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


The adverse public health developments and economic effects of the current
COVID-19 pandemic in the United States, have and could continue to adversely
affect the Company, and 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 of unemployment resulting from the
pandemic could potentially lead to an extended economic downturn, which would
likely decrease spending, adversely affect demand for our products and services
and harm our business, results of operations and financial condition. At this
time, we cannot accurately predict the effect the long-term effects the COVID-19
pandemic will have on the Company.



                                       26





Results of Operations

Year ended December 31, 2021 compared to year ended December 31, 2020





Revenues. We had net sales for the year ended December 31, 2021 of $3,081,792,
as compared to $6,225,848 for the year ended December 31, 2020. The decrease
reflects a significant contraction of retail sales in 2021 from 2020, primarily
as a result of the Covid-19 pandemic. 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. We co-package in
addition to marketing our own Veritas Farms brand product line.



Cost of Sales. All expenses incurred to grow, process, and package the finished
goods are included in our cost of sales. Cost of sales increased to $4,108,133
for the year ended December 31, 2021, from $3,268,249 for the year ended
December 31, 2020, primarily as a result of an inventory write down which
occurred during the year ended December 31, 2021. We had gross (expense) of
($1,026,341) for the year ended December 31, 2021, as compared to gross margin
of $2,957,599 for the year ended December 31, 2020.



Expenses. Selling, general and administrative expenses decreased to $6,300,733
for the year ended December 31, 2021, from $10,420,569 for the year ended
December 31, 2020, reflecting the significant reduction in marketing expenses,
as well as the reduction in the number of employees during the year ended
December 31, 2021 in addition to a significant reduction in our stock-based
compensation. Selling, general and administrative expenses primarily consist of
administrative personnel costs, facilities expenses, professional fee expenses
and marketing costs for our Veritas Farms brand products.



Interest expense was $86,645 during the year ended December 31, 2021 compared to
$129,569 for the year ended December 31, 2020. Interest expense incurred to
related parties was $65,650 during the year ended December 31, 2021 and $0 for
the year ended December 31, 2020. Included in interest expense for both periods
is the accretion of discounts recorded related to financial instrument
derivatives that were deemed a part of the financings that we entered into.



Net (Loss). As a result of the decrease in operating, marketing and public
company expenses incurred during the year ended December 31, 2021, net loss for
the year ended December 31, 2021, decreased to ($7,263,567) or ($0.17) per share
based on 43,377,832 weighted average shares outstanding, from ($7,592,539) or
($0.18) per share based on 42,586,651 weighted average shares outstanding for
the year ended December 31, 2020.

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. At December 31,
2021, we had working capital of approximately $1,832,595.

Cash increased to $481,763 at December 31, 2021 from $107,693 at December 31, 2020. The increase was primarily due to cash provided by financing activities.

As of December 31, 2021, total assets were $8,597,840, as compared to $12,408,021 at December 31, 2020. Assets primarily decreased due to decreases in accounts receivable, inventories and right of use assets.

Total liabilities as of December 31, 2021 were $3,772,555, as compared to $4,760,654 at December 31, 2020. The decrease was due in large part to decreases in accounts payable, accrued expenses, right of use lease liability.


Net cash used in operating activities increased to $4,755,792 for the year ended
December 31, 2021, from $2,969,075 for the year ended December 31, 2020. Results
of operations, offset by decreases in inventories, accounts payable stock-based
compensation comprised most of the change.



                                       27





Net cash used in investing activities was $80,289 for the year ended December
31, 2021 as compared to $88,038 for the year ended December 31, 2020, reflecting
a decrease in cash used for the purchase of property and equipment in 2021.



Net cash provided by financing activities was $5,210,151 for year ended December
31, 2021, primarily attributable to 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. This
compares to net cash provided by financing activities of $2,088,263 for the

year
ended December 31, 2020.



Contractual Obligations



The following table sets forth our contractual obligations as of December 31,
2021:



Contractual obligation                                          Payments due by period
                                                      Less than
                                         Total          1 year         1-2 Years      2-3 Years        3+ Years
Promissory notes(1)                   $   248,428     $   63,422       $   25,012     $   18,229       $ 141,765
Convertible notes(1)                      950,000        200,000 (2)            -        750,000 (3)           -

Paycheck Protection Program loan(1)       803,994              -                -              -         803,994 (4)
Operating lease obligations(5)            414,317        150,135          150,052        106,174           7,956
Total                                 $ 2,416,739     $  413,557       $  175,064     $  874,403       $ 953,715

(1) Amounts do not include interest to be paid.

(2) Includes $200,000 of 10% convertible notes payable that mature in October

2022.

(3) Includes $750,000 of 10% convertible notes payable that mature in October

2024.

(4) Includes $803,994 of 1% notes payable that mature in February 2026.

(5) Includes office lease obligations for our Corporate Office in Florida and our


     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
equity securities, PPP loans, capital contributions made by members prior to
completion of the September 2017 271 Lake Davis Acquisition by the Company

and
loans from stockholders.




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 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 December 31,
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 "Business - Our Background" 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).



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 ("2021 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 April,
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 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; 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 2021 Private Placement and the voting rights accorded the Series A Preferred
Shares and Series B Preferred Shares, the Wit Trust now holds approximately 88%
of the voting power of the Company.



                                       28





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 GAAP
in the United States, which contemplate continuation of the Company as a going
concern. However, the Company has sustained substantial losses from operations
since its inception. As of and for the period ended December 31, 2021, the
Company had an accumulated deficit of ($33,930,714) and a net loss of
($7,263,567). 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 stockholders. The
absence of additional financing, when needed, could substantially harm the
Company, its business, results of operations and financial condition.



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.

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.

Factors Affecting Future Performance

Item 1A of this report sets forth risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. If any of these risks, or any risks not presently known to us or that we currently believe are not significant, develops into an actual event, then our business, financial condition, and results of operations could be adversely affected.





                                       29





Critical Accounting Policies



Revenue Recognition




Under Accounting Standards Codification ("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.



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 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.



Use of Estimates



The preparation of financial statements in conformity with GAAP 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 include deferred revenue, costs incurred
related to deferred revenue, the useful lives of property and equipment and the
useful lives of intangible assets.



Income Taxes



The Company accounts for income taxes under ASC Topic 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.



                                       30






Effective September 27, 2017, the Company became taxed as a C-Corporation.
Income tax benefits are recognized for income tax positions taken or expected to
be taken in a tax return, only when it is determined that the income tax
position will more-likely than-not be sustained upon examination by taxing
authorities. The Company has analyzed tax positions taken for filings with the
Internal Revenue Service and all tax jurisdictions where it operates. The
Company believes that income tax filing positions will be sustained upon
examination and does not anticipate any adjustments that would result in a
material adverse effect on the Company's financial condition, results of
operations or cash flows. Accordingly, the Company has not recorded any
reserves, or related accruals for interest and penalties for uncertain income
tax positions at December 31, 2021 and 2020.

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