UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended August 31, 2024
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ______ to ______
Commission
file number 001-41738
PINEAPPLE
FINANCIAL INC.
(Exact
Name of Registrant as Specified in Its Charter)
Canada Not applicable
Unit 200, 111 Gordon Baker Road
North York, Ontario M2H 3R1
(Address of principal executive offices, including ZIP code)
(Registrant’s telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Trading Symbol Name of exchange on which registered
Common Shares, no par value PAPL NYSE American
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
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 definition 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 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes ☐ No☒
As
of August 31, 2024 (the last business day of the registrant’s most recently completed year end), the aggregate market
value of the registrant’s common shares held by non-affiliates of the registrant was approximately $4.313 million, based on the closing price
on that date as reported on the NYSE American LLC.
Number
of shares of common shares outstanding as of December 19, 2024 was 8,808,019.
Documents
Incorporated by Reference: None.
TABLE
OF CONTENTS
Part I
Item 1. Business 1
Item 1A. Risk Factors 17
Item 1B. Unresolved Staff Comments 34
Item IC. Cybersecurity 34
Item 2. Properties 34
Item 3. Legal Proceedings 34
Item 4. Mine Safety Disclosures 34
Part II
Item 6. [Reserved] 35
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 49
Item 8. Financial Statements and Supplementary Data 51
Item 9A. Controls and Procedures 51
Item 9B. Other Information 51
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 51
Part III
Item 10. Directors, Executive Officers and Corporate Governance 52
Item 11. Executive Compensation 58
Item 14. Principal Accountant Fees and Services 63
Part IV
Item 15. Exhibit and Financial Statement Schedules 64
Signatures 65
i
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Any statements in this Annual Report on Form 10-K about our expectations, beliefs, plans, objectives, assumptions or future
events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through
the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,”
“intend,” “plan” and “would.” For example, statements concerning financial condition, possible or
assumed future results of operations, growth opportunities, industry ranking, plans and objectives of management, markets for our common
stock and future management and organizational structure are all forward-looking statements. Forward-looking statements are not guarantees
of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity,
performance or achievements to differ materially from any results, levels of activity, performance or achievements expressed or implied
by any forward-looking statement.
Any
forward-looking statements are qualified in their entirety by reference to the risk factors discussed throughout this Annual Report on
Form 10-K. Some of the risks, uncertainties and assumptions that could cause actual results to differ materially from estimates or projections
contained in the forward-looking statements include, but are not limited to:
● 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
foregoing list sets forth some, but not all, of the factors that could affect our ability to achieve results described in any forward-looking
statements. You should read this Annual Report on Form 10-K and the documents that we reference herein and have filed as exhibits to
the Annual Report on Form 10-K, completely and with the understanding that our actual future results may be materially different from
what we expect. You should assume that the information appearing in this Annual Report on Form 10-K is accurate as of the date hereof.
Because the risk factors referred to on page 17 of Annual Report on Form 10-K could cause actual results or outcomes to differ materially
from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking
statements. Further, any forward-looking statement speaks only as of the date on which it is 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. New factors emerge from time to time, and it is not possible for us to
predict which factors will arise. 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.
We qualify all of the information presented in this Annual Report on Form 10-K, and particularly our forward-looking statements, by these
cautionary statements.
ii
SUMMARY
OF RISK FACTORS
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 17, 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;
●our Common Shares may be subject to significant price volatility;
●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.
iii
ITEM
1. 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:
We currently operate exclusively in Canada, specifically in the provinces
of Ontario, Newfoundland and Labrador, New Brunswick, Nova Scotia, British Columbia, Prince Edward Island, Manitoba 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 1 provinces to follow is 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. We launched our first British Columbia brokerage office in 2024. 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.
Our
primary objectives and goals include, but are not limited to, the following:
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:
Insurance
Products
Pineapple Insurance Inc. 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
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:
Pineapple
Insurance officially launched in October 2024, marking a significant milestone in Pineapple Financial’s diversification strategy.
The costs anticipated for Pineapple Insurance are largely tied to marketing efforts, human capital, and platform development. Human capital
costs include a fixed expense for senior leadership, along with variable costs for additional personnel as the business scales. With
the strategic integration of Pineapple Insurance into the MyPineapple platform, our development costs are aimed at ensuring seamless
client experiences and operational efficiency. We estimate that approximately 15% of the proceeds from the shares offering will be allocated
to support the continued growth and scaling of this business vertical.
The
growth timeline for Pineapple Insurance is projected at 12 to 24 months post-launch, reflecting strong initial demand and the effectiveness
of our comprehensive go-to-market strategy. This timeline is contingent upon the effectiveness of marketing campaigns, customer adoption
of the services offered by Industrial Alliance, and the competitiveness of pricing and premiums. The early success of our launch indicates
promising customer acceptance, supported by focused efforts to educate users on product variations and benefits. These efforts are expected
to accelerate market penetration and drive sustained growth for this subsidiary.
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:
Insurance
Products
In
order to achieve our objectives and goals, Pineapple Insurance will focus on four main areas:
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.
In alignment with the Canadian government’s
commitment to improving housing affordability and accessibility, several new housing measures have been introduced to support homeowners
and first-time buyers. These include enabling homeowners to refinance their mortgages to construct secondary rental suites and borrowing
up to 90% of their home’s value with a 30-year amortization period. Additionally, the mortgage insurance price limit has been increased
to $2 million, ensuring broader access to financing across Canada’s diverse housing markets.
The government has also proposed consultations on
taxing vacant land to encourage development and incentivize landowners to build homes. Collaboration with provinces, territories, and
municipalities is underway to implement these measures effectively. Starting December 15, 2024, two key rules will further aid affordability:
30-year mortgage amortizations will become available to all first-time homebuyers and buyers of new-build properties, and the price cap
for insured mortgages will rise to $1.5 million from $1 million.
Moreover, the federal government has expanded the
Canada Public Land Bank by adding 14 underused federal properties, bringing the total to 70. These properties across major cities are
slated for affordable housing developments. This initiative supports the government’s broader plan to unlock public lands for housing
and address the growing demand for homes while strengthening Canadian communities.
These measures, alongside the influx of new immigrants
and the rising demand for home renovations, refurbishments, and innovative financing solutions, create a favorable environment for Pineapple
Financial Inc. to continue expanding its offerings and capitalizing on these growth opportunities.
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.
Pineapple
Financial Inc. and Mortgage Market Dependency
As
of November 2024, Canada’s mortgage market continues to demonstrate resilience despite ongoing challenges. According to the Bank
of Canada, the total residential mortgage market is valued at over $1.6 trillion, driven by population growth, increasing borrower demand,
and evolving consumer sentiment. This figure excludes mortgages held by provincially regulated entities such as credit unions and mortgage
investment corporations.
Mortgage
lenders offer a broad range of products, including fixed and variable rates, varying terms, and flexible amortization periods. Recent
interest rate cuts by the Bank of Canada have rejuvenated the market, improving affordability for new buyers and creating opportunities
for existing homeowners to refinance or renew at more favorable terms. The practice of negotiating discounted rates remains prevalent,
highlighting the importance of mortgage brokers in securing competitive deals for clients.
Mortgage
brokers are critical intermediaries, leveraging their volume-based bargaining power to erode lender price discrimination and secure advantageous
rates. These professionals are provincially regulated and must meet stringent licensing and training requirements. While the barriers
to entry remain relatively low, successful brokers rely on experience, negotiating skills, and technological support to thrive in an
increasingly competitive market.
Key
trends currently influencing the market include:
Industry
Growth Strategy
Our
growth strategy focuses on organic expansion, targeting increased market share through:
Our
strategy is underpinned by a commitment to delivering superior value, leveraging data and insights to support broker success, and maintaining
flexibility to adapt to evolving market conditions. This approach ensures we remain a leader in the Canadian mortgage and brokerage industry.
Recent
Development
On
May 10, 2024, the Company entered into an equity purchase agreement (the “EPA”) with Brown Stone Capital Ltd., a corporation
organized under the laws of England and Wales (the “Selling Shareholder”) pursuant to which the Company shall issue and sell
to the Selling Shareholder, from time to time as provided herein, and the Selling Shareholder shall purchase up to Fifteen Million Dollars
($15,000,000.00) of the Company’s common shares and issue 200,000 Company’s common shares as a commitment fee under the EPA
to the Selling Shareholder (collectively as the “EPA Shares”) at purchase price to be determined as per the terms and conditions
of the EPA. The Company shall have the right, but not the obligation, to direct the Selling Shareholder, by its delivery to the Selling
Shareholder of a put notice from time to time, to purchase the EPA Shares (i) in a minimum amount not less than $10,000.00 and (ii) in
a maximum amount up to the lesser of (a) $1,000,000 or (b) 150% of the average trading volume of the Company’s common shares on
the NYSE American during the five (5) Trading Days immediately preceding the respective put notice date multiplied by the lowest daily
volume weighted average price of the Company’s common shares on the NYSE American during the five (5) trading days immediately
preceding the respective put notice date. The Company’s right to issue a put notice for the EPA Shares is subject to general terms
and conditions as stipulated under the EPA, including there being an effective registration statement covering the EPA Shares.
Pursuant
to the EPA, we may issue and sell up to $15 million of Common Shares to the Selling Shareholder. The price at which we may issue and
sell shares will be 95% of the lowest daily volume weighted average price of the Company’s Common Shares on the NYSE American during
the five (5) trading days immediately preceding the respective put notice date, in each case as reported by Quotestream or other reputable
source designated by the Selling Shareholder (the “Market Price”). Assuming that (a) we issue and sell the full $15 million
of Common Shares under the EPA to the Selling Shareholder, (b) no beneficial ownership limitations, and (c) purchase price for such sales
is $0.40 or $0.50 per share, such additional issuances would represent in the aggregate approximately 37,500,000 or 30,000,000 additional
Common Shares, respectively, or approximately 81% or 77% of the total number of Common Shares outstanding as of the date hereof, after
giving effect to such issuance. If the beneficial ownership limitation is not waived, we may issue approximately 269,480 Common Shares,
or approximately 19.99% of the total number of Common Shares outstanding as of the date hereof.
The
Market Price of our Common Shares on December 13, 2024, was $0.45. Assuming this is the Market Price used as a basis for the
calculations for the put notice under the EPA, the price per share for sales to the Selling Shareholder would be $0.43 (95% of the
Market Price), and we would be able to sell 269,480 shares to the Selling Shareholder (with beneficial ownership limit), and receive
gross proceeds of $115,876 such number of shares would comprise approximately 19.99% of our issued and outstanding Common
Shares, which would result in additional dilution of our shareholders.
In
relation to the EPA Shares the Company has entered into a registration rights agreement dated May 10, 2024 (the “RRA”) with
the Selling Shareholder, requiring the Company to register the EPA Shares issued under the EPA. Pursuant to the RRA, the Company has
agreed to file one or more registration statements with the Securities and Exchange Commission covering the registration of the EPA Shares.
Concurrently,
on May 10, 2024, the Company entered into a securities purchase agreement (the “SPA” and together with the EPA and the RRA
as the “Agreements”) with the Selling Shareholder, pursuant to which the Company has agreed to sell to the Selling Shareholder
a convertible promissory note (the “Note”) in the aggregate principal amount of $300,000, with an 8% per annum interest rate
and a maturity date of twenty four (24) months from the date of the issuance. The Note is convertible into the Company’s common
shares, no par value, subject to the terms and conditions therein, and a conversion price of equal 75% of the VWAP on the trading day
immediately preceding the respective conversion date, subject to adjustment as provided in the Note. The issuance of the Note is subject
to general terms and conditions as stipulated under the SPA, including the requirement of getting shareholder approval for any issuance
of common shares beyond the beneficial ownership limit of 19.99%.
As
an incentive to buy the Note, the Company had agreed to issue warrants to purchase 1,000,000 common shares (the “2024 Warrants”),
with an exercise price of $5 per share and term of nine (9) months from the date of issuance.
As per terms of the agreement, issuer of convertible debt exercise their right and the total principal portion $300,000 plus the interest
accrued thoron $4,437 was converted into common shares by issuing 501,874 common shares.
The
equity line of credit has had no immediate impact on our business. However, it positions us to draw capital for growth initiatives as
our share price increases, enhancing our ability to fund strategic investments and operational expansions. No assurances can be given
that the stock price will increase.
Conditions
Precedent to the Right of the Company to Deliver a Put Notice
Selling
Shareholders’ obligation to accept Put Notices that are timely delivered by us under the EPA and to purchase of our Common Shares
under the EPA, are subject to satisfaction of the conditions precedent thereto set forth in the EPA, all of which are entirely outside
of Selling Shareholders’ control, which conditions include the following:
No
Short-Selling or Hedging by Selling Shareholder
Selling
Shareholder has agreed that none of Selling Shareholder, its sole member, any of their respective officers, or any entity managed or
controlled by Selling Shareholder or its sole member will engage in or effect, directly or indirectly, for its own account or for the
account of any other of such persons or entities, any short sales of the Common Shares or hedging transaction that establishes a net
short position in the Common Shares during the term of the EPA.
Effect
of Sales of our Common Shares under the EPA on our Shareholders
The
Commitment Shares that we issued, and the EPA Shares to be issued or sold by us, to the Selling Shareholder under the EPA that are being
registered under the Securities Act for resale by the Selling Shareholder in this offering are expected to be freely tradable. The resale
by the Selling Shareholder of a significant amount of shares registered for resale in this offering at any given time, or the perception
that these sales may occur, could cause the market price of our Common Shares to decline and to be highly volatile. Sales of our Common
Shares, if any, to the Selling Shareholder under the EPA will depend upon market conditions and other factors to be determined by us.
If
and when we do sell Common Shares to the Selling Shareholder pursuant to the EPA, after the Selling Shareholder has acquired such shares,
the Selling Shareholder may resell all, some or none of such shares at any time or from time to time in its discretion and at different
prices. As a result, investors who purchase the shares from the Selling Shareholder in this offering at different times will likely pay
different prices for those shares, and so may experience different levels of dilution, and in some cases substantial dilution, and different
outcomes in their investment results. Investors may experience a decline in the value of the shares they purchase from the Selling Shareholder
in this offering as a result of future sales made by us to the Selling Shareholder at prices lower than the prices such investors paid
for their shares in this offering. In addition, if we sell a substantial number of Common Shares to the Selling Shareholder under the
EPA, or if investors expect that we will do so, the actual sales of shares or the mere existence of our arrangement with the Selling
Shareholder may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that
we might otherwise wish to effect such sales.
Because
the per share purchase price that the Selling Shareholder will pay for the EPA Shares in any put notice that we may elect to effect pursuant
to the EPA will be determined by reference to the VWAP during the applicable commitment period on the applicable put date for such put
notice, as of the date of this prospectus, it is not possible for us to predict the number of Common Shares that we will sell to the
Selling Shareholder under the EPA, the actual purchase price per share to be paid by the Selling Shareholder for those shares, or the
actual gross proceeds to be raised by us from those sales, if any.
As
of August 31, 2024, there were 8,425,352 Common Shares outstanding. Company has already issued 741,499 shares against
EPA out of the total 13,910,991 shares only 13,169,492 shares can further be offered. If all of the 13,169,492 shares offered
for resale by the Selling Shareholder under this prospectus were issued and outstanding, such shares would represent approximately
150% of the total number of outstanding Common Shares and approximately 249% of the total number of outstanding Common
Shares held by non-affiliates of our company, in each case as of August 31, 2024.
Although
the EPA provides that we may sell up to $15.0 million of our Common Shares to the Selling Shareholder, only 13,910,991 shares (which
includes the 200,000 Commitment Shares, for which we have not and will not receive any cash consideration) are being registered under
the Securities Act for resale by the Selling Shareholder under the registration statement that includes this prospectus. If we were to
issue and sell all of such 13,910,991 shares to the Selling Shareholder at an assumed purchase price per share of $0.97 (without taking
into account the 19.99% Exchange Cap limitation), representing the closing sale price of our Common Shares on Nasdaq on June 18, 2024,
we would only receive approximately $13.4 million in aggregate gross proceeds from the sale of such EPA Shares to the Selling Shareholder
under the EPA. Depending on the market prices of our Common Shares on the put dates on which we elect to sell such EPA Shares to the
Selling Shareholder under the EPA, we may need to register under the Securities Act additional Common Shares for resale by the Selling
Shareholder in order for us to receive aggregate proceeds equal to the Selling Shareholders’ $15.0 million maximum aggregate purchase
commitment available to us under the EPA.
If
we elect to issue and sell to the Selling Shareholder more Common Shares than the amount being registered, we must file with the SEC
one or more additional registration statements to register such additional shares, which the SEC must declare effective, in each case
before we may elect to sell any additional shares to the Selling Shareholder. For example, if the market price of our Common Shares falls
below $0.97, assuming no beneficial ownership limitations, we will be required to issue more shares than are currently being registered,
necessitating the filing of a new registration statement.
The
issuance of our Common Shares to the Selling Shareholder pursuant to the EPA will not affect the rights or privileges of our existing
shareholders, except that the economic and voting interests of each of our existing shareholders will be diluted. Although the number
of Common Shares that our existing shareholders own will not decrease, the Common Shares owned by our existing shareholder will represent
a smaller percentage of our total outstanding Common Shares after any such issuance.
The
following table sets forth the amount of gross proceeds we would receive from the Selling Shareholder from our sale of Common Shares
to the Selling Shareholder under the EPA at varying purchase prices and subject to the limitation of the number of shares being registered
at this time:
On
November 13, 2024 the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an institutional
investor, pursuant to which the Company issued and sold to the investor in a registered direct offering, 382,667 (the “RD Shares”)
of the Common Shares at a price of $0.60 per share, and pre-funded warrants to purchase up to 1,284,000 Common Shares at a price of $0.5999
per share and an exercise price of $0.0001 per Common Share.
The
securities to be issued in the registered direct offering were offered pursuant to the Company’s shelf registration statement on
Form S-3 (File No. 333-282629), initially filed by the Company with the Commission on October 15, 2024, as amended on October 25, 2024,
and declared effective on October 29, 2024. The offering closed on November 14, 2024 for approximately $1.0 million in gross proceeds.
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:
Primary
Competitors
Our
primary competitors consist of the following 3 categories:
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:
● Switch: We allow clients to easily transfer to another lender upon renewal.
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
Agreement
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 March 31 2025. 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 $807,435 per year, which
was during the year ended August 31, 2024
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.
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.
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