UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

FORM 10-Q

(Mark One)

[X]

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly Period EndedSeptember 30, 20172021

or

[  ]☐ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Forthe Transition period fromto ______________to ______________

Commission File Number: IMAGING3, INC.000-50099

GRAPEFRUIT USA, INC.

(Exact name of registrant as specified in its charter)

3022 North Hollywood Way, Burbank, California 915051000 Northwest Street, Mid-Town Brandy Wine, Suite 1200-3094, Wilmington, DE19801

(Address of principal executive offices) (Zip Code)

(818) 260-0930310-575-1175

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.0001 par value

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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

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

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

As of November 13, 2017,5, 2021, the number of shares outstanding of the registrant’s class of common stock was 310,082,295.554,162,744.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q 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, plans and objectives of management and markets for our common stock 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 our most recent Annual Report on Form 10-K and any updates described in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K as may be amended, supplemented or superseded from time to time by other reports we file with the U.S. Securities and Exchange Commission (the “SEC”). You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed as exhibits to the reports we file with the SEC, 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 Quarterly Report on Form 10-Q is accurate as of the date hereof. Because the risk factors in our SEC reports 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 the information presented in this Quarterly Report on Form 10-Q, and particularly our forward-looking statements, by these cautionary statements. 

PART I. FINANCIAL INFORMATION

Item1. CondensedItem 1. Financial Statements (Unaudited)

IMAGING3,GRAPEFRUIT USA, INC.

CONDENSEDCONSOLIDATED BALANCE SHEETS

AT SEPTEMBER 30, 2017 AND DECEMBER 31, 2016

The accompanying notes formare an integral part of these unaudited condensed consolidated financial statements

IMAGING3,

GRAPEFRUIT USA, INC.

CONDENSEDCONSOLIDTED STATEMENTS OF OPERATIONS

(UNAUDITED)(Unaudited)

The accompanying notes formare an integral part of these unaudited condensed consolidated financial statements

IMAGING3,

GRAPEFRUIT USA, INC.

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED

SEPTEMBER 30, 2017 AND 2016(Unaudited)

(UNAUDITED)

The accompanying notes formare an integral part of these unaudited condensed consolidated financial statements

IMAGING3, INC.

Notes to Condensed Financial Statements

(Unaudited)

1.

GRAPEFRUIT USA, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

(Unaudited)

NOTE 1 – ORGANIZATION AND DESCRIPTIONNATURE OF BUSINESSOPERATIONS

Imaging3, Inc. (the “Company”Grapefruit USA, Inc (“we”, “our”, “us”, “we”“GBI”, “Imaging3”“Grapefruit”, or “the Company”) iswas formed as a California corporation incorporated on October 29, 1993 as Imaging Services, Inc. The Company filed a certificateAugust 28, 2017 and began operating in September 2017.

On July 10, 2019, Grapefruit closed the Share Exchange after the completion of amendment of articles of incorporation to change its name toall conditions subsequent contemplated by the Share Exchange Agreement among the parties thereto ( “SEA”), by which Imaging3, Inc. (“IGNG”) was acquired in a reverse acquisition (the “Acquisition”) by the former shareholders of Grapefruit, the accounting acquirer. Under the terms of the SEA executed on August 20, 2002.May 31, 2019, IGNG became obligated to issue to Grapefruit’s existing shareholders that number of newly issued restricted IGNG common shares such that the former Grapefruit shareholders (now new IGNG shareholders) will own approximately 81% of the post-Acquisition IGNG common shares and the current IGNG shareholders will retain 19% of the post-Acquisition IGNG common shares. At the time of the execution of the SEA, IGNG had approximately 85,218,249 outstanding shares of common stock. Therefore, IGNG issued to Grapefruit’s shareholders 362,979,114 IGNG common shares to Grapefruit’s current shareholder on a pro rata basis with their then-current ownership of Grapefruit of which Bradley Yourist and Daniel J. Yourist own a combined 72.26%, or approximately 259,967,136 shares. Accordingly, the financial statements are prepared using the acquisition method of accounting with GBI as the accounting acquirer and IGNG treated as the legal acquirer and accounting acquiree. Because Imaging3, Inc. did not meet the accounting definition of an operating business, having only nominal assets, the reverse merger transaction was treated as a recapitalization and no goodwill was recognized.

The Company’s primary business is refurbishment and sale of medical equipment, parts and services to hospitals, surgery centers, research labs, physician offices and veterinarians. Equipment sales include new c-arms, c-arms tables, remanufactured c-arms, used c-arm and surgical tables. Part sales comprise new or renewed replacement parts for c-arms.

The Company has developedapplied for and received our provisional distribution renewal licensure which allows us to operate through June 14, 2022. Our annual manufacturing license has been renewed by the California Department of Health. Grapefruit has not yet applied for a proprietary medical technology designedlicense to produce 3D medical diagnostic imagescultivate and will not until construction has begun on our cultivation facility. We own two acres of fully entitled cannabis real property located in the Coachillin’ Industrial Cultivation and Ancillary Canna-Business Park. The location within Coachillin’ allows the Company to apply for and hold every cannabis license available under the California Cannabis laws.

We intend to buildout out the real time. property into a distribution, manufacturing and high-tech cultivation facility to facilitate our goal to become a seed to sale, fully vertically integrated Cannabis and CBD product Company. Grapefruit’s plans include an indoor 22,000 square foot multi-tiered canopy and adjoining tissue culture rooms.

We believe Imaging3 technology hasbecame members of the potential to contribute toIndian Canyon and 18th Property Association on September 19, 2017 and have an ownership interest of 1.46% based upon the improvement77,156 gross parcel square foot of healthcare. Our technology is designed to cause 3D imagesour property located in an approximately 5.3 million square foot facility. As of September 30, 2021, the common areas continue to be instantly constructed using high-resolution fluoroscopy. These images can be used as real time references for any current or new medical procedures in which multiple frames of referencebuilt throughout the entire canna-business park and are required to perform medical procedures on or in the human body. This technology is still in development and the Company intends to seek approval from the Food and Drug Administration (“FDA”), which will allow us to offer our product to healthcare providers.not complete.

2. NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BasisThe accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”).

The unaudited financial statements as of Presentation

On September 13, 2012 (the “Petition Date”),30, 2021 and December 31, 2020, and for the Company filed a voluntary petitionnine months ended September 30, 2021 and September 30, 2020, have been prepared in accordance with the federal bankruptcy courtaccounting principles generally accepted in Los Angeles, California, to enter bankruptcy under Chapter 11 of the United States Bankruptcy Code. On or about July 15, 2013, our Plan of Reorganization was approved by the United States Bankruptcy Court. On July 30, 2013, we emerged from bankruptcy and continued operations under the terms and conditions of our Bankruptcy Reorganization Plan as it applies to post bankruptcy operations. For accounting purposes, management deemed the effective date of the Chapter 11 Plan (the “Plan”) to be June 30, 2013. The Company’s operations between July 1, 2013 and July 30, 2013 were not significant. The Plan adopted by Imaging3, Inc. is a reorganizing plan. Payments under the Plan were made by utilizing existing cash on hand, borrowings on a secured and unsecured basis, future cash flow, if any, capital raised through the sale of our common stock in private placements, and by conversion of debt to equity.

Upon emergence from bankruptcy, Imaging3 adopted fresh-start accounting which resulted in Imaging3 becoming a new entity for financial reporting purposes. Imaging3 applied fresh start accounting as of July 1, 2013. As a result of the application of fresh start accounting and the effects of the implementation of the plan of reorganization, the financial statements on or after July 1, 2013 are not comparable with the financial statements prior to that date.

The accompanying unaudited interim financial statements havebeenpreparedinaccordance with the rules and regulations of the Securities and Exchange Commissionforthe presentation of interim financial information buton the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. They do not include all of the information and footnotes required by generally accepted accounting principlesGAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessaryfora fair presentation have been included. Itissuggested thatTherefore, these condensed financial statements should be readinconjunction with the Company’s audited financial statements and notes thereto included infiled with the Company’s annual report on Form 10-KSEC for the fiscal year ended December 31, 2016. The2020.

Basis of Consolidation – Subsidiaries are entities controlled by the Company. Control exists when the Company followseither has a controlling voting interest or is the same accounting policiesinpreparation of interim reports. Results of operationsforthe interim periods are not indicative of annual results.

Going Concern

The Company’s financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has historically incurred net losses. The continuing losses have adversely affected the liquidity of the Company.

In view of the matters described in the preceding paragraph, recoverabilityprimary beneficiary of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and to succeed in its future operations.variable interest entity. The financial statements do not include any adjustments relating toof subsidiaries are included in the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary as a result of the Company’s going concern uncertainty. Management believes there is substantial doubt about the Company’s ability to continue as a going concern.

Management’s plan regarding this matter is to, amongst other things, seek additional debt or equity financing, increase our sales volume, and continue seeking approvalconsolidated financial statements from the FDA to bringtomarket our smart scan technology imaging platform. We cannot assure youdate that funds from these sources will be available when needed or, if available, will be on terms favorabletous ortoour stockholders.Ifwe raise additional funds or settle liabilities by issuing equity securities,control commences until the percentagedate that control ceases.

In August 2021, the Company entered into a Stock Purchase Agreement acquiring the majority ownership and control of our stockholders will be reduced, stockholders may experience additional dilution or such equity securities may provide for rights, preferences or privileges senior to thoseSummit Boys, Inc., a very well-known and established cannabis extraction brand with product lines in retail stores throughout the State of the holders of our common stock. Our ability to execute our business plan and continue as a going concern may be adversely affectedifweare unable to raise additional capital or operate profitably.

California. The Company anticipates that further equity/debt financings will be necessary to continue to fund operationsplans on continuing the business without interruption and plans on licensing the Summit Boys brand in the futureState of Oklahoma under that State’s newly enacted legalized statutory scheme for cannabis products. This non-significant and there is no guarantee that such financings will be available or,non-operating subsidiary has been consolidated with Grapefruit’s financial statements. As consideration, the Company issued 4,545,455 shares of common stock for 51% ownership if available, on acceptable terms.Summit Boys, Inc.

A summary of the Company’s significant accounting policies consistently applied in the preparation of the accompanying financial statements follows:

Use of Estimates

In preparing – The preparation of our financial statements in conformity with accounting principles generally acceptedinthe United States of America, management is requiredU.S. GAAP requires us tomake estimates, assumptions and assumptionsjudgments that affect the reported amounts of assetsandliabilities and the disclosure of contingent assetsandliabilities atas of the date of theour financial statements and the reported amounts of revenues and expenses during the reporting period.Actualperiods presented.

We make our estimate of the ultimate outcome for these items based on historical trends and other information available when our financial statements are prepared. We recognize changes in estimates in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Our actual results could differ from those estimates.these estimates, making it possible that a change in these estimates could occur in the near term. The company’s most significant estimates related to useful life for depreciation, the value of long-lived assets and related impairment, and provision for income taxes of property and equipment.

CashInventory– Inventory is comprised of raw material, work in process and Cash Equivalents

finished goods. The Company considers all liquid investments with a maturityfollowing sets forth selected items from our inventory as of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents. The Company maintains its cash in bank deposit accounts that may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company had no cash equivalents at September 30, 2017.2021 and December 31, 2020:

SUMMARY OF INVENTORY

Revenue Recognition

Revenueisrecognized upon shipment, provided that evidenceWe periodically review the value of an arrangement exists, titleour inventory and riskprovide a write-down of loss have passedtothe customer, fees are fixed or determinable and collectioninventory based on our assessment of the related receivablemarket conditions. Any write-down is reasonably assured. Revenueisrecorded net of estimated product returns, which isbasedupon the Company’s return policy, sales agreements, management estimates of potential future product returns relatedtocurrent period revenue, current economic trends, changesincustomer composition and historical experience. The Company accrues for warranty costs, sales returns, and other allowances based onitsexperience. Generally, the Company extends credit to its customers and does not require collateral.TheCompany performs ongoing credit evaluations of its customersandhistoric credit losses have been within management’s expectations and has a revenue receivables policy for serviceandwarranty contracts. Equipment sales usually have a one-year warranty of parts and service. After a one-year period, the Company contacts the buyertoinitiate the sale of a new warranty contractforone year. Warranty revenues are deferred and recognized on a straight line basis over the term of the contract or as services are performed.

Deferred Revenue

Deferred revenue consists substantially of amounts received from customers in advance of the Company’s performance service period. Deferred revenue is recognized as revenue on a systematic basis that is proportionate to the period that the underlying services are rendered, which in certain arrangements is straight-line over the remaining contractual term or estimated customer life of an agreement.

Accounts Receivable

The Company’s customer base is geographically dispersed. The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.

Property & Equipment

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to expenses as incurredcost of goods sold.

Property, Plant and additions, renewals and betterments are capitalized. WhenEquipment, net– Our property and equipment are retired or otherwise disposedrecorded at cost. Assets held under capital leases are capitalized at the commencement of the relatedlease at the lower of the present value of minimum lease payments at the inception of the lease or fair value. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over estimated useful lives of four to seven years, and amortization is computed using the straight-line method over the life of the applicable lease. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the respectiveour accounts and any resulting gain or loss is includedreflected in operations. Depreciationour consolidated statements of operations.

Land Improvements – Our land improvements are recorded at cost provided by our property and equipment is provided usingassociation. These costs will continue to be capitalized until construction has been completed. Land improvements will not be depreciated after the straight-line method for all assets with estimated lives of three to eight years.construction has been completed by the property association.

Impairment of Long-Lived Assets

Long-lived Impairment Assessment – Our long-lived assets are reviewed forsubject to an impairment whenever events or changes in circumstances indicatetest if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, other long-lived assets may be impaired and the resulting charge to operations may be material. When we determine that the carrying amountvalue of an assetintangibles or other long-lived assets may not be recoverable throughbased upon the estimatedexistence of one or more indicators of impairment, we use the projected undiscounted cash flows expectedflow method or realizable value to resultdetermine whether an impairment exists, and then measure the impairment using discounted cash flows.

Revenue Recognition– The Company derives revenues from the use and eventual dispositionsale of product in accordance to ASC Topic 606. Revenues are recognized when control of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

The Company tests long-lived assets, including property, plant, equipment and intangible assets subject to periodic amortization, for recoverability at least annuallypromised goods or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amountservices is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment, and then compares the carrying amount of the assettransferred to the future estimated cash flows expected to result fromcustomer in an amount that reflects the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows,consideration the Company measures the amount of impairment by comparing the carrying amount of the assetexpects to its fair value. The estimation of fair valuebe entitled to in exchange for transferring those goods or services.

Revenue is generally measured by discounting expected future cash flows at the rate the Company utilizes to evaluate potential investments. The Company estimates fair valuerecognized based on the information availablefollowing five step model:

Performance Obligations

Sales of products are recognized when all the following criteria are satisfied: (i) a contract with an end user exists which has commercial substance; (ii) it is probable the Company will collect the amount charged to the end user; and (iii) the Company has completed its performance obligation whereby the end user has obtained control of the product. A contract with commercial substance exists once the Company receives and accepts a purchase order or once it enters into a contract with an end user. If collectability is not probable, the sale is deferred and not recognized until collection is probable or payment is received. Control of products typically transfers when title and risk of ownership of the product has transferred to the customer. For contracts with multiple performance obligations, the Company allocates the total transaction price to each performance obligation in making whatever estimates, judgmentsan amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. The Company uses an observable price to determine the stand-alone selling price for separate performance obligations or a cost-plus margin approach when one is not available. Historically the Company’s contracts have not had multiple performance obligations. The large majority of the Company’s performance obligations are recognized at a point in time related to the sale of products.

Cost of Goods Sold– Our cost of goods sold includes the costs directly attributable to revenue recognized and projections are considered necessary.includes expenses related to the production, packaging and labelling of cannabis products; personnel-related costs, fees for third-party services, such as testing and transportation costs related to our distribution services.

Basic and Diluted Net Income Per Share

– Basic net income per share is based upon the weighted average number of common shares outstanding. Diluted net income per share is basedonthe assumptionassumes that all dilutive convertible shares and stock options were converted or exercised. Dilutioniscomputed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (oratthetime of issuance,iflater), and asiffunds obtained thereby were usedtopurchase common stock at the average market price during the period. During 2016,2019, potentially dilutive securities were excluded from the computation of weighted average shares outstanding-diluted because their effect was anti-dilutive.

SCHEDULE OF ANTI-DILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE

Derivative Financial Instruments

- The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments. The Company utilizes various types of financingtofund its business needs, including convertible notes and warrants and other instruments not indexedtoour stock. The Companyisrequiredtorecord its derivative instruments at their fair value. Changesinthe fair value of derivatives are recognizedinearnings in accordance with ASC 815. The Company’s only asset or liability measuredatfair value on a recurring basisisits derivative liability associated with warrants to purchase common stock and convertible notes.

Fair Value of Financial Instruments

The– We value our financial assets and liabilities using fair value accounting standard createsmeasurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a three-level hierarchy to prioritizeliability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs usedare observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation techniqueshierarchy is based on the lowest level of input that is significant to derive fair values. The basis forthe fair value measurements for each level within themeasurement. The hierarchy is described below withprioritized into three levels (with Level 3 being the lowest) defined as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.