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.





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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.





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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.

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