Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1:
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Veritas Farms, Inc. (Formerly Known as
SanSal Wellness Holdings 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.” 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.
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
for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities
and Exchange Commission (the “SEC”). Accordingly, they do not contain all information and footnotes required by accounting
principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s
management, the accompanying unaudited financial statements contain all the adjustments necessary (consisting only of normal recurring
accruals) to present the financial position of the Company as of June 30, 2020, and the results of operations and cash flows for
the periods presented. The results of operations for the three and six months ended June 30, 2020, are not necessarily indicative
of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should
be read in conjunction with the financial statements and related notes thereto included in the Form 10-K for the year ended December
31, 2019, filed with the SEC on May 15, 2020.
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.
Veritas Farms, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
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.
Veritas Farms, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1:
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
Under ASC 606, 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.
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.
Veritas Farms, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1: NATURE OF BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 June 30, 2020 and December 31, 2019.
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 the same manner in which it accounts for employees.
Veritas Farms, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
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 June 30, 2020 and December 31, 2019.
Leases
The Company has two leased buildings one
in Fort Lauderdale, Florida and the other in Aurora, Colorado that are 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
Veritas Farms, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1:
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Leases (Continued)
The standard 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.
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.
Veritas Farms, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2: 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. At
June 30, 2020, the Company had an accumulated deficit of $22,627,912, and a net loss of $3,553,304 for the six months ended June
30, 2020. 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 consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
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.
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.
In addition to the volume transactions of the large retail stores, the Company has also found success with a direct to consumer
approach on their E-Commerce site.
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.
Management’s plans include, but are not limited to the following
areas. Over $800,000 of current liabilities are likely to be forgiven with the proper documentation and usage per the Paycheck
Protection Program. The Company anticipates that funding will be generated from subsequent public or private offerings of its equity
and/or debt securities. Financial statements are already reflecting general and administrative expense rebalancing, including a
reduction in personnel and 20% pay cuts taken by management and other senior staff in response to the COVID-19 outbreak. Large
“Big Box” receivables are to be fulfilled in the third quarter in addition to continued new and reorder sales to large
retailers. Ecommerce continues to grow and provide great margins and with the addition of hand sanitizer all sales platforms are
likely to reflect growth.
Veritas Farms, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 3: INVENTORIES
Inventory consists of:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Inventory
|
|
|
|
|
|
|
Work In Progress
|
|
$
|
4,413,026
|
|
|
$
|
4,062,890
|
|
Finished Goods
|
|
|
1,490,062
|
|
|
|
1,983,107
|
|
Other
|
|
|
562,419
|
|
|
|
554,458
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
6,465,507
|
|
|
$
|
6,600,455
|
|
During the six months ending June 30, 2020
and 2019 the Company realized a loss from destruction of plants in the amounts of $0 and $77,387, respectively.
NOTE 4: PROPERTY AND EQUIPMENT
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
Life
|
|
2020
|
|
|
2019
|
|
PROPERTY AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Land and Land Improvements
|
|
-
|
|
$
|
398,126
|
|
|
|
398,126
|
|
Building and Improvements
|
|
39
|
|
|
1,510,175
|
|
|
|
1,510,175
|
|
Greenhouse
|
|
39
|
|
|
965,388
|
|
|
|
920,896
|
|
Fencing and Irrigation
|
|
15
|
|
|
203,793
|
|
|
|
203,793
|
|
Machinery and Equipment
|
|
7
|
|
|
2,480,475
|
|
|
|
2,480,475
|
|
Furniture and Fixtures
|
|
7
|
|
|
269,275
|
|
|
|
236,344
|
|
Computer Equipment
|
|
5
|
|
|
20,053
|
|
|
|
20,053
|
|
Vehicles
|
|
5
|
|
|
120,206
|
|
|
|
120,206
|
|
|
|
|
|
$
|
5,967,491
|
|
|
$
|
5,890,068
|
|
Less Accumulated Depreciation
|
|
|
|
|
(1,233,605
|
)
|
|
|
(976,005
|
)
|
Property and Equipment
|
|
|
|
$
|
4,733,886
|
|
|
|
4,914,063
|
|
Total depreciation expense was $128,658
and $95,168 for the three month periods and $257,600 and $179,166 for the six month periods ending June 30, 2020 and 2019, respectively.
Veritas Farms, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 5: LONG-TERM DEBT
Long-term debt consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
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.
|
|
|
181,785
|
|
|
|
211,952
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
37,039
|
|
|
|
40,870
|
|
In May 2020, the Company received a loan in the amount of $803,992 under the Payroll Protection Program (“PPP Loan”). The loan accrues interest at a rate of 1% and has an original maturity date of two years which can be extended to five years by mutual agreement of the Company and SBA. (A)
|
|
|
803,994
|
|
|
|
-
|
|
In June 2020, the Company received loan in the amount of $159,900 from the Small Business Administration as an Economic Injury Disaster Loan (“EIDL”). The loan accrues interest at the rate of 3.75% and has an original maturity date of 30 years. (B)
|
|
|
159,900
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,182,718
|
|
|
|
252,822
|
|
Less Current Portion
|
|
|
(871,990
|
)
|
|
|
(67,996
|
)
|
Long-Term Debt - net of current portion
|
|
$
|
310,728
|
|
|
$
|
184,826
|
|
Future principal payments for the next
5 years are as follows for the years ended December 31:
2020
|
|
$
|
33,998
|
|
2021
|
|
|
871,990
|
|
2022
|
|
|
70,753
|
|
2023
|
|
|
32,813
|
|
2024
|
|
|
24,494
|
|
Thereafter
|
|
|
148,670
|
|
|
|
$
|
1,182,718
|
|
Veritas Farms, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 5: LONG-TERM DEBT (CONTINUED)
(A) In May 2020, the Company received a loan in the amount of
$803,992 under the Payroll Protection Program (“PPP Loan”). The loan accrues interest at a rate of 1% and has an original
maturity date of two years which can be extended to five years by mutual agreement of the Company and SBA. The PPP loan contains
customary events of default relating to, among other things, payment defaults and breaches of representations and warranties.
Under the terms of the loan, a portion or all of the loan is
forgivable to the extent the loan proceeds are used to fund qualifying payroll, rent and utilities during a designated twenty-four
week period. Payments are deferred until the SBA determines the amount to be forgiven. The Company intends to utilize the proceeds
of the PPP loan in a manner which will enable qualification as a forgivable loan. However, no assurance can be provided that all
or any portion of the PPP loan will be forgiven. The balance on this PPP loan was $803,992 as of June 30, 2020 and has been classified
as a long-term liability in notes payable.
(B) In June 2020, the Company received
loan in the amount of $159,900 from the Small Business Administration as an Economic Injury Disaster Loan (“EIDL”).
The loan accrues interest at the rate of 3.75% and has an original maturity date of 30 years.
Up to $10,000 of the EIDL can be forgiven
as long as such funds were utilized to provide working capital. The residual amount of the loan is payable under the previous terms.
The first payment due is deferred one year. The entirety of the loan as of June 30, 2020 and has been classified as a long-term
liability in notes payable.
NOTE 6: CONVERTIBLE DEBT
In March 2020, the Company secured a $200,000
loan from a single investor, evidenced by a one-year 10% convertible promissory note (the “Convertible Note”). The
Convertible Note bears interest at the rate of ten percent (10%) per annum, which accrues and is payable together with principal
at maturity. The note matures on the first anniversary of the original issuance date or such earlier date on which this Note becomes
due in accordance with its terms
Principal and accrued interest under
the Convertible Note may, at the option of the holder, be converted in its entirety into shares of our common stock at a
conversion price of $0.40 per share, subject to adjustment for stock splits, stock dividends and similar recapitalization
transactions. The Company determined that there was a beneficial conversion feature of $95,000 relating to this note which is
being amortized over the life of the note, using the using the effective interest method. The note is presented net of a
discount of $71,250 on the accompanying balance sheet.
Veritas Farms, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 7: 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.
|
|
Three Months Ended
Jun 30:
|
|
|
Six Months Ended
Jun 30:
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Non-Qualified Stock Options - Immediate
|
|
$
|
407,042
|
|
|
$
|
176,494
|
|
|
$
|
879,768
|
|
|
$
|
837,796
|
|
Incentive Stock Options - Time Bases
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Stock-based Compensation Expense
|
|
$
|
407,042
|
|
|
$
|
176,494
|
|
|
$
|
879,768
|
|
|
$
|
837,796
|
|
Stock option activity was as follows in the periods ended Jun
30, 2020 and December 31, 2019:
|
|
Stock Options
|
|
|
Weighted-
Average
Exercise
|
|
|
Weighted-
Average
Remaining
|
|
Outstanding at December 31, 2019
|
|
|
4,318,750
|
|
|
$
|
1.14
|
|
|
|
8.91
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/Canceled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2020
|
|
|
4,318,750
|
|
|
$
|
1.14
|
|
|
|
8.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at June 30, 2020
|
|
|
3,203,886
|
|
|
$
|
1.14
|
|
|
|
8.24
|
|
Exercisable at June 30, 2020
|
|
|
3,203,886
|
|
|
$
|
1.14
|
|
|
|
8.24
|
|
Veritas Farms, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 8: 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.
The Company recognized the following related
to leases in its Unaudited Consolidated Balance Sheet:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Right of Use Lease Liabilities
|
|
|
|
|
|
|
Current portion
|
|
$
|
258,701
|
|
|
$
|
80,046
|
|
Long-term portion
|
|
|
840,048
|
|
|
|
52,798
|
|
|
|
$
|
1,098,749
|
|
|
$
|
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 $12,875 and $8,159 for the three month period
and $25,751 and $16,317 for the six month period ending June 30, 2020 and 2019, respectively.
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 $20,152 and $20,152 for the three month period and $40,304 and $40,304 for the six
month period ending June 30, 2020 and 2019, respectively.
In March of 2020, the company entered into
a 61 month lease agreement with Majestic Realty Co. The agreement allows for an abated first month of rent. The lease contains
annual escalators in addition to other periodic payments pertaining to taxes, utilities, insurance and common area costs. Total
depreciation expense related to the lease was $17,198 and $0 for the three month period and $51,594 and $0 for the six month period
ending June 30, 2020 and 2019, respectively.
As of June 30, 2020, and December 31, 2019,
operating leases have no minimum rental commitments.
Veritas Farms, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 9: COMMON STOCK
In April of 2020, the Company issued 50,000
shares of common stock for services. Upon grant date the value of the stock was valued at $37,000 based on the market price of $0.74 of the Company’s common
stock.
In March of 2020, the Company issued 153,279
shares of common stock in accordance with a cashless exercise of warrants.
In the first two quarters of 2019, 10,070,833
stock warrants were exercised for $1,510,625.
In the first two quarters of 2019, the
Company issued 17,737,500 shares of common stock for proceeds of $7,095,000, net of $972,066 issuance costs, and 62,500 shares
of common stock for marketing services valued at $16,875.
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 effected
on September 19, 2019.
NOTE 10: CONCENTRATIONS
The Company had one customer in the six
months ended June 30, 2020 accounting for 43% of sales. For the six months ended June 30, 2019, two customers accounted for 25%
and 13% of sales.
The Company had one customer in the three
months ended June 30, 2020 accounting for 51% of sales. For the three months ended June 30, 2019, two customers accounted for 38%
and 12% of sales.
The Company had two customers at June 30,
2020 accounting for 71% and 10% of accounts receivable. At December 31, 2019, the Company had two customers accounting for 46%
and 12% of accounts receivable.
NOTE 11: RELATED PARTY
The Company incurred $9,200 and $37,500
of related party legal expenses during the three month periods ended and $66,700 and $75,000 for the six month period ending June
30, 2020 and 2019, respectively
The Company issued stock incentives to
various directors and employees. Refer to Note 6 for additional details.
NOTE 12: SUBSEQUENT EVENTS
The Company has evaluated events and transactions
that occurred after the balance sheet date through the date which these financial statements were issued and determined that no
subsequent events require disclosure or recognition in the financial statements.