UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________ to _____________

 

Commission File Number: 333-235300

 

Veritas Farms, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   90-1254190
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

1815 Griffin Road, Suite 401, Dania Beach, FL 33004

(Address of principal executive offices, including zip code)

 

(833) 691-4367

(Registrant’s telephone number, including area code)

 

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

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

 

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

 

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or emerging growth 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.

 

Large Accelerated Filer Accelerated Filer 
Non-accelerated Filer Smaller reporting company 
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

The number of shares outstanding of the registrant’s common stock, $0.001 par value, as of November 11, 2021 was 41,624,977 shares.

 

 

 

 

 

 

VERITAS FARMS, INC.

Quarterly Report on Form 10-Q for the nine month period ended September 30, 2021

TABLE OF CONTENTS

 

    Page
PART I – FINANCIAL INFORMATION 1
     
Item 1. Financial Statements (unaudited) 1
  Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 1
  Condensed Consolidated Statements of Operations for the nine and three months ended September 30, 2021 and 2020 2
  Condensed Consolidated Statements of Shareholders’ Equity for the nine and three months ended September 30, 2021 and 2020 3
  Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 4
  Notes to Condensed Consolidated Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
     
Item 4. Controls and Procedures 24
     
PART II - OTHER INFORMATION 26
     
Item 1. Legal Proceedings 26
     
Item 1A. Risk Factors 26
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
     
Item 3. Defaults Upon Senior Securities 26
     
Item 4. Mine Safety Disclosures 26
     
Item 5. Other information 26
     
Item 6. Exhibits 27
     
SIGNATURES 28

 

i

 

 

PART I – FINANCIAL INFORMATION 

 

Item 1. Financial Statements

 

VERITAS FARMS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

    September 30,
2021
    December 31,
2020
 
             
ASSETS            
             
CURRENT ASSETS            
Cash   $ 242,296     $ 107,693  
Inventories     5,803,240       5,891,983  
Accounts receivable, net of allowance for doubtful accounts     527,924       386,379  
Prepaid expenses     657,905       270,557  
Total current assets     7,231,365       6,656,612  
Property and equipment, net of accumulated depreciation     4,067,261       4,494,370  
Intangible assets, net of accumulated amortization     55,000       55,000  
Right of use assets, net of accumulated amortization     137,998       930,826  
Other assets     116,321       271,213  
                 
TOTAL ASSETS   $ 11,607,945     $ 12,408,021  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
                 
CURRENT LIABILITIES                
Accounts payable   $ 1,761,300     $ 2,020,605  
Accrued expenses     157,191       414,777  
Accrued interest     15,176       13,677  
Dividends payable     95,008       -  
Convertible notes payable, net of discount     -       176,250  
Deferred revenue     5,048       16,256  
Operating lease liability     55,419       240,324  
Paycheck Protection Program loan    
-
      803,994  
Notes payable, current portion     60,497       66,080  
Total current liabilities     2,149,639       3,751,963  
                 
LONG TERM LIABILITIES                
Notes payable, long term, net of current portion, net of discount     202,530       278,527  
Convertible notes payable, long term, net of discount     200,000       -  
Paycheck Protection Program loan     803,994      
-
 
Operating lease liability, net of current portion     82,579       730,164  
                 
TOTAL LIABILITIES     3,438,742       4,760,654  
                 
SHAREHOLDERS’ EQUITY                
Preferred stock, 5,000,000 shares authorized at $0.001 par value    
 
     
 
 
Series A convertible preferred stock, 4,000,000 shares authorized, 4,000,000 and -0- issued and outstanding, respectively at $0.001 par value     4,000      
-
 
Series B convertible preferred stock, 1,000,000 shares authorized, 1,000,000 and -0- issued and outstanding, respectively at $0.001 par value     1,000      
-
 
Common stock, 200,000,000 shares authorized, 41,624,977 and 45,784,977 issued and outstanding, respectively, at $0.001 par value     41,625       45,785  
Additional paid in capital     38,171,646       34,268,729  
Accumulated (deficit)     (30,049,068 )     (26,667,147 )
                 
TOTAL SHAREHOLDERS’ EQUITY     8,169,203       7,647,367  
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $ 11,607,945     $ 12,408,021  

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

1

 

 

VERITAS FARMS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

    For the nine months ended     For the three months ended  
    September 30,     September 30,  
    2021     2020     2021     2020  
Revenues   $ 2,004,071     $ 4,830,523     $ 555,870     $ 1,466,824  
                                 
Cost of goods sold     1,287,505       2,252,016       282,117       574,277  
                                 
Gross margin     716,566       2,578,507       273,753       892,547  
                                 
Operating expenses                                
Selling, general and administrative     4,360,129       7,613,994       1,558,524       2,429,989  
Total operating expenses     4,360,129       7,613,994       1,558,524       2,429,989  
                                 
Operating income/(loss)     (3,643,563 )     (5,035,487 )     (1,284,771 )     (1,537,442 )
                                 
Other income/(expense)                                
Interest expense, related parties     (21,754 )     (1,644 )     (20,093 )    
-
 
Interest expense     (75,357 )     (96,079 )     (14,708 )     (42,464 )
Derivative gain/(loss)     (14,500 )    
-
      (7,000 )    
-
 
Gain on loan/debt forgiveness     932,462      
-
      109,625      
-
 
Loss on disposal     (219,361 )     -       (219,361 )     -  
Loss on lease termination     (244,840 )    
-
     
-
     
-
 
(Loss) before income taxes     (3,286,913 )     (5,133,210 )     (1,436,308 )     (1,579,906 )
Income tax (expense)    
-
     
-
     
-
     
-
 
Net (loss)     (3,286,913 )     (5,133,210 )     (1,436,308 )     (1,579,906 )
Preferred stock dividends                                
Preferred stock dividends in arrears                                
Series A preferred stock     (64,104 )    
-
      (42,625 )    
-
 
Series B preferred stock     (30,904 )    
-
      (20,164 )    
-
 
Total preferred stock dividends     (95,008 )    
-
      (62,789 )    
-
 
Net (loss) attributable to common shareholders   $ (3,381,921 )   $ (5,133,210 )   $ (1,499,097 )   $ (1,579,906 )
                                 
Net (loss) per share                                
Basic   $ (0.08 )   $ (0.12 )   $ (0.04 )   $ (0.04 )
Diluted   $ (0.08 )   $ (0.12 )   $ (0.04 )   $ (0.04 )
Weighted average number of shares outstanding                                
Basic     43,968,420       41,606,299       41,974,977       41,646,716  
Diluted     43,968,420       41,606,299       41,974,977       41,646,716  

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

2

 

 

VERITAS FARMS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 2021 AND SEPTEMBER 30, 2020

(unaudited)

 

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2021

 

    Preferred Stock                          
    Series A Preferred     Series B Preferred     Common Stock     Additional           Total  
    Number     $0.001     Number     $0.001     Number     $0.001     paid in     Accumulated     shareholders’  
    of shares     Par value     of shares     Par value     of shares     Par value     capital     (deficit)     equity  
Balances at                                                
December 31, 2020    
-
    $
-
     
-
    $
-
      45,784,977     $ 45,785     $ 34,268,729     $ (26,667,147 )   $ 7,647,367  
                                                                         
Stock-based compensation                                                     53,412               53,412  
                                                                         
Issuance of common stock for cash                                     400,000       400       86,495               86,895  
                                                                         
Net (loss)                                                             (1,154,659 )     (1,154,659 )
                                                                         
Balances at                                                                        
March 31, 2021    
-
     
-
     
-
     
-
      46,184,977       46,185       34,408,636       (27,821,806 )     6,633,015  
                                                                         
Stock-based compensation                                                     601               601  
                                                                         
Issuance of Series A preferred stock     2,000,000       2,000                       (4,000,000 )     (4,000 )     904,720               902,720  
                                                                         
Issuance of Series B preferred stock for cash                     1,000,000       1,000                       901,720               902,720  
                                                                         
Preferred stock dividends                                                             (32,219 )     (32,219 )
                                                                         
Net (loss)                                                             (695,946 )     (695,946 )
                                                                         
Balances at                                                                        
June 30, 2021     2,000,000       2,000       1,000,000       1,000       42,184,977       42,185       36,215,677       (28,549,971 )     7,710,891  
                                                                         
Stock-based compensation                                                     97,409               97,409  
                                                                         
Issuance of Series A preferred stock     2,000,000       2,000                       (560,000 )     (560 )     1,858,560               1,860,000  
                                                                         
Preferred stock dividends                                                             (62,789 )     (62,789 )
                                                                         
Net (loss)                                                             (1,436,308 )     (1,436,308 )
                                                                         
Balances at                                                                        
September 30, 2021     4,000,000     $ 4,000       1,000,000     $ 1,000       41,624,977     $ 41,625     $ 38,171,646     $ (30,049,068 )   $ 8,169,203  

 

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2020

 

    Preferred Stock                          
    Series A Preferred     Series B Preferred     Common Stock     Additional           Total  
    Number     $0.001     Number     $0.001     Number     $0.001     paid in     Accumulated     shareholders’  
    of shares     Par value     of shares     Par value     of shares     Par value     capital     (deficit)     equity  
Balances at                                                      
December 31, 2019    
-
    $
-
     
-
    $
-
      41,421,698     $ 41,422     $ 31,228,397     $ (19,074,608 )   $ 12,195,212  
                                                                         
Stock-based compensation                                                     472,726               472,726  
                                                                         
Cashless issuance of common stock, warrant exercise                                     153,279       153       (153 )            
-
 
                                                                         
Net (loss)                                                             (2,325,269 )     (2,325,269 )
                                                                         
Balances at                                                                        
March 31, 2020    
-
     
-
     
-
     
-
      41,574,977       41,575       31,700,970       (21,399,877 )     10,342,669  
                                                                         
Stock-based compensation                                                     407,042               407,042  
                                                                         
Issuance of common stock for services                                     50,000       50       36,950               37,000  
                                                                         
Beneficial conversion feature                                                     95,000               95,000  
                                                                         
Net (loss)                                                             (1,228,035 )     (1,228,035 )
                                                                         
Balances at                                                                        
June 30, 2020    
-
     
-
     
-
     
-
      41,624,977       41,625       32,239,962       (22,627,912 )     9,653,676  
                                                                         
Stock-based compensation                                                     567,153               567,153  
                                                                         
Issuance of common stock for cash                                     2,000,000       2,000       429,895               431,895  
                                                                         
Net (loss)                                                             (1,579,906 )     (1,579,906 )
                                                                         
Balances at                                                                        
September 30, 2020    
-
    $
-
     
-
    $
-
      43,624,977     $ 43,625     $ 33,237,010     $ (24,207,818 )   $ 9,072,818  

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

3

 

 

VERITAS FARMS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

    For the nine months ended  
    September 30,  
    2021     2020  
             
CASH FLOWS FROM OPERATING ACTIVITIES            
Net (loss) attributable to common shareholders   $ (3,381,921 )   $ (5,133,210 )
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities                
Depreciation and amortization     373,491       386,542  
Stock-based compensation     151,422       1,446,922  
Gain on loan/debt forgiveness     (822,837 )    
-
 
Loss on disposal of property and equipment     107,516       47,500  
Changes in operating assets and liabilities                
Inventories     88,743       150,499  
Prepaid expenses     (387,348 )     310,172  
Accounts receivable     (141,545 )     (194,450 )
Other assets     154,892       10,984  
Deferred revenue     (11,208 )     116,012  
Accrued interest     20,342       13,677  
Net change in operating lease assets and liabilities     (39,662 )     71,916  
Accrued expenses     (257,586 )     120,711  
Dividends payable     95,008       -  
Accounts payable     (259,305 )     181,884  
Net cash (used in) operating activities     (4,309,998 )     (2,470,841 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchase of property and equipment     (53,898 )     (77,423 )
Net cash (used in) investing activities     (53,898 )     (77,423 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Repayments of notes payable     (81,580 )     (60,317 )
Proceeds from notes payable     -       159,900  
Proceeds from Paycheck Protection Program loan     827,744       803,994  
Proceeds from issuance of common stock     86,895       431,895  
Proceeds from issuance of preferred stock, net of transaction fees     3,665,440       -  
Proceeds from convertible notes payable     -       200,000  
Net cash provided by financing activities     4,498,499       1,535,472  
                 
Net increase/(decrease) in cash and cash equivalents     134,603       (1,012,792 )
Cash and cash equivalents at beginning of period     107,693       1,076,543  
                 
Cash and cash equivalents at end of period   $ 242,296     $ 63,751  
                 
Supplemental disclosures of cash flow information:                
Cash paid during the period for:                
Income taxes   $
-
    $
-
 
Interest   $ 48,822     $ 13,677  
                 
Non-cash transactions:                
Operating lease right of use asset obtained in exchange for lease obligations   $ 160,476     $ 928,302  
Issuance of preferred stock in exchange for common stock   $ 971,930     $ -  
Issuance of preferred stock in exchange for notes payable   $ 1,600,000     $ -  

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

4

 

 

Veritas Farms, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

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

 

Nature of Business

 

Veritas Farms, Inc. (“Company,” “Veritas FarmsTM,” “we,” “us” and “our”), 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.,” and on January 31, 2019, the Company filed a Certificate of Amendment to the Articles of Incorporation with the Nevada Secretary of State changing the 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 on its 140-acre farm pursuant to Federal law.

 

Basis of Presentation

 

The accompanying unaudited condensed 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 (“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 September 30, 2021 and September 30, 2020, and the results of operations and cash flows for the periods presented. The results of operations for the nine months ending September 30, 2021, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Form 10-K for the year ended December 31, 2020.

 

Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements reflect the accounts of Veritas Farms, Inc. and its wholly owned subsidiary 271 Lake Davis Holdings, LLC, a Delaware limited liability company (“271 Lake Davis”). All significant inter-company accounts and transactions have been eliminated in consolidation.

 

Estimates in Financial Statements

 

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.

 

Reclassifications

 

Certain reclassifications have been made in the 2020 financial statements to conform to the 2021 presentation. These reclassifications did not have any effect on our net income/(loss) or shareholders’ deficit.

 

5

 

 

Veritas Farms, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Fair Value Measurement

 

The Company has adopted the provisions of Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), 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. The carrying amount reported in the accompanying unaudited condensed consolidated balance sheets approximates fair value. At times, cash and cash equivalents may be in excess of FDIC insurance limits of $250,000. The Company had no cash equivalents as of September 30, 2021 and December 31, 2020.

 

Revenue Recognition

 

Under ASC 606, Revenue from Contracts with Customers (“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 Accounting Standards Update (“ASU”) 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.

 

6

 

 

Veritas Farms, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Cost of Goods Sold

 

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

 

Purchases 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 Condensed Consolidated Statements of Operations. Depreciation is recognized 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 September 30, 2021 and December 31, 2020.

 

Stock-Based Compensation

 

The Company accounts for share-based payments in accordance with ASC Topic 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 non-employees in the same manner in which it accounts for stock-based compensation for employees.

 

7

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Income Taxes

 

The Company accounts for income taxes under ASC 740, Income Taxes (“ASC 740”). 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 ASC 740, 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 September 30, 2021 and December 31, 2020.

 

Leases

 

The Company has two leased buildings that are classified as operating lease right-of use (“ROU”) assets and operating lease liabilities in the Company’s unaudited condensed consolidated balance sheets. 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 Selling, General and Administrative expenses.

 

8

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Related Party Transactions

 

The Company follows ASC 850, Related Party Disclosures, (“ASC 850”) 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.

 

In accordance with ASC 850, the unaudited condensed consolidated financial statements 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 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 for 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.

 

Impact of New Accounting Standards

 

Accounting standards-setting organizations frequently issue new or revised accounting rules. We regularly review all new pronouncements to determine their impact, if any, on our financial statements. 

 

In August 2020, the FASB issued ASU 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06"). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. Additionally, ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share ("EPS") calculation in certain areas. The company is analyzing the effect of this standard.

 

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. A going concern disclosure means that there is substantial doubt that the company can continue as an ongoing business for the next 12 months from the date the financial statements are issued. The Company has sustained substantial losses from operations since its inception. As of and for the period ended September 30, 2021, the Company had an accumulated deficit of $30,049,068, and a net loss of $3,381,921. 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 until we can achieve a level of operational profitability, though there is no assurance of success.

 

9

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

In December 2019, a novel strain of coronavirus (“COVID-19”) emerged. 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 rapidly changing global market and economic conditions as a result of the COVID-19 pandemic have negatively impacted, and are expected to continue to negatively impact, our operations and business. The broader implications of the COVID-19 pandemic and related global economic unpredictability on our business, financial condition, and results of operations remain 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 continue to 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.

 

Management Plans

 

To become leaders in the market, the Company will use three primary methods to market its products including: web-based marketing, traditional marketing, and health related marketing.

 

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 private offerings of its equity and/or debt securities. Outside financing, in concert with profitability from increased large retail establishments (“Big Box”) and e-commerce retail orders 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.

 

NOTE 3: INVENTORIES

 

Inventories consist of:

 

    September 30,
2021
    December 31,
2020
 
Work in progress   $ 4,106,929     $ 4,202,811  
Finished goods     1,176,062       1,232,944  
Other     520,249       456,228  
Inventories   $ 5,803,240     $ 5,891,983  

 

10

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE 4: PROPERTY AND EQUIPMENT

 

    September 30, 2021     December 31, 2020     Estimated  
    Cost     Accumulated depreciation     Net book value     Cost     Accumulated depreciation     Net book value     useful life (years)  
Land and land improvements   $ 398,126     $
-
    $ 398,126     $ 398,126     $
-
    $ 398,126      
-
 
Buildings and improvements     1,510,175       193,985       1,316,190       1,553,722       172,411       1,381,311       39  
Greenhouse     965,388       123,902       841,486       965,388       101,613       863,775       39  
Fencing and irrigation     203,793       92,780       111,013       203,793       77,901       125,892       15  
Machinery and equipment     2,491,118       1,190,683       1,300,435       2,480,474       936,979       1,543,495       7  
Furniture and fixtures     226,630       157,742       68,888       236,344       140,680       95,664       7  
Computer equipment     20,053       19,505       548       20,053       19,139       914       5  
Vehicles     56,058       25,483       30,575       120,206       35,013       85,193       5  
Total   $ 5,871,341     $ 1,804,080     $ 4,067,261     $ 5,978,106     $ 1,483,736     $ 4,494,370          

 

Total depreciation expense was $373,491 and $386,542 for the nine month periods ending September 30, 2021 and September 30, 2020, respectively.  Total depreciation expense was $111,963 and $128,942 for the three month periods ending September 30, 2021 and September 30, 2020, respectively. 

 

NOTE 5: NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE

 

The following table summarizes the notes payable outstanding as of September 30, 2021. 

 

  Maturity   Interest     Ending
principal
September 30,
    Non related party  
Origination date   date   rate     2021     Current     Long term  
11/29/2018   12/1/2022     9 %   $ 46,062     $ 36,444     $ 9,618  
5/10/2019   5/10/2023     9 %     12,343       7,166       5,177  
8/29/2019   9/1/2024     7 %     54,622       16,887       37,735  
3/6/2020   10/1/2022     10 %     200,000       -       200,000  
6/24/2020   6/24/2050     4 %     150,000       -       150,000  
2/16/2021   2/1/2026     1 %     803,994       -       803,994  
Total               $ 1,267,021     $ 60,497     $ 1,206,524  

 

Future principal payments for the next five years are as follows for the future years ended December 31:

 

2021     $ 14,627  
2022       263,433  
2023       25,012  
2024       18,189  
2025       3,516  
Thereafter       942,244  
Total     $ 1,267,021  

 

11

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Paycheck Protection Program

 

In May 2020, as part of the business incentives offered in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Company received a loan in the amount of $803,994 under U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“2020 PPP Loan”). In June 2021, the 2020 PPP Loan principal and all accrued interest totaling $822,837 was forgiven in full.

 

In February 2021, as part of the business incentives offered in the CARES Act, the Company received a second loan in the amount of $803,994 under the SBA Paycheck Protection Program (“2021 PPP Loan”). The 2021 PPP Loan accrues interest at a rate of 1% per annum and has an original maturity date of five years. The 2021 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 2021 PPP 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 has utilized the proceeds of the 2021 PPP Loan in a manner which should enable qualification as a forgivable loan. However, no assurance can be provided that all or any portion of the 2021 PPP Loan will be forgiven. The principal balance on the 2021 PPP Loan was $803,994 as of September 30, 2021.

 

Economic Injury Disaster Loan

 

In September 2020, the Company received a loan in the amount of $150,000 from the SBA as an Economic Injury Disaster Loan (“EIDL”). The EIDL accrues interest at the rate of 3.75% per annum and has a term of 30 years. The first payment due is deferred two years. The principal balance of the EIDL as of September 30, 2021 has been classified as a long-term liability in notes payable.  

 

8% Secured Promissory Notes Payable

 

On April 19, 2021, the Company issued a secured convertible promissory note in the principal amount of $25,000 to our Chairman of the Board, Thomas E. Vickers (“Mr. Vickers”). The note carried an interest rate of eight percent (8%) per annum and had a maturity date of May 19, 2021. On May 19, 2021, the Company and Mr. Vickers extended the maturity date of the note to October 1, 2021. On September 1, 2021, Mr. Vickers converted the outstanding $25,000 in principal and $25,000 in additional cash consideration in exchange for 50,000 shares of the Company’s Series A Convertible Preferred Stock (“Series A Preferred Shares”).

 

On July 22, 2021, the Company issued secured convertible promissory notes in the aggregate principal amount of $1,075,000 in exchange for an aggregate amount of $1,075,000, which secured convertible promissory notes were issued to the Cornelis F. Wit Revocable Living Trust, of which Cornelis F. Wit is trustee (“Wit Trust”), a principal shareholder who holds securities of the Company that constitute a majority of the voting securities of the Company, in the amount of $1,000,000, Stephen E. Johnson (“Mr. Johnson”), Chief Executive Officer and President of the Company, in the amount of $50,000, and Ramon A. Pino (“Mr. Pino”), Chief Financial Officer of the Company, in the amount of $25,000. These secured convertible promissory notes accrued interest at eight percent (8%) per annum and had a maturity date of (i) April 1, 2022, or October 1, 2021. On August 18, 2021, Mr. Pino converted the outstanding $25,000 in principal in exchange for 25,000 Series A Preferred Shares. On September 7, 2021, Mr. Johnson converted the outstanding $50,000 in principal in exchange for 50,000 Series A Preferred Shares. On September 30, 2021, the Wit Trust converted the outstanding $1,000,000 in principal in exchange for 1,000,000 Series A Preferred Shares.

 

On August 30, 2021, the Company issued a secured convertible promissory note in the aggregate principal amount of $500,000 to the Wit Trust. The note carried an interest rate of eight percent (8%) per annum and had a maturity date of April 1, 2022. On September 30, 2021, the Wit Trust converted the outstanding $500,000 in principal in exchange for 500,000 Series A Preferred Shares.

 

10% Convertible Note Payable

 

In March 2020, the Company received a $200,000 loan from a single investor, evidenced by a one-year convertible promissory note (“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. 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. On May 14, 2021, the Company paid $20,000 in accrued interest to the holder, and the Company and the investor extended the maturity date of the Convertible Note to September 6, 2021. In September 2021, the Company and the investor further extended the maturity date of the Convertible Note to October 1, 2022.

 

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 the Convertible Note which is being amortized over the life of the note, using the effective interest method. The note is presented net of a discount of $0 as of September 30, 2021 and $23,750 as of December 31, 2020 on the accompanying balance sheet with amortization to interest expense of $23,750 for the nine month period ended September 30, 2021.

 

12

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE 6: STOCK-BASED COMPENSATION

 

The Company approved its 2017 Stock Incentive Plan on September 27, 2017 (“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 6,867,747 shares of common stock. 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 at the time of grant by the Board of Directors or any of the Committees appointed under the Incentive Plan.

 

The Company’s outstanding stock options typically have a 10-year term. Outstanding non-qualified stock options granted to employees and consultants vest on a case by case basis. Outstanding incentive stock options issued to employees typically 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 vest in 33.3% increments on each of the three anniversary dates of the date of grant. Outstanding incentive stock options issued to executives typically vest partially upon grant date, with the residual vesting over the subsequent 6 or 12 months.

 

On May 12, 2021, the Company granted four non-employee directors with an annual grant of stock options under the Incentive Plan to purchase 100,000 shares of common stock each, at a per share exercise price of $0.16 with a term of ten (10) years, with 25% of the options vesting every ninety (90) days following the grant date subject to the director’s continuous service to the Company. On May 12, 2021, the Company also granted (i) Mr. Johnson stock options under the Incentive Plan to purchase 450,000 shares of common stock, at a per share exercise price of $0.16 with a term of ten (10) years. The stock options will vest ratably on the first three anniversaries of the grant date subject to Mr. Johnson’s continuous service to the Company and (ii) Mr. Pino stock options under the Incentive Plan to purchase 385,000 shares of common stock, at a per share exercise price of $0.16 with a term of ten (10) years. The stock options will vest ratably on the first three anniversaries of the grant date subject to Mr. Pino’s continuous service to the Company.

 

Total stock based compensation expense was $151,422 and $1,446,922 for the nine month periods ending September 30, 2021 and September 30, 2020, respectively. 

 

The following table summarizes the stock option activity for the Company’s Incentive Plan: 

 

    Number of options     Weighted average exercise price
(per share)
    Weighted average remaining contractual term
(in years)
 
                   
Outstanding at December 31, 2019     4,293,750     $ 1.13       9.03  
Granted     50,000       0.27       9.75  
Exercised    
-
      -          
Forfeited/cancelled/expired     (150,000 )     1.42          
Outstanding at December 31, 2020     4,193,750       1.11       8.03  
Granted     1,235,000       0.16       9.62  
Exercised    
-
      -          
Forfeited/cancelled/expired     (193,750 )     1.21          
Outstanding at September 30, 2021     5,235,000     $ 1.14       7.84  
                         
Vested and exercisable at September 30, 2021     4,017,167     $ 0.94       7.35  

 

Below are the assumptions for the fair value of share-based payments for the nine month period ended September 30, 2021 and the year ended December 31, 2020.

 

    Stock option assumptions for the period ended  
Stock option assumptions   September 30,
2021
    December 31,
2020
 
Risk-free interest rate     1.32 %     1.20 %
Expected dividend yield     0.0 %     0.0 %
Expected volatility     147.8 %     183.8 %
Expected life of options (in years)     10       10  

 

13

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE 7: LEASES 

 

On June 22, 2018, the Company entered into a sublease agreement with EDSA Inc. for the lease of principal executive offices for the Company in Fort Lauderdale, Florida. The lease went into effect as of July 1, 2018 and expired pursuant to the terms of the lease on August 31, 2021. The lease contained annual escalators and charged Florida sales tax.

 

On December 2, 2019, the Company entered into a 61 month lease with Majestic Commercenter Phase 9, LLC. (“Majestic”), for warehousing, distribution and related administration office in Aurora, Colorado. The lease allowed for an abated first month of rent. The lease contained annual escalators in addition to other periodic payments pertaining to taxes, utilities, insurance and common area costs. 

 

On February 10, 2021, the Company entered into a conditional lease termination agreement with Majestic pursuant to which the Company terminated the lease with Majestic (“Majestic Termination Agreement”). Pursuant to the terms of the Majestic Termination Agreement, the Company made a payment of $125,000 on February 23, 2021 and a final payment of $125,000 on April 30, 2021, upon which both parties were released from all further obligations to each other. The net expense on the termination of the lease was $244,840. The expense was reported as Other Income/(Expense), Loss on lease termination.

 

On February 11, 2021, the Company entered into a three year lease with Cheyenne Avenue Holdings, LLC for warehouse and distribution facilities. The lease contains annual escalators. 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 right of use asset value was $160,476 and the liability was $160,476. The lease liability will be expensed each month, on a straight-line basis, over the life of the lease.

 

Total lease amortization expense was $109,442 and $180,841 for the nine month periods ending September 30, 2021 and September 30, 2020, respectively. 

 

As of September 30, 2021, and December 31, 2020, operating leases have no minimum rental commitments.

 

NOTE 8: SHAREHOLDERS’ (DEFICIT)

 

Our authorized capital stock consists of 200,000,000 shares of common stock, $0.001 par value per share and 5,000,000 shares of preferred stock, par value $0.001 per share, of which 4,000,000 shares of preferred stock have been designated as Series A Convertible Preferred Stock and 1,000,000 shares of preferred stock have been designated as Series B Convertible Preferred Stock.

 

Common Stock

 

In September 2020, the Company commenced a $4.0 million private offering of up to 8,000,000 Units (“Units”) at a price of $0.50 per Unit, which private offering ended April 30, 2021. Each Unit consists of (a) two shares of common stock; and (b) one warrant, entitling the holder to purchase one share of our common stock at an exercise price of $0.50 at any time through August 31, 2025. As of December 31, 2020, the Company sold 2,080,000 Units in the private offering for gross proceeds of $1,040,000 with offering costs of $154,965 resulting in net proceeds of $885,035. From January 1, 2021 through April 30, 2021, the Company sold an additional 200,000 Units for gross proceeds of $100,000 with offering costs of $13,105 resulting in net proceeds of $86,895. The terms of this offering provided that, if during the one-year period from the final closing of the offering, the Company undertakes a subsequent private offering of its equity, equity equivalent or debt securities (a “Subsequent Offering”), the investor will be entitled to exchange their Units purchased in the offering for an equivalent dollar amount of securities sold in the Subsequent Offering (based on the respective offering prices). The Company also entered into a registration rights agreement with the investors which states, among other things, that the Company shall use commercially reasonable efforts to prepare and file with the SEC a registration statement covering, among other things, the resale of all or such portion of the registrable securities that are not then registered on an effective registration statement. As of September 30, 2021, all Unit holders converted their Units into Series A Preferred Shares.

 

In March 2020, the Company issued 153,279 shares of common stock in accordance with a cashless exercise of warrants. 

 

Preferred Stock

 

On October 13, 2017, the Company filed Amended and Restated Articles of Incorporation of the Company which authorized preferred stock consisting of 5,000,000 shares, par value $0.001 per share, issuable from time to time in one or more series. On May 10, 2021, the Company filed a Certificate of Amendment to the Articles of Incorporation designating 4,000,000 shares of preferred stock as Series A Convertible Preferred Stock and 1,000,000 shares of preferred stock as Series B Convertible Preferred Stock.

 

14

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

On May 11, 2021, the Company entered into a Securities Purchase Agreement with the Wit Trust, pursuant to which the Company contemporaneously sold to the Wit Trust an aggregate of (a) 2,000,000 Series A Preferred Shares; and (b) 1,000,000 shares of its Series B Convertible Preferred Stock (“Series B Preferred Shares”) in exchange for (i) the payment of $2,000,000 (including $302,500 principal plus accrued but unpaid interest in bridge financing provided by the Wit Trust to the Company during April 2021); and (ii) the surrender by the Wit Trust to the Company of 2,000,000 units (“Units”), each Unit consisting of two shares of common stock and one warrant to purchase an additional share of common stock in accordance with the terms of the subscription agreements for the purchase of the Units entered into by the Wit Trust and the Company in September and October 2020. As a result of the transaction and the voting rights accorded the Series A Preferred Shares and Series B Preferred Shares as set forth below, the Wit Trust then held approximately 87% of the voting power of the Company and accordingly, a “Change in Control” occurred.

 

On September 30, 2021, the Company completed a private offering which commenced on August 5, 2021 of Series A Preferred Shares to certain investors, pursuant to which the Company sold an aggregate of 2,000,000 Series A Preferred Shares at a purchase price of $1.00 per share (“Private Placement”) in exchange for (i) the payment of $1,860,000 (including $1,644,068.49 principal plus accrued but unpaid interest in bridge financing provided by certain investors during July and August 2021 upon the conversion of the investors’ secured convertible promissory notes, and conversion of an account payable); and (ii) the surrender of 280,000 units (the “Units”), each Unit consisting of two shares of common stock and one warrant to purchase an additional share of common stock in accordance with the terms of the subscription agreements for the purchase of the Units entered into by certain investors and the Company in February through April 2021. The investors in the Private Placement included: Mr. Johnson upon the conversion of $50,000 promissory note; Mr. Pino upon the conversion of $25,000 promissory note; Mr. Vickers upon conversion of $50,000 promissory note and accounts payable; Kuno van der Post, a member of the Board of Director of the Company, in the amount of $50,000, and; the Wit Trust, in the amount of $65,931.51 and upon conversion of $1,500,000 secured convertible promissory notes and $19,068.49 in accrued and unpaid interest.

 

Series A Preferred Stock

 

The Series A Preferred Shares have a stated value of $1.00 per share. Each Series A Preferred Share is convertible into the Company’s common stock, par value $0.001 per share (“Common Stock”) at the option of the holder thereof at a conversion rate of $0.05 per share of Common Stock. The conversion rate is subject to adjustment in the event of stock splits, stock dividends, other recapitalizations and similar events, as well as in the event of issuance by the Company of shares of Common Stock or securities exercisable for, convertible into or exchangeable for Common Stock at an effective price per share less than the conversion rate then in effect (other than certain customary exceptions). In respect of rights to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding-up of the Company, the Series A Preferred Shares rank (a) junior to the Company’s Series B Shares; and (b) senior to (i) the Company’s Common Stock and any other class or series of stock (including other series of Preferred Stock) of the Company (collectively, “Junior Stock”). From and after the date of the issuance of Series A Preferred Shares, dividends at the rate per annum of 8%, compounded annually, accrue daily on the stated value (“Accruing Dividends”). Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative; provided, however, such Accruing Dividends shall be payable only when, as, and if declared by the Board of Directors and the Company shall be under no obligation to pay such Accruing Dividends except as set forth herein. The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than dividends on (a) shares of Series B Preferred Shares; and (b) Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Articles of Incorporation) the holders of the Series A Preferred Shares then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series A Preferred Share in an amount at least equal to the sum of (a) the amount of the aggregate Accruing Dividends then accrued on such Series A Preferred Shares and not previously paid; and (b) (i) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per Series A Preferred Share as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock; and (B) the number of shares of Common Stock issuable upon conversion of a Series A Preferred Share, in each case calculated on the record date for determination of holders entitled to receive such dividend; or (ii) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per Series A Preferred Share determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series); and (B) multiplying such fraction by an amount equal to the stated value of the Series A Preferred Shares; provided, that if the Company declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of Series A Preferred Shares shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Series A Preferred Share dividend. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or any Deemed Liquidation Event, (as defined) (collectively, a “Liquidation Event”), the holders of Series A Preferred Shares shall be entitled to receive, after payment to all holders of Series B Preferred Shares of a liquidation preference equal to the aggregate amount of one hundred fifty percent (150%) of the Stated Valued of the Series B Preferred Shares and the amount of the accrued but unpaid dividends on the Series B Preferred Shares, but prior and in preference to any distribution of any of the assets of the Company to the holders of Junior Stock by reason of their ownership thereof, an aggregate amount per share equal to the Stated Value of the Series A Preferred Shares and the accrued but unpaid dividends thereon. After the payment to all holders of Series B Preferred Shares of a liquidation preference equal to the aggregate amount of one hundred fifty percent (150%) of the Stated Valued of the Series B Preferred Shares and the amount of the accrued but unpaid dividends on the Series B Preferred Shares and to all holders of the Series A Preferred Shares the full liquidation preference hereunder, the remaining assets of the Company available for distribution to its shareholders shall be distributed among the holders of the shares of Series B Preferred Shares and Junior Stock, pro rata, on an “as converted basis,” determined immediately prior to such Liquidation Event, and the Series A Preferred Shares shall not be entitled to participate in such distribution of the remaining assets of the Company. 

15

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Series B Preferred Stock

 

The Series B Preferred Shares have a stated value of $1.00 per share. Each Series B Preferred Share is convertible into Common Stock at the option of the holder thereof at a conversion rate of $0.20 per share of Common Stock. The conversion rate is subject to adjustment in the event of stock splits, stock dividends, other recapitalizations and similar events, as well as in the event of issuance by the Company of shares of Common Stock or securities exercisable for, convertible into or exchangeable for Common Stock at an effective price per share less than the conversion rate then in effect (other than certain customary exceptions). In respect of rights to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding-up of the Company, the Series B Preferred Shares rank senior to the (a) Series A Preferred Shares; (b) the Company’s Common Stock and any other class or series of Junior Stock. From and after the date of the issuance of Series B Preferred Shares, dividends at the rate per annum of 8%, compounded annually, accrue daily on the stated value (“Accruing Dividends”). Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative; provided, however, such Accruing Dividends shall be payable only when, as, and if declared by the Board of Directors and the Company shall be under no obligation to pay such Accruing Dividends except as set forth herein. The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than dividends on (a) shares of Series B Preferred Shares; and (b) Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Articles of Incorporation) the holders of the Series B Preferred Shares then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series B Preferred Share in an amount at least equal to the sum of (a) the amount of the aggregate Accruing Dividends then accrued on such Series B Preferred Shares and not previously paid; and (b) (i) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per Series B Preferred Share as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock; and (B) the number of shares of Common Stock issuable upon conversion of a Series B Preferred Share, in each case calculated on the record date for determination of holders entitled to receive such dividend; or (ii) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per Series B Preferred Share determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series); and (B) multiplying such fraction by an amount equal to the stated value of the Series B Preferred Shares; provided, that if the Company declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of Series B Preferred Shares shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Series B Preferred Share dividend. In the event of a Liquidation Event, the holders of Series B Preferred Shares shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of Junior Stock (including Series A Preferred Shares), a liquidation preference equal to the aggregate amount of one hundred fifty percent (150%) of the Stated Valued of the Series B Preferred Shares and the amount of the accrued but unpaid dividends on the Series B Preferred Shares. After the payment to all holders of Series B Preferred Shares of such liquidation preference and to all holders of the Series A Preferred Shares their full liquidation preference, the remaining assets of the Company available for distribution to its shareholders shall be distributed among the holders of the shares of Series B Preferred Shares and Junior Stock other than Series A Preferred Shares, pro rata, on an “as converted basis,” as applicable. The Series A Preferred Shares shall vote together with holders of Series B Preferred Shares and holders of Common Stock as a single class on all matters brought to a vote of shareholders. Each Series B Preferred Share shall entitle the holder thereof to such number of votes as equal the number of shares of Common Stock then issuable upon conversion of the Series B Share multiplied by 50.

 

Preferred Stock Dividends

 

The following table presents undeclared preferred stock dividends for the nine month periods ended September 30, 2021 and September 30, 2020, respectively, and the per share effect of the preferred stock dividends if their effect was not anti-dilutive.

 

    Undeclared dividends
For the nine months ended
September 30,
    Undeclared dividends
per share
For the nine months ended
September 30,
 
Series of preferred stock   2021     2020     2021     2020  
Series A preferred stock dividends   $ 64,104     $
-
    $ 0.02     $
   -
 
Series B preferred stock dividends     30,904      
-
    $ 0.03     $
-
 
Total undeclared preferred stock dividends   $ 95,008     $
-
                 

 

The following table presents the cumulative undeclared dividends by class of preferred stock as of September 30, 2021 and September 30, 2020, respectively, and the per share amount by class of preferred stock. These cumulative undeclared dividends are recorded in Dividends payable on our balance sheet as of September 30, 2021 and September 30, 2020.

 

    Cumulative undeclared dividends as of
September 30,
    Cumulative undeclared dividends
per share as of
September 30,
 
Series of preferred stock   2021     2020     2021     2020  
Series A preferred stock   $ 64,104     $
-
    $ 0.02     $
       -
 
Series B preferred stock     30,904      
-
    $ 0.03     $
-
 
Cumulative undeclared preferred stock dividends   $ 95,008     $
-
                 

 

16

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE 9: CONCENTRATIONS

 

The Company had one customer for the nine months ended September 30, 2021 that accounted for 17% of sales. For the nine months ended September 30, 2020, one customer accounted for 19% of sales.

 

The Company had three customers at September 30, 2021 accounting for 46%, 21% and 15% of accounts receivable. At December 31, 2020, the Company had two customers accounting for 43% and 17% of accounts receivable.

 

NOTE 10: RELATED PARTY

 

A law firm owned by the brother of Alexander M. Salgado, our former Chief Executive Officer, renders legal services to the Company. The firm incurred expenses in aggregate of $20,020 and $141,300 for such services during the nine month periods ended September 30, 2021 and September 30, 2020, respectively.

 

On April 19, 2021, the Company issued a secured convertible promissory note in the principal amount of $25,000 to Mr. Vickers. The note carried an interest rate of eight percent (8%) per annum and had a maturity date of May 19, 2021. On May 19, 2021, the Company and Mr. Vickers extended the maturity date of the note to October 1, 2021. On September 1, 2021, Mr. Vickers converted the outstanding $25,000 in principal and $25,000 in additional consideration in exchange for 50,000 Series A Preferred Shares.

 

On July 22, 2021, the Company issued secured convertible promissory notes in the aggregate principal amount of $1,075,000 in exchange for an aggregate amount of $1,075,000, which secured convertible promissory notes were issued to the Wit Trust, in the amount of $1,000,000, Mr. Johnson in the amount of $50,000, and Mr. Pino in the amount of $25,000. The secured convertible promissory notes accrued interest at eight percent (8%) per annum and had a maturity date of (i) April 1, 2022, or October 1, 2021. On August 18, 2021, Mr. Pino converted the outstanding $25,000 in principal in exchange for 25,000 Series A Preferred Shares. On September 7, 2021, Mr. Johnson converted the outstanding $50,000 in principal in exchange for 50,000 Series A Preferred Shares. On September 30, 2021 the Wit Trust converted the outstanding $1,000,000 in principal in exchange for 1,000,000 Series A Preferred Shares.

 

On August 30, 2021, the Company issued a secured convertible promissory note in the aggregate principal amount of $500,000 to the Wit Trust. The note carried an interest rate of eight percent (8%) per annum and had a maturity date of April 1, 2022. On September 30, 2021, the Wit Trust converted the outstanding $500,000 in principal in exchange for 500,000 Series A Preferred Shares.

 

On September 30, 2021, the Company completed a private offering which commenced on August 5, 2021 of Series A Preferred Shares to certain investors, pursuant to which the Company sold an aggregate of 2,000,000 Series A Preferred Shares at a purchase price of $1.00 per share (“Private Placement”) in exchange for (i) the payment of $1,860,000 (including $1,644,068.49 principal plus accrued but unpaid interest in bridge financing provided by certain investors during July and August 2021 upon the conversion of the investors’ secured convertible promissory notes, and conversion of an account payable); and (ii) the surrender of 280,000 Units. The investors in the Private Placement included: Mr. Johnson upon the conversion of $50,000 promissory note; Mr. Pino upon the conversion of $25,000 promissory note; Mr. Vickers upon conversion of $50,000 promissory note and accounts payable; Mr. van der Post, a member of the Board of Director of the Company, in the amount of $50,000, and; the Wit Trust, in the amount of $65,931.51 and upon conversion of $1,500,000 secured convertible promissory notes and $19,068.49 in accrued and unpaid interest. As a result of the Private Placement and the voting rights accorded the Series A Preferred Shares and Series B Preferred Shares, the Wit Trust now holds approximately 87% of the voting power of the Company.

 

For the nine month period ended September 30, 2021 we incurred $1,661 in interest expense payable to related parties and $1,644 in interest expense payable to related parties for the nine month period ended September 30, 2020.

 

17

 

 

NOTE 11: COMMITMENTS AND CONTINGENCIES

 

Legal Proceedings

 

On July 10, 2020, Carrick-Harvest, LLC d/b/a Veritas Fine Cannabis (“Carrick”) filed an action against the Company in the U.S. District Court for the District of Colorado, alleging trademark infringement and unfair competition under the Lanham Act, cybersquatting under federal law, and common law unfair competition under Colorado law. Carrick alleged the Company violated these provisions through use of the alleged trademark VERITAS by providing “informational services” through its website. The action seeks an order that Carrick is the rightful owner of and has superior trademark rights in the marks and preventing the Company from registering their alleged infringing marks with the USPTO. On June 24, 2021, the Company entered into a non-monetary settlement and coexistence agreement with Carrick in which both parties agree not to challenge or bring any action against the opposing parties respective trademark ownership, use or registration in either parties respective fields.

 

On January 22, 2021, EMC Outdoor, LLC (“EMC Outdoor”) filed an action against the Company in Broward County Circuit Court alleging breach of contract and claiming damages in the amount of $304,783 which had been fully accrued in accounts payable in prior periods. On June 16, 2021, the Company entered into a conditional settlement agreement with EMC Outdoor (“EMC Outdoor Termination Agreement”). Pursuant to the terms of the EMC Outdoor Termination Agreement, the Company made one payment of $200,000 on July 22, 2021 which was drawn from the accrued accounts payable balance, upon which both parties were released from all further obligations to each other.

 

Employment Agreements

 

We have employment agreements in place with the following members of our executive management team:

 

Stephen E. Johnson, Chief Executive Officer

 

Ramon A. Pino, Chief Financial Officer

 

The employment agreements provide, among other things, for participation in employee benefits available to employees and executives. Each of the agreements will renew for successive one-year terms unless the agreement is expressly terminated by either the employee or the Company prior to the end of the then current term as provided for in the employment agreement. Under the terms of the agreement, we may terminate the employee’s employment upon 30 or 60 days notice of a material breach and the employee may terminate the agreement under the same terms and conditions. The employment agreements contain non-disclosure provisions, as well as non-compete clauses. The agreements for Mr. Johnson and Mr. Pino contain severance provisions which entitles the employee to severance pay equal to one (1) year's salary and benefits in the event of (i) the employee's termination by the Company for any reason other than for cause, as described in the employment agreement, (ii) termination by the employee pursuant to a material breach of the agreement by the Company or for good reason in connection with a change of control, or (iii) non-renewal of the employment agreement by the Company.

 

NOTE 12: SUBSEQUENT EVENTS

 

On September 8, 2021, the Company entered into a thirty nine month lease with 1815 Building Company, for the lease of the Company’s new principal executive offices in Dania Beach, Florida. The lease has a commencement date of October 12, 2021 and will expire on January 31, 2025. The lease contains annual escalators. The Company analyzed the classification of the lease under ASC 842, and as it does not meet any of the criteria for a financing lease it will be classified as an operating lease.

 

On October 12, 2021, the Company issued a secured convertible credit line promissory note in the principal amount for up to $1,500,000 (the “Secured Convertible Promissory Note”), which Secured Convertible Promissory Note was issued to the Wit Trust. The Secured Convertible Promissory Note is secured by the Company’s assets and contain certain covenants and customary events of default, the occurrence of which could result in an acceleration of the Secured Convertible Promissory Note. The Secured Convertible Promissory Note is convertible as follows: aggregate outstanding loaned principal and accrued interest under the Secured Convertible Promissory Note may, at the option of the holder, be converted in its entirety into shares of our common stock at a conversion price of $0.05 per share. The Secured Convertible Promissory Note will accrue interest on the aggregate amount loaned at a rate of 10% per annum. All unpaid principal, together with any then unpaid and accrued interest and other amounts payable under the Secured Convertible Promissory Note, is due and payable if not converted pursuant to the terms and conditions of the Secured Convertible Promissory Note on the earlier of (i) October 1, 2024, or (ii) following an event of default.

 

18

 

 

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

 

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 has been adjusted to give effect to a one-for-four reverse stock split implemented by the Company on September 19, 2019.

 

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.

 

Business Overview

 

Veritas FarmsTM is a vertically-integrated agribusiness focused on growing, producing, marketing, and distributing superior quality, whole plant, full spectrum hemp oils and extracts containing naturally occurring phytocannabinoids (collectively, “CBD”). 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 full spectrum of cannabinoids extracted from the flowers and leaves of hemp plants. Veritas Farms employs the use of the cold ethanol extraction method to extract the whole plant hemp oil from its hemp crop. Whole-plant hemp oil is known to provide the essential phytocannabinoid “entourage effect” resulting from the synergistic absorption of the entire full 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, pet suppliers, physicians and other healthcare practitioners.

 

19

 

 

Veritas Farms products (50+ SKUs) include capsules, gummies, tinctures, lotions, salves, creams, balm sticks, lip balms and pet chews. All product applications come in various flavors and strength formulations, in addition to bulk volume sales. 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, www.theVeritasFarms.com, as well as through numerous other online retailers and “brick and mortar” retail outlets.

 

The branding of the Company’s line of hemp oil and extract product has enabled market penetration during 2020 and 2021 into large retail chains vastly increasing brand exposure and awareness. The initial rollouts have been successful in creating distribution opportunities into thousands of new retail outlets across the country (over 8,000 retail outlets as of the date of this report). The shift from smaller order fulfilment to larger “Big Box” orders creates an economy of scale that offers the opportunity for the Company to achieve profitability.

 

As of the date of this report the Company has secured distribution into the following chain stores:

 

Southern Wine Rite Aid Kinney Drugs Niemann Supermarkets
Bashas Giant Eagle Tops Harris Teeter
Bi Mart Smiths Fred Meyer QFC
King Soopers Winn Dixie Bi-Lo Mariano’s
Fruth Weis Bartell Drugs  
Kroger Save Mart Publix  

 

Recent Developments

 

Securities Purchase Agreement

 

On May 11, 2021 the Company entered into a Securities Purchase Agreement (“SPA”) with the Cornelis F. Wit Revocable Living Trust, of which Cornelis F. Wit is trustee (“Wit Trust”), an existing shareholder, pursuant to which the Company contemporaneously sold to the Wit Trust an aggregate of (a) 2,000,000 shares of its Series A Convertible Preferred Stock (“Series A Preferred Shares”); and (b) 1,000,000 shares of its Series B Convertible Preferred Stock (“Series B Preferred Shares,” and together with the Series A Preferred Shares, collectively, “Preferred Shares”) in exchange for (i) the payment of $2,000,000 (including $302,500 principal plus accrued but unpaid interest in bridge financing provided by the Wit Trust to the Company during April 2021); and (ii) the surrender of 2,000,000 units (“Units”), each Unit consisting of two shares of common stock and one warrant to purchase an additional share of common stock in accordance with the terms of the subscription agreements for the purchase of the Units entered into by the Wit Trust and the Company in September and October 2020. As a result of the transaction and the voting rights accorded the Preferred Shares, the Wit Trust then held approximately 87% of the voting power of the Company and accordingly, a “Change in Control” occurred.

 

Pursuant to the SPA, the Wit Trust and the Company agreed to fix the number of members of the board of directors of the Company at five (5), three of whom shall be designated by the Wit Trust and two of whom shall be “independent” and acceptable to the Wit Trust. In addition, the Wit Trust has been accorded certain registration rights under the Securities Act of 1933, as amended, with respect to the shares of Common Stock issuable upon conversion of the Preferred Shares and ongoing financial and other information rights with respect to the Company.

 

On September 30, 2021, the Company completed a private offering which commenced on August 5, 2021 of Series A Preferred Shares to certain investors, pursuant to which the Company sold an aggregate of 2,000,000 Series A Preferred Shares at a purchase price of $1.00 per share (“Private Placement”) in exchange for (i) the payment of $1,860,000 (including $1,644,068.49 principal plus accrued but unpaid interest in bridge financing provided by certain investors during July and August 2021 upon the conversion of the investors’ secured convertible promissory notes, and conversion of an account payable); and (ii) the surrender of 280,000 units (the “Units”), each Unit consisting of two shares of common stock and one warrant to purchase an additional share of common stock in accordance with the terms of the subscription agreements for the purchase of the Units entered into by certain investors and the Company in February through April 2021. The investors in the Private Placement included: Mr. Johnson upon the conversion of $50,000 promissory note; Mr. Pino upon the conversion of $25,000 promissory note; Mr. Vickers upon conversion of $50,000 promissory note and accounts payable; Kuno van der Post, a member of the Board of Director of the Company, in the amount of $50,000, and; the Wit Trust, in the amount of $65,931.51 and upon conversion of $1,500,000 secured convertible promissory notes and $19,068.49 in accrued and unpaid interest.

 

Management Changes

 

In connection with the consummation of the issuance and sale of the Preferred Shares to the Wit Trust pursuant to the SPA in May 2021, Alexander M. Salgado stepped down as the Company’s Chief Executive Officer and director, and Dr. Bao T. Doan and Marc J. Horowitz resigned as directors of the Company. In addition, Michael Pelletier stepped down as an employee of the Company and entered into a three-month consulting agreement with the Company to continue as the Company’s Chief Financial Officer until his successor is appointed.

 

Contemporaneously therewith, Stephen E. Johnson (“Mr. Johnson”), Kuno D. van der Post (“Mr. van der Post”) and Craig J. Fabel were elected and appointed as the Wit Trust’s designees on the board of directors. In addition, Mr. Johnson was appointed as Chief Executive Officer and President of the Company, and Ramon A. Pino (“Mr. Pino”), was appointed as Executive Vice President of Finance, Treasurer and Secretary of the Company.

 

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Corporate Information

 

The Company was incorporated in the state of Nevada on March 15, 2011 under the name Armeau Brands Inc. and changed its name to SanSal Wellness Holdings, Inc. on October 13, 2017. On January 31, 2019, the Company changed its name from SanSal Wellness Holdings, Inc. to Veritas Farms, Inc.

 

Our executive offices are located at 1815 Griffin Road, Suite 401, Dania Beach, FL 33004 and our telephone number is (833) 691-4367. Our corporate website is www.theveritasfarms.com. Information appearing on our website is not part of this Quarterly Report on Form 10-Q.

 

Results of Operations

 

The nine months ended September 30, 2021 compared to the nine months ended September 30, 2020

 

Revenues. Revenues for the nine months ended September 30, 2021 decreased to $2,004,071, as compared to revenues of $4,830,523 for the nine months ended September 30, 2020. The COVID-19 outbreak had an adverse effect on “brick and mortar” sales of our products and the timing of orders from a number of our retail customers. Sales include bulk oils for wholesale, vegan capsules, tinctures, lotions, salves and pet chews, all in various potency levels and flavors. In addition to the more established CBD channels, the Company expanded its product lines to include beauty products, pet chews, pet health and sports through strategic partnerships with contract manufacturers.

 

Cost of Goods Sold. All expenses incurred to grow, process, and package the finished goods are included in our cost of goods sold. Cost of goods sold for the nine months ended September 30, 2021 decreased to $1,287,505 from $2,252,016 for the nine months ended September 30, 2020. The decrease in cost of sales can be attributed to the decrease in sales during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

 

Gross Margin. We had gross profit of $716,566 for the nine months ended September 30, 2021, as compared to gross profit of $2,578,507 for the nine months ended September 30, 2020. The decrease in gross profit can be attributed to the decrease in sales during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to $4,360,129 for the nine months ended September 30, 2021, from $7,613,994 for the nine months ended September 30, 2020. This reduction reflects expense reductions, including a reduction in personnel and 20% pay cuts taken by management and other senior staff in response to the COVID-19 outbreak. General and administrative expenses consist primarily of administrative personnel costs, facilities expenses, professional fee expenses and marketing costs for our Veritas Farms brand products.

 

Other Income/(Expense). Interest expense for the nine months ended September 30, 2021 was $97,111, as compared to $97,723 for the nine months ended September 30, 2020. Interest expense decreased in the 2021 nine month period from the 2020 nine month period primarily due to the interest method amortization of a beneficial conversion feature. We recorded an extra-ordinary loss on lease termination of $244,840 for the nine months ended September 30, 2021 compared to $-0- for the nine months ended September 30, 2020. We also recorded an extra-ordinary gain on loan forgiveness of $932,462 for the nine months ended September 30, 2021 compared to $-0- for the nine months ended September 30, 2020 which was primarily driven by the forgiveness of a loan in the amount of $803,994 received under the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“2020 PPP Loan”) as part of the business incentives offered in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and all accrued interest.

 

Net Loss. As a result of all of the foregoing, net loss for the nine months ended September 30, 2021, increased to ($3,381,921) or ($0.08) per share based on 43,968,420 weighted average shares outstanding, from ($5,133,210) or ($0.12) per share for the nine months ended September 30, 2020, based on 41,606,299 weighted average shares outstanding.

 

The three months ended September 30, 2021 compared to the three months ended September 30, 2020

 

Revenues. Revenues for the three months ended September 30, 2021 decreased to $555,870, as compared to revenues of $1,466,824 for the three months ended September 30, 2020. The COVID-19 outbreak had an adverse effect on “brick and mortar” sales of our products and the timing of orders from a number of our retail customers. Sales include bulk oils for wholesale, vegan capsules, tinctures, lotions, salves and pet chews, all in various potency levels and flavors. In addition to the more established CBD channels, the Company expanded its product lines to include beauty products, pet chews, pet health and sports through strategic partnerships with contract manufacturers.

 

Cost of Goods Sold. All expenses incurred to grow, process, and package the finished goods are included in our cost of goods sold. Cost of goods sold for the three months ended September 30, 2021 decreased to $282,117 from $574,277 for the three months ended September 30, 2020. The decrease in cost of sales can be attributed to the decrease in sales during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. 

 

Gross Margin. We had gross profit of $273,753 for the three months ended September 30, 2021, as compared to gross profit of $892,547 for the three months ended September 30, 2020. The decrease in gross profit can be attributed to the decrease in sales during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to $1,558,524 for the three months ended September 30, 2021, from $2,429,989 for the three months ended September 30, 2020. This reduction reflects expense reductions, including a reduction in personnel and 20% pay cuts taken by management and other senior staff in response to the COVID-19 outbreak. General and administrative expenses consist primarily of administrative personnel costs, facilities expenses, professional fee expenses and marketing costs for our Veritas Farms brand products.

 

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Other Income/(Expense). Interest expense for the three months ended September 30, 2021 was $34,801, as compared to $42,464 for the three months ended September 30, 2020. Interest expense decreased in the 2021 quarter from the 2020 quarter due to the interest method amortization of a beneficial conversion feature ending in Q1 2021. We also recorded an extra-ordinary gain on loan/debt forgiveness of $109,625 for the three months ended September 30, 2021 compared to $-0- for the three months ended September 30, 2020 which was primarily driven by the forgiveness of accounts payable.

 

Net Loss. As a result of all the foregoing, net loss for the three months ended September 30, 2021, increased to ($1,499,097) or ($0.04) per share based on 41,974,977 weighted average shares outstanding, from ($1,579,906) or ($0.04) per share for the three months ended September 30, 2020, based on 41,646,716 weighted average shares outstanding.

 

Liquidity and Capital Resources

 

As of September 30, 2021, total assets were $11,906,309, as compared to $12,408,021 at December 31, 2020. The decrease in assets is primarily due to a decrease in right of use assets, net of accumulated amortization related to the Majestic lease termination.

 

Total current liabilities as of September 30, 2021 were $2,243,894, as compared to $3,751,963 at December 31, 2020. The decrease was mainly due to the forgiveness of the 2020 PPP Loan of $803,994.

 

Net cash used in operating activities was $4,309,998 for the nine months ended September 30, 2021, as compared to $2,470,841 for the nine months ended September 30, 2020. The increase is largely attributable to the reduction in stock-based compensation and increase in prepaid expenses.

 

Net cash used in investing activities was $53,898 for the nine months ended September 30, 2021 as compared to net cash used of $77,423 for the nine months ended September 30, 2020, reflecting reduced capital expenditures in 2021.

 

Net cash provided by financing activities was $4,498,499 for the nine months ended September 30, 2021 as compared to $1,535,472 for the nine months ended September 30, 2020. Net cash provided by financing activities for the nine months ended September 30, 2021 included net proceeds of $803,994 from a loan received under the SBA Paycheck Protection Program as part of the business incentives offered in the CARES Act received in February 2021, and net proceeds of $86,895 and $3,665,440 from private offerings of our equity securities. Net cash provided by financing activities for the nine months ended September 30, 2020 included net proceeds from of a $200,000 convertible loan received in March 2020, the proceeds of $803,994 from the 2020 PPP Loan received in May 2020, and proceeds from a loan in the amount of $150,000 from the SBA as an Economic Injury Disaster Loan received in September 2020.

 

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 and loans from shareholders.

 

In March 2020, the Company received a $200,000 loan from a single investor, evidenced by a one-year convertible promissory note (“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. 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. On May 14, 2021, the Company paid $20,000 in accrued interest to the holder, and the Company and the investor extended the maturity date of the Convertible Note to September 6, 2021. In September 2021, the Company and the investor further extended the maturity date of the Convertible Note to October 1, 2022. 

 

In September 2020, the Company commenced a $4.0 million private offering of up to 8,000,000 Units (“Units”) at a price of $0.50 per Unit, which private offering ended April 30, 2021. Each Unit consists of (a) two shares of common stock; and (b) one warrant, entitling the holder to purchase one share of our common stock at an exercise price of $0.50 at any time through August 31, 2025. As of December 31, 2020, the Company sold 2,080,000 Units in the private offering for gross proceeds of $1,040,000 with offering costs of $154,965 resulting in net proceeds of $885,035. From January 1, 2021 through April 30, 2021, the Company sold an additional 200,000 Units for gross proceeds of $100,000 with offering costs of $13,105 resulting in net proceeds of $86,895. The terms of this offering provided that, if during the one-year period from the final closing of the offering, the Company undertakes a subsequent private offering of its equity, equity equivalent or debt securities (a “Subsequent Offering”), the investor will be entitled to exchange their Units purchased in the offering for an equivalent dollar amount of securities sold in the Subsequent Offering (based on the respective offering prices). The Company also entered into a registration rights agreement with these investors which states, among other things, that the Company shall use commercially reasonable efforts to prepare and file with the United States Securities and Exchange Commission a registration statement covering, among other things, the resale of all or such portion of the registrable securities that are not then registered on an effective registration statement. As of September 30, 2021, all Unit holders converted their Units to Series A Preferred Shares.

 

On May 11, 2021, the Company consummated the issuance and sale of the Preferred Shares to the Wit Trust described under “Recent Developments” above, which generated gross proceeds of $2,000,000 (including certain bridge financing previously furnished by the Wit Trust to the Company in April 2021).

 

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On September 30, 2021, the Company completed a private offering which commenced on August 5, 2021 of Series A Preferred Shares to certain investors, pursuant to which the Company sold an aggregate of 2,000,000 Series A Preferred Shares at a purchase price of $1.00 per share (“Private Placement”) in exchange for (i) the payment of $1,860,000 (including $1,644,068.49 principal plus accrued but unpaid interest in bridge financing provided by certain investors during July and August 2021 upon the conversion of the investors’ secured convertible promissory notes, and conversion of an account payable); and (ii) the surrender of 280,000 Units. The investors in the Private Placement included: Mr. Johnson upon the conversion of $50,000 promissory note; Mr. Pino upon the conversion of $25,000 promissory note; Mr. Vickers upon conversion of $50,000 promissory note and accounts payable; Mr. van der Post, a member of the Board of Director of the Company, in the amount of $50,000, and; the Wit Trust, in the amount of $65,931.51 and upon conversion of $1,500,000 secured convertible promissory notes and $19,068.49 in accrued and unpaid interest. As a result of the Private Placement and the voting rights accorded the Series A Preferred Shares and Series B Preferred Shares, the Wit Trust now holds approximately 87% of the voting power of the Company.

 

Subsequent to September 30, 2021, on October 12, 2021, the Company issued a secured convertible credit line promissory note in the principal amount for up to $1,500,000 (the “Secured Convertible Promissory Note”), which Secured Convertible Promissory Note was issued to the Wit Trust. The Secured Convertible Promissory Note is secured by the Company’s assets and contain certain covenants and customary events of default, the occurrence of which could result in an acceleration of the Secured Convertible Promissory Note. The Secured Convertible Promissory Note is convertible as follows: aggregate loaned principal and accrued interest under the Secured Convertible Promissory Note may, at the option of the holder, be converted in its entirety into shares of our common stock at a conversion price of $0.05 per share. The Secured Convertible Promissory Note will accrue interest on the aggregate amount loaned at a rate of 10% per annum. All unpaid principal, together with any then unpaid and accrued interest and other amounts payable under the Secured Convertible Promissory Note, is due and payable if not converted pursuant to the terms and conditions of the Secured Convertible Promissory Note on the earlier of (i) October 1, 2024, or (ii) following an event of default.

 

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 September 30, 2021, the Company had an accumulated deficit of ($30,049,068) and a net loss of ($3,381,921). 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 until we can achieve a level of operational profitability, 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 private offerings of its equity and/or debt securities. While we believe additional financing will be available to us as needed, there can be no assurance that such 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.

 

Effects of the 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. The rapidly changing global market and economic conditions as a result of the COVID-19 pandemic have negatively impacted, and are expected to continue to negatively impact, our operations and business. The broader implications of the COVID-19 pandemic and related global economic unpredictability on our business, financial condition, and results of operations remain uncertain. At this time, we cannot accurately predict the effect the COVID-19 pandemic will have on the Company.

 

Critical Accounting Policies

 

Revenue Recognition

 

Under ASC 606, Revenue from Contracts with Customers (“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 Accounting Standards Update (“ASU”) 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.

 

23

 

 

Property, Plant and Equipment

 

Purchases 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 recognized 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.

 

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 3. Quantitative and Qualitative Disclosures About Market Risks.

 

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

 

Item 4. Controls and Procedures.

 

Management’s Report on Disclosure Controls and Procedures

 

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, our 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 our unaudited condensed 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 our unaudited condensed consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not provide absolute assurance that a misstatement of our unaudited condensed consolidated financial statements would be prevented or detected.

 

24

 

 

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 September 30, 2021 in accordance with the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework (2013). Based on this assessment, our Chief Executive Officer (our Principal Executive Officer) and our Chief Financial Officer (our Principal Financial and Accounting Officer) identified the following two material weaknesses that have caused management to conclude that, as of September 30, 2021, 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. 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. Documentation of our controls and the continued changes to assure segregation of duties are being performed. 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 our unaudited condensed 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 our unaudited condensed 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. We intend to take further steps to rectify these material weaknesses, subject to the availability of working capital to fund the costs thereof.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

As a result of the COVID-19 pandemic, our workforce continued to operate primarily in a work from home environment for the quarter ended September 30, 2021 and we are monitoring our control environment with increased vigilance to ensure changes as a result of physical distancing are addressed and all increased risks are mitigated.

 

25

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

On January 22, 2021, EMC Outdoor, LLC (“EMC Outdoor”) filed an action against the Company in Broward County Circuit Court alleging breach of contract and claiming damages in the amount of $304,783. On June 16, 2021, the Company entered into a conditional settlement agreement with EMC Outdoor (“EMC Outdoor Termination Agreement”). Pursuant to the terms of the EMC Outdoor Termination Agreement, the Company made one payment of $200,000 on July 22, 2021, upon which both parties were released from all further obligations to each other.

 

In addition to the legal proceeding described above and legal proceedings previously reported in our Annual Report on Form 10-K for the year ended December 31, 2020, from time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. 

 

Item 1A. Risk Factors.

 

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

 

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

 

On September 30, 2021, the Company completed a private offering which commenced on August 5, 2021 pursuant to which the Company sold an aggregate of 2,000,000 shares of its Series A Convertible Preferred Stock.

 

The securities issued and sold in the August-September 2021 private offering were issued pursuant to the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended and/or Rule 506 of Regulation D thereunder.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

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Item 6. Exhibits.

 

Exhibit
Number
  Description of Exhibit

10.11

 

Lease Agreement with 1815 Building Company, LLC.

     
31.1*   Section 302 Certification of CEO pursuant to Rules 13a - 14(a) or Rule 15d - 14(a) under the Exchange Act
     
31.2*   Section 302 Certification of CFO pursuant to Rule 13a-14(a) or Rules 15d - 14(a) under the Exchange Act
     
32.1**   Section 906 Certification of CEO pursuant to Rules 13a - 14(b) or 15d - 14(b) under the Exchange Act and 18 USC 1350
     
32.2**   Section 906 Certification of CFO pursuant to Rules 13a - 14(b) or 15d - 14(b) under the Exchange Act and 18 USC 1350
     
101.INS*   Inline XBRL Instance Document
     
101.SCH*   Inline XBRL Taxonomy Extension Schema Document
     
101.CAL*   Inline XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF*   Inline XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB*   Inline XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE*   Inline XBRL Taxonomy Extension Presentation Linkbase Document
     
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

* Filed herewith

 

** Furnished herewith

 

27

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  VERITAS FARMS, INC.
   
Dated: November 12, 2021 By:  /s/ Stephen E. Johnson
    Stephen E. Johnson,
Chief Executive Officer
    (Principal Executive Officer)
     
Dated: November 12, 2021 By: /s/ Ramon A. Pino
    Ramon A. Pino,
Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

 

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