Cautionary Statements
This Form 10-Q contains financial projections and other "forward-looking
statements," as that term is used in federal securities laws, about 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," 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 Company through the issuance by us of
additional securities 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' 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.
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Results of Operations for the Three Months Ended June 30, 2022 as compared to
the Three Months Ended June 30, 2021.
Three months ended Three months ended
June 30, 2022 June 30, 2021
Net revenues $ 24,062 $ 82,488
Cost of goods sold 162,450 157,163
Gross income (loss) (138,388 ) (74,675 )
Stock based compensation 195,682 221,620
Stock option expenses 6,008 32,877
General and administrative expense 526,286 273,112
Loss from operations (866,364 ) (602,284 )
Change in value of derivatives 6,462 136,652
Interest and other income (expense) (505,338 ) (880,994 )
Net loss before income taxes (1,365,240 ) (1,346,626 )
Tax provision - -
Net loss (1,365,240 ) (1,346,626 )
Loss attributable to noncontrolling interest - -
Net loss attributable to Grapefruit USA, Inc. $ (1,365,240 ) $ (1,346,626 )
The following sets forth selected items from our statements of operations for
three months ended June 30, 2022 and for the three months ended June 30, 2021.
Revenue for the three months ended June 30, 2022 was $24,065 compared to $82,488
for the corresponding period in 2021, a decrease of $58,426 or 70.8%. The
decrease was primarily due to the decline of our distribution business caused by
a combination of 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. On
March 21, 2022, we received approval of our NNCP from Health Canada (NNCP ID No.
NP-V2EHUWO907) which authorizes us to manufacture and sell our Hourglass™
products throughout Canada.
Cost of goods sold for the three months ended June 30, 2022 was $162,450 as
compared to $157,163 for the corresponding period in 2021, a decrease of $5,287,
or 3.4%. Included in cost of goods sold 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. When inspecting inventory
this quarter, we found some inventory was damaged, which necessitated a $68,500
reduction in inventory. Most of the product was salvageable and will be ready
for resale in August 2022.
Our resulting gross loss for the three months ended June 30, 2022 was $138,388
as compared with the gross loss of $74,675 for the corresponding period in 2021,
a decrease of $63,713, or 85.3%. The decrease was a result of the general
decrease in sales and the associated costs of goods sold.
Stock based compensation for the three months ended June 30, 2022 were $195,682
compared to $221,620 for 2021, decrease of $25,938, or 11.7%. Stock option
expenses for the three months ended June 30, 2022 were $6,008 compared to
$32,877 for 2021, a decrease of $26,869. General and administrative expenses for
the three months ended June 30, 2022 were $526,286 compared to $274,748 for
2021, an increase of $251,538, or 91.6%. This increase was due to the evaluation
of the collectability of our accounts receivable. Based on the aging and
likelihood of collectability, an allowance for doubtful accounts was created in
the amount of $257,594.
Our resulting net loss from operations for the three months ended June 30, 2022
was $866,364 as compared to $602,284 for the corresponding period for 2021, an
increase of $264,080, or 43.8%. Change in value of derivatives gain for the
three months ended June 30, 2022 was $6,462 as compared to $136,652 for 2021, a
decrease of $375,656, or 42.6%.
Our resulting net loss attributable to Grapefruit USA, Inc. and subsidiary for
the three months ended June 30, 2022 was $1,365,240 as compared to $1,346,626
for the corresponding period for 2021, a decrease of $18,614, or 1.4%.
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Results of Operations for the Six Months Ended June 30, 2022 as compared to the
Six Months Ended June 30, 2021.
Six months ended Six months ended
June 30, 2022 June 30, 2021
Net revenues $ 29,711 $ 433,304
Cost of goods sold 234,311 580,598
Gross income (loss) (204,600 ) (147,294 )
Sales expense - 1,960
Stock based compensation 195,905 239,044
Stock option expenses 20,998 32,877
General and administrative expense 750,612 658,737
Loss from operations (1,172,115 ) (1,079,912 )
Change in value of derivatives 123,894 77,333
Interest and other income (expense) (801,274 ) (1,760,748 )
Net loss before income taxes (1,849,495 ) (2,763,327 )
Tax provision - -
Net loss (1,849,495 ) (2,763,327 )
Loss attributable to noncontrolling interest - -
Net loss attributable to Grapefruit USA, Inc. $ (1,849,495 ) $ (2,763,327 )
The following sets forth selected items from our statements of operations for
six months ended June 30, 2022 and for the six months ended June 30, 2021.
Revenue for the six months ended June 30, 2022 was $29,711 compared to $433,304
for the corresponding period in 2021, a decrease of $403,593 or 93.1%. The
decrease was primarily due to the decline of our distribution business caused by
a combination of 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. On
March 21, 2022, we received approval of our NNCP from Health Canada (NNCP ID No.
NP-V2EHUWO907), which authorizes us to manufacture and sell our Hourglass™
products throughout Canada.
Cost of goods sold for the six months ended June 30, 2022 was $234,311 as
compared to $580,598 for the corresponding period in 2021, a decrease of
$346,287, or 59.6%. Included in cost of goods sold 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. When inspecting
inventory this quarter, we found some inventory was damaged, which necessitated
a $68,500 reduction in inventory. Most of the product was salvageable and will
be ready for resale in August 2022.
Our resulting gross loss for the six months ended June 30, 2022 was $204,600 as
compared with the gross loss of $147,294 for the corresponding period in 2021,
an increase of $57,306, or 38.9%. The increase was a result of the general
decrease in sales and the associated costs of goods sold.
Sales expense for the six months ended June 30, 2022 was $0 compared to the
$1,960 for 2021, a decrease of $1,960. The decrease was a result of sales being
done internally or online. Stock based compensation for the three months ended
June 30, 2022 were $195,905 compared to $239,044 for 2021, a decrease of
$43,139, or 18.0%. Stock option expenses for the six months ended June 30, 2022
were $20,998 compared to $32,877 for 2021, a decrease of $11,876, or 36.1%.
General and administrative expenses for the six months ended June 30, 2022 were
$750,612 compared to $658,737 for 2021, an increase of $91,875, or 13.9%. This
increase was due to the evaluation of the collectability of our accounts
receivable. Based on the aging and likelihood of collectability, an allowance
for doubtful accounts was created in the amount of $257,594.
Our resulting net loss from operations for the six months ended June 30, 2022
was $1,172,115 as compared to $1,079,912 for the corresponding period for 2021,
an increase of $92,203, or 8.5%. Change in value of derivatives gain for the six
months ended June 30, 2022 was $123,894 as compared to $77,333 for 2021, an
increase of $46,561, or 60.2%.
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Our resulting net loss attributable to Grapefruit USA, Inc. and subsidiary for
the six months ended June 30, 2022 was $1,849,495 as compared to $2,763,327 for
the corresponding period for 2021, a decrease of $913,832, or 33.1%.
Liquidity and Capital Resources
Our cash position decreased to $5,035 as of June 30, 2022 from $9,095 as of
December 31, 2021. Our total current assets decreased to $404,651 as of June 30,
2021, from $767,322 as of December 31, 2021.
Our total current liabilities decreased to $7,281,488 as of June 30, 2022 from
$7,703,573 as of December 31, 2021.
During the six months ended June 30, 2022, we used $281,394 of net cash for
operating activities, as compared to cash used by operations of $807,164 used
during the six months ended June 30, 2021. Net cash used in investing activities
during the six months ended June 30, 2022 was $0, as compared to $56,679 during
the six months ended June 30, 2021. Net cash provided by financing activities
during the six months ended June 30, 2022 was $277,344, as compared to $752,103
during the six months ended June 30, 2021.
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.
COVID-19 Impact
The COVID-19 pandemic has had, and continues to have, a significant impact
around the world, prompting governments and businesses to take unprecedented
measures, such as restrictions on travel and business operations, temporary
closures of businesses, and quarantine and shelter-in-place orders. The COVID-19
pandemic has at times significantly curtailed global economic activity and
caused significant volatility and disruption in global financial markets. The
COVID-19 pandemic and the measures taken by many countries in response have
affected and could in the future materially impact the Company's business,
results of operations and financial condition.
Certain of the Company's outsourcing partners, component suppliers and
logistical service providers have experienced disruptions during the COVID-19
pandemic, resulting in supply shortages. Similar disruptions could occur in the
future.
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 six months ended June 30, 2022, we incurred a net loss of $1,849,495, had a
working capital deficit of $6,876,837 and had an accumulated deficit of
$18,675,659 at June 30, 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.
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