UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For Quarterly Period Ended ~~September 30, 2021~~March 31, 2022

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

For the Transition period from ______________to ______________

Commission File Number: 000-50099

GRAPEFRUIT USA, INC.

(Exact name of registrant as specified in its charter)

delaware		95-4451059
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

1000 Northwest Street, Mid-Town Brandy Wine, Suite 1200-3094, Wilmington, DE 19801

(Address of principal executive offices) (Zip Code)

310-575-1175

~~Registrant’s~~Registrant’s telephone number, including area code

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

Title of each class		Trading symbol(s)		Name of exchange on which registered
No par value common stock		GPFT		OTCQB

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.

Yes ☒☒

No ☐☐

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).

Yes ☒☒

No ☐☐

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~~“large accelerated filer,~~” “accelerated filer”~~” “accelerated filer” and ~~“smaller~~“smaller reporting ~~company”~~company” in Rule 12b-2 of the Exchange Act. (Check One).

Large accelerated filer	☐☐	Accelerated filer	☐☐
Non-accelerated filer	☐☐	Smaller reporting company	☒☒
(Do not check if a smaller reporting company)

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

Yes ☐☐

No ☒☒

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

As of ~~November 5, 2021,~~May 20, 2022, the number of shares outstanding of the ~~registrant’s~~registrant’s class of common stock was ~~554,162,744~~559,512,622.

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets at ~~September 30, 2021~~March 31,2022 (Unaudited) and December 31, ~~2020~~2021 (Audited)	4
	Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)	6
	Condensed Consolidated Statement of ~~Stockholders’~~Stockholders’ Deficit for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	~~Management’s~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2524
Item 4.	Controls and Procedures	2624

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	2625
Item 1A.	Risk Factors	2625
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2625
Item 3.	Defaults Upon Senior Securities	2725
Item 4.	Mine Safety Disclosures	2725
Item 5.	Other Information	2725
Item 6.	Exhibits	~~Exhibits~~	2725

SIGNATURES		~~SIGNATURES~~26	28

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”~~“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the ~~“Exchange Act”~~“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”~~“believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan” and ~~“would.”~~“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”~~“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

Item 1. Financial Statements

GRAPEFRUIT USA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2021

December 31, 2020

(Unaudited) (Audited)
ASSETS

CURRENT ASSETS:
Cash $ 37,317 $ 299,895
Accounts receivable 285,622 39,408
Inventory 410,681 502,115
Licensee agreement 44,000 63,800
Other 70,319 43,644
Total current assets 847,939 948,862
NON-CURRENT ASSETS:
Property, plant and equipment, net 1,783,651 1,790,930
Operating right of use - assets 62,942 131,786
Investment in hemp 84,950 169,950
Goodwill 250,000 -
Other 7,459 7,459
TOTAL ASSETS $ 3,036,941 $ 3,048,987

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
Notes payable $ 256,634 $ 256,436
Accrued loan interest 920,619 758,107
Related party payable 420,872 488,433
Legal settlements - current portion 75,572 180,740
Subscription payable 251,141 791,992
Derivative liability 27,431 118,641
Capital lease - current portion 43,497 67,071
Operating right of use - liability - current portion 65,486 82,038
Convertible notes - current portion 1,907,021 829,072
Accounts payable and accrued expenses 817,836 807,051
Total current liabilities 4,786,109 4,379,581

Legal settlements - long-term - 29,226
Capital lease 13,347 38,835
Operating right of use - liability - 52,724
Long-term notes payable, net 907,762 904,633
Long-term convertible notes, net of discount 1,547,066 2,323,735
Total long-term liabilities 2,468,175 3,349,153

TOTAL LIABILITIES 7,254,284 7,728,734

STOCKHOLDERS’ DEFICIT
Common stock ($0.0001 par value, 1,000,000,000 shares authorized; 554,162,744 and 505,700,437 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively) 55,416 50,570
Preferred stock ($0.0001 par value, 1,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020) - -
Additional paid in capital 10,801,207 6,591,177
Accumulated deficit (15,066,663 ) (11,321,494)
Total stockholders’ deficit (4,210,040 ) (4,679,747 )
Noncontrolling interest (7,303 ) -
Total deficit (4,217,343 ) (4,679,747 )
TOTAL LIABILITIES AND STOCKHOLERS' DEFICIT $ 3,036,941 $ 3,048,987


	March 31, 2022 (Unaudited)			December 31, 2021 (Audited)
ASSETS

CURRENT ASSETS:
Cash	$	5,153		$	9,095
Accounts receivable		278,356			278,422
Inventory		383,239			389,282
Licensee agreement		30,800			37,400
Other		3,429			-
Total current assets		700,977			714,199
NON-CURRENT ASSETS:
Property, plant and equipment, net		1,745,932			1,769,627
Operating right of use - assets		51,299			74,886
Goodwill		250,000			250,000
Other		7,459			7,459
TOTAL ASSETS	$	2,755,667		$	2,816,171

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES
Notes payable	$	302,943		$	262,839
Accrued loan interest		1,170,617			1,044,612
Related party payable		992,601			702,581
Legal settlements - current portion		513,370			541,697
Subscription payable		251,220			251,727
Derivative liability		9,960			127,392
Capital lease - current portion		22,591			31,166
Operating right of use - liability - current portion		33,265			65,486
Convertible notes (net of discount of $179,755 and $325,089, respectively)		3,786,293			3,640,959
Accounts payable and accrued expenses		1,014,108			1,035,114
Total current liabilities		8,096,968			7,703,573

Capital lease		1,928			7,669
Operating right of use - liability		18,882			11,097
Long-term notes payable, net		909,545			908,617
Total long-term liabilities		930,355			927,383

TOTAL LIABILITIES		9,027,323			8,630,956

STOCKHOLDERS’ DEFICIT
Common stock ($0.0001 par value, 1,000,000,000 shares authorized; 559,512,622 and 557,162,744 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively)		55,951			55,716
Preferred stock ($0.0001 par value, 1,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021)		-			-
Additional paid in capital		10,989,946			10,962,797
Accumulated deficit		(17,310,419	)		(16,826,164	)
Total stockholders’ deficit		(6,264,522	)		(5,807,651	)
Noncontrolling interest		(7,134	)		(7,134	)
Total deficit		(6,271,656	)		(5,814,785	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	2,755,667		$	2,816,171

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

GRAPEFRUIT USA, INC. AND SUBSIDIARY

CONDENSED ~~CONSOLIDTED~~CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three months ended Three months ended Nine months ended Nine months ended
September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Revenue $ 153,476 $ 1,306,201 $ 586,780 $ 2,580,412
Cost of goods sold 346,073 1,123,717 926,671 2,385,804
Gross profit (loss) (192,597 ) 182,484 (339,891 ) 194,608
Operating expenses:
Sales 3,800 67,479 5,760 106,594
Stock based compensation 25,980 - 265,024 -
Stock option expense 32,877 - 65,754 -
General and administrative 352,462 289,767 1,011,199 974,925
Total operating expenses 415,119 357,246 1,347,737 1,081,519

Loss from operations (607,716 ) (174,762 ) (1,687,628 ) (886,911 )
Other income (expense):
Interest expense (388,273 ) (532,410 ) (1,258,650 ) (1,343,224 )
Change in value of derivative instruments 13,877 (7,014,164 ) 91,210 (7,946,046 )
Gain (loss) on extinguishment of debt - 31,642 (398,373 ) 105,945
Gain (loss) on extinguishment of debt - related parties - - (491,998 ) -
Total other income (expense) (374,396 ) (7,514,932 ) (2,057,811 ) (9,183,325 )

Income (loss) before income taxes (982,112 ) (7,689,694 ) (3,745,439 ) (10,070,236 )

Tax provision - - - -

Net income (loss) (982,112 ) (7,689,694 ) (3,745,439 ) (10,070,236 )

Loss attributable to noncontrolling interest (270 ) - (270 ) -

Net (loss) income attributable to Grapefruit USA, Inc. $ (981,842 ) $ (7,689,694 ) $ (3,745,169 ) $ (10,070,236 )

Net loss per share - Basic and diluted $ (0.00 ) $ (0.02 ) $ (0.01 ) $ (0.02 )
Weighted average common stock outstanding - Basic and diluted 550,277,467 499,182,611 515,339,023 495,837,104


	Three months ended			Three months ended
	March 31, 2022			March 31, 2021
Revenue	$	5,650		$	350,815
Cost of goods sold		71,861			423,435
Gross profit (loss)		(66,211	)		(72,620	)
Operating expenses:
Sales		566			3,596
Stock option expense		14,990			-
General and administrative		223,984			401,412
Total operating expenses		239,540			405,008

Loss from operations		(305,751	)		(477,628	)
Other income (expense):
Interest expense		(295,936	)		(421,381	)
Change in value of derivative instruments		117,432			(59,319	)
Gain (loss) on extinguishment of debt		-			(458,373	)
Total other income (expense)		(178,504	)		(939,073	)

Loss before income taxes		(484,255	)		(1,416,701	)

Tax provision		-			-

Net loss		(484,255	)		(1,416,701	)

Loss attributable to noncontrolling interest		-			-

Net loss attributable to Grapefruit USA, Inc.	$	(484,255	)	$	(1,416,701	)

Net loss per share - Basic and diluted	$	(0.00	)	$	(0.00	)
Weighted average common stock outstanding - Basic and diluted		560,910,403			508,357,473

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

GRAPEFRUIT USA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine months ended Nine months ended
September 30, 2021 September 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,745,169 ) $ (10,070,236 )
Adjustments to reconcile net loss to net cash used for operating activities:
Net loss attributable to non-controlling interest (270 ) -
Depreciation and amortization expense 69,598 126,066
Amortization of debt discount 692,129 -
Change in value of derivative (91,210 ) 7,946,046
Stock-based compensation for services 265,024 244,167
Stock option expense 65,754 -
Loss on extinguishment of debt
398,373

479,531

Non-cash interest -
(18,772
)
Loss on extinguishment of debt - related parties
491,998
-
Changes in operation assets and liabilities:
Accounts Receivables (261,452 ) -
Inventory 91,434 (146,726 )
Prepaid expense and current assets (6,875 ) -
Investment in hemp 85,000 -
Right-of-use assets 68,844 -
Accounts payable 70,785 (29,189 )
Other - (20,000 )
Accrued expenses and other current liabilities 487,792 386,200
Accrued loan interest expense 388,940 256,687
Right-of-use liability (69,276 ) (64,109 )
Net cash (used for)/provided by used for operating activities (998,581 ) (910,335 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash received from acquisition 69 -
Purchase of land and equipment (62,319 ) (25,469 )
Net cash used for investing activities (62,250 ) (25,469 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayment of capital lease liability (49,062 ) (40,803 )
Repayment of legal liability (16,393 ) -
Proceeds from convertible notes, net 450,000 707,500
Proceeds from (repayment of) loans, net - 168,343
Repayment of loan principal (4,772 ) -
Proceeds from related parties 93,080 -
Contributions from non-controlling interest 400 -
Proceeds from exercise of warrants 250,000 -
Proceeds from sale of common stock 75,000 -
Net cash proceeds from financing activities 798,253 835,040

NET INCREASE (DECREASE) IN CASH (262,578 ) (100,764 )

CASH, BEGINNING BALANCE 299,895 266,607

CASH, ENDING BALANCE $ 37,317 $ 165,843

SUPLEMENTAL DISCLOSURE ON CASH FINANCING ACTIVITY
Cash paid for interest expense 87,883 110,340

SUPLEMENTAL DISCLOSURE ON NON-CASH FINANCING ACTIVITY
Shares issued for legal settlement 1,090,462 -
Shares issued for conversion of notes payable 996,620 640,597
Shares issued for debt settlement with related parties 699,236 -
Shares issued for compensation - 388,572
Shares issued for settlement of debt - 79,754
Shares issued for acquisition
250,000
-
Reclassification of derivative liabilities to APIC -
395,067


	Three months ended			Three months ended
	March 31, 2022			March 31, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(484,255	)	$	(1,416,701	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation expense		23,695			22,629
Amortization/acquisition of right of use asset		144,485			237,226
Change in value of derivative		(117,432	)		59,319
Loss on issuance of warranty		-			235,103
Stock-based compensation for services		729			9,407
Stock option expense		14,990			-
(Gain) Loss on extinguishment of debt		-			654,693
Non-cash interest		76,063			-
Changes in operation assets and liabilities:					-
Accounts Receivables		66			(206,435	)
Inventory		6,043			11,299
Prepaid expense and current assets		3,171			32,471
Right-of-use assets		23,587			22,947
Accounts payable		(21,006	)		(35,231	)
Accrued expenses and other current liabilities		(29,071	)		-
Accrued loan interest expense		126,005			134,980
Right-of-use liability		(24,436	)		(22,738	)
Net cash used for used for operating activities		(257,366	)		(261,031	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land and equipment		-			(30,521	)
Net cash used for investing activities		-			(30,521	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayment of capital lease liability		(14,316	)		(15,577	)
Repayment of legal liability		(20,612	)		(136,000	)
Proceeds from convertible notes, net		-			398,000
Repayment of loans, net		-			(1,568	)
Repayment of loan principal		(1,668	)
Proceeds from related parties		290,020			187,792
Net cash proceeds from financing activities		253,424			432,647

NET INCREASE (DECREASE) IN CASH		(3,942	)		141,095

CASH, BEGINNING BALANCE		9,095			299,895

CASH, ENDING BALANCE	$	5,153		$	440,990

SUPPLEMENTAL DISCLOSURE ON CASH FINANCING ACTIVITY
Cash paid for interest expense		46,504			32,667

SUPPLEMENTAL DISCLOSURE ON NON-CASH FINANCING ACTIVITY
Shares issued for legal settlement		11,664			-
Shares issued for conversion of notes payable		-			51,667
Shares issued for compensation		514			67,420

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

GRAPEFRUIT USA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF ~~STOCKHOLDERS’~~STOCKHOLDERS’ DEFICIT

(Unaudited)

Deficit Attributable to Grapefruit USA, Inc.

Common Stock Additional Total Non-
Number of Paid in Accumulated Stockholders' controlling Total
Shares Amount Capital Deficit Deficit Interest Deficit

Balance as of December 31, 2019 486,320,329 $ 48,632 $ 2,781,839 $ (7,264,498 ) $ (4,434,027 ) $ - $ (4,434,027 )

Shares issued for services 900,000 90 318,240 - 318,330 - 318,330

Shares issued for settlement 7,213,933 721 565,572 - 566,293 - 566,293

Shares issued with debt 915,795 92 44,782 - 44,874 - 44,874
Shares issued upon warrant exercise
Shares issued upon warrant exercise, shares

Shares issued for note conversion 9,100,380 910 79,844 - 80,754 - 80,754
Shares issued for related party debt
Shares issued for related party debt, shares
Stock options granted pursuant to board of director agreement
Shares issued for purchase of stock
Shares issued for purchase of stock, shares
Shares issued for acquisition
Shares issued for acquisition, shares
Equity investment
Reclassification from derivative liability - - 395,067 - 395,067 - 395,067
Noncontrolling interest Summit Boys
Net loss - - - (10,070,236 ) (10,070,236 ) - (10,070,236 )

Balance as of September 30, 2020 504,450,437 $ 50,445 $ 4,185,344 $ (17,334,734 ) $ (13,098,945 ) $ - $ (13,098,945 )

Balance as of December 31, 2020 505,700,437 $ 50,570 $ 6,591,177 $ (11,321,494 ) $ (4,679,747 ) $ - $ (4,679,747 )

Shares issued for services 7,449,937 745 302,799 - 303,544 - 303,544

Shares issued for settlement 8,404,186 840 1,089,620 - 1,090,460 - 1,090,460

Shares issued upon warrant exercise 2,000,000 200 249,800 - 250,000 - 250,000

Shares issued for note conversion 13,352,264 1,335 995,285 - 996,620 - 996,620

Shares issued for related party debt 11,710,465 1,171 1,190,063 - 1,191,234 - 1,191,234

Stock options granted pursuant to board of director agreement - - 65,754 - 65,754 - 65,754

Shares issued for purchase of stock 1,000,000 100 74,900 - 75,000 - 75,000

Shares issued for acquisition 4,545,455 455 249,545 - 250,000 - 250,000

Equity investment - - (7,736 ) - (7,736 ) (7,033 ) (14,769 )

Net loss - - - (3,745,169 ) (3,745,169 ) (270 ) (3,745,439 )

Balance as of September 30, 2021 554,162,744 $ 55,416 $ 10,801,207 $ (15,066,663 ) $ (4,210,040 ) $ (7,303 ) $ (4,217,343 )


	Deficit Attributable to Grapefruit USA, Inc.
	Common Stock				Additional					Total			Non-
	Number of				Paid in		Accumulated			Stockholders’			controlling			Total
	Shares		Amount		Capital		Deficit			Deficit			Interest			Deficit

Balance as of December 31, 2020		505,700,437	$	50,570	$	6,591,177	$	(11,321,494	)	$	(4,679,747	)	$	-		$	(4,679,747	)

Shares issued for services		1,399,937		140		55,804		-			55,944			-			55,944

Shares issued for settlement		1,666,667		167		51,500		-			51,667			-			51,667

Shares issued upon warrant exercise		2,000,000		200		249,800		-			250,000			-			250,000

Net loss		-		-		-		(1,416,701	)		(1,416,701	)		-			(1,416,701	)

Balance as of March 31, 2021		510,767,041	$	51,077	$	6,948,281	$	(12,738,195	)	$	(5,738,837	)	$	-		$	(5,738,837	)

Balance as of December 31, 2021		557,162,744	$	55,716	$	10,962,797	$	(16,826,164	)	$	(5,807,651	)	$	(7,134	)	$	(5,814,785	)

Shares issued for services		24,000		2		727		-			729			-			729

Shares issued for settlement		2,325,878		233		11,432		-			11,665			-			11,665

Stock options granted pursuant to board of director agreement				-		14,990		-			14,990			-			14,990

Net loss		-		-		-		(484,255	)		(484,255	)		-			(484,255	)

Balance as of March 31, 2022		559,512,622	$	55,951	$	10,989,946	$	(17,310,419	)	$	(6,264,522	)	$	(7,134	)	$	(6,271,656	)

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

GRAPEFRUIT USA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2021~~MARCH 31, 2022

NOTE 1 –– ORGANIZATION AND NATURE OF OPERATIONS

Overview

Grapefruit ~~USA, Inc (“we”~~Boulevard Investments, Inc. (“we”, ~~“our”~~“our”, ~~“us”~~“us”, ~~“GBI”~~“Grapefruit”, ~~“Grapefruit”~~“GBI”, or ~~“the Company”~~“the Company”) was formed as a California corporation on August 28, 2017 and began ~~operating~~operation in September 2017.

On July 10, 2019, Grapefruit ~~closed the Share Exchange after the completion of all conditions subsequent contemplated by the Share Exchange Agreement among the parties thereto ( “SEA”), by which~~acquired Imaging3, Inc. ~~(“IGNG”~~(“IGNG”) ~~was acquired~~ in a reverse acquisition (the ~~“Acquisition”~~“Acquisition”) ~~by the former shareholders of Grapefruit, the accounting acquirer.~~. Under the terms of ~~the SEA executed on May 31, 2019,~~a Share Exchange Agreement by and among IGNG, ~~became obligated~~Grapefruit and Grapefruit’s shareholders, IGNG issued to ~~issue to Grapefruit’s~~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~~retained 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~~As 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~~result, our financial statements are prepared using the acquisition method of accounting with ~~GBI~~Grapefruit as the accounting acquirer and IGNG treated as the legal acquirer and accounting acquiree. ~~Because Imaging3,~~On December 16, 2019, Grapefruit filed the necessary paperwork with the Financial Industry Regulatory Authority (“FINRA”) and OTC Markets to effect the Company Name and Ticker symbol changes from “IGNG” to “GPFT” formally changing our corporate name from Imgaing3, Inc. ~~did not meet~~to Grapefruit USA, Inc., a Delaware corporation whose stock is trading under 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.~~Ticker Symbol “GPFT”.

The Company ~~has applied for and received our provisional~~’s annual distribution ~~renewal~~ licensure ~~which allows us to operate through~~renews again on June ~~14, 2022.~~13, 2023. Our annual manufacturing license ~~has been~~was renewed by the California Department of Health. Grapefruit has not yet applied for a license to cultivate cannabis flowers, and will not until construction ~~has begun on~~of our cultivation ~~facility.~~facility has been substantially completed. We own two acres of fully entitled cannabis real property located in the ~~Coachillin’~~Coachillin’ Industrial Cultivation and Ancillary Canna-Business ~~Park.~~Park where we intend to build a 30,000 square foot fully licensed cannabis facility as more fully described below. The location within ~~Coachillin’~~Coachillin’ allows the Company to apply for and hold every cannabis license available under the California Cannabis laws.

The “Mothership” Cultivation & Lab Facility

In July 2021, Grapefruit obtained a development permit to build a 30,000

square foot “Mothership” facility intended to house a state-of-the-art indoor grow as well as a separately licensed distribution hub and laboratory that will produce the patented Hourglass line of topical creams as well as high quality extracts from trim generated by processing the indoor cannabis flowers. We intend to ~~buildout out~~obtain CGMP certification for the ~~real property into~~lab pursuant to the Good Manufacturing Practice regulations enforced by the Federal Drug Administration (“FDA”). We expect that our facility will meet proper design, monitoring, and manufacturing control processes to assure the strength, quality, and purity of all Hourglass products we manufacture. We anticipate the FDA to mandate all cannabis facilities to be CGMP certified to continue in operation if cannabis becomes legalized by the federal government

Summit Boys

In August 2021, the Company purchased control of Summit Boys, Inc., a cannabis extraction brand with product lines in retail stores throughout the State of California. The Company is continuing the Summit Boys’ business without interruption and is currently selling its products in California.

Summit Boys’ premium extracts include sugar, crumble, badder, live resin, diamonds, budder, sauce, caviar and other extracted cannabis products, which are currently placed in licensed dispensaries throughout California and are protected by United States of America Trademark Reg. No. 6406802, July 6, 2021.

Grapefruit’s Competitive Advantage in the Industry

In December 2020, we shifted our corporate focus from distribution ~~manufacturing~~operations to further development of our patented Hourglass™ Time Release THC+CBD-Infused Topical Cream. Hourglass is the first and ~~high-tech~~only patented Full Spectrum THC+ Cannabinoid Topical delivery Cream that provides its users with a full body, synergistic entourage effect that was previously only available by smoking, vaping or eating cannabis products such as cannabis flowers and gummies. Our Topical Cream is scientifically designed to deliver the full effects of THC combined with a broad range of cannabinoids for a user’s overall health, wellness, and well-being. Hourglass products are laboratory tested. Test results published on every package via a designated QR Code. There is no other topical cream product on the market with our patented technology that provides users with the holistic benefits of the entourage effect of THC+CBD, CBN, CBG, Delta8, THCV and CBE. Hourglass™ is currently available in licensed retail and mobile cannabis dispensaries in Central California and Los Angeles County, California, USA. Hourglass™ is not intended for use to cure, mitigate, treat, or prevent disease and we are not making any such claims.

In July 2022, we decided to bring our patented Hourglass™ Time Release THC+CBD-Infused Topical Cream to the federally legalized Canadian cannabis marketplace. In January 2022, the company’s licensed Canadian distribution partner Medz Cannabis filed a Notice of New Cannabis Product (“NNCP”) with Health Canada on Grapefruit’s behalf for its Hourglass THC+CBD Topical cream. Health Canada is the Canadian federal government department that is responsible for national health policy. It approves and oversees the production of all cannabis products and is the licensing authority for all companies involved in the cannabis industry. Health Canada requires that all cannabis products meet federal regulatory requirements before they can be sold in Canada. Under Canada’s Federal Cannabis Regulatory scheme, Health Canada must be notified of a company’s intent to sell a cannabis product that has not previously been sold in the country.

On March 21, 2022, Health Canada approved the Company’s NNCP application authorizing Grapefruit to sell its patented Hourglass™ Time Release THC+CBD-Infused Topical Cream to licensed retail outlets throughout Canada under NNCP ID No. NP-V2EHUWO907.

Grapefruit holds its State of California annual licensing from the Bureau of Cannabis Control and the California Department of Public Health. The Company has a permanent annually renewable license as opposed to a provisional or temporary one. The Company is one of the earliest registered distribution companies in the State of California to have an annually renewable license as opposed to the provisional licenses previously granted.

Grapefruit operates within the Coachillin’ Industrial Cultivation and Ancillary Canna-Business Park (the “Park”), located in Desert Hot Springs, California, 14 miles north of downtown Palm Springs. The Park is the first and largest cooperative canna-business compound of its kind. It is unique in that the landowners each own a proportionate interest in a collaborative owner’s association, which allows them to share much of the park overhead such as clean cultivation water, park security and access to agricultural power rates.

Distribution

In early 2021, the Company temporarily suspended its ‘bulk’ purchase and distribution of wholesale cannabis flower due to negative market forces in the wholesale cannabis market beyond the control of the Company. The Company can and will resume wholesale ‘bulk’ cannabis sales and distribution operations when market forces indicate such resumption is appropriate. Nonetheless, the Company continues to distribute ‘bulk’ concentrates to support our Summit Boys brand in California on go forward basis.

Manufacturing

The Company owns a fully licensed ethanol extraction facility in the City of Desert Hot Springs, CA. The Company owns and operates a Type 6 Ethanol Extraction Plant which removes the essential cannabis compounds, such as THC Distillate, that we, and others use, to ~~facilitate our goal~~produce cannabis products.

Grapefruit manufactures its patented Hourglass™ Time Release THC+CBD-Infused Topical Cream at its Coachillin’ facility which allows us to ~~become~~maintain strict quality control standards. In addition, Grapefruit’s extraction lab produces high quality distillate or “Honey Oil” from cannabis trim sourced by Grapefruit. THC Honey Oil is a ~~seed~~fundamental cannabis commodity which serves as the active ingredient in products from infused edibles to ~~sale, fully vertically integrated Cannabis and CBD product Company. Grapefruit’s plans include~~tinctures/creams. Grapefruit chose to set up its extraction laboratory in the City of Desert Hot Springs because, among other factors, the City does not tax the manufacture of oil by Grapefruit at its Desert Hot Springs extraction facility, thereby providing Grapefruit with an ~~indoor~~ ~~22,000~~ ~~square foot multi-tiered canopy and adjoining tissue culture rooms.~~additional competitive advantage.

~~We became members of the Indian Canyon and 18th Property Association on September 19, 2017 and have an ownership interest of~~ ~~1.46% based upon the~~ ~~77,156~~ ~~gross parcel square foot of our property located in an approximately~~ ~~5.3~~ ~~million square foot facility. As of September 30, 2021, the common areas continue to be built throughout the entire canna-business park and are not complete.~~

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

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

The ~~unaudited~~audited financial statements as of ~~September 30,~~December 31, 2021 and December 31, 2020, and for the ~~nine months~~year ended ~~September 30,~~December 31, 2021 and ~~September 30,~~December 31, 2020, have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information on 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~~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 GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with the ~~Company’s~~Company’s audited financial statements and notes filed with the SEC for the year ended December 31, ~~2020.~~2021.

Basis of Consolidation –– Subsidiaries are entities controlled by the Company. Control exists when the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

In August 2021, the Company entered into a Stock Purchase Agreement acquiring the majority ownership and control of Summit Boys, Inc., a very well-known and established cannabis extraction brand with product lines in retail stores throughout the State of California. The Company plans on continuing the business without interruption and plans on licensing the Summit Boys brand in the State of Oklahoma under that ~~State’s~~State’s newly enacted legalized statutory scheme for cannabis products. This non-significant and non-operating subsidiary has been consolidated with ~~Grapefruit’s~~Grapefruit’s financial statements. As consideration, the Company issued 4,545,455 shares of common stock for 51% ownership if Summit Boys, Inc.

Use of Estimates –– The preparation of our financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our financial statements and the reported amounts of revenues and expenses during the periods 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 these estimates, making it possible that a change in these estimates could occur in the near term. The ~~company’s~~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.

Inventory –– Inventory is comprised of raw material, work in process and finished goods. The following sets forth selected items from our inventory as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:

~~SUMMARY~~SCHEDULE OF INVENTORY

September 30, 2021 December 31, 2020
Raw material $ 56,299 $ 16,892
Work in process - 23,566
Finished goods 354,382 461,657
Total inventory $ 410,681 $ 502,115


	March 31, 2022		December 31, 2021
Raw material	$	298,722	$	304,331
Work in process		-		-
Finished goods		84,517		84,951
Total inventory	$	383,239	$	389,282

We periodically review the value of our inventory and provide a write-down of inventory based on our assessment of the market conditions. Any write-down is charged to cost of goods sold.

Property, Plant and Equipment, net –– Our property and equipment are recorded at cost. Assets held under capital leases are capitalized at the commencement of the lease 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 our accounts and any resulting gain or loss is reflected in our consolidated statements of operations.

Land Improvements –– Our land improvements are recorded at cost provided by our property association. These costs will continue to be capitalized until construction has been completed. Land improvements will not be depreciated after the construction has been completed by the property association.

Long-Lived Assets Impairment Assessment –– Our long-lived assets are subject to an impairment test 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 value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method or realizable value to determine whether an impairment exists, and then measure the impairment using discounted cash flows.

Revenue Recognition –– The Company derives revenues from the sale of product in accordance to ASC Topic 606. Revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or services.

Revenue is recognized based on the following five step model:

	-	Identification of the contract with a customer
	-	Identification of the performance obligations in the contract
	-	Determination of the transaction price
	-	Allocation of the transaction price to the performance obligations in the contract
	-	Recognition of revenue when, or as, the Company satisfies a performance obligation

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 an 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~~Company’s contracts have not had multiple performance obligations. The large majority of the ~~Company’s~~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 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 assumes that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. ~~During 2019, potentially dilutive securities were excluded from the computation of weighted average shares outstanding-diluted because their effect was anti-dilutive.~~

September 30, 2021 December 31, 2020
Numerator:
Net income attributable to common shareholders $ (3,745,169 ) (4,229,851 )
Denominator:
Weighted-average number of common shares outstanding during the period 515,339,023 498,230,051
Dilutive effect of stock options, warrants, and convertible promissory notes - -
Common stock and common stock equivalents used for diluted earnings per share $ (0.01 ) $ (0.00 )


	March 31, 2022			December 31, 2021
Numerator:
Net income attributable to common shareholders	$	(484,255	)		(5,504,670	)
Denominator:
Weighted-average number of common shares outstanding during the period		560,910,403			515,339,023
Dilutive effect of stock options, warrants, and convertible promissory notes		-			-
Common stock and common stock equivalents used for diluted earnings per share	$	(0.00	)	$	(0.01	)

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 financing to fund its business needs, including convertible notes and warrants and other instruments not indexed to our stock. The Company is required to record its derivative instruments at their fair value. Changes in the fair value of derivatives are recognized in earnings in accordance with ASC 815. The ~~Company’s~~Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with warrants to purchase common stock and convertible notes.

Fair Value of Financial Instruments –– We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability 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 are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized 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.

Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

The carrying amount of our cash and cash equivalents approximates fair value because of the short-term nature of the instruments. The carrying amount of our notes payable at December 31, 2019, approximates their fair values based on comparable borrowing rates available to the company. ~~The Company evaluated the fair market value of LVCA using Level 3 inputs. From that measurement, the Company recorded an impairment of LVCA.~~

There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and year ended December 31, ~~2020.~~2021.

SUMMARY OF DERIVATIVE LIABILITIES

Level 1 Level 2 Level 3 Total
Derivative Liabilities September 30, 2021 $ - $ - $ 27,431 $ 27,431
Derivative Liabilities December 31, 2020 $ - $ - $ 118,641 $ 118,641


	Level 1		Level 2		Level 3		Total
Derivative Liabilities March 31, 2022	$	-	$	-	$	9,960	$	9,960
Derivative Liabilities December 31, 2021	$	-	$	-	$	127,392	$	127,392
Derivative Liabilities	$	-	$	-	$	127,392	$	127,392

Items measured at fair value on a non-recurring basis

The ~~Company’s~~Company’s prepaids and other current assets, long lived assets, including property and equipment, and goodwill are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized.

Income Taxes –– Income tax assets and liabilities are recorded using the asset and liability method. Under the asset and liability method, tax assets and liabilities are recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating loss and tax credit carryovers. Future tax assets and liabilities are measured using the enacted tax rates expected to apply when the asset is realized, or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that enactment occurs. To the extent that we do not consider it more likely than not that a future tax asset will be recovered, we will provide a valuation allowance against the excess.

We follow the provisions of ASC 740, Income Taxes. Because of ASC 740, we make a comprehensive review of our portfolio of tax positions in accordance with recognition standards established by ASC 740.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in our consolidated financial statements in the period during which, based on all available evidence, we believe it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

We have created our tax provision leveraging known tax court cases involving various marijuana dispensaries and other cannabis related businesses, including the section of the IRS Tax code of 280E. The U.S. Tax Code Section 280E is the federal statute that states that a business engaging in the trafficking of a Schedule I or II controlled substance, which includes cannabis and cannabis related products, are barred from taking the tax deductions or credits in their federal tax returns which are not considered as part of the ~~business’~~business’ cost of goods sold. Given the guidance offered by the Tax code 280E we have prepared our tax provision according to this tax code.

Interest and penalties associated with unrecognized tax benefits, if any, are classified as interest expense and penalties and are included in selling, general and administrative expenses in our consolidated statements of operations.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted. U.S. tax reform introduced many changes, including lowering the U.S. corporate tax rate to 21 percent, changes in incentives, provisions to prevent U.S. base erosion and significant changes in the taxation of international income, including provisions which allow for the repatriation of foreign earnings without U.S. tax. The enactment of U.S. tax reform had no significant impact on our income taxes for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

Research and Development Expenses –– Research and development (“(“R~~&D”~~&D”) costs are charged to expense as incurred. Our R&D&D expenses include, but are not limited to, consulting service fees and materials and supplies used in the development of our proprietary products and services.

General and Administrative Expenses –– General and administrative expenses consist primarily of personnel-related costs, fees for professional and consulting services, travel costs, rent, bad debt expense, general corporate costs, and other costs of administration such as human resources, finance and administrative roles.

Commitments and Contingencies –– Certain conditions may exist as of the date our financial statements are issued, which may result in a loss, but which will only be resolved when one or more future events occur or fail to occur. We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of the legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in our consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.

Net Loss Per Share –– We compute net loss per share in accordance with ASC 260, Earnings per Share. Under the provisions of ASC 260, basic net loss per share includes no dilution and is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic net loss per share) and potentially dilutive securities that are not anti-dilutive.

Cash and Cash Equivalents –– The Company considers all highly liquid investment securities with remaining maturities at the date of purchase of three months or less to be cash equivalents. Cash equivalents may be invested in money market funds, certificates of deposit or other interest-bearing accounts.

Concentration of Credit Risk –– Financial instruments that potentially subject us to credit risk consist of cash. We maintain our cash with high credit quality financial institutions; at times, such balances with any one financial institution may not be insured by the FDIC.

Accounts Receivable and Revenue – – The accounts receivable balance was $~~285,622~~278,356 as of ~~September 30, 2021~~March 31, 2022 and $~~39,480~~ 278,422as of December 31, ~~2020.~~2021. As ~~the September 30,~~of March 31, 2022 and December 31, 2021, 6182~~% of accounts receivable was split between two customers. In 2020,~~ 99% of accounts receivable consisted of ~~one customer.~~four customers. During the ~~nine~~three months ended ~~September 30,~~March 31, 2022, one customer had 11% of the sales and 41% of the sales came from online CBD HourGlass sales. During the three months ended March 31, 2021, we ~~continue to diversify~~diversified our customer base, ~~and no more than 17%~~but still have 30% of the revenues ~~with any~~from one customer.~~For the nine months ended September 30, 2020,~~ 60~~% of the net revenues generated with two customers.~~

Recently Issued Accounting Pronouncements –– From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update ~~(“ASU”~~(“ASU”). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our condensed consolidated financial statements upon adoption.

Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326) (“ASU No. 2022-02”). ASU No. 2022-02 eliminates the existing troubled debt restructuring recognition and measurement guidance, and instead aligns the accounting treatment to that of other loan modifications. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU No. 2022-02 also requires that entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. ASU No. 2022-02 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, and is to be adopted prospectively. The Company does not expect the adoption of ASU No. 2022-02 to have a material impact on its condensed consolidated financial statements.

In May 2021, the FASB issued ASU 2021-04, Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2021-04”), which amends existing guidance for earnings per share (EPS) in accordance with Topic 260. ASU 2021-04 is effective for the Company beginning June 1, 2022. This update should be applied prospectively on or after the effective date of the amendments. The Company is currently evaluating the effect of adopting this ASU.

Recently Issued Accounting Pronouncements Adopted

Convertible Debt, and Derivatives and Hedging In August 2020, the FASB issued ASU 2020-06, ~~Debt—~~Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and ~~Hedging—~~Hedging—Contracts in ~~Entity’s~~Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an ~~Entity’s~~Entity’s Own Equity, to improve financial reporting associated with accounting for convertible instruments and contracts in an ~~entity’s~~entity’s own equity. ASU 2020-06 will be effective for the Company in the first quarter of 2022. The Company is currently evaluating the amended guidance and the impact on its consolidated financial statements and related disclosures.

~~Recently Issued Accounting Pronouncements Adopted~~

~~Accounting for Income Taxes~~ ~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Simplifying the Accounting for Income Taxes (Topic 740)~~. The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, Income Taxes. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. ASU 2019-12 became effective for the Company in the first quarter of fiscal year 202~~1. The adoption of this standard did not have any impact on the Company’s condensed consolidated financial statements.~~

Equity Securities, Equity-method Investments and Certain Derivatives In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The guidance provides clarification of the interaction of rules for equity securities, the equity method of accounting and forward contracts and purchase options on certain types of securities. ASU 2020-01 became effective for the Company in the first quarter of 2021. The adoption of this standard did not have any impact on the ~~Company’s~~Company’s condensed consolidated financial statements.

NOTE 3 –– GOING CONCERN

Our consolidated financial statements have been prepared on a going concern basis which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, we incurred a net loss of $~~3,745,169~~484,255, had a working capital deficit of $~~3,938,170~~7,395,991 and had an accumulated deficit of $~~15,066,663~~17,310,419 at ~~September 30, 2021.~~March 31, 2022. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future ~~and,~~ and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations as they come due. There is no assurance that these events will be satisfactorily completed. As a result, there is doubt about our ability to continue as a going concern for one year from the issuance date of these financial statements

~~Management’s~~Management’s plan regarding this matter is to, amongst other things, seek additional equity financing by selling our equity securities and obtaining funds through the issuance of debt. We cannot be certain that funds from these sources will be available when needed or, if available, will be on terms favorable to us or to our stockholders. If we raise additional funds or settle liabilities by issuing equity securities, the percentage ownership of our stockholders may be reduced, stockholders may experience additional dilution, or such equity securities may provide for rights, preferences and/or privileges senior to those of the holders of our common stock. Our ability to execute our business plan and continue as a going concern may be adversely affected if we are unable to raise additional capital or operate profitably.

NOTE 4 – RIGHT OF USE ASSET AND LIABILITY

We lease capital equipment in a suitable, compliant cannabis facility located in the city of Desert Hot Springs. In addition, we entered into this operating land lease agreement with Coachillin’ Holdings LLC on September 1, 2018 to rent approximately 2,268 square feet of leasable land area. The operating lease renews annually and has a base rent of $0.50 square foot of leasable area of the designated premise assigned by Coachillin’ Holdings LLC. We paid an initial non-refundable prepaid rent of $3,402 which was expensed during the three months following the signed agreement, and we will continue to pay $1,134 monthly.

The Company entered into a 36-month lease agreement for office space in July 2019 at $6,963 a month, with an approximate 2% increase annually.

The Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable. The Company used an estimated incremental borrowing rate of 6-10% to estimate the present value of the right of use liability.

The Company has right-of-use assets of $51,299, right-of-use liability of $52,147as of March 31, 2022. Operating lease expense for the three months ended March 31, 2022 was $24,932.

The following table provides the maturities of lease liabilities at March 31, 2022:


Maturity of Lease Liabilities
2022		32,584
2023		13,608
2024		10,206
2025		-
2026		-
2027 and thereafter		-
Total future undiscounted lease payments		56,398
Less: Interest		(4,251	)
Present value of lease liabilities	$	52,147

NOTE 5 – INVENTORY

At March 31, 2022 and December 31, 2021, our inventory was, as follows:

SCHEDULE OF INVENTORY


	March 31, 2022		December 31, 2021
Raw material	$	298,722	$	304,331
Work in process		-		-
Finished goods		84,517		84,951
Total inventory	$	383,239	$	389,282

At March 31, 2022 and December 31, 2021, finished goods included $16,763 and $20,904 on consignment, respectively.

We periodically review the value of our inventory and provide a write-down of inventory based on our assessment of the market conditions. Any write-down is charged to cost of goods sold.

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net of accumulated depreciation and amortization, at March 31, 2022 and December 31, 2021 was as follows:


	March 31, 2022			December 31, 2021
Vehicle	$	41,142		$	41,142
Furniture and equipment		7,494			7,494
Extraction equipment		302,636			302,636
Extraction laboratory		126,707			126,707
Warehouse facility		50,158			50,158
Land and land improvement/development		1,505,011			1,505,011
Accumulated depreciation and amortization		(287,216	)		(263,522	)
Property, plant and equipment	$	1,745,932		$	1,769,627

The Company acquired the extraction equipment, laboratory, and warehouse facility during 2018 and 2019 and prepared and final testing for future production. Final preparations for certain extraction and warehouse work were completed, and these related assets were placed in service on April 1, 2019, at which time we commenced depreciating this asset.

The amount of related depreciation expense for the three months ended March 31, 2022 and 2021 is $23,695 and $22,629, respectively.

NOTE 7 – CAPITAL LEASE PAYABLE

Capital lease payable consists of a capital lease agreement entered into in April 2018 to finance the purchase of various lab and manufacturing equipment. The outstanding balance on the 48-month installment capital lease was $0 and $8,822 as of March 31, 2022 and December 31, 2021, respectively. The terms of the 48-month capital lease specify monthly payments of $4,575. The interest rate implicit in the lease is about 15% and the maturity date was February 2022. The lease has been paid in full.

In addition, the Company entered into additional 48-month leases in May 2019 for production facilities and storage of product. Monthly payments for the facility and storage totals $1,935.

A summary of minimum lease payments on capital lease payable for future years is as follows:


	March 31, 2022
Remainder 2022	$	17,415
2023		7,740
2024		-
2025		-
2026		-
Thereafter		-
Total minimum lease payments		25,155
Less: amount representing interest		(636	)
Capital lease liability	$	24,519

NOTE 8 – NOTES PAYABLE

In October 2017, in connection with our purchase of 2acres of fully entitled cannabis real property located in the Coachillin’ Industrial Cultivation and Ancillary Canna-Business Park, the Company issued a first and second trust deed note in the amounts of $700,000 and $200,000, respectively. The first and second trust deed notes are long-term notes and are interest only notes, at 13.0%, and mature in August 2022, with the full principal payment due at maturity. For the $700,000 loan, the monthly interest payment is approximately $7,500. For the $200,000 loan, the monthly interest payment is approximately $2,200. Unpaid interest as of March 31, 2022 is $37,888 and $6,495, respectively. The 1st and 2nd trust deeds are secured by the land as well as property owned by two officers of the company and three other related parties. Also, each party has personally guaranteed or pledged additional collateral. The notes include a debt discount as of March 31, 2022 of $9,000.

In April 2018, the Company issued a note due 60 days after funding to an unrelated third party with a principal amount of $250,000 and immediate interest charge totalling $125,000. As of March 31, 2022, the note has not been repaid and was amended to carry an additional 10% interest rate of the total balance due. Accrued interest for this loan totals $265,625. The note is past due. Two officers of the Company have personally guaranteed the loan.

In March 2022, the Company issued another note of $40,000 to an unrelated party with 10% interest, which will mature in 6months. The unrelated party has notes totalling $46,000, both with similar terms.

NOTE 9 – CONVERTIBLE NOTES PAYABLE

Amortization of note discounts, which is included in interest expense, amounted to $145,333 during the three months ended March 31, 2022 and $234,527 for the three months ended March 31, 2021.

Grapefruit acquired convertible notes in its acquisition of Imaging3, Inc. on July 10, 2019. (See Note 15.) On May 31, 2019, the Company executed the ~~Stock Purchase Agreement (“SPA”)~~SPA with Auctus pursuant to the terms of which the Company agreed to sell $4,000,000 of the Notes and issue $6,200,000 of callable warrants (the ~~“Warrants”~~“Warrants” and, together with the Notes, the ~~“Securities”~~“Securities”) to Auctus. Auctus is the Selling Security Holder. In addition, on May 31, 2019, we also entered into a registration rights agreement with Auctus (the ~~“Registration~~“Registration Rights ~~Agreement”~~Agreement”) whereby we are obligated to file a registration statement to register the resale of the shares underlying the Securities. On July 25, 2019 (as amended on January 17, 2020), a registration statement was filed to comply with the Registration Rights ~~Agreement .~~ Agreement.Pursuant to the SPA, Auctus became obligated to purchase the $4,000,000 of Notes from Grapefruit in four tranches as follows: $600,000 at the SPA closing, which was funded on June 6, 2019; the second tranche of $1,422,750 on the day IGNG filed the registration statement, which was funded on August 16, 2019; the third tranche of $1,030,000 was funded the day the SEC declares the registration statement effective and the fourth tranche of $1 million was funded 90 days after effectiveness. As of December 31, 2020, all tranches of this financing were completed. The Company has received gross proceeds of $4,052,750.

~~In the first quarter of 2021, Auctus exercised~~ ~~2,000,000~~ ~~warrants at $0.125, for proceeds to the Company of $250,000~~ ~~and issued a $450,000~~ ~~convertible note to Auctus. During the second quarter of 2021, the Company sold~~ ~~1,000,000~~ ~~shares at $0.075~~.

~~NOTE 4 –~~ ~~RIGHT OF USE ASSET AND LIABILITY~~

We lease capital equipment in a suitable, compliant cannabis facility located in the city of Desert Hot Springs. In addition, we entered into this operating land lease agreement with Coachillin’ Holdings LLC on September 1, 2018 to rent approximately ~~2,268~~ ~~square feet of leasable land area.~~ The operating lease renews annually and has a base rent of $0.50 square foot of leasable area of the designated premise assigned by Coachillin’ Holdings LLC. We paid an initial non-refundable prepaid rent of $~~3,402~~ ~~which was expensed during the three months following the signed agreement, and we will continue to pay $1,134~~ ~~monthly.~~

~~The Company entered into a~~ 36~~-month lease agreement for office space in July 2019 at $6,963~~ ~~a month, with an approximate~~ 2~~% increase annually.~~

The Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable. The Company used an estimated incremental borrowing rate of 6~~% to estimate the present value of the right of use liability.~~

~~The Company has right-of-use assets of $62,942, right-of-use liability of $65,486~~ ~~as of September 30, 2021. Operating lease expense for the nine months ended September 30, 31, 2021 was $73,662~~.

~~The following table provides the maturities of lease liabilities at September 30, 2021:~~

~~SCHEDULE OF MATURITIES OF LEASE LIABILITIES~~

Maturity of Lease Liabilities
2021 22,378
2022 44,756
2023 -
2024 - ��
2025
2026 and thereafter -
Total future undiscounted lease payments 67,134
Less: Interest (1,648 )
Present value of lease liabilities $ 65,486

~~NOTE 5 –~~ ~~INVENTORY~~

~~At September 30, 2021 and December 31, 2020, our inventory was, as follows:~~

~~SCHEDULE OF INVENTORY~~

September 30, 2021 December 31, 2020
Raw material $ 56,299 $ 16,892
Work in process - 23,566
Finished goods 354,382 461,657
Total inventory $ 410,681 $ 502,115

~~At September 30, 2021 and December 31, 2020, finished goods included $8,404~~ ~~and $34,331~~ ~~on consignment, respectively.~~

~~We periodically review the value of our inventory and provide a write-down of inventory based on our assessment of the market conditions. Any write-down is charged to cost of goods sold.~~

~~NOTE 6 –~~ ~~PROPERTY, PLANT AND EQUIPMENT, NET~~

~~Property, plant and equipment, net of accumulated depreciation and amortization, at September 30, 2021 and December 31, 2020 was as follows:~~

~~SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT, NET~~

September 30, 2021
December 31, 2020
Vehicle $ 41,142 $ 41,142
Furniture and equipment 7,494 -
Extraction equipment 296,747 287,029
Extraction laboratory 126,707 126,707
Warehouse facility 50,158 50,158
Land and land improvement/development 1,501,300 1,456,193
Accumulated depreciation and amortization (239,897 ) (170,299 )
Property, plant and equipment $ 1,783,651 $ 1,790,930

The Company acquired the extraction equipment, laboratory, and warehouse facility during 2018 and 2019 and made preparations and final testing for future production. Final preparations for certain extraction and warehouse work were completed, and these related assets were placed in service on April 1, 2019, at which time we commenced depreciating this asset.

~~The amount of related depreciation expense for the nine months ended September , 2021 and 2020 is $69,598~~ ~~and $60,469, respectively.~~

~~NOTE 7 –~~ ~~CAPITAL LEASE PAYABLE~~

Capital lease payable consists of a capital lease agreement entered into in April 2018 to finance the purchase of various lab and manufacturing equipment. The outstanding balance on the 48-month installment capital lease was $~~148,511~~ ~~and $161,570~~ ~~as of September 30, 2021 and December 31, 2020, respectively. The terms of the~~ 48~~-month capital lease specify monthly payments of $4,575. The interest rate implicit in the lease is about~~ 15~~% and the maturity date is~~ ~~February 2022~~.

~~In addition, the Company entered into additional~~ 48~~-month leases in May 2019 for production facilities and storage of product. Monthly payments for the facility and storage totals $1,935~~.

~~A summary of minimum lease payments on capital lease payable for future years is as follows:~~

~~SUMMARY OF MINIMUM LEASE PAYMENTS ON CAPITAL LEASE~~

September 30, 2021
Remainder 2021 $ 19,530
2022 32,337
2023 7,739
2024 -
2025 -
Thereafter -
Total minimum lease payments 59,606
Less: amount representing interest (2,763 )
Capital lease liability $ 56,843

~~NOTE 8 –~~ ~~NOTES PAYABLE~~

~~In October 2017, in connection with our purchase of~~ ~~two~~ acres of fully entitled cannabis real property located in the Coachillin’ Industrial Cultivation and Ancillary Canna-Business Park, the Company issued a first and second trust deed note in the amounts of $~~700,000~~ ~~and $200,000, respectively. The first and second trust deed notes are long-term notes and are interest only notes, at~~ ~~13.0%, and mature in~~ ~~August 2022, with the principal payment due at maturity. For the $700,000~~ ~~loan, the monthly payment is approximately $7,500. For the $200,000~~ ~~loan, the monthly payment is approximately $2,200~~. The 1st and 2nd trust deeds are secured by the land as well as property owned by two officers of the company and three other related parties. Also, each party has personally guaranteed or pledged additional collateral. The notes include a debt discount as of September 30, 2021 of $~~30,600~~.

~~In April 2018, the Company issued a note due~~ 60 ~~days after funding with a principal amount of $250,000~~ ~~and interest totaling $125,000. As of September 30, 2021,~~ ~~the note has not been repaid and was amended to carry an additional~~ 10~~% interest rate of the total balance due, Accrued interest for this loan totals $190,625. The note is past due. Two officers of the Company have personally guaranteed the loan.~~

~~In September 2019, the Company issued another note of $102,569~~ ~~to an unrelated party with~~ 5~~% interest, which was repaid in full on~~ ~~October 20, 2020~~.

~~NOTE 9 –~~ ~~CONVERTIBLE NOTES PAYABLE~~

~~In August 2020,~~ ~~9,100,380~~ ~~shares were issued to settle $80,754~~ ~~debt of a note and accrued interest resulting in a loss of $5,225~~.

~~Amortization of note discounts, which is included in interest expense, amounted to $509,817~~ ~~during the nine months ended September 30, 2021 and $423,738~~ ~~for the nine months ended September 30, 2020.~~

~~Grapefruit acquired convertible notes in its acquisition of Imaging3, Inc. on July 10, 2019. (See Note 15.) On May 31, 2019, the Company executed the SPA with Auctus~~ ~~pursuant to the terms of which the Company agreed to sell $4,000,000~~ ~~of the Notes and issue $6,200,000~~ of callable warrants (the “Warrants” and, together with the Notes, the “Securities”) to Auctus. Auctus is the Selling Security Holder. In addition, on May 31, 2019, we also entered into a registration rights agreement with Auctus (the “Registration Rights Agreement”) whereby we are obligated to file a registration statement to register the resale of the shares underlying the Securities. On July 25, 2019 (as amended on January 17, 2020), a registration statement was filed to comply with the Registration Rights Agreement .. ~~Pursuant to the SPA, Auctus became obligated to purchase the $4,000,000~~ ~~of Notes from Grapefruit in four tranches as follows: $600,000~~ ~~at the SPA closing, which was funded on June 6, 2019; the second tranche of $1,422,750~~ ~~on the day IGNG filed the registration statement, which was funded on August 16, 2019; the third tranche of $1,030,000~~ ~~was funded the day the SEC declares the registration statement effective and the fourth tranche of $~~1 ~~million was funded 90 days after effectiveness.~~ ~~As of December 31, 2020, all tranches of this financing were completed. The Company has received gross proceeds of $4,052,750~~. The Notes have a two-year term and will bear interest at 10%.

On April 15, 2021, the company renegotiated the debt agreement related to these notes modifying the convertible notes conversion price from a variable rate to a fixed rate conversion price of $0.075 per share with an effective date of December 31, ~~2020.~~2021. As a result of the agreement, the Company recorded a noncash expense for the change in the value of derivative instruments of $40,372,883, which was simultaneously offset by a noncash gain of $39,640,477 from the extinguishment of debt, resulting a net loss of $~~753,699~~732,406 from the renegotiation of the debt.

On February 26, 2021, the company issued a convertible note for $450,000 ~~convertible to Auctus bearing~~. The note has an interest rate of 10% and matures in 12~~% interest and~~ 1~~-year~~months. Note is currently in default with no updated maturity date. The note continues to accrue interest, which has an accrued interest balance of $~~Principal payments shall be made in six (6) installments each~~58,822 as of March 31, 2022. This note was included in the ~~amount of $75,000~~ commencing one hundred and eighty (180) days following the Issue Date and continuing thereafter each thirty (30) days for six (6) months. Notwithstanding the forgoing, the final payment of Principal and Interest shall be due on the Maturity Date. ~~The conversion price set~~amendment making it convertible at $0.075.per share.

In addition, the Company has eleven other convertible notes comprising $296,000 outstanding and they are currently in default. The interest on these notes varies from5-10%. We are in the process of converting eight of the notes amounting to $241,000.

~~During the nine months ended September 30, 2021, a total of $996,620~~ ~~of convertible notes had been converted to common stock. It comprised of $832,750~~ ~~of principal and $163,120~~ ~~of accrued interest and $750~~ ~~of fees for a total of~~ ~~13,352,264~~ ~~shares of common stock.~~

NOTE 10 –– NOTES PAYABLE, RELATED PARTY NOTES PAYABLES, AND OPERATING LEASE –– RELATED PARTY

Notes payable to officers and directors as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 are due on demand and consisted of the following:

September 30, 2021 December 31, 2020
Payable to an officer and director $ 335,780 $ 82,056
Payable to an individual affiliate of an officer and director - 40,000
Payable to a company affiliate to an officer and director 85,092 366,377
$ 420,872 $ 488,433


	March 31, 2022		December 31, 2021
Payable to an officer and director	$	680,663	$	528,404
Payable to an individual affiliate of an officer and director		149,740		47,560
Payable to a company affiliate to an officer and director		162,198		126,617
	$	992,601	$	702,581

Notes payables bear interest at 10%.

A related party leased two eco-pods in April 2019 and May 2019, which are refurbished shipping containers, located on this specific parcel within ~~Coachillin’~~Coachillin’. The lease is treated as an operating lease and payment responsibility is ultimately the responsibility of the related party. The Company assumed these lease payment obligations in May 2019. The monthly payments are $1,055 and $880, for the duration of the lease terms of four and five years, respectively.

On May 17, 2021, related parties converted $699,236of principal and accrued interest, ~~for~~ a total of 11,710,465shares of common stock.

NOTE 11 –– EQUITY

Preferred Stock

The Company has authorized 1,000,000 shares of $0.0001 par value preferred stock. As of ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, there are 0 shares of preferred stock outstanding.

Common Stock

The Company is authorized to issue 1,000,000,000 shares of $0.0001 par value common stock.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2022 the Company issued a total of 24,000 shares for services rendered valued at $729; 2,325,878 shares were issued related to legal settlement valued at $11,665.

During the three months ended March 31, 2021 the Company issued a total of ~~7,449,937~~1,399,937 shares were issued for services rendered valued at $~~303,545~~55,944; ~~20,114,651~~1,666,667 shares were issued related to ~~legal~~for a settlement ~~and debt settlement with related parties~~ valued at $~~2,281,695~~51,667; ~~13,352,264~~ ~~shares were issued related to the conversion of convertible notes valued at $996,620~~; ~~1,000,000~~ ~~shares were issued for a stock purchase valued at $0.075~~ ~~per share;~~and 2,000,000shares were issued for warrant exercised at $0.125 ~~per share; and~~ ~~4,545,455~~ ~~shares were issued for the Summit Boys acquisition (Note – 14 Investments) valued at $250,000~~.

As of ~~September 30, 2021,~~March 31, 2022, there were approximately ~~613~~610 record holders of our common stock, not including shares held in ~~“street name”~~“street name” in brokerage accounts the number of which is unknown. As of ~~September 30, 2021,~~March 31, 2022, there were ~~554,162,744~~559,512,622 shares of our common stock outstanding on record.

Stock Option Plan

During 2014, the Board of Directors adopted, and the shareholders approved, the 2014 Stock Option Plan under which a total of 1,811,401 shares of common stock had been reserved for issuance. The 2014 Stock Option Plan will terminate in September ~~2024~~2024..

Stock Options

As of ~~September 30, 2021,~~March 31, 2022, employees of the Company hold options to purchase 250,000 shares of common stock granted in 2016 at an exercise price of $1.00. On March 28, 2021, the Company granted a board member an option to purchase 750,000 shares of common stock at $0.025. There are six month vesting periods for a block of 250,000 shares starting October 1, 2021.

SCHEDULE OF STOCK OPTIONS ACTIVITY

Transactions in FY 2021 Quantity
Weighted-
Average
Exercise Price
Per Share

Weighted-
Average
Remaining
Contractual Life

Outstanding, December 31, 2020 250,000 $ 1.00 3.82
Granted 750,000 0.025 5.51
Exercised -
Cancelled/Forfeited -
Outstanding, September 30, 2021 1,000,000 $ 0.25 5.08
Exercisable, September 30, 2021 250,000 $ 1.00 3.82

Transactions in FY 2022	Quantity		Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life
Outstanding, December 31, 2021		250,000	$	1.00		3.32
Granted		750,000	$	0.025		5.01
Exercised		-
Cancelled/Forfeited		-
Outstanding, March 31, 2022		1,000,000	$	0.27		4.59
Exercisable, March 31, 2022		500,000	$	0.51		3.91

The weighted average remaining contractual life of options outstanding issued under the agreements was ~~5.08~~4.59 years at ~~September 30, 2021.~~March 31, 2022.

NOTE 12 —— WARRANTS

Following is a summary of warrants outstanding at ~~September 30, 2021:~~March 31, 2022:

SUMMARY OF WARRANTS OUTSTANDING

Number of Warrants Exercise Price Expiration Date
37,500 0.10 Apr-22
2,800,000 0.40 May-22
500,000 0.10 Aug-22
575,000 0.10 Apr-23
125,000 0.10 May-23
162,500 0.10 Aug-23
302,776 0.10 Jan-24
14,000,000 0.125 May-24
15,000,000 0.15 May-24
8,000,000 0.25 May-24
20,000,000 0.075 Apr-26
2,250,000 0.20 Feb-26

Number of Warrants	Exercise Price		Expiration Date
37,500		0.10	Apr-22
2,800,000		0.40	May-22
500,000		0.10	Aug-22
575,000		0.10	Apr-23
125,000		0.10	May-23
162,500		0.10	Aug-23
302,776		0.10	Jan-24
14,000,000		0.125	May-24
15,000,000		0.15	May-24
8,000,000		0.25	May-24
20,000,000		0.075	Apr-26
2,250,000		0.20	Feb-26

Grapefruit recorded warrants to issue common stock upon exercise in its acquisition of Imaging3, Inc. on July 10, 2019. (See Note 15.) As part of the SEA, the Company also issued 16,000,000 warrants to purchase 16,000,000 shares of the ~~Company’s~~Company’s common stock at an exercise price of $0.125 per share, 15,000,000 warrants to purchase 15,000,000 shares of the ~~Company’s~~Company’s common stock at an exercise price of $0.15 per share, 8,000,000 warrants to purchase 8,000,000 shares of the ~~Company’s~~Company’s common stock at an exercise price of $0.25 per share for a period of two year from the date of issuance.

In addition to the Notes in connection with the SPA agreement, GPFT issued to the Investor a warrant to purchase 16,000,000shares of its common stock at $0.125per share, a warrant to purchase 15,000,000shares at $0.15per share and a warrant to purchase 8,000,000shares at $0.25per share (collectively, the ~~“Warrants”~~“Warrants”). The Warrants are ~~“cash only”~~“cash only” and are callable if GPFT stock trades on the OTCQB at 200% or more of the given exercise price for 5 consecutive ~~days.~~days.

On February 26, 2021, 2,250,000 warrants were issue with an exercise price of $0.125 in relation to the convertible note (See Note 9 Convertible note payable). On April 15, 2021 as part of the renegotiated terms of the convertible notes, 20,000,000 additional warrants were issued at an exercise price of $0.075.

1819

NOTE 13 —— DERIVATIVE LIABILITIES

Grapefruit recorded derivative instruments in its acquisition of Imaging3, Inc. on July 10, 2019. (See Note 15.) The ~~Company’s~~Company’s only asset or liability measured at fair value on a recurring basis was its derivative liability associated with related warrants to purchase common stock and the conversion features embedded in convertible promissory notes.

In connection with financing transactions, the Company issued warrants to purchase common stock and convertible promissory notes. These instruments included provisions that could result in a reduced exercise price based on specified full-ratchet anti-dilution provisions. The ~~“reset”~~“reset” provisions were triggered in the event the Company subsequently issued common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than contractually specified amounts. Upon triggering the ~~“reset”~~“reset” provisions, the exercise / conversion price of the instrument will be reduced. Accordingly, pursuant to ASC 815, these instruments were not considered to be solely indexed to the ~~Company’s~~Company’s own stock and were not afforded equity treatment.

On April 15, 2021, the company renegotiated conversion terms on $4,502,750 of convertible notes with Auctus. All variable conversion prices were replaced with a fixed conversion price of $0.075. In addition, the Company issued an additional 20,000,000 warrants with an exercise price of $0.075 per share.

The following table summarizes activity in the ~~Company’s~~Company’s derivative liability during the ~~nine-month~~three-month month period ended ~~September 30, 2021:~~March 31, 2022:

SUMMARY OF DERIVATIVE LIABILITY

12-31-20 Balance $ 118,641
12-31-20 Balance $ 118,641
Creation/acquisition -
Reclassification of equity -
Change in Value (91,210 )
6-30-21 Balance $ 27,431


12-31-21 Balance	$	127,392
Creation/acquisition		-
Reclassification of equity		-
Change in Value		(117,432	)
3-31-22 Balance	$	9,960

The Company classifies the fair value of these derivative liabilities under level 3 of the fair value hierarchy of financial instruments. The fair value of the derivative liability was calculated using a Binomial Tree model. The ~~Company’s~~Company’s stock price and estimates of volatility are the most sensitive inputs in validation of assets and liabilities at fair value. The liabilities were measured using the following assumptions:

SCHEDULE OF ASSUMPTIONS USED

Term	1-32 years
Dividend Yield	0	%
Risk-free rate	~~0.07~~.17%% - ~~0.16~~1.63	%
Volatility	~~167~~162	%

NOTE 14 –– INVESTMENTS

Investment in Hemp

In September 2019, the Company invested in hemp product that was purchased and stored by a third party. The Company expects to sell the product by the beginning of next year. Due to the increased harvests, the salability of the product decreased, necessitating the ~~markdown during this quarter.~~complete mark down, which occurred in 2021.

NOTE 15 –– COMMITMENTS AND CONTINGENCIES

~~Alpha Capital Anstalt and Brio Capital Master Fund, LTD~~

On September 13, 2017, Alpha Capital Anstalt and Brio Capital Master Fund, LTD, two minority members of a group of investors in the Company (the “Plaintiff”) filed a lawsuit seeking damages and injunctive relief in the United States District Court for the Southern District of New York claiming that the Company breached certain Note and Warrant agreements among the parties to the action. The holders of the majority of the investment involved in the above lawsuit chose not to join in the lawsuit and have informed the Company that they believe the lawsuit to be baseless. On November 21, 2017, the Court denied the Plaintiff’s request for injunctive relief against the Company. As a result, the case essentially became an action for money damages against the Company, which the Company believed to be without merit and defended vigorously. However, on July 27, 2018 United States District Court for the Southern District of New York granted the plaintiffs motion for summary judgement, awarding them approximately $~~1.4~~ million dollars. On April 15, 2019 the Company executed a settlement agreement (the “Settlement Agreement”) with the defendants to settle the matter by agreeing to pay the defendants an aggregate of $~~200,000~~ ~~and issuing them an aggregate of~~ ~~7,705,698~~ ~~of the Company’s common shares (subject to certain possible adjustments to the amount of shares to be issued to the Defendants by the Company). The Company paid this $200,000~~ ~~to the defendants and issued the~~ ~~7,705,698~~ shares to the defendants in the fourth quarter of 2019. Subsequently, the defendant’s claimed the aforementioned share adjustment had been triggered and made a demand that the Company issue additional shares pursuant to the terms of the Settlement. In April 2021, the Company issued an additional aggregate of ~~2,822,654~~ ~~shares the Company’s stock to these defendants in final settlement of the dispute.~~

Galileo Surgery Center LP/Cypress Ambulatory Surgery Center LP vs Imaging3, Inc. Settlement

The Company came to a settlement with Galileo Surgery Center LP/Cypress Ambulatory Surgery Center LP ~~(“Galileo”~~(“Galileo”) for $75,572 with an interest rate of 10%, requiring payments of $7,300 per month beginning in August 2021 until paid in full. This debt is related Imaging3, Inc.’s prior business activities which preceded Grapefruit’s acquisition of Imaging3, Inc., and was ‘inherited’ or ‘assumed’ by Grapefruit.

Administrative Claim of Greenberg Glusker Fields Claman && Machtinger LLP

The Company came to a settlement agreement with Greenberg Glusker Fields Claman && Machtinger LLP ~~(“Greenberg”~~(“Greenberg”). Three $68,000 payments are to be made in relation to the timing of the three latter tranches mentioned in ~~“Auctus Financing”~~“Auctus Financing” or before November 30, 2019. As of now, $68,000 has been paid; late penalties are currently being assessed. In addition, 7,628,567 shares are to be issued as part of the settlement ~~agreement—~~agreement—7,213,933 of the shares were issued as of ~~September 30, 2020.~~March 31, 2022. In May 2021, the Company issued 3,920,865 shares as part of the make-whole clause in the agreement. On October 26, 2021, the Company issued 600,000 shares as part of the make-whole clause in the agreement. Additional shares may need to be issued in the future. This debt is related Imaging3, Inc.’s prior financing activities which preceded Grapefruit’s acquisition of Imaging3, Inc., and was ‘inherited’ or ‘assumed’ by Grapefruit.

NOTE 16 –– SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10Q and determined that there have been no events that have occurred that would require adjustments to our disclosures in the financial statements.

Item 2. ~~Management’s~~Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statements

This Form 10-Q contains financial projections and other ~~“forward-looking~~“forward-looking statements,”” as that term is used in federal securities laws, about ~~Grapefruit’s~~Grapefruit’s financial condition, results of operations and business. These statements include, among others, statements concerning the potential for revenues and expenses and other matters that are not historical facts. These statements may be made expressly in this Form 10-K. You can find many of these statements by looking for words such as ~~“believes,” “expects,” “anticipates,” “estimates,”~~“believes,” “expects,” “anticipates,” “estimates,” or similar expressions used in this Form 10-K. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by us in those statements. The most important facts that could prevent us from achieving our stated goals include, but are not limited to, the following:

	(a)	volatility or decline of our stock price;

	(b)	potential fluctuation in quarterly results;

	(c)	our failure to earn revenues or profits;

	(d)	inadequate capital to continue the business and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans;

	(e)	failure to make sales;

	(f)	changes in demand for our products and services;

	(g)	rapid and significant changes in markets;

	(h)	litigation with or legal claims and allegations by outside parties, causing us to incur substantial losses and expenses;

	(i)	insufficient revenues to cover operating costs;

	(j)	dilution in the ownership of the ~~ownership~~Company through the issuance by us of additional securities and the ~~Company through the issuance by us~~conversion of ~~additional securities~~outstanding warrants, notes and ~~the conversion of outstanding warrants, notes and~~ other securities;

We cannot assure that we will be profitable. We may not be able to develop, manage or market our products and services successfully. We may not be able to attract or retain qualified executives and technology personnel. We may not be able to obtain customers for our products or services. Our products and services may become obsolete. Government regulation may hinder our business. Additional dilution in outstanding stock ownership will be incurred due to the issuance or exercise of more shares, warrants and other convertible securities.

Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution you not to place undue reliance on the statements, which speak only as of the date of this Form 10-Q. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may make. We do not undertake any obligation to review or confirm ~~analysts’~~analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.

The following discussion should be read in conjunction with our financial statements and notes to those statements. In addition to historical information, the following discussion and other parts of this annual report contain forward-looking information that involves risks and uncertainties.

Results of Operations for the Three Months Ended ~~September 30, 2021~~March 31, 2022 as compared to the Three Months Ended ~~September 30, 2020.~~March 31, 2021.

Three months ended Three months ended
September 30, 2021 September 30, 2020
Net revenues $ 153,476 $ 1,306,201
Cost of goods sold 346,073 1,123,717
Gross income (loss) (192,597 ) 182,484
Sales expense 3,800 67,479
Stock based compensation 25,980 -
Stock option expenses 32,877 -
General and administrative expense 352,462 289,767
Loss from operations (607,716 ) (174,762 )
Change in value of derivatives 13,877 (7,014,164 )
Interest and other income (expense) (388,273 ) (500,768 )
Net loss before income taxes (982,112 ) (7,689,694 )
Tax provision - -
Net loss (982,112 ) (7,689,694 )
Loss attributable to noncontrolling interest (270 ) -
Net loss attributable to Grapefruit USA, Inc. $ (981,842 ) $ (7,689,694 )

	Three months ended			Three months ended
	March 31, 2022			March 31, 2021
Net revenues	$	5,650		$	350,815
Cost of goods sold		71,861			423,435
Gross income (loss)		(66,211	)		(72,620	)
Sales expense		566			3,596
Stock based compensation		-			-
Stock option expenses		14,990			-
General and administrative expense		223,984			401,412
Loss from operations		(305,751	)		(477,628	)
Change in value of derivatives		117,432			(59,319	)
Interest and other income (expense)		(295,936	)		(879,754	)
Net loss before income taxes		(484,255	)		(1,416,701	)
Tax provision		-			-
Net loss		(484,255	)		(1,416,701	)
Loss attributable to noncontrolling interest		-			-
Net loss attributable to Grapefruit USA, Inc.	$	(484,255	)	$	(1,416,701	)

The following sets forth selected items from our statements of operations for three months ended ~~September 30, 2021~~March 31, 2022 and for the three months ended ~~September 30, 2020.~~March 31, 2021.

Revenue for the three months ended ~~September 30, 2021~~March 31, 2022 was ~~$153,476~~$5,650 compared to ~~$1,306,201~~$350,815 for the corresponding period in ~~2020,~~2021, a decrease of ~~$1,152,725~~$345,165 or ~~88.3%~~98.4%. ~~This~~The decrease ~~in revenue is~~was primarily due to the ~~fact that there was a very strong cannabis crop in the last quarter of 2020, which drove down wholesale cannabis prices significantly and limited the profitability~~decline of our distribution ~~and trading operations. The Company expects such cyclical revenue deviations to be mitigated in 2021 and following years~~business caused by a ~~significant growth~~combination of ~~revenue~~decreased demand for and an over-supply of cannabis flowers in California. As a result of these market forces beyond our control we have severely limited our distribution operations and commenced the process of transitioning into a canna-biotech firm focusing on further developing and marketing of cannabis products based on our patented Hourglass Technology. We have received approval of our NNCP from Health Canada which authorizes us to manufacture and sell our ~~HourGlass~~Hourglass™ products ~~which will be unaffected by these cyclical events.~~throughout Canada.

Cost of goods sold for the three months ended ~~September 30, 2021~~March 31, 2022 was ~~$346,073~~$71,861 as compared to ~~$1,123,717~~$423,435 for the corresponding period in ~~2020,~~2021, a decrease of ~~$777,644,~~$351,574, or ~~69.2%~~83.0%. Included in cost of goods sold the three months ended September 30, 2021 and 2020 are plant operation and other direct overhead expenses incurred to maintain our production facilities. Included in the cost of goods sold is the markdown of the hemp investment of $85,000. These fixed carrying costs affect our gross margin more significantly at lower revenues than at our anticipated full operating activity levels. Consequently, we expect our gross margins to significantly improve in future periods as sales increase.

Our resulting gross loss for the three months ended September 30, 2021 was $192,597 as compared with the gross income of $182,484 for the corresponding period in 2020, a decrease of $375,081, or 205.5%.

Sales expense for the three months ended September 30, 2021 was $3,800 compared to the $67,479 for 2020, a decrease of $63,679. The decrease was a result of all sales being made in-house by management. Stock based compensation for the three months ended September 30, 2021 was $25,980 compared to $0 for 2020, an increase of $25,980. Stock option expenses for the three months ended September 30, 2021 were $32,877 compared to $0 for 2020, an increase of $32,877. General and administrative expenses for the three months ended September 30, 2021 were $352,462 compared to $289,767 for 2020, an increase of $62,695, or 21.6%.

~~Our resulting net loss from operations for the three months ended September 30, 2021 was $607,716 as compared to $174,762 for the corresponding period for 2020, an increase of $432,954, or 247.7%.~~

Our resulting net loss attributable to Grapefruit USA, Inc. for the three months ended September 30, 2021 was $982,112 as compared to $7,689,694 for the corresponding period for 2020, a decrease of $6,707,582, or 87.2%. The decrease is due largely to the $7,014,164 non-cash loss from the change in value of derivative for the quarter ended September 30, 2020.

~~Results of Operations for the Nine Months Ended September 30, 2021 as compared to the Nine Months Ended September 30, 2020.~~

Nine Months Ended Nine Months Ended
September 30, 2021 September 30, 2020
Net revenues $ 586,780 $ 2,580,412
Cost of goods sold 926,671 2,385,804
Gross income (loss) (339,891 ) 194,608
Sales expense 5,760 106,594
Stock based compensation 265,024 -
Stock option expenses 65,754 -
General and administrative expense 1,011,199 974,925
Loss from operations (1,687,628 ) (886,911 )
Change in value of derivatives 91,210 (7,946,046 )
Interest and other income (expense) (2,149,021 ) (1,237,279 )
Net loss before income taxes (3,745,439 ) (10,070,236 )
Tax provision - -
Net loss (3,745,439 ) (10,070,236 )
Loss attributable to noncontrolling interest (270 ) -
Net loss attributable to Grapefruit USA, Inc. $ (3,745,169 ) $ (10,070,236 )

~~The following sets forth selected items from our statements of operations for nine months ended September 30, 2021 and for the nine months ended September 30, 2020.~~

Revenue for the nine months ended September 30, 2021 was $586,780 compared to $2,580,412 for the corresponding period in 2020, a decrease of $1,993,632 or 77.3%. This decrease in revenue is primarily due to the fact that there was a very strong cannabis crop in the last quarter of 2020, which drove down wholesale cannabis prices significantly and limited the profitability of our distribution and trading operations. The Company expects such cyclical revenue deviations to be mitigated in 2021 and following years by a significant growth of revenue from our HourGlass products, which will be unaffected by these cyclical events.

Cost of goods sold for the nine months ended September 30, 2021 was $926,671 as compared to $2,385,804 for the corresponding period in 2020, a decrease of $1,459,133, or 61.2%. Included in cost of goods sold the nine months ended September 30, 2021 and 2020 are plant operation and other direct overhead expenses incurred to maintain our production facilities. These fixed carrying costs affect our gross margin more significantly at lower revenues than at our anticipated full operating activity levels. ~~Consequently, we expect our gross margins to significantly improve in future periods as sales increase.~~

Our resulting gross loss for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~$339,891~~$66,211 as compared with the gross ~~income~~loss of ~~$194,608~~$72,620 for the corresponding period in ~~2020,~~2021, a decrease of ~~$534,499.~~

~~Sales expense for the three months ended September 30, 2021 were $5,760 compared to the $106,594 for 2020, a decrease of $100,834,~~$6,409, or ~~94.6%~~8.8%. The decrease was a result of the ~~majority~~general decrease in sales ~~being made in-house by management. Stock based compensation~~and the associated costs of good sold.

Sales expense for the ~~nine~~three months ended ~~September 30, 2021 were $265,024~~March 31, 2022 was $566 compared to $0the $3,596 for ~~2020, an increase~~2021, a decrease of ~~$265,024.~~$3,030. The decrease was a result of a decrease in sales. Stock option expenses for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 were ~~$65,754~~$14,990 compared to $0 for ~~2020,~~2021, an increase of ~~$65,754.~~$14,990. General and administrative expenses for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 were ~~$1,011,199~~$223,984 compared to ~~$974,925~~$401,412 for ~~2020, an increase~~2021, a decrease of ~~$36,274,~~$177,428, or ~~3.7%~~44.2%.

Our resulting net loss from operations for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~$1,687,628~~$305,751 as compared to ~~$886,911~~$477,628 for the corresponding period for ~~2020, an increase~~2021, a decrease of ~~$800,717,~~$171,877, or ~~90.3%~~36%.

As part of the reverse merger in July 2019, the Company recorded derivative liabilities substantially in the form of convertible notes and related warrants with variable conversion features. On April 15, 2021, the company renegotiated the debt agreement with the lender modifying the convertible notes conversion price from a variable rate to a fixed rate conversion price for $4,502,750 of convertible notes, with an effective date of December 31, 2020. The change Change in value of derivatives ~~a non-cash~~ gain for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022 was ~~$91,210~~$117,432 as compared to the loss of $59,319 for 2021, an increase of $176,751, or 298.0%.

In August 2021, Grapefruit acquired a ~~non-cash expense~~majority of ~~$7,946,046~~Summit Boys, a non-operating, intellectual property subsidiary with minimal to no expenses. There was no activity for the ~~corresponding period~~three months ended March 31, 2022. Due to the fact that there was minimal to no activity, management deemed it unwarranted to provide separate financials for ~~2020.~~the subsidiary.

Included in interest and other expense for the nine months ended September 30, 2021 is a non-cash expense of $513,267 related to shares issued as part of a make-whole agreement (see Note 15 Commitments and contingencies) and $491,998 loss on extinguishment of debt for related parties.

Our resulting net loss attributable to Grapefruit USA, Inc. and subsidiary for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~$3,745,169~~$484,255 as compared to ~~$10,070,236~~$1,416,701 for the corresponding period for ~~2020,~~2021, a decrease of ~~$6,325,067,~~$932,446, or ~~62.8%~~65.8%.

~~Development of hi-tech cultivation facility.~~

During 2018 we reviewed various facilities and identified a suitable, compliant cannabis facility located in the city of Dessert Hot Springs, to build our manufacturing and distribution facility. This commercial park is owned and operated by Coachillin’ Holding LLC and we purchased land rights from Coachillin’ Holding LLC on December 21, 2017 to secure our specific location within their commercial park. As a result, we own approximately two acres of real property located in the Coachillin’ Industrial Cultivation and Ancillary Canna-Business Park in Desert Hot Springs, located on the extension of North Canyon Rd., approximately 10 miles north of the center of Palm Springs.

Grapefruit intends to build out its real property into a distribution, manufacturing and high-tech cultivation facility in two phases to further its goal to become a seed to sale, fully vertically integrated Cannabis and CBD product Company. Grapefruit’s plans include an indoor 40,000 square foot multi-tiered canopy and adjoining tissue culture rooms divided into two separate buildings on our Coachillin property. The development of the lot will take place in two phases.

On July 29, 2021, Grapefruit obtained its development permit to construct phase one. Phase one will be comprised of a 30,000 square foot facility containing a 10,000 square foot state-of-the-art indoor canopy, a separately licensed Distribution facility and Manufacturing lab that will carry a Type 7 volatile manufacturing license. The canopy is estimated to produce thousands of pounds of the highest quality indoor cultivars of cannabis annually. We are in the process of securing construction financing for Phase one.

In order for us to obtain California cannabis licensing from state and local officials we entered into an operating lease with Coachillin’ Holdings to temporarily occupy an area near the location of our permanent location within the Coachillin’ commercial park.

COVID-19 Impact

During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, the company experienced severe restrictions on consumers and the retail locations at which consumers purchase our products. Whereas during the three months ended March 31, 2021, the company still had the same consumer restrictions, but we were able to continue the flower distribution with the remaining inventory, which accounts for out revenues in the first quarter of 2021. As a result of these restrictions, we believe demand for our products was subdued during the period. During the comparable ~~nine~~three months in ~~2020,~~2021, and as a result of the COVID-19 pandemic, we saw an increase in demand for our cannabis products driven by consumer pantry-loading and increased consumption of our products due to concerns about future availability of products and or concerns about whether retail locations that sell our products would remain open. Despite the COVID-19 pandemic, ~~we have been able to keep up with fluctuating consumer demand for our products and~~ have continued to introduce new products in the market.

The full extent to which COVID-19 may impact our business, including our operations and the market for our securities and our financial condition, will depend on future developments, which are highly uncertain and cannot be predicted at this time. These include the duration, severity and scope of the pandemic, the development and availability of effective treatments and vaccines, and further action taken by the government and other third parties in response to the pandemic. In particular, COVID-19 and government efforts to curtail COVID-19 could impede our production facilities, increase operating expenses, result in loss of sales, affect our supply chains, impact performance of contractual obligations and require additional expenditures to be incurred.

Liquidity and Capital Resources

Our cash position decreased to ~~$37,317~~$5,153 as of ~~September 30, 2021~~March 31, 2022 from ~~$299,895~~$9,095 as of December 31, ~~2020.~~2021. Our total current assets decreased to ~~$847,939~~$700,977 as of ~~September 30,~~March 31, 2021, from ~~$948,862~~$714,199 as of December 31, ~~2020.~~2021.

Our total current liabilities increased to ~~$4,786,109~~$8,096,968 as of ~~September 30, 2021~~March 31, 2022 from ~~$4,379,581~~$7,703,573 as of December 31, ~~2020.~~2021.

During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, we used ~~$998,581~~$257,366 of net cash for operating activities, as compared to cash used by operations of ~~$910,335~~$261,031 used during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. Net cash used in investing activities during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~$62,319,~~$0, as compared to ~~$25,469~~$30,521 during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. Net cash provided by financing activities during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~$798,253,~~$253,424, as compared to ~~$835,040~~$432,647 during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021.

During the nine months ended September 30, 2021, the Company converted $966,620 of principal and accrued interest for shares of common stock. We expect to continue to exchange the long-term convertible notes to equity in the future.

We expect our working capital requirements in the next year to be met primarily by the proceeds of issuance of debt, equity and other securities to our existing creditors, shareholders, and other investors, as well as from cash flow from operations. We also expect that, as in the past, significant amounts of our convertible debt with a major lender will be converted into equity. We expect to need additional working capital from outside sources to cover our anticipated operating expenses. There is no assurance that the Company will be able to raise sufficient additional capital or financing to continue in business or to effectively execute its business plan.

Going Concern Qualification

Our consolidated financial statements have been prepared on a going concern basis which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, we incurred a net loss of ~~$3,745,439,~~$484,255, had a working capital deficit of ~~$3,938,170~~$7,395,991 and had an accumulated deficit of ~~$15,066,663~~$17,310,419 at ~~September 30, 2021.~~March 31, 2022. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations as they come due. There is no assurance that these events will be satisfactorily completed. As a result, there is doubt about our ability to continue as a going concern for one year from the issuance date of these financial statements

Off-Balance Sheet Arrangements

None.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

~~Management’s~~Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive and financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

As of ~~September 30, 2021,~~March 31, 2022, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, our management concluded that, as of ~~September 30 2021,~~March 31, 2022, our internal control over financial reporting was effective based on those criteria.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting through the date of this report or during the quarter ended ~~September 30, 2021,~~March 31, 2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This report does not include an attestation report from our registered public accounting firm regarding internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On March 8, 2022, Grapefruit USA, Inc. was contacted by an attorney about outstanding litigation between Mentor Group, Inc. and Imagaing3, Inc. We estimate that Grapefruit will be required to settle for approximately $35,000. This debt is related to Imaging3, Inc.’s business activities which preceded Grapefruit’s acquisition of Imaging3, Inc.

~~Alpha Capital Anstalt and Brio Capital Master Fund, LTD~~

On September 13, 2017, Alpha Capital Anstalt and Brio Capital Master Fund, LTD, two minority members of a group of investors in the Company (the “Plaintiff”) filed a lawsuit seeking damages and injunctive relief in the United States District Court for the Southern District of New York claiming that the Company breached certain Note and Warrant agreements among the parties to the action. The holders of the majority of the investment involved in the above lawsuit chose not to join in the lawsuit and have informed the Company that they believe the lawsuit to be baseless. On November 21, 2017, the Court denied the Plaintiff’s request for injunctive relief against the Company. As a result, the case essentially became an action for money damages against the Company, which the Company believed to be without merit and defended vigorously. However, on July 27, 2018 United States District Court for the Southern District of New York granted the plaintiffs motion for summary judgement, awarding them approximately $1.4 million dollars. On April 15, 2019 the Company executed a settlement agreement (the “Settlement Agreement”) with the defendants to settle the matter by agreeing to pay the defendants an aggregate of $200,000 and issuing them an aggregate of 7,705,698 of the Company’s common shares (subject to certain possible adjustments to the amount of shares to be issued to the Defendants by the Company). The Company paid this $200,000 to the defendants and issued the 7,705,698 shares to the defendants in the fourth quarter of 2019. Subsequently, the defendant’s claimed the aforementioned share adjustment had been triggered and made a demand that the Company issue additional shares pursuant to the terms of the Settlement. In April 2021, the Company issued an additional aggregate of 2,822,654 shares the Company’s stock to these defendants in final settlement of the dispute.

Item 1A. Risk Factors

Smaller reporting companies are not required to provide the information required by this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities during the period covered by this quarterly report.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits

EXHIBIT NO.		DESCRIPTION

31.1		Section 302 Certification of Chief Executive Officer
31.2		Section 302 Certification of Chief Financial Officer
32.1		Section 906 Certification
32.2		Section 906 Certification
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

2725

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Bradley J. Yourist		Dated: ~~November 22, 2021~~May 20, 2022
Bradley J. Yourist
Chief Executive Officer

/s/ Kenneth J. Biehl		Dated: ~~November 22, 2021~~May 20, 2022
Kenneth J. Biehl
Chief Financial Officer

2826

	September 30, 2021			December 31, 2020
	(Unaudited)			(Audited)
ASSETS

CURRENT ASSETS:
Cash	$	37,317		$	299,895
Accounts receivable		285,622			39,408
Inventory		410,681			502,115
Licensee agreement		44,000			63,800
Other		70,319			43,644
Total current assets		847,939			948,862
NON-CURRENT ASSETS:
Property, plant and equipment, net		1,783,651			1,790,930
Operating right of use - assets		62,942			131,786
Investment in hemp		84,950			169,950
Goodwill		250,000			-
Other		7,459			7,459
TOTAL ASSETS	$	3,036,941		$	3,048,987

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
Notes payable	$	256,634		$	256,436
Accrued loan interest		920,619			758,107
Related party payable		420,872			488,433
Legal settlements - current portion		75,572			180,740
Subscription payable		251,141			791,992
Derivative liability		27,431			118,641
Capital lease - current portion		43,497			67,071
Operating right of use - liability - current portion		65,486			82,038
Convertible notes - current portion		1,907,021			829,072
Accounts payable and accrued expenses		817,836			807,051
Total current liabilities		4,786,109			4,379,581

Legal settlements - long-term		-			29,226
Capital lease		13,347			38,835
Operating right of use - liability		-			52,724
Long-term notes payable, net		907,762			904,633
Long-term convertible notes, net of discount		1,547,066			2,323,735
Total long-term liabilities		2,468,175			3,349,153

TOTAL LIABILITIES		7,254,284			7,728,734

STOCKHOLDERS’ DEFICIT
Common stock ($0.0001 par value, 1,000,000,000 shares authorized; 554,162,744 and 505,700,437 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively)		55,416			50,570
Preferred stock ($0.0001 par value, 1,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020)		-			-
Additional paid in capital		10,801,207			6,591,177
Accumulated deficit		(15,066,663	)		(11,321,494)
Total stockholders’ deficit		(4,210,040	)		(4,679,747	)
Noncontrolling interest		(7,303	)		-
Total deficit		(4,217,343	)		(4,679,747	)
TOTAL LIABILITIES AND STOCKHOLERS' DEFICIT	$	3,036,941		$	3,048,987

	Three months ended			Three months ended			Nine months ended			Nine months ended
	September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020
Revenue	$	153,476		$	1,306,201		$	586,780		$	2,580,412
Cost of goods sold		346,073			1,123,717			926,671			2,385,804
Gross profit (loss)		(192,597	)		182,484			(339,891	)		194,608
Operating expenses:
Sales		3,800			67,479			5,760			106,594
Stock based compensation		25,980			-			265,024			-
Stock option expense		32,877			-			65,754			-
General and administrative		352,462			289,767			1,011,199			974,925
Total operating expenses		415,119			357,246			1,347,737			1,081,519

Loss from operations		(607,716	)		(174,762	)		(1,687,628	)		(886,911	)
Other income (expense):
Interest expense		(388,273	)		(532,410	)		(1,258,650	)		(1,343,224	)
Change in value of derivative instruments		13,877			(7,014,164	)		91,210			(7,946,046	)
Gain (loss) on extinguishment of debt		-			31,642			(398,373	)		105,945
Gain (loss) on extinguishment of debt - related parties		-			-			(491,998	)		-
Total other income (expense)		(374,396	)		(7,514,932	)		(2,057,811	)		(9,183,325	)

Income (loss) before income taxes		(982,112	)		(7,689,694	)		(3,745,439	)		(10,070,236	)

Tax provision		-			-			-			-

Net income (loss)		(982,112	)		(7,689,694	)		(3,745,439	)		(10,070,236	)

Loss attributable to noncontrolling interest		(270	)		-			(270	)		-

Net (loss) income attributable to Grapefruit USA, Inc.	$	(981,842	)	$	(7,689,694	)	$	(3,745,169	)	$	(10,070,236	)

Net loss per share - Basic and diluted	$	(0.00	)	$	(0.02	)	$	(0.01	)	$	(0.02	)
Weighted average common stock outstanding - Basic and diluted		550,277,467			499,182,611			515,339,023			495,837,104

	September 30, 2021		December 31, 2020
Raw material	$	56,299	$	16,892
Work in process		-		23,566
Finished goods		354,382		461,657
Total inventory	$	410,681	$	502,115

Maturity of Lease Liabilities
2021		22,378
2022		44,756
2023		-
2024		-	��
2025
2026 and thereafter		-
Total future undiscounted lease payments		67,134
Less: Interest		(1,648	)
Present value of lease liabilities	$	65,486

	September 30, 2021
Remainder 2021	$	19,530
2022		32,337
2023		7,739
2024		-
2025		-
Thereafter		-
Total minimum lease payments		59,606
Less: amount representing interest		(2,763	)
Capital lease liability	$	56,843

Transactions in FY 2021	Quantity		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life
Outstanding, December 31, 2020		250,000	$	1.00		3.82
Granted		750,000		0.025		5.51
Exercised		-
Cancelled/Forfeited		-
Outstanding, September 30, 2021		1,000,000	$	0.25		5.08
Exercisable, September 30, 2021		250,000	$	1.00		3.82

12-31-20 Balance	$	118,641
12-31-20 Balance	$	118,641
Creation/acquisition		-
Reclassification of equity		-
Change in Value		(91,210	)
6-30-21 Balance	$	27,431