VERITAS FARMS, INC. Unless the context otherwise requires, references in this report to "the
Company," "
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 OverviewVeritas Farms, Inc. is an 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 inPueblo, Colorado , capable of producing over 200,000 proprietary full spectrum hemp plants which can potentially yield a minimum annual harvest of 250,000 to 300,000 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 square feet of climate-controlled greenhouses to produce a consistent supply of year-round indoor-cultivated hemp. In addition, there is a 10,000 square foot onsite facility used for processing raw hemp, oil extraction, formulation laboratories and quality/purity testing.Veritas Farms is registered with theColorado Department of Agriculture to grow industrial hemp and with theColorado Department of Public Health and Environment to process hemp and manufacture hemp products in accordance withColorado's hemp program. The Company primarily conducts its business operations through its wholly-owned subsidiary, 271Lake Davis Holdings, LLC , aDelaware limited liability company.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 CBD 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 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. 22Veritas 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 itsVeritas Farms website, www.TheVeritasFarms.com, as well as through other online retailers and "brick and mortar" retail outlets. The branding of the Company's line of hemp oil and extract products has enabled market penetration during 2021 and 2022 into large retail chains 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.
Recent Developments
23
Management Changes
On
OnJuly 25, 2022 , the Board of Directors of the Company appointedAlessandro M. Annoscia to serve as the Company's Chief Executive Officer and President to assume the duties of principal executive officer and as a Board member effectiveJuly 25, 2022 . The Company's former Chief Executive Officer,Stephen E. Johnson , stepped down as Chief Executive Officer, President, and a director of the Company, and from any and all other positions he holds with the Company and its subsidiary as ofJuly 25, 2022 . OnNovember 7, 2022 , the Board of Directors of the Company appointed our Chairman of the Board,Thomas E. Vickers to serve as the Company's Interim Chief Executive Officer to assume the duties of principal executive officer effectiveNovember 7, 2022 . The Company's former Chief Executive Officer,Alessandro M. Annoscia , stepped down as Chief Executive Officer, President, and a director of the Company, and from any and all other positions he holds with the Company and its subsidiary as ofNovember 7, 2022 . Corporate Information
The Company was incorporated in the state ofNevada onMarch 15, 2011 under the nameArmeau Brands Inc. and changed its name toSanSal Wellness Holdings, Inc. onOctober 13, 2017 . OnJanuary 31, 2019 , the Company changed its name fromSanSal Wellness Holdings, Inc. toVeritas Farms, Inc. Our executive offices are located at1815 Griffin Road , Suite 401,Dania Beach , FL 33004 and our telephone number is (833) 691-4367. The Company's year-end isDecember 31 . 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
Revenues. Revenues for the nine months endedSeptember 30, 2022 decreased to$948,046 , as compared to revenues of$2,007,616 for the nine months endedSeptember 30, 2021 . The decrease reflects a significant contraction of retail sales in 2022 from 2021. Sales include bulk oils for wholesale, capsules, gummies, tinctures, lotions, salves, creams, balm sticks, lip balms and pet chews, all in various potency levels and flavors. 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 endedSeptember 30, 2022 decreased to$1,007,616 from$1,287,505 for the nine months endedSeptember 30, 2021 . The decrease in cost of sales can be attributed to the decrease in sales, which was also offset by the disposal of expired and unsaleable finished goods during the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . 24 Gross margin. We had gross expense of$59,570 for the nine months endedSeptember 30, 2022 , as compared to gross margin of$716,566 for the nine months endedSeptember 30, 2021 . The decrease in gross margin can be attributed to the decrease in sales in addition to the disposal of expired and unsaleable finished goods during the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . Selling, general and administrative expenses. Selling, general and administrative expenses decreased to$3,282,968 for the nine months endedSeptember 30, 2022 , from$4,360,129 for the nine months endedSeptember 30, 2021 . The decrease to selling, general and administrative expenses is primarily due to reductions in total salary and related expenses. Selling, 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 endedSeptember 30, 2022 was$332,084 , as compared to$97,111 for the nine months endedSeptember 30, 2021 . Interest expense increased in the nine months endingSeptember 30, 2022 compared to the nine months endingSeptember 30, 2021 due to the interest method amortization of a beneficial conversion feature, in addition to an increase in interest bearing notes payable. We also recorded a loss on lease termination of$0 for the nine months endedSeptember 30, 2022 compared to$244,840 for the nine months endedSeptember 30, 2021 .
Net loss. As a result of all the foregoing, net loss attributable to common
shareholders for the nine months ended
The three months ended
Revenues. Revenues for the three months endedSeptember 30, 2022 decreased to$180,408 , as compared to revenues of$555,870 for the three months endedSeptember 30, 2021 . The decrease reflects a significant contraction of retail sales in 2022 from 2021. Sales include bulk oils for wholesale, capsules, gummies, tinctures, lotions, salves, creams, balm sticks, lip balms and pet chews, all in various potency levels and flavors. 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 endedSeptember 30, 2022 increased to$363,975 from$282,117 for the three months endedSeptember 30, 2021 . The increase in cost of sales can be attributed to the disposal of expired and unsaleable finished goods during the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . Gross margin. We had gross expense of$183,567 for the three months endedSeptember 30, 2022 , as compared to gross margin of$273,753 for the three months endedSeptember 30, 2021 . The decrease in gross margin can be attributed to the decrease in sales in addition to the disposal of expired and unsaleable finished goods during the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . Selling, general and administrative expenses. Selling, general and administrative expenses decreased to$640,241 for the three months endedSeptember 30, 2022 , from$1,558,524 for the three months endedSeptember 30, 2021 . The decrease to selling, general and administrative expenses is primarily due to reductions in total salary and related expenses. Selling, 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 three months endedSeptember 30, 2022 was$134,569 , as compared to$34,801 for the three months endedSeptember 30, 2021 . Interest expense increased in the three months endingSeptember 30, 2022 compared to the three months endingSeptember 30, 2021 due to the interest method amortization of a beneficial conversion feature, in addition to an increase in interest bearing notes payable.
Net loss. As a result of all the foregoing, net loss attributable to common
shareholders for the three months ended
25
Liquidity and Capital Resources
Liquidity is the ability of a company to generate adequate amounts of cash to meet its needs for cash. We have historically experienced negative cash flows and have relied on the proceeds from the sale of debt and equity securities to fund our operations. In addition, we have utilized stock-based compensation as a means of paying for consulting and salary related expenses. AtSeptember 30, 2022 , we had working capital of approximately$1,663,145 .
Cash decreased to
As ofSeptember 30, 2022 , total assets were$8,348,528 as compared to$8,597,840 atDecember 31, 2021 . The decrease in assets is primarily due to a decrease in cash and property and equipment, net of accumulated depreciation. Total current liabilities as ofSeptember 30, 2022 were$2,862,606 , as compared to$2,209,096 atDecember 31, 2021 . The increase was mainly due to increases in dividends payable and deferred revenue. Net cash used in operating activities was$3,297,146 for the nine months endedSeptember 30, 2022 , as compared to$4,286,248 for the nine months endedSeptember 30, 2021 . The decrease is largely attributable to the increase in net loss attributable to common shareholders, and by changes in inventories, accounts payable, employee retention credit receivable and deferred revenue. Net cash provided by investing activities was$23,621 for the nine months endedSeptember 30, 2022 as compared to net cash used of$53,898 for the nine months endedSeptember 30, 2021 , reflecting a decrease in capital expenditures in 2022. Net cash provided by financing activities was$2,916,511 for the nine months endedSeptember 30, 2022 as compared to$4,474,749 for the nine months endedSeptember 30, 2021 . Net cash provided by financing activities for the nine months endedSeptember 30, 2022 included net proceeds of$3,000,000 from convertible note payables received from theWit Trust . Net cash provided by financing activities for the nine months endedSeptember 30, 2021 included net proceeds of$803,994 from a loan received under theU.S. Small Business Administration Paycheck Protection Program as part of the business incentives offered in the Coronavirus Aid, Relief, and Economic Security Act received inFebruary 2021 , net proceeds of$86,895 from private offerings of our equity securities and$3,665,440 from initial closings under private placements. Contractual Obligations The following table sets forth our contractual obligations as ofSeptember 30, 2022 : Payments due by period Less than Contractual obligation Total 1 year 1-2 Years 2-3 Years 3+ Years Promissory notes(1)$ 164,939 $ 17,567 $ 3,264 $ 3,389 $ 140,719 Convertible notes(1) 3,950,000 200,000 (2) - 3,750,000 (3) - Operating lease obligations(4) 295,076 149,900 113,309 31,867 - Total$ 4,410,015 $ 367,467 $ 116,573 $ 3,785,256 $ 140,719
(1) Amounts do not include interest to be paid.
(2) Includes
2022.
(3) Includes
2024.
(4) Includes office lease obligations for our executive office in
warehouse facilities in Colorado .
Sources of Liquidity and Capital Resources; Debt Obligations
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 debt and equity securities and notes payable. InMarch 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. OnMay 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 toSeptember 6, 2021 . InSeptember 2021 , the Company and the investor further extended the maturity date of the Convertible Note toOctober 1, 2022 . 26
InSeptember 2020 , the Company commenced a$4.0 million private offering of up to 8,000,000 Units at a price of$0.50 per Unit, which private offering endedApril 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 throughAugust 31, 2025 . As ofDecember 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 . FromJanuary 1, 2021 throughApril 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 theSecurities and Exchange Commission ("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 ofSeptember 30, 2021 , all Unit holders converted their Units into Series A Preferred Shares.
On
OnSeptember 30, 2021 , the Company completed the 2021 Private Placement which commenced onAugust 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 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 April, July andAugust 2021 upon the conversion of the investors' secured convertible promissory notes, and the conversion of an account payable); and (ii) the surrender of 280,000 Units. The investors in the 2021 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; Dr.van der Post in the amount of$50,000 , and; theWit 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 2021 Private Placement and the voting rights accorded the Series A Preferred Shares and Series B Preferred Shares, theWit Trust holds approximately eighty eight percent (88%) of the voting power of the Company. OnOctober 12, 2021 , the Company issued a secured convertible credit line promissory note in the principal amount for up to$1,500,000 ("Secured Convertible Promissory Note"), which Secured Convertible Promissory Note was issued to theWit Trust . OnMarch 9, 2022 , the Company amended the Secured Convertible Promissory Note originally datedOctober 12, 2021 to increase the total available principal balance to$3,000,000 . The Secured Convertible Promissory Note is secured by the Company's assets and contain certain non-financial 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 outstanding at a rate of ten percent (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 Company determined that there was a beneficial conversion feature of$475,000 relating to this note which is being amortized over the life of the note, using the using the effective interest method. The note is presented net of a discount of$320,952 on the Company's balance sheet with amortization to interest expense of$120,357 and$0 for the nine month periods endedSeptember 30, 2022 andSeptember 30, 2021 , respectively. AtSeptember 30, 2022 ,$3,000,000 was outstanding on the Secured Convertible Promissory Note. OnAugust 2, 2022 , the Company issued a secured convertible promissory note in the principal amount of$250,000 to theWit Trust in exchange for$250,000 . The note carries an interest rate of ten percent (10%) per annum and has a maturity date ofOctober 1, 2024 . OnAugust 17, 2022 , the Company issued a secured convertible promissory note in the principal amount of$250,000 to theWit Trust in exchange for$250,000 . The note carries an interest rate of ten percent (10%) per annum and has a maturity date ofOctober 1, 2024 . OnSeptember 6, 2022 , the Company issued a secured convertible promissory note in the principal amount of$250,000 to theWit Trust in exchange for$250,000 . The note carries an interest rate of ten percent (10%) per annum and has a maturity date ofOctober 1, 2024 . The accompanying financial statements have been prepared in conformity withU.S. GAAP, 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 endedSeptember 30, 2022 , the Company had an accumulated deficit of$37,098,203 and a net loss attributable to common shareholders of$3,167,489 . 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. 27 Capital Expenditures Any amounts expended for capital expenditures would be the result of an increase in the capacity needed to adequately service any increase in our business. To date we have paid for any needed additions to our capital equipment infrastructure from working capital funds and anticipate this being the case in the future. Presently, we have approximately$20,000 planned for capital expenditures to further develop the Company's infrastructure to allow for growth in our operations over the next 12 months. We expect to fund these capital expenditure needs through a combination of vendor provided financing, the use of operating or capital equipment leases and cash provided from operations.
Factors Affecting Future Performance
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