Pineapple Financial Inc

Previous wording

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 anticipated in these forward-looking statements. You can find more information about these risks and uncertainties under the heading “Special Note Regarding Forward-Looking Statements” in Part I and elsewhere in this Form 10Q.

Current wording

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.

Previous wording

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 this 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.

Current wording

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.

Previous wording

Throughout 2022 and 2023, the Bank of Canada raised the prime rate several times to curb inflationary pressures. Consequently, the mortgage interest rates increased significantly, leading to a considerable shrinkage in the mortgage origination market from 2022 to 2023. The rise in mortgage interest rates, alongside the economic uncertainty, has resulted in a reduced demand for mortgage originations.

Current wording

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.

Previous wording

Mortgage business is aligned with the real estate industry which is a seasonal business. Normally May to September of each year is the peak season. Our quarterly results mostly fall in off peak season.

Current wording

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. Our quarterly results mostly fall in the off-peak season.

Previous wording

During the period under review, we generated $381.987 million in residential mortgage loans compared to $386.778 million in the previous corresponding period, which ended on November 30, 2022. This amount represents a decrease of $4.791 million or 1.24% compared to the same period that ended on November 30, 2022. Our Net Loss stood at $0.0.897 million, as compared to the $0.762 million recorded in the same period on November 30, 2022. We also generated loss $0.609 million of Adjusted EBITDA, which represents a decrease of $0.086 million, or 16.55%, compared to the $0.517 million generated in the same period on November 30, 2022. For more information on Adjusted EBITDA, please refer to the “Non-GAAP Financial Measures” section.

Current wording

During the period under review, we generated $697.411 million in residential mortgage loans compared to $650.664 million in the previous corresponding period, which ended on February 28, 2023. This amount represents an increase of $46.747 million or 7.18% compared to the same period that ended on February 28, 2023. Our Net Loss stood at $1.531 million, as compared to the $1.404 million recorded in the same period on February 28, 2023. We also generated a loss of $1.112 million of Adjusted EBITDA, which represents a increase of$1.045 million, or 1,555.37%, compared to the $0.067 million generated in the same period on February 28, 2023. For more information on Adjusted EBITDA, please refer to the “Non-GAAP Financial Measures” section.

Previous wording

Our definition of “Adjusted Revenue” is the sum of all gross revenues. Similarly, we define “Adjusted Net (Loss) Income” as pre-tax earnings before accounting for share-based compensation expense, impairment loss on investments, accrual of legal fees and deferred tax accrual, and the applicable tax effects of these adjustments. We add back Salesforce expenses and capitalize them with a 20% depreciation rate. We also add deferred government grants in current Income to arrive at Adjusted EBITDA. Lastly, our definition of “Adjusted Diluted (Loss) Earnings Per Share” is derived after adjusting for the abovementioned items.

Current wording

Our definition of “Adjusted Revenue” is the sum of all gross revenues. Similarly, we define “Adjusted Net (Loss) Income” as pre-tax earnings before accounting for share-based compensation expense, impairment loss on investments, accrual of legal fees and deferred tax accrual, and the applicable tax effects of these adjustments. We add back Salesforce expenses and capitalize them with a 20% depreciation rate. We added deferred government incentive to the current Income to arrive at Adjusted EBITDA. Lastly, our definition of “Adjusted Diluted (Loss) Earnings Per Share” is derived after adjusting for the abovementioned items.

Previous wording

Sales Revenue is commission collected from financial institutions with whom it has contracts in place. The Company earns revenue based on a percentage of mortgage amount funded between individual 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; determines the transaction price to the separate performance obligations on the basis of 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 recognizes 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 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. Revenue is recognized at the end of the deal upon completion of all the actions listed above. A typical transaction attracts a commission fee payable to Pineapple Financial Inc.

Current wording

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.

Previous wording

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 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.

Current wording

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.

Previous wording

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 for the lender partners’ assessment of 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 are using this service. This program intends to further increase the number of deals and improve the services offered.

Current wording

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.

Previous wording

Sales Revenue decreased from $4,546 million in the three months ending November 30, 2022, to $4.169 million in the three months ending November 30, 2023, representing a 8.29% decrease 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 November 30, 2023. This resulted in decreased real estate transactions and, eventually, in the mortgage business. The number of real estate transactions in Canada during the three months ended November 30, 2023 was 107,831 houses as compared to 104,890 houses during the previous corresponding three months ending November 30, 2022, representing a gain of 2.80%. This gain is quite encouraging. Keep in mind that typically, mortgage transactions are normally completed after two to three months from the sale of the house. This pick-up activity, if continued will give positive impacts in second and third quarter.

Current wording

Sales Revenue decreased from $8,465 million in the six months ending February 29, 2024, to $8.093 million in the six months ending February 28, 2023, representing a 4.39% decrease 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 February 29, 2024. This resulted in decreased real estate transactions and, eventually, in the mortgage business.

Previous wording

During the three months ending November 30, 2023, the cost of revenue decreased to $3.600 million from $3.654 million during the three months ending November 31, 2022. The decrease in the cost of Revenue is due to the decline in Revenue.

Current wording

During the six months ending February 29, 2024, the cost of revenue decreased to $6.74 million from $7.130 million during the six months ending February 28, 2023. The decrease in the cost of revenue is due to the decline in revenue.

Previous wording

Selling, general and administrative expenses decreased by $139,574 from $699,724 during the three months ending November 30, 2022, to $560,150 during the three months ended November 30, 2023. This decrease represents a 19.95% from three months ended November 30, 2022 to November 30, 2023.

Current wording

General and administrative expenses decreased by $72,135 from $1,104,082 during the six months ending February 28, 2023, to $1,031,947 during the six months ending February 29, 2024. This decrease represents 6.53% from six months ended February 28, 2023, to February 29, 2024.

Previous wording

Office and general expenses decreased to $65,824 during the three months ending November 30, 2023, from $207,560 during the three months ended November 30, 2022. This represents a decrease of $141,736 or 68.29%. This decrease is mainly due to reduced revenue.

Current wording

Office and general expenses decreased to $13,151 during the six months ending February 29, 2024, from $47,305 during the six months ended February 28, 2023. This represents a decrease of 27.80%. This decrease represents control of the expenses.

Previous wording

Dues and subscriptions increase from $19,110 during the three months ended November 30, 2022, to $40,031 for the three months ended November 30, representing a 109.48% increase. This increase is due to Initial Public Offering on November 03, 2023.

Current wording

Dues and subscriptions increased from $118,568 during the six months ended February 28, 2023, to $152,441 for the six months ended February 29, 2024, representing a 28.57% increase. This increase is due to Initial Public Offering on November 03, 2023.

Previous wording

Pineapple financial is actively investing in the development of its software. During the three months period under review, $0.266 million were added in intangible assets. This addition represents mostly the salaries, wages and benefits of our staff working on intangible asset. These additions are the main cause of increase of depreciation during the three months ended November 30, 2023.

Current wording

Pineapple Financial is actively investing in the development of its software. During the six months under review, $0.558 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 six months that ended on February 29, 2024.

Previous wording

During the three months period ended November 30, 2023, the Company’s net cash used in operating activities decreased to $1,022,782 from $1,159,829 in the previous corresponding period. This decrease of outflow of cash was primarily due to payments for accounts payable and accrued liabilities. Additionally, trade and other receivable add outflows in the operating activities.

Current wording

During the six-month period that ended on February 29, 2024, the Company’s net cash used in operating activities decreased to $1,566,642 from $1,924,986 in the previous corresponding period. This decrease in cash outflow is primarily due to accounts payable and accrued liability payments. Additionally, trade and other receivables add outflows to operating activities.

Previous wording

During the three months period ended November 30, 2023, the Company issued 875,000 shares through initial public offering at the offering price of $4.00 per share. The company received $2.732 million after underwriting commission and other initial public offering expenses.

Current wording

During the six months ending February 29, 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.

Previous wording

The Company invested $0.267 million to develop software for quick and accurate mortgage application filling by field agents during the three months period ended November 30, 2023. These investments will help the company acquire more mortgage agents in the future.

Current wording

The Company invested $0.558 million to develop software for quick and accurate mortgage application filling by field agents during the six months ended February 29, 2024. These investments will help the Company acquire more mortgage agents in the future.

Previous wording

As of November 30, 2023, the Company’s cash balance was $2,341,537, as compared to $2,381,866 on November 30, 2022.

Current wording

As of February 29, 2024, the Company’s cash balance was $1,339,618, as compared to $79,976 on February 28, 2023.

Previous wording

The Company’s capital structure comprises of 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.

Current wording

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.

Previous wording

As of August 31, 2023, Pineapple has a healthy liquidity position with $2.287 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.

Current wording

As of February 29, 2024, Pineapple has a healthy liquidity position with $1.340 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.

Previous wording

The Company has adopted ASC 606, Revenue from Contracts with Customers, which provides a single comprehensive model for revenue recognition. The core principle of the standard 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 to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The standard requires entities to exercise judgement, taking into consideration 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.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

The Company operates an online platform powered by Salesforce, that enables brokers and agents to efficiently close deals.

Current wording

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

Previous wording

The Company’s subsidiary, Pineapple Insurance Inc., generates Revenue by charging premiums for insurance policies and services. 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.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Options granted on June 14, 2021, vest over a 2-year period whereby 25% of the options granted vested on the date of grant, and the remaining unvested options vest in equal instalments every 6-months thereafter. The fair value of stock options granted was $1,317,155. A total stock-based compensation expense was recognized of $Nil for three months ended November 30, 2023 (November 30, 2022 - $52,904).

Current wording

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 six months ended February 29, 2024 (February 28, 2023 - $33,041).

Previous wording

The 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 Chief Financial Officer options were forfeited during the year ended August 31, 2023. For period ended November 30, 2023, stock-based compensation expense of $nil (November 30, 2022 - $12,770) was recognized.

Current wording

The 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 Chief Financial Officer options were forfeited during the year ended August 31, 2023. For period ended November 30, 2023, stock-based compensation expense of $nil (February 28, 2023 - $48,458) was recognized.

Previous wording

The Company currently uses NetSuite, a proprietary financial accounting software from Oracle Corporation for recording, tracking and financial reporting. However, external resources may be required such as professional consultants to determine more specific internal controls to decrease exposure to erroneous financial reporting which the Company is significantly deficient to meet the necessary regulatory requirements and responsibilities, and ensure compliance in all respects thereby incurring significant expenses in meeting these needs. As of November 30, 2023, 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 November 30, 2023, our internal controls over financial reporting lacked adequate segregation of duties within the accounting and system process, inadequate documentation to evidence the operation of controls, inconsistent procedures and approvals and insufficient written policies and procedures for accounting, IT and financial reporting and record keeping. We are implementing plans to improve such internal control.

Current wording

As of February 29, 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 February 29, 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

Previous wording

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

Current wording

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.