VERITAS FARMS, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)

Unless the context otherwise requires, references in this report to “the Company”, “Veritas Farms,” “Veritas”, “we”, “us” and “our” means Veritas Farms, Inc. and its subsidiary.

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 Farms, Inc. 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 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 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. The
Company primarily conducts its business operations through its wholly-owned
subsidiary, 271 Lake Davis Holdings, LLC, a Delaware 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.



                                       22





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 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



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 eighty eight percent
(88%) 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 ("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: Stephen
E. Johnson, the Company's former Chief Executive Officer ("Mr. Johnson") upon
the conversion of $50,000 promissory note; Ramon A. Pino, the Company Chief
Financial Officer ("Mr. Pino") upon the conversion of $25,000 promissory note;
Thomas E. Vickers, the Company's Chairman of the Board of Directors ("Mr.
Vickers") upon conversion of $50,000 promissory note and accounts payable; Kuno
van der Post, a member of the Board of Directors ("Dr. van der Post") 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.



                                       23





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 was appointed.



Contemporaneously therewith, Mr. Johnson, Dr. 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 Mr. Pino, was appointed as Executive Vice
President of Finance, Treasurer and Secretary of the Company, and who was
subsequently appointed as Chief Financial Officer on August 11, 2021.

On June 30, 2022, David Smith notified the Company of his resignation as Deputy Chief Executive Officer of the Company with effect June 30, 2022.

On July 25, 2022, the Board of Directors of the Company appointed Alessandro 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 effective
July 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 of July 25, 2022.



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. The Company's year-end is
December 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 six months have ended June 30, 2022 compared to the half-year ended June 30, 2021

Revenues. Revenues for the six months ended June 30, 2022 decreased to $767,638,
as compared to revenues of $1,448,201 for the six months ended June 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. 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 six months ended June 30, 2022 decreased to $643,641 from $1,005,388 for the
six months ended June 30, 2021. The decrease in cost of sales can be attributed
to the decrease in sales during the six months ended June 30, 2022 as compared
to the six months ended June 30, 2021.



                                       24

Gross margin. We had gross margin of $123,997 for the six months ended June 30,
2022, as compared to gross margin of $442,813 for the six months ended June 30,
2021. The decrease in gross margin can be attributed to the decrease in sales
during the six months ended June 30, 2022 as compared to the six months ended
June 30, 2021.



Selling, general and administrative expenses. Selling, general and
administrative expenses decreased to $2,642,727 for the six months ended June
30, 2022, from $2,801,605 for the six months ended June 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 six months ended June 30, 2022
was $197,515, as compared to $62,310 for the six months ended June 30, 2021.
Interest expense increased in the six months ending June 30, 2022 compared to
the six months ending June 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 six
months ended June 30, 2022 compared to $244,840 for the six months ended June
30, 2021.

Net loss. As a result of all the foregoing, net loss attributable to common
shareholders for the six months ended June 30, 2022, increased to $2,087,435 or
$0.05 per share based on 41,625,331 weighted average shares outstanding, from
$1,882,824 or $0.04 per share for the six months ended June 30, 2021, based on
44,981,662 weighted average shares outstanding.

The three months ended June 30, 2022 compared to the three months ended June 30, 2021

Revenues. Revenues for the three months ended June 30, 2022 decreased to
$285,552, as compared to revenues of $559,940 for the three months ended June
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. 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 June 30, 2022 decreased to $324,813 from $403,960 for the
three months ended June 30, 2021. The decrease in cost of sales can be
attributed to the decrease in sales during the three months ended June 30, 2022
as compared to the three months ended June 30, 2021.



Gross margin. We had gross (expense) of $39,261 for the three months ended June
30, 2022, as compared to gross margin of $155,980 for the three months ended
June 30, 2021. The decrease in gross margin can be attributed to the decrease in
sales during the three months ended June 30, 2022 as compared to the three
months ended June 30, 2021.



Selling, general and administrative expenses. Selling, general and
administrative expenses decreased to $1,286,634 for the three months ended June
30, 2022, from $1,634,659 for the three months ended June 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 ended June 30,
2022 was $107,438, as compared to $32,604 for the three months ended June 30,
2021. Interest expense increased in the three months ending June 30, 2022
compared to the three months ending June 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 June 30, 2022, decreased to $705,893 or
$0.02 per share based on 41,625,331 weighted average shares outstanding, from
$728,165 or $0.02 per share for the three months ended June 30, 2021, based on
44,031,131 weighted average shares outstanding.



                                       25

Cash 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 June 30, 2022, we
had working capital of approximately $1,534,679.

Cash decreased to $164,383 at June 30, 2022 of $481,763 at December 31, 2021. The decrease is mainly due to free cash flow used in operating activities.

As of June 30, 2022, total assets were $8,175,150 as compared to $8,597,840 at
December 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 of June 30, 2022 were $2,623,646, as compared to
$2,209,096 at December 31, 2021. The increase was mainly due to increases in
dividends payable and deferred revenue.



Net cash used in operating activities was $2,268,762 for the six months ended
June 30, 2022, as compared to $2,292,280 for the six months ended June 30, 2021.
The decrease is largely attributable to the increase in net loss attributable to
common shareholders, and by changes in inventories, accounts payable, accounts
receivable, deferred revenue and accrued expenses.



Net cash provided by investing activities was $23,621 for the six months ended
June 30, 2022 as compared to net cash used of $37,158 for the six months ended
June 30, 2021, reflecting a decrease in capital expenditures in 2022.



Net cash provided by financing activities was $1,927,761 for the six months
ended June 30, 2022 as compared to $2,689,810 for the six months ended June 30,
2021. Net cash provided by financing activities for the six months ended June
30, 2022 included net proceeds of $2,000,000 from a convertible note payable
received from the Wit Trust. Net cash provided by financing activities for the
six months ended June 30, 2021 included net proceeds of $803,994 from a loan
received under the U.S. Small Business Administration Paycheck Protection
Program as part of the business incentives offered in the Coronavirus Aid,
Relief, and Economic Security Act received in February 2021, net proceeds of
$86,895 from private offerings of our equity securities and $1,805,440 from
initial closings under private placements.



Contractual Obligations



The following table sets forth our contractual obligations as of June 30, 2022:



Contractual obligation                                                 Payments due by period
                                                    Less than
                                     Total            1 year         1-2 Years       2-3 Years          3+ Years
Promissory notes(1)              $      176,189     $   26,978       $    3,232     $     3,355         $ 142,624
Convertible notes(1)                  2,950,000        200,000 (2)            -       2,750,000 (3)             -
Operating lease obligations(4)          334,648        149,993          128,895          55,760                 -
Total                            $    3,460,837     $  376,971       $  132,127     $ 2,809,115         $ 142,624

(1) The amounts do not include interest to be paid.

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

2022.

(3) Includes $2,750,000 10% convertible bonds payable that mature in October

2024.

(4) Includes office rental obligations for our executive office in Florida and our

     warehouse facilities in Colorado.

Sources of liquidity and capital resources; Debt securities

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.



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.



                                       26

In September 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 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
Securities 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 of September 30, 2021, all Unit holders converted their Units into Series A
Preferred Shares.

On May 11, 2021the Company completed the issue and sale of the preferred shares in confidence of mind described under “Recent Developments” above, which generated gross proceeds of $2,000,000 (including some bridge funding previously provided by the confidence of mind to the Company in April 2021).

On September 30, 2021, the Company completed the 2021 Private Placement 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 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 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; 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 holds
approximately eighty eight percent (88%) of the voting power of the Company.



On October 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 the Wit Trust. On March 9, 2022, the Company amended the Secured
Convertible Promissory Note originally dated October 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 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 $361,071 on the Company's balance sheet with
amortization to interest expense of $80,238 and $0 for the six month periods
ended June 30, 2022 and June 30, 2021, respectively. At June 30, 2022,
$2,750,000 was outstanding on the Secured Convertible Promissory Note.



The accompanying financial statements have been prepared in conformity with U.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 ended June 30, 2022, the Company had an
accumulated deficit of $36,018,149 and a net loss attributable to common
shareholders of $2,087,435. 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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