Pineapple Financial Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended May 31, 2024; financial statements are unaudited and presented in U.S. dollars. Pineapple is a Canadian mortgage and insurance fintech, operating a broker network and technology platform. It reported more than 600 brokers. The company completed its IPO in November 2023.
Financial performance and position
| Metric | Three months ended May 31, 2024 | Nine months ended May 31, 2024 |
|---|---|---|
| Revenue | $736,448, up 22.1% year over year | $1,971,377, up 1.7% |
| Operating loss | $896,148, versus $808,234 | $2,450,580, versus $2,211,981 |
| Net loss | $848,605, versus $808,234 | $2,379,444, versus $2,211,981 |
| Net loss per share, basic and diluted | $0.12 | $0.37, versus $0.35 |
| Operating cash flow | Not separately provided | $(1,443,610), versus $(1,942,895) |
- Nine-month gross billing was $12.43 million, with commission expense of $10.46 million. Revenue included $994,286 in net sales, $560,261 in subscriptions, $115,245 in underwriting, and other revenue.
- Cash was $748,769 at May 31, 2024, compared with $720,365 at August 31, 2023. Current assets were $1.05 million and current liabilities $689,772.
- Total liabilities were $2.26 million, including $1.01 million in lease liabilities, an $80,568 convertible note liability, and $62,733 in warrant liability. A $430,099 loan was repaid in March 2024.
- Net cash used in investing was $901,185, primarily reflecting $896,223 of additions to internally developed software. Intangible assets were $2.22 million at period end.
Changes versus comparable periods
- Third-quarter revenue and gross billing increased year over year, while net loss widened to $848,605 from $808,234. Expenses increased 15.7% in the quarter; depreciation rose substantially, and advertising and marketing increased 56.4%.
- For the nine-month period, revenue grew modestly, but net loss increased by about $167,000. Total expenses rose 6.6%; lower government incentive recoveries and higher depreciation contributed to the change. SG&A and marketing expenses declined year over year.
- Management reported nine-month residential mortgage loan production of $1.445 billion, up 12.1%, and third-quarter production of $503.5 million, up 22.7%. However, the separate KPI table reports mortgage volume of $1.084 billion for nine months and $377.6 million for the quarter; the filing text does not provide a clear reconciliation.
- Operating cash outflow improved from the prior-year period, while IPO proceeds and a convertible note supported financing cash flow. Cash at period end was $748,769, versus $856,300 at May 31, 2023.
Outlook, risks and unusual items
- No quantified financial guidance is provided. Management described high mortgage rates and economic uncertainty as reducing mortgage-originations demand, while noting seasonal strength typically occurs from May through September. The Bank of Canada cut its policy rate by 0.25 percentage points on June 5, 2024; management expressed hope that lower rates would support market volume.
- On May 10, 2024, the company issued a $300,000 unsecured convertible note bearing 8% interest, with a two-year term and a conversion price set at 75% of the preceding trading day’s VWAP. The note has a $75,000 prepayment fee. The filing reports a 46% estimated effective interest rate for its debt component.
- A subsequent event disclosed that 91,437 shares were issued in July 2024 against $50,000 of note principal and interest. The company also entered into a $15 million equity purchase facility, effective July 8, 2024, at 95% of market price, with 200,000 commitment-fee shares. This is a potential financing source, not cash already received.
- Management concluded disclosure controls and procedures were not effective as of May 31, 2024 because of deficiencies in internal control over financial reporting. It said it was implementing improvements, including added personnel, independent reviews, and segregation of duties.
- Management cited market demand, interest rates, regulation, competition, ability to fund its business plan, and staffing as risks. It reported no material legal proceedings and no claims expected to materially affect financial condition or results.
Important facts for investors to verify
- Reconcile the conflicting mortgage-volume figures in the MD&A and KPI tables, and clarify the differing gross-billing figures in the filing.
- Assess cash runway and financing needs against recurring operating losses, operating cash outflows, software investment, and lease commitments.
- Review the dilution and pricing implications of the convertible note, warrants, and equity purchase facility, including the 200,000 commitment-fee shares.
- Monitor remediation of the disclosed ineffective controls and confirm subsequent reporting compliance; the cover page indicates the company checked “No” for having filed all required reports during the preceding 12 months.