UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE 

SECURITIES AND EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2019

 

Commission file number: 333-21090

 

VERITAS FARMS, INC

(Exact name of registrant as specified in its charter)

 

Nevada   90-1254190
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification No.)

 

1512 E. Broward Blvd., Suite 300, Fort Lauderdale, FL 33301

(Address of Principal Executive Offices)

 

Registrant’s telephone number, including area code: (561) 288-6603

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

 

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

 

Large Accelerated Filer ☐ Accelerated Filer ☐
Non-accelerated filer ☒

Smaller reporting company ☒

  Emerging Growth Company ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity as of the last business day of the registrant’s most recently completed second fiscal quarter: $234,158,814.

 

The number of shares outstanding of the issuer’s common stock, $0.001 par value, as of May 14, 2020 was 41,623,366 shares.

 

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
PART I 1
   
Item 1. Business 1
Item 1A. Risk Factors 9
Item 1B. Unresolved Staff Comments 9
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Mine Safety Disclosures 10
 
PART II  11
   
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 11
Item 6. Selected Financial Data 12 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 16
Item 8. Financial Statements and Supplementary Data 16
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure 17
Item 9A. Controls And Procedures 17
Item 9B. Other Information 17
   
PART III 18
   
Item 10. Directors, Executive Officers, and Corporate Governance 18
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 25
Item 13. Certain Relationships and Related Transactions, and Director Independence 27
Item 14. Principal Accounting Fees and Services 27
   
PART IV 28
   
Item 15. Exhibits and Financial Statement Schedules 28
   
Signatures 30 

 

i

 

 

FORWARD LOOKING STATEMENTS

 

Certain statements made in this report are “forward-looking statements” regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein particularly in view of the current state of our operations, the inclusion of such information should not be regarded as a statement by us or any other person that our objectives and plans will be achieved. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

 

Unless the context otherwise requires, references in this report to “the Company,” “Veritas Farms,” “we,” “us” and “our” refer to Veritas Farms, Inc. and its subsidiary. All share and per share information in this report gives pro forma effect to the implementation of a one for four reverse stock split effective September 20, 2019.

 

ii

 

 

PART I

 

Item 1 Business.

 

Business Overview

 

Veritas Farms is a vertically-integrated agribusiness focused on producing, marketing, and distributing superior quality, whole plant, full spectrum hemp oils and extracts containing naturally occurring phytocannabinoids. Veritas Farms owns and operates a 140-acre farm in Pueblo, Colorado, capable of producing over 200,000 proprietary full spectrum hemp plants containing naturally occurring phytocannabinoids which can potentially yield a minimum annual harvest of over 200,000 pounds of outdoor-grown industrial hemp. While part of the cannabis family, hemp, which contains less than 0.3% tetrahydrocannabinol (“THC”), the psychoactive compound that produces the “high” in marijuana, is distinguished from marijuana by its use, physical appearance and lower THC concentration (marijuana generally has a THC level of 10% or more). The Company also operates approximately 15,000 sq. ft. of climate-controlled greenhouses to produce a consistent supply of year-round indoor-cultivated hemp. In addition, there is a 10,000-sq. ft. onsite facility used for processing raw hemp, oil extraction, formulation laboratories, and quality/purity testing. Veritas Farms is registered with the Colorado Department of Agriculture to grow industrial hemp and with the Colorado Department of Public Health and Environment to process hemp and manufacture hemp products in accordance with Colorado’s hemp program.

 

Veritas Farms meticulously processes its hemp crop to produce superior quality whole-plant hemp oil, extracts and derivatives which contain the entire broad spectrum of cannabinoids extracted from the flowers and leaves of hemp plants. Whole-plant hemp oil is known to provide the essential phytocannabinoid “entourage effect” resulting from the synergistic absorption of the entire broad spectrum of unique hemp cannabinoids by the receptors of the human endocannabinoid system. As a result, Veritas Farms believes that its products are premier quality cannabinoids and are highly sought after by consumers and manufacturers of premium hemp products.

 

Veritas Farms has developed a wide variety of formulated phytocannabinoid-rich hemp products containing naturally occurring phytocannabinoids which are marketed and distributed by the Company under its Veritas Farms™ brand name. Our products are also available in bulk, white label and private label custom formulations for distributors and retailers. These types of products are in high demand by health food markets, wellness centers, physicians and other healthcare practitioners.

 

Veritas Farms™ products (50+ SKUs) include vegan capsules, gummies, tinctures, lotions, salves, cream and oral syringes. All product applications come in various flavors and strength formulations, in addition to bulk. Many of the Company’s whole-plant hemp oil products and formulations are available for purchase online directly from the Company through its Veritas Farms™ website, as well as through numerous other online retailers and “brick and mortar” retail outlets.

 

The branding of Company’s line of hemp oil and extract product has allowed market for penetration during 2019 into large retail chains vastly increasing brand exposure and awareness. The initial rollouts have been successful creating distribution opportunities into thousands of new retail outlets across the country (over 6,000 retail outlets as of the date of this report). The shift from smaller order fulfillment to larger “big box store” orders creates an economy of scale and also offers the opportunity for the Company to achieve increased profitability.

 

1

 

 

Effects of the Current Coronavirus (COVID-19) Pandemic on the Company

 

General

 

The adverse public health developments and economic effects of the current COVID-19 pandemic in the United States, could adversely affect the Company’s customers and suppliers as a result of quarantines, facility closures, closing of “brick and mortar” retail outlets and logistics restrictions imposed or which otherwise occur in connection with the pandemic. More broadly, the high degree unemployment resulting from the pandemic could potentially lead to an extended economic downturn, which would likely decrease spending, adversely affect demand for our products and services and harm our business, results of operations and financial condition. At this time, we cannot accurately predict the effect the COVID-19 pandemic will have on the Company.

 

Increased Emphasis on E-commerce Marketing

 

With recent stay-at-home mandates arising from the Covid-19 pandemic resulting in increased online traffic, Veritas Farms has leveraged its digital ecosystem to offer solutions to customers who have financial and health concerns while growing the Company’s online traffic and revenue.

 

The increased emphasis on e-commerce marketing has resulted in online revenue growth of over 150% from January 2020 levels to April 2020 levels. The increases in traffic to and revenue generated by the Veritas Farms website can be attributed to a multi-prong digital strategy leveraging multiple channels. We believe that the reach and frequency of exposure to Veritas Farms’ sales funnel across these channels, combined with a seamless shopping experience, superior product and excellent customer service ultimately lead to repeat customer growth.

 

These revenue driving channels include:

 

Organic Search Revenue + 162% from January 2020

 

Direct Traffic Revenues +110% from January 2020

 

Referral Traffic Revenues + 200% from January 2020

 

Social Media Traffic Revenues + 70% from January 2020

 

Key contributors to recent e-commerce revenue growth include:

 

Launch of affiliate channel;

 

Ability to execute retargeting campaigns on key platforms Facebook, Instagram and Google Ad Words;

 

Content/Engagement Campaigns

 

Yoga Flow Session every Saturday on Veritas Farms Instagram Live channel

 

Upcoming: Social Media “Stay At Home” Challenge

 

Upcoming: Veritas Farms & Florida Hemp Council Hemp & Wellness Virtual Town Hall;

 

2

 

 

Sales Promotion Campaigns

 

35% Off Supporting The Community campaign

 

Buy One Give One Forward campaign

 

Social Isolation Stress Kit campaign;

 

Influencer Partnerships (with recent pivot to YouTube);

 

Email campaigns and email sign up growth;

 

Customer Experience Development

 

Onboarding of full-time customer experience representative has increased conversion rate, upsells and lifetime customer value;

 

Search Engine Optimization Strategies

 

Ranking 1st page for multiple keywords, consistently climbing; and

 

Website Development

 

Content and layout upgrades have improved site speed, session length and conversion rate

 

Live chat feature has expanded customer service capabilities

 

Military and first responder discounts

 

Improved email sign up features

 

A comparison of the period from February 1st – February 15th 2020 with the period April 1st – April 15th 2020 shows:

 

overall new customers are up 40%

 

returning customers are up 43%

 

conversion rate has improved from 6.3% to 11.9%

 

Our Mission

 

Veritas Farms is a pioneer in quality phytocannabinoid products and organic farming methods. It is committed to serving the global community by uncompromising on our quality and continuing the pursuit of cutting-edge, ethical innovation.

 

Veritas Farms is different. We produce pure natural hemp derivatives, pesticide residual and solvent free, with whole plant phytocannabinoids. We achieve highest potency and purity in the derivative products from our oils.

 

3

 

 

Veritas Farms is committed to the research and development of improved, proprietary hemp genetics cultivation and innovation in order to provide the global community with uncompromised quality hemp products, containing the highest quality, quantity and consistency in the industry.

 

Our commitment to enhancing the symbiotic relationship between healthy plants and healthy people ensures that we provide whole plant, broad spectrum cannabinoid-rich hemp products while using only natural protocols and sustainable farming methods.

 

Our philosophy is to practice strict natural protocols for hemp cultivation and the latest technology to assist our sustainable, environmentally sound farming practices to ensure pure, pesticide free, and high quality consistent products.

 

Why Cannabinoids?

 

Cannabinoid-rich hemp oil is made from the stalks and leaves of the cannabis sativa plant. Like tetrahydrocannabinol, or THC, cannabinoid-rich hemp is an active cannabinoid found in cannabis plants. Unlike THC, however, cannabinoid-rich hemp has no psychoactive properties — and its health benefits may be even more profound than those of THC.

  

What are cannabinoids? They are chemical compounds secreted by the flowers of the cannabis plant. Our brains have receptors that respond pharmacologically to them. THC is the psychoactive cannabinoid, which binds to receptors in the brain, while cannabinoid-rich hemp binds to receptors throughout the body. Whole-plant hemp extracts are known to provide the essential phytocannabinoid “entourage effect” resulting from the synergistic absorption of the entire broad spectrum of unique hemp cannabinoids by the receptors of the human endocannabinoid system.

 

Through our body’s endocannabinoid receptors, cannabinoid-rich hemp can mitigate both pain and swelling or inflammation associated with it. Science has long known about cannabinoid’s analgesic properties, which is why we now have any number of cannabinoid-rich hemp-infused topical creams and salves designed for direct application to skin.

 

There seems to be no end to the painful conditions for which cannabinoid-rich hemp could mean a measure of localized relief. Enthusiasts commonly cite arthritis, menstrual cramps, headaches, and even plain old muscle soreness or the itchiness from psoriasis and dermatitis as potential targets for the cannabis compound.

 

Current Industry Factors

 

Typical Cannabinoid Company Profile. The majority of cannabinoid companies are either farmers/extractors, manufacturers, or retail brands. Farmers often grow and extract their oil, sometimes selling their oil wholesale to product manufacturers and sometimes manufacturing their own products and then selling them in bulk to brands that use them for private label products. Retail brands are forced into a state of constant supply search and often have to order from multiple farmers/extractors in order to ensure their demand is met. This causes inconsistency in product potency and quality, often leading to products that don’t have accurate Certificate of Analysis’ (COA’s) or additional contaminate tests.

 

Poor Quality Products, Morally Questionable Companies. As with any burgeoning new market, opportunistic entrepreneurs and entities have surfaced selling inferior products that are often misrepresented and mislabeled. These products may contain little to no active cannabinoid compounds, “dirty” or contaminated cannabinoid compounds, and often are aiming to find a quick payday for the company’s founders and take advantage of the lack of consumer education about the industry.

 

Lack of Consumer Knowledge/Confusion in Market Place. New markets and products are often rife with miseducation and misunderstanding. Cannabinoid products are just beginning to be absorbed by the mainstream public, who is still very un-aware of quality control concerns and how to alleviate them, proper applications and treatment uses, and dosing.

 

4

 

 

Our goal is to secure as large a share of the growing market for cannabinoid products as possible, by taking advantage of the fractured nature of the industry, the sometimes poor quality products offered and the lack of knowledge of the potential benefits of cannabinoid through:

 

Offering only the highest quality products by maintaining control of the growing, extracting and manufacturing processes.

 

Providing a one-stop vertically integrated source for cannabinoid products;

 

Increasing demand by educating consumers on the potential benefits of use of cannabinoid products; and

 

Employing an integrated marketing plan across both traditional and digital channels.

 

Our Products

 

Veritas Farms has developed a wide variety of formulated phytocannabinoid-rich hemp products which are marketed and distributed by the Company under its Veritas Farms™ brand name. Our products are also available in bulk, white label and private label custom formulations for distributors and retailers. These types of products are in high demand by health food markets, wellness centers, physicians and other healthcare practitioners.

 

Veritas Farms™ products (50+ SKUs) include vegan capsules, gummies, tinctures, lotions, salves, vape oils and oral syringes. All product applications come in various flavors and strength formulations, in addition to bulk. Many of the Company’s whole-plant hemp oil products and formulations are available for purchase online directly from the Company through its Veritas Farms™ website, as well as through numerous other online retailers and “brick and mortar” retail outlets. Our products include:

 

  Cannabinoid-rich hemp oil: a pure, concentrated extract made from the flowers, leaves and stalks of either cannabis species — which is sold at bulk wholesale and also used for Veritas Farms™ product formulation.

 

  Cannabinoid-rich hemp capsules and gummies offer the same product in easy-to-swallow or chew form.

 

  Tinctures are used sublingually as an efficient way to absorb cannabinoids.

 

  Cannabinoid-rich hemp oil for use in vaporizers.

 

  Topically applied products include lotions and oils applied directly to the skin, usually to treat a specific spot of pain or inflammation.

 

All Veritas Farms™ products are of the highest-quality and third-party laboratory tested for strength/purity, bio-contaminants, heavy metals, pesticides, and solvents. Veritas Farms is working on launching additional product lines, opening up potential new markets for the Company. Our product pipeline includes:

 

  The Veritas Beauty™ beauty and skin care product line encompassing massage oils, body scrubs and beauty soap.

 

  A CBD-infused Veritas Farms™ sports cream.

 

  A CBD-infused line of topical pet products -Veritas Pets™.

 

  Hemp edibles designed to deliver cannabinoid-rich hemp.

 

  A medical product line formulated in partnership with dermatologists, internists, chiropractors and veterinarians, which is currently under development.

 

  A new topical roll-on – the Zen Roller™.

 

5

 

 

Production

 

Hemp growth, extraction, processing, formulation and product manufacture takes place at our facilities located on our 140-acre farm in Pueblo Colorado. Our farm is capable of producing over 200,000 plants potentially yielding potential minimum annual harvest of 200,000 to 300,000 pounds of outdoor grown hemp.

 

In addition, the Company’s 15,000 square feet of climate-controlled greenhouses are capable of producing a consistent supply of approximately 25,000 pounds per year of indoor cultivated hemp over 4-6 individual harvests.

 

There is an additional 10,000 sq. ft. on-site facility used for plant processing and oil extraction, in addition to housing Veritas Farms’ testing and formulation laboratories, wherein GMP (good manufacturing practices) are strictly maintained.

 

The production process starts in the ground, with our cultivation team. Veritas Farms is fortunate to have a team of dedicated, experienced, and passionate farming experts that nurture our plants with individual care, much like the care and attention paid to vines in a vineyard.

 

After harvest, our in-house laboratory chemists and extraction technicians produce varieties of high quality, pure hemp derivative oils while constantly finding methods to improve processes and improve our products.

 

Veritas Farms uses advanced, strict natural protocols to cultivate its cannabinoid-rich hemp oil yield from its plants. After naturally air drying, only the leaves and flowers richly coated with tricomes are processed with our advanced ethanol spray evaporation extractors according to the planned uses for the cannabinoid-rich hemp extracts. Whole plant full spectrum cannabinoid-rich hemp extracts are then further processed using chromatography and other techniques yielding pure distillates and other derivatives exceeding 80% cannabinoid-rich hemp with 0% THC (if so desired).

  

Marketing

 

Overview

 

The primary target customers markets for Veritas Farms™ products are:

 

Ages 35 – 55 (Gen X and Baby Boomers)

 

Health conscious/open minded

 

Affluent middle class

 

Medical patients

 

Looking to treat chronic disease, illness, and pain

 

Millennials

 

Health Conscious

 

Cannabis enthusiasts

 

Progressive/forward thinking/open minded

 

Athletes

 

Pet Owners

 

Passionate about pets

 

Disposable income spent on pets

 

Affluent 30+

 

6

 

 

As part of the Company’s increased focus on sales and marketing, Veritas Farms recently launched a line of products under its own proprietary brand, Veritas Farms™, including hemp oil and extract products. The Veritas Farms™ brand line, including new packaging, was developed to expand the Company’s potential customer base. The Veritas Farms™ product line is expected to continually expand to offer additional products and applications.

 

Currently, Veritas Farms has implemented an aggressive marketing plan to compete in the Cannabinoid industry. To become a market leader in the industry, the Company plans to use three primary channels to market its products, web-based marketing, traditional marketing and medical marketing.

 

Web-Based Marketing

 

General. Veritas Farms’ expanded Veritas Farms™ e-commerce retail platform is designed to be a source for offering the Company’s premium phytocannabinoid-rich extract products directly to consumers under the Veritas Farms™ brand. The site has the ability to quickly adapt to a rapidly evolving market and to position our branded product lines as a leader in the industry. In addition to its e-commerce platform, Veritas Farms is pursuing distribution with leading third-party online retailers. As described in “Potential Adverse Effects of the Covid-19 Pandemic on the Company – Increased Emphasis on E-commerce Marketing,” the current Covid-19 pandemic has resulted in significant increases in e-commerce marketing efforts and resulting revenue growth.

 

Content Marketing via Blogs and Social Media. We believe that content marketing offers a cost-effective marketing strategy. The core components to Veritas Farms’ content marketing strategy are blogs and social media posts. Veritas Farms has partnered with Content Bacon (https://contentbacon.com/) to establish a market leader presence surrounding the cannabinoid industry, especially since blogging has the strongest impact on content marketing return on investment.1 Veritas Farms plans to launch an engaging social media campaign to promote the overall vision to quality and transparent phytocannabinoid products.

 

Influencer Campaigns. Influencer marketing is a type of marketing that focuses on using online leaders to drive the brand’s message to the larger market. Rather than market directly to a large group of consumers, Veritas Farms will partner with influencers to utilize their personal social channels to spread the word about the brand.2 Influencers would be celebrities, high-quality content creators, buzz builders and promoters and natural health advocates. Extensive tracking methods will be implemented to determine the effectiveness of the influencer campaigns.

 

Search Engine Optimization (SEO). Search Engine Optimization (SEO) is important for establishing and creating an online presence. Most every single online interaction starts with key words manually entered into a search engine to draw up relevant website options for the user. With SEO keywords maximized throughout Veritas Farms’ digital media campaign, the Target Market has a 93% increased chance of exposure to the brand.3 The Veritas Farms SEO marketing plan contemplates a monthly campaign to ensure the website ranks in top relevance for industry-related searches on major search engines such as Google, Bing and Yahoo.

 

Television Appearances and Magazine Features. Through appearances on various business-related television programs such as Varney & Company, The Money Show and New To The Street and the publication of a number of features in industry-related print and online magazines and other websites, such as the National Hemp Association, Veritas Farms plans to consistently promote its brand and products and educate consumers with other hemp industry-related information.

 

 

1 http://growwithtrellis.com/blog/the-importance-of-content-marketing-infographic/
2 https://www.tapinfluence.com/the-ultimate-influencer-marketing-guide/
3 https://www.imforza.com/blog/what-is-seo/

 

7

 

 

Traditional Marketing

 

In-House Sales Force Expansion. Veritas Farms maintains an in-house sales force to market to wholesale and retail accounts. With the significant capital infusions completed in 2018 and 2019, we have undertaken a significant expansion of our in-house sales team. The in-house sales team, which is based out of Fort Lauderdale, Florida, focuses on marketing to wholesale and retail accounts nationwide to grow our market share in traditional retail. In addition, we plan to further expand that portion of our sales team, which travels to major markets nationwide and focuses on direct sales to larger potential customers such as retail chains, including regional grocery stores, health food stores, and pharmacies. Further, they will be tasked with supporting retail account sales growth using staff education and incentives, point-of-sale promotions and in-store customer samplings.

 

Industry-Related Trade Shows and Conventions. Veritas Farms currently participates in major industry trade shows and conventions to develop its business to business and business to consumer sales pipelines. These expos include Natural Food and Vitamin, Holistic Healing, Pharmacy and Medical, Chiropractic, Cannabis/Phytocannabinoid, Sports Health, Veterinarian, Pet Food and Supply, and Natural Products. The Company plans to continue and expand these sales and marketing efforts.

 

Event Sponsorship. Veritas Farms has undertaken the sponsorship of various health and wellness events, such as the 2019 Malibu Marathon, where we have either promoted our existing product line or unveiled new product lines of additions to existing lines.

 

Billboard Campaigns. The Company has undertaken a digital and static billboard marketing campaign in nine U.S. cities, including Los Angeles, Atlanta, Dallas, Houston, Denver, Colorado Springs and New York City (Times Square), to highlight Veritas Farms and its product line. The billboard campaign is expected to display in excess of one hundred and twenty million impressions during its approximately three-month duration from the end of September to the beginning of January 2020.

 

Medical Sales and Marketing

 

Veritas Farms is completing development and expects to launch its new line of medical products, formulated in partnership with dermatologists, internists, chiropractors and veterinarians throughout 2020. In order to attract medical professionals and patients alike, the new line will be marketed and sold under a stand-alone brand and will be available exclusively to medical professionals.

 

We intend to make the line available only through medical professionals, pharmacies, and a dedicated portion of the e-commerce website that will require a promotional code from a partner medical professional.

 

Government Regulation

 

We are subject to numerous federal, state, local, and foreign laws and regulations, including those relating to:

 

  The production of our products;

 

  Environmental protection;

 

  Interstate commerce and taxation; and

 

  Workplace and safety conditions, minimum wage and other labor requirements.

 

The federal Agricultural Improvement Act of 2018, signed into law on December 20, 2018, along with the Agricultural Act of 2014, the corresponding Consolidated Appropriations Act of 2016 provisions (as extended by resolution into 2018) and Colorado’s Industrial Hemp Regulatory Program and related state law, provide for the cultivation of hemp, and processing and manufacturing of hemp products, as part of agricultural pilot programs and/or state plans adopted by individual states, including Colorado (pursuant to which we operate). However, there can be no assurance that new legislation or regulations may be introduced at either the federal and/or state level which, if passed, would impose substantial new regulatory requirements on the manufacture, packaging, labeling, advertising and distribution and sale of hemp-derived products. New legislation or regulations may require the reformulation, elimination or relabeling of certain products to meet new standards and revisions to certain sales and marketing materials and it is possible that the costs of complying with these new regulatory requirements could be material.

 

8

 

 

The U.S. Food and Drug Administration (the “FDA”), Federal Trade Commission (the “FTC”) and their state-level equivalents, possess broad authority to enforce the provisions of federal and state law, respectively, applicable to consumer products and safeguards as such relate to foods, dietary supplements and cosmetics, including powers to issue a public warning or notice of violation letter to a Company, publicize information about illegal products, detain products intended for import or export (in conjunction with U.S. Customs and Boarder Protection) or otherwise deemed illegal, request a recall of illegal products from the market, and request the Department of Justice, or the state-level equivalent, to initiate a seizure action, an injunction action, or a criminal prosecution in the U.S. or respective state courts. The initiation of any regulatory action towards industrial hemp or hemp derivatives by the FDA, FTC or any other related federal or state agency, would result in greater legal cost to Veritas Farms, may result in substantial financial penalties and enjoinment from certain business-related activities, and if such actions were publicly reported, they may have a materially adverse effect on the Company, its business and its results of operations.

 

Competition

 

The industrial hemp cultivation and derivative products industry is relatively new and evolving. While we believe that the industry is fragmented at the present time, there are numerous competitors, including Green Roads, Charlotte’s Web, Folium Biosciences, CBD Rx. St. Mary’s Nutritional and CV Sciences, some of whom may be larger and have a longer operating history and greater financial resources than does the Company. Moreover, we may also face competition with larger firms in consumer products manufacturing and distribution industry, who elect to enter the market given the relatively low barriers to entry. Veritas Farms believes that it competes effectively with its competitors because of its vertical integration through the cultivation, extraction, formulation, manufacturing and distribution processes, the quality of its products and customer service. However, no assurance can be given that Veritas Farms will effectively compete with its existing or future competitors.

 

Employees

 

As of the date of this report, we have 72 full-time employees including our executive officers, 17 of whom are based in Fort Lauderdale, Florida and 55 of whom are based in Pueblo and Aurora, Colorado, with the Company employing up to an additional 25-30 employees in Pueblo, Colorado during the outdoor harvest season.

 

Item 1A. Risk Factors.

 

As a “smaller reporting company,” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are not required to provide the information required by this Item.

 

Item 1B. Unresolved Staff Comments

 

Not applicable.

 

Item 2. Properties.

 

The Company owns its 140-acre cultivation and production facility located at 8648 Lake Davis Road, Pueblo, Colorado.

 

The Company’s executive and sales offices are currently located in approximately 2,145 square feet of space at 1512 E. Broward Blvd., Suite 300, Fort Lauderdale, FL 33301. This space is leased from a non-affiliated party at a rental of $6,648.44 per month pursuant to a three-year lease expiring in August 2021.

 

9

 

 

In December 2019, the Company announced that it had signed a lease for a 35,000 square foot product production and distribution facility in Aurora, Colorado.  The facility, which is currently undergoing the required tenant improvements, will be used by the Company for production, warehousing, e-commerce fulfillment and commercial distribution of its ingestible and topical products. The facility will also provide additional office and meeting space. The Aurora, Colorado facility is leased from a non-affiliated party at a current monthly rental of $18,700, pursuant to a five-year lease with two five-year renewal options.

 

The Company believes that with the addition of the Aurora, Colorado facility, its production and office facilities are adequate for its present and proximate future needs.

 

Item 3. Legal Proceedings.

 

Currently there are no material legal proceedings pending or threatened against us. However, from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in any such matter may harm our business.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

10

 

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market Information

 

Our common stock was traded on the OTCPink tier of the over-the-counter market operated by OTC Markets Group, Inc. from October 2, 2017, until February 12, 2018, when it commenced trading on the OTCQB tier of the over-the-counter market under the symbol “SSWH”. Effective as of February 5, 2019 our trading symbol changed to “VFRM”. Such market is extremely limited. We can provide no assurance that our shares of common stock will be continued to be traded on the OTCQB or another exchange, or if traded, that the current public market will be sustainable.

 

Holders of our Common Stock

 

As of the date of this report, we had 41,623,366 shares of common stock issued and outstanding and approximately 195 holders of record of our common stock. One of these holders is CEDE and Company which is the mechanism used for brokerage firms to hold securities in book entry form on behalf of their clients and as of the date of this report, they held 7,029,090 shares of common stock for these shareholders. Accordingly, we believe that Veritas Farms has significantly in excess of 2,000 beneficial shareholders as of the date of this report.

 

Dividends

 

The payment by us of dividends, if any, in the future rests within the discretion of our board of directors and will depend, among other things, upon our earnings, capital requirements and financial condition, as well as other relevant factors. We have not paid any dividends since our inception and we do not intend to pay any cash dividends in the foreseeable future, but intend to retain all earnings, if any, for use in our business.

 

11

 

 

Securities Authorized for Issuance under Equity Compensation Plans

 

Plan category   Number of securities to
be issued upon exercise of
outstanding options,
warrants and rights
    Weighted-average
exercise price of
outstanding options,
warrants and rights
    Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (a))
 
                   
Equity compensation plans approved by security holders     4,318,750 shares (1)   $ 1.23       1,952,495 shares (1)
Equity compensation plans not approved by security holders     0 shares       None issued       0 shares  
Total     4,318,750 shares (1)   $ 1.23       1,952,495 shares (1)

 

(1) Represents shares of common stock underlying options granted or reserved for issuance under our 2017 Incentive Stock Plan as of the date of this report.

  

Recent Sales of Unregistered Securities

 

During the fourth quarter of 2019, we issued 11,789 shares of common stock without registration under the Securities Act of 1933 (the “Securities Act”), as amended to a single person upon the exercise of outstanding warrants.

 

The shares of our common stock so issued were issued and sold pursuant to the exemption from registration afforded by Section 4(a)(2) of the Securities Act.

 

Item 6.   Selected Financial Data.

 

As a “smaller reporting company,” as defined in Rule 12b-2 under the Exchange Act, we are not required to provide the information required by this Item.

 

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Effects of the Current Coronavirus (COVID-19) Pandemic on the Company 

 

The adverse public health developments and economic effects of the current COVID-19 pandemic in the United States, could adversely affect the Company’s customers and suppliers as a result of quarantines, facility closures, closing of “brick and mortar” retail outlets and logistics restrictions imposed or which otherwise occur in connection with the pandemic. More broadly, the high degree unemployment resulting from the pandemic could potentially lead to an extended economic downturn, which would likely decrease spending, adversely affect demand for our products and services and harm our business, results of operations and financial condition. At this time, we cannot accurately predict the effect the COVID-19 pandemic will have on the Company.

 

Results of Operations

 

Year ended December 31, 2019 compared to year ended December 31, 2018

 

Revenues. We had net sales for the year ended December 31, 2019 of $7,291,908, as compared to $2,079,981 for the year ended December 31, 2018, giving effect to the ramp up of commercial production and sale of newly branded Veritas Farms™ hemp extract products. The increase also reflects a significant expansion of retail distribution in 2019 from 2018, as a result of increased sales and marketing efforts. Sales include bulk oils for wholesale, vegan capsules, tinctures, lotions, salves, vape oils, and oral syringes, all in various potency levels and flavors. We co-package in addition to marketing our own Veritas Farms™ brand product line.

 

Cost of Sales. All expenses incurred to grow, process, and package the finished goods are included in our cost of sales. Cost of sales increased to $3,753,807 for the year ended December 31, 2019, from $1,203,667 for 2018, as a result of increased sales during the year ended December 31, 2019. We had gross profit of $3,460,714 for the year ended December 31, 2019, as compared to gross profit of $876,314 for the year ended December 31, 2018.

 

12

 

 

Expenses. Selling, general and administrative expenses increased to $14,590,155 for the year ended December 31, 2019, from $5,282,744 for the year ended December 31, 2018, reflecting the expansion of operations as a result of the increased availability of capital during 2019. General and administrative expenses consist primarily of administrative personnel costs, facilities expenses, professional fee expenses and marketing costs for our Veritas Farms™ brand products.

 

Interest expense for the year ended December 31, 2019 was $18,167, $5,714 of which was attributable to loans from a principal shareholder, as compared to $28,468 for the year ended December 31, 2018, $22,048 of which was attributable to loans from a principal shareholder.

 

As a result of the increase in operating, marketing and public company expenses incurred during the year ended December 31, 2019 and the timing of orders from a number of our new distribution partners during the third quarter of 2019, net loss for the year ended December 31, 2019, increased to $11,147,608 or $0.32 per share based on 34,712,692 weighted average shares outstanding, from $3,385,983 or $.19 per share based on 19,744,350 weighted average shares outstanding for the year ended December 31, 2018.

  

Liquidity and Capital Resources

 

As of December 31, 2019, total assets were $14,218,557, as compared to $7,014,086 at December 31, 2018. Assets primarily increased due to significant increases in cash, accounts receivable and inventories, as the Company utilized the services of a contract manufacturer for new product lines resulting in larger inventory balances.

 

Total current liabilities as of December 31, 2019 were $1,785,721, as compared to $738,476 at December 31, 2018. The increase was due in large part to increases in accounts payable, accrued expenses , current portion of right of use lease liability and current portion of long term debt, offset in part by the satisfaction of a $262,924 note receivable to a principal shareholder.

 

Net cash used in operating activities increased to $12,267,159 for the year ended December 31, 2019, from $4,165,734 for 2018. Results of operations, offset by increases in stock-based compensation and accounts payable comprised most of the change.

 

Net cash used in investing activities was $1,443,433 for the year ended December 31, 2019 as compared to $597,469 for the year ended December 31, 2018, reflecting an increase in cash used for the purchase of property and equipment in 2019.

 

Net cash provided by financing activities was $14,623,049 for year ended December 31, 2019, primarily attributable to the proceeds from the exercises of outstanding warrants and an additional private offering undertaken during 2019 as described below. This compares to net cash provided by financing activities of $4,899,486 for the year ended December 31, 2018.

 

Our primary sources of capital to develop and implement our business plan and expand our operations have been the proceeds from private offerings of our equity securities, capital contributions made by members prior to completion of the September 2017 acquisition of 271 Lake Davis Holdings, LLC (“271 Lake Davis”) by the Company and loans from shareholders, including Erduis Sanabria, our Executive Vice President and a director. The shareholder loans which were evidenced by promissory notes issued to the lending shareholders, which accrued interest rates between 2% and 3% per annum which were paid in full by September 30, 2019.

 

In September and July 2018, the Company completed a private offering (the “2018 Private Offering”) of 7,312,500 Units (“Units”), at a price of $0.40 per Unit or total gross proceeds of $2,925,000. In addition, a $175,000 ninety (90) day convertible bridge promissory note issued by the Company in May 2018 to a single accredited investor in a private transaction, converted in accordance with its terms into 547,774 Units at the first closing of the 2018 Private Offering.

 

13

 

 

Each Unit consisted of (a) one share of the Company’s common stock (“Shares”); and (b) one five-year common stock purchase warrant (“Warrants”). The Warrants entitle the holder thereof to purchase one Share at an exercise price of $0.60 during the five (5) year period following the closing of the subscriber’s investment. The exercise price and number of Shares issuable upon exercise of the Warrants are be subject to anti-dilution adjustment in the event of stock splits, stock dividends and similar recapitalization events.

 

In order to raise additional capital, the Company solicited the exercise of the Warrants issued in the 2018 Private Offering. As of the date of this report 7,947,916 of the Warrants have been exercised, resulting in proceeds to the Company, net of warrant solicitation fees of $238,438, of $4,530,312.

 

In April 2019, Veritas Farms commenced an additional private offering of its equity securities to “accredited investors” pursuant to Rule 506(c) promulgated under the Securities Act (the “2019 Private Offering”).  The Company offered up to 6,250,000 “restricted” shares of its common stock on a “best efforts” (no minimum) basis at a price of $1.60 per share, with the right to increase the maximum amount of the 2019 Private Offering to 9,375,000 shares ($15,000,000) or more, depending upon investor demand. The Company completed the 2019 Private Offering in August 2019, in which it sold a total of 9,643,738 shares for total gross proceeds of $15,429,981, less offering expenses of $2,069,603, for net proceeds of $13,360,378.

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial losses from operations since its inception. As of and for the year ended December 31, 2019, the Company had an accumulated deficit of $19,074,608 and a net loss of $11,0147,608. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern. Continuation as a going concern is dependent on the ability to raise additional capital and financing, though there is no assurance of success.

 

The Company believes that it will require additional financing to fund its growth and achieve profitability The Company anticipates that such financing, will be generated from subsequent public or private offerings of its equity and/or debt securities. The Company does not intend to accept any further loans from shareholders. While we believe additional financing will be available to us as needed, there can be no assurance that equity financing will be available on commercially reasonable terms or otherwise, when needed. Moreover, any such additional financing may dilute the interests of existing shareholders. The absence of additional financing, when needed, could substantially harm the Company, its business, results of operations and financial condition.

  

Critical Accounting Policies

 

Revenue Recognition

 

In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards). 

 

The new revenue standards became effective for the Company on January 1, 2018 and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as the majority of its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption.

 

14

 

 

Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. 

 

Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial. 

 

Property, Plant and Equipment

 

Purchase of property, plant and equipment are recorded at cost.  Improvements and replacements of property, plant and equipment are capitalized.  Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred.  When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the Statements of Operations. Depreciation is provided over the estimated economic useful lives of each class of assets and is computed using the straight-line method

 

Impairment of Long-Lived Assets 

 

The carrying value of long-lived assets are reviewed when facts and circumstances suggest that the assets may be impaired or that the amortization period may need to be changed. The Company considers internal and external factors relating to each asset, including cash flows, local market developments, industry trends and other publicly available information. If these factors and the projected undiscounted cash flows of the Company over the remaining amortization period indicate that the asset will not be recoverable, the carrying value will be adjusted to the fair market value.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates included deferred revenue, costs incurred related to deferred revenue, the useful lives of property and equipment and the useful lives of intangible assets.

 

Income Taxes

 

The Company was a limited liability company for income tax purposes until September 27, 2017, when the transaction discussed in “Nature of Business” under Note 1 to the Company’s consolidated financial statements included in Item 1 of this report, occurred.  In lieu of corporate income taxes, the owners were taxed on their proportionate shares of the Company’s taxable income.  Accordingly, no liability for federal or state income taxes and no provision for federal or state income taxes have been included in the financial statements up to that date.

 

The Company accounts for income taxes under ASC 740 Income Taxes.  Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs.  A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

 

15

 

 

In accordance with Financial Accounting Standards Board ASC Topic 740, Income Taxes, management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. The Company is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. 

 

Effective September 27, 2017, the Company became taxed as a C-Corporation. Income tax benefits are recognized for income tax positions taken or expected to be taken in a tax return, only when it is determined that the income tax position will more-likely than-not be sustained upon examination by taxing authorities.  The Company has analyzed tax positions taken for filings with the Internal Revenue Service and all tax jurisdictions where it operates.  The Company believes that income tax filing positions will be sustained upon examination and does not anticipate any adjustments that would result in a material adverse effect on the Company’s financial condition, results of operations or cash flows.  Accordingly, the Company has not recorded any reserves, or related accruals for interest and penalties for uncertain income tax positions at December 31, 2019 and 2018.

 

Off-Balance Sheet Arrangements

 

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

As a “smaller reporting company,” we are not required to provide the information required by this Item.

 

Item 8. Financial Statements and Supplementary Data.

 

See the Index to the Financial Statements beginning on page F-1 below.

 

16

 

 

VERITAS FARMS, INC.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
   
Reports of Independent Registered Public Accounting Firms F-2
   
Consolidated Balance Sheets at December 31, 2019 and December 31, 2018 F-3
   
Consolidated Statements of Operations for the Years Ended December 31, 2019 and December 31, 2018 F-5
   
Consolidated Statements of Shareholders’ Deficit for the Years Ended December 31, 2019 and December 31, 2018 F-6
   
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and December 31, 2018 F-7
   
Notes to Consolidated Financial Statements F-8

 

 

F-1
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Veritas Farms, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Veritas Farms, Inc.(the Company) as of December 31, 2019 and 2018, and the related consolidated statement of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial losses from operations since its inception. As of and for the year ended December 31, 2019, the Company had an accumulated deficit of $19,074,608, and a net loss of $11,147,608. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern. Continuation as a going concern is dependent on the ability to raise additional capital and financing, though there is no assurance of success. Management’s plans in regard to these matters are also described in Note 3 to the accompanying consolidated financial statements.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Prager Metis CPA’s LLC
   
We have served as the Company’s auditor since 2018
   
Hackensack, New Jersey
May 14, 2020  

 

F-2

 

 

Veritas Farms, Inc. and Subsidiary

Consolidated Balance Sheets

 

 

 

    December 31,  
    2019     2018  
ASSETS                
CURRENT ASSETS                
Cash and Cash Equivalents   $ 1,076,543     $ 164,086  
Inventories     6,600,455       2,508,954  
Accounts Receivable     523,033       244,150  
Prepaid Expenses     622,922       116,403  
Total Current Assets   $ 8,822,953     $ 3,033,593  
                 
PROPERTY PLANT AND EQUIPMENT, net of accumulated depreciation of $976,005 and $580,232 respectively   $ 4,914,063     $ 3,932,459  
                 
Intellectual Property     55,000       -  
Right of Use Assets, net of accumulated amortization     134,345       -  
Deposits     292,196       48,034  
                 
TOTAL ASSETS   $ 14,218,557     $ 7,014,086  

 

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements

 

F-3

 

 

Veritas Farms, Inc. and Subsidiary

Consolidated Balance Sheets (continued)

 

 

  

   
December 31,
 
    2019     2018  
LIABILITIES AND STOCKHOLDERS’ EQUITY            
CURRENT LIABILITIES            
Accounts Payable   $ 1,567,611     $ 189,431  
Accrued Expenses     51,240       165,677  
Accrued Interest - Related Parties     18,828       17,949  
Notes Payable - Related Parties     -       262,924  
Deferred Rent     -       7,045  
Deferred Revenue     -       45,018  
Current Portion of Right of Use Lease Liability     80,046       -  
Current Portion of Long Term Debt     67,996       50,432  
Total Current Liabilities   $ 1,785,721     $ 738,476  
                 
LONG-TERM LIABILITIES                
Long-term Debt, net of current portion   $ 184,826     $ 196,261  
Right of Use Lease Liability, net of current portion     52,798       -  
Total Liabilities   $ 2,023,345     $ 934,737  
                 
STOCKHOLDERS’ EQUITY                
Common Stock, $0.004 par value, 50,000,000 shares authorized, 41,421,698 and 27,876,208 shares issued and outstanding at December 31, 2019 and 2018 respectively   $ 165,446     $ 111,505  
Additional Paid in Capital     31,104,373       13,894,844  
Accumulated Deficit     (19,074,608 )     (7,927,000 )
Total Stockholders’ Equity   $ 12,195,212     $ 6,079,349  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 14,218,557     $ 7,014,086  

 

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements

 

F-4

 

 

Veritas Farms, Inc. and Subsidiary

Consolidated Statements of Operations

 

 

  

    For the year ending December 31,  
    2019     2018  
             
Sales   $ 7,291,908     $ 2,079,981  
                 
Cost of sales     3,753,807       1,203,667  
Plant Inventory Write-off     77,387       -  
Total Cost of sales     3,831,194       1,203,667  
                 
Gross profit   $ 3,460,714     $ 876,314  
                 
Operating Expenses                
Selling, General and Administrative   $ 14,590,155     $ 5,282,744  
Total Operating Expenses   $ 14,590,155     $ 5,282,744  
Operating loss   $ (11,129,441 )   $ (4,406,430 )
                 
Other Expenses (Income)                
Interest Expense - Related Party     5,714       22,048  
Interest Expense - Other     12,453       6,420  
Gain on Forgiveness of Debt     -       (598,915 )
Total Other Expenses (Income)   $ 18,167     $ (570,447 )
                 
Loss before Provision for Income Taxes   $ (11,147,608 )   $ (3,835,983 )
                 
Income Tax Provision     -       -  
                 
NET LOSS   $ (11,147,608 )   $ (3,835,983 )
                 
Net Loss per Share - Basic and fully diluted   $ (0.32 )   $ (0.19 )
                 
Weighted Average Shares Outstanding - Basic and fully diluted     34,712,692       19,744,350  

 

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements

 

F-5

 

 

Veritas Farms, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

 

 

 

    Common Stock     Additional Paid in     Accumulated        
    Shares     Amount     Capital     Deficit     Total  
Balance, December 31, 2017     14,973,750     $ 59,895     $ 7,139,409     $ (4,091,017 )   $ 3,108,287  
                                         
Issuance of Common Stock for Cash     12,596,208       50,385       5,482,467       -       5,532,852  
                                         
Issuance of Common Stock for Services     306,250       1,225       386,775       -       388,000  
                                         
Stock-based Compensation     -       -       886,193       -       886,193  
                                         
Net Loss     -       -       -       (3,835,983 )     (3,835,983 )
                                         
Balance, December 31 2018     27,876,208     $ 111,505     $ 13,894,844     $ (7,927,000 )   $ 6,079,349  
                                         
Issuance of Common Stock for Cash     9,643,854       38,350       13,323,991       -       13,362,342  
                                         
Issuance of Common Stock for Services     15,625       63       16,813       -       16,875  
                                         
Stock-based Compensation     -       -       2,366,752       -       2,366,752  
                                         
Warrants Exercised     3,886,011       15,528       1,501,973       -       1,517,502  
                                         
Net Loss     -       -       -       (11,147,608 )     (11,147,608 )
                                         
Balance, December 31, 2019     41,421,698     $ 165,446     $ 31,104,373     $ (19,074,608 )   $ 12,195,212  

 

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements

 

F-6

 

 

Veritas Farms, Inc. and Subsidiary

Consolidated Statements of Cash Flows

 

 

 

    Year Ended December 31,  
    2019     2018  
CASH FLOWS FROM OPERATING ACTIVITIES            
Net Loss   $ (11,147,608 )   $ (3,835,983 )
Adjustments to Reconcile Net Loss to Net Cash Used Operating Activities                
Depreciation     404,622       274,194  
Amortization of Right of Use Assets     80,607       -  
Stock-based Compensation     2,383,627       1,274,193  
Gain on Forgiveness of Debt             (538,254 )
Loss on Disposal of Property and Equipment     2,207       -  
Changes in Operating Assets and Liabilities                
Inventories     (4,091,501 )     (1,080,196 )
Prepaid Expenses     (506,519 )     (74,309 )
Accounts Receivable     (278,883 )     (164,249 )
Deposits     (244,162 )     (25,034 )
Deferred Rent     (7,045 )     7,045  
Deferred Revenue     (45,018 )     45,018  
Accrued Interest - Related Parties     879       1,719  
Right of Use Lease Liability     (82,108 )     -  
Accrued Expenses     (114,437 )     5,773  
Accounts Payable     1,378,180       (55,651 )
NET CASH USED IN OPERATING ACTIVITIES     (12,267,159 )     (4,165,734 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchase of Property and Equipment   $ (1,388,433 )   $ (597,469 )
Purchase of Intangible Asset     (55,000 )     -  
NET CASH USED IN INVESTING ACTIVITIES     (1,443,433 )     (597,469 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Payments of Long-term Debt   $ 6,129     $ (13,001 )
Repayment of Notes Payable - Related Parties     (262,924 )     (767,156 )
Proceeds from Note Payable     -       146,791  
Proceeds from Stock Warrants Exercised     1,517,502       -  
Proceeds from Issuance of Common Stock     13,362,342       5,532,852  
NET CASH PROVIDED BY FINANCING ACTIVITIES     14,623,049       4,899,486  
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     912,457       136,283  
CASH AND CASH EQUIVALENTS - Beginning of Period     164,086       27,803  
CASH AND CASH EQUIVALENTS - End of Period   $ 1,076,543     $ 164,086  
                 
Supplemental Disclosure of Cash Flow Information:                
Cash Paid for Interest   $ 12,500     $ 26,749  
Cash Paid for Income Taxes   $ -     $ -  
Non-Cash Financing Activities                
Operating Lease Right of Use Asset Obtained in Exchange for Lease Obligations   $ 214,952     $ -  

 

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements

 

F-7

 

  

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

 

 

 

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

 

Veritas Farms, Inc. (the “Company”), was incorporated as Armeau Brands Inc. in the State of Nevada on March 15, 2011. On October 13, 2017, the Company filed Amended and Restated Articles of Incorporation with the Nevada Secretary of State changing the name from “Armeau Brands Inc.” to “SanSal Wellness Holdings, Inc.” Effective February 5, 2019, the Company changed its name from “SanSal Wellness Holdings, Inc.” to “Veritas Farms, Inc.” The Company’s business objectives are to produce natural rich-hemp products, using strict natural protocols and materials yielding broad spectrum phytocannabinoid rich hemp oils, distillates and isolates. The Company is licensed by the Colorado Department of Agriculture to grow industrial hemp pursuant to Federal law on its farm.

 

Effective September 27, 2017, the Company acquired 100% of the issued and outstanding limited liability company membership interests of 271 Lake Davis Holdings LLC dba SanSal Wellness (“271 Lake Davis”) in exchange for 11,700,000 (46,800,000 prior to reverse split) restricted shares of the Company’s common stock, which represented 100% of 271 Lake Davis’s total membership interests outstanding immediately following the closing of the transaction. The transaction has been accounted for as a reverse merger, whereby 271 Lake Davis is the accounting survivor and the historical financial statements presented are those of 271 Lake Davis.

 

Basis of Presentation

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

 

Principles of Consolidation

The accompanying consolidated financial statements reflect the accounts of Veritas Farms, Inc. and 271 Lake Davis Holdings and its wholly owned subsidiary, SanSal, LLC. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from these estimates.

 

F-8

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

 

 

 

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Fair Value Measurement

The Company has adopted the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

 

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of the Company’s short and long-term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 – quoted prices in active markets for identical assets or liabilities

 

Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

 

The Company does not have any assets or liabilities measured at fair value on a recurring basis.

 

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At times, cash and cash equivalents may be in excess of FDIC insurance limits.

 

Revenue Recognition

In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards). 

 

F-9

 

  

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

 

 

 

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

The new revenue standards became effective for the Company on January 1, 2018 and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as the majority of its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption.

 

Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. 

 

Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial. 

 

Cost of Goods Sold

Hemp Cultivation and Production

Cost of goods sold includes the costs directly attributable to production of inventory such as cultivation costs, extraction costs, packaging costs, security, and allocated overhead. Overhead expenses include allocations of rent, administrative salaries, utilities, and related costs.

 

Inventories

 

Inventories consist of growing and processed plants and oils and are valued at the lower of cost or net realizable value. In evaluating whether inventories are stated at lower of cost or net realizable value, management considers such factors as inventories in hand, estimated time to sell such inventories and current market conditions. Write-offs for inventory obsolescence are recorded when, in the opinion of management, the value of specific inventory items has been impaired.

 

F-10

 

  

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

 

 

 

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Property, Plant and Equipment

Purchase of property, plant and equipment are recorded at cost. Improvements and replacements of property, plant and equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the Consolidated Statements of Operations. Depreciation is provided over the estimated economic useful lives of each class of assets and is computed using the straight-line method.

 

Impairment of Long-Lived Assets

The carrying value of long-lived assets are reviewed when facts and circumstances suggest that the assets may be impaired or that the amortization period may need to be changed. The Company considers internal and external factors relating to each asset, including cash flows, local market developments, industry trends and other publicly available information. If these factors and the projected undiscounted cash flows of the Company over the remaining amortization period indicate that the asset will not be recoverable, the carrying value will be adjusted to the fair market value. The Company has determined that no impairment exists at December 31, 2019 and December 31, 2018.

 

Compensation and Benefits

The Company records compensation and benefits expense for all cash and deferred compensation, benefits, and related taxes as earned by its employees. Compensation and benefits expense also includes compensation earned by temporary employees and contractors who perform similar services to those performed by the Company’s employees.

 

Stock-Based Compensation

The Company accounts for share-based payments in accordance with ASC 718, “Compensation - Stock Compensation,” which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant date fair value of the award. In accordance with ASC 718-10-30-9, “Measurement Objective – Fair Value at Grant Date,” the Company estimates the fair value of the award using the Black-Scholes option pricing model for valuation of the share- based payments. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of option holders.

 

The simplified method is used to determine compensation expense since historical option exercise experience is limited relative to the number of options issued. The compensation cost is recognized ratably using the straight-line method over the expected vesting period.

 

The Company accounts for stock-based compensation to other than employees in accordance with FASB ASC 505-50. Equity instruments issued to other than employees are valued at the earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments, and is recognized as expense over the service period.

 

F-11

 

  

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

 

 

 

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Income Taxes

The Company accounts for income taxes under ASC 740 Income Taxes.  Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs.  A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

 

In accordance with Financial Accounting Standards Board ASC Topic 740, Income Taxes, management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. The Company is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.

 

Income tax benefits are recognized for income tax positions taken or expected to be taken in a tax return, only when it is determined that the income tax position will more-likely than-not be sustained upon examination by taxing authorities. The Company has analyzed tax positions taken for filings with the Internal Revenue Service and all tax jurisdictions where it operates. The Company believes that income tax filing positions will be sustained upon examination and does not anticipate any adjustments that would result in a material adverse effect on the Company’s financial condition, results of operations or cash flows. Accordingly, the Company has not recorded any reserves, or related accruals for interest and penalties for uncertain income tax positions at December 31, 2019 and December 31, 2018.

 

Leases

The Company has one leased buildings in Fort Lauderdale, Florida that is classified as operating lease right-of use (“ROU”) assets and operating lease liabilities in the Company’s consolidated balance sheet. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of Selling, General and Administrative expenses.

 

ASC 842 was effective for us beginning January 1, 2019. The Company elected the available practical expedients on adoption. The adoption had a material impact on our consolidated balance sheets, but did not have a material impact on our consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. Finance leases are not material to the Company and were not impacted by the adoption of ASC 842, as finance lease liabilities and the corresponding assets were already recorded in the balance sheet under the previous guidance, ASC 840.

 

F-12

 

  

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

 

 

 

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Related Party Transactions

The Company follows FASB ASC subtopic 850-10, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. Pursuant to ASC 850-10-20, related parties include: a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The consolidated financial statements shall include disclosures of related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Legal Proceedings

Currently there are no material legal proceedings pending or threatened against the Company. However, from time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in any such matter may harm the Company’s business.

 

Subsequent Events

The Company has evaluated subsequent events through the date which the financial statements were issued.

 

F-13

 

  

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

 

 

 

NOTE 2: INVENTORIES

 

Inventory consists of:

 

    December 31,     December 31,  
    2019     2018  
Inventory                
Work In Progress   $ 4,062,890     $ 2,241,554  
Finished Goods     1,983,107       72,604  
Other     554,458       194,796  
                 
Inventory   $ 6,600,455     $ 2,508,954  

 

During the periods ending December 31, 2019 and December 31, 2018 the Company realized a loss from destruction of plants in the amounts of $77,387 and $0, respectively.

 

NOTE 3: GOING CONCERN

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial losses from operations since its inception. As of and for the period ended December 31, 2019, the Company had an accumulated deficit of $19,074,608, and a net loss of $11,147,608. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern. Continuation as a going concern is dependent on the ability to raise additional capital and financing, though there is no assurance of success.

 

The Company’s rebranded line of hemp oil and extract product allowed market penetration into large retail chains vastly increasing brand exposure and awareness. The initial rollouts have been successful creating opportunities for thousands of new retail outlets across the country. The shift from smaller order fulfillment to larger “big box store” orders creates an economy of scale and increased profitability.

 

Currently, the Company incorporates an aggressive marketing plan to compete in the Cannabinoid industry. To become market leaders in the market, the Company will use three primary departments to market its products including: web-based marketing, traditional marketing, and medical marketing departments.

 

The Company believes that it will require additional financing to fund its growth and achieve profitability The Company anticipates that such financing, will be generated from subsequent public or private offerings of its equity and/or debt securities. Outside financing, in concert with increased profitability of "Big Box" retail orders and Ecommerce allow management to conclude that the Company will continue as a going concern.

 

The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

F-14

 

  

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

 

 

 

NOTE 4: PROPERTY AND EQUIPMENT

 

        December 31,     December 31,  
    Life   2019     2018  
PROPERTY AND EQUIPMENT                    
Land and Land Improvements   -   $ 398,126       398,126  
Building and Improvements   39     1,510,175       1,465,245  
Greenhouse   39     920,896       693,987  
Fencing and Irrigation   15     203,793       203,793  
Machinery and Equipment   7     2,480,475       1,475,644  
Furniture and Fixtures   7     236,344       224,682  
Computer Equipment   5     20,053       20,053  
Vehicles   5     120,206       31,161  
        $ 5,890,068     $ 4,512,691  
Less Accumulated Depreciation         (976,005 )     (580,232 )
Property and Equipment       $ 4,914,063       3,932,459  

 

Total depreciation expense was $404,346 and $274,195 for the years ended December 31, 2019 and 2018, respectively.

 

NOTE 5: LONG-TERM DEBT  

 

    December 31,     December 31,  
    2019     2018  
             
Note Payable which requires monthly payments of $1,618 including interest at 6.00% per annum until February 1, 2020 when the balance is due in full.  The note is secured by specific assets of the Company.   $ -     $ 99,902  
                 
Notes Payable which require monthly payments of $3,690, $669, and $1,691, including interest at 5.16% per annum until December 1, 2022, May 1, 2023, and August 1, 2024, when the balance is due in full.  The note is secured by specific assets of the Company.     211,952       146,791  
                 
Note Payable which require monthly payments of $758, including interest at 3.4% per annum until April 1, 2025, when the balance is due in full.  The note is secured by specific assets of the Company.     40,870       -  
                 
      252,822       246,693  
Less Current Portion     (67,996 )     (50,432 )
Long-Term Debt - net of current portion   $ 184,826     $ 196,261  

  

F-15

 

  

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

 

 

 

NOTE 5: LONG-TERM DEBT (CONTINUED)

 

Long-term debt consisted of the following:

 

Future principal payments are as follows as of the year ended December 31, 2019:

 

2020   $ 67,996  
2021     67,996  
2022     67,996  
2023     27,299  
2024     18,980  
Thereafter     2,554  
    $ 252,822  

   

NOTE 6: STOCK-BASED COMPENSATION

 

The Company approved their 2017 Incentive Stock Plan on September 27, 2017 (the “Incentive Plan”) which authorizes the Company to grant or issue non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards up to a total of 45 million shares. Under the terms of the Incentive Plan, awards may be granted to our employees, directors or consultants. Awards issued under the Incentive Plan vest as determined by the Board of Directors or any of the Committees appointed under the Incentive Plan at the time of grant.

 

The Company’s outstanding stock options have a 10-year term. Outstanding non-qualified stock options granted to employees and a consultant vest on a case by case basis. Outstanding incentive stock options issued to employees vest over a three-year period. The incentive stock options granted vest based solely upon continued employment (“time-based”). The Company’s time-based share awards that vest in their entirety at the end of three-year periods, time-based share awards where 33.3% of the award vests on each of the three anniversary dates. Outstanding incentive stock options issued to executives vest partially upon grant date, with the residual vesting over the subsequent 6 or 12 months.

 

F-16

 

  

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

 

 

 

NOTE 6: STOCK BASED COMPENSATION (CONTINUED)

 

Stock-based compensation expense was as follows:

 

    Twelve Months Ended  
    December 31:  
    2019     2018  
Non-Qualified Stock Options - Immediate   $ 998,603     $ 251,023  
Incentive Stock Options - Time Bases     1,368,149       623,620  
Total Stock-based Compensation Expense   $ 2,366,752     $ 874,643  

 

Stock option activity was as follows in the periods ended December 31, 2019 (Post Reverse Split) and December 31, 2018:

 

    Stock     Weighted- Average     Weighted- Average  
    Options     Exercise     Remaining  
Outstanding at December 31, 2018     2,275,000     $ 1.06       9.30  
Granted     2,043,750     $ 1.23       9.53  
Exercised     -                  
Forfeited/Canceled     -                  
Outstanding at Dec 31, 2019     4,318,750     $ 1.14       8.91  
                         
Vested at Dec 31, 2019     2,448,958     $ 1.14       8.51  
Exercisable at Dec 31, 2019     2,448,958     $ 1.14       8.51  

 

The Company estimated the fair value of each stock option on the date of grant using the Black Scholes valuation model with the following assumptions:

 

Valuation Assumptions    
Risk-free interest rate   2.14% – 2.94%
Expected dividend yield   0%
Expected stock price volatility   105% to 180%
Expected life of stock options (in years)   10

 

NOTE 7: LEASES

 

We adopted ASC 842 using the modified retrospective approach, electing the practical expedient that allows us not to restate our comparative periods prior to the adoption of the standard on January 1, 2019. As such, the disclosures required under ASC 842 are not presented for periods before the date of adoption.

 

F-17

 

  

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

 

 

 

NOTE 7: LEASES (CONTINUED)

 

The Company recognized the following related to leases in its Consolidated Balance Sheet:

 

    December 31,     December 31,  
    2019     2018  
Right of Use Lease Liabilities                
Current portion   $ 80,046     $              -  
Long-term portion     52,798       -  
    $ 132,844     $ -  

 

On January 15, 2017, the Company entered an agreement with Pueblo, CO Board of Water Works to lease water for the Company’s cultivation process. The agreement went into effect as of November 1, 2016 with a term of 10 years expiring on October 31, 2026, with an option to extend the lease upon expiration for 10 additional years. This agreement replaced previously entered agreements with Pueblo, CO Board of Water Works. The lease requires annual non-refundable minimum service fees of $15,000 and a usage charge of $1,063 per acre for 30 acres. The minimum service fees and usage charges are subject to escalators for each year based upon percentage increases of Pueblo, CO Board of Water Works rates from the previous calendar year. Total water lease expense was $34,632 and $44,813 for the years ended December 31, 2019 and 2018, respectively.

 

The Company analyzed the classification of the lease under ASC 842, and as it did not meet any of the criteria for a financing lease it has been classified as an operating lease. The Company determined the Right of Use asset and Lease liability values at inception calculated at the present value of all future lease payments for the lease term, using an incremental borrowing rate of 5%. The Lease Liability will be expensed each month, on a straight line basis, over the life of the lease.

 

On June 22, 2018, the Company entered into a sublease agreement with ESDA Inc., a Florida Corporation.  The Agreement went into effect as of July 1, 2018 with a term of three years expiring August 31, 2021.  The lease contains annual escalators and charges Florida sales tax.  Total depreciation expense related to the lease was $80,607 for the year ended December 31, 2019. Prior to 2019 the lease was treated as an operating lease and right of use asset guidance was not applicable.

 

As of December 31, 2019 and December 31, 2018, operating leases have no minimum rental commitments.

 

NOTE 8: COMMON STOCK

 

During the year ending December 31, 2018, the Company issued 12,596,208 shares of common stock for proceeds of $5,532,852, net of $409,495 issuance costs, and 306,250 shares of common stock for marketing services valued at $388,000.

 

F-18

 

  

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

 

 

 

NOTE 8: COMMON STOCK (CONTINUED)

 

In September of 2019, the board of directors approved an amendment to the Company’s Certificate of Incorporation, as amended, to effect a 1-for-4 reverse stock split on the issued and outstanding common. All relevant information relating to numbers of shares and warrants and per share information have been retrospectively adjusted to reflect the reverse stock split for all periods presented. The reverse split was effective on September 19, 2019.

 

During the year ending December 31, 2019, warrants to purchase 3,886,011 shares of common stock were exercised for $1,519,467.  Included in warrants exercised are 1,290,570 shares of common stock issued in accordance with a cashless exercise of warrants.

 

During the year ending December 31, 2019, the Company issued 9,643,854 shares of common stock for proceeds of $13,360,377, net of $2,069,603 issuance costs, and 15,625 shares of common stock for marketing services valued at $16,875.

 

NOTE 9: INCOME TAX

 

The reconciliation of income tax computed at the Federal statutory rate to the provision (benefit) for income taxes from continuing operations is as follows:

 

    Year Ended     Year Ended  
    December 31,
2019
    December 31,
2018
 
Federal Taxes (credits) at statutory rates   $ (2,470,000 )   $ (965,000 )
State and local taxes, net of Federal benefit     (526,000 )     (177,000 )
Change in valuation allowance     2,996,000       1,142,000  
    $ -     $ -  

 

Components of deferred tax assets are as follows:

 

    Year Ended        
    December 31,
2019
    December 31,
2018
 
Deferred Tax Assets;                
Net Operating Loss Carryforwards   $ 3,930,000     $ 1,515,000  
Stock Compensation     910,000       -  
Accrued Related Party Expenses     -       5,000  
Total Deferred Tax Assets     4,840,000       1,520,000  
Valuation Allowance     (4,300,000 )     (1,304,000 )
                 
Total Deferred Tax Assets net of Valuation Allowance   $ 540,000     $ 216,000  
                 
Depreciation and Amortization     370,000       200,000  
Prepaid Expense     170,000       16,000  
Total Deferred Tax Liabilities     540,000       216,000  
                 
Net Deferred Tax Assets   $ -     $ -  

 

F-19

 

  

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

 

 

 

NOTE 9: INCOME TAX (CONTINUED)

 

The Company has approximately $14,500,000 net operating loss carryforwards that are available to reduce future taxable income. Those NOLs begin to expire in 2038. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax assets for every period because it is more likely than not that all of the deferred tax assets will not be realized.

 

The Company’s deferred tax liability associated with timing differences related to depreciation and amortization includes $69,000 of liability resulting from tax depreciation deducted in excess of GAAP depreciation prior to the Company becoming taxed as a C-Corporation.

 

The Company files income tax returns in the U.S. federal jurisdiction, and the state of Colorado.

 

The Company adopted the provisions of FASB ASC 740, Accounting for Uncertainty in Income Taxes. Management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. The Company has no significant adjustments as a result of the implementation of FASB ASC 740.

 

NOTE 10: CONCENTRATIONS

 

The Company had two customers in year ended December 31, 2019 accounting for 25% and 14% of sales. For the year ended December 31, 2018, one customer accounted for 31% of sales.

 

The Company had two customers at December 31, 2019 accounting for 47% and 12% of accounts receivable. At December 31, 2018, the Company had two customers accounting for 30% and 24% of accounts receivable.

 

NOTE 11: RELATED PARTY

 

The Company incurred $59,906 and $239,305 of related party legal expenses during the years ended December 31, 2019 and 2018, respectively for legal services. As of December 31, 2019 and December 31, 2018, the Company had related party legal accruals for $0.

 

The Company entered into various note payables with stockholders of the company between June 2017 and March 2019. The notes bear interest between 2.00% and 3.00% per annum. The principal balance due on these notes was $0 and $262,924 as of December 31, 2019 and December 31, 2018. Interest accrued was $0 and $17,949 as of December 31, 2019 and December 31, 2018, respectively. The principal balance has been paid in full as of June 30, 2019.

 

F-20

 

  

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

 

 

 

NOTE 11: RELATED PARTY (CONTINUED)

 

The Company issued stock incentives to various directors and employees. Refer to Note 5 for additional details. The Company also issued 125,000 shares stock incentives to a related party in 2019 that immediately vested with an exercise price of $0.98 with related stock compensation expense of $660,810.

 

NOTE 12: SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events through the date the financial statements were available to be issued.

 

The Company entered into a 61 month building lease for extraction, manufacturing and distribution, commencing on February 28, 2020. For the first 13 months, monthly payments will be $18,699, increasing 3% per year. A $200,000 deposit was made in 2019, but the lease was not executed until March 2020.

 

On January 16, 2020, warrants to purchase 153,279 shares of common stock were exercised on a cashless basis. 

 

On April 7, 2020, the Company issued 50,000 shares of common stock for marketing services.

 

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to most other countries and infections have been reported globally. Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but it may have a material adverse impact on our business, financial condition and results of operations. Management expects that its business will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

 

F-21

 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

Not applicable. 

 

Item 9A. Controls and Procedures.

 

(a) Disclosure Controls and Procedures

 

Our Chief Executive Officer (our Principal Executive Officer) and our Chief Financial Officer (our Principal Financial and Accounting Officer), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2019, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”), including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer (our Principal Executive Officer) and our Chief Financial Officer (our Principal Financial and Accounting Officer) or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer (our Principal Executive Officer) and our Chief Financial Officer (our Principal Financial and Accounting Officer) have concluded that as of December 31, 2019, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in Item 9A(b) of this report.

 

Our Chief Executive Officer (our Principal Executive Officer) and our Chief Financial Officer (our Principal Financial and Accounting Officer), do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officer has determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

(b) Management’s Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, Chief Executive Officer (our Principal Executive Officer) and our Chief Financial Officer (our Principal Financial and Accounting Officer), to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”). Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations of management and directors of our Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our Company’s assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected.

  

Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our Chief Executive Officer (our Principal Executive Officer) and our Chief Financial Officer (our Principal Financial and Accounting Officer) conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019 in accordance with the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework. Based on this assessment, Our President and Chief Executive Officer (our Principal Executive, Financial and Accounting Officer) identified the following two material weaknesses that have caused management to conclude that, as of December 31, 2019, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level in that:

 

(a) We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley ct. Our Chief Executive Officer and our Chief Financial Officer evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

(b) We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Our Chief Executive Officer and our Chief Financial Officer evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

To address these material weaknesses, our Chief Executive Officer and Our Chief Financial Officer performed additional analyses and other procedures to ensure that the consolidated financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

  

Changes in Internal Controls Over Financial Reporting

 

There were no changes in our internal controls over financial reporting that occurred during the fourth quarter of 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

  

Item 9B. Other Information.

 

None.

 

17

 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

Directors and Executive Officers

 

Our directors and executive officers and their respective ages and titles are as follows:

 

Name   Age   Position(s) and Office(s) Held
         
Alexander Salgado   53   Chief Executive Officer, Secretary and Director
         
Michael Pelletier   58   Chief Financial Officer
         
Erduis Sanabria   46   Executive Vice President and Director
         
Dave Smith   65   Chief Operating Officer
         
Rianna Meyer   50   Vice President of Operations
         
Derek Thomas   35   Vice President of Business Development
         
Bao T. Doan, M.D.   47   Director
         
Kellie Newton   60   Director
         
Mark J. Horowitz   55   Director

 

Set forth below is a brief description of the background and business experience of our directors and executive officers.

 

Alexander Salgado co-founded Veritas Farms and has served as its Chief Executive Officer since its inception in January 2015.  From 2013 to 2015, Mr. Salgado was the Chief Operating Officer of IXE Agro USA LLC, a division of a multi-national conglomerate of firms involved in the agricultural industry focused on the growing, marketing, shipping and selling of fresh produce throughout the Americas. From 2006 to 2013, Mr. Salgado was the President of Protex Investment Group LLC, a real estate acquisition and management consultation company. Since 2000, Mr. Salgado, a board licensed Certified Public Accountant has also served as President of Alexander M. Salgado, CPA, PA, an accounting, tax and consulting firm located in Miami, Florida. Mr. Salgado holds a bachelor’s degree in Accounting from Florida International University.

 

Michael Pelletier, who joined the Company as its Chief Financial Officer in April 2019,has over 35 years of experience in accounting and financial reporting, most recently as Chief Financial Officer of Inter-Continental Cigar Corp. (ICCC), a South Florida-based global cigar manufacturing and distribution firm, for over 20 years, from 1997 until joining the Company. His responsibilities at ICCC included inventory management, sales control, customer service, finance, annual audits, budgets, quarterly forecasts, state and federal licensing as well as assuring required compliance and filings. Prior to his long career in the cigar industry, Mr. Pelletier held other senior accounting and finance roles, including Assistant Controller of Gold Coast Media, a Miami-based direct marketing firm from 1995 to 1997, and Controller - Southeast of Hunter Douglas, Inc., a global leader in the window covering industry from 1990 to 1995. Earlier in his career, Mr. Pelletier spent more than 4 years with Pelletier& Veal CPA’s, an Atlanta-based public accounting firm where he performed write-up, tax, compilation and review work for small and medium size businesses in diverse industries. He holds a Bachelor of Business Administration (Accounting) degree from Florida Atlantic University.

 

18

 

 

Erduis Sanabria co-founded Veritas Farms and has served as its Executive Vice President since its inception in January 2015.  From December 2012 to August 2014, Mr. Sanabria served as the Managing Member of Pam Exchange Recycling, LLC, a company he co-founded engaged in the business of recycling aluminum products in the Dominican Republic.  During that same period, Mr. Sanabria served as Manager of Pam Exchange, LLC, a South Florida based diamond and watch trading company he founded in May 2010. 

 

Dave Smith joined the Company as its Chief Operating Officer in September 2018. In an almost 40-year career, Mr. Smith has held various executive management positions in marketing, sales, operations, and business development. Prior to joining Veritas Farms, he was President of Inter-Continental Cigar Corporation, distributor of Al Capone Cigarillos, the #1 premium cigarillo in the U.S., from 2011 to 2018.

 

From 2008 to 2011, Mr. Smith was President of JDS Consumer Solutions, a Florida-based consumer and customer sales and marketing solutions provider. From 2006 to 2008, he was Chief Operating Officer of Pantheon Chemical, an Arizona-based “green” chemical company. From 2002 to 2006, he was Senior Vice President and subsequently, Chief Operating Officer of FB Foods Inc., a Florida-based manufacturer of children’s refrigerated meals.

 

From 1989 to 2001, Mr. Smith held various senior positions with fruit beverage giant Tropicana Products, including Director Business Development-Asia Pacific from 1998 to 2001 (Hong Kong), Commercial Director from 1994 to 1996 (Taiwan), Director Channel Development-Grocery in 1993 (Florida), Director-National Accounts in 1992 (Florida), Southern Division Manager in 1991 (Florida) and Region Manager from 1989 to 1990 (Alabama).

 

Mr. Smith has also held key positions with other Fortune 500 companies, including Director-Sales and Marketing of The Seagram Company Ltd. from 1996 to1998 and various management positions with The Gillette Company Safety Razor Division from 1981 to 1989. He is a veteran of the U.S. Navy (Seabees) and graduate of the University of Alabama at Birmingham.

 

Rianna Meyer joined the Company in August 2015 and became Vice President of Operations on November 20, 2017. As an original team member of the Company, she has overseen the successful establishment and growth of Veritas Farms’ operations and employee team. Ms. Meyer’s daily operations responsibilities include overseeing the cultivation team, laboratory technicians, and overall production of Veritas Farms products.   Prior to joining the Company, she was the principal of her own consulting firm from 2014 to 2015, focused on assisting cannabis licensees in Colorado with compliance and other industry related matters. Prior to joining the legal cannabis industry, Ms. Meyer supported the National Science Foundation as a Fire Captain for the Antarctica Program. Ms. Meyer also served in the United States Air Force.

 

Derek Thomas joined the Company on December 6, 2017 as its Vice President of Business Development. Mr. Thomas is a business development, branding, and communications strategist who is focused on helping companies grow their brands and tell their compelling stories. From 2014 until joining the Company, he worked as an independent consultant with various startups to evolve the dialogue taking place between consumers and brands, particularly in the cannabis industry, including the Hemp Blue and Technical420 brands. Mr. Thomas previously spent several years working in hospitality for multimillion-dollar brands. From 2012 to 2014, Mr. Thomas was the Director of International Business Development of Life In Color, a wholly owned subsidiary of Live Style Inc., the largest global producer of live events and digital entertainment content focused on electronic music culture (EMC) and other world-class festivals. From 2010 to 2012, Mr. Thomas managed operations, private rentals and special events as a General Manager with sbe Group, operator of the luxury SLS Hotels in Miami, Beverly Hills, South Beach, and Las Vegas.

 

Bao T. Doan, M.D. joined the Company’s board of directors on April 8, 2019.  Dr. Doan has been a practicing interventional radiologist for over twenty (20) years and since 2009 has served as National Medical Director and Staff Interventional and Diagnostic Radiologist for Envision Physician Services (formerly Sheridan Healthcare, Inc.) in Plantation, Florida.  Dr. Doan, a dual American board-certified radiologist and interventional radiologist, holds a medical degree from McGill University Health Center in Montreal, Canada and a master’s degree in business administration, healthcare management, from Western Governors University.  Dr. Doan has published professional articles and papers and is a member of various professional organizations. We believe that given her medical experience, Dr. Doan is a valuable member of our board of directors.

 

19

 

 

Kellie Newton joined the Company’s board of directors on April 8, 2019. Ms. Newton has over thirty (30) years of experience in the practice of corporate law, representing non-profit and companies in a variety of matters including commercial transactions and corporate governance. Since December 2017, she has been a partner at Whiteford, Taylor & Preston in Washington, D.C. and prior thereto, she was a partner at Dentons and its predecessor firm, McKenna Long & Aldridge in Washington, D.C. from March 1993 to December 2017. Ms. Newton also is experienced as in-house counsel, having served as Corporate Counsel at ChemLawn Services Corporation, one of the largest corporations engaged in providing landscaping and indoor pest elimination services in the United States and Canada from 1990 to 1993 and as Senior Attorney at Warner Cable Communications, Inc. from 1985 to 1990. Ms. Newton holds a B.A. degree in history and political science from Dickinson College and a J.D. degree from Capital University Law School. We believe that Ms. Newton’s extensive experience in corporate law, particularly in the area of corporate governance, makes her a valuable member of our board of directors.

 

Marc J. Horowitz joined the Company’s board of directors on November 1, 2019. Mr. Horowitz has been a certified public accountant for over twenty-five (25) years. Since 2016, he has been Chief Financial Officer of Steven Feller P.E., private equity owned engineering design services firm based in Fort Lauderdale, Florida. From 2013 to 2016, Mr. Horowitz provided financial and other consulting service on a contract/short-term basis to a number of companies, including All Care Consultants, a physician practice management firm, where he was Chief Financial Officer, U.S. Gas & Electric, an energy supplier, Resorts World Bimini, a subsidiary of Genting Group, a worldwide resort operator and Flanigan’s Enterprises, a publicly held owner and operator of a chain of restaurants and package liquor stores in Florida, where he was Director of Accounting. From 2008 to 2013, Mr. Horowitz was Chief Financial Officer/Vice President-Finance of Apilfi, a private equity owned technology provider of life and annuity order management solutions for the financial services and insurance industries, based in Fort Lauderdale, Florida. Mr. Horowitz began his career at the accounting firms of Grant Thornton and Ernst& Young. He holds a Bachelor of Business Administration degree from Florida Atlantic University and a Master of Accounting degree from Nova Southeastern University. We believe that given his extensive financial and accounting experience, Mr. Horowitz will be a valuable addition to the Veritas Farms board of directors.

 

Family Relationships

 

There are no familial relationships among our officers and directors.

 

Terms of Office

 

Our directors are appointed for a one-year term to hold office until the next annual meeting of our shareholders and until a successor is appointed and qualified, or until their removal, resignation, or death. Executive officers serve at the pleasure of the board of directors.

 

Director Independence

 

The Company’s board of directors has determined that each of our three non-employee directors, Dr. Bao Tran Doan, Kellie Newton and Marc J. Horowitz, is “independent” within the meaning of the applicable rules and regulations of the SEC and the listing standards of the Nasdaq Stock Market and the NYSE American. Moreover, our board of directors has determined that Mr. Horowitz qualifies as an “audit committee financial expert” as the term is defined by the applicable rules and regulations of the SEC and the listing standards of the Nasdaq Stock Market and the NYSE American, based on his extensive financial and accounting experience.

 

Board Committees

 

General

 

As our board of directors is now comprised of a majority of “independent” directors and Mr. Horowitz qualifies as an “audit committee financial expert,” the Veritas Farms board of directors has established three standing committees, an audit committee, a compensation committee and a nominating and corporate governance committee. Dr. Doan, Ms. Newton and Mr. Horowitz are the be members of each of the committees.

 

20

 

 

Audit Committee

 

The audit committee assists the Veritas Farms board of directors in its oversight of the Company’s accounting and financial reporting processes and the audits of the Company’s financial statements, including (a) the quality and integrity of the Company’s financial statements; (b) the Company’s compliance with legal and regulatory requirements; (c) the independent auditors’ qualifications and independence; and (iv) the performance of our Company’s internal audit functions and independent auditors, as well as other matters which may come before it as directed by the board of directors. Further, the audit committee, to the extent it deems necessary or appropriate, among its several other responsibilities, shall:

 

be responsible for the appointment, compensation, retention, termination and oversight of the work of any independent auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company;

  

  discuss the annual audited financial statements and the quarterly unaudited financial statements with management and the independent auditor prior to their filing with the SEC in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q;

 

  review with the Company’s financial management on a period basis (a) issues regarding accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles; and (b) the effect of any regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company;

 

  monitor the Company’s policies for compliance with federal, state, local and foreign laws and regulations and the Company’s policies on corporate conduct;

 

  maintain open, continuing and direct communication between the board of directors, the audit committee and our independent auditors; and

 

  monitor our compliance with legal and regulatory requirements and shall have the authority to initiate any special investigations of conflicts of interest, and compliance with federal, state and local laws and regulations, including the Foreign Corrupt Practices Act, as may be warranted.

 

Mr. Horowitz is the chairperson of the audit committee.

 

Compensation Committee

 

The compensation committee aids our board of directors in meeting its responsibilities relating to the compensation of the Company’s executive officers and to administer all incentive compensation plans and equity-based plans of the Company, including the plans under which Company securities may be acquired by directors, executive officers, employees and consultants. Further, the compensation committee, to the extent it deems necessary or appropriate, among its several other responsibilities, shall:

 

  review periodically the Company’s philosophy regarding executive compensation to (a) ensure the attraction and retention of corporate officers; (b) ensure the motivation of corporate officers to achieve the Company’s business objectives, and (c) align the interests of key management with the long-term interests of our shareholders;

 

  review and approve corporate goals and objectives relating to Chief Executive Officer compensation and other executive officers of Veritas Farms;

 

  make recommendations to the board of directors regarding compensation for non-employee directors, and review periodically non-employee director compensation in relation to other comparable companies and in light of such factors as the compensation committee may deem appropriate; and

 

  review periodically reports from management regarding funding the Company’s pension, retirement, long-term disability and other management welfare and benefit plans.

 

Dr. Doan is the chairperson of our compensation committee.

 

21

 

 

Nominating and Corporate Governance Committee

 

The nominating and corporate governance committee recommends to the board of directors individuals qualified to serve as directors and on committees of the board of directors to advise the board of directors with respect to the board of directors composition, procedures and committees to develop and recommend to the board of directors a set of corporate governance principles applicable to the Company; and to oversee the evaluation of our board of directors and management.

 

Further, the nominating and corporate governance committee, to the extent it deems necessary or appropriate, among its several other responsibilities shall:

 

  recommend to the board of directors and for approval by a majority of independent directors for election by shareholders or appointment by the board of directors as the case may be, pursuant to our bylaws and consistent with the board of directors’ criteria for selecting new directors;

 

  review the suitability for continued service as a director of each member of the board of directors when his or her term expires or when he or she has a significant change in status;

 

  review annually the composition of the board of directors and to review periodically the size of the board of directors;

 

  make recommendations on the frequency and structure of board of directors’ meetings or any other aspect of procedures of the board of directors;

 

  make recommendations regarding the chairmanship and composition of standing committees and monitor their functions;

 

  review annually committee assignments and chairmanships;

 

  recommend the establishment of special committees as may be necessary or desirable from time to time; and

 

  develop and review periodically corporate governance procedures and consider any other corporate governance issue.

 

Ms. Newton is the chairperson of the nominating and corporate governance committee.

  

Code of Ethics

 

We have adopted a Code of Ethics that applies to employees, including our principal executive officer, principal financial officer, or persons performing similar functions.

 

Board of Directors Role in Risk Oversight

 

Members of the board of directors and since its establishment, the Company’s audit committee have periodic meetings with management and the Company’s independent auditors to perform risk oversight with respect to the Company’s internal control processes. The Company believes that the board’s role in risk oversight does not materially affect the leadership structure of the Company.

 

22

 

 

Item 11. Executive Compensation.

 

Summary Compensation Table

 

SUMMARY COMPENSATION TABLE

 

The table below summarizes all compensation awarded to, earned by, or paid to each of our executive officers for the years ended December 31, 2019, December 31, 2018 and December 31, 2017.

 

Name and
Principal
Position
  Year     Salary
($)
    Bonus
($)
    Stock
Awards
(#)
    Option
Awards
(#)(1)
    Option
Awards
($)(1)
    Non-Equity
Incentive
Plan
Compensation
($)
    Nonqualified
Deferred
Compensation
Earnings
($)
   

All Other
Compensation
($)

    Total
($)
 
Alexander M.     2019     250,000     170,000     0     333,333     477,657     0     0               897,657  
Salgado,     2018       250,000       20,000       0       166,666       238,829       0       0             508,829  
Chief Executive Officer     2017       150,000       0       0       250,000       76,155       0       0             226,153  
                                                                               
Erduis     2019       250,000       168,500       0       333,333       477,657       0       0             896,157  
Sanabria,     2018       250,000       20,000       0       166,666       238,829       0       0             508,829  
Executive Vice President Officer     2017       150,000       0       0       250,000       76,155       0       0             226,153  
                                                                               
Derek     2019       100,000       2,500       0       33,333       36,967       0       0             139,467  
Thomas,     2018       87,500       5,000       0       0       0       0       0             92,500  
Vice President of Business Development (3)     2017       8,331       0       0       0       0       0       0             8,331  
                                                                               
Rianna     2019       170,000       7,500       0       58,333       35,314       0       0             212,814  
Meyer,     2018       132,500       10,000       0       0       0       0       0             142,500  
Vice President of Operations     2017       75,000       0       0       125,000       11,423       0       0             86,423  
                                                                               
Dave Smith,     2019       225,000       95,000       0       93,750       134,413       0       0             454,413  
Chief Operating Officer(4)     2018       69,500       0       0       93,750       134,413       0       0             203,913  
                                                                               
Michael Pelletier,     2019       127,000       0       0       0       0       0       0             127,000  

Chief

Financial Officer(2)

                                                                             

 

(1) Represents options granted under our 2017 Incentive Stock Plan.

 

(2) Mr. Pelletier joined the Company in April 2019

 

(3) Mr. Thomas joined the Company in December 2017.

 

(4) Mr. Smith joined the Company in September 2018.

 

23

 

 

Employment Agreements

 

Effective September 27, 2017, the Company entered into employment agreements with each of Messrs. Salgado and Sanabria. Each employment agreement provides for a three-year rolling term, base salary of $150,000, increasing to $250,000 on April 1, 2018 and a grant of 1,000,000 vested options under the Company’s 2017 Stock Incentive Plan. The options are exercisable at any time during the ten (10) year period commencing on the date of grant, at an exercise price of $0.0833 per share and are otherwise subject to the terms of the 2017 Stock Incentive Plan. The employment agreements also contain customary confidentiality, non-competition and change in control provisions.

 

In August 2018, the Company entered into a three-year employment agreement with Dave Smith, to serve as the Company’s Chief Operating Officer, effective in September 2018. The employment agreement provides for a base salary of $225,000, the ability to be granted an annual bonus of up to $125,000 based on performance criteria set by the board of directors and a grant of 750,000 options under the Company’s 2017 Stock Incentive Plan, 375,000 of which vested on the grant date and the 375,000 balance of which will vest on the six-month anniversary of the grant date. The options are exercisable, to the extent vested, at any time during the ten (10) year period commencing on the date of grant, at an exercise price of $0.36 per share and are otherwise subject to the terms of the 2017 Stock Incentive Plan. The employment agreement also contains customary confidentiality, non-competition and change in control provisions.

 

Outstanding Equity Awards at Fiscal Year-End Table

 

The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each of our executive officers outstanding as of December 31, 2019, the end of our last completed fiscal year.

 

Grantee   Number of Securities
Underlying Unexercised
Options Exercisable
    Number of Securities
Underlying Unexercised
Options Unexercisable
    Exercise
Price
    Option Expiration
Date
  Number of
Shares
that have
not vested
    Market
Value
of Shares
that have
not Vested
 
Alexander Salgado     250,000       0       0.333     9/27/2027     0       0  
Alexander Salgado     666,667       0       1.44     8/6/2028     0       0  
Alexander Salgado     0       500,000       0.980     7/26/2029     500,000       2,633,807  
Michael Pelletier     0       25,000       2.580     3/26/2029     25,000       62,202  
Erduis Sanabria     250,000       0       0.333     9/27/2027     0       0  
Erduis Sanabria     666,667       0       1.44     8/6/2028     0       0  
Erduis Sanabria     0       500,000       0.980     7/26/2029     500,000       2,633,807  
Rianna Meyer     83,333       41,667       0.333     9/27/2027     41,677       11,550  
Rianna Meyer     16,667       33,333       1.44     8/6/2028     33,333       47,529  
Rianna Meyer     0       50,000       0.980     7/26/2029     50,000       259,442  
Derek Thomas     16,667       33,333       0.8     5/10/2028     33,333       26,405  
Derek Thomas     16,667       33,333       1.44     8/6/2028     33,333       47,529  
Derek Thomas     0       25,000       0.980     7/26/2029     25,000       129,721  
Dave Smith     187,500       0       1.444     9/24/2028     0       0  
Dave Smith     0       187,500       0.980     7/26/2029     187,500       987,677  

  

Compensation of Directors

 

We do not compensate employee directors for their services as such. As we had no non-employee directors during 2018, our last completed fiscal year, no compensation was paid to our directors for their services as such. With the appointment of our first two non-employee directors (Dr. Bao Doan and Ms. Kellie Newton) in April 2018, we have agreed to compensate non-employee directors with an annual grant of stock options under our 2017 Incentive Stock Plan, in an amount and on terms to be determined by the board of directors. The initial grants to each of Dr. Doan and Ms. Newton are for options to purchase 100,000 shares at an exercise price of $0.645 per share. The options vest in four (4) quarterly installments commencing ninety (90) days from the date of grant and are contingent upon their continued service on the board. We have also agreed to reimburse them for out-of-pocket expenses incurred in connection with attending board and committee meetings and have entered into indemnification agreements with each director. 

 

2017 Incentive Stock Plan

 

Our 2017 Incentive Stock Plan provides for equity incentives to be granted to our employees, executive officers or directors or to key advisers or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value of the underlying Shares as determined pursuant to the 2017 Incentive Stock Plan, restricted stock awards, other stock-based awards, or any combination of the foregoing. The 2017 Incentive Stock Plan is administered by the compensation committee, or alternatively by the board of directors. The number of Shares so reserved automatically adjusts upward on January 1 of each year, commencing January 1, 2019, so that the number of Shares covered by the 2017 Incentive Stock Plan is equal to 15% of our issued and outstanding common stock as of that measurement date. As of the date of this report, 6,271,245 Shares have been reserved for issuance and the Company has granted options to purchase 4,718,750 Shares under the 2017 Incentive Stock Plan. Such options are exercisable at prices ranging from of $0.33332 to $3.44 per Share.

 

24

 

 

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 

 

The following table sets forth, as of the date of this report, the beneficial ownership of our common stock by each director and executive officer, by each person known by us to beneficially own 5% or more of our common stock and by directors and executive officers as a group.  Unless otherwise stated, the address of the persons set forth in the table is c/o the Company, 1512 E. Broward Blvd, Suite 300, Fort Lauderdale, FL 33301.

 

 

Names and addresses of beneficial owners   Number of shares of
common stock (1)
    Percentage
of class
(%)
 
             
Directors and executive officers:            
Alexander M. Salgado (2)     6,912,977       16.1  
                 
Michael Pelletier     0       0  
                 
Erduis Sanabria (3)     6,564,977       15.3  
                 
Dave Smith     281,250       *  
                 
Rianna Meyer     100,000       *  
                 
Derek Thomas     50,000       *  
                 
Bao T. Doan, M.D.     259,375       *  
                 
Kellie Newton     25,000       *  
                 
All directors and executive officers as a group (eight persons) (2)(3)     14,193,579       31.9  
             
Other 5% or greater shareholders:            
             
George Attlee Boden
198 Magellan Quay
Grand Cayman
Cayman Islands KY1-1108
    2,443,750       5.8  
                 
William R. Maines
15 Meadowood Lane
Binghamton, NY 13901
    3,125,000       7.5  
                 

Cornelis Wit (4)
2101 W. Commercial Blvd, Suite 3500
Fort Lauderdale, FL 33309

    3,112,500       7.4  

* Less than 1%.

 

(1) Includes shares issuable upon the exercise of options within sixty (60) days of the date of this report.

 

25

 

 

(2) Includes (a) 1,420,089 shares owned of record by Mr. Salgado; (b) 1,166,667 shares underlying presently exercisable options held by Mr. Salgado; and (c) 4,326,221 shares held by other shareholders who were former Members of 271, which Messrs. Salgado and Sanabria have the right to vote (but not dispose of) pursuant to a five-year voting agreement entered into among Messrs. Salgado, Sanabria and such other shareholders at Closing of the Acquisition on September 37, 2017 (the “Voting Agreement”).

 

(3) Includes (a) 1,072,089 shares owned of record by Mr. Sanabria; (b) 1,166,667 shares underlying presently exercisable options held by Mr. Sanabria; and (c) 4,326,221 shares held by other shareholders who were former Members of 271, which Messrs. Salgado and Sanabria have the right to vote (but not dispose of) pursuant to the Voting Agreement.

 

(4) Includes (a) 3,050,000 shares held of record by Mr. Wit and (b) 62,500 shares held by Ananda Cifre, his spouse.

 

The persons named above have full voting and investment power with respect to the shares indicated.  Under the rules of the SEC, a person (or group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security.  Accordingly, more than one person may be deemed to be a beneficial owner of the same security.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

Plan category   Number of securities to
be issued
upon exercise of outstanding options,
warrants and rights
    Weighted-average
exercise price of
outstanding options,
warrants and
rights
    Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (a))
 
                   
Equity compensation plans approved by security holders     4,318,750 shares (1)   $ 1.23       1,952,495 shares (1)
Equity compensation plans not approved by security holders     0 shares       None issued       0 shares  
Total     4,318,750 shares (1)   $ 1.23       1,952,495 shares (1)

 

(1) Represents shares of common stock underlying options granted or reserved for issuance under our 2017 Incentive Stock Plan as of the date of this report.

  

26

 

 

Item 13.  Certain Relationships and Related Transactions, and Director Independence.

 

Voting Agreement

 

Shareholders holding 4,326,221 shares of our common stock, who were former members of 271, including Messrs. Salgado and Sanabria, are parties to a Voting Agreement originally entered into in September 2017, pursuant to which Messrs. Salgado and Sanabria have the right to vote (but not dispose of) such shares until September 2022.

 

Loans

 

Prior to completion of the 2018 Private Offering, a primary source of capital to develop and implement our business plan came from the proceeds of loans made by members of 271 Lake Davis prior to its September 2017 acquisition by the Company (none of which lenders was an officer, director or principal shareholder of the Company) and loans made during 2017 and 2018 by Erduis Sanabria, our Executive Vice President and a director. The loans accrued interest at rates between 2% and 3% per annum.. As of December 31.2018, the principal balance of the loans to the members of 271Lake Davis and Mr. Sanabria were reduced to $40,985 and $221,939, respectively and the principal balance of these loans together with accrued interest were repaid in full by December 31, 2019.

 

Legal Services

 

A law firm owned by the brother of Alexander M. Salgado, our Chief Executive Officer, rendered legal services to the Company during the years ended December 31, 2019 and December 31, 2018. The firm was paid an aggregate of $157,500 and $239,305 for such services during 2019 and 2018, respectively

 

Review, Approval and Ratification of Related Party Transactions

 

Any related party transactions are subject to prior review and approval by a majority of our “independent” directors, or an appropriate committee of our board of directors consisting solely of “independent” directors.

 

Item 14.  Principal Accounting Fees and Services.

 

Prager Metis CPAs LLC (“Prager”) has been our independent registered public accounting firm since 2018.

 

Audit Fees

 

Aggregate audit fees billed by Prager for the years ended December 31, 2019 and December 31, 2018, were $55,000 and $42,500, respectively.

 

Audit-Related Fees

 

There were no audit-related fees billed by Prager for the years ended December 31, 2019 and December 31, 2018.

 

Tax Fees

 

There were no tax fees billed by Prager for the years ended December 31, 2019 and December 31,.

 

Pre-Approval Policy

 

Provision of the above services is approved by our audit committee of our board of directors or, prior to establishment of the audit committee, by the board of directors as a whole.

 

27

 

 

PART IV

 

Item 15.  Exhibits, Financial Statement Schedules.

 

(a) The following documents are filed as part of this Report:

 

(1) Financial Statements. The following financial statements and the report of our independent registered public accounting firm, are filed as “Item 8. Financial Statements and Supplementary Data” of this report:

 

Report of Independent Registered Public Accounting Firm

 

Consolidated Balance Sheets at December 31, 2019 and December 31, 2018

 

Consolidated Statements of Operations for the Years Ended December 31, 2019 and December 31, 2018

 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and December 31, 2018

 

Consolidated Statements of Shareholders’ Deficit for the Years Ended December 31, 2019 and December 31, 2018

 

Notes to Consolidated Financial Statements

 

  (2) Financial Statement Schedules.

 

Financial Statement Schedules are omitted because the information required is not applicable or the required information is shown in the financial statements or notes thereto.

 

28

 

 

  (3) Exhibits.

 

Exhibit
Number
  Description
     
3.1   Amended and Restated Articles of Incorporation(1)
     
3.2   Bylaws(2)
     
10.1   Securities Exchange Agreement(3)
     
10.2   Employment Agreement with Alexander M. Salgado(3)*
     
10.3   Employment Agreement with Erduis Sanabria(3)*
     
10.4   2017 Stock Incentive Plan(3)*
     
10.5   Voting Agreement(3)*
     
10.6   Code of Ethics(4)
     

10.7

 

Employment Agreement with Dave Smith(5)*

     
10.8   Form of Non-Employee Director Appointment Letter with attached Form of Non-Employee Director Indemnification Agreement(6)
     
21.1   Subsidiaries of Registrant(4)
     
23.1   Consent of Prager Metis CPAs LLC(7)
     
31.1   Section 302 Chief Executive Officer Certification(7)
     
31.2   Section 302 Chief Financial Officer Certification(7)
     
32.1   Section 906 Chief Executive Officer Certification(7)
     
32.2   Section 906 Chief Financial Officer Certification(7)
     
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

(1) Filed as an exhibit to the registrant’s Current Report on Form 8-K dated November 13, 2017 and incorporated herein by reference, except for an amendment thereto, filed as an exhibit to the registrant’s current report on Form 8-K dated February 5, 2019 and incorporated herein by reference.

   

(2) Filed as an exhibit the registrant’s Registration Statement on Form S-1 (File No. 333-210190) and incorporated herein by reference.

   

(3) Filed as an exhibit to the registrant’s Current Report on Form 8-K dated October 2, 2017 and incorporated herein by reference.

   

(4) Filed as an exhibit to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.

   

(5)

Filed as an exhibit to the registrant’s Current Report on Form 8-K dated October 22, 2018 and incorporated herein by reference.

   

(6) Filed as an exhibit to the registrant’s Current Report on Form 8-K dated April 9, 2019 and incorporated herein by reference.

 

(7) Filed herewith.

 

* Management compensation plan or arrangement.

  

29

 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  VERITAS FARMS, INC.
     
Dated: May 15, 2020 By: /s/ Alexander M. Salgado
    Alexander M. Salgado, Chief Executive Officer
(Principal Executive Officer)
     
Dated: May 15, 2020 By: /s/ Michael Pelletier
    Michael Pelletier, Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signatures   Title   Date
         
/s/ Alexander M. Salgado   Chief Executive Officer and Director   May 15, 2020
Alexander M. Salgado   (Principal Executive Officer)    
         

/s/ Michael Pelletier

Chief Financial Officer

 

May 15, 2020

Michael Pelletier   (Principal Financial and Accounting Officer)    
         
/s/ Erduis Sanabria   Executive Vice President and Director   May 15, 2020
Erduis Sanabria        
         
/s/ Bao T. Doan   Director   May 15, 2020
Bao T. Doan, M.D.        
         
/s/ Kellie Newton   Director   May 15, 2020
Kellie Newton

 
         
/s/ Mark J. Horowitz   Director   May 15, 2020

Mark J. Horowitz

 

 

30

 

Veritas Farms (QB) (USOTC:VFRM)
Historical Stock Chart
From Jun 2020 to Jul 2020 Click Here for more Veritas Farms (QB) Charts.
Veritas Farms (QB) (USOTC:VFRM)
Historical Stock Chart
From Jul 2019 to Jul 2020 Click Here for more Veritas Farms (QB) Charts.