S-1/A 1 forms-1a.htm

 

As filed with the Securities and Exchange Commission on January 4, 2023

 

Registration No. 333-268636

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 1

FORM S-1

 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

PINEAPPLE FINANCIAL INC.

(Exact Name of Registrant as Specified in its Charter)

 

Ontario, Canada   6199   Not applicable
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
 

(I.R.S. Employer

Identification Number)

 

Unit 200, 111 Gordon Baker Road

North York, Ontario M2H 3R1

Tel: (416) 669-2046

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

Shubha Dasgupta

Chief Executive Officer

Unit 200, 111 Gordon Baker Road

North York, Ontario M2H 3R1

Tel: (416) 669-2046

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Gregory Sichenzia, Esq.

Darrin Ocasio, Esq.

Barrett DiPaolo, Esq.

Sichenzia Ross Ference LLP
1185 Avenue of the Americas, 31st Floor

New York, NY 10036

Telephone: (212) 930-9700

Facsimile: (212) 930-9725

 

Joseph M. Lucosky, Esq.

Lawrence Metelitsa, Esq.

Lucosky Brookman LLP

101 Wood Avenue South, 5th Floor

Woodbridge, NJ 08830

Telephone: (732) 395-4400

Facsimile: (732) 395-4401

 

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer     Accelerated filer  
Non-accelerated filer     Smaller reporting company  
        Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

 

 

 

 
 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED JANUARY [*], 2023

 

 

PINEAPPLE FINANCIAL INC.

[●] Common Shares

 

This is an initial public offering of               common shares, no par value (each, a “Common Share”, and together, the “Common Shares”), of Pineapple Financial Inc. (the “Company”, “we”, “us”, “our”, “Pineapple”). No public market currently exists for our shares. We anticipate that the initial public offering price of our common shares will be between US$[●] and US$[●] per share.

 

We have applied to have the Common Shares sold in this offering listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “PAPL”. There is no assurance that our listing application will be approved. We will not consummate this offering unless the Common Shares are listed on the Nasdaq.

 

In addition to Common Shares, our authorized common share capital consists of Class A Shares, Class B Shares and Class C Shares (each as defined herein) without par value. As of January 3, 2023, there are 24,597,215 Common Shares issued and outstanding and no Class A Shares, Class B Shares or Class C Shares outstanding. Each holder of Common Shares and Class B Shares is entitled to one vote per share. Holders of Class A Shares have no voting rights and are entitled to a dividend. The holders of the Class A Shares, in priority to the holders of the Class B Shares, Class C Shares or Common Shares, are entitled to receive dividends at the rate determined by the Board (as defined herein) on each Class A Share held. The holders of Class C Shares have no voting rights. The company expects to adopt new New Constating Documents (as defined below), pursuant to which the Company’s authorized common share capital will be amended by deleting the Class A Shares, Class B Shares and Class C Shares, which will result in the Common Shares remaining as the Company’s only class of authorized share capital. See “Description of Securities” for more details.

 

We are an “emerging growth company” as defined under Section 2(a) of the Securities Act of 1933, and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and may elect to comply with reduced public company reporting requirements for future filings.

 

An investment in our securities is highly speculative, involves a high degree of risk and should be considered only by persons who can afford the loss of their entire investment. See “Risk Factors” beginning on page 8 of this prospectus.

 

Neither the U.S. Securities and Exchange Commission nor any state or foreign securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

   Per Share   Total 
Initial public offering price  $          $ 
Underwriting discounts and commissions(1)  $     $   
Proceeds to us, before expenses  $    $       

 

(1)Does not include a non-accountable expense allowance equal to 1% of the gross proceeds of this offering payable to the representative of the underwriters. In addition, we have agreed to issue to the representative of the underwriters warrants to purchase the number of Common Shares in the aggregate equal to 3% of the Common Shares to be issued and sold in this offering (including any Common Shares sold upon exercise of the over-allotment option). See “Underwriting”.

 

We have granted the underwriters a 45-day option to purchase up to an additional _____ Common Shares (15% of the total number of Common Shares sold in this offering) solely to cover over-allotments, if any.

 

The underwriters expect to deliver the securities to investors on or about ______________, 2023.

 

Sole Book-Running Manager

 

EF HUTTON

 

division of Benchmark Investments, LLC

 

The date of this prospectus is [●], 2023

 

 
 

 

TABLE OF CONTENTS

 

    Page
INDUSTRY AND MARKET DATA   ii
TRADEMARKS, SERVICE MARKS AND TRADE NAMES   ii
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS   ii
ENFORCEMENT OF CIVIL LIABILITIES   ii
PROSPECTUS SUMMARY   1
THE OFFERING   6
SUMMARY FINANCIAL DATA   7
RISK FACTORS   8
USE OF PROCEEDS   22
DIVIDEND POLICY   23
CAPITALIZATION   24
DILUTION   25
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   26
BUSINESS   35
MANAGEMENT   47
EXECUTIVE AND DIRECTOR COMPENSATION   54
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS   59
PRINCIPAL SHAREHOLDERS   60
DESCRIPTION OF SECURITIES   61
SHARES ELIGIBLE FOR RESALE   64
CERTAIN INCOME TAX CONSIDERATIONS   65
UNDERWRITING   73
SELLING RESTRICTIONS   77
LEGAL MATTERS   78
EXPERTS   78
WHERE YOU CAN FIND MORE INFORMATION   78
INDEX TO FINANCIAL STATEMENTS   F-1

 

Please read this prospectus carefully. It describes our business, our financial condition, and our results of operations. We have prepared this prospectus so that you will have the information necessary to make an informed investment decision. You should rely only on the information contained in this prospectus or in any related free writing prospectus. We have not, and the underwriters have not, authorized anyone to provide you with information different from that contained in this prospectus or in any related free writing prospectus. We and the underwriters take no responsibility for and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, the Common Shares only in jurisdictions where offers and sales are permitted. This prospectus will be updated and made available for delivery to the extent required by the federal securities laws. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the Common Shares. Our business, financial condition, results of operations, and prospects may have changed since that date.

 

 
 

 

INDUSTRY AND MARKET DATA

 

This prospectus includes market, industry and economic data which was obtained from various publicly available sources and other sources believed by the Company to be true. Although the Company believes it to be reliable, the Company has not independently verified any of the data from third party sources referred to in this prospectus or analyzed or verified the underlying reports relied upon or referred to by such sources, or ascertained the underlying economic and other assumptions relied upon by such sources. The Company believes that its market, industry and economic data is accurate and that its estimates and assumptions are reasonable, but there can be no assurance as to the accuracy or completeness thereof. The accuracy and completeness of the market, industry and economic data used throughout this prospectus are not guaranteed and the Company does not make any representation as to the accuracy or completeness of such information.

 

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

 

We have proprietary rights to trademarks used in this prospectus that are important to our business that are to be subject to prosecution before the respective national intellectual property organizations responsible for trademark registration. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus are without the ®, ™ and other similar symbols, but the absence of such references is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

 

This prospectus contains additional trademarks, service marks and trade names of others. All trademarks, service marks and trade names appearing in this prospectus are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other person.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

We have made statements in this prospectus, including under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business” and elsewhere that constitute forward-looking statements. Forward-looking statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,” “should,” “will,” “could” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements.

 

Examples of forward-looking statements include:

 

the timing of the development of future services,
   
projections of revenue, earnings, capital structure and other financial items,
   
statements regarding the capabilities of our business operations,
   
statements of expected future economic performance,
   
statements regarding competition in our market, and
   
assumptions underlying statements regarding us or our business.

 

The ultimate correctness of these forward-looking statements depends upon a number of known and unknown risks and events. We discuss our known material risks under the heading “Risk Factors” above. Many factors could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Consequently, you should not place undue reliance on these forward-looking statements. The forward- looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward- looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

ENFORCEMENT OF CIVIL LIABILITIES

 

We are a company incorporated under the law of the Province of Ontario, Canada. Some of our directors and officers, and some of the experts named in this prospectus, are residents of Canada or otherwise reside outside of the United States, and all or a substantial portion of their assets, and all or a substantial portion of our assets, are located outside of the United States. We have appointed an agent for service of process in the United States, but it may be difficult for shareholders who reside in the United States to effect service within the United States upon those directors, officers and experts who are not residents of the United States. It may also be difficult for shareholders who reside in the United States to realize in the United States upon judgments of courts of the United States predicated upon our civil liability and the civil liability of our directors, officers and experts under the United States federal securities laws. There can be no assurance that U.S. investors will be able to enforce against us, directors, officers or certain experts named herein who are residents of Canada or other countries outside the United States, any judgments in civil and commercial matters, including judgments under the federal securities laws.

 

ii
 

 

 

PROSPECTUS SUMMARY

 

The following summary highlights information that we present more fully in the rest of this prospectus. This summary does not contain all of the information you should consider before buying Common Shares in this offering. This summary contains forward-looking statements that involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,” “should,” “will,” “could,” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward- looking statements.

 

You should read the entire prospectus carefully, including the “Risk Factors” section and the financial statements and the notes to those statements and our management’s discussion and analysis of financial condition and results of operations. As used throughout this prospectus, the terms “Pineapple,” the “Company,” “we,” “us,” or “our” refer to Pineapple Financial Inc.

 

Our Company

 

Overview

 

Pineapple Financial Inc. (“we” or the “Company”) is a Canadian-based mortgage technology and brokerage company that provides mortgage brokerage services and technology solutions to Canadian mortgage agents, brokers, sub-brokers, brokerages and consumers. Through data-driven systems together with cloud based tools, we believe we offer competitive advantages in the Canadian mortgage industry relative to alternative mortgage broker arrangements. We also provide back office services, together with pre-underwriting support services (collectively, “Brokerage Services”) to Canadian mortgage brokerages (the “Brokerages”). In connection with Brokerage Services, we employ and engage several licensed mortgage brokers and agents (collectively, “Field Agents”). In addition, we enter into affiliation agreements with certain licensed mortgage brokers (collectively, “Affiliate Brokers” and, together with Field Agents and Brokerages, the “Users”), pursuant to which the Company and the Affiliate Broker enter into an affiliation relationship with the intention of jointly marketing mortgage brokerage and other financial services as affiliated entities. This is sometimes referred to as “white labeling”, which allows the Affiliate Broker to sell a mortgage that is branded with its company name to its own client base.

 

We currently operate exclusively in Canada, specifically the provinces of Alberta, Manitoba, Newfoundland and Labrador, We have been approved by each of the applicable provincial mortgage regulators to operate in 11 provinces and territories namely Alberta, British Columbia, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Quebec, and Yukon, and 2 provinces to follow are Manitoba and Saskatchewan. We launched our first brokerage office in Alberta on July 1, 2021. We also launched our first brokerage office in Newfoundland and Labrador, Nova Scotia and Prince Edward Island on May 4, 2022. We opened our first British Columbia brokerage office in November 2022 and expect to open our first Quebec brokerage office in early to mid-2023. We provide our Brokerage Services for both residential and commercial mortgage opportunities and, in each case, through a proprietary technology called MyPineapple, as discussed in further detail below.

 

We had gross revenues of $20,380,984, net revenues of $3,600,851 and a net loss and comprehensive loss of $3,015,283 for the year ended August 31, 2022.

 

MyPineapple

 

At the heart of our Brokerage Services is an innovative technology system that provides real time data management and reporting, lead generation, customer relationship management and direct underwriting support, all in one. MyPineapple offers network management capabilities for Users, including hundreds of qualified Field Agents, to create an efficient marketplace for the provision of mortgage lending and insurance industry services. MyPineapple integrates directly with Salesforce, Equifax, OneSpan, G Suite and Filogix and manages the User’s day-to-day business through automated triggers and tasks, ensuring nothing falls through the cracks. Backed by Salesforce.com, Inc. (“Salesforce”), pursuant to the Salesforce Agreement (defined herein), and built with proprietary code and deep data analytics, MyPineapple syncs up with Users’ calendars and emails, produces robust reporting, advanced analytics, and real-time notifications on marketing communications, and more. MyPineapple is a sophisticated and fundamental tool for revenue growth and relationship development. It plays a significant role in what we believe makes our Brokerage Services distinct and cutting-edge.

 

 

1
 

 

 

MyPineapple was created to address key issues within the mortgage brokerage industry. We built MyPineapple to create a long-term competitive advantage relative to traditional service providers, who have comparatively high-touch, labor intensive and costly operations. Our MyPineapple platform is completely automated, simplifying the mortgage process while providing efficiencies to alleviate pressure on the User’s staffing in completing traditional administrative tasks, which in turn reduces the User’s cost structure and results in increased profit margins and scalability. MyPineapple reduces manual processes through robust quality control mechanisms, logistics management capabilities, capacity planning tools and end-to-end transaction management. MyPineapple also includes a leading education technology platform which enables Users to continuously stay informed and educated on what mortgage solutions and market conditions could impact Canadian consumers.

 

Competitive Advantages

 

We compete with a number of mortgage brokerage companies. However, we believe that we offer competitive advantages relative to alternative mortgage broker arrangements as a result of the following:

 

Debt Consolidation: As personal debt levels continue to grow; we offer a unique opportunity of allowing potential borrowers access to their home equity to consolidate debts at lower interest rates. Interest-only payments will provide lower and more flexible payment terms which will free client’s cash flow for savings and help them establish better control over their personal finances.
  
Residential Home Purchase: With access to Canada’s top lenders, we can help our clients find a mortgage solution best suited for their individual needs. Our Users are trained at finding a mortgage solution that fits into a client’s overall wealth plan and helps the client obtain the lowest overall cost of borrowing.
  
Refinance: We will encourage and assist to either take equity out of their homes or refinance with lower interest rates.
  
Switch: We allow clients to easily transfer to another lender upon renewal.
  
Renovation and Construction: With homebuyers seeing historic appreciation in home values, the market has seen the “move up” buyer, which is commonly referred to as someone who buys a house a that is larger and more expensive than the house that they already to own, decide to stay and renovate their existing property with the equity they have quickly grown. This has provided an opportunity for us to focus on providing the short-term financing required for such home renovation projects, while the major banks have slowly pulled out or limited their exposure in this area with government regulations changes to the home equity line of credit program.
  
Self-Employed: As large numbers of Canadians move into business for themselves, we have found an increased demand for a mortgage product that can suit their needs. Typically, these borrowers have good credit ratings and assets but cannot verify their income through traditional means such as tax filings and pay stubs.
  
Damaged Credit: Damaged or challenged credit requires a financing solution. We take a holistic approach in determining the risk as it maps out a solution. Clients with damaged or challenged credit that are seeking mortgages may need to improve their situation either by increasing cash flow, reducing debt load, or increasing income potential. We will ask referring brokers to maintain close relationships with these clients to work on rehabilitation.
  
Private Lending: With exclusive access and expertise in private lending, we can ensure clients have knowledge of all available resources in the market.

 

 

2
 

 

 

Technology: We offer advanced technology solutions to differentiate us from our competitors, including:

 

a)Data Analytics – Optimized Retention – Enhanced Customer Experience: As a data-driven mortgage company, MyPineapple harnesses the power of data which we acquire through the mortgage process and uses it to help make meaningful decisions which save the client money, time and improve the customer experience.
   
b)Unique Customer Profiling – Optimized Retention: Using a proprietary scoring and profiling process, we are able to uniquely segment clients and provide most relevant information and resources to them at a meaningful point in the mortgage process.
   
c)Internal Processing Centre – Focused Team – Increased Productivity: Having an internal underwriting and mortgage processing center allows us increased conversion, higher funding ratio’s and an ability to maximize productivity for our Users.
   
d)Actionable Signals – Marketing Efforts – Focused Engagement: Driving real-time signals to our Users when conversion opportunities present themselves.
   
e)Knowledge Transfer – Increased Accuracy – Performance: Comprehensive education technology platform allows us to align the right product with the right lender and client.
   
f)Data Integrity – Optimized Decision Making: We have built safeguards to ensure data integrity and accuracy.
   
g)Lead Generation and Market Segmentation: MyPineapple quickly segments leads for personalized marketing. It then markets on behalf of the agent, turning cold leads into warm leads for faster customer acquisition. Users receive real-time notifications via email, as well as reminders and scripts to ensure nothing is missed.
   
h)Automated Triggers and Enhanced Workflow – MyPineapple directly syncs to calendars and emails. Tasks can easily be inputted into the system and email reminders ensure Users remember to follow up. Intuitive automation then kicks in to guide Users and all stakeholders through the entire process.
   
i)Live Community via Chatter – MyPineapple connects Users directly to our, underwriting team, as well as other agents throughout the organization. This creates a support network, sense of work community and ultimately accelerates the response time.
   
j)Online database of educational tools known as KNOWLEDGE – This online information resource is an online library with over 2,000 resources, containing training videos that cover everything, from lender guidelines, sales and marketing tips, deals training and more.
   
k)Advanced Analytics and Reporting Features that turn data into actionable insights - This maximizes opportunity and creates lifetime customer value which lowers acquisition costs and significantly increases revenue.

 

Intangible Properties

 

Our business is substantially dependent on its proprietary technology platform, MyPineapple, which it licenses from Salesforce. While we have not registered any intellectual property rights with respect to MyPineapple, it relies on trade secrets to protect the applicable proprietary information. Additionally, MyPineapple has been built using various development partners, such that no single developer has access to the complete technological architecture. See “Business –– Material Contracts” for more information on the Salesforce Agreement.

 

Additionally, we rely on confidentiality agreements with our employees, consultants and advisors to protect our trade secrets and other proprietary information. Nonetheless, these agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of its business could be significantly diminished see “Risk Factors – Protection of Intellectual Property” for more information.

 

 

3
 

 

 

Regulatory Environment

 

Brokerage License Requirements

 

In order to operate our mortgage broker business, we must remain duly licensed as a mortgage brokerage to deal and trade in mortgages in accordance with the Mortgage Brokerages, Lenders and Administrators Act, 2006 (Ontario), as amended (the “MBLA Act”). We have had our mortgage brokerage license since November 2016 and it has been renewed each year without issue. We will be subject to similar legislation and license requirements in the other provinces in Canada where we intend to expand.

 

In accordance with the MBLA Act, individuals, including directors, officers, partners, directors and officers of corporate partners, employees or agents of a mortgage brokerage company, such as the Company, who are engaged in dealing in mortgages or trading in mortgages on its behalf must obtain a mortgage broker or mortgage agent license. A mortgage broker or agent license authorizes an individual to work for only the mortgage brokerage company named under the license. An individual cannot be licensed to work for more than one mortgage brokerage company. The Superintendent of Financial Services will use the information obtained in a mortgage broker license application to determine whether an applicant meets the prescribed eligibility requirements and is suitable for a license. The applicant will be required to submit documents to support certain pieces of information about the business.

 

Application Process. The application must be completed and submitted to certain regulatory authorities in the provinces and territories of Canada (each, a “Regulatory Authority”), such as the Financial Services Regulatory Authority Ontario. The Regulatory Authority will send to the applicant an email acknowledgement upon receipt of the application. The Regulatory Authority will advise the applicant if the application is in good standing to proceed to the next step in the process. In the next step, the applicant will prepare and submit the application to license the mortgage brokerage’s principal broker and prepare and submit the online declarations for all the directors, officers, and partners via The Regulatory Authority’s online licensing system. All directors and officers of the mortgage brokerage company applicant (“DOPs”) are required to provide confirmation of their suitability for licensing of the mortgage brokerage. A mortgage brokerage’s license can only be approved or issued when all the declarations from DOPs are received and reviewed by the Regulatory Authority. Once the brokerage’s license has been approved an email will be sent to the principal broker to indicate the brokerage’s license number. No paper license will be issued. At this point the brokerage may prepare and submit applications to license its other brokers and agents via the online licensing system.
   
Fraud Prevention Measures. The Regulatory Authority is required to maintain a public registry of licensed mortgage brokerages. Consistent with the Regulatory Authority’s role in protecting the public interest, the Regulatory Authority collaborates with other organizations, including other regulators, fraud prevention organizations and law enforcement agencies.
  
Fees and Renewal. Fees are payable in respect of all applications for licenses, other than for the mortgage brokerage’s principal broker. The fees are based on a one-year cycle. The fee due is prorated based on when the application is submitted. To simplify the payment and reconciliation process, mortgage brokerages are also required to submit fees on behalf of their agents and brokers. These fees are paid electronically when the mortgage brokerage submits license applications for its brokers and agents through the online licensing system. Once licensed, every mortgage brokerage must pay a regulatory fee in respect of each new one-year cycle. This fee is due every year on March 31. The mortgage brokerage must also pay fees on behalf of each agent and broker, other than the principal broker, when renewing their broker or agent licenses for the same one-year cycle.

 

Other Regulations

 

In addition, we must comply with all federal, provincial and municipal laws that affect a Canadian business including employment, workers’ compensation, insurance, corporate, and tax laws and regulations.

 

 

4
 

 

 

Implications of Being an Emerging Growth Company

 

We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”). We had less than $1.235 billion in revenue during our last fiscal year and have not tripped any of the measures that would cause us to no longer qualify as an emerging growth company. As such, we may take advantage of reduced public reporting requirements. These provisions include, but are not limited to:

 

Being permitted to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in our filings with the SEC;
  
Not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
  
Reduced disclosure obligations regarding executive compensation in periodic reports, proxy statements and registration statements; and
  
Exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of Common Shares pursuant to this offering. However, if certain events occur before the end of such five-year period, including if we become a “large accelerated filer,” if our annual gross revenues exceed $1.235 billion or if we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company before the end of such five-year period.

 

An emerging growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. We have elected to take advantage of this extended transition period and acknowledge such election is irrevocable.

 

Summary of Risks Affecting Our Company

 

Our business is subject to numerous risks described in the section titled “Risk Factors” and elsewhere in this prospectus. The main risks set forth below and others you should consider are discussed more fully in the section entitled “Risk Factors” beginning on page 8, which you should read in its entirety.

 

our operations could be adversely affected by possible future government legislation, policies and controls or by changes in applicable laws and regulations;
  
public health crises such as the COVID-19 pandemic may adversely impact our business;
  
the volatility of global capital markets over the past several years has generally made the raising of capital more difficult;
  
risks associated with political instability and changes to the regulations governing our business operations;
  
our success is largely dependent on the performance of our directors and officers, Field Agents, and employees;
  
there is no existing public market for the Common Shares and an active and liquid one may never develop, which could impact the liquidity of the Common Shares;
  
the Common Shares may be subject to significant price volatility;
  
we may not use the funds available in the manner described in this prospectus;
  
internal controls cannot provide absolute assurance with respect to the reliability of financial reporting and financial statement preparation;
  
we may be unable to manage our growth;
  
risks associated with security breaches;
  
risks associated with software errors or defects;
  
our operations depend on information technology systems; and on continuous reliable internet access;
  
our business now or in the future may be adversely affected by risks outside our control;
  
risks associated with the Company’s reliance on strategic partnerships;
  
reputational risk, and
  
risks associated with protection of intellectual property.

 

Equity Structure

 

Our authorized share capital consists of an unlimited number of Common Shares, Class A Shares, Class B Shares and Class C Shares without par value. As of January 3, 2023 there are 24,597,215 Common Shares issued and outstanding and no Class A Shares, Class B Shares or Class C Shares outstanding. Each holder of Common Shares and Class B Shares is entitled to one vote per share. Holders of Class A Shares have no voting rights and are entitled to a dividend. The holders of the Class A Shares, in priority to the holders of the Class B Shares, Class C Shares or Common Shares, are entitled to receive dividends at a rate determined by the Board on each Class A Share held. The holders of Class C Shares have no voting rights. In the future, however, we may issue preferred shares or other equity ranking senior to our Common Shares, including Class A Shares, Class B Shares or Class C Share. Class A Shares, Class B Shares and Class C Shares have, and other preferred securities will generally have, priority upon liquidation

 

The Company has called an annual general and special meeting of its shareholders, scheduled for the week of January 23, 2023 (the “Meeting”). At the Meeting, the Company’s shareholders are being asked, among other things, to consider and, if thought fit, to pass, with or without variation, a special resolution of the Company approving the continuance (the “Continuance”) of the Company out of the jurisdiction of Ontario under the OBCA, into the federal jurisdiction of Canada under the Canada Business Corporations Act (the “CBCA”). If the Continuance is approved by the shareholders of the Company, the Company shall adopt articles of continuance, new by-laws, and other prescribed documents under the CBCA (together, the “New Constating Documents”), which shall replace the Company’s current constating documents. As a result, under the New Constating Documents, the Company’s authorized common share capital will be amended by deleting the Class A Shares, Class B Shares and Class C Shares, which will result in the Common Shares remaining as the Company’s only class of authorized share capital.

 

In addition, under the New Constating Documents, the rights and restrictions attached to the Common Shares will be replaced and the Common Shares will have the following rights, privileges, restrictions and conditions:

 

  a) holders of the Common Shares will be entitled to receive notice of and attend all meetings of the Company’s shareholders and will be entitled to one vote at such meetings, in respect of each Common Share held;
  b) holders of the Common Shares shall be equally entitled to receive dividends at the discretion of the Board;
  c) holders of the Common Shares will have no redemption rights and the Common Shares may not be redeemed by the Company
  d) in the event of the liquidation, dissolution or winding-up of the Company, the holders of the Common Shares will be entitled to share rateably in the remaining assets of the Company; and
  e) the Company may purchase for cancellation the whole or any part of the Common Shares, provided that the Company and the respective shareholder agree on the price at which the Company is to purchase the shares.

 

Corporate Information

 

We are a Canadian company, incorporated under the law of the Province of Ontario, and our principal executive offices are located at Unit 200, 111 Gordon Baker Road, North York, Ontario M2H 3R1. Our registered and records office is located at 67 Mowat Avenue, Suite 122, Toronto, Ontario M6K 3E3. Our phone number is (416) 669-2046, and our corporate website is https://gopineapple.com. The information on our website is not incorporated by reference into this prospectus.

 

 

5
 

 

 

The Offering

 

Securities offered   _________ Common Shares
     
Initial Public Offering Price   $______ per Common Share
     
Over-allotment Option  

We have granted the underwriters an option to purchase up to an additional ______ Common Shares, representing 15% of the Common Shares sold in the offering, at the public offering price per Common Share less underwriting discounts and commissions, for 45 days from the date of this prospectus. 

     
Number of Common Shares outstanding prior to offering  

24,597,215 Common Shares (1)

     
Number of Common Shares outstanding after this offering   ______ (or ______ assuming that the underwriters’ over-allotment option is exercised in full). (1)
     
Use of Proceeds   We intend to use the proceeds from this offering for growth initiatives purposes, including but not limited to improving our technology, developing our subsidiary Pineapple Insurance (as defined herein), funding potential strategic mergers and acquisitions, expansion of our business in North America and globally, investing in skilled human capital, brand marketing and diversification. See “Use of Proceeds”.
     
Listing   We have applied to list our Common Shares on The Nasdaq Capital Market under the symbol “PAPL”. If our Common Shares are not approved for listing on Nasdaq, we will not consummate this offering. No assurance can be given that our application will be approved.
     
Clear Market   We have agreed with the underwriters not to sell, transfer or dispose of any shares or securities convertible into or exercisable for Common Shares for a period of 360 days from the closing of this offering.
     
Lock-up Agreements   Existing holders of all of our outstanding Common Shares, Warrants, options and Compensation Warrants (as defined herein) have agreed with the underwriters not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our Common Shares or securities convertible into or exercisable for Common Shares for 12 months after the closing of this offering as described in further detail in the prospectus. See “Underwriting”.
     
Risk Factors   Investing in these securities involves a high degree of risk. Investors should carefully consider the information set forth in the “Risk Factors” section of this prospectus on page 8 before deciding to invest in our Common Shares.
     
Representative’s Warrants   We have agreed to issue to the representative of the underwriters warrants to purchase the number of Common Shares in the aggregate equal to 3% of the Common Shares to be issued and sold in this offering (including any Common Shares sold upon exercise of the over-allotment option). The warrants are exercisable for a price per share equal to 100% of the public offering price. The warrants are exercisable at any time, in whole or in part, commencing six (6) months from the date of commencement of sales of the offering and ending on the fifth anniversary thereof.


 

(1) The number of Common Shares to be outstanding after this offering is based on 24,597,215 Common Shares issued and outstanding as of January 3, 2023, and excludes the following:

 

2,206,189 common shares issuable upon the exercise of outstanding stock options at a weighted average exercise price of $0.95 per share;
   
6,048,607 common shares issuable upon the exercise of outstanding warrants at a weighted average exercise price of $1.01;
   
 

401,760 common shares issuable upon the exercise of outstanding Compensation Warrants at a weighted average price of $0.93; and

   
 245,000 common shares issuable upon the exercise of outstanding stock options at a weighted exercise price of $0.98 per share;

 

Except as otherwise indicated herein, all information in this prospectus assumes the following:

 

no exercise of the outstanding options or warrants;
   
no exercise by the underwriters of their option to purchase additional shares to cover over-allotments, if any; and
   
no exercise of the representative’s warrants.

 

 

6
 

 

 

Summary Consolidated Financial Data

 

The following summary consolidated financial data set forth below should be read in conjunction with our audited financial statements of the Company, the notes thereto and the other information contained in this prospectus. The summary consolidated financial data as of and for the year ended August 31, 2022 has been derived from the audited annual consolidated financial statements of the Company and related notes thereto included elsewhere in this prospectus, prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).  

 

Consolidated Balance Sheet Data

 

(Expressed in US dollars) 

As at

 
   August 31,  
    2022    2021 
Cash   $3,896,839   $7,011,535 
Total assets  $6,427,088   $7,581,011 
Total liabilities  $1,800,699   $662,556 
Common Shares  $4,903,031   $4,903,031 
Additional paid-in capital  $2,922,853   $2,199,636 
Accumulated other comprehensive loss  $(353,218)  $(147,995)
Accumulated deficit  $(2,846,278)  $(36,217)
Total shareholders’ equity  $4,626,389   $6,918,455 

 

Consolidated Statement of Operations and Comprehensive Loss Data

 

   Year Ended
August 31,
 
   2022   2021 
Gross revenue  $20,380,984   $16,118,608 
Cost of revenue  $16,780,133   $13,134,891 
Net revenue  $3,600,851   $2,983,717 
Gross profit percentage   18%   19%
Selling, general and administrative  $2,977,277   $1,352,788 
Salaries, wages and benefits  $2,360,344   $1,245,227 
Total operating expenses (1)  $5,337,621   $2,598,016 
Gains (loss) from operations (2)  $(1,736,771)  $385,701 
Other income (expense) (3)  $(1,073,290)  $(647,503)
Net loss before income taxes  $(2,810,061)  $(261,802)
Foreign currency translation adjustment   $

(205,223

)    

(153,718

)
Total comprehensive loss  $(3,015,283)  $(388,401)
Basic and dilutive loss per ordinary share  $(0.11)  $(0.02)
Weighted average number of ordinary shares outstanding – basic and diluted   24,597,215    15,532,743 

 

  (1) Total of selling, general and administrative expenses and salaries, wages and benefits.
  (2) Equal to net revenue less total operating expenses.
  (3) Total of interest expense and bank charges, depreciation, and share-based compensation.

 

 

7
 

 

RISK FACTORS

 

Investing in our securities is speculative and involves a high degree of risk. You should consider carefully the following risk factors, as well as the other information in this prospectus, including our consolidated financial statements and notes thereto, before you decide to purchase our securities. If any of the following risks actually occur, our business, financial condition, results of operations and prospects could be materially adversely affected, the value of our securities could decline, and you may lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below.

 

Risks Related to the Company

 

We are dependent on the residential real estate market.

 

Our financial performance is closely connected to the strength of the residential real estate market, which is subject to a number of general business and macroeconomic conditions beyond our control.

 

Macroeconomic conditions that could adversely impact the growth of the real estate market and have a material adverse effect on our business include, but are not limited to, economic slowdown or recession, increased unemployment, increased energy costs, reductions in the availability of credit or higher interest rates, increased costs of obtaining mortgages, an increase in foreclosure activity, inflation, disruptions in capital markets, declines in the stock market, adverse tax policies or changes in other regulations, lower consumer confidence, lower wage and salary levels, war or terrorist attacks, natural disasters or adverse weather events, or the public perception that any of these events may occur. Unfavorable general economic conditions, such as a recession or economic slowdown, in the United States, Canada or other markets the Company enters and operates within could negatively affect the affordability of, and consumer demand for, its services which could have a material adverse effect on its business and profitability.

 

In addition, federal and state governments, agencies and government-sponsored entities could take actions that result in unforeseen consequences to the real estate market or that otherwise could negatively impact the Company’s business. Some of the above-mentioned economic factors and conditions are currently adversely affecting Pineapple as the Users and consumer sentiment has waned and has precipitated fears of a possible economic recession. In the event of a continuing market downturn, our results of operations could be adversely affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our stock price may further decline.

 

The real estate market is substantially reliant on the monetary policies of the federal government and its agencies and is particularly affected by the policies of the Bank of Canada, which regulates the supply of money and credit in Canada, which in turn impacts interest rates. The Company’s revenues could be negatively impacted by a rising interest rate environment. As mortgage rates rise, the number of home sale transactions may decrease as potential home sellers choose to stay with their lower mortgage rate rather than sell their home and pay a higher mortgage rate with the purchase of another home. Due to a prospective higher debt assumption with the rise in interest rates, homeowners also may choose to not participate in refinancing or other similar mortgage financing activity that would create revenue for Pineapple. Potential home buyers may choose to rent rather than pay higher mortgage rates. Changes in the interest rate environment and mortgage market are beyond the Company’s control, are difficult to predict and could have a material adverse effect on its business and profitability.

 

We may not be able to secure additional capital and achieve adequate liquidity to grow and compete.

 

We will require additional capital to operate, grow and compete, and failure to obtain such additional capital could limit our operations and our growth. When such additional capital is required, we will need to pursue various financing transactions or arrangements, which may include debt financing, equity financing or other means. Additional financing may not be available when needed or, if available, the terms of such financing might not be favorable to us and might involve substantial dilution to existing shareholders. In addition, debt and other debt financing may involve a pledge of assets and may be senior to interests of equity holders. We may incur substantial costs in pursuing future capital requirements, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. The ability to obtain needed financing may be impaired by such factors as the capital markets (both generally and in the mortgage brokerage industry in particular), our status as a relatively new enterprise with a limited history and/or the loss of key management personnel.

 

We have a limited operating history and, therefore, cannot accurately project our revenues and operating expenses.

 

We have a relatively limited operating history. As such, we will be subject to all of the business risks and uncertainties associated with any new business enterprise, including under-capitalization, cash shortages, limitations with respect to personnel, financial and other resources. Although we possess an experienced management team, there is no assurance that we will be successful in achieving a return on shareholders’ investment and the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the establishment of any business. There is no assurance that we can continue to generate revenues, operate profitably, or provide a return on investment, or that we will successfully implement our business and growth plans. An investment in our securities carries a high degree of risk and should be considered speculative by investors. Prospective investors should consider any purchase of our securities in light of the risks, expenses and problems frequently encountered by all companies in the early stages of their corporate development.

 

8
 

 

We may continue to incur substantial losses and negative operating cash flows and may not achieve or maintain positive cash flow or profitability in the future.

 

Our financial statements have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the ordinary course of business. Our future operations are dependent upon the identification and successful completion of equity or debt financings and the continued achievement of profitable operations at an indeterminate time in the future. There can be no assurances that we will be successful in completing equity or debt financings or in achieving profitability. The financial statements do not give effect to any adjustments relating to the carrying values and classifications of assets and liabilities that would be necessary should we be unable to continue as a going concern.

 

Currency exchange rates fluctuations could adversely affect our operating results. 

 

The Company is exposed to the effects of fluctuations in currency exchange rates, Our functional currency is in Canadian dollars (CAD) and our presentation currency is in US dollars (USD). Due to the currency exchange rates fluctuations between the two currencies, there is a risk the company’s operations and profitability may be affected during the translation. Currently the company does not have many international transactions and the fluctuations are mostly limited to the financial statements currency translation adjustments relating to the movements. The financial statements contain a line disclosing this translation amount.

 

Our operating results may be subject to seasonality and vary significantly among quarters during each calendar year, making meaningful comparisons of successive quarters difficult.

 

Seasons and weather traditionally impact the real estate industry in the jurisdictions where we operate. Continuous poor weather or natural disasters negatively impact listings and sales. Spring and summer seasons historically reflect greater sales periods in comparison to fall and winter seasons. We have historically experienced lower revenues during the fall and winter seasons, as well as during periods of unseasonable weather, which reduces the Company’s operating income, net income, operating margins and cash flow.

 

Real estate listings precede sales and a period of poor listings activity will negatively impact revenue. Past performance in similar seasons or during similar weather events can provide no assurance of future or current performance, and macroeconomic shifts in the markets we serve can conceal the impact of poor weather or seasonality.

 

Home sales in successive quarters can fluctuate widely due to a wide variety of factors, including holidays, national or international emergencies, the school year calendar’s impact on timing of family relocations, interest rate changes, speculation of pending interest rate changes and the overall macroeconomic market. Our revenue and operating margins each quarter will remain subject to seasonal fluctuations, poor weather and natural disasters and macroeconomic market changes that may make it difficult to compare or analyze our financial performance effectively across successive quarters.

 

Our growth strategy may not achieve the anticipated results.

 

Our future growth, profitability and cash flows depend upon our ability to successfully implement our growth strategy, which, in turn, is dependent upon a number of factors, including our ability to:

 

  expand our customer base;
  increase and retain more qualified agents;
  expand into additional jurisdictions;
  support growth of existing customers;
  continued financial strength and health;
  diversify into additional related businesses;
  improve our technological capabilities;
  ensure skilled and well-trained employees and agents;
  enhance our platforms; and
  selectively pursue acquisitions.

 

There can be no assurance that we can successfully achieve any or all of the above initiatives in the manner or time period that we expect. Further, achieving these objectives will require investments which may result in short-term costs without generating any current revenue and therefore may be dilutive to our earnings. We cannot provide any assurance that we will realize, in full or in part, the anticipated benefits we expect our strategy will achieve. The failure to realize those benefits could have a material adverse effect on our business, financial condition and results of operations.

 

We may be unable to effectively manage rapid growth in our business.

 

We anticipate that growth in demand for our services will place significant demands on our operational infrastructure. The scalability and flexibility of our platform depends on the functionality of our technology and network infrastructure and its ability to handle increased traffic and demand for bandwidth. We anticipate that growth in the number of customers using our platform and the number of requests processed through our platform will increase the amount of data that we process. Any problems with the transmission of increased data and requests could result in harm to our brand or reputation. Moreover, as our business grows, we will need to devote additional resources to improving our operational infrastructure and continuing to enhance its scalability in order to maintain the performance of our platform.

 

As we grow, we will be required to continue to improve our operational and financial controls and reporting procedures and we may not be able to do so effectively. Furthermore, some members of our management do not have significant experience managing a large national business operation, so our management may not be able to manage such growth effectively. In managing our growing operations, we are also subject to the risks of over-hiring and/or overcompensating our employees and over-expanding our operating infrastructure. As a result, we may be unable to manage our expenses effectively in the future, which may negatively impact our gross profit or operating expenses.

 

As we continue to grow and develop the infrastructure of a public company, we must effectively integrate, develop and motivate a growing number of new employees. In addition, we must preserve our ability to execute quickly, further developing our platform and implementing new features and initiatives. As a result, we may find it difficult to maintain our corporate culture, which could limit our ability to innovate and operate effectively. Any failure to preserve our culture could also negatively affect our ability to recruit and retain personnel, to continue to perform at current levels or to execute on our business strategy effectively and efficiently.

 

9
 

 

To grow our business, we will continue to depend on relationships with third parties, such as insurance companies, financial institutions and lenders.

 

To grow our business, we will continue to depend on relationships with third parties, such as insurance companies, financial institutions and lenders. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be effective in providing incentives to third parties to favor their products or services over ours. In addition, acquisitions our partners by our competitors could result in a decrease in the number of our current and potential customers, as our partners may no longer facilitate the adoption of our applications by potential customers. Although we do maintain a few fixed-term contracts with lending partners, we cannot assure you that we can renew them once they expire, or we can renew them with the term we desire. Even though our business does not substantially depend on any particular third-party lending partner, if we are unsuccessful in establishing and maintaining our relationships with third parties, or if these third parties are unable or unwilling to provide services to us, our ability to compete in the marketplace or to generate revenue could be impaired, and its results of operations may suffer. Even if we are successful, we cannot be sure that these relationships will result in increased customer usage of its services or increased revenue.

 

Our insurance business is highly regulated, and statutory and regulatory changes may materially adversely affect our business, financial condition and results of operations.

 

Life insurance statutes and regulations are generally designed to protect the interests of the public and policyholders.  Those interests may conflict with the interests of our shareholders. Federal and provincial insurance laws regulate all aspects of our Canadian insurance business. Changes to federal or provincial statutes and regulations may be more restrictive than current requirements or may result in higher costs, which could materially adversely affect our business, financial condition and results of operations. If the Office of the Superintendent of Financial Institutions (“OFSI”) determines that our corporate actions do not comply with applicable Canadian law, Pineapple Insurance could face sanctions or fines, and be subject to increased capital requirements or other requirements. If OSFI determines Pineapple Insurance is not receiving adequate support from Pineapple under applicable Canadian law, Pineapple Insurance may be subject to increased capital requirements or other requirements deemed appropriate by OSFI.

 

If there are extraordinary changes to Canadian statutory or regulatory requirements, we may be unable to fully comply with or maintain all required insurance licenses and approvals and the regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our insurance activities or impose fines or penalties on us, which could materially adversely affect our business, financial condition and results of operations. We cannot predict with certainty the effect any proposed or future legislation or regulatory initiatives may have on the conduct of our business.

 

We may be subject to fraudulent activity that may negatively impact our operating results, brand and reputation.

 

Fraudulent activity could negatively impact our operating results, brand, and reputation, and cause the use of our products and services to decrease. We are subject to the risk of fraudulent activity associated with handling borrower or lending partner information. Our resources, technologies and fraud detection tools may be insufficient to accurately detect and prevent fraud. A significant increase in fraudulent activities could negatively impact our brands and reputation, discourage lending partners from collaborating with us, reduce the total amount of loans originated by lending partners, and lead us to take additional steps to reduce fraud risk, which could increase our costs. High profile fraudulent activity could even lead to regulatory intervention and may divert our management’s attention and cause us to incur additional expenses and costs. Although we have not experienced any material business or reputational harm as a result of fraudulent activities in the past, we cannot rule out the possibility that fraudulent activities may materially and adversely affect our business, financial condition, and results of operations in the future.

 

We may experience security breaches that could result in the loss or misuse of data, which could harm our business and reputation.

 

We operate in an industry that is prone to cyber attacks. Failure to prevent or mitigate security breaches and improper access to or disclosure of our data or customer data, could result in the loss or misuse of such data, which could harm our business and reputation. The security measures we have integrated into our internal networks and platform, which are designed to prevent or minimize security breaches, may not function as expected or may not be sufficient to protect our internal networks and platform against certain attacks. In addition, techniques used to sabotage or to obtain unauthorized access to networks in which data is stored or through which data is transmitted change frequently. As a result, we may be unable to anticipate these techniques or implement adequate preventative measures to prevent an electronic intrusion into our networks.

 

If a security breach were to occur, as a result of third-party action, employee error, breakdown of our internal security processes and procedures, malfeasance or otherwise, and the confidentiality, integrity or availability of our customers’ data was disrupted, we could incur significant liability to our customers, and our platform may be perceived as less desirable, which could negatively affect our business and damage our reputation.

 

Our platform may be subject to distributed denial of service attacks (“DDoS”), a technique used by hackers to take an internet service offline by overloading its servers, and we cannot guarantee that applicable recovery systems, security protocols, network protection mechanisms and other procedures are or will be adequate to prevent network and service interruption, system failure or data loss. In addition, computer malware, viruses, and hacking and phishing attacks by third parties are prevalent in our industry.

 

10
 

 

Moreover, our platform could be breached if vulnerabilities in our platform or third-party applications are exploited by unauthorized third parties or due to employee error, breakdown of our internal security processes and procedures, malfeasance, or otherwise. Further, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information or otherwise compromise the security of our internal networks and electronic systems in order to gain access to our data or our customers’ data. Since techniques used to obtain unauthorized access change frequently and the size and severity of DDoS attacks and security breaches are increasing, we may be unable to implement adequate preventative measures or stop DDoS attacks or security breaches while they are occurring.

 

Any actual or perceived DDoS attack or security breach could damage our reputation and brand, expose us to a risk of litigation and possible liability and require us to expend significant capital and other resources to respond to and/or alleviate problems caused by the DDoS attack or security breach. Some jurisdictions have enacted laws requiring companies to notify individuals and authorities of data security breaches involving certain types of personal or other data and our agreements with certain customers and partners require us to notify them in the event of a security incident. Any of these events could harm our reputation or subject us to significant liability, and materially and adversely affect our business and financial results.

 

Our software systems may contain errors, defects or security vulnerabilities that could interrupt operations or materially impact our ability to originate, monitor or service customer accounts or comply with contractual obligations.

 

We are dependent upon the successful and uninterrupted functioning of our computer and data processing systems and software including MyPineapple as well as the customized software developed by us as part of our third-party underwriting services. These software and systems may contain errors, defects, security vulnerabilities or software bugs that are difficult to detect and correct, particularly when first introduced or when new versions or enhancements are released. 

 

The failure or unavailability of these systems could interrupt operations or materially impact our ability to originate, monitor or service customer accounts or comply with contractual obligations to third parties. If sustained or repeated, a system failure or loss of data could negatively affect our operating results. In addition, we depend on automated software to match the terms of our liabilities and asset maturities. If such software fails or is unavailable on a prolonged basis, we could be required to manually complete such activities, which could have a material adverse effect on our business, financial condition and results of operations.

 

Since our customers use our services for decisions that are critical to their financial well-being, errors, defects, security vulnerabilities, service interruptions or software bugs in our platform could result in losses to our customers. Customers may seek significant compensation from us for any losses they suffer or cease conducting business with us altogether. Further, a customer could share information about bad experiences on social media, which could result in damage to our reputation and loss of future sales. There can be no assurance that provisions typically included in our agreements with our customers that attempt to limit its exposure to claims would be enforceable or adequate or would otherwise protect us from liabilities or damages with respect to any particular claim. Even if not successful, a claim brought against us by any of our customers would likely be time-consuming and costly to defend and could seriously damage its reputation and brand, making it harder for us to sell its solutions.

 

If we fail to protect the privacy and personal information of our customers, agents or employees, we may be subject to legal claims, government action and damage to its reputation.

 

Our operations are dependent on our information systems and the information collected, processed, stored, and handled by these systems. We rely heavily on our computer systems to manage our platform. Throughout our operations, we receive, retain and transmit certain confidential information, including personally identifiable information that our customers provide to purchase services, interact with our personnel, or otherwise communicate with us. In addition, for these operations, we depend in part on the secure transmission of confidential information over public networks. Our information systems are subject to damage or interruption from power outages, facility damage, computer and telecommunications failures, computer viruses, internet access failures, security breaches, including credit card or personally identifiable information breaches, coordinated cyber-attacks, vandalism, catastrophic events and human error. Although we deploy a layered approach to address information security threats and vulnerabilities, including ones from a cyber security standpoint, designed to protect confidential information against data security breaches, a compromise of our information security controls or of those businesses with whom we interact, which results in confidential information being accessed, obtained, damaged, or used by unauthorized or improper persons, could harm our reputation and expose us to regulatory actions and claims from customers and other persons, any of which could adversely affect our business, financial position, and results of operations. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may not immediately produce signs of intrusion, we may not be able to anticipate these techniques or to implement adequate preventative measures. In addition, a security breach could require that we expend substantial additional resources related to the security of information systems and disrupt our businesses.

 

11
 

 

We may need to develop new products and services and rapid technological change could harm our business, results of operations and financial condition.

 

We operate in a competitive industry characterized by rapid technological change and evolving industry standards. Our ability to attract new customers and generate revenue from existing customers will depend largely on its ability to anticipate industry standards and trends, respond to technological advances in its industry, and to continue to enhance existing services or to design and introduce new services on a timely basis to keep pace with technological developments and its customers’ increasingly sophisticated needs. The success of any enhancement or new services depends on several factors, including the timely completion and market acceptance of the enhancement or new services. Any new service we develop or acquires might not be introduced in a timely or cost-effective manner and might not achieve the broad market acceptance necessary to generate significant revenue. If any of our competitors implements new technologies before we are able to implement them, those competitors may be able to provide more effective services than us at lower prices. Any delay or failure in the introduction of new or enhanced services could harm our business, results of operations and financial condition.

 

Our services are expected to embody complex technology that may not meet those standards, changes and preferences. Our ability to design, develop and commercially launch new services depends on a number of factors, including, but not limited to, its ability to design and implement solutions and services at an acceptable cost and quality, its ability to attract and retain skilled technical employees, the availability of critical components from third parties, and its ability to successfully complete the development of services in a timely manner. There is no guarantee that we will be able to respond to market demands. If we are unable to effectively respond to technological changes, or fails or delays to develop services in a timely and cost-effective manner, its services may become obsolete, and we may be unable to recover its development expenses which could negatively impact sales, profitability and the continued viability of its business.

 

The failure by us to sustain or increase its current level of mortgage origination from independent mortgage brokers could have a material adverse effect on our business, financial condition and results of operations.

 

Our mortgage operations are dependent on a network of mortgage brokers. The mortgage brokers with whom we do business with are not contractually obligated to do business with us. Further, our competitors also have relationships with the same brokers and actively compete with us in our efforts to expand our broker network and originate mortgage loans. We may find it difficult to attract new mortgage business from this network of brokers, or sustain current levels, to meet our needs. The failure by us to sustain or increase its current level of mortgage origination from these sources could have a material adverse effect on our business, financial condition and results of operations.

 

Increases in interest rates may have an adverse effect on our business, financial condition and results of operations and on the amount of cash available for dividends to shareholders.

 

Rising interest rates generally reduce the demand for credit, including mortgages, increase the cost of borrowing and may discourage potential borrowers from purchasing new properties, refinancing their existing mortgages or obtaining cash to retire other debt. Consequently, we may originate fewer mortgages, or a lower dollar amount of mortgages, in a period of rising interest rates. Increases in interest rates may also cause a lack of liquidity among Pineapple’s institutional investors, potentially reducing the number of mortgages such purchasers would otherwise buy. Increases in interest rates may have an adverse effect on our business, financial condition and results of operations and on the amount of cash available for dividends to shareholders. However, rising interest rates may also result in a decrease in prepayments on mortgages, which could result in an increase in the number of mortgages under our administration which would increase the amount of funds received from servicing these mortgages. We believe rising interest rates are currently at a stage that is close to its maturity level and that core inflation is being contained with the prices of the goods such as groceries and natural gas not decreasing. As a result, we believe that the Bank of Canada intends to bring core inflation down to a manageable level and is looking at increasing the interest rates further. If the cycle is almost at maturity, as we believe it is, however, it may take 6 to 9 months to stabilize and possibly a year to return to pre-Covid 19 levels.

 

In periods of declining interest rates, prepayments on mortgages tend to increase as a result of borrowers taking advantage of lower interest rates to refinance higher interest rate mortgages, or as a result of borrowers purchasing new properties and prepaying their existing mortgages. However, a reduction in the number of mortgages under our administration would result in a decrease in the amount of funds received from servicing these mortgages and may have an adverse effect on our business, financial condition and results of operations and on the amount of cash available for dividends to shareholders.

 

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If any of information from third parties is misrepresented and the misrepresentation is not detected before mortgage funding, the value of the mortgage may be significantly lower than expected.

 

Upon originating a new mortgage application, we assess and determine which institutional or non- institutional mortgage provider would accept the application. This application is then submitted as soon as practical for final approval and underwriting. These mortgages are then deemed to be “placed” with said lending institution. We place the mortgages that we originate as soon as is practicable after committing to the mortgages. Mortgage placements are made under agreements with institutional investors and securitization conduits which are, in many respects, favorable to the mortgage purchaser. When placing mortgages, we make a variety of customary representations and warranties regarding itself, our mortgage origination activities and the mortgages that are placed. These representations and warranties survive for the life of the mortgages and relate to, among other things, compliance with laws, mortgage underwriting and origination practices and standards, the accuracy and completeness of information in the mortgage documents and mortgage files, and the characteristics and enforceability of the mortgages. In many cases, these provisions do not have any cure periods and are not subject to any materiality threshold.

 

Through our mortgage origination and underwriting processes, we attempt to verify that our mortgages are originated and underwritten in accordance with the applicable requirements and comply with representations and warranties made by us. There can be no assurance, however, that we will not make mistakes or that certain employees or brokers will not deliberately violate our underwriting or other policies, and breaches of representations and warranties may occur from time to time.

 

When we send mortgage originations to the lender partners to be funded, we rely heavily upon information supplied by third parties including the information contained in the mortgage application, property appraisal, title information and employment and income documentation. If any of this information is misrepresented and the misrepresentation is not detected before mortgage funding, the value of the mortgage may be significantly lower than expected. Whether the mortgage applicant, the mortgage broker, another third party or one of our employees makes a misrepresentation, we generally bear the risk of loss associated with the misrepresentation. A mortgage subject to a misrepresentation may be unsaleable in the ordinary course of business or may be subject to repurchase or substitution if it is sold before detection of the misrepresentation or may require us to indemnify the mortgage purchaser. The persons and entities that made a misrepresentation are often difficult to locate and it may be difficult to collect from them any monetary losses we may have suffered. While we have controls and processes designed to help it identify misrepresented information in its mortgage origination operations, there can be no assurance these controls and processes have detected or will detect all misrepresented information.

 

Global economy risk may negatively impact our business operations and our ability to raise capital.

 

The mortgage financing industry in Canada continued to benefit from historically low and stable interest rates in the past as homeowners took advantage of these rates with purchasing, repurchasing, and refinancing. Due to global inflationary pressures, Central banks all over the world are adjusting the interest rates upward to address this. There is a risk that an increase in interest rates could slow the pace of property sales and adversely affect   growth in the mortgage market, which could adversely affect our operations and stated growth initiatives. A decline in general economic conditions could also cause default rates to increase as creditworthiness decreases for borrowers. This could have a material adverse effect on our business, financial condition and results of operations and on the amount of cash available for dividends to shareholders.

 

In addition, there are economic trends and factors that are beyond our control, which may affect our operations and business. Such trends and factors include adverse changes in the conditions in the specific markets for our services, the conditions in the broader market for residential mortgages and the conditions in the domestic or global economy generally. Although our performance is affected by the general condition of the economy, not all of its service areas are affected equally. It is not possible for management to accurately predict economic fluctuations and the impact of such fluctuations on performance. There is no guarantee that the revenue, asset and profit growth that we have historically generated will continue or that any of our targets for distributable cash or other performance expectations will be achieved.

 

The volatility of global capital markets over the past several years has generally made the raising of capital by equity or debt financing more difficult. We may be dependent upon capital markets to raise additional financing in the future. As such, we are subject to liquidity risks in meeting its operating expenditure requirements and future cost requirements in instances where adequate cash positions are unable to be maintained or appropriate financing is unavailable. These factors may impact the ability to raise equity or obtain loans and other credit facilities in the future and on terms favorable to us and our management. If these levels of volatility persist or if there is a further economic slowdown, our operations, our ability to raise capital and the trading price of our securities could be adversely impacted.

 

Inflationary pressure on the global and Canadian markets have caused upward pressure on interest rates impacting mortgage qualification and eligibility. This pressure has immediately impacted Canadian borrower’s ability to get approved for financing, which in turn has created a decrease in total loan originations. There is currently no indication as to when this inflationary pressure will ease or whether that would change the current environment that has led to our recent growth.

 

A decline in the global macroeconomic outlook, including as a result of Russia’s invasion of Ukraine and the threat, or outbreak of more widespread armed conflict in Eastern Europe would cause financial market activity to continue to decrease, which could negatively affect the Company’s revenues.

 

The current year has been marked by significant market volatility and uncertainty. We believe that continued economic growth will be dependent on a number of factors, including, but not limited to, the continued positive trajectory of the course of the pandemic, a moderation of the pace of inflation and supply chain issues that developed during 2021, and the nature, magnitude, and duration of hostilities stemming from Russia’s invasion of Ukraine, including the effects of sanctions and retaliatory cyber attacks on the world economy and markets. Beginning in November 2021, Russia began to amass troops along the Ukrainian border, heightening military tensions in Eastern Europe. In February 2022, Russia sent troops into pro-Russian separatist regions in Ukraine. The U.S. and/or other countries, including Canada and Israel may impose sanctions or other restrictive actions against governmental or other entities in Russia. The long-term impacts of the conflict between these nations remains uncertain.

 

Widespread concern or doubts in the market about the pace or ability of normal economic activity to resume, the potential for prolonged conflict in Ukraine or the broader outbreak of armed conflict in Eastern Europe, the pace, impact, or effectiveness of the actions by governments and centrals banks intended to manage the rate of inflation through interest rate increases and the termination of the quantitative easing program, or the efficacy or adequacy of government measures enacted to support the domestic and global economy, could erode the outlook for macroeconomic conditions, economic growth, and business confidence, which could negatively impact the Company.

 

The current levels of volatility in global markets due to market participants’ reactions to, and uncertainty surrounding, the magnitude and timing of government and central bank action to be taken in response to heightened inflation, as well as Russia’s invasion of Ukraine. This volatility has resulted in a decline in the level of activity in the financial markets. Continued market volatility or uncertainty related to actions taken or to be taken by central banks, a decline in the global macroeconomic outlook, including as a result of Russia’s invasion of Ukraine and the threat, or outbreak of more widespread armed conflict in Eastern Europe would cause financial market activity to continue to decrease, which could negatively affect the Company’s revenues. In addition, global macroeconomic conditions and Canadian, Israeli and U.S. financial markets remain vulnerable to the potential risks posed by exogenous shocks, which could include, among other things, political or social unrest or financial uncertainty in the United States and the European Union, complications involving terrorism and armed conflicts around the world, or other challenges to global trade or travel.

 

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In addition, the current outbreak of COVID-19, and any future emergence and spread of similar pathogens, could have a material adverse impact on global economic conditions, which may adversely impact: the market price of the Common Shares, our operations, our ability to raise debt or equity financing, and the operations of our business partners, contractors and service providers.

 

Changes in regulatory legislation or the interpretation thereof, or the introduction of any new regulatory requirements could have a negative effect on us and our operating results.

 

We are currently regulated under mortgage broker, lending and other legislation in all of the jurisdictions in which it conducts business and is licensed or registered in those jurisdictions where licensing or registration is required by law. Changes in regulatory legislation or the interpretation thereof, or the introduction of any new regulatory requirements could have a negative effect on us and our operating results. There are different regulatory and registration requirements in each of the jurisdictions in Canada. We are registered in the jurisdictions in which we conduct business, however, we may voluntarily seek additional registration in respect of its activities or from time to time regulators may adopt a different view that may require us to seek additional registration. Failure to be appropriately registered could result in enforcement action and potential interruption of certain of our servicing or other activities and may result in a default under servicing agreements. This could have a material adverse effect on our business, financial condition and results of operations.

 

The real estate brokerage industry is highly competitive which could have a material adverse effect on our business, financial condition and results of operations..

 

Our products compete with those offered by banks, insurance companies, trust companies and other financial services companies. Some of these competitors are better capitalized, hold a larger percentage of the Canadian mortgage market, have greater financial, technical and marketing resources than we do and have greater name recognition than the Pineapple brand. We experience competition in all aspects of our business, including price competition. If price competition increases, we may not be able to raise the interest rates we charge in response to a rising cost of funds or may be forced to lower the interest rates that we are able to charge borrowers, which has the potential to reduce the value of the mortgages we place with institutional mortgage purchasers or securitization vehicles. Price-cutting or discounting may reduce profits. This could have a material adverse effect on our business, financial condition and results of operations and on the amount of cash available for dividends to shareholders.

 

A failure in the demand for its services to materialize as a result of competition, technological change or other factors could have a material adverse effect on our business, results of operations and financial condition.

 

Market opportunity estimates and growth forecasts, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Our estimates and forecasts relating to the size and expected growth of its target market, market demand and adoption, capacity to address this demand, and pricing may prove to be inaccurate. We must rely largely on its own market research to forecast sales as detailed forecasts are not generally obtainable from other sources. A failure in the demand for its services to materialize as a result of competition, technological change or other factors could have a material adverse effect on our business, results of operations and financial condition.

 

Reputation loss may result in decreased customer confidence and an impediment to our overall ability to advance its services with customers, thereby having a material adverse impact on our financial performance, financial condition, cash flows and growth prospects.

 

Reputational damage can result from the actual or perceived occurrence of any number of events, and could include any negative publicity, whether true or not. The increased usage of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share opinions and views, whether true or not. Reputation loss may result in decreased customer confidence and an impediment to our overall ability to advance its services with customers, thereby having a material adverse impact on our financial performance, financial condition, cash flows and growth prospects.

 

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The Company’s intellectual property rights are valuable, and any failure or inability to protect them could adversely affect its business.

 

Our commercial success depends to a significant degree upon its ability to develop new or improved technologies, instruments and services, and to obtain patents and/or industrial designs, where appropriate, or other intellectual property rights or statutory protection for these technologies and products in Canada and the United States. Despite devoting resources to the research and development of proprietary technology, we may not be able to develop new technology that is patentable or protectable. Further, patents issued to us, if any, could be challenged, held invalid or unenforceable, or be circumvented and may not provide us with necessary or sufficient protection or a competitive advantage. Competitors and other third parties may be able to design around our intellectual property or develop a technology forward platform similar to its platform that is not within the scope of such intellectual property. Our inability to secure its intellectual property rights may have a materially adverse effect on its business and results of operations. It is imperative that appropriate licensing agreements be negotiated with thirds parties to ensure protection of all applicable intellectual property.

 

Prosecution and protection of the intellectual property rights sought can be costly and uncertain, often involve complex legal and factual issues and consume significant time and resources. The laws of certain countries may not protect intellectual property rights to the same extent as the laws of Canada or the United States.

 

Adverse market conditions resulting from the spread of COVID-19 could materially adversely affect our business results of operations and financial condition.

 

The COVID-19 pandemic has disrupted the economy and put unprecedented strains on governments, health care systems, businesses and individuals around the world. The impact and duration of the COVID-19 pandemic are difficult to assess or predict. It is even more difficult to predict the impact on the global economic market, which will depend upon the actions taken by governments, businesses and other enterprises in response to the pandemic. The COVID-19 pandemic has already caused, and is likely to result in further, significant disruption of global financial markets and economic uncertainty. As an example, many of our customers whose operations rely on their physical premises have been significantly impacted. The COVID-19 pandemic has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or total lock-down orders, and business limitations and shutdowns. Such measures have significantly contributed to rising unemployment and negatively affected consumer and business spending. The extent to which the COVID-19 pandemic affects our financial results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken by governments to curtail or treat its impact, including shelter-in-place directives, business limitations and shutdowns, travel bans and restrictions, loan payment deferrals (whether government-mandated or voluntary), moratoriums on debt collection activities and other actions, which, if imposed or extended, may impact the economies in which the Company now, or may in the future, operate. Adverse market conditions resulting from the spread of COVID-19 could materially adversely affect our business results of operations and financial condition.

 

The COVID-19 pandemic has not had a negative impact on our business or operations, and we do not currently anticipate that the COVID-19 pandemic will have an impact on its business or operations. However, an increase in delinquent payments by borrowers may negatively affect our financial position. No assurance can be made regarding the policies that may be adopted by the Bank of Canada, Canadian federal, provincial or municipal governments, their agencies or any foreign government to address the effects of COVID-19 or market volatility. It is possible that the Bank of Canada may make further interest rate cuts or that it may in the future resume interest rate increases. Any such increases or decreases may occur at a faster rate than expected. To the extent that interest rates increase as a result of the Bank of Canada’s actions or otherwise, the availability of refinancing alternatives for mortgages and other loans may be reduced. No assurance can be made regarding such matters or their effect on real estate markets generally and on the value and performance of mortgage loans. The Company actively monitors regulatory developments and will adjust to any regulatory changes that may arise as a result of the COVID-19 pandemic. The COVID-19 pandemic has led to disruptions of our business activity and a sustained outbreak may have a negative impact on the Company and its financial performance in the future. We have business continuity policies in place and is developing additional strategies to address potential disruptions in operations. However, no assurance can be made that such strategies will mitigate the adverse future impacts related to the COVID-19 pandemic. A prolonged COVID-19 pandemic could adversely impact the health of our employees, customers and other stakeholders.

 

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We depend on highly skilled personnel to grow and operate its business. If we are not able to hire, retain, and motivate our key personnel, our business may be adversely affected.

 

Our success is currently largely dependent on the performance of its directors and officers. The loss of the services of any of these persons could have a materially adverse effect on our business and prospects. There is no assurance we can maintain the services of its directors, officers or other qualified personnel required to operate our business. As our business activity grows, we will require additional key financial, administrative, and technology personnel as well as additional agents and operations staff. There can be no assurance that these efforts will be successful in attracting, training and retaining qualified personnel as competition for persons with these skill sets increase. If we are not successful in attracting, training and retaining qualified personnel, the efficiency of its operations could be impaired, which could have an adverse impact on our operations and financial condition. In addition, the COVID-19 pandemic may cause us to have inadequate access to an available skilled workforce and qualified personnel, which could have an adverse impact on our financial performance and financial condition.

 

It may be difficult to enforce civil liabilities under Canadian securities laws.

 

We and/or our directors and officers may be subject to a variety of civil or other legal proceedings, with or without merit. From time to time in the ordinary course of its business, we may become involved in various legal proceedings, including commercial, employment and other litigation and claims, as well as governmental and other regulatory investigations and proceedings. Such matters can be time-consuming, divert management’s attention and resources and cause us to incur significant expenses. Furthermore, because litigation is inherently unpredictable, the results of any such actions may have a material adverse effect on our business, operating results or financial condition.

 

We have assets located outside of Canada, and therefore it may be difficult to enforce judgments obtained by the Company in foreign jurisdictions by Canadian courts. Similarly, to the extent that our assets are located outside of Canada, investors may have difficulty collecting from us any judgments obtained in Canadian courts and predicated on the civil liability provisions of applicable securities legislation. Furthermore, we may be subject to legal proceedings and judgments in foreign jurisdictions and it may be difficult for U.S. stockholders to effect service of process against the officers of the Company.

 

Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to goodwill and other intangible assets, which could materially adversely affect our business, results of operations and financial condition.

 

If appropriate opportunities present themselves, we may complete acquisitions that we believe are strategic. We currently have no understandings, commitments or agreements with respect to any material acquisition and no other material acquisition is currently being pursued. There can be no assurance that we will be able to identify, negotiate or finance future acquisitions successfully, or to integrate such acquisitions with our current business. The process of integrating an acquired company or assets into the Company may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for ongoing development of our business. Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to goodwill and other intangible assets, which could materially adversely affect our business, results of operations and financial condition.

 

Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or cause us to fail to meet our reporting obligations.

 

Effective internal controls are necessary for us to provide reliable financial reports and to help prevent fraud. Although we will undertake a number of procedures and will implement a number of safeguards, in each case, in order to help ensure the reliability of its financial reports, including those imposed on us under Canadian securities law, we cannot be certain that such measures will ensure that we will maintain adequate control over financial processes and reporting. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or cause it to fail to meet its reporting obligations. If we or our auditors discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our consolidated financial statements and materially adversely affect the trading price of our Common Shares.

 

Our management will ensure the accounting cycle, payroll administration, operational activities, and financial reporting controls to assess internal control risks and to ensure proper internal control is in place. The potential risk that flows from the identified deficiencies and weaknesses is the risk of potential fraud. However, the risk of fraud is considered low as management anticipates taking a number of measures as stated above to mitigate the potential risk of fraud, including without limitation: (i) all purchase and payment, including payroll, must be authorized by management; (ii) all capital expenditures must be preapproved by management; (iii) all source documents in any other language other than English must be translated and scanned for accounting entries and recordkeeping purposes; (iv) and almost all of our cash will be deposited with a Canadian bank in Ontario, Canada. Bank statements will be reviewed by the CFO of Pineapple regularly. Our management and Board will continue to monitor our operations of, evaluate the internal controls, and develop measures in the future to mitigate any potential risks and weaknesses.

 

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Canada does not have a system of exchange controls, and control of the Company by “non-Canadians” may be subject to review and further government action.

 

Canada has no system of exchange controls. There are no Canadian governmental laws, decrees, or regulations relating to restrictions on the repatriation of capital or earnings of the Company to non-resident investors. There are no laws in Canada or exchange control restrictions affecting the remittance of dividends, profits, interest, royalties and other payments by the Company to non-resident holders of the Common Shares, except as discussed below under “Certain Canadian Federal Income Tax Consequences to Holders of our Common Shares that are Non-Resident in Canada”.

 

There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except that the Investment Canada Act may require that a “non-Canadian” not acquire “control” of the Company without prior review and approval by the Minister of Innovation, Science and Economic Development. The acquisition of one-third or more of the voting shares of the Company would give rise a rebuttable presumption of the acquisition of control, and the acquisition of more than fifty percent of the voting shares of the Company would be deemed to be an acquisition of control. In addition, the Investment Canada Act provides the Canadian government with broad discretionary powers in relation to national security to review and potentially prohibit, condition or require the divestiture of, any investment in the Company by a non-Canadian, including non-control level investments. “Non-Canadian” generally means an individual who is neither a Canadian citizen nor a permanent resident of Canada within the meaning of the Immigration and Refugee Protection Act (Canada) who has been ordinarily resident in Canada for not more than one year after the time at which he or she first became eligible to apply for Canadian citizenship, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.

 

Risks Related to Our Securities and this Offering

 

An investment in our securities carries a high degree of risk and should be considered as a speculative investment.

 

An investment in our securities carries a high degree of risk and should be considered as a speculative investment. We have a limited history of earnings, a limited operating history, have not paid dividends, and are unlikely to pay dividends in the immediate or near future. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the establishment of any business. An investment in our securities may result in the loss of an investor’s entire investment. Only potential investors who are experienced in high risk investments and who can afford to lose their entire investment should consider an investment our securities.

 

The market price of our Common Shares may be highly volatile, and you could lose all or part of your investment.

 

The trading price of our Common Shares is likely to be volatile. Upon the consummation of this offering, we will have a relatively small public float due to the relatively small size of this offering, and the concentrated ownership of our Common Shares among our executive officers, directors and greater than 5% stockholders. As a result of our small public float, our Common Shares may be less liquid and have greater stock price volatility than the common shares of companies with broader public ownership.

 

Our stock price could be subject to wide fluctuations in response to a variety of other factors, which include:

 

whether we achieve our anticipated corporate objectives;
     
  changes in financial or operational estimates or projections;
     
  termination of the lock-up agreement or other restrictions on the ability of our stockholders to sell shares after this offering; and
     
  general economic or political conditions in the United States or elsewhere.

 

In addition, the stock market in general has recently experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Such rapid and substantial price volatility, including any stock run-up, may be unrelated to our actual or expected operating performance and financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Common Shares. This volatility may prevent you from being able to sell your Common Shares at or above the price you paid for them. If the market price of our Common Shares after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. 

 

The offering price of the Common Shares may not be indicative of the value of our assets or the price at which shares can be resold. The offering price of the Common Shares may not be an indication of our actual value.

 

Prior to this offering, there has been no public market for our securities. The offering price of per share was determined based upon negotiations between the underwriters and us. Factors considered in determining such price in addition to prevailing market conditions include an assessment of our future prospects, an increase in value of our stock due to becoming a public company and prior valuations of the Common Shares prepared for us. Such price does not have any relationship to any established criteria of value, such as book value or earnings per share. Such price may not be indicative of the current market value of our assets. No assurance can be given that the Common Shares can be resold at the public offering price.

 

For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on past results as an indication of future performance. In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation has often been instituted against the public company. Regardless of its outcome, this type of litigation could result in substantial costs to us and a likely diversion of our management’s attention. You may not receive a positive return on your investment when you sell your shares and you may lose the entire amount of your investment.

 

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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

 

The trading market for our Common Shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our Company. If no securities or industry analysts commence coverage of our Company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our Company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

 

There has been no prior public market for our Common Shares, the price of our Common Shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your Common Shares at or above the offering price.

 

The Common Shares do not currently trade on any exchange or stock market and we have applied to list the Common Shares on the Nasdaq. Securities of technology and mortgage brokerage companies have experienced substantial volatility in the past, often based on factors unrelated to the companies’ financial performance or prospects. These factors include macroeconomic developments in North America and globally and market perceptions of the attractiveness of particular industries.

 

Other factors unrelated to our performance that may affect the price of the Common Shares include the following: the extent of analytical coverage available to investors concerning our business may be limited if investment banks with research capabilities do not follow the Company; lessening in trading volume and general market interest in the Common Shares may affect an investor’s ability to trade significant numbers of shares; the size of our public float may limit the ability of some institutions to invest in the Common Shares; and a substantial decline in the price of the Common Shares that persists for a significant period of time could cause the Common Shares, if listed on an exchange, to be delisted from such exchange, further reducing market liquidity. As a result of any of these factors, the market price of the Common Shares at any given point in time may not accurately reflect our long-term value. Securities class action litigation often has been brought against companies following periods of volatility in the market price of their securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert management’s attention and resources.

 

The fact that no market currently exists for the Common Shares may affect the pricing of the Common Shares in the secondary market, the transparency and availability of trading prices and the liquidity of the Common Shares. The market price of the Common Shares is affected by many other variables which are not directly related to our success and are, therefore, not within our control. These include other developments that affect the market for all mortgage brokerage sector securities, the breadth of the public market for our Common Shares and the attractiveness of alternative investments. The effect of these and other factors on the market price of the Common Shares is expected to make the price of the Common Shares volatile in the future, which may result in losses to investors.

 

We may, in the future, issue additional Common Shares or other securities, which would reduce investors’ percent of ownership and dilute our share value.

 

Future sales or issuances of equity securities could decrease the value of the Common Shares, dilute shareholders’ voting power and reduce future potential earnings per Common Share. We may sell additional equity securities in subsequent offerings (including through the sale of securities convertible into Common Shares) and may issue additional equity securities to finance our operations, acquisitions or other business projects. We cannot predict the size of future sales and issuances of equity securities or the effect, if any, that future sales and issuances of equity securities will have on the market price of the Common Shares. Sales or issuances of a substantial number of equity securities, or the perception that such sales could occur, may adversely affect prevailing market prices for the Common Shares. With any additional sale or issuance of equity securities, investors will suffer dilution of their voting power and may experience dilution in our earnings per Common Share.

 

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Subject to the terms of our Articles of Incorporation and Canadian securities law, we are not restricted from issuing additional Common Shares or securities similar to the Common Shares, including any securities that are convertible into or exchangeable for, or that represent the right to receive, Common Shares. The market price of the Common Shares could decline as a result of sales of Common Shares, sales of other securities made after this offering, or as a result of the perception that such sales could occur. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future offerings. Thus, holders of the Common Shares bear the risk of our future offerings reducing the market price of the Common Shares and diluting their holdings in the Common Shares.

 

We have never paid dividends on our capital stock and we do not anticipate paying any dividends in the foreseeable future.

 

To date, we have not paid any dividends on our outstanding Common Shares and do not currently have a policy with respect to the payment of dividends or other distributions. We do not currently pay dividends and do not intend to pay dividends in the foreseeable future. Any decision to pay dividends on the Common Shares of the Company will be made by the Board on the basis of the Company’s earnings, financial requirements and other conditions. See “Dividend Policy”.

 

Future issuances of preferred shares or other equity securities may adversely affect us, including the market price of our Common Shares, and may be dilutive to existing shareholders.

 

Our authorized common share capital consists of an unlimited number of Common Shares, Class A Shares, Class B Shares and Class C Shares without par value. As of November 22, 2022, there are 24,597,215 Common Shares issued and outstanding and no Class A Shares, Class B Shares or Class C Shares outstanding. In the future, however, we may issue preferred shares or other equity ranking senior to our Common Shares, including Class A Shares, Class B Shares or Class C Share. Class A Shares, Class B Shares and Class C Shares have, and other preferred securities will generally have, priority upon liquidation. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our Common Shares. Because our decision to issue equity in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital raising efforts. As a result, future capital raising efforts may reduce the market price of our Common Shares and be dilutive to existing shareholders. See “Description of Securities” below.

 

Risks Related to this Offering

 

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members.

 

As a reporting issuer, we will be subject to the reporting requirements of applicable securities legislation of the jurisdiction in which it is a reporting issuer, the listing requirements of Nasdaq and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time consuming or costly and increase demand on its systems and resources. Applicable securities laws will require us to, among other things, file certain annual and quarterly reports with respect to its business and results of operations. In addition, applicable securities laws require us to, among other things, maintain effective disclosure controls and procedures and internal control over financial reporting.

 

In order to maintain and, if required, improve its disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight are required. Specifically, due to the increasing complexity of its transactions, it is anticipated that we will improve our disclosure controls and procedures and internal control over financial reporting primarily through the continued development and implementation of formal policies, improved processes and documentation procedures, as well as the continued sourcing of additional finance resources. As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations. To comply with these requirements, we may need to hire more employees in the future or engage outside consultants, which will increase its costs and expenses.

 

19
 

 

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to continue to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us, which could adversely affect our business and financial results.

 

As a public company subject to these rules and regulations, we may find it more expensive for it to obtain director and officer liability insurance, and it may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of its Board, particularly to serve on its Audit Committee and Compensation Committee, and qualified executive officers.

 

As a result of disclosure of information in filings required of a public company, our business and financial condition will become more visible, which may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be harmed, and even if the claims do not result in litigation or are resolved in its favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm its business and results of operations.

 

We are an “emerging growth company,” and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our Common Shares less attractive to investors.

 

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act. For as long as we continue to be an “emerging growth company,” we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” until the fifth anniversary of the fiscal year end date following the completion of this offering, however, our status would change more quickly if we have more than US$1.235 billion in annual revenue, if the market value of our Common Shares held by non-affiliates equals or exceeds US$700 million as of June 30 of any year, or we issue more than US$1.0 billion of non-convertible debt over a three-year period before the end of that period.

 

Investors could find our Common Shares less attractive if we choose to rely on these exemptions. If some investors find our Common Shares less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our Common Shares and our share price may be more volatile.

 

For as long as we are an “emerging growth company”, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an “emerging growth company” until the fifth anniversary of the fiscal year end date following the completion of this offering. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.

 

If we identify material weaknesses in our internal control over financial reporting, or if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.

 

20
 

 

Our management team will have broad discretion to use the net proceeds from this offering and its investment of these proceeds may not yield a favorable return. They may invest the proceeds of this offering in ways with which investors disagree.

 

Our management team will have broad discretion in the application of the net proceeds from this offering and could spend or invest the proceeds in ways with which our shareholders disagree. Accordingly, investors will need to rely on our management team’s judgment with respect to the use of these proceeds. We intend to use the proceeds from this offering in the manner described in the section entitled “Use of Proceeds.” The failure by management to apply these funds effectively could negatively affect our ability to operate and grow our business.

 

We cannot specify with certainty all of the particular uses for the net proceeds to be received upon the closing of this offering. In addition, the amount, allocation and timing of our actual expenditures will depend upon numerous factors. Accordingly, we will have broad discretion in using these proceeds. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

 

If we fail to maintain compliance with Nasdaq Listing Rules, the Common Shares may be delisted from Nasdaq, which would result in a limited trading market for our Common Shares and make obtaining future debt or equity financing more difficult for the Company.

 

We are in the process of applying to have the Common Shares sold in this offering listed on the Nasdaq under the symbol “PAPL”. However, there is no assurance that we will be able to continue to maintain our compliance with the Nasdaq continued listing requirements. If we fail to do so, our securities would cease to be eligible for trading on Nasdaq and they would likely be traded on the over-the-counter markets. As a result, selling our securities could be more difficult because smaller quantities of shares or warrants would likely be bought and sold, transactions could be delayed, and security analysts’ coverage of us may be reduced. In addition, in the event our securities are delisted, broker-dealers would bear certain regulatory burdens which may discourage broker-dealers from effecting transactions in the securities and further limit the liquidity of the securities. These factors could result in lower prices and larger spreads in the bid and ask prices for the securities. Such delisting from Nasdaq and continued or further declines in the share price of the securities could also greatly impair our ability to raise additional necessary capital through equity or debt financing and could significantly increase the ownership dilution to shareholders caused by our issuing equity in financing or other transactions.

 

If our Common Shares were to be delisted from Nasdaq, they may become subject to the SEC’s “penny stock” rules.

 

Delisting from Nasdaq may cause the securities of the Company to become subject to the SEC’s “penny stock” rules. The SEC generally defines a penny stock as an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. One such exemption is to be registered on a national securities exchange, such as Nasdaq. Therefore, if the Common Shares were to be delisted from Nasdaq, the securities of the Company could become subject to the SEC’s “penny stock” rules. These rules require, among other things, that any broker engaging in a purchase or sale of our securities provide its customers with: (i) a risk disclosure document, (ii) disclosure of market quotations, if any, (iii) disclosure of the compensation of the broker and its salespersons in the transaction, and (iv) monthly account statements showing the market values of our securities held in the customer’s accounts. A broker would be required to provide the bid and offer quotations and compensation information before effecting the transaction. This information must be contained on the customer’s confirmation. Generally, brokers are less willing to effect transactions in penny stocks due to these additional delivery requirements. These requirements may make it more difficult for shareholders to purchase or sell the Common Shares of the Company. Since the broker, not us, prepares this information, we would not be able to assure that such information is accurate, complete or current.

 

You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.

 

If you purchase shares of Common Shares in this offering, the value of your shares based on our actual book value will immediately be less than the price you paid. This reduction in the value of your equity is known as dilution. This dilution occurs in large part because our existing stockholders paid less than the assumed public offering price when they acquired their shares of Common Shares. Based upon the issuance and sale of ______ Common Shares by us in this offering at an assumed public offering price of $___ per share, you will incur immediate dilution of in the net tangible book value per Common Share. If the underwriters exercise their over-allotment option, or if outstanding options to purchase our Common Shares are exercised, investors will experience additional dilution. For more information, see “Dilution.”

 

21
 

 

USE OF PROCEEDS

 

We estimate that the net proceeds from the sale of shares we are offering will be approximately $______, assuming an assumed initial offering price of $__ per share, the midpoint of the range specified on the cover of this prospectus. If the underwriters fully exercise the over-allotment option, the net proceeds will be approximately $________. “Net proceeds” is what we expect to receive after deducting the underwriting discount and commission and estimated offering expenses payable by us. We intend to use the net proceeds from this offering for growth initiative purposes, including but not limited to improving our technology, developing our subsidiary Pineapple Insurance, expansion of our business in North America and globally and other working capital and other general corporate purposes, as follows:

 

  Technology - approximately 40% for improving our technology.
     
 

Pineapple Insurance - approximately 15% for developing our subsidiary Pineapple Insurance.

     
  Expansion - approximately 20% for expansion of our business in North America and globally.
     
  Working capital - the remainder for working capital and other general corporate purposes.

 

 

The amounts and timing of any expenditures will vary depending on the amount of cash generated by our operations, and the rate of growth, if any, of our business, and our plans and business conditions.

 

The foregoing represents our intentions as of the date of this prospectus based upon our current plans and business conditions to use and allocate the net proceeds of the offering. However, our management will have significant flexibility and discretion in the timing and application of the net proceeds of the offering. Unforeseen events or changed business conditions may result in application of the proceeds of the offering in a manner other than ads described in this prospectus.

 

To the extent that the net proceeds we receive from the offering are not immediately applied for the above purposes, we plan to invest the net proceeds in short-term, interest-bearing debt instruments or bank deposits.

 

Management believes that the proceeds from the offering will be sufficient to satisfy the Company’s cash needs for at least the next 12 months.

 

22
 

 

DIVIDEND POLICY

 

We have not, since the date of our incorporation, declared or paid any dividends or other distributions on our Common Shares, and do not currently have a policy with respect to the payment of dividends or other distributions. We do not currently pay dividends and do not intend to pay dividends in the foreseeable future. The declaration and payment of any dividends in the future is at the discretion of the Board and will depend on numerous factors, including compliance with applicable laws, financial performance, working capital requirements of the Company and its subsidiaries, as applicable and such other factors as its directors consider appropriate.

 

23
 

 

CAPITALIZATION

 

The following table sets forth our cash and our capitalization as of August 31, 2022:

 

On an actual basis; and
   
On an pro forma as adjusted basis to reflect the issuance and sale by us of               Common Shares in this offering at an assumed public offering price of $            per share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us and the receipt by us of the proceeds of such sale.

 

The information in this table is unaudited and is illustrative only and the Company’s capitalization following the completion of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read this table in conjunction with the information under the captions “Summary Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus.

 

   As of August 31, 2022 
   Actual   Pro Forma As Adjusted 
Cash   $3,896,839               
Shareholders’ equity (deficit):          
Common Shares  $4,903,031      
Class A Shares          
Class B Shares          
Class C Shares          
Additional paid-in capital  $2,922,853      
Accumulated deficit  $(2,846,278)     
Foreign exchange translation  $

(353,218

)     
Total shareholders’ equity  $4,626,389      
Total capitalization  $8,523,228      

 

Each $1.00 increase (decrease) in the assumed public offering price of $         per share would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total shareholders’ equity (deficit) by approximately $          million assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 100,000 shares in the number of shares offered by us at the assumed public offering price of $         per share would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total shareholders’ equity (deficit) by approximately $          .

 

The number of Common Shares outstanding is based on 24,597,215 Common Shares issued and outstanding as of August 31, 2022, and excludes the following:

 

  2,206,189 common shares issuable upon the exercise of outstanding stock options at a weighted average exercise price of $0.95 per share;
     
  6,048,607 common shares issuable upon the exercise of outstanding warrants at a weighted average exercise price of $1.01;
     
 

401,760 common shares issuable upon the exercise of outstanding Compensation Warrants at a weighted average price of $0.93;

     
  245,000 common shares issuable upon the exercise of outstanding stock options at a weighted exercise price of $0.98 per share; and
     
  Shares of common stock available for future issuance under the Equity incentive plan to be decided.

 

24
 

 

DILUTION

 

If you invest in our Common Shares in this offering, you will experience dilution to the extent of the difference between the public offering price per share and the net tangible book value per share of our Common Shares immediately after this offering. Net tangible book value represents the book value of our total tangible assets less the book value of our total liabilities. Pro forma net tangible book value per share represents our net tangible book value divided by the number of Common Shares issued and outstanding. Pro forma as adjusted net tangible book value per share represents our net tangible book value divided by the number of Common Shares issued and outstanding after giving effect to the pro forma adjustment described above, and the payment of estimated offering expenses by us in connection with the sale of Common Shares in this offering.

 

The historical net tangible book value of our Common Shares as of August 31, 2022, was $4.62 million or $0.19  per Common Share based upon the Common Shares outstanding on such date. Historical net tangible book value per share represents the amount of its total tangible assets reduced by the amount of its total liabilities, divided by the total number of Common Shares outstanding.

 

After giving effect to our sale of all of the _______ Common Shares offered in this offering at an assumed public offering price of $ per share after deducting estimated underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of ______ would have been $______ or $____ per share. This represents an immediate increase in net tangible book value of $____ per share to existing shareholders, and an immediate dilution in net tangible book value of $____ per share to new investors. The following table illustrates this per share dilution:

 

Assumed Public offering price per common share      $ 
Net tangible book value per common share as of August 31, 2022  $0.19      
Increase in net tangible book value per common share attributable to new investors  $      
As adjusted net tangible book value per common share as of August 31, 2022, after giving effect to this offering       $ 
Dilution per common share to new investors participating in this offering       $ 

 

The information discussed above is illustrative only, and the dilution information following this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed public offering price of $___ per share would increase (decrease) the pro forma as adjusted net tangible book value by $____ per share and increase the dilution to new investors by $___ per share and decrease the dilution to new investors by $__ per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us. We may also increase or decrease the number of shares it is offering. An increase of 100,000 shares offered by it would increase the pro forma as adjusted net tangible book value by $____ per share and decrease the dilution to new investors by $____ per share, assuming the assumed public offering price of $____ per share remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us. Similarly, a decrease of 100,000 shares offered by us would decrease the pro forma as adjusted net tangible book value by $____ per share and increase the dilution to new investors by $___ per share, assuming the assumed public offering price of $____ per share remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

 

If the underwriters’ over-allotment option to purchase additional shares from us is exercised in full, and based on the assumed public offering price of $____ per share, the pro forma as adjusted net tangible book value per share after this offering would be $____ per share, the increase in as adjusted net tangible book value per share to existing stockholders would be $____ per share and the dilution to new investors purchasing shares in this offering would be $_____ per share.

 

The number of shares of Common Shares outstanding is based on 24,597,215 Common Shares issued and outstanding as of August 31, 2022, and excludes the following:

 

  2,451,189 common shares issuable upon the exercise of outstanding stock options at a weighted average exercise price of $0.95 per share;
     
  6,048,607 common shares issuable upon the exercise of outstanding warrants at a weighted average exercise price of $1.01; and
    
  401,760 common shares issuable upon the exercise of outstanding Compensation Warrants at a weighted average price of $0.93.

 

Except as otherwise indicated herein, all information in this prospectus assumes:

 

  no exercise of the outstanding options or warrants described above, and
     
  no exercise of the underwriters’ option to purchase up to an additional _____ Common Shares to cover over-allotments, if any, or any warrants issued to the underwriters as fees.

 

25
 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following management’s discussion and analysis (“MD&A”) of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes thereto (the “Financial Statements”) as of and for the fiscal year ended August 31, 2022.

 

Economic Review

 

As a service provider to the Canadian real estate market, the Company sees consistent seasonality trends that are reflective of home sales seasonality in the Canadian market. Generally, home sales and purchase mortgage sales are lowest during the first and third quarter (December through February and July through August) and highest during the Spring and Fall months (March - June and September through to November). The Company has mitigated the seasonality of home buying by offering a diverse product suite which allows for the slower months to focus on mortgage refinancings and renewals. Based on market data, approximately 35% of mortgage volumes are from new mortgages on home purchases, 45% from mortgage renewals and 20% from mortgage refinancings. Although mortgage activity is certainly impacted by cyclical fluctuations in home sales, the impact is mitigated by the 65% of this activity that is not tied directly to home sales.

 

With the Bank of Canada having raised interest rates by another 0.50% on October 26, 2022, the new prime rate is now 5.95%. This increase will make it more difficult to pass the stress test for some homeowners. The national Home Price Index was up 6.04% YoY as of September 2022. However, this increase is still holding up but at a decreasing rate. To offset, the average selling price in Toronto has increased by 1.1% in three months although down YoY as of September 2022. The Toronto Regional Real Estate Board (“TRREB”) 12 month moving average is still projecting upwards which looks favorably upon Pineapple. Royal Bank of Canada (RBC) has projected that although prices continue to fall in many markets, overall positive price growth for 2022 is projected and that national sales will slump another 23% this year and 15% next year.

 

It is a considerable concern and sales are dropping but prices remain stable with no other irregular fluctuations. The market is in transition with lenders competing for market share but acting cautious. Many promos have been pulled back recently and will take some time to get back to normalcy. As the Bank of Canada (BOC) continues to increase interest rates, there is a tightening of the fixed to variable spread. The stress test qualification has increased and now at 6% to 8% for everyone. The mindset of consumers is trending towards adjusting whilst the savvy investors are taking advantage. With rates stabilization, this sentiment on both sides of the coin will shift.

 

26
 

 

All property purchasers that bought during the low interest rates period of between 2019 and 2021 are now facing the challenge of higher payments especially those with variable rates. First time home buyers are now finding it even more difficult to buy a home which was already a difficulty prior to interest rates increases. Debt is on the rise, more so with credit cards and Home Equity Line of Credit (HELOC) each time interest rates increase. Consumers are missing payments, and some are only managing barely paying the interest on their very rate heavy credit card debt. With all these concerns, consumer insolvency is at its highest level in Q2 since the start of the pandemic.

 

Based on historical market data, approximately 60% of mortgage consumers refinance their mortgage before the renewal date. As such, these re-financings lead to more business for mortgage brokers before the traditional 5-year maturity date expires. It also increases the importance for consumers of shopping a mortgage because the penalties for breaking a mortgage can be significant and can vary by type of mortgage and from lender to lender.

 

Pineapple is poised and ready for upcoming renewals estimated to be 2,994 and $1,211,099,009 in mortgage volume. About 17% to 20% of the largest banks will come up for renewal by 2023 end. As this new era begins, sellers expectations will begin to reset and consumers mindset will look towards an “opportunity mindset”. We are ready to assist consumers with the many different options available.

 

Revenue Overview

 

We have a three-pronged revenue stream described below:

 

  1. Sales Revenue: Revenue is generated when a mortgage deal is closed and sent to the lender partner for funding. Commissions are paid to Pineapple based on rates applicable at the time of the deal on the funded volume or the amount that is being financed by the financial institution. On average we earn approximately 100 bps for every dollar of mortgage funded volume. Users complete the deal on the MyPineapple platform by gathering all the required documents in a very safe and secure environments, evaluating the documents for completeness, going through a pre-assessment risk, and finally submitting the package to the financial institution for funding. We are an agent in these deals as we provide the platform for Users to provide services to the consumer. Contracts are in place with both Users and lender partners for this facilitation of the process. For each contract, the Company 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. Once a deal is received by the financial institution and accepted, commissions are paid to Pineapple. These commissions amounts are reconciled, and the Users paid their share within 3 business days upon reconciliation completion. The criteria relevant to Pineapple is ASC Topic 606 - Revenue from Contracts with Customers.

 

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  2. 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 allows 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 inception. Revenue is recognized at the beginning of the month when a User is invoiced and pays the fee.

 

  3. Underwriting Fee: Users optionally can use our expert risk pre assessment service that assists them in pre-underwriting their loans prior to submission to a lender for approval and funding. This service reduces the time significantly for the lender partners assessment of the deal. For mortgages of $197,475 and less, we charge an underwriting fee of $276 and for mortgages greater than $197,475, the Company charges an underwriting fee of $395. A special program has been undertaken by the Company to educate and inform Users of this service in further detail. Currently approximately 40% of the deals originated by Users are using this service and with this program, the intent is to further increase the number of deals and improve the services offered.

 

Financial Highlights

 

For the fiscal years ended August 31, 2022 and 2021, we have seen positive growth in key performance indicators including:

 

Gross Revenue – increase from $16 to $20 million – increase of 26% resulting from increased agent acquisition, improvement of the platforms resulting in quicker turnarounds, and opening of additional affiliations with broker offices outside of Ontario. The disaggregation of revenue is below:

 

-Sales Revenue – increase of 27%
-Service Subscription – increase of 45%
-Underwriting fees – decreased by 17%

 

Funded Mortgage Volume – from $1.79 to $2.2 billion – increase of 26% resulting from continuous strong demand from the residential mortgages sector, monetization of deals from lender partners, increased financing requirements
Users – from 267 to 627 – increase of 135% due to increasing ease of use of platform, confidentially secure transactions driven by technology, quick responses and support
Numerous technology enhancements leading to increased productivity and efficiency
Originated $1,060,000,000 mortgages
Provided pre-underwriting support services for mortgages valued at $500,000,000

 

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Comparison of the Year Ended August 31, 2022 and 2021 (in USD)

 

The following table provides certain selected financial information for the periods presented:

 

    Year Ended
August 31,
             
    2022     2021       Change     % Change  
Gross revenue   $ 20,380,984     $ 16,118,608     $ 4,262,376       26 %
Cost of revenue   $ 16,780,133     $ 13,134,891     $ 3,645,242       28 %
Net revenue   $ 3,600,851     $ 2,983,717     $ 617,134       21 %
Gross profit percentage     18 %     19 %                
Selling, general and administrative   $ 2,977,277     $ 1,352,788     $ 1,624,489       120 %
Salaries, wages and benefits   $ 2,360,344     $ 1,245,227     $ 1,115,117       90 %
Total operating expenses (1)   $ 5,337,621     $ 2,598,016     $ 2,739,606       105 %
Gains (loss) from operations (2)   $ (1,736,770 )   $ 385,701     $ (2,122,471 )     (550 )%
Other income (expense) (3)   $ (1,073,290 )   $ (647,503 )   $ (425,787 )     (66 )%
Net loss before income taxes   $ (2,810,061 )   $ (261,802 )   $ (2,548,259 )     (973 )%
Foreign currency translation adjustment   $

(205,223

)   $

(153,718

)   $

(51,505

)    

(34

)%

Total comprehensive loss

  $ (3,015,283 )   $ (338,401 )   $ (2,626,883 )     (676 )%
Basic and dilutive loss per ordinary share   $ (0.11 )   $ (0.02 )   $ (0.09 )     (450 )%
Weighted average number of ordinary shares outstanding – basic and diluted     24,597,215       15,532,743                  

 

  (1) Total of selling, general and administrative expenses and salaries, wages and benefits.
  (2) Equal to net revenue less total operating expenses.
  (3) Total of interest expense and bank charges, depreciation, and share-based compensation.

 

Revenue

 

Net revenues were $3,600,851and $2,983,717for the years ended August 31, 2022 and 2021, respectively. The increase of $617,134, or 21% year over year as a result of increased User acquisition, expanding our network in Canada from coast to coast to achieve originations outside our normal working territory in Ontario. A new vertical is being added to our original revenue streams – mortgage insurance – a regulatory requirement in the Canadian market of all mortgages. Once this new channel is developed, we will provide additional complementary channels including many insurance products that will be provided, which we will charge fees for in order to generate revenue from these additional revenue streams.

 

Cost of Revenues

 

Gross profit or gross margin is the balance from revenue after the cost of revenue is deducted. The cost of revenue is a directly attributable cost that is borne to produce revenue. Our cost of revenue is primarily the commissions paid by us to the agents based on the agreements in place between the Company and the agent.

 

Total cost of revenues was $16,780,133 and $13,134,891 for the years ended August 31, 2022 and 2021, respectively. The increase of $3,645,242 is primarily a result of adding on more experienced agents that take a larger percentage or share in commissions from the revenue received. Initially, lesser experienced agents were taken on offering them a lesser percentage of the revenues via lesser commissions. As the Company grew, and the intent was to grow revenue, more mature and experienced agents were acquired. This resulted in a significantly higher cost than that of lesser experienced agents. The goal of higher revenues was achieved but the cost of revenues increased thereby decreasing the gross profit.

 

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Selling, General and Administrative Expenses

 

General and administrative expenses were $2,977,277 and $1,352,788 for the years ended August 31, 2022 and 2021, respectively. The increase of $1,624,489 is primarily a result of an increase to one of our largest components of this segment of expenses – marketing services and IT infrastructure builds. The marketing services included rebranding our corporate name from Capital Lending Centre to Pineapple Financial. To continually evolve in this ever-changing technology environment, our IT spend has increased to continually update, upgrade, and improve our platform.

 

During our period of filing and listing on the Nasdaq, there are significant expenses borne for the filing, listing, counsel and investment bankers association, and other entities that will assist us in our venture and goal to become a public company.

 

In anticipation of our successful completion of this offering targeted for the latter of 2022 or early 2023, we expect to incur significant additional expenses related to this and as a result of operating as a public company including insurance, investor relations, legal, audit, consulting, etc. Additional expenses will also be incurred to continue reporting as a public company, regulatory requirements, and other compliance costs relative to the rules and regulations of the SEC.

 

Salaries, Wages and Benefits Expenses

 

Salaries, wages and benefits expenses were $2,360,344 and $1,245,227 for the years ended August 31, 2022 and 2021, respectively. This includes employee compensation (and bonuses if applicable), benefits for all the executive, finance, business operations, training, IT, administrative, and other departments personnel. The increase of $1,115,117 year over year is the direct result of human capital growth targeted towards more skilled and specifically trained personnel in mostly the developmental and training areas. Driven by frequent improvements and towards technological enhancements, we believe these directed long term and well thought out investments will bring about profitability and productivity for the long run.

 

Other income (expense)

 

Other income (expense) for the year ended August 31, 2022 was $(1,073,290) compared to $(647,503) for the year ended August 31, 2021. This increase was the result of general increases as operations scaled up in interest expense, depreciation, and share-based compensation with the vesting of options as scheduled per the issuance details.

 

Liquidity and Capital Resources

 

Our principal liquidity requirements are for working capital and capital expenditures directly attributed to technological improvements, investing in skilled and experienced personnel, and marketing services. During the year, we have seen these three categories being a major part of our liquidity and capital resources requirement. We fund our liquidity requirements primarily through cash on hand and cash flows from operations. A Series A funding of over $9 million was completed in April 2021 and the Company cash burn increased as of this fiscal year 2022 for the reasons mentioned above. Further, management believes our current cash balance, revenue from continuing operations plus the net proceeds of the IPO will be sufficient capital to fund our operating expenses, capital expenditure requirements, and contractual obligations for at least the next 36 months.

 

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

 

    Year Ended
August 31,
       
    2022     2021     Change  
Cash (used) provided in operating activities   $ (1,834,910 )   $ 668,555     $ (2,503,465 )
Cash used in investing activities   $ (1,052,932 )   $ (101,347 )   $ (951,585 )
Cash (used) provided by financing activities   $ (61,470 )   $ 6,273,614     $ (6,335,084 )

 

Cash Flow from Operating, Investing, and Financing Activities

 

Cash used in operating activities was due to normal operational expenses built into the company growth. Cash used for investing activities was the result of purchase of laptop computers, computer peripherals, computer equipment and furniture, and accessories for improved technological advancement. We also capitalized labor in the development of our platforms. Cash used provided by financing activities was for the lease payments

 

Critical Accounting Policies and Significant Judgments and Estimates

 

This management’s discussion and analysis of 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. In accordance with U.S. GAAP, we base our estimates on historical experience and on 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 the process of making significant judgments and estimates in preparation of our financial statements.

 

Revenue Recognition

 

The Company has adopted ASC 606 (Revenue from Contracts with Customers). The standard provides a single comprehensive model for revenue recognition. The core principle of the standard is that an entity shall recognize revenue to depict the transfer of promised goods or services 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 ASC 606, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring good 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. The standard also specifies the accounting for incremental costs of obtaining a contract and the costs directly related to fulfilling a contract.

 

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Revenue is recognized at an amount that reflects the consideration to which the Company is expected to be entitled in exchange for transferring goods or services to a customer.

 

Rendering of services – The Company hosts an online website, using Salesforce, that brokers and agents can utilize to close out deals.

 

Basis of presentation, functional and presentation currency

 

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.

 

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

 

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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. Both represent a total investment of $38,211.

 

The total amount of both investments was recorded at cost and there was no material change to the investment amount as at August 31, 2022.

 

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, non-employee, and director services received in exchange for an award based on the grant-date fair value of the award.

 

Stock-based or share-based compensation expenses are recognized in the statements of income and comprehensive income. On June 14, 2021, 2,206,189 options were granted where 25% of the options granted vested on the date of the grant. Another 25% vested on December 14, 2021, and on June 14, 2022, for a total of 1,654,641 options vested as at August 31, 2022. The remaining options balance will vest in 6 months.

 

On November 15, 2021, 245,000 options were issued to an officer of the Company that vest in 36 months with 35,000 options vesting upon options granting and 35,000 options vesting every 6 months thereafter. The vested options were also recognized as expenses under share-based compensation.

 

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.

 

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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 August 31, 2022, 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 August 31, 2022, 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.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.

 

Related Party Transactions

 

As at August 31, 2022, a total of $776,615 was recorded for salaries and wages to key management personnel and $410,192 for the vested options share-based compensation expenses. It was determined to capitalize 70% of the COO’s annual salary due to the time devoted to IT development and the platforms used by Pineapple. The increase of 105% in the salaries and wages versus the previous year is attributed to the salary increases to the CEO, COO, and CSO, and the addition of the CFO in November 2021.

 

Disclosure of Contractual Arrangements

 

As at August 31, 2022, the Company was committed to minimum lease payments in USD as follows:

 

Contractual Obligation 

Less than
One Year

(Balance of 2022)

  

1 – 3 Years

(2023 - 2024)

  

3 – 5 Years

(2025 - 2026)

  

Over 5 Years

(2027 - 2030)

 
Total  $25,722   $288,281   $374,435   $617,432 

 

The amounts above are undiscounted and include the base amounts due, excluding property tax, maintenance, and HST.

 

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BUSINESS

 

General

 

We are a Canadian-based mortgage technology and brokerage company that provides mortgage brokerage services and technology solutions to Canadian mortgage agents, brokers, sub-brokers, brokerages and consumers. Through data-driven systems together with cloud-based tools, we believe we offer competitive advantages in the Canadian mortgage industry relative to alternative mortgage broker arrangements.

 

We also provide back office services, together with pre-underwriting support services (collectively the “Brokerage Services”) to Canadian mortgage brokerages (the “Brokerages”). In connection with the provision of the Brokerage Services, we employ and engage several licensed mortgage brokers and agents (collectively, “Field Agents”). We have a total of full-time employed staff of 55. In addition, we also enter into affiliation agreements with certain licensed mortgage brokers (collectively, “Affiliate Brokers” and, together with Field Agents and Brokerages, the “Users”), pursuant to which the Company and the Affiliate Broker enter into an affiliation relationship with the intention of jointly marketing mortgage brokerage and other financial services as affiliated entities, sometimes referred to as “white labelling”, which allows the Affiliate Broker to sell a mortgage that is branded with its company name to its own client base.

 

Our services distribution and fee structure for each stream is detailed hereunder:

 

1.The fee for the subscription service revenue stream is $117 for use of our platforms by our agents to complete the mortgage deal from initiation to funding by the lender partner and is about 3% of total gross revenue.
2.Our pre-risk assessment services revenue is about 1.3% of our total gross revenue and the structure for this service is $390 per deal for a mortgage funded amount of $390,000 and over. For a mortgage funded amount under $390,000 the fee is $273.
3.The balance of our total gross revenue at 95% comes from our lender partner service commissions and the structure varies by rate and amount based on the season, special promotions at that particular time, bonus applicable, funded volume, etc. The lender partners comprise of banks, trust companies, mortgage loan companies, building societies and other lending financial institutions, including but not limited to the Bank of Nova Scotia (Scotiabank), Manulife Bank of Canada, Toronto-Dominion Bank (TD Bank), The Mortgage Alliance Company of Canada Inc. (MCAP), First National Financial LP, Home Trust Company, The Equitable Trust Company (Equitable Bank), ICICI Bank Canada and Desjardins Mortgage Financing Services.

 

We currently operate exclusively in Canada, specifically in the provinces of Ontario, Newfoundland and Labrador, New Brunswick, Nova Scotia, British Columbia, Prince Edward Island and Alberta. We launched our first brokerage in Ontario in November 2016. We have been approved by each of the applicable provincial mortgage regulators to operate in 11 provinces and territories namely Alberta, British Columbia, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Quebec, and Yukon, and 2 provinces to follow are Manitoba and Saskatchewan. We launched our first brokerage office in Alberta on July 1, 2021. We also launched our first brokerage office in Newfoundland and Labrador, Nova Scotia, New Brunswick, and Prince Edward Island on May 4, 2022. Thereafter, we expect to open our first British Columbia brokerage office and our first Quebec brokerage office sometime in late 2022 or early 2023. We provide our Brokerage Services to both residential and commercial mortgage opportunities and, in each case, through a proprietary technology called MyPineapple, as discussed in further detail below.

 

MyPineapple

 

At the heart of our Brokerage Services is an innovative technology system, MyPineapple, that provides real time data management and reporting, lead generation opportunities, customer relationship management, deal processing, education and knowledge center, payroll, regulatory compliance, data analytics, document collection and storage, automated onboarding, lender access, back office support and direct underwriting support, all in one. MyPineapple offers network management capabilities for Users, including hundreds of qualified Field Agents, to create an efficient marketplace for the provision of mortgage lending and insurance industry services. MyPineapple integrates directly with Salesforce, Equifax, OneSpan, G Suite and Filogix and manages Users’ day-to-day business through automated triggers and tasks, ensuring nothing falls through the cracks. Backed by Salesforce, pursuant to the Salesforce Agreement (defined herein), and built with proprietary code deep data analytics, MyPineapple syncs up with Users’ calendar and emails, produces robust reporting, advanced analytics, and real-time notifications on marketing communications, and more. MyPineapple is a sophisticated and fundamental tool for revenue growth and relationship development. It plays a significant role in what we believe makes our Brokerage Services distinct and cutting-edge.

 

MyPineapple was created to address key issues within the mortgage brokerage industry. We built MyPineapple to create a long-term competitive advantage relative to traditional service providers, who have comparatively high-touch, labor intensive and costly operations. We believe that, through MyPineapple, we are able to deliver faster services and with fewer errors. Our MyPineapple platform is completely automated, simplifying the mortgage process while providing efficiencies to and alleviating pressure on Users’ staff in completing traditional administrative tasks, which in turn reduces the Users’ cost structure and results in increased profit margins and scalability. MyPineapple reduces manual processes through robust quality control mechanisms, logistics management capabilities, capacity planning tools and end-to-end transaction management. MyPineapple also includes a leading education technology platform, which enables Users to continuously stay informed and educated on what mortgage solutions and market conditions could impact Canadian consumers.

 

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Our primary objectives and goals include, but are not limited to, the following:

 

Grow our mortgage broker distribution channel to gain further market share and consumer adoption, including increasing organic (non-acquisition related) market share and to achieve growth on the number of mortgages funded annually;
   
Become the go-to mortgage experience platform for mortgage agents, lenders and homebuyers;
   
For Pineapple Insurance to provide an insurance option for all our mortgage approvals;
   
To ensure that we are providing a well-rounded and custom-tailored approach to insurance solutions that may best suit the clients’ needs;
   
To leverage the power of our growing database and brand recognition to open further insurance opportunity channel; and

 

Streamline the insurance approval and application process for mortgage clients using technology.

 

Services and Products

 

Brokerage Services

 

The following is a detailed description of the Brokerages Services that we offer:

 

1.Mortgage Brokering: We employ and engage a number of licensed Field Agents who originate clients, provide mortgage consultation services, advise clients on the various mortgage products offered by financial institutions in Canada, offer clients access to rate information and mortgage options from a range of lenders, including major banks and lending institutions and assist clients in selecting the most appropriate and effective mortgage solution for their particular needs.
  
2.Technology: MyPineapple is a full spectrum, robust and comprehensive technology system, which allows Users to conduct their brokerage services more effectively and efficiently. Amongst other things, MyPineapple syncs up with Users’ calendar and emails, produces robust reporting, advanced analytics, and real-time notifications for email opens, and link clicks. MyPineapple also provides Users with cloud storage. We also provide marketing support to Users in order to systematically manage the marketing process, segmentation and client conversions. We ensure that all clients stay well informed with highly relevant information; it also increases the conversion ratios and engagement metric for its Users. This provides Users the ability to focus on higher probability clients and deliver a high level of value and service while the system manages the relationship with others.
  
3.Back Office Support Services: Through MyPineapple, we offer our Users back office support services, including digital and automated onboarding and set up, loan packaging and processing, digital document collection and client portals, loan maintenance activities, payroll, lender communication, reporting requirements for regulators and business management, cloud services, expense collections, document preparation, compliance, training, administration and marketing.
  
4.Pre-Underwriting Support: Technology enabled and together with back-office support, we offer our Users pre-underwriting support services that establish appropriate qualifying processes in a mortgage application, providing borrowers a digital environment ensuring mortgage agents has the necessary data and providing borrowers with an instant pre-qualification. We use our diverse exposure to the mortgage industry to save Users from spending valuable resources on mortgage applications that have fewer chances of reaching approval. In particular, we offer our Users the following pre-underwriting services, aimed at speeding up the underwriting process and helping mortgage lenders make accurate decisions:

 

  Credit Review: We verify all information that is supplied by the client in vital loan documents and other personal information. Thereafter, we meticulously review client credit records and tax return documents to ensure the client has the required financial stability to make monthly payments for the mortgage. We follow checklist-based system to ensure that all the critical aspects pertaining to underwriting are covered.

 

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Data Validation: Our pre-underwriting support services include recording and digitizing our findings in the data validation process. By digitizing these vital information sets about the client, we are able to establish the accuracy and speed needed to expedite the underwriting process.
   
Fraud Analysis and Compliance: We pride ourselves in diligently checking for identity fraud and ensuring that applications are compliant and contain complete information. Our mortgage experts have the experience and acumen to spot missing or mala fide information. This obviates the need for the underwriter to send client files back for incomplete information and thereby speeds up the underwriting process. Our fraud analysis encompasses all aspects of the client file review process including running third-party reports. This ensures the underwriter has to focus only on decision-making.
   
Appraisal Ordering and Review: We take charge of title ordering and dispatching verified property information to the appraiser to boost the turnaround times of the appraisal process. Once the appraisal is over, we carefully review the appraisal report to ensure that the process has been completed in a fair and error-free manner.
   
Data Analytics: Through MyPineapple, we are able to use data to analyze customer benefit opportunities as they become available. In particular, MyPineapple allows us to utilize the data that has been acquired through the mortgage approval process along with real time real estate and credit data to thereby reduce costs and overall debt process timelines.

 

Insurance Products

 

Pineapple Insurance Inc. (“Pineapple Insurance”) is a wholly owned subsidiary of Pineapple Financial Inc. This entity is to serve the insurance needs of our brand mortgage brokers and agents across Canada. Pineapple Insurance is to act as an Managing General Agent (MGA) supported by Industrial Alliance. This entity will create both a revenue channel and retention strategy for borrowers that live within our database. This will also allow a growth opportunity and an overall holistic financial services opportunity for us. We are currently in the early stages of development of Pineapple Insurance Inc. Operational infrastructure and a budget has been prepared alongside technology modifications to our MyPineapple system in order to manage the delivery of this product. We have also created a sales and marketing plan alongside assets and materials, which will be used for initial launch. Our next steps are staffing and human capital requirements in order to execute on the business plan and goals of developing Pineapple Insurance.

 

Pineapple Insurance provides the following services:

 

We will complete a needs analysis on each client to ensure the most suitable product to meet both their needs and their goals. In our product suite, we will offer term life insurance which will provide a low-cost coverage at a fixed rate of payments for a limited period of time for the life of the mortgage. The goal of this product is to ensure that in the event of the insurer’s untimely death with their term policy their beneficiaries will be covered in the amount of the policy during the life of the term. No insurance will be paid to the beneficiary should the insured pass away after the end of the term or if the insured did not make the required payments.
   
Whole Life Insurance is a life insurance policy which is guaranteed to remain in force for the insured’s entire lifetime, provided required premiums are paid, or to the maturity date. In addition to paying a death benefit, whole life insurance also contains a savings component in which cash value may accumulate on a tax-advantaged basis. The policies can be leveraged as collateral or an asset with our lenders through the Company.
   
For both our personal and our business clients, we offer permanent life insurance policies, which offer a death benefit and cash value. The death benefit is money that is paid to your beneficiaries when you pass away. Cash value is a separate savings component that you may be able to access while you are still alive. Permanent insurance can help cover the business owner for their entire life. And unlike term insurance, it includes the potential for a cash accumulation fund. Investments in the fund are tax-preferred, including at death when the tax-free death benefit is paid out to a named beneficiary. An additional benefit of permanent life insurance is that allocating funds in a corporation away from taxable investments to a permanent life insurance policy can help reduce overall annual taxable investment income. Permanent life insurance lasts from the time you buy a policy to the time you pass away, as long as you pay the required premiums. The policies can be leveraged as collateral or an asset with our lenders through the Company.
   
Accident and Disability Insurance is a type of insurance product that provides income replacement in the event that a policyholder is prevented from working and earning an income due to a disability.

 

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Critical Illness Insurance provides additional coverage for medical emergencies like heart attacks, strokes, or cancer. Because these emergencies or illnesses often incur greater-than-average medical costs, these policies pay out cash to help cover those overruns where traditional health insurance may fall short and help cover living expenses while the client recovers. These policies come at a relatively low cost. However, the instances that they will cover are generally limited to a few illnesses or emergencies. The key element is to ensure that the mortgagor does not fall behind in their mortgage payments.
   
Credit Insurance is a type of life insurance that can cover the remaining amount of your loan in the event of your death. Your insurance company will use the death benefit to pay down or pay off the remaining balance on the loan, up to a maximum amount outlined in the certificate of insurance. The money from your death benefit will go to your creditor. The money will not go to your family or beneficiaries.

 

We offer a wide range of investment options to suit clients risk tolerance and investment preferences. A financial advisor will review and assess the needs of each client to determine the short- and long-term goals for financial success. Such options may include segregated funds or mutual funds for registered (registered education savings plans (RESPs), registered retirement savings plans (RRSPs), tax-free savings accounts (TFSAs), etc.) and non-registered accounts. A segregated fund, or seg fund, is a type of investment fund administered by Canadian insurance companies in the form of individual, variable life insurance contracts offering certain guarantees to the policyholder such as reimbursement of capital upon death and mutual funds. As a regulatory requirement, all Canadian mortgage approvals being presented by the mortgage broker channel must include the option for a client to consider an insurance option in an effort to protect the liability in the case of death or disability. Pineapple Insurance Inc. will be presenting this insurance option for a client to accept or not via the products that we have available. This will be presented to all mortgage approvals being offered via our parent company, Pineapple Financial Inc.

 

As a complementary service to our parent company, Pineapple Financial Inc., this insurance subsidiary was created to easily serve the needs of the homeowners whose mortgages originate with us. With any mortgage product in Canada, an insurance component is a requirement, hence the diversification and business development into insurance.

 

Our insurance services identified above currently are provided by a third-party insurance company, Industrial Alliance Inc., with whom we are affiliated as a managing general agent (MGA). We, therefore, act as an agent earning commissions from the premiums charged by the insurance company.

 

We believe the material steps for Pineapple Insurance to grow form its early stages of development are as follow:

 

  1. To introduce the services offered by Industrial Alliance and to serve the Users on our platform, MyPineapple, is to market these services, create a knowledge base for them to understand and pass on the learning to their customers, create a support structure for both Users and Users’ customers.
     
  2. Set up an internal infrastructure for the management and offering of these services i.e. hire a senior management person to manage the operational affairs and thereafter additional personnel, as needed when the business grows. The additional personnel will be mostly sales commissionable personnel with a retainer.

 

The costs we anticipate relate to mostly the marketing efforts undertaken, human capital which will be a fixed cost for the senior person and variable for additional personnel. As we develop and progress this business, it is anticipated that our major expenses will be payroll, marketing, and platform development. We have identified approximately 15% of the use of the proceeds from the shares offering to be dedicated to developing this business.

 

The timeline we feel to grow this subsidiary would be approximately 12 to 36 months depending upon the marketing efforts, acceptance of the products and services offered by Industrial Alliance, the prices / premiums for these products and services, and the understanding of the products because of the many variations that are inherent in the insurance products and services.

 

InsurTech

 

MyPineapple is a key reason for our success and has the ability to drive interested and timely insurance prospects to a replicated module that we have built in order to streamline and manage the customer flow for insurance products. The process is designed to create a unique synchronicity between the client obtaining a mortgage approval and insurance approval.

 

Combined, the simplicity of the two platforms with its connectivity and integrations will allow Pineapple Insurance to successfully process and approve insurance applications.

 

We have also created client segmentations and retention programs to ensure that we can maximize our database of over 150,000 potential clients.

 

Growth Strategy

 

Brokerage Services

 

We aim to gain further market share and consumer adoption by focusing on the following areas of growth:

 

1.Increase Agent Revenue From Optimized Analytics: We will continue to analyze past borrower data to determine opportunities to beneficially re-service them in the future, potentially creating revenue generating activities and significantly enhancing the borrower experience.
   
2.Added Product Suite – Insurance. As discussed above, we are establishing an insurance channel that provides borrowers with a full suite of insurance products, which we believe will increase revenue.
   
3.National Expansion: We expect to continue to expand our business and operations into current jurisdictions along with new provinces such as British Colombia and Quebec.
   
4.Borrower-Facing Technology. We believe MyPineapple will be a marketplace where clients can select from a variety of mortgage products that will suit their individual needs while tracking the progress and status of the transaction for the life of the mortgage and beyond.

 

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Insurance Products

 

In order to achieve our objectives and goals, Pineapple Insurance will focus on four main areas:

 

1.Insurance originations: Our files will be obtained exclusively through the Pineapple Financial referral network. This will be achieved through technology integration where Pineapple Insurance agents are immediately notified of a mortgage approval which requires an insurance option. Our agents will be highly trained in an effort to service the growth of our referral network. Consistency in service level and approach is key to building our brand.
   
2.Emphasizing core values: Servicing our clients, maintaining relationships, ongoing and continued support, education and training, ongoing lines of communication between mortgage agent and insurance agent and ensuring a smooth and efficient closing process. We expect our agents to conduct themselves with the highest level of professionalism and carry out the fundamental and core values of Pineapple Insurance at all times.
   
3.Hiring and training insurance agents: We will follow and adhere to strict hiring and training policies as set out in our training manuals. Development of education and training programs working in conjunction with our partners. Ensuring that we are consistently working on recruiting top performing insurance agents that will be able to meet the growth and scale of the needs of the Company.
   
4.Technologies and relationship management tools: We will be replicating and customizing our robust MyPineapple system for data transfer and client management. This will be broken into the following areas:

 

Operational Excellence: notifying insurance agents at the optimal time to increase conversion metrics and customer satisfaction. Integration of client data so the process is convenient for all involved parties. Visibility of status and automations of workflow and requirements;
   
Client Relationship Management (CRM): Advancing client relationships towards application indication, application completion and client retention; and
   
Acquisition: marketing funnels to leverage the overall database and identity opportunities from older missed opportunities.

 

Markets for our Services

 

Brokerage Services

 

The clients for our Brokerage Services include mortgage agents, brokers, sub-brokers, brokerages and consumers. Our customer activity is intrinsically linked to the health of the real estate or commercial markets generally, particularly in Canada.

 

Strong housing demand during 2020, 2021 and the first quarter of 2022 positively impacted the seasonal variations. With the onset of inflationary pressures around the globe, not only the seasonality but the normal trends of the housing markets have declined with the increase of interest rates. Although our business may be negatively impacted, we believe our multiple channels of revenue helps to mitigate any such impact.

 

On April 7, 2022, the 2022 budget was released by the Government of Canada which focuses on affordable housing alternatives for Canadians and additional tax measures to assist first time home buyers. With the continual influx of new immigrants as proposed by the Government of Canada; the renewed demand in home renovations and refurbishments; the users becoming more knowledgeable about additional use of their home equity, and other varying and creative measures, we plan to capitalize on these growth initiatives into the future.

 

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Insurance Products

 

The insurance market for Pineapple Insurance is focused around growth in the Canadian mortgage landscape as well as market share growth for Pineapple Financial.

 

Real estate investors: we are able to consolidate multiple mortgage amounts into one insurance policy to help minimize risk if an investor has multiple properties.
   
Residential Home purchase: with Canadian housing prices hitting all-time highs, we will help clients provide insurance to fill the gap between their current coverage and the mortgage amount
   
Refinance: can help clients reduce existing coverage or apply/consolidate if they require additional coverage.
   
Reverse Mortgage: these clients can use the income from the reverse mortgage to help plan their final expense through insurance as well as enrich their retirement years.
   
Switch: transferring to another lender at renewal. The insurance we offer is not tied to the lender directly and can assist clients in locking in their rates long term when they can still qualify for insurance
   
Renovation and construction: Clients will be able to access their cash values in their permanent insurance policies to help fund their renovations and construction projects. If additional financing is required, we can provide the added insurance coverage needed.
   
Self-Employed: As large numbers of Canadians move into business for themselves, we have found a great need for an insurance product that can suit their needs since they generally do not have a company benefits plan. Income protection will also be a key component of our business here.
   
Commercial Mortgages: We can provide the proper insurance to clients for the right amount of coverage and timeline for one or multiple investors. Coverages can go up to $20 million.
   
Private Lending: Customized insurance can be provided to private lenders who may have a different set of circumstances in terms of investment type and timeline horizon.
   
High Risk Health & Uninsurable: We can offer guaranteed issue insurance to clients who may have declining health or were previously declined for insurance in the past.

 

Pineapple Financial Inc. and Mortgage Market Dependency

 

We take a long-term view to manage and measure the success of our ongoing business strategy. In this regard, our principal focus is on market share growth. We seek to achieve increased market share irrespective of residential and commercial mortgage origination market conditions. Market share growth can be achieved through both the onboarding of new Users to MyPineapple and by increasing market share within its existing Users, including recently onboarded Users.

 

We are confident in our ability to increase the number of Field Agents using MyPineapple in conducting their brokerage services primarily due to the efficiency that MyPineapple brings to the mortgage brokerage process. From August 1, 2021 to August 1, 2022, our active users increased at a rate of 235%.

 

The mortgage market and residential and commercial mortgage originations are subject to the influence of many external factors, such as broader economic conditions and fluctuating interest rates, over which we have no control. We believe we have substantial growth opportunities to expand our market share within our existing total addressable market. In particular, we expect to have access to more opportunities in the commercial mortgage segment through our partnership with MCommercial. Additionally, we expect to gain access to greater market share opportunities as we continue to develop MyPineapple and improve the efficiency of the mortgage approval process.

 

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Industry Overview

 

The Canadian Mortgage and Mortgage Brokerage Industry

 

According to the Bank of Canada, as of May 1, 2022, Canada’s chartered banks held over $1.523 trillion of residential mortgages (which amount does not include mortgages held by provincially regulated entities such as credit unions or mortgage investment corporations). Mortgage lenders typically offer a range of products, with options for fixed or variable rates, varying terms and amortization periods, as well as differing ancillary terms for pre-payment, incentives or other matters. Interest rates are typically renegotiated every three (3) years. While mortgage lenders post both fixed and variable interest rates at which the lender offers mortgages of varying terms, typically most lenders are willing to negotiate interest rates lower than those posted, a practice referred to as “discounting”. The practice began in Canada in the early 1990s and is considered the norm in today’s mortgage market. The practice of discounting permits mortgage lenders to improve their ability to price discriminate and offer different rates to different borrowers based on their willingness to pay. Price discrimination allows lenders to increase their profits through negotiating different rates with individual borrowers instead of offering a blanket reduction in rates. The advent of price discrimination in the Canadian mortgage market has increased the importance of the mortgage broker in the lending negotiation process. In return for a fee (paid by the lending institution), the mortgage broker is typically able to negotiate a better rate than the consumer, or to efficiently reduce the time and effort required to be applied by the consumer to achieve similar results. Mortgage brokers are provincially regulated and subject to training and licensing requirements. See “Regulatory Environment” for details. However, there are relatively few barriers to entry in the mortgage brokerage market. Nevertheless, the ability of a given mortgage broker to erode lender price discrimination and secure rates at the lower end of the range at which lenders are prepared to lend is dependent upon a number of factors. While experience and negotiating ability are relevant factors, a key factor in the potential success of a mortgage broker in securing advantageous rates is the bargaining power of the mortgage broker, which varies directly with the volume of mortgages the broker is able to place with lenders.

 

Industry Growth Strategy

 

Our overall aim has been to increase market share through organic (non-acquisition related) means and to achieve growth on the number of mortgages funded annually. In an effort to accomplish our growth goals, we maintain a consistent, focus on recruiting Field Agents and overall Users. We have employed a significant number of recruiters which has resulted in growth rate than most of our competitors. Secondly, with ongoing concentrated efforts towards recruiting, it has allowed us to gain a strong understanding of the competitive models that exist and also to continually enhance our offerings in the most effective way to recruit and retain qualified Field Agents. Additionally, through MyPineapple, we are able to support Field Agents growth in sales volume, productivity and efficiency in delivering mortgage solutions and increasing corporate revenue. Our aim has always been to have the leading model on which to recruit and support Field Agents, based on offering them a superior value-proposition.

 

Competitive Conditions

 

Mortgage Brokerage Market Conditions

 

Effective January 1, 2018, the Office of the Superintendent of Financial Institutions Canada (“OSFI”) adopted Guideline B-20 - Residential Mortgage Underwriting Practices and Procedures (the “Guideline B-20”). The revised Guideline B-20 applies to all federally regulated financial institutions. The changes to Guideline B-20 reinforce OSFI’s expectation that federally regulated mortgage lenders remain vigilant in their mortgage underwriting practices. As Guideline B-20 made mortgage borrowing more difficult for many Canadians, management believes more Canadians may have turned to mortgage brokers to help navigate the complex rules. Management expects that mortgage brokers will increase their market share in the coming years due to the following factors:

 

Mortgage regulations: Mortgage regulations have become more stringent in recent years, affecting the number of individuals that can qualify for conventional bank mortgages. As a result, these individuals are turned away from banks and seek out mortgage brokers for assistance in obtaining a mortgage.

 

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Additional Offerings: With new products to offer, mortgage brokers will tend to appeal to a larger demographic/population base and also retain clients more effectively.
   
Conditioning and Habits: Twenty years ago, only a minimal percentage of the Canadian population used mortgage brokers, as brokers were viewed generally as a last resort to obtaining a mortgage. Over the years, this perception has shifted, and Canadians are now using mortgage brokers to obtain better mortgage rates and to save money. The generation that was reaching a home-buying age when brokers had little or no market share is aging and continually being replaced by younger, mortgage broker friendly Canadians.
   
Complexity of Mortgages: Many consumers are not sufficiently financially literate to ask the right questions when applying for a loan at a bank. As financial products become more complicated, more Canadians seek assistance to understand the complexities and alternatives.
   
Increased Broker Business Sophistication: As mortgage broker business sophistication increases, the Company expects the volume of renewal business funded by mortgage brokers to increase.
   
Interest Rates May Increase: As interest rates have been at historical lows for a significant period, many believe that interest rates will increase in years to come. In a higher interest rate environment, the Company anticipates that a growing proportion of consumers will likely shop for the best mortgage opportunities, driving the more conservative “single-bank” mortgage consumers to use mortgage brokers.
   
Technology: By utilizing MyPineapple and other available technologies, mortgage brokers have the ability to access client demographic and credit information and quickly and efficiently disseminate credit applications to various lenders across Canada. Technology provides the mortgage broker and clients with the ability to efficiently access home specific and third-party data such as appraisals, credit reports and related credit application information in a highly efficient and cost-effective manner.

 

Primary Competitors

 

Our primary competitors consist of the following 3 categories:

 

1.Traditional Mortgage Brokerages: These mortgage companies provide clients a more traditional way of obtaining mortgages by sourcing business through referrals while processing loan applications with limited access to technology and face-to-face meetings. As many of these organizations have been operating for decades, they have had time to cultivate relationships and build strong portfolios of customers. They access Canada’s leading lenders for their products and services. Examples are: Dominion Lending Centres (TSX: DLCG), Verico, Mortgage Alliance and Centum.
   
2.Digital Mortgage Companies: A fairly new breed of mortgage company that is sprouting from the digital evolution currently taking place in our landscape. These companies are focused on a direct-to-consumer model by offering a digital mortgage experience, however, they are still using a more traditional structure in the back office to fund mortgage solutions through Canada’s largest lenders. Examples are: Nesto, Homewise and Motus Bank.
   
3.Mortgage Technology Providers: These are companies that provide software and technology solutions to some of the traditional mortgage brokerages and companies that have not invested or developed their own technology solutions. The providers are typically focused on specific problems and providing solutions to segments of mortgage workflow. They can be expensive and difficult for traditional companies to implement. Examples are: Finmo, Lenders and Lender Spotlight.

 

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Competitive Advantages

 

We compete with a number of mortgage brokerage companies. However, we offer competitive advantages relative to alternative mortgage broker arrangements as a result of the following:

 

Debt Consolidation: As personal debt levels continue to grow, we offer a unique opportunity of allowing potential borrowers access to their home equity to consolidate debts at lower interest rates. Interest only payments will provide lower and more flexible payment terms which will free clients cash flow for savings and help them establish better control over their personal finances.
  
Residential Home Purchase: With access to Canada’s top lenders, we can help our clients find a mortgage solution best suited for their individual needs. Our Field Agents are trained at finding a mortgage solution that fits into a client’s overall wealth plan and helps the client obtain the lowest overall cost of borrowing.
  
Refinance: We will encourage and assist clients to either take equity out of their homes or refinance into lower interest rates.
  
Switch: We allow clients to easily transfer to another lender upon renewal.
  
Renovation and Construction: With homebuyers seeing historic appreciation in home values the market has seen the “move up” buyer decide to stay and renovate existing property with the equity they have quickly grown. This has provided an opportunity for us to focus on providing the short-term financing required for such home renovation projects, while the major banks have slowly pulled out or limited their exposure in this area with government regulations changes to the home equity line of credit program.
  
Self Employed: As large numbers of Canadians move into business for self, we have found an increase demand for a mortgage product that can suit their needs. Typically these borrowers have good credit ratings and assets but can’t verify their income through traditional means such as tax filings and pay stubs.
  
Damaged Credit: Damaged or challenged credit files are something that needs a financing solution. We take a holistic approach in determining the risk as it maps out a solution. Mortgages for these types of clients will need to improve their situation either by increasing cash flow, reducing debt load or increasing income potential. We will ask referring brokers to maintain close relationships with these clients to work on rehabilitation.
  
Private Lending: With exclusive access and expertise in private lending, we can ensure clients have knowledge of all available resources in the market.
  
Technology: We are able to provide advanced technology solutions to differentiate us from our competitors, including:

 

  a)Data Analytics – Optimized Retention – Enhanced Customer Experience: As a data driven mortgage company MyPineapple harnesses the power of data which we acquire through the mortgage process and use it to help make meaningful decisions which save the client money, time and improve the customer experience.
    
b)Unique Customer Profiling – Optimized Retention: Using a proprietary scoring and profiling process, we are able to uniquely segment clients and provide most televant information and resources to them at a meaningful point in the mortgage process.
   
c)Internal Processing Centre – Focused Team – Increased Productivity: Having an internal underwriting and mortgage processing center allows us increased conversion, higher funding ratio’s and maximize productivity of our Field Agents.
   
d)Actionable Signals - Marketing Efforts – Focused Engagement: Driving real-time signals to our Field Agents when conversion opportunities present themselves.
   
e)Knowledge Transfer – Increased Accuracy – Performance: Comprehensive education technologies platform allows us to align the right product to the right lender and client.
   
f)Data Integrity – Optimized Decision Making: We have built safeguards to ensure data integrity and accuracy.

 

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g)Lead Generation and Market Segmentation: MyPineapple quickly segments leads for personalized marketing. It then markets on behalf of the agent, turning cold leads into warm leads for faster customer acquisition. Field Agents receive real-time notifications for email, as well as reminders and scripts to ensure nothing is missed.
   
h)Automated Triggers and Enhanced Workflow -–MyPineapple directly syncs to calendars and emails. Tasks can easily be inputted into the system and email reminders ensure Field Agents remember to follow up. Intuitive automation then kicks in to guide Field Agents and all stakeholders through the entire process.
   
i)Live Community via Chatter: MyPineapple connects Field Agents directly to the underwriting team, as well as other agents throughout the organization. This creates a support network, sense of work community and ultimately accelerates the response time.
   
j)Online database of educational tools known as KNOWLEDGE – This online information resource is an online library with over 2000 resources, containing training videos that cover everything, from lender guidelines, sales and marketing tips, to deals training and more.
   
k)Advanced Analytics and Reporting Features that turn data into actionable insights - This maximizes opportunity and creates lifetime customer value which lowers acquisition costs and significantly increases revenue.

 

Specialized Skill and Knowledge

 

Our business requires specialized skills and knowledge, which include, but are not limited to, expertise related to mortgage underwriting, mortgage originations, private lending, business development, marketing and business strategy development. Our executive and management team has a strong background and significant experience and expertise in these areas. Our team also possesses specialized skills in data architecture, software development, programming and coding, finance and accounting, automations and process, training and education. Additionally, we currently rely upon, and expect to continue to rely upon, various legal and financial advisors and consultants and others in the operation and management of our business.

 

Intangible Assets

 

Our business is substantially dependent on our proprietary technology platform, MyPineapple, which it licenses from Salesforce. While the Company has not registered any intellectual property rights with respect to MyPineapple, it relies on trade secrets to protect the applicable proprietary information. Additionally, MyPineapple has been built through various development partners, such that no single developer has access to the complete technological architecture. See “Business –– Material Contracts” for more information on the Salesforce Agreement

 

Additionally, we rely on confidentiality agreements with its employees, consultants and advisors to protect its trade secrets and other proprietary information. Nonetheless, these agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of its business could be significantly diminished.

 

Material Contracts

 

Salesforce Agremeent

 

In connection with the development of MyPineapple, we entered into a licensing agreement with Salesforce.com, Inc. dated (NYSE: CRM) December 1, 2020 (the “Salesforce Agreement”) and expires on November 30, 2023. Salesforce is a cloud-based software company headquartered in San Francisco, California. It provides customer relationship management software and applications focused on sales, customer service, marketing automation, analytics, and application development. Pursuant to the Salesforce Agreement, we are licensed to use the Salesforce software as the platform or infrastructure on which we build the various applications such as MyPineapple. The applications we develop on this platform are the core that drive the operational software and applications used by Field Agents to initiate and process mortgage originations, which is the primary basis of our revenue generation. The Company is billed annually at a rate of $460,973 per year, which was paid on May 1, 2022.

 

Affiliation Agreements

 

We enter into affiliation agreements with Affiliate Brokers, pursuant to which we and the Affiliate Broker enter into an affiliation relationship with the intention of jointly marketing mortgage brokerage and other financial services as affiliated entities, sometimes referred to as “white labelling”, which allows the Affiliate Broker to sell a mortgage that is branded with its company name to its own client base. Pursuant to these affiliation agreements, we generally receive a fixed commission from the Affiliate Broker for any mortgage transaction where the Affiliate Broker has acted as the mortgage broker for the borrower. In general, these affiliation agreements have an indefinite term and may be terminated by either party upon thirty days written notice.  

 

Changes to Contracts

 

The Company does not expect its business to be affected in the current financial year by renegotiation or termination of contracts or sub-contracts.

 

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Regulatory Environment

 

Brokerage License Requirements

 

In order to operate its mortgage broker business, we must remain duly licensed as a mortgage broker to deal and trade in mortgages in accordance with the Mortgage Brokerages, Lenders and Administrators Act, 2006 (Ontario), as amended (the “MBLA Act”). We have had our mortgage brokerage license since November 2016 and it has been renewed each year without issue. We will be subject to similar legislation and license requirements in the other provinces in Canada where we intend to expand.

 

In accordance with the MBLA Act, individuals, including directors, officers, partners, directors and officers of corporate partners, employees or agents of a mortgage brokerage company, such as the Company, who are engaged in dealing mortgages or trading in mortgages on its behalf must obtain a mortgage broker or mortgage agent license. A mortgage broker or agent license authorizes an individual to work for only the mortgage brokerage company named under the license. An individual cannot be licensed to work for more than one mortgage brokerage company. The Superintendent of Financial Services will use the information obtained in a mortgage broker license application to determine whether an applicant meets the prescribed eligibility requirements and is suitable for a license. The applicant will be required to submit documents to support certain pieces of information about the business.

 

Application Process. The application must be completed and submitted to certain regulatory authorities in the provinces and territories of Canada (each a “Regulatory Authority”), such as the Financial Services Regulatory Authority Ontario. The Regulatory Authority will send to the applicant an email acknowledgement upon receipt of the application. The Regulatory Authority will advise the applicant if the application is in order to proceed to the next step in the process. In the next step, the applicant will prepare and submit the application to license the mortgage brokerage’s principal broker and prepare and submit the online declarations for all the directors/officers/partners via The Regulatory Authority’s online licensing system. All directors and officers of the mortgage brokerage company applicant (“DOPs”) are required to provide confirmation of their suitability for licensing of the mortgage brokerage. A mortgage brokerage’s license can only be approved or issued when all the declarations from DOPs are received and reviewed by the Regulatory Authority. Once the brokerage’s license has been approved an email will be sent to the principal broker to indicate the brokerage’s license number. No paper license will be issued. At this point, the brokerage may prepare and submit applications to license its other brokers and agents via the online licensing system.
  
Fraud Prevention Measures. FSRA is required to maintain a public registry of licensed mortgage brokerages. Consistent with FSRA’s role in protecting the public interest FSRA collaborates with other organizations, including other regulators, fraud prevention organizations and law enforcement agencies.
  
Fees and Renewal. Fees are payable in respect of all applications for licenses, other than for the mortgage brokerage’s principal broker. The fees are based on a one-year cycle. The fee due is prorated based on when the application is submitted. To simplify the payment and reconciliation process, mortgage brokerages are also required to submit fees on behalf of their agents and brokers. These fees are paid electronically when the mortgage brokerage submits license applications for its brokers and agents through the online licensing system. Once licensed, every mortgage brokerage must pay a regulatory fee in respect of each new one-year cycle. This fee is due every year on March 31. The mortgage brokerage must also pay fees on behalf of each agent and broker, other than the principal broker, when renewing their broker or agent licenses for the same one-year cycle.

 

Insurance Regulation

 

Pineapple Insurance is subject to federal, as well as provincial and territorial, regulation in Canada in the provinces and territories in which they underwrite insurance/reinsurance. The Office of the Superintendent of Financial Institutions (“OSFI”) is the federal regulatory body that, under the Insurance Companies Act (Canada) (the Insurance Companies Act”), prudentially regulates federal Canadian and non-Canadian insurance and reinsurance companies operating in Canada. Pineapple Insurance is licensed to carry on insurance business by OSFI and in each province and territory.

 

Under the Insurance Companies Act, Pineapple Insurance is required to maintain an adequate amount of capital in Canada, calculated in accordance with a test promulgated by OSFI called the Minimum Capital Test. Under the Insurance Companies Act, approval of the Minister of Finance (Canada) is required in connection with certain acquisitions of shares of, or control of, Canadian insurance companies such as Pineapple Insurance, and notice to and/or approval of OSFI is required in connection with the payment of dividends by or redemption of shares by Canadian insurance companies such as Pineapple Insurance.

 

Other Regulations

 

In addition, the Company must comply with all federal, provincial and municipal laws that affect a Canadian business including employment, workers’ compensation, insurance, corporate, and tax laws and regulations.

 

Bankruptcy and Similar Procedures

 

The Company has not had any bankruptcy (whether voluntary or otherwise), receivership or other similar proceedings instituted by it or against it since its incorporation nor are any such proceedings being contemplated or threatened in the foreseeable future.

 

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Material Restructuring Transactions

 

Pineapple has not completed any material restructuring transactions since incorporation.

 

Incorporation

 

The Company was incorporated under the OBCA on October 16, 2015 under the name “2487269 Ontario Limited” (doing business under the name of Capital Lending Centre). The Company’s head office is located at Unit 200, 111 Gordon Baker Road, North York, Ontario M2H 3R1 and its registered and records office is located at 67 Mowat Avenue Suite 122, Toronto, Ontario M6K 3E3. On June 16, 2021, the Company changed its name to “Pineapple Financial Inc.”.

 

Effective July 15, 2016, as further amended on September 9, 2016, the Company amended its articles to create and attach special rights and restrictions to an unlimited number of Class A Shares, an unlimited number of Class B Shares, and an unlimited number of Class C Shares. For more information of the special rights and restrictions of the Common Shares, Class A Shares, Class B Shares, and Class C Shares, see “Description of Securities”. Under the Company’s articles, a director or senior officer who holds a material interest in a contract or a transaction into which the Company has entered or proposes to enter must disclose the nature and extent of this interest to the Board of the Company and may not enter into any such contract or transaction prior to receiving approval from disinterested members of the Board.

 

Corporate Structure

 

The Company has two wholly owned subsidiaries: Pineapple Insurance Inc. (“Pineapple Insurance”) and Pineapple National Inc. (“Pineapple National”). Pineapple Insurance was incorporated under the OBCA on December 14, 2016, under the name “CLC Insurance Inc.” and changed its name to Pineapple Insurance Inc. on July 12, 2021. Pineapple Insurance has a registered and records office located at Suite 200, 111 Gordon Baker Road, Suite 200, North York, Ontario M2H 3R1. Pineapple National was incorporated under the Canada Business Corporations Act on November 9, 2021, with a registered and records office located at 10th Floor, 595 Howe Street, Vancouver, British Columbia V6C 2T5.

 

 

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MANAGEMENT

 

Executive Officers, Directors

 

The following table sets forth our executive officers and directors, their ages and the positions held by them:

 

Name   Age   Position   Date Appointed
Shubha Dasgupta   43   Chief Executive Officer and Director   October 16, 2015
Rupen Shah   59   Chief Financial Officer   November 15, 2021
Christa Mitchell   41   Chief Strategy Officer and Director   April 1, 2020
Kendall Marin   47   President, COO, and Director   October 16, 2015
Drew Green   48   Chairman of the Board   May 6, 2019
Paul Baron   60   Director   August 19, 2016
Tasis Giannoukakis   60   Director   August 19, 2016
Nima Besharat   41   Director   May 26, 2021

 

Shubha Dasgupta, Chief Executive Officer and Director

 

Since entering the mortgage industry in 2008, Shubha has been focused on positively disrupting the sector by leveraging technology and putting people at the heart of the business. Shubha’s unique vision and expertise have allowed him to build and grow the Company (formerly CLC Network), which now has over 500 brokers in its network. Under his leadership, the company has built a world-class proprietary data-driven Client Relationship Management (CRM) Platform, which is the first full-circle mortgage process for agents, offering a more personalized experience for clients. Shubha’s deep understanding of business and industry trends, coupled with the ability to drive best-in-class customer experience and profitability have enabled him to infuse vision and purpose in his professional endeavors throughout his career. An award-winning executive and seasoned industry expert, Shubha was recognized among the “2020 Mortgage Global 100” top executives who are inciting positive change and growth within the field. Since 2018, he has also been featured for four consecutive years in the annual Canadian Mortgage Professional’s Hot List which highlights the industry’s top leaders. In 2021, he was appointed President of the Canadian Mortgage Brokers Association (CMBA) Ontario Board of Directors, after serving a second year on the Board of Directors. An active member in the Toronto community, Shubha is a philanthropic leader for various non-profit organizations. Since 2010, he has been a devoted advocate in the fight against cancer. Prior to joining the mortgage industry, he headed a group of volunteers for the Canadian Cancer Society for eight years. In 2017, he also co-founded CMI Cancer Fighters, a group of Canadian mortgage industry professionals dedicated to the fight against cancer on which he currently chairs.

 

Mr. Dasgupta has been the Chief Executive Officer and a director of the Company since October 16, 2015 and before that was a Mortgage Broker at Bedrock Financial Group between August 2008 and October 2016.

 

Rupen Shah, Chief Financial Officer

 

Rupen joins the Company with over 30 years of experience in finance and accounting, working with global public and private companies. In his previous function as Vice President, Finance and Administration at K-Line Group of Companies, he led the successful implementation of a 5-year strategic plan that generated 330% revenue growth and developed international divisions for the business, namely in Africa, India and the Middle East.

 

Having held leadership roles with SmartCentres REIT and CountryWide Homes, Rupen has a track record of providing effective corporate strategy consulting and driving stellar growth for businesses. A Chartered Professional Accountant (CPA) in Canada and an Associate Member of Chartered Institute of Management Accounts (CIMA) Global, Rupen has completed the Executive Master of Business Administration (EMBA) Americas Program from Cornell University and Queen’s University. As part of the program, he was a finance strategy consultant for Maxtrack Industrial in Brazil, realigning their business, managing change, and growth in the company.

 

Mr. Shah has been the Chief Financial Officer of the Company since November 15, 2021.

 

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Christa Mitchell, Chief Strategy Officer and Director

 

An established professional in the mortgage industry, Christa has more than 15 years of experience in sales, technology, and executive management. In previous roles at Mortgage Alliance, she succeeded in growing and managing a 90-members independently owned affiliate brokerage network and championing the company’s enterprise technology platform, where she was responsible for sales, education and the support team. While Vice President of Operations at her previous position, she directed corporate administration, payroll systems, broker recognition and networking events. In 2020, she was recognized in the Canadian Mortgage Professional’s annual ‘Women of Influence’, which highlights female leaders who have been breaking down barriers in the mortgage industry and making it more inclusive. Christa brings over 15 years of sales, technology, and administrative experience in the mortgage industry. Most recently Christa excelled as the company’s Vice President of Operations where she directed corporate administration, payroll systems, broker recognition and networking events.

 

Ms. Mitchell has been the Chief Strategy Officer and a director of the Company since April 2020. Before that, Ms. Mitchell was the Vice President of Operations and Vice President of Sales, Service and User Experience of Mortgage Alliance between September 2005 and March 2020.

 

Kendall Marin, President, Chief Operating Officer and Director

 

Mr. Marin has been the President and Chief Operating Officer and a director of the Company since October 16, 2015. Before that, Kendall was a Mortgage Broker for InTrend Mortgage Inc. between January 2012 and October 2015 and prior to that was a franchise owner at Property Guys between May 2010 and January 2013.

 

Kendall has been leading the growth of the company with regard to fine-tuning of business processes to ensure maximum productivity. His proven expertise, focus on excellence and dedication have enabled him to build and expand the Company’s network, as well as the company’s proprietary data-driven Client Relationship Management (CRM) platform.

 

Kendall has had a career both in the corporate world and as a seasoned entrepreneur. At the age of 16, he created his own entertainment and promotion company, which was highly successful in Toronto throughout the 2000s. Later on, when Kendall was ready to take on his next challenge, he joined Canada’s top telecom company Bell, where he became the youngest Associate Director. In 2012, he made his debut in the mortgage industry where he has applied his leadership, organizational and management skills to a new industry.

 

Since 2018, he has been featured for three consecutive years in the annual Canadian Mortgage Professional’s Hot List which recognizes the industry’s top leaders.

 

Drew Green, Chairman of the Board

 

Drew Green is President and Chief Executive Officer of INDOCHINO, growing the brand by over 600% between 2015- 2022, delivering nine figures in revenue in 2018, currently with 86 showrooms across North America and operations globally. Mr. Green has been recognized as Entrepreneur of the Year by Ernst & Young, US Retailer of the Year, Innovator of the Year, along with other awards during his career. At INDOCHINO, Mr. Green has established strategic capital from Madrona Venture Partners, Highland Consumer, Dayang Group, Mitsui & Co. (TSE: 8031) and Postmedia Network, (TSX: PNC.B) along with partnerships with the New York Yankees, Boston Red Sox, Nordstrom, and hundreds of National Basketball Association (NBA), Major League Baseball (MLB), National Football League (NFL), and National Hockey League (NHL) teams, athletes and celebrities.

 

In addition, Mr. Green is a Founder and Chairman of the Board of Directors of EMERGE Commerce Ltd. (TSXV: ECOM), a diversified, acquirer and operator of Direct to Consumer (DTC) e-commerce brands across North America. He also serves as Chairman of Real Luck Group Ltd. (TSXV: LUCK), a company that offers legal, real-money betting, live streams, and statistics on all major e-sports and sports on desktop and mobile devices and Chairman American Aires Inc. (CSE: WIFI) a Canadian-based nanotechnology company which has developed proprietary silicon-based microprocessors that reduce the harmful effects of electromagnetic radiation (EMR) along with being Chairman of Gravitas II (TSXV: GII.P) and Gravitas III (TSXV:TRIG.P). Through his family office DREWGREEN.CA INC., Mr. Green has become a mentor to dozens of Canadian entrepreneurs, becoming a founder, chairman, and/ or a shareholder in dozens of private and public companies that drive innovation and growth, including Riverdale Rentals, Pineapple Financial, Apollo Insurance, Parvis Invest, OR Collective, Yourika, Cloudrep AI and Between Co., a company founded by York University alumni.

 

Drew served as a Director at The Scarborough Hospital Foundation for many years, and has established the Drew Green Thunderbird Award at the University of British Columbia and The Drew Green Lions Award at York University, providing student-athletes at both institutions with scholarships. He currently is a director on York University’s Alumni Board, Canada’s fourth-largest university, with approximately 55,700 students, 7,000 faculty and staff, and over 325,000 alumni worldwide.

 

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Paul Baron, Director

 

Paul is a veteran Real Estate Executive with over 30 years of experience working with both residential and commercial properties. In his first year as a Sales Representative for Family Trust Realty, he sold 37 homes, quickly demonstrating both his sales smarts and entrepreneurial drive. He has held various positions with increasing responsibility and is currently the owner of Century 21 Leading Edge Realty, a real estate brokerage with nine offices, six satellite offices, and over 800 agents and employees. He is currently serving as the Central Brokerage Director on the Toronto Real Estate Board’s (TREB) Board of Directors.

 

Mr. Baron has been a Director of the Company since August 19, 2016. Prior to his position with the Company, Mr. Baron was the President of Century 21 Leading Edge Reality Inc. since November 1994.

 

Tasis Giannoukakis, Director

 

Tasis is an owner, broker, and manager of Century 21 Leading Edge Realty, a real estate brokerage with nine offices, six satellite offices, and over 800 agents and employees. In 2019, his team had more sales than any other Century 21 franchise in Canada and broke into the company’s worldwide top five. He has been with Century 21 Leading Edge Realty for over 20 years, and the firm continues its expansion through acquisitions of other firms to further solidify their position in the Canadian Real Estate market.

 

Mr. Giannoukakis has been a Director of the Company since August 19, 2016. Prior to such, he was a Broker/Owner of Century 21 Leading Edge Reality Inc. since August 2004.

 

Nima Besharat, Director

 

Nima currently serves as Director, Investment Banking at Gravitas Securities Inc., a leading independent, internationally owned and operated wealth management and capital markets firm. Gravitas Securities Inc. is a full-service investment dealer platform registered with Investment Industry Regulatory Organization of Canada (IIROC) and a member of Canadian Investor Protection Fund.

 

Nima has experience in wealth management and asset management at Scotiabank (TSX: BNS) and TD Bank Group (TSX: TD). He is a Director of General Assembly Holdings Ltd. (TSXV: GA), a fast-casual restaurant concept with the goal of providing customers with premium quality pizza and is currently the CEO, CFO and Director of Gravitas II Capital Corp. (TSXV: GII.P).

 

Nima holds a Bachelor of Arts in Economics and History from Western University, a Bachelor of Laws (Hons.) from the University of Sheffield, a Master of Laws in International Business Law from King’s College London, University of London (Dr. Peter Dyne Scholar), and a Postgraduate Diploma in Legal Practice (Corporate Finance) from the University of Law (UK). Nima was called to the bar in Ontario in 2017. He has completed the Canadian Securities Course, Conduct and Practices Handbook Course, Chief Compliance Officers Qualifying Exam and the Partners, Directors and Senior Officers Course through the Canadian Securities Institute. Nima was nominated for the Investment Industry Association of Canada (IIAC) Top 40 Under 40 Award in 2020, recognizing professionals whose accomplishments have brought distinction to the investment/financial industry.

 

49
 

 

Corporate Governance

 

The Company and the Board recognize the importance of corporate governance to the effective management of the Company and to the protection of its employees and shareholders. The Company’s approach to significant issues of corporate governance is designed with a view to ensuring that the business and affairs of the Company are effectively managed to enhance shareholder value. The Board fulfills its mandate directly and through any of its subcommittees at regularly scheduled meetings or at meetings held as required. Frequency of meetings may be increased, and the nature of the agenda items may be changed depending upon the state of the Company’s affairs and in light of opportunities or risks which the Company faces. The directors are kept informed of the Company’s business and affairs at these meetings as well as through reports and discussions with management on matters within their particular areas of expertise.

 

Board of Directors

 

Our Board is responsible for the stewardship of the Company, overseeing management and the enhancement of shareholder value. The Board is responsible for:

 

(a)adopting a strategic plan for the Company and reviewing the plan in light of management’s assessment of emerging trends, the competitive environment, the opportunities for the business of the Company, risk issues, and significant business practices and products;
   
(b)ensuring that the risk management of the Company is prudently addressed;
   
(c)reviewing the Company’s approach to human resource management and overseeing succession planning for management;
   
(d)reviewing the Company’s approach to corporate governance, including an evaluation of the adequacy of the mandate of the Board, director independence standards and compliance with the Company’s Code of Business Conduct and Ethics to be adopted upon the consummation of this offering and;
   
(e)upholding a comprehensive policy for communications with shareholders and the public at large.

 

The frequency of meetings of the board of directors and the nature of agenda items may change from year to year depending upon the activities of Pineapple. Our board of directors intend to meet at least quarterly and at each meeting there is a review of the business of Pineapple.

 

Our board of directors facilitate its exercise of independent supervision over the Company’s management through meetings of the board held for the purposes of obtaining an update on significant corporate activities and plans, both with and without members of the Company’s management being in attendance.

 

Board Composition; Independence

 

The Nasdaq Stock Market LLC (“Nasdaq”) requires that a majority of our board of directors must be composed of “independent directors,” which is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. The Board has determined that Paul Baron, Tasis Giannoukakis, Drew Green and Nima Besharat are considered to be independent. Our Board currently consists of seven directors, four of whom are independent.

  

Board Committees

 

Our Board directs the management of our business and affairs and conducts its business through meetings of the Board and its standing committees. As of the date hereof, the Board has no committees other than the Audit Committee. In addition to the Audit Committee, we will have a standing compensation committee and nominating and corporate governance committee. In addition, from time to time, special committees may be established under the direction of the board of directors when necessary to address specific issues.

 

50
 

 

Audit Committee

 

The Company has formed an Audit Committee comprised of Paul Baron, Drew Green (Chair) and Tasis Giannoukakis. Our Board has affirmatively determined that each meets the definition of “independent director” under the rules of The Nasdaq Capital Market, and that they meet the independence standards under Rule 10A-3. Each member of our audit committee meets the financial literacy requirements of Nasdaq

 

The Audit Committee provides assistance to the Board in fulfilling its obligations relating to the integrity of the internal financial controls and financial reporting of the Company. The external auditors of the Company report directly to the Audit Committee. The Audit Committee’s primary duties and responsibilities set forth in the Audit Committee’s charter include the following: (i) reviewing and reporting to the Board on the annual audited financial statements (including the auditor’s report thereon) and unaudited interim financial statements and any related management’s discussion and analysis, if any, and other financial disclosure related thereto that may be required to be reviewed by the Audit Committee pursuant to applicable legal and regulatory requirements; (ii) overseeing the audit function, including engaging in required discussions with the Company’s external auditor and reviewing a summary of the annual audit plan, overseeing the independence of the Company’s external auditor, overseeing the Company’s internal auditor, and pre-approving any non-audit services to the Company; (iii) reviewing with management and the Company’s external auditors the integrity of the internal controls over financial reporting and disclosure; (iv) reviewing management reports related to legal or compliance matters that may have a material impact on the Company and the effectiveness of the Company’s compliance policies; and (v) maintaining, reviewing and updating the Company’s whistleblowing procedures.

 

Relevant Education and Experience

 

Each proposed member of the Audit Committee has adequate education and experience that is relevant to their performance as an Audit Committee member and, in particular, the requisite education and experience that have provided the member with:

 

(a)an understanding of the accounting principles used by the Company to prepare its financial statements and the ability to assess the general application of those principles in connection with estimates, accruals and reserves;
   
(b)experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company’s financial statements or experience actively supervising individuals engaged in such activities; and
   
(c)an understanding of internal controls and procedures for financial reporting.

 

For a summary of the experience and education of the Audit Committee members see “Directors and Executive Officers”.

 

Audit Committee Oversight

 

At no time since the commencement of the Company’s financial year was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by the Board.

 

Pre-Approval Policies and Procedures

 

The Audit Committee mandate requires that the Audit Committee pre-approve any retainer of the auditor of the Company to perform any non-audit services to the Company that it deems advisable in accordance with applicable legal and regulatory requirements and policies and procedures of the Board. The Audit Committee is permitted to delegate pre-approval authority to one of its members; however, the decision of any member of the Audit Committee to whom such authority has been delegated must be presented to the full Audit Committee at its next scheduled meeting.

 

51
 

 

Compensation Committee

 

We intend to appoint to our Compensation Committee three directors that will satisfy the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq and meet the independence standards under Rule 10A-3 under the Exchange Act. Our Compensation Committee will assist the Board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. No officer may be present at any committee meeting during which such officer’s compensation is deliberated upon. The Compensation Committee will be responsible for, among other things:

 

reviewing and approving to the Board with respect to the total compensation package for our most senior executive officers;
   
approving and overseeing the total compensation package for our executives other than the most senior executive officers;
   
reviewing and recommending to the Board with respect to the compensation of our directors;
   
reviewing periodically and approving any long-term incentive compensation or equity plans;
   
selecting compensation consultants, legal counsel or other advisors after taking into consideration all factors relevant to that person’s independence from management; and
   
programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans

 

Nominating and Corporate Governance Committee

 

We intend to appoint to our Nominating and Corporate Governance Committee three directors that will satisfy the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and meet the independence standards under Rule 10A-3 under the Exchange Act. The Nominating and Corporate Governance Committee is responsible for overseeing the selection of persons to be nominated to serve on our Board. The Nominating and Corporate Governance Committee considers persons identified by its members, management, shareholders, investment bankers and others.

 

52
 

 

Directorships

 

Some of the directors of the Company serve on the boards of directors of other reporting issuers (or the equivalent) in Canada or foreign jurisdictions. The following table lists the directors of the Company who serve on boards of directors of other reporting issuers (or the equivalent) and the identities of such reporting issuers (or the equivalent).

 

Name of Director Reporting Issuers (or the Equivalent)
Drew Green  EMERGE Commerce Ltd.
American Aires Inc.
Real Luck Group Ltd.
Gravitas II Capital Corp.
Gravitas III Capital Corp.
Nima Besharat  General Assembly Holdings Ltd.
Gravitas II Capital Corp.

 

The Board has determined that these inter-locking directorships do not adversely impact the effectiveness of these directors on the Board or create any potential for conflicts of interest. However, certain of the Company’s directors are, or may become, directors, officers or shareholders of other companies with businesses which may conflict with the Company’s business.

 

Orientation and Continuing Education

 

The Company has not yet established a formal orientation or education procedure for newly incoming directors. Board members are encouraged to communicate with management and auditors, to keep themselves current with industry trends and developments, and to attend related industry seminars. Board members have full access to the Company’s records.

 

Code of Business Conduct and Ethics

 

We have not yet adopted a written Code of Business Conduct and Ethics; however, upon the commencement of this offering, we intend to adopt a formal written Code of Business Conduct and Ethics which emphasizes the importance of matters relating to honest and ethical conduct, conflicts of interest, confidentiality of corporate information, protection and proper use of corporate assets and opportunities, compliance with applicable laws, rules and regulations and the reporting of any illegal or unethical behavior.

 

Nomination of Directors

 

The Board has not formed a nominating committee or similar committee to assist the Board with the nomination of directors for the Company. The Board considers itself too small to warrant creation of such a committee; and each of the directors has contacts he can draw upon to identify new members of the Board as needed from time to time. The Board will continually assess its size, structure and composition, taking into consideration its current strengths, skills and experience, proposed retirements and the requirements and strategic direction of the Company. As required, the directors of the Company will recommend suitable candidates for consideration as members of the Board.

 

Compensation

 

The Board reviews the compensation of its directors and Chief Executive Officer annually. The steps taken by the Company to determine compensation for the directors and officers of the Company are described under the heading “Director and Executive Compensation – Compensation Governance.”

 

Director Assessment

 

The Board is responsible for ensuring that an appropriate system is in place to evaluate the effectiveness of the Board as a whole, the individual committees of the Board, and the individual members of the Board and such committees with a view of ensuring that they are fulfilling their respective responsibilities and duties. In connection with such evaluations, each director is required to provide his assessment of the effectiveness of the Board and each committee as well as the performance of the individual directors, annually. Such evaluations take into account the competencies and skills each director is expected to bring to his particular role on the Board or on a committee, as well as any other relevant factors.

 

Family Relationships

 

None of our directors or executive officers has a family relationship as defined in Item 401 of Regulation S-K.

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, none of our directors or executive officers has, during the past 10 years, been involved in any legal proceedings described in subparagraph (f) of Item 401 of Regulation S-K.

 

Board Diversity

 

The directors serving on our board come from diverse backgrounds that align with our business requirements, help us to address the risks to which our business is subject, and foster sound business judgments. We also believe that the composition of our board now complies with the newly adopted standards for diverse board composition under Nasdaq Listing Rule 5605(f), or the Nasdaq Board Diversity Rule, which rule was approved by the Securities and Exchange Commission on August 6, 2021. Under the rule as approved, “foreign issuers” can meet the diversity requirement with either two female directors or one female director and one director who is an underrepresented individual based on national, racial, ethnic, indigenous, cultural, religious or linguistic identity in its home country or LGBTQ+. Companies with five or fewer directors can meet the requirement by having at least one director who meets the definition of “diverse” under the new rule. The requirements will become effective from August 7, 2023.

 

The company will be relying on rules applicable to U.S. domestic companies The Company intends to meet the diversity objective as set out in Nasdaq’s Board Diversity Rule 5605(f).

 

53
 

 

EXECUTIVE AND DIRECTOR COMPENSATION

 

Summary Compensation Table

 

The following table sets out the compensation paid or payable to the Named Executive Officers (“NEO”) of the Company during the last two fiscal years:

 

Name and Principal Position  Year   Salary ($)   Bonus ($)   Stock Awards ($)   Option Awards ($)   Non-Equity Incentive Plan Compensation ($)    Nonqualified Deferred Compensation Earnings  ($)     All Other Compensation ($)   Total  ($) 
Shubha Dasgupta,   2022    189,288   $   $0   $0   $              0   $                0   $11,357    

200,645

 
Chief Executive Officer   2021    189,288                 282,399              11,357    483,044 
Rupen Shah (1),   2022    185,344   $    $0   $92,468   $0   $0   $

6,625

    284,437 
Chief Financial Officer      2021              

              
Christa Mitchell,     2022    189,288   $    $0   $0   $0   $0   $11,357    200,645 
Chief Strategy Officer     2021    189,288   $    $0   $

72,877

   $0   $0   $ 11,357    273,522 
Kendall Marin, President and   2022    189,288   $    $0   $        

11,357

    200,645 
Chief Operating Officer   2021    189,288   $    $0   $

282,399

   $0   $0   $11,357    483,044 

 

(1) Mr. Shah was appointed Chief Financial Officer of the Company on November 15, 2021 and as part of his package was awarded 245,000 options at the base price of $0.985 amounting to approximately $92,468.

 

Equity Awards at 2022 Fiscal Year-End

 

The following table sets forth information concerning outstanding equity awards for each of the NEOs and directors as of the end of the fiscal year ended August 31, 2022.

 

    Option Awards    Stock Awards 
Name and Principal Position   Number of Securities Underlying Unexercised Options (#) Unexercisable    Number of Securities. Underlying Unexercised Options (#) Exercisable    Weighted Average Option Exercise Price ($)    Option Expiration Date    Number of Shares or Units of Stock That Have Not Vested (#)    Market Value of Shares or Units of Stock That Have Not Vested 
Shubha Dasgupta,
   

123,485

    

370,456

   $

0.95

    

June 14, 2026

    

N/A

    

N/A

 
Chief Executive Officer and Director                        
                               
Tasis Giannoukakis,
   9,958     29,876   $0.95    June 14, 2026     N/A    N/A 
Director                              
                              
Drew Green,
   99,585    298,755   $0.95    June 14, 2026     N/A    N/A 
Chairman of the Board                              
                               
Kendall Marin,
   123,485    

370,456

   $0.95    June 14, 2026     N/A    N/A 
President, Chief Operating Officer, and Director                              
                               
Christa Mitchell,   

31,867

    

95,602

   $0.95    June 14, 2026    N/A    N/A 
Chief Strategy Officer and Director                              
                               
Paul Baron,   

9,958

    

29,876

   $

0.95

    June 14, 2026    N/A    N/A 
Director                              
                               
Nima Besharat,   

153,207

    

459,623

   $0.95    June 14, 2026    N/A    N/A 
Director                              
                               

Rupen Shah,

   175,000    70,000    $0.98     November 15, 2026     N/A    N/A 
Chief Financial Officer                              

 

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Compensation Governance

 

The Company has not been a reporting issuer during any financial period to date. The significant elements of future compensation to be awarded or paid to the Company’s directors and/or executive officers, including NEOs, once the Company becomes a reporting issuer is expected to consist primarily of management fees, stock options and cash bonuses. The amount to be paid for each element of compensation will not be based on any formula or specific objective criteria but is expected to be the result of a subjective determination of the Board in consideration of a number of factors, including, but not limited to: the overall financial and operating performance of the Company, each NEO’s individual performance and contribution towards meeting corporate objectives, each NEO’s level of responsibility, each NEO’s length of service, industry comparables and the Company’s ability to pay compensation. Payments may be made from time to time to executive officers, including Named Executive Officers, or companies they control for the provision of consulting or management services. Such services are paid for by the Company at competitive industry rates for work of a similar nature by reputable arm’s length services providers. Following the date of Listing, the Company expects to pay fees for management services pursuant to the terms of the agreement summarized under “Employment, Consulting and Management Agreements” below. Other than the Stock Option Plan, the Company has not established any other long-term incentive plan. Other than 2,451,189 Options under the Stock Option Plan, the Company has no stock options or other incentive securities outstanding; however, the Company may issue more stock options pursuant to its Stock Option Plan. See “Stock Option Plan” below and “Options to Purchase Securities”. In addition, it is anticipated that the Board may award bonuses, in its sole discretion, to executive officers, including NEOs, from time to time.

 

In assessing the compensation of its directors and executive officers, including the NEOs, the Company does not have in place any formal objectives, criteria or analysis. The general objectives of our compensation strategy are to: (a) compensate management in a manner that encourages and rewards a high level of performance and outstanding results with a view to increasing long term shareholder value; (b) align management’s interests with the long term interests of shareholders; (c) provide a compensation package that is commensurate with other companies to enable us to attract and retain talent; and (d) ensure that the total compensation package is designed in a manner that takes into account the Company’s financial condition and long term interests.

 

Compensation payable to executive officers and directors is currently reviewed and recommended by the Board, on an annual basis. See “Statement of Corporate Governance – Compensation”. The Company has not established any specific performance criteria or goals to which total compensation or any significant element of total compensation to be paid to any NEO is dependent. Specifically, in the most recently completed financial year, no compensation was directly tied to a specific performance goal such as a milestone or the completion of a transaction, no significant events occurred that significantly affected compensation, and no peer group was formally used to determine compensation. NEOs’ performance is reviewed in light of the Company’s objectives from time to time and such officers’ compensation is also compared to that of executive officers of companies of similar size and stage of development in the Company’s industry. Though the Company does not have pre-existing performance criteria, objectives or goals, it is anticipated that, once the Company becomes a reporting issuer, the Board will review all compensation arrangements and policies in place and consider the adoption of formal compensation guidelines.

 

Director Compensation

 

To date, we have not compensated our directors for their service to the Company, except that Drew Green receives monthly compensation of $7,887 and Nima Besharat received monthly compensation of $3,943 until his compensation terminated in February 2022.

 

55
 

 

External Management Companies

 

Other than as disclosed below under “Employment, Consulting and Management Agreements”, the Company has not entered into any agreement with any external management company that employs or retains one or more of the NEOs or directors and, other than as disclosed below, the Company has not entered into any understanding, arrangement or agreement with any external management company to provide executive management services to the Company, directly or indirectly, in respect of which any compensation was paid by the Company.

 

Stock Options and Other Compensation Securities

 

As of the date of this prospectus, the Company has granted 2,451,189 Options under the Stock Option Plan to directors and/or NEOs of the Company and no other compensation securities were granted or issued to any director and/or NEO for services provided or to be provided, directly or indirectly, to the Company or any of its subsidiaries.

 

During the year ended August 31, 2022 there was no exercise of Options granted under the Stock Option Plan or other rights to acquire securities of the Company by NEOs or directors of the Company.

 

Stock Option Plan 

 

On June 14, 2021 the Board approved our 2487269 Ontario Ltd. Stock Option Plan (the “Stock Option Plan”). As of the date of this prospectus, there are 2,451,189 options outstanding under the Stock Option Plan.

 

The purpose of the Stock Option Plan is to provide the Company with a share-related mechanism to attract, retain and motivate qualified directors, officers, employees and consultants, to reward those individuals from time to time for their contributions toward the long-term goals of the Company and to enable and encourage those individuals to acquire Common Shares as long-term investments. The material features of the Stock Option Plan are reflected in the disclosure below.

 

Key Terms   Summary
Administration   The Stock Option Plan is administered by the Board, or such director or other senior officer of the Company as may be designated as administrator by the Board. The Board or such committee may make, amend and repeal at any time, and from time to time, such regulations not inconsistent with the Stock Option Plan.