UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~June~~September 30, 2023

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

For the transition period from _____________ to _____________

Commission File Number: 333-210190

Veritas Farms, Inc.

(Exact name of registrant as specified in its charter)

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

401 E. Las Olas Boulevard, Suite 1400, Fort Lauderdale, FL 33301

(Address of principal executive offices, including zip code)

(833) 691-4367

(Registrant’s telephone number, including area code)

No Changes

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☐ No ☐☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☒ ~~No ☐~~

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

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

The number of shares outstanding of the registrant’s common stock, $0.001 par value, as of ~~August~~November 1013, 2023 was 41163,~~625~~879,~~331~~870 shares.

VERITAS FARMS, INC.

Quarterly Report on Form 10-Q for the ~~six~~nine month period ended ~~June~~September 30, 2023

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	1
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations for the six and three months ended June 30, 2023 and 2022	2
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022	2
	Condensed Consolidated Statements of Shareholders’ Equity for the six and three months ended June 30, 2023 and 2022	3
	Condensed Consolidated Statements of Shareholders’ Equtiy/(Deficit) for the three and nine months ended September 30, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II - OTHER INFORMATION		28
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	28
SIGNATURES		29

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, certain information in this Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, our results of operations, financial position and our business outlook, business trends and other information, may be forward-looking statements. You can identify these forward-looking statements by the words “believes,” “intends,” “expects,” “might,” “may,” “will,” “should,” “plans,” “projects,” “contemplates,” “intends,” “budgets,” “potential,” “predicts,” “estimates,” “anticipates,” “future,” “goal,” and variations of such words or similar expressions. These statements are based on our beliefs, as well as assumptions we have used based upon information currently available to us. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties, and assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved and actual future results may differ materially from what is expressed in or indicated by the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A, under the heading “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (“SEC”), and under “Part II, Item 1A., Risk Factors” in this Quarterly Report on Form 10-Q, if and as such risk factors may be updated from time to time in our periodic filings with the SEC. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and a reader, whether investing in our common stock or not, should not place undue reliance on these forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this Quarterly Report on Form 10-Q apply only as of the date of this Quarterly Report on Form 10-Q or as of the date they were made or as otherwise specified herein. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Investors and others should note that we use our website (https://theveritasfarms.com), as well as social media, press releases, and SEC filings, as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases and SEC filings. The contents of our ~~websites~~website and social media posts, however, are not incorporated by reference into this Quarterly Report on Form 10-Q. Further, our references to website URLs in this filing are intended to be inactive textual references only.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

VERITAS FARMS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	June 30, 2023			December 31, 2022
	September 30, 2023			December 31, 2022
ASSETS
CURRENT ASSETS
Cash	$	~~119~~58,~~915~~787		$	55,273
Inventories		12,~~683~~291,~~455~~108			2,242,528
Accounts receivable, net of allowance for doubtful accounts		2328,~~263~~047			34,445
Employee retention credit receivable		36,301			623,907
Assets held for sale		~~460~~456,~~173~~636			502,709
Prepaid expenses		8741,~~745~~983			73,428
Total current assets		2,~~410~~912,~~852~~862			3,532,290
Property and equipment, net of accumulated depreciation		2,701,~~405~~873			2,806,790
Goodwill		2,548,652			-
Intangible assets, net of accumulated amortization		55,000			55,000
Right of use assets, net of accumulated amortization		~~184,655~~-			264,182
Other assets		~~109~~100,~~956~~776			136,209
TOTAL ASSETS	$	58,~~461~~319,~~868~~163		$	6,794,471
LIABILITIES AND SHAREHOLDERS’ (DEFICIT)
LIABILITIES AND SHAREHOLDERS’ EQUITY/(DEFICIT)
CURRENT LIABILITIES
Accounts payable	$	1,~~228~~651,~~498~~823		$	1,247,759
Accrued expenses		~~453~~513,~~824~~752			250,160
Accrued interest		~~520~~649,~~871~~205			297,453
Dividends payable		~~794~~895,~~186~~008			595,830
Convertible notes payable		200,000			200,000
Contract liability		~~453~~460,~~277~~550			422,919
Operating lease liability		~~128,895~~-			150,052
Notes payable, current portion		-97,213			3,278
Total current liabilities		34,~~779~~467,551			3,167,451
LONG TERM LIABILITIES
Notes payable, long term, net of current portion		150,000			150,000
Related party convertible notes payable, long term, net of discount		23,~~843~~494,~~155~~150			3,969,167
Operating lease liability, net of current portion		~~55,760~~-			114,130
TOTAL LIABILITIES		68,~~828~~111,~~466~~701			7,400,748
COMMITMENTS AND CONTINGENCIES (See Note 12)
SHAREHOLDERS’ (DEFICIT)
SHAREHOLDERS’ EQUITY/(DEFICIT)
Preferred stock, 20,000,000 shares authorized, 15,000,000 shares undesignated at $0.001 par value
Series A convertible preferred stock, 4,000,000 shares authorized, 4,000,000 and 4,000,000 issued and outstanding, respectively, at $0.001 par value		4,000			4,000
Series B convertible preferred stock, 1,000,000 shares authorized, 1,000,000 and 1,000,000 issued and outstanding, respectively, at $0.001 par value		1,000			1,000
Common stock, 800,000,000 shares authorized, 41,623,366 shares issued and 41,625,331 shares outstanding, at June 30, 2023 and December 31, 2022, respectively, at $0.001 par value respectively, at $0.001 par value		41,625			41,625
Common stock, 800,000,000 shares authorized, 163,877,905 shares issued and 163,879,870 shares outstanding at September 30, 2023, and 41,623,366 shares issued and 41,625,331 shares outstanding at December 31, 2022, at $0.001 par value		163,880			41,625
Additional paid in capital		4043,~~601~~288,~~518~~966			38,821,720
Accumulated (deficit)		(4243,~~014~~250,~~741~~384	)		(39,474,622	)
TOTAL SHAREHOLDERS’ (DEFICIT)		(1,366,598	)		(606,277	)
TOTAL SHAREHOLDERS’ EQUITY/(DEFICIT)		207,462			(606,277	)
TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT)	$	5,461,868		$	6,794,471
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY/(DEFICIT)	$	8,319,163		$	6,794,471

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

VERITAS FARMS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	For the three months ended						For the ~~six~~nine months ended
	June 30,						June 30,
	September 30,						September 30,
	2023			2022			2023			2022
Revenues	$	~~169~~235,~~864~~941		$	~~273~~100,~~932~~205		$	~~379~~615,~~652~~593		$	~~694~~795,~~839~~044
Cost of goods sold		~~133~~183,~~340~~220			~~324~~363,~~813~~975			~~293~~476,~~650~~870			~~643~~1,~~641~~007,616
Inventory write-down		~~423,194~~-			-			423,194			-
Total cost of goods sold		~~556~~183,~~534~~220			~~324~~363,~~813~~975			~~716~~900,~~844~~064			~~643~~1,~~641~~007,616
Gross margin/(expense)		~~(386~~52,~~670~~721	)		(50263,~~881~~770	)		(~~337~~284,~~192~~471	)		51(212,~~198~~572	)
Operating expenses
Selling, general and administrative		~~801~~892,~~552~~458			1560,~~275,014~~038			12,~~600~~493,~~910~~368			23,~~569~~129,~~928~~966
Total operating expenses		~~801~~892,~~552~~458			1560,~~275,014~~038			12,~~600~~493,~~910~~368			23,~~569~~129,~~928~~966
Operating (loss)		(1839,~~188,222~~737	)		(1823,~~325,895~~808	)		(12,~~938~~777,~~102~~839	)		(23,~~518~~342,~~730~~538	)
Other income/(expense)
Interest expense, related parties		(~~198~~317,~~185~~604	)		(96123,~~215~~955	)		(~~349~~666,~~057~~661	)		(~~164~~288,~~827~~782	)
Interest expense		(1236,~~465~~249	)		(1110,~~223~~614	)		(2460,~~490~~739	)		(3243,~~688~~302	)
Gain on loan forgiveness		-			~~812,981~~-			-			812,981
Gain/(loss) on disposal		~~(21~~58,~~660~~769	)		14(20,~~185~~855	)		~~(30~~28,~~114~~655	)		14(6,~~185~~670	)
Total other income/(expense)		(~~232~~295,~~310~~084	)		~~719~~(155,~~728~~424	)		(~~403~~698,~~661~~745	)		~~629~~474,~~651~~227
(Loss) before income taxes		(1,~~420~~134,~~532~~821	)		(~~606~~979,~~167~~232	)		(23,~~341~~476,~~763~~584	)		(12,~~889~~868,~~079~~311	)
Income tax provision		-			-			-			-
Net (loss)		(1,~~420~~134,~~532~~821	)		(~~606~~979,~~167~~232	)		(23,~~341~~476,~~763~~584	)		(12,~~889~~868,~~079~~311	)
Preferred stock dividends
Preferred stock dividends in arrears
Series A preferred stock		(7980,~~781~~657	)		(7980,~~781~~657	)		(~~158~~239,~~685~~342	)		(~~158~~239,~~685~~342	)
Series B preferred stock		(1920,~~945~~165	)		(1920,~~945~~165	)		(3959,~~671~~836	)		(3959,~~671~~836	)
Total preferred stock dividends		(99100,~~726~~822	)		(99100,~~726~~822	)		(~~198~~299,~~356~~178	)		(~~198~~299,~~356~~178	)
Net (loss) attributable to common shareholders	$	(1,~~520~~235,~~258~~643	)	$	(~~705~~1,~~893~~080,054	)	$	(23,~~540~~775,~~119~~762	)	$	(23,~~087~~167,~~435~~489	)
Net (loss) per share
Basic	$	(0.0401	)	$	(0.02	)	$	(0.06	)	$	(0.0507	)
Diluted	$	(0.0401	)	$	(0.02	)	$	(0.06	)	$	(0.0507	)
Weighted average number of shares outstanding
Basic		4189,~~625~~464,~~331~~064			41,625,331			4157,~~625~~746,~~331~~809			41,625,331
Diluted		4189,~~625~~464,~~331~~064			41,625,331			4157,~~625~~746,~~331~~809			41,625,331

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

VERITAS FARMS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY/(DEFICIT)

(unaudited)

FOR THE ~~SIX~~NINE MONTH PERIOD ENDED ~~JUNE~~SEPTEMBER 30, 2023

	Preferred Stock								Common Stock
	Series A Preferred				Series B Preferred				~~Common Stock~~				Additional					Total
	Number		$0.001		Number		$0.001		Number		$0.001		paid in		Accumulated			shareholders’
	Number of		$0.001		Number of		$0.001		Number of		$0.001		paid in		Accumulated			shareholders’
	of shares		Par value		of shares		Par value		of shares		Par value		capital		(deficit)			equity/(deficit)
	shares		Par value		shares		Par value		shares		Par value		capital		(deficit)			equity/(deficit)
Balances at December 31, 2022		4,000,000	$	4,000		1,000,000	$	1,000		41,625,331	$	41,625	$	38,821,720	$	(39,474,622	)	$	(606,277	)
Stock-based compensation														4,820					4,820
Preferred stock dividends																(98,630	)		(98,630	)
Net (loss)																(921,231	)		(921,231	)
Balances at March 31, 2023		4,000,000		4,000		1,000,000		1,000		41,625,331		41,625		38,826,540		(40,494,483	)		(1,621,318	)
Stock-based compensation														24,978					24,978
Beneficial conversion feature														1,750,000					1,750,000
Preferred stock dividends																(99,726	)		(99,726	)
Net (loss)																(1,420,532	)		(1,420,532	)
Balances at June 30, 2023		4,000,000	$	4,000		1,000,000	$	1,000		41,625,331	$	41,625	$	40,601,518	$	(42,014,741	)	$	(1,366,598	)
Stock-based compensation										18,683,939		18,684		17,824					36,508
Beneficial conversion feature														287,500					287,500
Issuance of common stock for purchase of Asystem assets										103,570,600		103,571		2,382,124					2,485,695
Preferred stock dividends																(100,822	)		(100,822	)
Net (loss)																(1,134,821	)		(1,134,821	)
Balances at September 30, 2023		4,000,000	$	4,000		1,000,000	$	1,000		163,879,870	$	163,880	$	43,288,966	$	(43,250,384	)	$	207,462

FOR THE ~~SIX~~NINE MONTH PERIOD ENDED ~~JUNE~~SEPTEMBER 30, 2022

	Preferred Stock								Common Stock
	Series A Preferred				Series B Preferred				~~Common Stock~~				Additional					Total
	Number		$0.001		Number		$0.001		Number		$0.001		paid in		Accumulated			shareholders’
	Number of		$0.001		Number of		$0.001		Number of		$0.001		paid in		Accumulated			shareholders’
	of shares		Par value		of shares		Par value		of shares		Par value		capital		(deficit)			equity/(deficit)
	shares		Par value		shares		Par value		shares		Par value		capital		(deficit)			equity/(deficit)
Balances at December 31, 2021		4,000,000	$	4,000		1,000,000	$	1,000		41,625,331	$	41,625	$	38,709,374	$	(33,930,714	)	$	4,825,285
Stock-based compensation														27,671					27,671
Preferred stock dividends																(98,630	)		(98,630	)
Net (loss)																(1,282,912	)		(1,282,912	)
Balances at March 31, 2022		4,000,000		4,000		1,000,000		1,000		41,625,331		41,625		38,737,045		(35,312,256	)		3,471,414
Stock-based compensation														62,399					62,399
Preferred stock dividends																(99,726	)		(99,726	)
Net (loss)																(606,167	)		(606,167	)
Balances at June 30, 2022		4,000,000	$	4,000		1,000,000	$	1,000		41,625,331	$	41,625	$	38,799,444	$	(36,018,149	)	$	2,827,920
Stock-based compensation														13,832					13,832
Preferred stock dividends																(100,822	)		(100,822	)
Net (loss)																(979,232	)		(979,232	)
Balances at September 30, 2022		4,000,000	$	4,000		1,000,000	$	1,000		41,625,331	$	41,625	$	38,813,276	$	(37,098,203	)	$	1,761,698

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

VERITAS FARMS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	For the six months ended
	For the nine months ended
	June 30,
	September 30,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)	$	(23,~~341~~476,~~763~~584	)	$	(12,~~889~~868,~~079~~311	)
Adjustment to reconcile net income/(loss) to net cash provided by/(used in) operating activities
Depreciation and amortization		~~104~~152,~~308~~372			~~237~~351,~~980~~726
Stock-based compensation		2966,~~798~~306			90103,~~070~~902
Gain on loan forgiveness		-			(812,981	)
Amortization of debt discount		~~123~~312,~~988~~483			80120,~~238~~357
Loss on disposal of property and equipment assets		30,114			28,076
Gain/(loss) on disposal of property and equipment assets		(25,771	)		71,294
Inventory write down		423,194			-
Net change in operating lease assets and liabilities		-			(2,488	)
Changes in operating assets and liabilities
Inventories		~~135~~128,~~879~~934			(~~235~~297,~~989~~539	)
Prepaid expenses		~~(14~~31,~~317~~445	)		34134,~~589~~885
Accounts receivable		116,~~182~~398			(~~232~~54,~~614~~513	)
Employee retention credit receivable		587,606			-(623,907	)
Other assets		2635,~~252~~432			169,978
Contract liability		3037,~~358~~631			~~271~~408,~~608~~058
Accrued interest		~~223~~351,~~418~~751			80164,~~319~~679
Accrued expenses		~~203~~263,~~664~~592			(323,~~536~~758	)
Accounts payable		~~(19~~60,~~261~~632	)		(58158,~~421~~528	)
Net cash (used in) operating activities		(~~445~~1,~~580~~044,579	)		(23,~~268~~297,~~762~~146	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		-			(5,069	)
Sale of property and equipment		1378,~~500~~053			28,690
Net cash provided by investing activities		1378,~~500~~053			23,621
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of notes payable		(329,~~278~~960	)		(7283,~~239~~489	)
Proceeds from convertible notes payable		~~500~~1,000,000			23,000,000
Net cash provided by financing activities		~~496~~970,~~722~~040			12,~~927~~916,~~761~~511
Net increase/(decrease) in cash and cash equivalents		643,~~642~~514			(~~317~~357,~~380~~014	)
Cash and cash equivalents at beginning of period		55,273			481,763
Cash and cash equivalents at end of period	$	~~119~~58,~~915~~787		$	~~164~~124,~~383~~749
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes	$	-		$	-
Interest	$	917,~~973~~064		$	915,~~973~~907
Non-cash transactions:
Common stock issued for the acquisition of Asystem assets	$	2,485,695		$	-

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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

(Unaudited)

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

Nature of Business

Veritas Farms, Inc. (“Company,” “Veritas Farms,” “we,” “us” and “our”), was incorporated as Armeau Brands Inc. in the State of Nevada on March 15, 2011. On October 13, 2017, the Company filed Amended and Restated Articles of Incorporation with the Nevada Secretary of State changing the name from “Armeau Brands Inc.” to “SanSal Wellness Holdings, Inc.,” and on January 31, 2019, the Company filed a Certificate of Amendment to the Articles of Incorporation with the Nevada Secretary of State changing the name from “SanSal Wellness Holdings, Inc.” to “Veritas Farms, Inc.” The Company’s business objectives are to produce natural rich-hemp products, using natural protocols and materials yielding broad spectrum phytocannabinoid rich hemp oils, distillates and isolates. The Company is licensed by the Colorado Department of Agriculture to grow industrial hemp on its 140-acre farm pursuant to federal law.

Recent Developments

On August 25, 2023, the Company acquired substantially all of the assets and business (the “Acquired Assets”) of Asystem Inc. (“Asystem”), a Delaware corporation. The Acquired Assets include all of Asystem’s rights in its science-forward supplement brand. The Acquired Assets were acquired by us under an Asset Transfer Agreement, dated August 25, 2023, between the Company, Asystem, Oliver Walsh (“Mr. Walsh”) and Henry Simonds (“Mr. Simonds”) (the “Asset Transfer Agreement”). Pursuant to the Asset Transfer Agreement, the Company acquired all of Asystem’s customer lists, customers, name, trademarks, internet domains and other things necessary to carry on the business of Asystem. Acquisition expenses were approximately $48,000 and were included in SG&A expenses. The results of operations of the Acquired Assets have been included in the consolidated results of the Company from the date of acquisition.

The consideration for the Acquired Assets consisted of the issuance of 103,570,600 shares of our common stock, valued at $2,485,695 based on our common stock fair value on the date of acquisition, which were distributed to Asystem shareholders, and the assumption of certain liabilities of Asystem. The assumed liabilities included the assumption by the Company of notes payable by Asystem with an aggregate outstanding notes payable balance of $250,000 that are payable to the Cornelis F. Wit Revocable Living Trust, of which Cornelis F. Wit is the sole trustee (“Wit Trust”). The notes carry an interest rate of ten percent (10%) per annum and have a maturity date of April 1, 2024. On August 28, 2023 the notes were amended, replaced and superseded in their entirety, and included in and part of the 2023 Secured Convertible Promissory Note as further described below.

Assets and liabilities of all acquired companies are recorded at their estimated fair values at the dates of acquisition. Goodwill represents the potential new customers and future cash flows after the acquisition.

The following table summarizes the consideration paid and the fair value of assets acquired and liabilities assumed:

Inventories	$	600,709
Property and equipment, net of accumulated depreciation		53,663
Goodwill		2,548,652
Total assets acquired		3,203,024

Accounts payable		343,433
Notes payable, current portion		123,896
Related party convertible notes payable, current portion		250,000
Total liabilities assumed		717,329

Total purchase price	$	2,485,695

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

(Unaudited)

The summary below presents pro forma unaudited consolidated results of operations for the nine months ended September 30, 2023 and 2022 as if the acquisition of Acquired Assets occurred on January 1, 2022. The pro forma unaudited consolidated results are not necessarily indicative of the operating results that would have occurred if the acquisition had been consummated as of the date indicated, nor are they necessarily indicative of future operating results.

	For the nine months ended
	September 30,
	2023			2022
Revenues	$	1,164,633		$	2,903,412
Operating (loss)	$	(2,907,280	)	$	(5,408,946	)
Net (loss)	$	(3,630,450	)	$	(4,934,719	)

Net (loss) per share
Basic	$	(0.02	)	$	(0.03	)
Diluted	$	(0.02	)	$	(0.03	)
Weighted average number of shares outstanding
Basic		147,659,747			145,195,931
Diluted		147,659,747			145,195,931

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the ~~Securities and Exchange Commission (“~~SEC”). Accordingly, they do not contain all information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of ~~June~~September 30, 2023 and December 31, 2022, and the results of operations and cash flows for the periods presented. The results of operations for the ~~six~~nine months ending ~~June~~September 30, 2023, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Form 10-K for the year ended December 31, 2022.

Principles of Consolidation

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

Estimates in Financial Statements

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from these estimates.

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

(Unaudited)

Correction of Previously Issued Financial Statements

The accompanying unaudited condensed consolidated statement of operations for the ~~six~~nine months ended ~~June~~September 30, 2022 has been corrected for the following: an adjustment to reclassify selling, general and administrative expenses of $72153,~~799~~002 as a reduction of revenue as such amounts were related to consideration payable to a customer which the Company determined was not for distinct goods or services received. The Company assessed the materiality of the misstatement quantitatively and qualitatively and has concluded that the correction of the classification error is immaterial to the consolidated financials taken as a whole. As a result of the correction, revenue decreased from $~~767~~948,~~638~~046 to $~~694~~795,~~839~~044 with a corresponding decrease of gross ~~margin~~expense from $~~123~~59,~~997~~570 to $51212,~~198~~572 and selling, general and administrative expenses decreased from $23,~~642~~282,~~727~~968 to $23,~~569~~129,~~928~~966. The correction had no impact on total operating loss and net loss.

NOTE 2: GOING CONCERN

The accompanying financial statements have ~~been~~ been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern. The Company has sustained substantial losses from operations since its inception. As of and for the period ended ~~June~~September 30, 2023, the Company had an accumulated deficit of $4243,~~014~~250,~~741~~384, and a net loss attributable to common shareholders of $23,~~540~~775,~~119~~762. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern. A going concern disclosure means that there is substantial doubt that the company can continue as an ongoing business for a period of at least the next 12 months from the date the financial statements are issued. Continuation as a going concern is dependent on the ability to raise additional capital and financing until the Company can achieve a level of operational profitability, though there is no assurance of success.

To satisfy our capital requirements, the Company may seek additional financing through debt and equity financings. There can be no assurance that any such funding will be available to the Company on favorable terms or at all. If adequate funds are not available when needed, the Company may be required to delay, scale back or eliminate some or all of our marketing programs. If the Company is successful in obtaining additional financings, the terms of such financings may have the effect of diluting or adversely affecting the holdings or the rights of the holders of our common and preferred stock or result in increased interest expense in future periods.

The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 3: INVENTORIES, NET

Inventories consist of:

	June 30, 2023		December 31, 2022
	September 30, 2023		December 31, 2022
Hemp and oil	$	~~498~~490,~~563~~151	$	568,559
Finished goods		~~280~~496,~~178~~933		360,331
Raw materials		~~904~~1,~~714~~304,024		1,313,638
Inventories	$	12,~~683~~291,~~455~~108	$	2,242,528

Inventory values include total inventory impairment write-downs of $423,194 to raw materials for the period ended ~~June~~September 30, 2023 and total inventory impairment write-downs of $802,493 which ~~include~~ include reductions of $90,564 to finished goods and $711,929 to hemp and oil for the year ended December 31, 2022.

NOTE 4: PROPERTY AND EQUIPMENT

	June 30, 2023						December 31, 2022						Estimated
	September 30, 2023						December 31, 2022						Estimated
	Cost		Accumulated depreciation		Net book value		Cost		Accumulated depreciation		Net book value		useful life (years)
Land and land improvements	$	398,126	$	-	$	398,126	$	398,126	$	-	$	398,126		-
Buildings and improvements		1,525,712		~~266~~276,~~301~~508		1,~~259~~249,~~411~~204		1,528,294		245,951		1,282,343		39
Greenhouse		965,388		~~171~~177,~~121~~342		~~794~~788,~~267~~046		965,388		157,630		807,758		39
Fencing and irrigation		203,793		~~127~~131,~~498~~835		7671,~~295~~958		203,793		117,579		86,214		15
Machinery and equipment		~~735~~714,~~457~~248		~~569~~577,~~331~~536		~~166~~136,~~126~~712		621,457		425,368		196,089		7
Furniture and fixtures		82123,~~202~~442		7678,~~359~~324		545,~~843~~118		94,485		77,595		16,890		7
Computer equipment		2234,~~038~~461		2021,~~701~~752		112,~~337~~709		22,038		20,503		1,535		5
Vehicles		3,400		3,400		-		56,058		38,223		17,835		5
Total	$	3,~~936~~968,~~116~~570	$	1,~~234~~266,~~711~~697	$	2,701,~~405~~873	$	3,889,639	$	1,082,849	$	2,806,790

Total depreciation expense was $~~104~~152,~~308~~372 and $~~237~~351,~~980~~726 for the ~~six~~nine month periods ending ~~June~~September 30, 2023 and ~~June~~September 30, 2022, respectively. Total depreciation expense was $5348,~~929~~064 and $~~117~~113,~~943~~746 for the three month periods ending ~~June~~September 30, 2023 and ~~June~~September 30, 2022, respectively.

As of December 31, 2022, there was $502,709 in assets held for sale previously classified as property and equipment with $4246,~~536~~073 in assets held for sale sold during the ~~six~~nine month period ended ~~June~~September 30, 2023. As of ~~June~~ September 30, 2023 there was $~~460~~456,~~173~~636 in assets held for sale. It is the Company’s intention to complete the sales of these assets within the twelve months following the end of the period.

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 5: NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE

The following tables summarize the notes payable and convertible notes payable outstanding as of ~~June~~September 30, 2023.

						Ending		Non related party				Related party
	Origination	Maturity	Interest			principal				Long				Long
						principal
Description	Origination date	Maturity date	Interest rate			~~June~~September 30, 2023		Current		Long term		Current		Long term
Economic Injury Disaster Loan	6/24/2020	6/24/2050		3.75	%	$	150,000	$	-	$	150,000	$	-	$	-
Total						$	150,000	$	-	$	150,000	$	-	$	-
Growth Line of Credit	8/25/2023	10/21/2024		15.00	%		97,213		97,213		-		-		-
Total						$	247,213	$	97,213	$	150,000	$	-	$	-

								Non related party				Related party
	Origination	Maturity	Interest			Ending principal ~~June~~September 30,				Long				Long					Long term, ~~Net~~net of
Description	date	date	rate			2023		Current		term		Current		term		Discount			discount
Convertible Promissory Note Payable	3/6/2020	10/1/2022		10	%	$	200,000	$	200,000	$	-	$	-	$	-	$	-		$	-
2021 Secured Convertible Promissory Note Payable	10/12/2021	10/1/2024		10	%		3,000,000		-		-		-		3,000,000		(~~200~~160,~~595~~476	)		2,~~799~~839,~~405~~524
2023 Secured Convertible Promissory Note Payable	6/7/2023	10/1/2026		10	%		12,~~750~~500,000		-		-		-		12,~~750~~500,000		(1,~~706~~845,~~250~~374	)		43654,~~750~~626
Total						$	45,~~950~~700,000	$	200,000	$	-	$	-	$	45,~~750~~500,000	$	(12,~~906~~005,~~845~~850	)	$	23,~~843~~494,~~155~~150

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

2023	$	~~201,602~~$	298,018
2024		~~3,003,295~~	3,003,295
2025		~~3,420~~	3,420
2026		~~1,753,551~~	2,503,551
2027		~~3,686~~	3,686
Thereafter		~~134,446~~	135,243
Total	$	~~5,100,000~~$	5,947,213

Paycheck Protection Program

In February 2021, as part of the business incentives offered in the Coronavirus Aid, Relief, and Economic Security Act ~~(“CARES Act”)~~, the Company received a loan in the amount of $803,994 under the Small Business Administration (“SBA”) Paycheck Protection Program (“2021 PPP Loan”). In April 2022, the 2021 PPP Loan principal and all accrued interest totaling $812,981 was forgiven in full.

Economic Injury Disaster Loan

In June 2020, the Company received a loan in the amount of $150,000 from the SBA as an Economic Injury Disaster Loan (“EIDL”). The EIDL accrues interest at the rate of three and three quarters percent (3.75%) per annum and has a term of 30 years. The EIDL is secured by the Company’s assets. The first payment due was deferred two and a half years and came due in December 2022. The principal balance of the EIDL as of ~~June~~September 30, 2023 ~~has~~ has been classified as a long-term liability in notes payable.

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

10% Convertible Promissory Note Payable

In March 2020, the Company received a $200,000 loan from a single investor, evidenced by a one-year convertible promissory note (“Convertible Note”). The Convertible Note bears interest at the rate of ten percent (10%) per annum, which accrues and is payable together with principal at maturity. Principal and accrued interest under the Convertible Note may, at the option of the holder, be converted in its entirety into shares of our common stock at a conversion price of $0.40 per share, subject to adjustment for stock splits, stock dividends and similar recapitalization transactions. On May 14, 2021, the Company paid $20,000 in accrued interest to the holder, and the Company and the investor extended the maturity date of the Convertible Note to September 6, 2021. In September 2021, the Company and the investor further extended the maturity date of the Convertible Note to October 1, 2022. From October 2, 2022 until the present the Company is in default in the payment of principal. This default does not trigger any other default events for any other notes payable.

The Company determined that there was a beneficial conversion feature of $95,000 relating to the Convertible Note which iswas ~~being~~ amortized over the life of the note, using the effective ~~interest~~ interest method. The note is presented net of a discount of $0 as of ~~June~~September 30, 2023 and $0 as of December 31, 2022 on the accompanying ~~balance~~ balance sheet.

10% Secured Convertible Promissory Notes Payable

On October 12, 2021, the Company issued a secured convertible credit line promissory note in the principal amount for up to $1,500,000 (“2021 Secured Convertible Promissory Note”), which 2021 Secured Convertible Promissory Note was issued to the Wit Trust. On March 9, 2022, the Company amended the 2021 Secured Convertible Promissory Note originally dated October 12, 2021 to increase the total available principal balance to $3,000,000. The 2021 Secured Convertible Promissory Note is secured by the Company’s assets and contains certain non-financial covenants and customary events of default, the occurrence of which could result in an acceleration of the 2021 Secured Convertible Promissory Note. The 2021 Secured Convertible Promissory Note is convertible as follows: aggregate outstanding loaned principal and accrued interest under the 2021 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 of $0.05 per share. The 2021 Secured Convertible Promissory Note will accrue interest on the aggregate amount loaned at a rate of ~~ten~~ ten percent (10%) per annum. All unpaid principal, together with any then unpaid and accrued interest and other amounts payable under ~~the~~ the 2021 Secured Convertible Promissory Note, is due and payable if not converted pursuant to the terms and conditions of the 2021 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 $~~200~~160,~~595~~476 on the accompanying balance sheet with amortization to interest expense of $80120,~~238~~357 and $80120,~~238~~357 for the ~~six~~nine month periods ended ~~June~~September 30, 2023 and ~~June~~September 30, 2022, respectively. At ~~June~~September 30, 2023, $3,000,000 was outstanding on the 2021 Secured Convertible Promissory Note.

On August 2, 2022, the Company issued a secured convertible promissory note in the principal amount of $250,000 to the Wit Trust in exchange for $250,000. The note carried an interest rate of ten percent (10%) per annum and had a maturity date of October 1, 2024. On June 7, 2023 the secured convertible promissory note was amended, replaced and superseded in its entirety, and included in and part of the 2023 Secured Convertible Promissory Note as further described below.

On August 17, 2022, the Company issued a secured convertible promissory note in the principal amount of $250,000 to the Wit Trust in exchange for $250,000. The note carried an interest rate of ten percent (10%) per annum and had a maturity date of October 1, 2024. On June 7, 2023 the secured convertible promissory note was amended, replaced and superseded in its entirety, and included in and part of the 2023 Secured Convertible Promissory Note as further described below.

On September 6, 2022, the Company issued a secured convertible promissory note in the principal amount of $250,000 to the Wit Trust in exchange for $250,000. The note carried an interest rate of ten percent (10%) per annum and had a maturity date of October 1, 2024. On June 7, 2023 the secured convertible promissory note was amended, replaced and superseded in its entirety, and included in and part of the 2023 Secured Convertible Promissory Note as further described below.

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

On October 11, 2022, the Company issued a secured convertible promissory note in the principal amount of $250,000 to the Wit Trust in exchange for $250,000. The note carried an interest rate of ten percent (10%) per annum and had a maturity date of October 1, 2024. On June 7, 2023 the secured convertible promissory note was amended, replaced and superseded in its entirety, and included in and part of the 2023 Secured Convertible Promissory Note as further described below.

On November 16, 2022, the Company issued a secured convertible promissory note in the principal amount of $250,000 to the Wit Trust in exchange for $250,000. The note carried an interest rate of ten percent (10%) per annum and had a maturity date of October 1, 2024. On June 7, 2023 the secured convertible promissory note was amended, replaced and superseded in its entirety, and included in and part of the 2023 Secured Convertible Promissory Note as further described below.

On January 3, 2023, the Company issued a secured convertible promissory note in the principal amount of $250,000 to the Wit Trust in exchange for $250,000. The note carried an interest rate of ten percent (10%) per annum and had a maturity date of October 1, 2024. On June 7, 2023 the secured convertible promissory note was amended, replaced and superseded in its entirety, and included in and part of the 2023 Secured Convertible Promissory Note as further described below.

On May 30, 2023, the Company issued a secured convertible promissory note in the principal amount of $250,000 to the Wit Trust in exchange for $250,000. The note carried an interest rate of ten percent (10%) per annum and had a maturity date of October 1, 2024. On June 7, 2023 the secured convertible promissory note was amended, replaced and superseded in its entirety, and included in and part of the 2023 Secured Convertible Promissory Note as further described below.

On June 7, 2023, the Company issued a secured convertible credit line promissory note in the principal amount for up to $3,000,000 (“2023 Secured Convertible Promissory Note”), which 2023 Secured Convertible Promissory Note was issued to the Wit Trust. The 2023 Secured Convertible Promissory Note includes and evidences an aggregate of $1,750,000 of outstanding indebtedness of the Company to the Wit Trust under previously executed and delivered secured convertible promissory notes as described above. The 2023 Secured Convertible Promissory Note is secured by the Company’s assets and contains certain non-financial covenants and customary events of default, the occurrence of which could result in an acceleration of the 2023 Secured Convertible Promissory Note. The 2023 Secured Convertible Promissory Note is convertible as follows: aggregate outstanding loaned principal and accrued interest under the 2023 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 $0.02 per share. The 2023 Secured Convertible Promissory Note will accrue interest on the aggregate amount loaned 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 2023 Secured Convertible Promissory Note, is due and payable if not converted pursuant to the terms and conditions of the 2023 Secured Convertible Promissory Note on the earlier of (i) October 1, 2026, or (ii) following an event of default. The Company determined that there was a beneficial conversion feature of $12,~~750~~037,~~000~~500 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 $1,~~706~~845,~~250~~374 on the accompanying balance sheet with amortization to interest expense of $43192,~~750~~126 and $0 for the ~~six month~~nine month periods ended ~~June~~September 30, 2023 and ~~June~~September 30, 2022, respectively. At ~~June~~September 30, 2023, $12,~~750~~500,000 was outstanding on the 2023 Secured Convertible Promissory Note.

On August 25, 2023, the Company assumed an aggregate outstanding notes payable balance of $250,000 that is payable to the Wit Trust as part of the consideration for the Acquired Assets from Asystem. The notes carry an interest rate of ten percent (10%) per annum and have a maturity date of April 1, 2024. On August 28, 2023 the notes were amended, replaced and superseded in their entirety, and included in and part of the 2023 Secured Convertible Promissory Note as further described above.

Growth Line of Credit

On August 25, 2023, the Company assumed an aggregate outstanding note payable balance of $123,896 as part of the consideration for the Acquired Assets from Asystem. The note carries an interest rate of fifteen percent (15%) per annum and has a maturity date of October 21, 2024. At September 30, 2023, $97,213 was outstanding on the Growth Line of Credit.

NOTE 6: STOCK-BASED COMPENSATION

The Company approved its 2017 Stock Incentive Plan on September 27, 2017 (“2017 Plan”) which authorizes the Company to grant or issue non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards up to a total of 6,867,747 shares of common stock. Under the terms of the 2017 Plan, awards may be granted to our employees, directors or independent contractors. Awards issued under the 2017 Plan vest as determined at the time of grant by the Board of Directors or any committees appointed under the 2017 Plan. On March 31, 2023, the 2017 Plan terminated upon the approval of the 2023 Equity Incentive Plan (“2023 Plan”).

The Company approved its 2023 Plan on March 31, 2023 which authorizes the Company to grant or issue non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards to our employees, directors and independent contractors. The 2023 Plan initially provides for the issuance of up to 40,000,000 shares of our common stock. In addition, the number of shares of common stock available for issuance under the 2023 Plan automatically increases on the first trading day of January each year for a period of nine (9) years commencing on January 2024, in an amount equal to ten percent (10%) of the total number of shares then authorized under the 2023 Plan. Awards issued under the 2023 Plan vest as determined at the time of grant by the Board of Directors or any committees appointed under the 2023 Plan. The 2023 Plan is a successor to the Company’s 2017 Plan and, accordingly, no new grants will be made under the 2017 Plan from and after the effective date of the 2023 Plan. ~~No equity awards have been granted under the 2023 Plan as of June 30, 2023.~~

The Company’s outstanding stock options typically have a 10-year term. Outstanding non-qualified stock options granted to employees and independent contractors vest on a case-by-case basis. Outstanding incentive stock options issued to employees typically vest over a three-year period. The equity awards granted vest based solely upon continued employment or service with the Company. The Company’s time-based share awards typically vest in thirty three and a third percent (33.3%) increments on each of the three anniversary dates of the date of grant.

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

On January 1, 2022, the Company granted an aggregate 625,000 options to employees, including 300,000 options to Dave Smith, our former Chief Operating Officer under the 2017 Plan, at a per share exercise price of $0.049 with a term of ten (10) years. The stock options will vest ratably on the first three anniversaries of the grant date subject to the employee’s continuous service to the Company.

On June 30, 2022, the Company granted an aggregate 950,000 options to employees and directors, including five non-employee directors with an annual grant of stock options under the 2017 Plan to purchase 100,000 shares of common stock each, at a per share exercise price of $0.031 with a term of ten (10) years, with twenty five percent (25%) of the options vesting every ninety (90) days following the grant date subject to the director’s continuous service to the Company. The employee stock options will vest ratably on the first three anniversaries of the grant date subject to the employee’s continuous service to the Company.

On December 8, 2022, the Company granted one non-employee ~~directors~~ director with an annual grant of stock options under the 2017 Plan to purchase 100,000 shares of common stock ~~each~~, at a per share exercise price of $0.019 with a term of ten (10) years, with 25% of the options vesting every ninety (90) days following the grant date subject to the director’s continuous service to the Company.

~~The~~On August 25, 2023, the Company issued an aggregate 18,683,939 ~~fair~~shares ~~value~~of ~~for~~restricted ~~all~~stock ~~options~~to ~~granted~~various employees, directors and independent contractors under the 2023 Plan including 500,000 ~~for~~shares of restricted stock to Thomas E. Vickers, Kuno D. van der Post and Gary A. Shangold, respectively, 500,000 shares of restricted stock to Thomas J. Krogh, our Chief Operating Officer, 500,000 shares of restricted stock to Marisa Cifre, our Chief Revenue Officer, 4,233,485 shares of restricted stock to Mr. Simonds in connection with the ~~six~~Asystem ~~months~~Asset ~~ended~~Transfer ~~June~~Agreement 30for consulting services, and 11,950,454 shares of restricted stock to Mr. Walsh in connection with the Asystem Asset Transfer Agreement for consulting services. The restrictions on restricted shares granted to employees generally lapse in three equal annual installments on the anniversary of the date of grant. Any unvested stock options or restricted shares with restrictions that have not lapsed that are granted under the 2023 Plan ~~was~~are $0forfeited and expire upon termination of employment or service to the Company.

~~Total~~The ~~stock~~aggregate ~~based~~fair ~~compensation~~value ~~expense was $29,798 and $90,070~~ for ~~the~~all ~~six~~options ~~month periods ending June 30, 2023 and June 30, 2022, respectively. Total stock based compensation expense was~~granted ~~$24,978 and $62,399~~ for the ~~three~~nine ~~month~~months ~~periods~~ended ~~ending~~September ~~June~~ 30, 2023 ~~and~~was ~~June 30, 2022, respectively~~$0.

The aggregate fair value for all restricted stock granted for the nine months ended September 30, 2023 was $448,415.

Total stock based compensation expense was $66,306 and $103,902 for the nine month periods ending September 30, 2023 and September 30, 2022, respectively. Total stock based compensation expense was $36,508 and $13,832 for the three month periods ending September 30, 2023 and September 30, 2022, respectively.

The following table summarizes the stock option activity for the Company’s 2017 Plan:

	Number of options			Weighted average exercise price (per share)		Weighted average remaining contractual term (in years)
Outstanding at December 31, 2021		5,189,167		$	0.86		7.71
Granted		1,675,000			0.04		9.34
Exercised		-			-
Forfeited/cancelled/expired		(1,404,167	)		0.49
Outstanding at December 31, 2022		5,460,000			0.70		7.18
Granted		-			-
Exercised		-			-
Forfeited/cancelled/expired		(~~200~~1,450,000	)		0.1391
Outstanding at June 30, 2023		5,260,000		$	0.72		6.63
Outstanding at September 30, 2023		4,010,000		$	0.62		6.72
Vested and exercisable at June 30, 2023		4,831,666		$	0.78		6.45
Vested and exercisable at September 30, 2023		3,606,666		$	0.68		6.55

Below are the assumptions for the fair value of share-based payments for the six month period ended June 30, 2023 and the year ended December 31, 2022.

	Stock option assumptions for the period ended
Stock option assumptions	June 30, 2023			December 31, 2022
Risk-free interest rate		5.40	%		4.50	%
Expected dividend yield		0.0	%		0.0	%
Expected volatility		244.8	%		182.8	%
Expected life of options (in years)		10			10

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Below are the assumptions for the fair value of share-based payments for the nine month period ended September 30, 2023 and the year ended December 31, 2022.

	Stock option assumptions for the period ended
Stock option assumptions	September 30, 2023			December 31, 2022
Risk-free interest rate		5.46	%		4.50	%
Expected dividend yield		0.0	%		0.0	%
Expected volatility		256.5	%		182.8	%
Expected life of options (in years)		10			10

NOTE 7: LEASES

On February 11, 2021, the Company entered into a three year lease with Cheyenne Avenue Holdings, LLC for warehouse and distribution facilities. The lease contains annual escalators. The Company analyzed the classification of the lease under ASC 842, Leases (“ASC 842”) and as it did not meet any of the ~~criteria~~ criteria for a financing lease it has been classified as an operating lease. The Company determined the ~~ROU~~Right of Use (“ROU”) asset and lease liability values at inception by calculating the present value of all future lease payments for the lease term, using an incremental borrowing rate of five percent (5%). The ROU asset value was $160,476 and the liability was $160,476. ~~The~~On July 14, 2023 the lease ~~liability~~was ~~will~~terminated beupon ~~expensed~~which ~~each~~the ~~month,~~remaining onlease aliability ~~straight-line basis,~~expense ~~over~~was ~~the~~accelerated ~~life~~and ofrecognized ~~the~~and all remaining lease liability payments were reclassified to Accounts Payable.

On September 8, 2021, the Company entered into a a thirty nine month lease with 1815 Building Company, for the lease of the Company’s principal executive offices in Dania Beach, Florida. The lease contains annual escalators and charges Florida sales tax. The lease commenced into effect on October 12, 2021 and ~~expires~~ onhas an expiration date of January 31, 2025. The Company analyzed the classification of the lease under ASC 842, and as it did not meet any of the criteria for a financing lease it has been classified as an operating lease. The Company determined the ROU asset and lease liability values at inception by calculating the present value of all future lease payments for the lease term, using an incremental borrowing rate of five percent (5%). The ROU asset value was $298,364 and the liability was $298,364. ~~The~~On August 7, 2023 the lease ~~liability~~was terminated ~~will~~upon bewhich ~~expensed~~the ~~each~~remaining ~~month,~~lease onliability aexpense ~~straight-line basis,~~was ~~over~~accelerated ~~the~~and ~~life~~recognized ofand ~~the~~all remaining lease liability payments were reclassified to Accounts Payable.

Total lease amortization expense was $79264,~~527 and~~182 and $79116,~~668~~752 for the ~~six~~nine month periods ending ~~June~~September 30, 2023 and ~~June~~September 30, 2022, respectively. Total lease amortization expense was $39184,~~975~~655 and $4037,~~069~~084 for the three month periods ending ~~June~~September 30, 2023 and ~~June~~September 30, 2022, respectively.

As of June 30, 2023, and December 31, 2022, operating leases have no minimum rental commitments.

NOTE 8: SHAREHOLDERS’ (DEFICIT)

Our authorized capital stock consists of 800,000,000 shares of common stock, $0.001 par value per share and 20,000,000 shares of preferred stock, par value $0.001 per share, of which 4,000,000 shares of preferred stock have been designated as Series A Convertible Preferred Stock and 1,000,000 shares of preferred stock have been designated as Series B Convertible Preferred Stock.

As of June 30, 2023 the Company had the following issued and outstanding securities:

● 41,625,331 shares of common stock;

● 4,000,000 shares of Series A Convertible Preferred Stock;

● 1,000,000 shares of Series B Convertible Preferred Stock;

● 2,595,270 warrants to purchase shares of our common stock;

● 5,260,000 options to purchase shares of our common stock; and

● $4,950,000 principal amount of convertible promissory notes convertible into 148,000,000 shares of common stock.

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 8: SHAREHOLDERS’ EQUITY/(DEFICIT)

As of September 30, 2023 the Company had the following issued and outstanding securities:

●

163,879,870 shares of common stock;

●

4,000,000 shares of Series A Convertible Preferred Stock;

●

1,000,000 shares of Series B Convertible Preferred Stock;

●

2,595,270 warrants to purchase shares of our common stock;

●

4,010,000 options to purchase shares of our common stock; and

●

$5,700,000 principal amount of convertible promissory notes convertible into 185,500,000 shares of common stock.

Common Stock

Holders of common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of our voting securities do not have cumulative voting rights. Holders of common stock are entitled to share in all dividends that the Board of Directors, in its discretion, declares from legally available funds. In the event of our liquidation, dissolution or winding up each outstanding share of common stock entitles its holder to participate in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock.

Holders of common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions for the common stock. The rights of the holders of common stock are subject to any rights that may be fixed for holders of preferred stock, when and if any preferred stock is outstanding. All outstanding shares of common stock are duly authorized, validly issued, fully paid and non-assessable.

Effective March 31, 2023 the Company filed Amended and Restated Articles of Incorporation of the Company which increased the number of authorized common stock from 200,000,000 shares to 800,000,000 shares, par value $0.001 per share.

Preferred Stock

Effective March 31, 2023 the Company filed Amended and Restated Articles of Incorporation of the Company which increased the number of authorized preferred stock from 5,000,000 shares to 20,000,000 shares, par value $0.001 per share.

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Series A Convertible Preferred Stock

The Series A Preferred Shares have a stated value of $1.00 per share. Each Series A Preferred Share is convertible into the Company’s common stock at the option of the holder thereof at a conversion rate of $0.05 per share of common stock. The conversion rate is subject to adjustment in the event of stock splits, stock dividends, other recapitalizations and similar events, as well as in the event of issuance by the Company of shares of common stock or securities exercisable for, convertible into or exchangeable for common stock at an effective price per share less than the conversion rate then in effect (other than certain customary exceptions). In respect of rights to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding-up of the Company, the Series A Preferred Shares rank (a) junior to the Company’s Series B Preferred Shares; and (b) senior to (i) the Company’s common stock and (c) any other class or series of ~~stock~~ stock (including other series of Preferred Stock) of the Company (collectively, “Junior Stock”). From and after the date of ~~the~~ the issuance of Series A Preferred Shares, dividends at the rate per annum of eight percent (8%), compounded annually, accrue daily on ~~the~~ the stated value (“Series A Accruing Dividends”). Series A Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative; provided, however, such Series A Accruing Dividends shall be payable only when, as, and if ~~declared~~ declared by the Board of Directors and the Company shall be under no obligation to pay such Series A Accruing Dividends except as set forth herein. The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than dividends on (a) shares of Series B Preferred Shares; and (b) common stock payable in shares of common stock) unless (in addition to the obtaining of any consents required elsewhere in the Articles of Incorporation) the holders of the Series A Preferred Shares then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series A Preferred Share in an amount at least equal to the sum of (a) the amount of the aggregate Series A Accruing Dividends then accrued on such Series A Preferred Shares and not previously paid; and (b) (i) in the case of a dividend on common stock or any class or series that is convertible into common stock, that dividend per Series A Preferred Share as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into common stock; and (B) the number of shares of common stock issuable upon conversion of a Series A Preferred Share, in each case calculated on the record date for determination of holders entitled to receive such dividend; or (ii) in the case of a dividend on any class or series that is not convertible into common stock, at a rate per Series A Preferred Share determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate ~~adjustment~~ adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series); and (B) multiplying such fraction by an amount equal to the stated value of the Series A Preferred Shares; provided, that if the Company declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of Series A Preferred Shares shall be calculated based upon the dividend on the class or or series of capital stock that would result in the highest Series A Preferred Share dividend. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or any deemed liquidation event, (collectively, a “Liquidation Event”), the holders of Series A Preferred Shares shall be entitled to receive, after payment to all holders of Series B Preferred Shares of a liquidation preference equal to the aggregate amount of one hundred fifty percent (150%) of the stated value of the Series B Preferred Shares and the amount of the accrued but unpaid dividends on the Series B Preferred Shares, but prior and in preference to any distribution of any of the assets of the Company to the holders of Junior Stock by reason of their ownership thereof, an aggregate amount per share equal to the stated value of the Series A Preferred Shares and the accrued but unpaid dividends thereon. After the payment to all holders of Series B Preferred Shares of a liquidation preference equal to the aggregate amount of one hundred fifty percent (150%) of the stated value of the Series B Preferred Shares and the amount of the accrued but unpaid dividends on the Series B Preferred Shares and to all holders of the Series A Preferred Shares the full liquidation preference hereunder, the remaining assets of the Company available for distribution to its shareholders shall be distributed among the holders of the shares of Series B Preferred Shares and Junior Stock, pro rata, on an “as converted basis,” determined immediately prior to such Liquidation Event, and the Series A Preferred Shares shall not be entitled to participate in such distribution of the remaining assets of the Company. The Series A Preferred Shares shall vote together with holders of Series B Preferred Shares and holders of common stock as a single class on all matters brought to a vote of shareholders. Each Series A Preferred Share shall entitle the holder thereof to such number of votes as equal the number of shares of common stock then issuable upon conversion of the Series A Preferred Share. The Series A Preferred Shares also contain protective provisions which provide that the Company shall not undertake certain transactions without the prior approval of the holder(s) of a majority of the Series A Preferred Shares.

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Series B Convertible Preferred Stock

The Series B Preferred Shares have a stated value of $1.00 per share. Each Series B Preferred Share is convertible into common stock at the option of the holder thereof at a conversion rate of $0.20 per share of common stock. The conversion rate is subject to adjustment in the event of stock splits, stock dividends, other recapitalizations and similar events, as well as in the event of issuance by the Company of shares of common stock or securities exercisable for, convertible into or exchangeable for common stock at an effective price per share less than the conversion rate then in effect (other than certain customary exceptions). In respect of rights to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding-up of the Company, the Series B Preferred Shares rank senior to the (a) Series A Preferred Shares; (b) the Company’s common stock and any other class or series of Junior Stock. From and after the date of the issuance of Series B Preferred Shares, dividends at the rate per annum of eight percent (8%), compounded annually, accrue daily on the stated value (“Series B Accruing Dividends”). Series B Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative; provided, however, such Series B Accruing Dividends shall be payable only when, as, and if declared by the Board of Directors and the Company shall be under no obligation to pay such Series B Accruing Dividends except as set forth herein. The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than dividends on (a) shares of Series B Preferred Shares; and (b) common stock payable in shares of common stock) unless (in addition to the obtaining of any consents required elsewhere in the Articles of Incorporation) the holders of the Series B Preferred Shares then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series B Preferred Share in an amount at least equal to the sum of (a) the amount of the aggregate Series B Accruing Dividends then accrued on such Series B Preferred Shares and not previously paid; and (b) (i) in the case of a dividend on common stock or any class or series that is convertible into common stock, that dividend per Series B Preferred Share as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into common stock; and (B) the number of shares of common stock issuable upon conversion of a Series B Preferred Share, in each case calculated on the record date for determination of holders entitled to receive such dividend; or (ii) in the case of a dividend on any class or series that is not convertible into common stock, at a rate per Series B Preferred Share determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series); and (B) multiplying such fraction by an amount equal to the stated value of the Series B Preferred Shares; provided, that if the Company declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of Series B Preferred Shares shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Series B Preferred Share dividend. In the event of a Liquidation Event, the holders of Series B Preferred Shares shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of Junior Stock (including Series A Preferred Shares), a liquidation preference equal to the aggregate amount of one hundred fifty percent (150%) of the stated value of the Series B Preferred Shares and the amount of the accrued but unpaid dividends on the Series B Preferred Shares. After the payment to all holders of Series B Preferred Shares of such liquidation preference and to all holders of the Series A Preferred Shares their full liquidation preference, the remaining assets of the Company available for distribution to its shareholders shall be distributed among the holders of the shares of Series B Preferred Shares and Junior Stock other than Series A Preferred Shares, pro rata, on an “as converted basis,” as applicable. The Series B Preferred Shares shall vote together with holders of Series A Preferred Shares and holders of common stock as a single class on all matters brought to a vote of shareholders. Each Series B Preferred Share shall entitle the holder thereof to such number of votes as equal the number of shares of common stock then issuable upon conversion of the Series B Preferred Share multiplied by 50. The Series B Preferred Shares also contain protective provisions which provide that the Company shall not undertake certain transactions without the prior approval of the holder of the Series B Preferred Shares.

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Preferred Stock Dividends

The following table presents undeclared preferred stock dividends for the three and ~~six~~nine month periods ended ~~June~~September 30, 2023 and ~~June~~September 30, 2022, respectively.

Undeclared dividends

For the three months ended

For the ~~six~~nine months ended

June 30,

September 30,

Series of preferred stock

2023

2022

2023

2022

Series A preferred stock dividends

7980,~~781~~658

~~158~~239,~~685~~342

Series B preferred stock dividends

1920,~~945~~164

3959,~~671~~836

Total undeclared preferred stock dividends

99100,~~726~~822

~~198~~299,~~356~~178

The following table presents the cumulative undeclared dividends by class of preferred stock as of ~~June~~September 30, 2023 and December 31, 2022, respectively. These cumulative undeclared dividends ~~are~~ are recorded in Dividends payable on our balance sheet as of ~~June~~September 30, 2023 and December 31, 2022.

	Cumulative undeclared dividends as of
Series of preferred stock	~~June~~September 30, 2023		December 31, 2022
Series A preferred stock	$	~~623~~704,~~447~~104	$	464,762
Series B preferred stock		~~170~~190,~~739~~904		131,068
Cumulative undeclared preferred stock dividends	$	~~794~~895,~~186~~008	$	595,830

NOTE 9: CHANNEL REPORTING

The Company’s product revenue is generated primarily through two sales channels, e-commerce sales and wholesale sales. The Company believes that these categories appropriately reflect how the nature, amount, timing and uncertainty of revenue and cash flows are impacted by economic factors.

A description of the Company’s principal revenue generating activities are as follows:

●

E-commerce sales - consumer products sold through the Company’s online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment; and

●

Wholesale sales - products sold to the Company’s wholesale customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the wholesale customer, in accordance with the terms of the applicable agreement. Payment terms vary and can typically be 30 days from the date control over the product is transferred to the customer.

The following table represents a disaggregation of revenue by sales channel:

For the three months ended

For the ~~six~~nine months ended

June 30,

September 30,

2023

2022

2023

2022

Wholesale revenue

526,~~212~~271

76(74,~~256~~970

)

3158,~~770~~040

~~242~~167,~~941~~971

E-commerce revenue

~~164~~209,~~652~~670

~~197~~175,~~676~~175

~~347~~557,~~882~~553

~~451~~627,~~898~~073

Total revenue

~~169~~235,~~864~~941

~~273~~100,~~932~~205

~~379~~615,~~652~~593

~~694~~795,~~839~~044

NOTE 10: CONCENTRATIONS

The Company had no single customer for the six months ended June 30, 2023 that accounted for more than 10% of sales. For the six months ended June 30, 2022, one customer accounted for 10% of sales.

The Company had two customers at June 30, 2023 accounting for 41% and 12% of total accounts receivable. At December 31, 2022, the Company had three customers accounting for 33%, 16% and 10% of total accounts receivable.

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 10: CONCENTRATIONS

The Company had no single customer for the nine months ended September 30, 2023 that accounted for more than 10% of sales. For the nine months ended September 30, 2022, no single customer accounted for more than 10% of sales.

The Company had two customers at September 30, 2023 accounting for 37% and 11% of total accounts receivable. At December 31, 2022, the Company had three customers accounting for 33%, 16% and 10% of total accounts receivable.

NOTE 11: RELATED PARTY

On October 12, 2021, the Company issued a secured convertible credit line promissory note in the principal amount for up to $1,500,000 (“2021 Secured Convertible Promissory Note”), which 2021 Secured Convertible Promissory Note was issued to the Wit Trust. On March 9, 2022, the Company amended the 2021 Secured Convertible ~~Promissory~~ Promissory Note originally dated October 12, 2021 to increase the total available principal balance to $3,000,000. The 2021 Secured Convertible ~~Promissory~~ Promissory Note is secured by the Company’s assets and contains certain non-financial covenants and customary events of default, the occurrence of which could result in an acceleration of the 2021 Secured Convertible Promissory Note. The 2021 Secured Convertible Promissory Note is convertible as follows: aggregate outstanding loaned principal and accrued interest under the 2021 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 2021 Secured Convertible Promissory Note will accrue interest on the aggregate amount loaned 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 2021 Secured Convertible Promissory Note, is due and payable if not converted pursuant to the terms and conditions of the 2021 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 $~~200~~160,~~595~~476 on the accompanying balance sheet with amortization to interest expense of $80120,~~238~~357 and $80120,~~238~~357 for the ~~six~~nine month periods ended ~~June~~September 30, 2023 and ~~June~~September 30, 2022, respectively. At ~~June~~September 30, 2023, $3,000,000 was outstanding on the 2021 Secured Convertible Promissory Note.

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

On June 7, 2023, the Company issued a secured convertible credit line promissory note in the principal amount for up to $3,000,000 (“2023 Secured Convertible Promissory Note”), which 2023 Secured Convertible Promissory Note was issued to the Wit Trust. The 2023 Secured Convertible Promissory Note includes and evidences an aggregate of $1,750,000 of outstanding indebtedness of the Company to the Wit Trust under previously executed and delivered secured convertible promissory notes as described above. The 2023 Secured Convertible Promissory Note is secured by the Company’s assets and contains certain non-financial covenants and customary events of default, the occurrence of which could result in an acceleration of the 2023 Secured Convertible Promissory Note. The 2023 Secured Convertible Promissory Note is convertible as follows: aggregate outstanding loaned principal and accrued interest under the 2023 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 $0.02 per share. The 2023 Secured Convertible Promissory Note will accrue interest on the aggregate amount loaned 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 2023 Secured Convertible Promissory Note, is due and payable if not converted pursuant to the terms and conditions of the 2023 Secured Convertible Promissory Note on the earlier of (i) October 1, 2026, or (ii) following an event of default. The Company determined that there was a beneficial conversion feature of $12,~~750~~037,~~000~~500 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 $1,~~706~~845,~~250~~ 374 on the accompanying balance sheet with amortization to interest expense of $43192,~~750~~126 and $0 for the ~~six~~ nine month periods ended ~~June~~ September 30, 2023 and ~~June~~September 30, 2022, respectively. At ~~June~~September 30, 2023, $12,~~750~~500,000 was outstanding on the 2023 Secured Convertible ~~Promissory~~ Promissory Note.

~~For~~On ~~the~~August ~~six month period ended June 30~~25, 2023, the Company ~~incurred~~ ~~$349,057 in~~assumed ~~interest~~an aggregate ~~expense~~outstanding tonotes ~~related~~payable ~~parties~~balance ~~and~~of $~~164~~250,~~827 in~~000 ~~interest~~that ~~expense~~is payable to ~~related~~the ~~parties~~Wit ~~for~~Trust as part of the ~~six~~consideration ~~month~~for the ~~period~~Acquired ~~ended~~Assets ~~June~~from ~~30, 2022~~Asystem. ~~For~~The ~~the~~notes ~~three~~carry ~~month~~an ~~period~~interest ~~ended~~rate ~~June~~of 30ten percent (10%) per annum and have a maturity date of April 1, 2024. On August 28, 2023 the ~~Company~~notes ~~incurred~~were ~~$198~~amended,~~185 in~~ ~~interest~~replaced ~~expense~~and tosuperseded ~~related~~in ~~parties and~~their ~~$96~~entirety,~~215 in~~ ~~interest~~and ~~expense~~included toin ~~related~~and ~~parties~~part ~~for~~of the ~~three~~2023 Secured ~~month~~Convertible ~~period~~Promissory ~~ended~~Note ~~June~~as ~~30,~~further ~~2022~~described above.

For the nine month period ended September 30, 2023 the Company incurred $666,661 in interest expense to related parties and $288,782 in interest expense to related parties for the nine month period ended September 30, 2022. For the three month period ended September 30, 2023 the Company incurred $317,604 in interest expense to related parties and $123,955 in interest expense to related parties for the three month period ended September 30, 2022.

On August 25, 2023, the Company entered into a consulting agreement with Mr. Simonds, a director of the Company effective August 25, 2023. The consulting agreement is for an initial term of one year commencing on the date of the consulting agreement, pursuant to which Mr. Simonds will receive $4,167 monthly for his service, and received an award of 4,233,485 shares of restricted stock pursuant to the terms and conditions of the Veritas Farms, Inc. 2023 Equity Incentive Plan and subject to the further terms, conditions and restrictions contained in a separate agreement, titled “2023 Equity Incentive Plan Restricted Stock Award Agreement”.

On August 30, 2023, the Company entered into an Indemnification Agreement (the “Wit Indemnification Agreement”) with the Wit Trust. The Wit Indemnification Agreement provides that the Wit Trust will, from private funds, indemnify any director or executive officer of the Company from any claims or expenses relating to indemnifiable events (as defined in and pursuant to the terms and conditions of Indemnification Agreements entered into between the Company and the directors and officers of the Company) for which the Company is obligated to indemnify the director or executive officer but does not indemnify such officer or director, up to a total of $1 million. The obligations of the Wit Trust will survive for a period of two years after the date of the Wit Indemnification Agreement.

Veritas Farms, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 12: COMMITMENTS AND CONTINGENCIES

Legal Matters and Routine Proceedings

As of ~~June~~September 30, 2023, there were no pending or or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.

From time to time, the Company may be involved in and subject to disputes and legal proceedings, as well as demands, claims and threatened litigation that arise in the ordinary course of its business. These proceedings may include allegations involving business practices, infringement of intellectual property, employment or other matters. The ultimate outcome of any legal proceeding is often uncertain, there can be no assurance that the Company will be successful in any legal proceeding, and unfavorable outcomes could have a negative impact on our results of operations and financial condition. The Company records a liability in its financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews the status of each significant matter each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the Company’s financial statements. Gain contingencies are not recorded until they are realized. Legal costs related to any legal matters are expensed as incurred

Employment Agreements

The Company has an employment agreement in place with Ramon A. Pino, our Chief Financial Officer.

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

NOTE 13: SUBSEQUENT EVENTS

On ~~July~~October 134, 2023 the Company received an additional $250,000 from the 2023 Secured Convertible Promissory Note.

On November 9, 2023 the Company received an additional $250,000 from the 2023 Secured Convertible Promissory Note.

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

Unless the context otherwise requires, references in this report to “the Company,” “Veritas Farms,” “Veritas,” “we,” “us” and “our” refer to Veritas Farms, Inc. and its wholly owned 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 an agribusiness focused on 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~~ 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~~owns approximately 15,000 square ~~feet~~ 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.

Veritas Farms products 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.

Recent Developments

Management Changes

Since June 2022 as previously reported in ~~our~~ our Current Reports on Form 8-K, there have been significant changes to our executive officers and board of directors which includes the following: (1) on June 1, 2022, Kristen High (“Ms. High”) was elected and appointed as a director on the board of directors; (2) on June 30, 2022, Dave Smith, the Company’s ~~COO~~Chief Operating Officer, resigned; (3) on July 25, 2022, (i) Stephen E. Johnson stepped down as Chief Executive Officer, President and a director, and (ii) Alessandro M. Annoscia (“Mr. Annoscia”) was appointed as Chief Executive Officer, President and a director on the board of directors, (4) on November 7, 2022, (i) Mr. Annoscia stepped down as Chief Executive Officer, President, and a director, and (ii) Thomas E. Vickers, ~~chair~~chairman of the board of directors was appointed interim Chief Executive Officer and interim President, ~~and~~ (5) on December 8, 2022, (i) Kellie Newton, Craig Fabel, and Ms. High were removed as directors on the board of directors, and (ii) Gary A. Shangold was elected and appointed as a director on the board of directors and (6) on August 25, 2023 (i) Henry Simonds (“Mr. Simonds”) was elected and appointed as a director on the board of directors, (ii) Marisa Cifre was appointed as Chief Revenue Officer and (iii) Thomas J. Krogh was appointed as Chief Operating Officer.

Recent Developments

On August 25, 2023, the Company acquired substantially all of the assets and business (the “Acquired Assets”) of Asystem Inc. (“Asystem”), a Delaware corporation. The Acquired Assets include all of Asystem’s rights in its science-forward supplement brand. The Acquired Assets were acquired by us under an Asset Transfer Agreement, dated August 25, 2023, between the Company, Asystem, Oliver Walsh and Mr. Simonds (the “Asset Transfer Agreement”). Pursuant to the Asset Transfer Agreement, the Company acquired all of Asystem’s customer lists, customers, name, trademarks, internet domains and other things necessary to carry on the business of Asystem. Acquisition expenses were approximately $48,000 and were included in SG&A expenses. The results of operations of the Acquired Assets have been included in the consolidated results of the Company from the date of acquisition.

The consideration for the Acquired Assets consisted of the issuance of 103,570,600 shares of our common stock, which were distributed to Asystem shareholders, and the assumption of certain liabilities of Asystem. The assumed liabilities included the assumption by the Company of notes payable by Asystem with an aggregate outstanding notes payable balance of $250,000 that are payable to the Cornelis F. Wit Revocable Living Trust, of which Cornelis F. Wit is the sole trustee (“Wit Trust”). The notes carry an interest rate of ten percent (10%) per annum and have a maturity date of April 1, 2024. On August 28, 2023 the notes were amended, replaced and superseded in their entirety, and included in and part of the 2023 Secured Convertible Promissory Note as further described below. Assets and liabilities of all acquired companies are recorded at their estimated fair values at the dates of acquisition. Goodwill represents the potential new customers and future cash flows after the acquisition.

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 401 E. Las Olas Boulevard, Suite 1400, Fort Lauderdale, FL 33301 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.

Current Economic Conditions, Challenges, and Risks

Macroeconomic factors, including inflation, increased interest rates, significant capital market and supply chain volatility, and global economic and geopolitical developments, have direct and indirect impacts on our results of operations that are difficult to isolate and quantify. In addition, rising fuel, utility, and food costs, rising interest rates, and recessionary fears may impact customer demand and our ability to forecast consumer spending patterns. We also expect the current macroeconomic environment and enterprise customer cost optimization efforts to impact our revenue growth rates. We expect some or all of these factors to continue to impact our operations in 2023.

Results of Operations

The ~~six~~ nine months ended ~~June~~September 30, 2023 compared to the ~~six~~nine months ended ~~June~~September 30, 2022

Revenues. Revenues for the ~~six~~nine months ~~ended~~ ~~June~~ended September 30, 2023 decreased to $~~379~~615,~~652~~593, as compared to revenues of $~~694~~795,~~839~~044 for the ~~six~~nine months ended ~~June~~September 30, 2022. The decrease reflects a significant contraction of retail sales in 2023 from 2022, primarily as a result of increased competition and decreased acceptance in big box retail leading to reduced inventory turnover. The changes in consumer behavior due to macroeconomic factors make future sales somewhat challenging to predict. Revenues for the nine months ended September 30, 2023 include revenue generated from the Asystem Acquired Assets of $74,826. 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 ~~six~~nine months ended ~~June~~ September 30, 2023 ~~increased~~decreased to $~~716~~900,~~844~~064 from $~~643~~1,~~641~~007,616 for the ~~six~~nine months ended ~~June~~September 30, 2022. The ~~increase~~ decrease in cost of sales can be attributed to the decrease in sales which was offset by the disposal of obsolete inventory during the ~~six~~nine months ended ~~June~~September 30, 2023 as compared to the ~~six~~nine months ended ~~June~~September 30, 2022. Cost of goods sold for the nine months ended September 30, 2023 include cost of goods sold related to the Asystem Acquired Assets of $18,500.

Gross margin. We had gross expense of $337,192 for the six months ended June 30, 2023, as compared to gross margin of $51,198 for the six months ended June 30, 2022. The decrease in gross margin can be attributed to the decrease in sales in addition to the disposal of obsolete inventory during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased to $1,600,910 for the six months ended June 30, 2023, from $2,569,928 for the six months ended June 30, 2022. 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, 2023 was $373,547, as compared to $197,515 for the six months ended June 30, 2022. Interest expense increased in the six months ending June 30, 2023 compared to the six months ending June 30, 2022 due to an increase in interest bearing notes payable.

Net loss. As a result of all the foregoing, net loss for the six months ended June 30, 2023, decreased to $2,540,119 or $0.06 per share based on 41,625,331 weighted average shares outstanding, from $2,087,435 or $0.05 per share for the six months ended June 30, 2022, based on 41,625,331 weighted average shares outstanding.

Gross expense. We had gross expense of $284,471 for the nine months ended September 30, 2023, as compared to gross expense of $212,572 for the nine months ended September 30, 2022. The increase in gross expense can be attributed to the decrease in sales in addition to the disposal of obsolete inventory during ~~three~~the nine months ended ~~June~~September 30, 2023 as compared to the ~~three~~nine months ended ~~June~~September 30, 2022.

~~Revenues.~~Selling, ~~Revenues~~general ~~for~~and ~~the~~administrative ~~three months~~expenses. ~~ended~~Selling, ~~June~~general ~~30,~~and ~~2023~~administrative expenses decreased to $~~169~~2,~~864~~493,368 asfor ~~compared~~the tonine ~~revenues~~months ofended ~~$273~~September 30,~~932~~ 2023, from $3,129,966 for the ~~three~~nine months ended ~~June~~September 30, 2022. The decrease ~~reflects~~ ato ~~significant contraction of retail sales in 2023 from 2022~~selling, ~~primarily~~general ~~as a result of increased competition~~ and ~~decreased~~administrative ~~acceptance in~~expenses ~~big~~is ~~box~~primarily ~~retail~~due ~~leading~~ to ~~reduced inventory turnover. The changes~~ reductions in ~~consumer~~total ~~behavior~~salary ~~due~~and torelated ~~macroeconomic factors make future sales somewhat challenging to predict~~expenses. ~~Sales~~Selling, ~~include~~general ~~bulk~~and ~~oils~~administrative ~~for~~expenses ~~wholesale,~~consist ~~capsules,~~primarily ~~gummies,~~of ~~tinctures,~~administrative ~~lotions,~~personnel ~~salves~~costs, facilities ~~creams~~expenses, ~~balm~~professional ~~sticks, lip~~fee ~~balms~~expenses and ~~pet~~marketing ~~chews,~~costs ~~all~~for inour ~~various~~Veritas ~~potency~~Farms ~~levels~~brand ~~and flavors~~products.

~~Cost of~~Other ~~goods sold~~income/(expense). ~~All~~Interest ~~expenses incurred to grow, process, and package the finished goods are included in our cost of goods sold. Cost~~expense ~~of goods sold~~ for the ~~three~~nine months ended ~~June~~September 30, 2023 ~~increased~~was to $~~556~~727,~~534~~400, ~~from~~as compared to $~~324~~332,~~813~~084 for the ~~three~~nine months ended ~~June~~September 30, 2022. Interest ~~The~~expense ~~increase~~increased in ~~cost~~the ofnine ~~sales~~months ~~can~~ending beSeptember ~~attributed~~30, to2023 ~~the~~compared ~~disposal~~to ~~of obsolete inventory during~~ the ~~three~~nine months ~~ended~~ending ~~June~~September 30, ~~2023~~2022 ~~as compared~~due to ~~the~~an ~~three~~increase in ~~months~~interest ~~ended~~bearing ~~June~~notes ~~30, 2022~~payable.

~~Gross margin~~Net loss. WeAs ~~had~~a ~~gross~~result ~~expense~~ of ~~$386~~all the foregoing,~~670~~ net loss for the ~~three~~nine months ended ~~June~~September 30, 2023, asincreased ~~compared~~ to ~~gross expense of~~ $503,~~881 for the three months ended June 30~~476,584 ~~2022~~or $0.06 ~~The~~per ~~decrease~~share inbased ~~gross~~on ~~margin~~57,746,809 ~~can~~weighted beaverage shares ~~attributed~~outstanding, tofrom ~~the~~$2,868,311 ~~decrease~~or in$0.07 ~~sales~~per inshare ~~addition~~for to the ~~disposal of~~nine ~~obsolete inventory during the three~~ months ended ~~June~~September 30, ~~2023~~2022, asbased ~~compared~~on to41,625,331 ~~the~~weighted ~~three~~average shares ~~months ended June 30, 2022~~outstanding.

~~Selling, general~~The ~~and administrative expenses. Selling, general and administrative expenses decreased to $801,552 for the~~ three months ended ~~June~~ September 30, 2023, ~~from~~compared to ~~$1,275,014 for~~ the three months ended ~~June~~September 30, 2022. 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)~~Revenues. ~~Interest~~Revenues ~~expense~~ for the three months ended ~~June~~September 30, 2023 ~~was~~increased to $~~210~~235,~~650~~941, as compared to revenues of $~~107~~100,~~438~~205 for the three months ended ~~June~~September 30, 2022. ~~Interest~~The increase is ~~expense~~driven ~~increased~~by an increase in ecommerce sales as compared to wholesale sales for the three months ~~ending~~ended ~~June~~September 30, 2023 as compared to the three months ~~ending~~ended ~~June~~September 30, 2022. The changes in consumer behavior due to anmacroeconomic ~~increase~~factors make future sales somewhat challenging to predict. Revenues for the three months ended September 30, 2023 include revenue generated from the Asystem Acquired Assets of $74,826. Sales include bulk oils for wholesale, capsules, gummies, tinctures, lotions, salves, creams, balm sticks, lip balms and pet chews, all in ~~interest~~various ~~bearing~~potency ~~notes~~levels ~~payable~~and flavors.

~~Net loss~~Cost of goods sold. AsAll aexpenses ~~result~~incurred to ofgrow, ~~all~~process and package the ~~foregoing,~~finished ~~net~~goods ~~loss~~are included in our cost of goods sold. Cost of goods sold for the three months ended September ~~June~~ 30, 2023, decreased to $1183,~~520,258~~220 orfrom $0363,975 for the three months ended September 30, 2022.04 ~~per~~The ~~share~~decrease in cost of sales can ~~based~~be onattributed ~~41,625,331~~to ~~weighted~~the ~~average~~reduction ~~shares~~of ~~outstanding,~~cost ~~from~~of ~~$705~~goods sold overheads during the three months ended September 30,~~893~~ or2023 $0as compared to the three months ended September 30, 2022.02 ~~per~~Cost ~~share~~of goods sold for the three months ended ~~June~~September 30, ~~2022,~~2023 ~~based~~include cost of goods sold related to onthe ~~41,625,331~~Asystem ~~weighted~~Acquired ~~average~~Assets ~~shares~~of ~~outstanding~~$18,500.

Gross margin/expense. We had gross margin of $52,721 for the three months ended September 30, 2023, as compared to gross expense of $263,770 for the three months ended September 30, 2022. The increase in gross margin can be attributed to the decrease in cost of goods sold during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

Selling, general and administrative expenses. Selling, general and administrative expenses increased to $892,458 for the three months ended September 30, 2023, from $560,038 for the three months ended September 30, 2022. The increase to selling, general and administrative expenses is primarily due to increases in total salary and related expenses associated with the employee retention credit recorded during the three months ended September 30, 2022. 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 September 30, 2023 was $353,853, as compared to $134,569 for the three months ended September 30, 2022. Interest expense increased in the three months ending September 30, 2023 compared to the three months ending September 30, 2022 due to an increase in interest bearing notes payable.

Net loss. As a result of all the foregoing, net loss for the three months ended September 30, 2023, increased to $1,134,821 or $0.01 per share based on 89,464,064 weighted average shares outstanding, from $979,232 or $0.02 per share for the three months ended September 30, 2022, based on 41,625,331 weighted average shares outstanding.

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 ~~June~~September 30, 2023, we had working capital deficit of $1,~~368~~554,~~699~~689.

Cash increased to $~~119~~58,~~915~~787 at ~~June~~September 30, 2023 from $55,273 at December 31, 2022. The increase was primarily due to ~~collections~~the collection of our employee retention credit receivable.

As of ~~June~~September 30, 2023, total assets were $58,~~461~~319,~~868~~163 as compared to $6,794,471 at December 31, 2022. The ~~decrease~~increase in assets is primarily due to ~~collections~~the ofAsystem ~~our~~Acquired ~~employee retention credit receivable~~Assets.

Total current liabilities as of ~~June~~ September 30, 2023 were $34,~~779~~467,551, as compared to $3,167,451 at December 31, 2022. The increase was mainly due to increases in accounts payable, accrued interest, dividends payable and accrued expenses.

Net cash used in operating activities was $~~445~~1,~~580~~364,811 for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to net cash used in operating activities of $23,~~268~~297,~~762~~146 for the ~~six~~nine months ended ~~June~~ September 30, 2022. The decrease is largely attributable to ~~collections~~the collection of our employee retention credit receivable.

Net cash provided by investing activities was $1324,~~500~~390 for the ~~six~~nine months ended ~~June~~September 30, 2023 as compared to net cash provided by investing activities of $23,621 for the ~~six months~~nine months ended ~~June~~September 30, 2022, reflecting a ~~decrease~~increase in capital income in 2023.

Net cash provided by financing activities was $~~496~~1,~~722~~343,935 for the ~~six~~nine months ended ~~June~~September 30, 2023 as compared to $12,~~927~~916,~~761~~511 for the ~~six~~nine months ended ~~June~~September 30, 2022. Net cash provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2023 included net proceeds of $~~500~~1,250,000 from convertible note payables received from the Wit Trust. Net cash provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2022 included net proceeds of $23,000,000 from convertible note payables received from the Wit Trust.

Contractual Obligations

The following table sets forth our contractual obligations as of ~~June~~September 30, 2023:

Contractual obligation			Payments due by period
	Total		Less than 1 year			1-2 Years			2-3 Years		3+ Years
Promissory notes(1)	$	~~150~~247,~~000~~213	$	3100,~~233~~477		$	3,~~357~~389		$	3,~~485~~518	$	139,~~925~~829
Convertible notes(1)		45,~~950~~700,000		200,000	(2)		3,000,000	(3)		-		12,~~750~~500,000	(4)
Operating lease obligations(5)		184,655		128,895			55,760			-		-
Total	$	5,947,213	$	300,477		$	3,003,389		$	3,518	$	2,639,829
Total	$	5,284,655	$	332,128		$	3,059,117		$	3,485	$	1,889,925

(1)	Amounts do not include interest to be paid.
(2)	Includes $200,000 of 10% convertible notes payable that matured in October 2022.
(3)	Includes $3,000,000 of 10% convertible notes payable that mature in October 2024.
(4)	Includes $1,750,000 of 10% convertible notes payable that mature in October 2026.
(5)	Includes office lease obligations for our executive office in Florida and our warehouse facilities in Colorado.

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

(2) Includes $200,000 of 10% convertible notes payable that matured in October 2022.

(3) Includes $3,000,000 of 10% convertible notes payable that mature in October 2024.

(4) Includes $2,500,000 of 10% convertible notes payable that mature in October 2026.

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.

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. From October 2, 2022 until the present we are in default in the payment of principal. This default does not trigger any other default events for any other notes payable.

On October 12, 2021, the Company issued a secured convertible credit line promissory note in the principal amount for up to $1,500,000 (“2021 Secured Convertible Promissory Note”), which 2021 Secured Convertible Promissory Note was issued to the Wit Trust. On March 9, 2022, the Company amended the 2021 Secured Convertible ~~Promissory~~ Promissory Note originally dated October 12, 2021 to increase the total available principal balance to $3,000,000. The 2021 Secured Convertible ~~Promissory~~ Promissory Note is secured by the Company’s assets and contains certain non-financial covenants and customary events of default, the occurrence of which could result in an acceleration of the 2021 Secured Convertible Promissory Note. The 2021 Secured Convertible Promissory Note is convertible as follows: aggregate outstanding loaned principal and accrued interest under the 2021 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 2021 Secured Convertible Promissory Note will accrue interest on the aggregate amount loaned 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 2021 Secured Convertible Promissory Note, is due and payable if not converted pursuant to the terms and conditions of the 2021 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 $~~200~~160,~~595~~476 on the accompanying balance sheet with amortization to interest expense of $80120,~~238~~357 and $80120,~~238~~357 for the ~~six~~nine month periods ended ~~June~~September 30, 2023 and ~~June~~September 30, 2022, respectively. At ~~June~~September 30, 2023, $3,000,000 was outstanding on the 2021 Secured Convertible Promissory Note.

On June 7, 2023, the Company issued a secured convertible credit line promissory note in the principal amount for up to $3,000,000 (“2023 Secured Convertible Promissory Note”), which 2023 Secured Convertible Promissory Note was issued to the Wit Trust. The 2023 Secured Convertible Promissory Note includes and evidences an aggregate of $1,750,000 of outstanding indebtedness of the Company to the Wit Trust under previously executed and delivered secured convertible promissory notes as described above. The 2023 Secured Convertible Promissory Note is secured by the Company’s assets and contains certain non-financial covenants and customary events of default, the occurrence of which could result in an acceleration of the 2023 Secured Convertible Promissory Note. The 2023 Secured Convertible Promissory Note is convertible as follows: aggregate outstanding loaned principal and accrued interest under the 2023 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 $0.02 per share. The 2023 Secured Convertible Promissory Note will accrue interest on the aggregate amount loaned 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 2023 Secured Convertible Promissory Note, is due and payable if not converted pursuant to the terms and conditions of the 2023 Secured Convertible Promissory Note on the earlier of (i) October 1, 2026, or (ii) following an event of default. The Company determined that there was a beneficial conversion feature of $12,~~750~~037,~~000~~500 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 $1,~~706~~845,~~250~~ 374 on the accompanying balance sheet with amortization to interest expense of $43192,~~750~~176 and $0 for the ~~six~~ nine month periods ended ~~June~~ September 30, 2023 and ~~June~~September 30, 2022, respectively. At ~~June~~September 30, 2023, $12,~~750~~500,000 was outstanding on the 2023 Secured Convertible ~~Promissory~~ Promissory Note.

~~The accompanying~~On ~~financial~~August ~~statements~~25, ~~have been prepared in conformity with U.S. GAAP~~2023, ~~which contemplate continuation of~~ the Company asassumed aan aggregate ~~going~~outstanding ~~concern.~~notes ~~However,~~payable ~~the~~balance ~~Company~~of ~~has~~$250,000 ~~sustained~~that ~~substantial~~is ~~losses~~payable ~~from~~to ~~operations~~the ~~since~~Wit ~~its~~Trust ~~inception.~~as Aspart of ~~and~~the consideration for the ~~period~~Acquired ~~ended~~Assets from ~~June~~Asystem. ~~30,~~The ~~2023,~~notes ~~the~~carry ~~Company had~~ an ~~accumulated~~interest ~~deficit~~rate of ~~$42,014,741~~ten ~~and~~percent a(10%) ~~net~~per ~~loss~~annum ~~attributable~~and tohave ~~common~~a ~~shareholders~~maturity date of $2April 1,~~540,119~~ 2024. ~~These~~ ~~factors,~~On ~~among~~August ~~others~~28, ~~raise substantial doubt about~~ 2023 the ~~ability~~notes ofwere ~~the~~amended, ~~Company~~replaced toand ~~continue~~superseded asin atheir ~~going~~entirety, ~~concern.~~and ~~Continuation~~included ~~as a~~in ~~going~~and ~~concern~~part isof ~~dependent on~~ the ~~ability~~2023 toSecured ~~raise~~Convertible ~~additional capital and financing until we can achieve a level of operational profitability,~~Promissory ~~though~~Note ~~there~~as isfurther nodescribed ~~assurance of success~~above.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“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 September 30, 2023, the Company had an accumulated deficit of $43,250,384 and a net loss attributable to common shareholders of $3,775,762. 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.

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

Item 1A of our 2022 Form 10-K 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.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with ~~accounting principles generally accepted in the United States of America (“~~U.S. GAAP”) and our discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported in our unaudited condensed consolidated financial statements and accompanying notes. Note 1: Nature of Business and Summary of Significant Accounting Policies of the Notes to our unaudited condensed consolidated financial statements appearing elsewhere in this report describes the significant accounting policies and methods used in the preparation of our unaudited condensed consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.

Please see Part II, Item 7 – Critical Accounting Policies appearing in our 2022 Form 10-K for the critical accounting policies we believe involve the more significant judgments and estimates used in the preparation of our consolidated financial statements and are the most critical to aid you in fully understanding and evaluating our reported financial results. Management considers these policies critical because they are both important to the portrayal of our financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters.

Item 3. Quantitative and Qualitative Disclosures About Market Risks.

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

Item 4. Controls and Procedures.

~~Management’s Report~~Evaluation onof Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission (“SEC’s”) rules and forms and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required financial disclosure.

Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer (our Principal Executive Officer) and our Chief Financial Officer (our Principal Financial and Accounting Officer), to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our unaudited condensed consolidated financial statements in accordance with U.S. GAAP, and that receipts and expenditures of our Company are being made only in accordance with authorizations of management and directors of our Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our Company’s assets that could have a material effect on our unaudited condensed consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not provide absolute assurance that a misstatement of our unaudited condensed consolidated financial statements would be prevented or detected.

Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our Chief Executive Officer (our Principal Executive Officer) and our Chief Financial Officer (our Principal Financial and Accounting Officer) conducted an evaluation of the effectiveness of our internal control over financial reporting as of ~~June~~September 30, 2023 in accordance with the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission Internal Control — Integrated Framework (2013). Based on this assessment, our Chief Executive Officer (our Principal Executive Officer) and our Chief Financial Officer (our Principal Financial and Accounting Officer) identified the following two material weaknesses that have caused management to conclude that, as of ~~June~~September 30, 2023, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level in that:

(a)

We do not have written documentation of our internal control policies and procedures. Our Chief Executive Officer and our Chief Financial Officer evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

(b)

We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Documentation of our controls and the continued changes to assure segregation of duties are being performed. Our Chief Executive Officer and our Chief Financial Officer evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

To address these material weaknesses, our Chief Executive Officer and our Chief Financial Officer performed additional analyses and other procedures to ensure that our unaudited condensed consolidated financial statements included in this report fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that our unaudited condensed consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented. We intend to take further steps to rectify these material weaknesses, subject to the availability of working capital to fund the costs thereof.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, during the quarter ended ~~June~~ September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

As a result of the COVID-19 pandemic that commenced in early spring of 2020, our workforce continued to operate primarily in a work from home environment for the quarter ended ~~June~~ September 30, 2023 and we are monitoring our control environment with increased vigilance to ensure changes as a result of our employees working ~~remotely~~ remotely are addressed and all increased risks are mitigated.

27On August 25, 2023, we acquired the Asystem Acquired Assets. SEC guidance permits management to omit an assessment of an acquired business’ internal control over financial reporting from management’s assessment of internal control over financial reporting for a period not to exceed one year from the date of the acquisition. Accordingly, management has not assessed Asystem’s internal control over financial reporting as of September 30, 2023.

~~PART II - OTHER INFORMATION~~27

~~Item 1.~~PART ~~Legal~~II ~~Proceedings.~~- OTHER INFORMATION

~~There is~~Item ~~no material legal proceeding, arbitration or governmental proceeding currently pending against us or any members of our management team in their capacity as such~~1. ~~From~~Legal ~~time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business~~Proceedings.

~~Item~~There is no material legal proceeding, arbitration 1Aor governmental proceeding currently pending against us or any members of our management team in their capacity as such. ~~Risk~~From ~~Factors~~time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business.

The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A. ~~of the 2022 Form 10-K, under the heading “~~Risk Factors,” any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price. There have been no material changes to the Company’s risk factors since the 2022 Form 10-K.

~~Item~~The business, financial condition and operating 2.results ~~Unregistered~~of ~~Sales~~the Company can be affected by a number of ~~Equity~~factors, ~~Securities~~whether currently known or unknown, including but not limited to those described in Part I, Item 1A of the 2022 Form 10-K, under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and ~~Use~~operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of ~~Proceeds~~these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price. There have been no material changes to the Company’s risk factors since the 2022 Form 10-K, except for the following:

~~None~~The anticipated benefits of the acquisition of the assets of Asystem may not come to fruition.

~~Item~~On August 25, 2023, we acquired substantially all of the assets and 3business of Asystem, which includes all of Asystem’s rights in its science-forward supplement brand. ~~Defaults~~Pursuant ~~Upon~~to ~~Senior~~our ~~Securities~~Asset Transfer Agreement with Asystem, we acquired all of Asystem’s customer lists, customers, name, trademarks, internet domains and other things necessary to carry on the business of Asystem. Our ability to receive the anticipated benefits of the Asystem asset acquisition will depend on our ability to integrate those assets into our operations, and the transaction may not result in the benefits or growth originally anticipated from such acquisition, and our operations could be adversely affected.

~~None~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~Item 4~~None. ~~Mine Safety Disclosures.~~

~~Not applicable~~Item 3. Defaults Upon Senior Securities.

~~Item 5~~None. ~~Other Information.~~

~~None~~Item 4. Mine Safety Disclosures.

~~Item 6.~~Not ~~Exhibits~~applicable.

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

Item 5. Other Information.

* Filed herewithNone.

**Item ~~Furnished~~6. ~~herewith~~Exhibits.

Exhibit Number		Description of Exhibit
10.1		Asset Transfer Agreement dated August 25, 2023⁽¹⁾
10.2		Consulting Agreement, dated August 25, 2023, between Veritas Farms, Inc. and Oliver Walsh⁽¹⁾
10.3		Indemnification Agreement dated August 30, 2023, between the Company and the Cornelis F. Wit Revocable Living Trust⁽¹⁾
10.4		Form of Indemnification Agreement for Directors and Officers⁽¹⁾
31.1*		Section 302 Certification of CEO pursuant to Rules 13a - 14(a) or Rule 15d - 14(a) under the Exchange Act
31.2*		Section 302 Certification of CFO pursuant to Rule 13a-14(a) or Rules 15d - 14(a) under the Exchange Act
32.1**		Section 906 Certification of CEO and CFO pursuant to Rules 13a - 14(b) or 15d - 14(b) under the Exchange Act and 18 USC 1350
101.INS*		Inline XBRL Instance Document
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

~~SIGNATURES~~* Filed herewith ** Furnished herewith

~~Pursuant to~~(1) ~~the~~Filed ~~requirements~~as ofan ~~the~~exhibit ~~Securities~~to ~~Exchange Act of 1934,~~ the registrant’s ~~has~~Current ~~duly~~Report ~~caused~~on ~~this~~Form ~~report~~8-K todated beAugust ~~signed~~31, on2023 ~~its~~and ~~behalf~~incorporated herein by ~~the~~ ~~undersigned thereunto duly authorized~~reference.

	VERITAS FARMS, INC.
Dated: August 11, 2023	By:	/s/ Thomas E. Vickers
		Thomas E. Vickers, Interim Chief Executive Officer and interim President
		(Principal Executive Officer)
Dated: August 11, 2023	By:	/s/ Ramon A. Pino
		Ramon A. Pino, Chief Financial Officer
		(Principal Financial and Accounting Officer)

29SIGNATURES

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

	VERITAS FARMS, INC.

Dated: November 14, 2023	By:	/s/ Thomas E. Vickers
		Thomas E. Vickers, Interim Chief Executive Officer and Interim President
		(Principal Executive Officer)

Dated: November 14, 2023	By:	/s/ Ramon A. Pino
		Ramon A. Pino, Chief Financial Officer
		(Principal Financial and Accounting Officer)

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Filing Compare · Veritas Farms, Inc.