31 | $491.7k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-09-01 to 2024-05-31 | $1.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-03-01 to 2024-05-31 | −$896.1k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-09-01 to 2024-05-31 | −$2.5m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2024-03-01 to 2024-05-31 | −$848.6k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-09-01 to 2024-05-31 | −$2.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-03-01 to 2024-05-31 | −$0.12 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-09-01 to 2024-05-31 | −$0.37 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-03-01 to 2024-05-31 | −$0.12 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-09-01 to 2024-05-31 | −$0.37 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-03-01 to 2024-05-31 | 7,181,978 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-09-01 to 2024-05-31 | 7,181,978 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-09-01 to 2024-05-31 | −$1.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-09-01 to 2024-05-31 | $5.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-05-31 | $748.8k | us-gaap:Cash |
| Current assets | at 2024-05-31 | $1.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-05-31 | $4.3m | us-gaap:Assets |
| Current liabilities | at 2024-05-31 | $689.8k | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-05-31 | $2.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-05-31 | $2.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 40,519 characters.

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS .**

Please read the following management’s discussion and analysis of our financial condition and results of operations, along with our unaudited condensed interim consolidated financial statements and the related notes and other information. It is important to note that this discussion and analysis contain forward-looking statements with certain risks and uncertainties. These risks and uncertainties could cause our results to differ materially from what was anticipated in these forward-looking statements. You can find more information about these risks and uncertainties under “Special Note Regarding Forward-Looking Statements” in Part I and this Form 10Q.

### Special Note Regarding Forward-Looking Statements

This Form 10-Q includes forward-looking statements that entail potential risks and uncertainties. These statements are usually identified by the use of specific terminology such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and other comparable terminology. All the statements in this Form 10-Q that are not about historical facts, including those related to our future operations, financial position, revenue, projected costs, strategy, plans, management objectives, and expected market growth, are forward-looking. While reading this Form 10-Q, you should know that these statements do not guarantee our performance or results. They include known and unknown risks, uncertainties, and assumptions, as mentioned under the “Risk Factors” section in Form 10-Q. We believe that these forward-looking statements are based on reasonable assumptions. Still, you must be aware that many factors, including those mentioned under the “Risk Factors” section in this Form 10-Q, could affect our financial results or operations and cause actual results to differ from those stated in the forward-looking statements. These statements were made as of the date of this Form 10-Q, and we are not obligated to update or revise any forward-looking statements made here to reflect any change in our expectations or any change in events, conditions, or circumstances on which these statements are based. All written or oral forward-looking statements made by us or on our behalf are qualified by the cautionary statements mentioned in this Form 10-Q.

### Objective

In this section, we provide an analysis of the Company’s financial condition, cash flows, and results of operations from management’s perspective. We recommend you read this with the unaudited condensed interim consolidated financial statements and notes in Part II, Item 8 of this Annual Report on Form 10-Q.

### Executive Summary

We are a fintech company based in Ontario, Canada. Our tech-driven businesses are focused on mortgages and insurance. Our goal is to provide clients with an industry-leading experience through our trusted digital solutions that are simple and fast.

### Recent Developments

### Business Trends

The Bank of Canada kept the prime interest rate high during 2023 to control high inflation. This resulted in high mortgage interest rates. Consequently, the mortgage interest rates increased significantly, leading to a considerable shrinkage in the mortgage origination market from 2022 to 2023 to 2024. The rise in mortgage interest rates, alongside the economic uncertainty, has resulted in a reduced demand for mortgage originations.

The mortgage business is aligned with the real estate industry, which is a seasonal business. The peak season is normally May to September of each year.

### Summary of nine months ended May 31, 2024.

During the period under review, we generated $1,445.028 million in residential mortgage loans compared to $1,288.708 million in the previous corresponding period, which ended on May 31, 2023. This amount represents an increase of $156.32 million or 12.13% compared to the same period that ended on May 31, 2023. Our Net Loss stood at $2.379 million, as compared to the $2.212 million recorded in the same period on May 31, 2023.

### Summary of three months ended May 31, 2024.

During the period under review, we generated $503.523 million in residential mortgage loans compared to $ 410.312 million in the previous corresponding period, which ended on May 31, 2023. This amount represents an increase of $93.211 million or 22.72% compared to the same period that ended on May 31, 2023. Our Net Loss stood at $0.848 million, as compared to the $0.808 million recorded in the same period on May 31, 2023.

### Key Performance Indicators

As part of our business operations, we closely track several key performance indicators (KPIs) that help us measure our performance. We can evaluate our ability to generate revenue by monitoring our loan production KPIs and comparing our performance to the mortgage origination market. Additionally, we use KPIs related to our technology setup and underwriting processes to assess our performance further.

|  | Three months ended May 31, 2024 | May 31, 2023 |
| --- | ---: | ---: |
| Mortgage volume | 377,640,286 | 307,734,120 |
| Gross billing | 4,449,848 | 3,814,083 |
| Commission expense | 3,713,400 | 3,210,852 |
| Sales revenue | 736,448 | 603,231 |
| Underwriting revenue | 41,454 | 16,751 |
| Subscription revenue | 181,701 | 106,572 |

### Reconciliation of Adjusted Revenue to Total Revenue, net

|  | Nine months ended May 31, 2024 | May 31, 2023 |
| --- | ---: | ---: |
| Total revenue, net | 1,971,377 | 1,937,922 |
| Commission expense | 10,456,703 | 10,340,720 |
| Gross billing | 12,428,079 | 12,278,642 |

### Key Performance Indicators

As part of our business operations, we closely track several key performance indicators (KPIs) that help us measure our performance. We can evaluate our ability to generate revenue by monitoring our loan production KPIs and comparing our performance to the mortgage origination market. Additionally, we use KPIs related to our technology setup and underwriting processes to assess our performance further.

|  | Nine months ended May 31, 2024 | May 31, 2023 |
| --- | ---: | ---: |
| Mortgage volume | 1,083,771,257 | 966,531,247 |
| Gross billing | 11,450,989 | 11,097,689 |
| Commission expense | 10,456,703 | 10,340,720 |
| Sales revenue | 994,286 | 756,969 |
| Sponsorship revenue | 178,243 | - |
| Underwriting revenue | 115,244 | 181,022 |
| Subscription revenue | 560,261 | 999,932 |
| Other Income | 123,342 | - |

19

### Description of Certain Components of Financial Data

### Components of Revenue

Our sources of revenue include commissions from lenders, underwriting revenue, membership fees from mortgage agents, and other Income.

### Sales revenue

Sales revenue is commission collected from financial institutions with contracts in place. The Company earns revenue based on a percentage of mortgage amount funded between individuals referred by the Company and financial institutions funding the mortgage. We are an agent in these deals as we provide the platform for other parties to provide services to the end-user. For each contract with a customer, the Company identifies the contract with a customer, identifies the performance obligations in the contract, and determines the transaction price to the separate performance obligations based on the relative stand-alone selling price of each distinct good or service to be delivered; and recognizes revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. The Company acknowledges revenue when a contract exists with a lender party and an agent broker, the contract identifies the use of the platform service to close a mortgage deal, the mortgage deal has been closed with the lending financial institution, and commissions are paid by the lending financial institution based on various criteria of the mortgage deal including but not limited to interest rates available at that time, term, seasonality, collateral, Income, purpose, etc. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business. Upon completing all the actions listed above, revenue is recognized at the end of the deal. A typical transaction attracts a commission fee payable to Pineapple Financial Inc.

### Subscription Revenue:

Users access and use our technology platform, MyPineapple, for a flat monthly service fee of $118. In exchange for this fee, users of MyPineapple have access to a network management system that allows them to perform back-office procedures more efficiently and effectively. This platform will enable them to process the deal described above and prepare and complete the package for submission to be funded by the financial institution. We have a strong user base, which has experienced significant growth since our inception. Revenue is recognized at the beginning of the month when a User is invoiced and pays the fee.

### Underwriting Fee:

Users can optionally use our expert risk pre-assessment service, which assists them in pre-underwriting their loans before submission to a lender for approval and funding. This service significantly reduces the time the lender partners take to assess the deal. For mortgages of $197,475 and less, we charge an underwriting fee of $276; for mortgages greater than $197,475, the Company charges an underwriting fee of $395. The Company has undertaken a special program to educate and inform Users of this service in further detail. Approximately 40% of the deals originated by users using this service. This program intends to increase the number of deals further and improve the services offered.

### Other Income:

Other Income includes a technology setup fee and sponsorship fee.

### Components of operating expenses

Our operating expenses, as presented in the statement of operations data, include salaries, commissions and team member benefits, general and administrative expenses, marketing and advertising expenses, and others.

### Salaries and commissions and team member benefits

All payroll expenses include our team members’ salaries, commissions, and benefits.

### Selling, general and administrative expenses

Selling, general and administrative expenses include software subscriptions, license fees, professional services, marketing expenses, and other operating expenses.

### Share-based compensation

Share-based compensation comprises equity awards and is measured and expensed accordingly under Accounting Standards Codification (“ASC”) 718 Compensation-Stock Compensation.

### Comparison of nine months ended May 31, 2024 and May 31, 2023

| Description | Nine months ended May 31, 2024 $$ | May 31, 2023 | Increase/ (decrease) $% | Percentage of Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Gross billing | 12,428,080 | 12,278,643 | 149,437 | 1.22 |
| Commission | 10,456,703 | 10,340,720 | 115,983 | 1.12 |
| Net Revenue | 1,971,377 | 1,937,923 | 33,454 | 1.73 |
| Selling, general and administrative | 1,545,900 | 1,617,231 | (71,331) | (4.41) |
| Advertising and marketing | 648,197 | 824,395 | (176,198) | (21.37) |
| Salaries, wages and benefits | 1,825,786 | 1,827,369 | (1,583) | (0.09) |
| Interest expense and bank charges | 42,825 | 58,079 | (15,254) | (26.26) |
| Depreciation | 535,575 | 302,529 | 233,046 | 77.03 |
| Share-based compensation | - | 32,974 | (32,974) | (100.00) |
| Government based incentive | (176,326) | (512,673) | (336,347) | (65.61) |
| Total expenses | 4,421,957 | 4,149,904 | 272,053 | 6.56 |
| Foreign exchange gain (loss) | 10,751 | - | 10,751 | 100.00 |
| Gain (loss) change in fair value of warrant liability | 42,251 | - | 42,251 | 100.00 |
| Gain (loss) on change in fair value of conversion feature liability | 18,134 | - | 18,134 | 100.00 |
| Loss before income taxes | (2,379,444) | (2,211,982) | 167,462 | 7.57 |
| Net loss | (2,379,444) | (2,211,982) | 167,462 | 7.57 |
| Foreign currency translation adjustment | (62,666) | (131,420) |  |  |
| Net loss and comprehensive loss | (2,442, 110) | (2,343,402) |  |  |

### Revenue

Gross Billing increased from $12.279 million in the nine months ending May 31, 2023, to $12.428 million in the nine months ending May 31, 2024, representing a 1.22% increase from period to period. To control high inflation, The Bank of Canada increased the interest rate from 3.75% as of December 01, 2022, to 5.00% as of May 31, 2024.. This resulted in decreased real estate transactions and, eventually, in the mortgage business. However, on June 05, 2024, BOC has cut the interest rate by 0.25% bringing it down to 4.75%.

### Net revenue

Pineapple Financials’ net revenue increased by 1.73% during the nine months ending May 31, 2024. The volume remains consistent with the last year.

### Cost of Revenue

During the nine months ending May 31, 2024, the commission expense also increased to $10.457 million from $10.341 million during the nine months ending May 31, 2023. The increase is in line with the increase in gross billing.

### Selling, General and Administrative Expenses.

The breakdown of selling, general and administrative expenses are as follows:

| Description | Nine months ending May 31, 2024 ($) | May 31, 2023 ($) | Increase/ (Decrease) ($) | Increase/ (Decrease) (%) |
| --- | ---: | ---: | ---: | ---: |
| Software subscription | **663,424** | 619,703 | 43,721 | 7.06 |
| Office and general | **117,213** | 134,632 | (17,419) | (12.94) |
| Professional fee | **157,531** | 271,916 | (114,385) | (42.06) |
| Dues and subscriptions | **146,964** | 188,810 | (41,846) | (22.16) |
| Rent | **155,628** | 118,837 | 36,791 | 30.96 |
| Consulting fee | **45,167** | 112,319 | (67,152) | (59.79) |
| Travel | **113,940** | 55,655 | 58,285 | 104.73 |
| Donations | **7,406** | 38,149 | (30,743) | (80.59) |
| Lease expense | **54,946** | 75,396 | (20,450) | (27.12) |
| Insurance | **59,681** | 1,813 | 57,868 | 3,191.84 |
|  | **1,545,900** | 1,617,231 | (71,331) | (4.41) |

General and administrative expenses decreased by $71,331 from $1,617,231 during the nine months ending May 31, 2023, to $1,545,900 during the nine months ending May 31, 2024. This decrease represents 4.41% from nine months ended May 31, 2023, to May 31, 2024. This is because of cost-saving measures taken by the company.

Software subscriptions increased by $43,721, representing 7.06%, from $619,703 during the nine months ended May 31, 2023, to $663,424 during the nine months ended May 31, 2024. The increase is due to change in price of the software used.

Office and general expenses decreased to $17,419 during the nine months ending May 31, 2024, from $134,632 during the nine months ended May 31, 2023. This represents a decrease of 12.94%. This decrease is due to control of the expenses.

Dues and subscriptions decreased from $188,810 during the nine months ended May 31, 2023, to $146,964 for the nine months ended May 31, 2024, representing a 22.16% decrease. This decrease represents the cost control efforts by the management.

### Advertising and Marketing

| Description | Nine months ended May 31, 2024 ($) | May 31, 2023 ($) | Increase/ (Decrease) ($) | Increase/ (Decrease) (%) |
| --- | ---: | ---: | ---: | ---: |
| Advertising and marketing | 648,197 | 824,395 | (176,198) | (21.37) |

22

Advertising and marketing decreased to $648,197 during the nine months ending May 31, 2024, compared to $824,395 during the previous nine months ending May 31, 2023. This 21.37% decrease was due to fewer advertisement and marketing expenses during the depressed real estate market.

### Salaries, Wages and benefits

| Description | Nine months ended May 31, 2024 ($) | May 31, 2023 ($) | Increase/ (Decrease) ($) | Increase/ (Decrease) (%) |
| --- | ---: | ---: | ---: | ---: |
| Salaries, wages and benefits | 1,825,786 | 1,827,369 | (1,583) | (0.09) |

Salaries, wages, and benefits decreased by $1,583, or 0.09%, from $1,827,369 during the nine months ended May 31, 2023, to $1,825,786. This is in line with the previous year.

### Depreciation

| Description | Nine months ended May 31, 2024 ($) | May 31, 2023 ($) | Increase/ (Decrease) ($) | Increase/ (Decrease) (%) |
| --- | ---: | ---: | ---: | ---: |
| Depreciation | 535,575 | 302,529 | 233,046 | 77.03 |

Pineapple Financial is actively investing in the development of its software. During the nine months under review, $0.940 million was added to intangible assets. This addition mostly represents the salaries, wages, and benefits of our staff working on intangible assets. These additions are the main cause of the depreciation increase during the nine months that ended on May 31, 2024.

### Comparison of three months ended May 31, 2024, and May 31, 2023

| Description | Three months ended May 31, 2024 $$ | May 31 2023 | Increase/ (decrease) $% | Percentage of Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Gross billing | 4,449,848 | 3,955,559 | 494,289 | 12.50 |
| Commission | 3,713,400 | 3,352,328 | 361,072 | 10.77 |
| Revenue | 736,448 | 603,231 | 133,217 | 22.08 |
| Selling, general and administrative | 491,666 | 698,568 | (206,902) | (29.62) |
| Advertising and marketing | 265,395 | 169,655 | 95,740 | 56.43 |
| Salaries, wages and benefits | 593,202 | 552,819 | 40,383 | 7.31 |
| Interest expense and bank charges | 40,374 | 18,689 | 21,685 | 116.03 |
| Depreciation | 220,190 | 81,554 | 138,636 | 169.99 |
| Share-based compensation | - | (67) | 67 | 100.00 |
| Government based incentive | 21,770 | (119,753) | (97,983) |  |
| Total expenses | 1,632,596 | 1,411,465 | 221,131 | 15.67 |
| Gain (loss) on change in fair value of conversion feature liability | 29,479 | - |  |  |
| Gain (loss) on change in fair value of conversion feature liability | 18,064 | - | 18,064 | 100.00 |
| Loss before income taxes | (848,605) | (808,234) | 76,939 | 9.52 |
| Net loss | (848,605) | (808,234) | 76,939 | 9.52 |
| Foreign currency translation adjustment | (41,676) | 3,658 |  |  |
| Net loss and comprehensive loss | (890,281) | (811,892) |  |  |

23

### Gross Billing

Gross billing increased from $3.955million in the three months ending May 31, 2023, to $4.449 million in the three months ending May 31, 2024, representing a 12.50% increase from period to period. Bank of Canada halted the interest rate hike, and the inflation is under control. This resulted in a better real estate market at the start of the year. The hope for interest rate cuts by the Bank of Canada in June 2024 will lead to an increase in volume.

### Revenue

Pineapple Financials’ revenue increased to $736,448 during the three months ending May 31, 2024 as compared to $603,231 during the three months ended May 31, 2023. This represents a 22.08% increase as compared to the previous corresponding quarter ended May 31, 2023.

### Commission

During the three months ending May 31, 2024, the cost of revenue increased by $0.361 million from $3.352 million during the three months ended May 31, 2023 to $3.713 million during the three months ended May 31, 2024. The increase in the commission is due to the business by agents with high margins.

### Selling, General and Administrative Expenses.

| Description | Three months ended May 31, 2024 ($) | May 31, 2023 ($) | Increase/ (Decrease) ($) | Increase/ (Decrease) (%) |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative | 491,666 | 698,568 | (206,902) | (29.62) |

Selling, general and administrative expenses decreased by $206,902 from $698,568 during the three months ending May 31, 2023, to $491,666 during the three months ending May 31, 2024. This decrease represents 29.62%. This is due to cost control measures adopted by the company.

### Advertising and Marketing

| Description | Three months ended May 31, 2024 ($) | May 31, 2023 ($) | Increase/ (Decrease) ($) | Increase/ (Decrease) (%) |
| --- | ---: | ---: | ---: | ---: |
| Advertising and marketing | 265,395 | 169,655 | 95,740 | 56.43 |

Advertising and marketing increased to $265,395 during the three months ending May 31, 2024, as compared to $169,655 during the previous corresponding three months ending May 31, 2023. This increase was due to more marketing efforts for the company to keep and increase the market share.

### Salaries, Wages and benefits

| Description | Three months ended May 31, 2024 ($) | May 31, 2023 ($) | Increase/ (Decrease) ($) | Increase/ (Decrease) (%) |
| --- | ---: | ---: | ---: | ---: |
| Salaries, wages and benefits | 593,202 | 552,819 | 40,383 | 7.31 |

Salaries, wages and benefits increased by $40,383 or 7.31% from $552,819 during the three months ended May 31, 2023, to $593,202. This is in line with the precious quarter.

### Liquidity and Capital Resources

Our primary liquidity needs encompass working capital and capital expenditures, specifically those associated with technological enhancements, investments in skilled personnel, and marketing services. These three categories have constituted a significant portion of our liquidity and capital resource demands throughout the year. We primarily utilize cash on hand and cash flows generated from our operations to meet these requirements.

The following table summarizes our cash flows from operating, investing and financing activities:

| Description | Nine months ended May 31, 2024 $$ | May 31, 2023 | Increase/ (Decrease) $ |
| --- | ---: | ---: | ---: |
| Cash (used) provided in operating activities | (1,443,610) | (1,942,895) | 499,285 |
| Cash (used) provided by financing activities | 2,480,806 | (46,778) | 2,527,584 |
| Cash (used) provided in investing activities | (901,185) | (961,613) | (60,428) |
| Cash at the end of the period | 748,769 | 856,300 | 107,531 |

### Net cash flow from (used in) operating activities

| Description Operating activities | Nine months ended May 31, 2024 ($) | May 31, 2023 ($) |
| --- | ---: | ---: |
| Net loss | (2,379,444) | (2,211,981) |
| **Adjustments for the following non-cash items:** |  |  |
| Depreciation of property and equipment | 65,300 | 42,592 |
| Depreciation of intangible assets | 369,993 | 180,770 |
| Depreciation on right of use asset | 100,282 | 79,167 |
| Interest expense on lease liability | 47,482 | 43,946 |
| Share-based compensation | - | 32,974 |
| Foreign exchange gain (loss) | (10,751) | - |
| Change in fair value of warrant liability | (42,251) |  |
| Change in fair value of conversion feature liability | (18,133) |  |
| Net changes in non-cash working capital balances: |  |  |
| Trade and other receivables | 607,724 | (636,309) |
| Prepaid expenses and deposits | 65,976 | 267,607 |
| Accounts payable and accrued liabilities | (74,756) | 187,261 |
| Deferred government incentive | (175,032) | - |
| Income taxes receivable | - | 71,078 |
|  | (1,443,610) | (1,942,895) |

25

Our primary source of cash flow comes from our core business operations.

During the nine-month period that ended on May 31, 2024, the Company’s net cash used in operating activities decreased to $1.444 million from $1.943 million in the previous corresponding period. This decrease in cash outflow is primarily due to accounts payable and accrued liability payments. Additionally increase in trade and other receivables add outflows to operating activities.

### Net cash flow from (used in) financing activities

During the nine months ending May 31, 2024, the Company issued 875,000 shares through an initial public offer of $4.00. The Company received $2.752 million after underwriting commission and other initial public offering expenses. Further company issued convertible note payable for $300,000 which carries interest at the rate of 8% p.a. for two year or when the note will be converted into ordinary shares.

### Net cash flow from (used in) investing activities

The Company invested $0.901 million to develop software for quick and accurate mortgage application filling by field agents during the nine months ended May 31, 2024. These investments will help the Company acquire more mortgage agents in the future.

As of May 31, 2024, the Company’s cash balance was $748,769, as compared to $856,300 on May 31, 2023.

The Company’s capital structure comprises contributed common shares, an accumulated deficit, additional paid-in capital, and other comprehensive losses. Its primary sources of liquidity are cash generated through operations and cash received from investors in exchange for the issuance of common shares. The business aims to meet all its financial and other obligations as they come due.

Future capital requirements will depend on various factors, including our investment in technology and growth rate. However, certain aspects, like interest rates and real estate markets, are beyond our control.

The following table presents our liquidity:

| Description | May 31, 2024 ($) | August 31, 2023 ($) |
| --- | ---: | ---: |
| Cash and cash equivalents | 748,769 | 720,365 |
| Trade and other receivables | 151,264 | 758,988 |
| Prepaid expenses and deposit | 152,174 | 218,151 |
|  | 1,052,207 | 1,697,504 |

As of May 31, 2024, Pineapple has a liquidity position with $1.052 million in cash and cash equivalents. The trade and other receivables, prepaid expenses and deposits indicate that the Company can meet its obligations. The Company’s liquidated assets are under pressure mainly due to the expansion of our operations and investment in technology. Additionally, the Canadian real estate market, inflation, and the continuous hike of interest rates by the Bank of Canada have also affected the Company’s operations and impacted its liquidity.

### Critical Accounting Policies and Significant Judgments and Estimates

This management’s discussion and analysis of the financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us 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 revenue and expenses during the reported period. Per U.S. GAAP, we base our estimates on historical experience and various other assumptions we believe to be reasonable under the circumstances. Actual results may differ from these estimates if conditions differ from our assumptions. While our significant accounting policies are more fully described in Note 2 in the “Notes to Financial Statements,” we believe the following accounting policies are critical to making effective judgments and estimates in preparing our financial statements.

### Revenue Recognition

The Company has adopted ASC 606, Revenue from Contracts with Customers, which provides a single comprehensive model for revenue recognition. The standard’s core principle is that revenue should be recognized when goods or services are transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard introduced a new contract-based revenue recognition model with a measurement approach that is based on an allocation of the transaction price. It establishes a five-step model to account for revenue arising from contracts with customers. Under this standard, revenue is recognized at an amount that reflects the consideration an entity expects to be entitled to in exchange for transferring goods or services to a customer. The standard requires entities to exercise judgment, considering all of the relevant facts and circumstances when applying each step of the model to contracts with customers. Additionally, the standard specifies the accounting for incremental costs of obtaining a contract and the costs directly related to fulfilling a contract.

When the Company transfers goods or services to a customer, revenue is recognized at an amount that reflects the expected consideration.

The company operates an online platform powered by Salesforce, enabling brokers and agents to close deals efficiently.

The Company’s subsidiary, Pineapple Insurance Inc., generates revenue by charging insurance policies and services premiums. Pineapple Insurance is affiliated with a major insurance company, from which it earns commissions for providing services, primarily mortgage insurance. Mortgage insurance is a requirement for each mortgage. Pineapple Insurance acts as the agent that supplies insurance services to the consumer and is paid a commission from the premiums collected by the insurance company whose products and services it provides to the end consumer. Additionally, Pineapple Insurance has adopted ASC 606.

### Basis of presentation, functional and presentation currency

The Company’s headquarters is in Ontario, Canada, and the functional currency is Canadian Dollars (CAD), with the presentation currency being U.S. Dollars (USD). The Company’s subsidiaries have a functional currency of CAD and presentation currency of USD, which have been applied consistently.

A foreign currency translation will be undertaken to report under US GAAP, which will be the basis of the presentation.

### Lease Accounting

The relevant criteria applicable is ASC 842. We assess at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. We apply a single recognition and measurement approach for all leases except for short-term leases and leases of low-value assets. We recognize lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

At the commencement date of the lease, we recognize lease liabilities measured at the present value of lease payments to be made over the lease term. Lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. Lease payments also include the exercise price of a purchase option reasonably certain to be exercised by us and payments of penalties for terminating the lease if the lease term reflects us exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, we use our incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

We recognize right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.

### Investments

We invested in a commercial mortgage firm, MCommercial, based in Montreal and Toronto, Canada representing 5% of the total issued and outstanding shares. This strategic partnership allows Pineapple residential mortgage agents to have access to a leading commercial mortgage firm and experts, which will expand their product offerings, service levels and corporate revenue through increased transactions.

The Company entered into a share purchase agreement with 9142-2964 Quebec Inc. pursuant to which the Company acquired five Class A Shares of 7326904 Canada Inc. (dba as Mortgage Alliance Corporation) (“Alliance”), representing 5% of the total issued and outstanding shares of Alliance. Alliance is a mortgage brokerage firm based in Ontario, Canada with locations in Calgary, Vancouver and Halifax.

The total amount of both investments was recorded at fair value, and any impairment loss is recognized in the profit and loss account.

### Share-Based Compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718, “Compensation — Stock Compensation” (“ASC 718”), which requires recognition in the financial statements of the cost of employee, non-employee and director services received in exchange for an award of equity instruments over the period the employee, non-employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee, nonemployee, and director services received in exchange for an award based on the grant-date fair value of the award.

The Company has a share option plan (the “Plan”) to attract, retain and motivate qualified directors, officers, employees, and consultants whose present and future contributions are important to the success of the Company by offering them an opportunity to participate in the Company’s future performance through the award of share options.

Each share option converts into one common share of Pineapple Financial Inc. on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither right to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry.

In 2017, the Plan was amended such that the total number of common shares reserved and available for grant and issuance pursuant to the Plan is to equal 10% of the issued and outstanding common shares of the Company.

Options granted on June 14, 2021, vest over 2 years, whereby 25% of the options granted are vested on the grant date, and the remaining unvested options are vested in equal installments every six months after that. The fair value of the stock options granted was $1,317,155. A total stock-based compensation expense was recognized of $Nil for nine months ended May 31, 2024 (May 31, 2023 - $57,140).

The former Chief Financial Officer was granted 63,821 Stock options on November 15, 2021 as part of his compensation package. The options vest over a 3-year period whereby 8,974 of the options granted vested on the grant date and the remaining unvested options vest in equal instalments every 6-months thereafter. The fair value of the stock options granted was $141,885. The former Chief Financial Officer options were forfeited during the year ended August 31, 2023. For period ended May 31, 2024, stock-based compensation expense of $nil (May 31, 2023 – a recovery of $24,165) was recognized.

On November 3, 2023, Company issued 26,250 warrants to our underwriters of initial public offering, EF Hutton. These are exercisable between May 31, 2024 to October 31, 2028. Strike price is $4.00 per warrant.

On July 6, 2023, we completed a 1-for-3.9 reverse stock split, or the Reverse Split, effective immediately. Consequently, all the share numbers, shares prices, and exercise prices have been retroactively adjusted in these condensed interim consolidated financial statements for all periods presented.

On July 08, 2024, company issued 91,437 shares against the convertible note as per the SPA agreement for $50,000. ($42,372.60 and $7,627.40 interest) on dated July 09, 2024.

Company also entered into equity line of credit agreement on May 10, 2024 through equity purchase agreement (“EPA”). The agreement was effective on July 08, 2024. As per the term of the agreement, company shall issue and sell to the Investor, from time to time, and the Investor shall purchase up to Fifteen Million Dollars ($15,000,000) of the Company’s common shares at a purchase price of 95 percent of the market price. The Company shall issue 200,000 Company’s common shares as a commitment fee under the EPA to the Investor. The put notice should be between $10,000 to $1,000,000 or 150 percent of the average daily trading value.

Controls and Procedures

Although we are currently not required to maintain an effective internal controls system, we have assessed and already started creating our internal controls as we have determined the need to maintain effective and controlled systems including but not limited to:

- skilled staffing for financial, accounting and external reporting areas, including segregation of duties;
- reconciliation of accounts as necessary to ensure correct classification, accurate recording and balancing of books;
- proper recording of expenses, liabilities, and other accounting entries in the period to which they relate as per the matching principle;
- maintaining a fixed assets register that identifies user, department, and detailed tracking;
- evidence of internal review and approval of accounting transactions by 2 or more independent personnel;
- documentation of processes, assumptions and conclusions underlying significant estimates; and
- documentation of accounting policies and procedures.

As of May 31, 2024, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting and based on this assessment, our management concluded that, as of May 31, 2024, our disclosure controls and procedures were not effective as a result of deficiencies in our internal control over financial reporting. We have made improvements during the current period and are implementing plans to improve these deficiencies, including implementation of independent review and approval of transactions and reconciliations in certain processes through hiring additional personnel and segregating duties amongst our team

Financial Instruments

As on May 31, 2024, the Company’s financial instruments consist of cash, trade and other receivables, investments, accounts payable and accrued liabilities, loan, convertible loan and warrant liabilities.

As per ASC 820, Fair value measurement establishes a fair value hierarchy based on the level of independence and objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

i) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

ii) Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and

iii) Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The following table provides the fair values of the financial assets in the Company’s consolidated statements of financial position, categorized by hierarchical levels and their related classifications.

| As of May 31, 2024 Assets: | Level 1 Level 2 | Level 3 | Total |
| --- | ---: | ---: | ---: |
| Cash | 748,769 |  | 748,679 |
| Investment |  | 9,935 | 9,935 |

RISKS AND UNCERTAINTIES

The Company’s business is subject to numerous risks and uncertainties, including those described elsewhere in this MD&A, as well as general economic and market risks. These risk factors could materially affect the Company’s future operating results and could cause actual events to differ materially from those described in forward-looking information relating to the Company.

## Controls and procedures

As filed, 2,090 characters.

### Evaluation of Disclosure Controls and Procedures

We are transitioning to and will maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and timely reported as provided in SEC rules and forms and that such information is accumulated and communicated to our management, as appropriate, to allow for timely decisions regarding required disclosure. We will periodically review the design and effectiveness of our disclosure controls and procedures, including compliance with various laws and regulations that apply to our operations. We will make modifications to improve the design and effectiveness of our disclosure controls and procedures and may take other corrective action if our reviews identify a need for such modifications or actions. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we will apply judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.

### Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Filed Jul 15, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-027861. Last ingested by Listed: Oct 24, 2026, 15:06 ET. No prices; not investment advice.