0001213900-20-016262.txt : 20200708 0001213900-20-016262.hdr.sgml : 20200708 20200630122914 ACCESSION NUMBER: 0001213900-20-016262 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 63 CONFORMED PERIOD OF REPORT: 20200331 FILED AS OF DATE: 20200629 DATE AS OF CHANGE: 20200630 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Veritas Farms, Inc. CENTRAL INDEX KEY: 0001669400 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 990375676 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-210190 FILM NUMBER: 201001473 BUSINESS ADDRESS: STREET 1: 1512 E. BROWARD BLVD STREET 2: SUITE 300 CITY: FORT LAUDERDALE STATE: FL ZIP: 33301 BUSINESS PHONE: (561) 288-6603 MAIL ADDRESS: STREET 1: 1512 E. BROWARD BLVD STREET 2: SUITE 300 CITY: FORT LAUDERDALE STATE: FL ZIP: 33301 FORMER COMPANY: FORMER CONFORMED NAME: SanSal Wellness Holdings, Inc. DATE OF NAME CHANGE: 20171113 FORMER COMPANY: FORMER CONFORMED NAME: Armeau Brands Inc. DATE OF NAME CHANGE: 20160314 10-Q 1 f10q0320_veritasfarms.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

 

Commission file number: 333-235300

 

Veritas Farms, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   90-1254190
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification No.)

 

1512 E. Broward Blvd., Suite 300, Fort Lauderdale, FL 33301

(Address of Principal Executive Offices)

 

(561) 288-6603

(Registrant’s telephone number, including area code)

 

 

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

 

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 ☐

 

Securities registered pursuant to Section 12(b) of the Act:

  

Title of each class   Trading Symbol(s)   Name of each exchange on
which registered
None        

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or 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. (Check one):

 

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 June 30, 2020 was 41,623,366 shares.

 


 

 

 

 

 

EXPLANATORY NOTE

 

The Securities and Exchange Commission (the “SEC”) issued an order on March 4, 2020, as amended on March 25, 2020, which provided conditional relief to public companies that are unable to timely comply with their filing obligations as a result of the novel coronavirus (COVID-19) outbreak (the “SEC Order”). The current outbreak of COVID-19 has posed a significant impact on Veritas Farms, Inc. to file on a timely basis this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “Quarterly Report”) by the original due date of May 14, 2020, and therefore elected to rely on the conditional filing relief provided under the SEC Order.

 

TABLE OF CONTENTS

 

    Page
     
PART I – FINANCIAL INFORMATION 1
     
Item 1. Financial Statements. 1
     
  Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (unaudited) 1
     
  Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (unaudited) 3
     
  Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019 (unaudited) 4
     
  Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited) 5
     
  Notes to Consolidated Financial Statements (unaudited) 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 18
     
Item 3. Quantitative Disclosures About Market Risk. 23
     
Item 4. Controls and Procedures. 24
     
PART II - OTHER INFORMATION 25
     
Item 1. Legal Proceedings. 25
     
Item 1A.  Risk Factors. 25
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 25
     
Item 3. Defaults Upon Senior Securities. 25
     
Item 4. Mine Safety Disclosures. 25
     
Item 5. Other information. 25
     
Item 6. Exhibits. 25
     
SIGNATURES 26

 

i

 

  

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Veritas Farms, Inc. and Subsidiary

Consolidated Balance Sheets

(Unaudited) 

 

 

March 31,
2020

   December 31,
2019
 
ASSETS        
CURRENT ASSETS          
Cash and Cash Equivalents  $137,543   $1,076,543 
Inventories   6,662,593    6,600,455 
Accounts Receivable   482,084    523,033 
Prepaid Expenses   333,538    622,922 
Total Current Assets  $7,615,758   $8,822,953 
          
PROPERTY PLANT AND EQUIPMENT, net of accumulated depreciation of $1,104,663 and $976,005 respectively  $4,862,828   $4,914,063 
           
Intellectual Property   55,000    55,000 
Right of Use Assets, net of accumulated amortization   1,146,062    134,345 
Deposits   281,213    292,196 
           
TOTAL ASSETS  $13,960,861   $14,218,557 

 

See Accompanying Notes to unaudited Consolidated Financial Statements

  

1

 

 

   March 31,
2020
   December 31,
2019
 
LIABILITIES AND STOCKHOLDERS’ EQUITY        
CURRENT LIABILITIES          
Accounts Payable  $1,876,849   $1,567,611 
Accrued Expenses   126,530    51,240 
Accrued Interest - Related Parties   -    18,828 
Convertible notes payable   201,644    - 
Deferred Revenue   15,559    - 
Current Portion of Right of Use Lease Liability   255,768    80,046 
Current Portion of Long Term Debt   67,996    67,996 
Total Current Liabilities  $2,544,346   $1,785,721 
           
LONG-TERM LIABILITIES          
Long-term Debt, net of current portion  $167,827   $184,826 
Right of Use Lease Liability, net of current portion   906,020    52,798 
Total Liabilities  $3,618,193   $2,023,345 
           
STOCKHOLDERS’ EQUITY          
Common Stock, $0.004 par value, 50,000,000 shares authorized, 41,574,977 and 41,330,268  shares issued and outstanding at March 31, 2020 and December 31, 2019 respectively  $166,059   $165,446 
Additional Paid in Capital   31,576,486    31,104,373 
Accumulated Deficit   (21,399,877)   (19,074,608)
Total Stockholders’ Equity  $10,342,668   $12,195,212 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $13,960,861   $14,218,557 

 

See Accompanying Notes to unaudited Consolidated Financial Statements

 

2

 

 

Veritas Farms, Inc. and Subsidiary

Consolidated Statements of Operations

(Unaudited) 

 

   Three Months Ended
March 31,
 
   2020   2019 
         
Sales  $1,154,311   $1,524,930 
           
Cost of sales   676,698    820,109 
Plant Inventory Write-off   -    77,387 
Total Cost of sales   676,698    897,496 
           
Gross profit  $477,613   $627,434 
           
Operating Expenses          
Selling, General and Administrative  $2,795,818   $2,447,454 
Total Operating Expenses  $2,795,818   $2,447,454 
Operating loss  $(2,318,205)  $(1,820,020)
           
Other Expenses (Income)          
Interest Expense - Related Party   1,644    2,281 
Interest Expense - Other   5,420    4,623 
Gain on Forgiveness of Debt   -    - 
Total Other Expenses (Income)  $7,064   $6,904 
           
Loss before Provision for Income Taxes  $(2,325,269)  $(1,826,924)
           
Income Tax Provision   -    - 
           
NET LOSS  $(2,325,269)  $(1,826,924)
           
Net Loss per Share, Basic and Diluted  $(0.06)  $(0.07)
           
Weighted Average Shares Outstanding, Basic and Diluted   41,549,431    28,004,953 

 

See Accompanying Notes to unaudited Consolidated Financial Statements

 

3

 

 

Veritas Farms, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

(Unaudited) 

 

   Common Stock   Additional
Paid in
   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
Balance, December 31, 2019   41,421,698    165,446    31,104,373    (19,074,608)   12,195,212 
                          
Issuance of Common Stock for Cash   -    -    -    -    - 
                          
Issuance of Common Stock for Services   -    -    -    -    - 
                          
Stock-based Compensation   -    -    472,726    -    472,726 
                          
Warrants Exercised   153,279    613    (613)   -    - 
                          
Net Loss   -    -    -    (2,325,269)   (2,325,269)
                          
Balance, March 31, 2020   41,574,977    166,059    31,576,486    (21,399,877)   10,342,669 
                          
Balance, December 31, 2018   27,876,208   $111,505   $13,894,844   $(7,927,000)  $6,079,349 
                          
Issuance of Common Stock for Cash                       - 
                          
Issuance of Common Stock for Services                       - 
                          
Stock-based Compensation             661,302         661,302 
                          
Warrants Exercised   191,667    767    114,233         115,000 
                          
Net Loss   -    -    -    (1,826,924)   (1,826,924)
                          
Balance, March 31, 2019   28,067,875    112,272    14,670,379    (9,753,924)   5,028,727 

 

See Accompanying Notes to unaudited Consolidated Financial Statements

 

4

 

 

Veritas Farms, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited) 

 

   3 Months Ended March 31, 
   2020   2019 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net Loss  $(2,325,269)  $(1,826,924)
Adjustments to Reconcile Net Loss to Net Cash Used Operating Activities          
Depreciation   128,658    83,998 
Amortization of Right of Use Assets   37,350    20,152 
Stock-based Compensation   472,726    661,302 
Changes in Operating Assets and Liabilities          
Inventories   (62,138)   (149,627)
Prepaid Expenses   289,384    42,095 
Accounts Receivable   40,949    (299,678)
Deposits   10,983    - 
Deferred Revenue   15,559    (44,612)
Accrued Interest - Related Parties   -    2,190 
Right of Use Lease Liability   (20,122)   (21,542)
Accrued Expenses   56,461    32,677 
Accounts Payable   309,238    183,229 
NET CASH USED IN OPERATING ACTIVITIES   (1,046,222)   (1,316,740)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of Property and Equipment  $(77,423)  $(392,847)
NET CASH USED IN INVESTING ACTIVITIES   (77,423)   (392,847)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Payments of Long-term Debt  $(16,999)  $(12,548)
Advances for Stock Warrants - Shareholders   -    1,343,125 
Notes Payable - Related Parties   201,644    210,000 
Proceeds from Stock Warrants Exercised   -    115,000 
NET CASH PROVIDED BY FINANCING ACTIVITIES   184,645    1,655,577 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (939,000)   (54,010)
CASH AND CASH EQUIVALENTS - Beginning of Period   1,076,543    164,086 
CASH AND CASH EQUIVALENTS - End of Period  $137,543   $110,076 
           
Supplemental Disclosure of Cash Flow Information:          
Cash Paid for Interest  $3,675   $2,995 
Cash Paid for Income Taxes  $-   $- 
Non-Cash Financing Activities          
Operating Lease Right of Use Asset Obtained in Exchange for Lease Obligations  $1,049,067   $214,952 

 

See Accompanying Notes to unaudited Consolidated Financial Statements

 

5

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

 

 

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

 

Nature of Business

 

Veritas Farms, Inc. (Formerly Known as SanSal Wellness Holdings Inc.) (the “Company”), 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.” The Company’s business objectives are to produce natural rich-hemp products, using strict 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 pursuant to Federal law on its farm.

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2020, and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Form 10-K for the year ended December 31, 2019, filed with the SEC on May 15, 2020.

 

Principles of Consolidation

 

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

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from these estimates.

 

6

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

 

 

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Fair Value Measurement

 

The Company has adopted the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

 

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of the Company’s short and long-term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 – quoted prices in active markets for identical assets or liabilities

 

Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

 

The Company does not have any assets or liabilities measured at fair value on a recurring basis.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At times, cash and cash equivalents may be in excess of FDIC insurance limits.

 

7

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

 

 

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Revenue Recognition

 

”Under ASC 606, the Company” the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.

 

Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.

 

Cost of Goods Sold

 

Hemp Cultivation and Production

 

Cost of goods sold includes the costs directly attributable to production of inventory such as cultivation costs, extraction costs, packaging costs, security, and allocated overhead. Overhead expenses include allocations of rent, administrative salaries, utilities, and related costs.

 

8

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

 

 

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Inventories

 

Inventories consist of growing and processed plants and oils and are valued at the lower of cost or net realizable value. In evaluating whether inventories are stated at lower of cost or net realizable value, management considers such factors as inventories in hand, estimated time to sell such inventories and current market conditions. Write-offs for inventory obsolescence are recorded when, in the opinion of management, the value of specific inventory items has been impaired.

 

Property, Plant and Equipment

 

Purchase of property, plant and equipment are recorded at cost. Improvements and replacements of property, plant and equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the Consolidated Statements of Operations. Depreciation is provided over the estimated economic useful lives of each class of assets and is computed using the straight-line method.

 

Impairment of Long-Lived Assets

 

The carrying value of long-lived assets are reviewed when facts and circumstances suggest that the assets may be impaired or that the amortization period may need to be changed. The Company considers internal and external factors relating to each asset, including cash flows, local market developments, industry trends and other publicly available information. If these factors and the projected undiscounted cash flows of the Company over the remaining amortization period indicate that the asset will not be recoverable, the carrying value will be adjusted to the fair market value. The Company has determined that no impairment exists at March 31, 2020 and December 31, 2019.

 

Compensation and Benefits

 

The Company records compensation and benefits expense for all cash and deferred compensation, benefits, and related taxes as earned by its employees. Compensation and benefits expense also includes compensation earned by temporary employees and contractors who perform similar services to those performed by the Company’s employees.

 

Stock-Based Compensation

 

The Company accounts for share-based payments in accordance with ASC 718, “Compensation - Stock Compensation,” which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant date fair value of the award. In accordance with ASC 718-10-30-9, “Measurement Objective – Fair Value at Grant Date,” the Company estimates the fair value of the award using the Black-Scholes option pricing model for valuation of the share- based payments. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of option holders.

 

9

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

 

 

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Stock-Based Compensation (Continued)

 

The simplified method is used to determine compensation expense since historical option exercise experience is limited relative to the number of options issued. The compensation cost is recognized ratably using the straight-line method over the expected vesting period.

 

The Company accounts for stock-based compensation to other than employees in the same manner in which it accounts for employees.

 

Income Taxes

 

The Company accounts for income taxes under ASC 740 Income Taxes.  Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs.  A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

 

In accordance with Financial Accounting Standards Board ASC Topic 740, Income Taxes, management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. The Company is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.

 

Income tax benefits are recognized for income tax positions taken or expected to be taken in a tax return, only when it is determined that the income tax position will more-likely than-not be sustained upon examination by taxing authorities. The Company has analyzed tax positions taken for filings with the Internal Revenue Service and all tax jurisdictions where it operates. The Company believes that income tax filing positions will be sustained upon examination and does not anticipate any adjustments that would result in a material adverse effect on the Company’s financial condition, results of operations or cash flows. Accordingly, the Company has not recorded any reserves, or related accruals for interest and penalties for uncertain income tax positions at March 31, 2020 and December 31, 2019.

 

10

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

 

 

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Leases

 

The Company has two leased buildings one in Fort Lauderdale, Florida and the other in Aurora, Colorado that are classified as operating lease right-of use (“ROU”) assets and operating lease liabilities in the Company’s consolidated balance sheet. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of Selling, General and Administrative expenses.

 

The standard was effective for us beginning January 1, 2019. The Company elected the available practical expedients on adoption. The adoption had a material impact on our consolidated balance sheets, but did not have a material impact on our consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. Finance leases are not material to the Company and were not impacted by the adoption of ASC 842, as finance lease liabilities and the corresponding assets were already recorded in the balance sheet under the previous guidance, ASC 840.

 

Related Party Transactions

 

The Company follows FASB ASC subtopic 850-10, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. Pursuant to ASC 850-10-20, related parties include: a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The consolidated financial statements shall include disclosures of related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Recent Accounting Pronouncements 

 

No new pronouncements are applicable to the Company.

 

11

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

 

 

NOTE 2: GOING CONCERN

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial losses from operations since its inception. As of and for the three months ended March 31, 2020, the Company had an accumulated deficit of $21,399,877, and a net loss of $2,325,269. 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, though there is no assurance of success. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

The adverse public health developments and economic effects of the current COVID-19 pandemic in the United States, could adversely affect the Company’s customers and suppliers as a result of quarantines, facility closures, closing of “brick and mortar” retail outlets and logistics restrictions imposed or which otherwise occur in connection with the pandemic. More broadly, the high degree unemployment resulting from the pandemic could potentially lead to an extended economic downturn, which would likely decrease spending, adversely affect demand for our products and services and harm our business, results of operations and financial condition. At this time, we cannot accurately predict the effect the COVID-19 pandemic will have on the Company.

 

Management’s plans include:

 

Taking full advantage of all government programs for the COVID – 19 crisis Future equity raises Future debt raises Rebalancing of Marketing and G&A expenses to mimic current economic environment New and reorder sales to large retailers.

 

The Company’s rebranded line of hemp oil and extract product allowed market penetration into large retail chains vastly increasing brand exposure and awareness. The initial rollouts have been successful creating opportunities for thousands of new retail outlets across the country. The shift from smaller order fulfillment to larger “big box store” orders creates an economy of scale and increased profitability. In addition to the volume transactions of the large retail stores, the Company has also found success with a direct to consumer approach on their E-Commerce site.

 

Currently, the Company incorporates an aggressive marketing plan to compete in the Cannabinoid industry. To become market leaders in the market, the Company will use three primary departments to market its products including: web-based marketing, traditional marketing, and medical marketing departments.

 

NOTE 3: INVENTORIES

 

Inventory consists of:

 

   March 31,   December 31, 
   2020   2019 
Inventory        
Work In Progress  $4,010,239   $4,062,890 
Finished Goods   2,097,896    1,983,107 
Other   554,458    554,458 
           
Inventory  $6,662,593   $6,600,455 

 

During the periods ending March 31, 2020 and March 31, 2019 the Company realized a loss from destruction of plants in the amounts of $0 and $77,387, respectively.

 

 

12

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

 

 

NOTE 4: PROPERTY AND EQUIPMENT

 

      March 31,   December  31, 
   Life  2020   2019 
PROPERTY AND EQUIPMENT             
Land and Land Improvements  -  $398,126    398,126 
Building and Improvements  39   1,510,175    1,510,175 
Greenhouse  39   965,388    920,896 
Fencing and Irrigation  15   203,793    203,793 
Machinery and Equipment  7   2,480,475    2,480,475 
Furniture and Fixtures  7   269,275    236,344 
Computer Equipment  5   20,053    20,053 
Vehicles  5   120,206    120,206 
      $5,967,491   $5,890,068 
Less Accumulated Depreciation      (1,104,663)   (976,005)
Property and Equipment     $4,862,828    4,914,063 

 

Total depreciation expense was $128,658 and $83,998 for the three month period ending March 31, 2020 and 2019, respectively.

 

NOTE 5: LONG-TERM DEBT

 

Long-term debt consisted of the following:

 

   March 31,   December 31, 
   2020   2019 
         
Notes Payable which require monthly payments of $3,690, $669, and $1,691, including interest at 5.16% per annum until December 1, 2022, May 1, 2023, and August 1, 2024, when the balance is due in full.  The note is secured by specific assets of the Company.   196,868    211,952 
           
Note Payable which require monthly payments of $758, including interest at 3.4% per annum until April 1, 2025, when the balance is due in full. The note is secured by specific assets of the Company.   38,955    40,870 
    235,823    252,822 
Less Current Portion   (67,996)   (67,996)
Long-Term Debt - net of current portion  $167,827   $184,826 

 

Future principal payments for the next 5 years are as follows for the years ended December 31:

 

2020  $50,997 
2021   67,996 
2022   67,996 
2023   27,299 
2024   18,980 
Thereafter   2,554 
   $235,823 

 

13

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

 

 

NOTE 6: CONVERTIBLE DEBT

 

In March 2020, the Company secured a $200,000 loan from a single investor, evidenced by a one-year 10% convertible promissory note (the “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 $.40 per share, subject to adjustment for stock splits, stock dividends and similar recapitalization transactions. The Company determined that there was a beneficial conversion feature of $95,000 relating to this note.

 

NOTE 7: STOCK-BASED COMPENSATION

 

The Company approved their 2017 Incentive Stock Plan on September 27, 2017 (the “Incentive 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 45 million shares. Under the terms of the Incentive Plan, awards may be granted to our employees, directors or consultants. Awards issued under the Incentive Plan vest as determined by the Board of Directors or any of the Committees appointed under the Incentive Plan at the time of grant.

 

The Company’s outstanding stock options have a 10-year term. Outstanding non-qualified stock options granted to employees and a consultant vest on a case by case basis. Outstanding incentive stock options issued to employees vest over a three-year period. The incentive stock options granted vest based solely upon continued employment (“time-based”). The Company’s time-based share awards that vest in their entirety at the end of three-year periods, time-based share awards where 33.3% of the award vests on each of the three anniversary dates. Outstanding incentive stock options issued to executives vest partially upon grant date, with the residual vesting over the subsequent 6 or 12 months. The Company estimates the fair value of each stock option on the date of grant using the Black Scholes valuation model.

 

Stock-based compensation expense was as follows:

 

   Three Months Ended 
   Mar 31: 
   2020   2019 
Non-Qualified Stock Options - Immediate  $472,726   $661,302 
Incentive Stock Options - Time Bases   -    - 
           
Total Stock-based Compensation Expense  $472,726   $661,302 

 

Stock option activity was as follows in the periods ended Mar 31, 2020 and December 31, 2019:

 

       Weighted-   Weighted- 
   Stock   Average   Average 
   Options   Exercise   Remaining 
Outstanding at December 31, 2019   4,318,750   $1.14    8.91 
Granted   -   $-    - 
Exercised   -           
Forfeited/Canceled   -           
Outstanding at March 31, 2020   4,318,750   $1.14    8.66 
                
Vested at March 31, 2020   3,154,407   $1.14    8.48 
Exercisable at March 31, 2020   3,154,407   $1.14    8.48 

 

14

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

 

 

NOTE 8: LEASES

 

We adopted ASC 842 using the modified retrospective approach, electing the practical expedient that allows us not to restate our comparative periods prior to the adoption of the standard on January 1, 2019. As such, the disclosures required under ASC 842 are not presented for periods before the date of adoption.

 

The Company recognized the following related to leases in its Unaudited Consolidated Balance Sheet:

 

   March 31,   December  31, 
   2020   2019 
Right of Use Lease Liabilities          
Current portion  $255,768   $80,046 
Long-term portion   906,020    52,798 
   $1,161,788   $132,844 

 

On January 15, 2017, the Company entered an agreement with Pueblo, CO Board of Water Works to lease water for the Company’s cultivation process. The agreement went into effect as of November 1, 2016 with a term of 10 years expiring on October 31, 2026, with an option to extend the lease upon expiration for 10 additional years. This agreement replaced previously entered agreements with Pueblo, CO Board of Water Works. The lease requires annual non-refundable minimum service fees of $15,000 and a usage charge of $1,063 per acre for 30 acres. The minimum service fees and usage charges are subject to escalators for each year based upon percentage increases of Pueblo, CO Board of Water Works rates from the previous calendar year. Total water lease expense was $12,876 and $8,159 for the three month period ending March 31, 2020 and 2019, respectively.

 

On June 22, 2018, the Company entered into a sublease agreement with ESDA Inc., a Florida Corporation.  The Agreement went into effect as of July 1, 2018 with a term of three years expiring August 31, 2021.  The lease contains annual escalators and charges Florida sales tax.  Total depreciation expense related to the lease was $20,152 and $20,152 for the three month period ending March 31, 2020 and 2019, respectively.

 

In March of 2020, the Company entered into a 61 month lease agreement with Majestic Realty Co. The agreement allows for an abated first month of rent. The lease contains annual escalators in addition to other periodic payments pertaining to taxes, utilities, insurance and common area costs. Total depreciation expense related to the lease was $17,198 and $0 for the three month period ending March 31, 2020 and 2019, respectively. The lease was calculated with a 5% interest rate creating a Right of Use liability of 1,049,067.

 

As of March 31, 2020, and December 31, 2019, operating leases have no minimum rental commitments.

 

NOTE 9: COMMON STOCK

 

In March of 2020, the Company issued 153,279 shares of common stock in accordance with a cashless exercise of warrants.

 

During the quarter ending March 31 2019, 191,667 stock warrants were exercised for $115,000.

 

As of March 31, 2019, there was a liability of $1,343,125 for funds received from exercising warrants from investors that had not yet been converted into equity.

 

In September of 2019, the board of directors approved an amendment to the Company’s Certificate of Incorporation, as amended, to effect a 1-for-4 reverse stock split on the issued and outstanding common. All relevant information relating to numbers of shares and warrants and per share information have been retrospectively adjusted to reflect the reverse stock split for all periods presented. The reverse split was effected on September 19, 2019.

 

15

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

 

 

NOTE 10: INCOME TAX

 

The reconciliation of income tax computed at the Federal statutory rate to the provision (benefit) for income taxes from continuing operations is as follows:

 

 

   Three Months Ended   Three Months Ended 
   March 31,
2020
   March 31,
2019
 
Federal Taxes (credits) at statutory rates  $(500,000)  $(400,000)
State and local taxes, net of Federal benefit   (100,000)   (84,000)
Change in valuation allowance   600,000    484,000 
   $-   $- 

 

Components of deferred tax assets are as follows:

 

  Three Months Ended
March 31,

2020
   December 31,
2019
 
Deferred Tax Assets;          
Net Operating Loss Carryforwards  $4,320,000   $3,930,000 
Stock Compensation   980,000    910,000 
Accrued Related Party Expenses   15,000    - 
Total Deferred Tax Assets   5,315,000    4,840,000 
Valuation Allowance   (4,900,000)   (4,300,000)
Total Deferred Tax Assets net of Valuation Allowance  $415,000   $540,000 
Depreciation and Amortization   330,000    370,000 
Prepaid Expense   85,000    170,000 
Total Deferred Tax Liabilities   415,000    540,000 
Net Deferred Tax Assets  $-   $- 

 

The Company has approximately $16,000,000 net operating loss carryforwards that are available to reduce future taxable income. Those NOLs begin to expire in 2038. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax assets for every period because it is more likely than not that all of the deferred tax assets will not be realized.

 

16

 

 

Veritas Farms, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

 

 

NOTE 10: INCOME TAX (CONTINUED)

 

The Company’s deferred tax liability associated with timing differences related to depreciation and amortization includes $69,000 of liability resulting from tax depreciation deducted in excess of GAAP depreciation prior to the Company becoming taxed as a C-Corporation.

 

The Company files income tax returns in the U.S. federal jurisdiction, and the state of Colorado.

 

The Company adopted the provisions of FASB ASC 740, Accounting for Uncertainty in Income Taxes. Management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. The Company has no significant adjustments as a result of the implementation of FASB ASC 740.

 

NOTE 11: CONCENTRATIONS

 

The Company had one customer in the three months ended March 31, 2020 accounting for 13% of sales. For the three months ended March 31, 2019, one customer accounted for 10% of sales.

 

The Company had three customers at March 31, 2020 accounting for 59%, 11% and 10% of accounts receivable. At December 31, 2019, the Company had two customers accounting for 46% and 12% of accounts receivable.

 

NOTE 12: RELATED PARTY

 

The Company incurred $57,500 and $37,500 of related party legal expenses during the three month periods ended March 31, 2020 and 2019, respectively

 

The Company issued stock incentives to various directors and employees. Refer to Note 6 for additional details.

 

NOTE 13: SUBSEQUENT EVENTS

 

On April 7, 2020, the Company issued 50,000 shares of common stock for marketing services.

 

On May 13, 2020, the Company received loan proceeds of $800,000 pursuant to the U.S. Small Business Administration (“SBA”) COVID-19 Paycheck Protection Program (PPP). Under the terms of this program, loan proceeds may be forgiven if used for payroll costs, rent, and utilities within 24 weeks of receipt.

 

17

 

  

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,” “we,” “us” and “our” refer to Veritas Farms, Inc. and its subsidiary.

 

All share and per share information in this report has been adjusted to give effect to a one-for-four reverse stock split implemented by the Company on September 20, 2019.

 

Forward-Looking Statements

 

Certain statements made in this report are “forward-looking statements” regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein particularly in view of the current state of our operations, the inclusion of such information should not be regarded as a statement by us or any other person that our objectives and plans will be achieved. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

 

Business Overview

 

Veritas Farms is a vertically-integrated agribusiness focused on producing, marketing, and distributing superior quality, whole plant, full spectrum hemp oils and extracts containing naturally occurring phytocannabinoids. Veritas Farms owns and operates a 140-acre farm in Pueblo, Colorado, capable of producing over 200,000 proprietary full spectrum hemp plants containing naturally occurring phytocannabinoids which can potentially yield a minimum annual harvest of over 200,000 pounds of outdoor-grown industrial hemp. While part of the cannabis family, hemp, which contains less than 0.3% tetrahydrocannabinol (“THC”), the psychoactive compound that produces the “high” in marijuana, is distinguished from marijuana by its use, physical appearance and lower THC concentration (marijuana generally has a THC level of 10% or more). The Company also operates approximately 15,000 sq. ft. of climate-controlled greenhouses to produce a consistent supply of year-round indoor-cultivated hemp. In addition, there is a 10,000-sq. ft. onsite facility used for processing raw hemp, oil extraction, formulation laboratories, and quality/purity testing. Veritas Farms is registered with the Colorado Department of Agriculture to grow industrial hemp and with the Colorado Department of Public Health and Environment to process hemp and manufacture hemp products in accordance with Colorado’s hemp program.

 

Veritas Farms meticulously processes its hemp crop to produce superior quality whole-plant hemp oil, extracts and derivatives which contain the entire broad spectrum of cannabinoids extracted from the flowers and leaves of hemp plants. Whole-plant hemp oil is known to provide the essential phytocannabinoid “entourage effect” resulting from the synergistic absorption of the entire broad spectrum of unique hemp cannabinoids by the receptors of the human endocannabinoid system. As a result, Veritas Farms believes that its products are premier quality cannabinoids and are highly sought after by consumers and manufacturers of premium hemp products.

 

Veritas Farms has developed a wide variety of formulated phytocannabinoid-rich hemp products containing naturally occurring phytocannabinoids which are marketed and distributed by the Company under its Veritas Farms™ brand name. Our products are also available in bulk, white label and private label custom formulations for distributors and retailers. These types of products are in high demand by health food markets, wellness centers, physicians and other healthcare practitioners.

  

Veritas Farms™ products (50+ SKUs) include vegan capsules, gummies, tinctures, lotions, salves, cream and oral syringes. All product applications come in various flavors and strength formulations, in addition to bulk. 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, as well as through numerous other online retailers and “brick and mortar” retail outlets.

 

The branding of Company’s line of hemp oil and extract product has allowed market for penetration during 2019 into large retail chains vastly increasing brand exposure and awareness. The initial rollouts have been successful creating distribution opportunities into thousands of new retail outlets across the country (over 6,000 retail outlets as of the date of this report). The shift from smaller order fulfillment to larger “big box store” orders creates an economy of scale and also offers the opportunity for the Company to achieve increased profitability.

 

To the date of this report the Company has secured distribution into the following chain stores:

  

CVS Rite Aid Kinney Drugs Niemann Supermarkets
Bashas Giant Eagle Tops Harris Teeter
Bi Mart Smiths Fred Meyer QFC
King Soopers Winn Dixie Bi-Lo Mariano’s
Fruth Weis Bartel Drugs Bed Bath & Beyond
Kroger Save Mart    

 

18

 

 

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

 

General

 

The adverse public health developments and economic effects of the current COVID-19 pandemic in the United States, could adversely affect the Company’s customers and suppliers as a result of quarantines, facility closures, closing of “brick and mortar” retail outlets and logistics restrictions imposed or which otherwise occur in connection with the pandemic. More broadly, the high degree unemployment resulting from the pandemic could potentially lead to an extended economic downturn, which would likely decrease spending, adversely affect demand for our products and services and harm our business, results of operations and financial condition. At this time, we cannot accurately predict the effect the COVID-19 pandemic will have on the Company.

 

Increased Emphasis on E-commerce Marketing

 

With recent stay-at-home mandates and ongoing spikes in infections arising from the COVID-19 pandemic resulting in increased online traffic, Veritas Farms has leveraged its digital ecosystem to offer solutions to customers who have financial and health concerns while growing the Company’s online traffic and revenue.

 

The increased emphasis on e-commerce marketing has resulted in online revenue growth of over 150% from January 2020 levels to April 2020 levels. The increases in traffic to and revenue generated by the Veritas Farms website can be attributed to a multi-prong digital strategy leveraging multiple channels. We believe that the reach and frequency of exposure to Veritas Farms’ sales funnel across these channels, combined with a seamless shopping experience, superior product and excellent customer service ultimately lead to repeat customer growth.

 

These revenue driving channels include:

 

  Organic Search Revenue + 162% from January 2020

 

  Direct Traffic Revenues +110% from January 2020

 

  Referral Traffic Revenues + 200% from January 2020

 

  Social Media Traffic Revenues + 70% from January 2020

 

Key contributors to recent e-commerce revenue growth include:

 

  Launch of affiliate channel;

 

  Ability to execute retargeting campaigns on key platforms Facebook, Instagram and Google Ad Words;

 

  Content/Engagement Campaigns

 

  Yoga Flow Session every Saturday on Veritas Farms Instagram Live channel

 

  Upcoming: Social Media “Stay At Home” Challenge

 

  Upcoming: Veritas Farms & Florida Hemp Council Hemp & Wellness Virtual Town Hall;

  

19

 

  

  Sales Promotion Campaigns

 

  35% Off Supporting The Community campaign

 

  Buy One Give One Forward campaign

 

  Social Isolation Stress Kit campaign;

 

  Influencer Partnerships (with recent pivot to YouTube);

 

  Email campaigns and email sign up growth;

 

  Customer Experience Development

 

  Onboarding of full-time customer experience representative has increased conversion rate, upsells and lifetime customer value;

 

  Search Engine Optimization Strategies

 

  Ranking 1st page for multiple keywords, consistently climbing; and

 

  Website Development

 

  Content and layout upgrades have improved site speed, session length and conversion rate

 

  Live chat feature has expanded customer service capabilities

 

  Military and first responder discounts

 

  Improved email sign up features

 

A comparison of the period from February 1st – February 15th 2020 with the period April 1st – April 15th 2020 shows:

 

  overall new customers are up 40%

 

  returning customers are up 43%

 

  conversion rate has improved from 6.3% to 11.9%

 

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.” effective November 7, 2017. Effective as of February 5, 2019, the Company changed its name from “SanSal Wellness Holdings, Inc.” to “Veritas Farms, Inc.

 

Our executive offices are located at 1512 E. Broward Boulevard, Suite 300, Fort Lauderdale, FL 33301 and our telephone number is (561) 288-6603. Our corporate websites are www.theveritasfarms.com and www.sansalwellness.com. Information appearing on our websites is not part of this report. 

 

20

 

 

Results of Operations

 

Three months ended March 31. 2020 compared to three months ended March 31, 2019

 

Revenues. We had net sales for the three months ended March 31, 2020 of $1,154,311, as compared to $1,524,930 for the three months ended March 31, 2019. The decrease reflects the adverse effect of the COVID-19 outbreak on “brick and mortar” sales up of our products and the timing of orders from a number of our new retail customers, offset in part by an increase in online sales as a result of additional e-commerce marketing efforts in response to the effects of the COVID-19 outbreak. Sales include bulk oils for wholesale, vegan capsules, tinctures, lotions, salves and oral syringes, all in various potency levels and flavors. In addition to the more established CBD channels, the Company expanded lines to beauty products, pet chews, pet health and sports through strategic partnerships with contract manufacturers. Although sales for the first quarter of 2020 decreased from the first quarter of 2019 due to the timing of orders from a number of our new distribution partners, we anticipate the trend of year over year increasing sales to continue into 2020.

 

Cost of Sales. All expenses incurred to grow, process, and package the finished goods are included in our cost of sales. Cost of sales for the three months ended March 31, 2020 decreased to $676,698 from $820,209 for the 2019 quarter, as a result of decreased sales in the 2020 quarter and a plant inventory write-off of $77,787 in the 2019 quarter. We had gross profit of $477,613 for the three months ended March 31, 2020, as compared to gross profit of $627,434 for the three months ended March 31, 2019.

 

Expenses. Selling, general and administrative expenses increased to $2,795,819 for the three months ended March 31, 2020, from $2,447,454 for the three months ended March 31, 2019, reflecting the expansion of operations during the quarter prior to the COVID-19 outbreak, offset in part by expense reductions, including a reduction in personnel and 20% pay cuts taken by management and other senior staff, in response to the COVID-19 outbreak. General and administrative expenses consist primarily of administrative personnel costs, facilities expenses, professional fee expenses and marketing costs for our Veritas Farms™ brand products.

 

Interest expense for the three months ended March 31, 2020 was $7064, $1,644 of which was attributable to loans from a principal shareholder, as compared to $6,904 for the three months ended March 31, 2019, $2,281 of which was attributable to loans from a principal shareholder.

 

Net Loss. As a result of all the foregoing, net loss for the three months ended March 31, 2020, increased to $2,325,269 or $0.06 per share based on 41,549,431 weighted average shares outstanding, from $1,826,924 or $0.07 per share for the three months ended March 31, 2019, based on 28,004,953 weighted average shares outstanding.

 

Liquidity and Capital Resources

 

As of March 31, 2020, total assets were $13,960,861, as compared to $14,218,557 at December 31, 2019. The decrease in assets is due to a change in future build to a greenhouse project in concert with normal depreciation.

 

Total current liabilities as of March 31, 2020 were $2,544,349, as compared to $1,785,721 at December 31, 2019. The increase was comprised of a new Right of Use liability and multiple projects having to be reprioritized due to economic concerns with COVID-19. Liquidity conservation became a short-term strategy to managing the uncertainties associated with the pandemic.

 

Net cash used in operating activities was $1,046,222 for the three months ended March 31, 2020, as compared to $1,316,740 in the 2019 quarter. The decrease is mostly attributable to an increase in liabilities in 2020.

 

Net cash used in investing activities was $77,423 for the three months ended March 31, 2020 as compared to net cash used of $392,847 for the three months ended March 31, 2019, reflecting a buildout of the new Aurora facility and materials associated with a new Greenhouse.

 

21

 

 

Net cash provided by financing activities was $184,465 for the three months ended March 31, 2020 as compared to $1,655,577 for the three months ended March 31, 2019. The 2020 quarter number reflects the net proceeds of a $200,000 convertible loan received during the quarter, while the 2019 quarter number reflects the net proceeds from initial closings under a private placement.

 

Our primary sources of capital to develop and implement our business plan and expand our operations have been the proceeds from private offerings of our equity securities, capital contributions made by members prior to completion of the September 2017 acquisition of 271 Lake Davis Holdings, LLC (“271 Lake Davis”) by the Company and loans from shareholders.

 

In March 2020, the Company secured a $200,000 loan from a single investor, evidenced by a one-year 10% convertible promissory note (the “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 $.40 per share, subject to adjustment for stock splits, stock dividends and similar recapitalization transactions.

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial losses from operations since its inception. As of and for the period ended March 31, 2020, the Company had an accumulated deficit of $21,399,877 and a net loss of $2,325,269. 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, 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 public or 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 equity 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.

 

Critical Accounting Policies

 

Revenue Recognition

 

In May 2014 the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards). 

 

The new revenue standards became effective for the Company on January 1, 2018 and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as the majority of its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption.

 

22

 

 

Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. 

 

Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial. 

 

Property, Plant and Equipment

 

Purchase of property, plant and equipment are recorded at cost.  Improvements and replacements of property, plant and equipment are capitalized.  Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred.  When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the Statements of Operations. Depreciation is provided over the estimated economic useful lives of each class of assets and is computed using the straight-line method.

 

Impairment of Long-Lived Assets 

 

The carrying value of long-lived assets are reviewed when facts and circumstances suggest that the assets may be impaired or that the amortization period may need to be changed. The Company considers internal and external factors relating to each asset, including cash flows, local market developments, industry trends and other publicly available information. If these factors and the projected undiscounted cash flows of the Company over the remaining amortization period indicate that the asset will not be recoverable, the carrying value will be adjusted to the fair market value.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates included deferred revenue, costs incurred related to deferred revenue, the useful lives of property and equipment and the useful lives of intangible assets.

 

Off-Balance Sheet Arrangements

 

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Item 3. Quantitative Disclosures About Market Risks.

 

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

 

23

 

 

Item 4. Controls and Procedures.

 

Management’s Report on Disclosure Controls and Procedures

 

Our Chief Executive Officer and our Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, as of March 31, 2020, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms adopted by the Securities and Exchange Commission (the “SEC”), including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that as of March 31, 2020, our disclosure controls and procedures were not effective at the reasonable assurance level in that:

 

(a) We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act. 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. 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 the consolidated financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the 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

 

Our Chief Executive Officer and our Chief Financial Officer do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and they have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Changes in Internal Controls Over Financial Reporting

 

There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

   

24

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

 

Item 1A. Risk Factors.

 

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

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

In March 2020, the Company secured a $200,000 loan evidenced from a single investor, evidenced by a one-year 10% convertible promissory note (the “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 $.40 per share, subject to adjustment for stock splits, stock dividends and similar recapitalization transactions.

 

The Convertible Note was issued without registration under the Securities Act of 1933, as amended (the “Securities Act”) under the exemption from registration afforded by Section 4(a)(2) of the Securities Act.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

Exhibit
Number
  Description of Exhibit
     
31.1   Section 302 Chief Executive Officer Certification
     
31.2   Section 302 Chief Financial Officer Certification
     
32.1   Section 906 Chief Executive Officer Certification
     
32.2   Section 906 Chief Financial Officer Certification
     
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

  

25

 

 

SIGNATURES

 

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: June 30, 2020 By: /s/ Alexander M. Salgado
    Alexander M. Salgado, Chief Executive Officer
    (Principal Executive Officer)
     
Dated: June 30, 2020 By: /s/ Michael Pelletier
    Michael Pelletier, Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

 

26

 

 

EX-31.1 2 f10q0320ex31-1_veritasfarms.htm CERTIFICATION

Exhibit 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Alexander M Salgado, Chief Executive Officer (principal executive officer) of Veritas Farms, Inc., a Nevada corporation (the “Registrant”), certify that:

 

1. I have reviewed this Form 10-Q for the period ended March 31, 2020 of the Registrant;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4. I, as the Registrant’s Chief Executive Officer together with the Registrant’s Chief Financial Officer, am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal period (the Registrant’s fourth fiscal period in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5. I, as the Registrant’s Chief Executive Officer together with the Registrant’s Chief Financial Officer, have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

Date: June 30, 2020  
     
VERITAS FARMS, INC.  
     
By: /s/ Alexander M. Salgado  
  Alexander M. Salgado, Chief Executive Officer  
  (Principal Executive Officer)  

EX-31.2 3 f10q0320ex31-2_veritasfarms.htm CERTIFICATION

Exhibit 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Michael Pelletier, Chief Financial Officer (principal financial and accounting officer) of Veritas Farms, Inc., a Nevada corporation (the “Registrant”), certify that:

 

1. I have reviewed this Form 10-Q for the period ended March 31, 2020 of the Registrant;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4. I, as the Registrant’s Chief Financial Officer together with the Registrant’s Chief Executive Officer, am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal period (the Registrant’s fourth fiscal period in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5. I, as the Registrant’s Chief Financial Officer together with the Registrant’s Chief Financial Officer0, have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

Date: June 30, 2020  
     
VERITAS FARMS, INC.  
     
By: /s/ Michael Pelletier  
  Michael Pelletier, Chief Financial Officer  
  (Principal Financial and Accounting Officer)  

EX-32.1 4 f10q0320ex32-1_veritasfarms.htm CERTIFICATION

Exhibit 32.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Veritas Farms, Inc., a Nevada corporation (the “Company”) on Form 10-Q for the period ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alexander M. Salgado, Chief Executive Officer (of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: June 30, 2020  
   
VERITAS FARMS, INC.  
     
By: /s/ Alexander M. Salgado  
  Alexander M. Salgado, Chief Executive Officer  
  (Principal Executive Officer)  

EX-32.2 5 f10q0320ex32-2_veritasfarms.htm CERTIFICATION

Exhibit 32.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Veritas Farms, Inc., a Nevada corporation (the “Company”) on Form 10-Q for the period ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Pelletier, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: June 30, 2020  
   
VERITAS FARMS, INC.  
     
By: /s/ Michael Pelletier  
  Michael Pelletier, Chief Financial Officer  
  (Principal Financial and Accounting Officer)  

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3 Months Ended
Mar. 31, 2020
Jun. 30, 2020
Document and Entity Information    
Entity Registrant Name Veritas Farms, Inc.  
Entity Central Index Key 0001669400  
Document Type 10-Q  
Document Period End Date Mar. 31, 2020  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2020  
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Entity Filer Category Non-accelerated Filer  
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Entity Small Business true  
Entity Interactive Data Current Yes  
Entity Incorporation State Country Code NV  
Entity File Number 333-235300  
Entity Ex Transition Period false  
Entity Common Stock, Shares Outstanding   41,623,366
Entity Shell Company false  
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Consolidated Balance Sheets (Unaudited) - USD ($)
Mar. 31, 2020
Dec. 31, 2019
CURRENT ASSETS    
Cash and Cash Equivalents $ 137,543 $ 1,076,543
Inventories 6,662,593 6,600,455
Accounts Receivable 482,084 523,033
Prepaid Expenses 333,538 622,922
Total Current Assets 7,615,758 8,822,953
PROPERTY PLANT AND EQUIPMENT, net of accumulated depreciation of $1,104,663 and $976,005 respectively 4,862,828 4,914,063
Intellectual Property 55,000 55,000
Right of Use Assets, net of accumulated amortization 1,146,062 134,345
Deposits 281,213 292,196
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CURRENT LIABILITIES    
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Accrued Expenses 126,530 51,240
Accrued Interest - Related Parties 18,828
Convertible notes payable 201,644
Deferred Revenue 15,559
Current Portion of Right of Use Lease Liability 255,768 80,046
Current Portion of Long Term Debt 67,996 67,996
Total Current Liabilities 2,544,346 1,785,721
LONG-TERM LIABILITIES    
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Right of Use Lease Liability, net of current portion 906,020 52,798
Total Liabilities 3,618,193 2,023,345
STOCKHOLDERS' EQUITY    
Common Stock, $0.004 par value, 50,000,000 shares authorized, 41,574,977 and 41,330,268 shares issued and outstanding at March 31, 2020 and December 31, 2019 respectively 166,059 165,446
Additional Paid in Capital 31,576,486 31,104,373
Accumulated Deficit (21,399,877) (19,074,608)
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Mar. 31, 2020
Dec. 31, 2019
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3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Statement [Abstract]    
Sales $ 1,154,311 $ 1,524,930
Cost of sales 676,698 820,109
Plant Inventory Write-off 77,387
Total Cost of sales 676,698 897,496
Gross profit 477,613 627,434
Operating Expenses    
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Total Operating Expenses 2,795,818 2,447,454
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Other Expenses (Income)    
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Interest Expense - Other 5,420 4,623
Gain on Forgiveness of Debt
Total Other Expenses (Income) 7,064 6,904
Loss before Provision for Income Taxes (2,325,269) (1,826,924)
Income Tax Provision
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Additional Paid in Capital
Accumulated Deficit
Total
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Issuance of Common Stock for Cash      
Issuance of Common Stock for Cash (in shares)      
Issuance of Common Stock for Services      
Issuance of Common Stock for Services (in shares)      
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Balance (in shares) at Mar. 31, 2019 28,067,875      
Balance at Dec. 31, 2019 $ 165,446 31,104,373 (19,074,608) 12,195,212
Balance (in shares) at Dec. 31, 2019 41,421,698      
Issuance of Common Stock for Cash
Issuance of Common Stock for Cash (in shares)      
Issuance of Common Stock for Services
Issuance of Common Stock for Services (in shares)      
Stock-based Compensation 472,726 472,726
Warrants Exercised $ 613 (613)
Warrants Exercised (in shares) 153,279    
Net Loss (2,325,269) $ (2,325,269)
Balance at Mar. 31, 2020 $ 166,059 $ 31,576,486 $ (21,399,877) $ 10,342,668
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3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES    
Net Loss $ (2,325,269) $ (1,826,924)
Adjustments to Reconcile Net Loss to Net Cash Used Operating Activities    
Depreciation 128,658 83,998
Amortization of Right of Use Assets 37,350 20,152
Stock-based Compensation 472,726 661,302
Changes in Operating Assets and Liabilities    
Inventories (62,138) (149,627)
Prepaid Expenses 289,384 42,095
Accounts Receivable 40,949 (299,678)
Deposits 10,983
Deferred Revenue 15,559 (44,612)
Accrued Interest - Related Parties 2,190
Right of Use Lease Liability (20,122) (21,542)
Accrued Expenses 56,461 32,677
Accounts Payable 309,238 183,229
NET CASH USED IN OPERATING ACTIVITIES (1,046,222) (1,316,740)
CASH FLOWS FROM INVESTING ACTIVITIES    
Purchase of Property and Equipment (77,423) (392,847)
NET CASH USED IN INVESTING ACTIVITIES (77,423) (392,847)
CASH FLOWS FROM FINANCING ACTIVITIES    
Payments of Long-term Debt (16,999) (12,548)
Advances for Stock Warrants - Shareholders 1,343,125
Notes Payable - Related Parties 201,644 210,000
Proceeds from Stock Warrants Exercised 115,000
NET CASH PROVIDED BY FINANCING ACTIVITIES 184,645 1,655,577
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (939,000) (54,010)
CASH AND CASH EQUIVALENTS - Beginning of Period 1,076,543 164,086
CASH AND CASH EQUIVALENTS - End of Period 137,543 110,076
Supplemental Disclosure of Cash Flow Information:    
Cash Paid for Interest 3,675 2,995
Cash Paid for Income Taxes
Non-Cash Financing Activities    
Operating Lease Right of Use Asset Obtained in Exchange for Lease Obligations $ 1,049,067 $ 214,952
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Nature of Business and Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

 

Nature of Business

 

Veritas Farms, Inc. (Formerly Known as SanSal Wellness Holdings Inc.) (the "Company"), 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." The Company's business objectives are to produce natural rich-hemp products, using strict 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 pursuant to Federal law on its farm.

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (the "SEC"). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company's management, the accompanying unaudited financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2020, and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Form 10-K for the year ended December 31, 2019, filed with the SEC on May 15, 2020.

 

Principles of Consolidation

 

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

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from these estimates.

 

Fair Value Measurement

 

The Company has adopted the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

 

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of the Company's short and long-term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 – quoted prices in active markets for identical assets or liabilities

 

Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

 

The Company does not have any assets or liabilities measured at fair value on a recurring basis.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At times, cash and cash equivalents may be in excess of FDIC insurance limits.

 

Revenue Recognition

 

"Under ASC 606, the Company" the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.

 

Revenues from product sales are recognized when the customer obtains control of the Company's product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.

 

Cost of Goods Sold

 

Hemp Cultivation and Production

 

Cost of goods sold includes the costs directly attributable to production of inventory such as cultivation costs, extraction costs, packaging costs, security, and allocated overhead. Overhead expenses include allocations of rent, administrative salaries, utilities, and related costs.

 

Inventories

 

Inventories consist of growing and processed plants and oils and are valued at the lower of cost or net realizable value. In evaluating whether inventories are stated at lower of cost or net realizable value, management considers such factors as inventories in hand, estimated time to sell such inventories and current market conditions. Write-offs for inventory obsolescence are recorded when, in the opinion of management, the value of specific inventory items has been impaired.

 

Property, Plant and Equipment

 

Purchase of property, plant and equipment are recorded at cost. Improvements and replacements of property, plant and equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the Consolidated Statements of Operations. Depreciation is provided over the estimated economic useful lives of each class of assets and is computed using the straight-line method.

 

Impairment of Long-Lived Assets

 

The carrying value of long-lived assets are reviewed when facts and circumstances suggest that the assets may be impaired or that the amortization period may need to be changed. The Company considers internal and external factors relating to each asset, including cash flows, local market developments, industry trends and other publicly available information. If these factors and the projected undiscounted cash flows of the Company over the remaining amortization period indicate that the asset will not be recoverable, the carrying value will be adjusted to the fair market value. The Company has determined that no impairment exists at March 31, 2020 and December 31, 2019.

 

Compensation and Benefits

 

The Company records compensation and benefits expense for all cash and deferred compensation, benefits, and related taxes as earned by its employees. Compensation and benefits expense also includes compensation earned by temporary employees and contractors who perform similar services to those performed by the Company's employees.

 

Stock-Based Compensation

 

The Company accounts for share-based payments in accordance with ASC 718, "Compensation - Stock Compensation," which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant date fair value of the award. In accordance with ASC 718-10-30-9, "Measurement Objective – Fair Value at Grant Date," the Company estimates the fair value of the award using the Black-Scholes option pricing model for valuation of the share- based payments. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of option holders.

 

The simplified method is used to determine compensation expense since historical option exercise experience is limited relative to the number of options issued. The compensation cost is recognized ratably using the straight-line method over the expected vesting period.

 

The Company accounts for stock-based compensation to other than employees in the same manner in which it accounts for employees.

 

Income Taxes

 

The Company accounts for income taxes under ASC 740 Income Taxes.  Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs.  A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

 

In accordance with Financial Accounting Standards Board ASC Topic 740, Income Taxes, management evaluated the Company's tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. The Company is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.

 

Income tax benefits are recognized for income tax positions taken or expected to be taken in a tax return, only when it is determined that the income tax position will more-likely than-not be sustained upon examination by taxing authorities. The Company has analyzed tax positions taken for filings with the Internal Revenue Service and all tax jurisdictions where it operates. The Company believes that income tax filing positions will be sustained upon examination and does not anticipate any adjustments that would result in a material adverse effect on the Company's financial condition, results of operations or cash flows. Accordingly, the Company has not recorded any reserves, or related accruals for interest and penalties for uncertain income tax positions at March 31, 2020 and December 31, 2019.

 

Leases

 

The Company has two leased buildings one in Fort Lauderdale, Florida and the other in Aurora, Colorado that are classified as operating lease right-of use ("ROU") assets and operating lease liabilities in the Company's consolidated balance sheet. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of Selling, General and Administrative expenses.

 

The standard was effective for us beginning January 1, 2019. The Company elected the available practical expedients on adoption. The adoption had a material impact on our consolidated balance sheets, but did not have a material impact on our consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. Finance leases are not material to the Company and were not impacted by the adoption of ASC 842, as finance lease liabilities and the corresponding assets were already recorded in the balance sheet under the previous guidance, ASC 840.

 

Related Party Transactions

 

The Company follows FASB ASC subtopic 850-10, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. Pursuant to ASC 850-10-20, related parties include: a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The consolidated financial statements shall include disclosures of related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Recent Accounting Pronouncements 

 

No new pronouncements are applicable to the Company.

XML 19 R8.htm IDEA: XBRL DOCUMENT v3.20.2
Going Concern
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
GOING CONCERN

NOTE 2: GOING CONCERN

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial losses from operations since its inception. As of and for the three months ended March 31, 2020, the Company had an accumulated deficit of $21,399,877, and a net loss of $2,325,269. 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, though there is no assurance of success. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

The adverse public health developments and economic effects of the current COVID-19 pandemic in the United States, could adversely affect the Company's customers and suppliers as a result of quarantines, facility closures, closing of "brick and mortar" retail outlets and logistics restrictions imposed or which otherwise occur in connection with the pandemic. More broadly, the high degree unemployment resulting from the pandemic could potentially lead to an extended economic downturn, which would likely decrease spending, adversely affect demand for our products and services and harm our business, results of operations and financial condition. At this time, we cannot accurately predict the effect the COVID-19 pandemic will have on the Company.

 

Management's plans include:

 

Taking full advantage of all government programs for the COVID – 19 crisis Future equity raises Future debt raises Rebalancing of Marketing and G&A expenses to mimic current economic environment New and reorder sales to large retailers.

 

The Company's rebranded line of hemp oil and extract product allowed market penetration into large retail chains vastly increasing brand exposure and awareness. The initial rollouts have been successful creating opportunities for thousands of new retail outlets across the country. The shift from smaller order fulfillment to larger "big box store" orders creates an economy of scale and increased profitability. In addition to the volume transactions of the large retail stores, the Company has also found success with a direct to consumer approach on their E-Commerce site.

 

Currently, the Company incorporates an aggressive marketing plan to compete in the Cannabinoid industry. To become market leaders in the market, the Company will use three primary departments to market its products including: web-based marketing, traditional marketing, and medical marketing departments.

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.20.2
Inventories
3 Months Ended
Mar. 31, 2020
Inventory Disclosure [Abstract]  
INVENTORIES

NOTE 3: INVENTORIES

 

Inventory consists of:

 

   March 31,   December 31, 
   2020   2019 
Inventory        
Work In Progress  $4,010,239   $4,062,890 
Finished Goods   2,097,896    1,983,107 
Other   554,458    554,458 
           
Inventory  $6,662,593   $6,600,455 

 

During the periods ending March 31, 2020 and March 31, 2019 the Company realized a loss from destruction of plants in the amounts of $0 and $77,387, respectively.

XML 21 R10.htm IDEA: XBRL DOCUMENT v3.20.2
Property and Equipment
3 Months Ended
Mar. 31, 2020
Property, Plant and Equipment [Abstract]  
PROPERTY AND EQUIPMENT

NOTE 4: PROPERTY AND EQUIPMENT

 

      March 31,   December  31, 
   Life  2020   2019 
PROPERTY AND EQUIPMENT             
Land and Land Improvements  -  $398,126    398,126 
Building and Improvements  39   1,510,175    1,510,175 
Greenhouse  39   965,388    920,896 
Fencing and Irrigation  15   203,793    203,793 
Machinery and Equipment  7   2,480,475    2,480,475 
Furniture and Fixtures  7   269,275    236,344 
Computer Equipment  5   20,053    20,053 
Vehicles  5   120,206    120,206 
      $5,967,491   $5,890,068 
Less Accumulated Depreciation      (1,104,663)   (976,005)
Property and Equipment     $4,862,828    4,914,063 

 

Total depreciation expense was $128,658 and $83,998 for the three month period ending March 31, 2020 and 2019, respectively.

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.20.2
Long-Term Debt
3 Months Ended
Mar. 31, 2020
Long-term Debt, Unclassified [Abstract]  
LONG-TERM DEBT

NOTE 5: LONG-TERM DEBT

 

Long-term debt consisted of the following:

 

   March 31,   December 31, 
   2020   2019 
         
Notes Payable which require monthly payments of $3,690, $669, and $1,691, including interest at 5.16% per annum until December 1, 2022, May 1, 2023, and August 1, 2024, when the balance is due in full.  The note is secured by specific assets of the Company.   196,868    211,952 
           
Note Payable which require monthly payments of $758, including interest at 3.4% per annum until April 1, 2025, when the balance is due in full. The note is secured by specific assets of the Company.   38,955    40,870 
    235,823    252,822 
Less Current Portion   (67,996)   (67,996)
Long-Term Debt - net of current portion  $167,827   $184,826 

 

Future principal payments for the next 5 years are as follows for the years ended December 31:

 

2020  $50,997 
2021   67,996 
2022   67,996 
2023   27,299 
2024   18,980 
Thereafter   2,554 
   $235,823
XML 23 R12.htm IDEA: XBRL DOCUMENT v3.20.2
Convertible Debt
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
CONVERTIBLE DEBT

NOTE 6: CONVERTIBLE DEBT

 

In March 2020, the Company secured a $200,000 loan from a single investor, evidenced by a one-year 10% convertible promissory note (the "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 $.40 per share, subject to adjustment for stock splits, stock dividends and similar recapitalization transactions. The Company determined that there was a beneficial conversion feature of $95,000 relating to this note.

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.20.2
Stock-Based Compensation
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
STOCK-BASED COMPENSATION

NOTE 7: STOCK-BASED COMPENSATION

 

The Company approved their 2017 Incentive Stock Plan on September 27, 2017 (the "Incentive 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 45 million shares. Under the terms of the Incentive Plan, awards may be granted to our employees, directors or consultants. Awards issued under the Incentive Plan vest as determined by the Board of Directors or any of the Committees appointed under the Incentive Plan at the time of grant.

 

The Company's outstanding stock options have a 10-year term. Outstanding non-qualified stock options granted to employees and a consultant vest on a case by case basis. Outstanding incentive stock options issued to employees vest over a three-year period. The incentive stock options granted vest based solely upon continued employment ("time-based"). The Company's time-based share awards that vest in their entirety at the end of three-year periods, time-based share awards where 33.3% of the award vests on each of the three anniversary dates. Outstanding incentive stock options issued to executives vest partially upon grant date, with the residual vesting over the subsequent 6 or 12 months. The Company estimates the fair value of each stock option on the date of grant using the Black Scholes valuation model.

 

Stock-based compensation expense was as follows:

 

   Three Months Ended 
   Mar 31: 
   2020   2019 
Non-Qualified Stock Options - Immediate  $472,726   $661,302 
Incentive Stock Options - Time Bases   -    - 
           
Total Stock-based Compensation Expense  $472,726   $661,302 

 

Stock option activity was as follows in the periods ended Mar 31, 2020 and December 31, 2019:

 

       Weighted-   Weighted- 
   Stock   Average   Average 
   Options   Exercise   Remaining 
Outstanding at December 31, 2019   4,318,750   $1.14    8.91 
Granted   -   $-    - 
Exercised   -           
Forfeited/Canceled   -           
Outstanding at March 31, 2020   4,318,750   $1.14    8.66 
                
Vested at March 31, 2020   3,154,407   $1.14    8.48 
Exercisable at March 31, 2020   3,154,407   $1.14    8.48 
XML 25 R14.htm IDEA: XBRL DOCUMENT v3.20.2
Leases
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
LEASES

NOTE 8: LEASES

 

We adopted ASC 842 using the modified retrospective approach, electing the practical expedient that allows us not to restate our comparative periods prior to the adoption of the standard on January 1, 2019. As such, the disclosures required under ASC 842 are not presented for periods before the date of adoption.

 

The Company recognized the following related to leases in its Unaudited Consolidated Balance Sheet:

 

   March 31,   December  31, 
   2020   2019 
Right of Use Lease Liabilities          
Current portion  $255,768   $80,046 
Long-term portion   906,020    52,798 
   $1,161,788   $132,844 

 

On January 15, 2017, the Company entered an agreement with Pueblo, CO Board of Water Works to lease water for the Company's cultivation process. The agreement went into effect as of November 1, 2016 with a term of 10 years expiring on October 31, 2026, with an option to extend the lease upon expiration for 10 additional years. This agreement replaced previously entered agreements with Pueblo, CO Board of Water Works. The lease requires annual non-refundable minimum service fees of $15,000 and a usage charge of $1,063 per acre for 30 acres. The minimum service fees and usage charges are subject to escalators for each year based upon percentage increases of Pueblo, CO Board of Water Works rates from the previous calendar year. Total water lease expense was $12,876 and $8,159 for the three month period ending March 31, 2020 and 2019, respectively.

 

On June 22, 2018, the Company entered into a sublease agreement with ESDA Inc., a Florida Corporation.  The Agreement went into effect as of July 1, 2018 with a term of three years expiring August 31, 2021.  The lease contains annual escalators and charges Florida sales tax.  Total depreciation expense related to the lease was $20,152 and $20,152 for the three month period ending March 31, 2020 and 2019, respectively.

 

In March of 2020, the Company entered into a 61 month lease agreement with Majestic Realty Co. The agreement allows for an abated first month of rent. The lease contains annual escalators in addition to other periodic payments pertaining to taxes, utilities, insurance and common area costs. Total depreciation expense related to the lease was $17,198 and $0 for the three month period ending March 31, 2020 and 2019, respectively. The lease was calculated with a 5% interest rate creating a Right of Use liability of 1,049,067.

 

As of March 31, 2020, and December 31, 2019, operating leases have no minimum rental commitments.

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.20.2
Common Stock
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
COMMON STOCK

NOTE 9: COMMON STOCK

 

In March of 2020, the Company issued 153,279 shares of common stock in accordance with a cashless exercise of warrants.

 

During the quarter ending March 31 2019, 191,667 stock warrants were exercised for $115,000.

 

As of March 31, 2019, there was a liability of $1,343,125 for funds received from exercising warrants from investors that had not yet been converted into equity.

 

In September of 2019, the board of directors approved an amendment to the Company's Certificate of Incorporation, as amended, to effect a 1-for-4 reverse stock split on the issued and outstanding common. All relevant information relating to numbers of shares and warrants and per share information have been retrospectively adjusted to reflect the reverse stock split for all periods presented. The reverse split was effected on September 19, 2019.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.20.2
Income Tax
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAX

NOTE 10: INCOME TAX

 

The reconciliation of income tax computed at the Federal statutory rate to the provision (benefit) for income taxes from continuing operations is as follows:

 

 

   Three Months Ended   Three Months Ended 
   March 31,
2020
   March 31,
2019
 
Federal Taxes (credits) at statutory rates  $(500,000)  $(400,000)
State and local taxes, net of Federal benefit   (100,000)   (84,000)
Change in valuation allowance   600,000    484,000 
   $-   $- 

 

Components of deferred tax assets are as follows:

 

  Three Months Ended
March 31,

2020
   December 31,
2019
 
Deferred Tax Assets;          
Net Operating Loss Carryforwards  $4,320,000   $3,930,000 
Stock Compensation   980,000    910,000 
Accrued Related Party Expenses   15,000    - 
Total Deferred Tax Assets   5,315,000    4,840,000 
Valuation Allowance   (4,900,000)   (4,300,000)
Total Deferred Tax Assets net of Valuation Allowance  $415,000   $540,000 
Depreciation and Amortization   330,000    370,000 
Prepaid Expense   85,000    170,000 
Total Deferred Tax Liabilities   415,000    540,000 
Net Deferred Tax Assets  $-   $- 

 

The Company has approximately $16,000,000 net operating loss carryforwards that are available to reduce future taxable income. Those NOLs begin to expire in 2038. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax assets for every period because it is more likely than not that all of the deferred tax assets will not be realized.

 

The Company's deferred tax liability associated with timing differences related to depreciation and amortization includes $69,000 of liability resulting from tax depreciation deducted in excess of GAAP depreciation prior to the Company becoming taxed as a C-Corporation.

 

The Company files income tax returns in the U.S. federal jurisdiction, and the state of Colorado.

 

The Company adopted the provisions of FASB ASC 740, Accounting for Uncertainty in Income Taxes. Management evaluated the Company's tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. The Company has no significant adjustments as a result of the implementation of FASB ASC 740.

XML 28 R17.htm IDEA: XBRL DOCUMENT v3.20.2
Concentrations
3 Months Ended
Mar. 31, 2020
Risks and Uncertainties [Abstract]  
CONCENTRATIONS

NOTE 11: CONCENTRATIONS

 

The Company had one customer in the three months ended March 31, 2020 accounting for 13% of sales. For the three months ended March 31, 2019, one customer accounted for 10% of sales.

 

The Company had three customers at March 31, 2020 accounting for 59%, 11% and 10% of accounts receivable. At December 31, 2019, the Company had two customers accounting for 46% and 12% of accounts receivable.

XML 29 R18.htm IDEA: XBRL DOCUMENT v3.20.2
Related Party
3 Months Ended
Mar. 31, 2020
Related Party Transactions [Abstract]  
RELATED PARTY

NOTE 12: RELATED PARTY

 

The Company incurred $57,500 and $37,500 of related party legal expenses during the three month periods ended March 31, 2020 and 2019, respectively

 

The Company issued stock incentives to various directors and employees. Refer to Note 6 for additional details.

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.20.2
Subsequent Events
3 Months Ended
Mar. 31, 2020
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

NOTE 13: SUBSEQUENT EVENTS

 

On April 7, 2020, the Company issued 50,000 shares of common stock for marketing services.

 

On May 13, 2020, the Company received loan proceeds of $800,000 pursuant to the U.S. Small Business Administration ("SBA") COVID-19 Paycheck Protection Program (PPP). Under the terms of this program, loan proceeds may be forgiven if used for payroll costs, rent, and utilities within 24 weeks of receipt.

XML 31 R20.htm IDEA: XBRL DOCUMENT v3.20.2
Nature of Business and Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Business

Nature of Business

 

Veritas Farms, Inc. (Formerly Known as SanSal Wellness Holdings Inc.) (the “Company”), 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.” The Company’s business objectives are to produce natural rich-hemp products, using strict 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 pursuant to Federal law on its farm.

Basis of Presentation

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2020, and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Form 10-K for the year ended December 31, 2019, filed with the SEC on May 15, 2020.

Principles of Consolidation

Principles of Consolidation

 

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

Use of Estimates

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from these estimates.

Fair Value Measurement

Fair Value Measurement

 

The Company has adopted the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

 

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of the Company’s short and long-term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 – quoted prices in active markets for identical assets or liabilities

 

Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

 

The Company does not have any assets or liabilities measured at fair value on a recurring basis.

Cash and Cash Equivalents

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At times, cash and cash equivalents may be in excess of FDIC insurance limits.

Revenue Recognition

Revenue Recognition

 

"Under ASC 606, the Company" the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.

 

Revenues from product sales are recognized when the customer obtains control of the Company's product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.

Cost of Goods Sold

Cost of Goods Sold

 

Hemp Cultivation and Production

 

Cost of goods sold includes the costs directly attributable to production of inventory such as cultivation costs, extraction costs, packaging costs, security, and allocated overhead. Overhead expenses include allocations of rent, administrative salaries, utilities, and related costs.

Inventories

Inventories

 

Inventories consist of growing and processed plants and oils and are valued at the lower of cost or net realizable value. In evaluating whether inventories are stated at lower of cost or net realizable value, management considers such factors as inventories in hand, estimated time to sell such inventories and current market conditions. Write-offs for inventory obsolescence are recorded when, in the opinion of management, the value of specific inventory items has been impaired.

Property, Plant and Equipment

Property, Plant and Equipment

 

Purchase of property, plant and equipment are recorded at cost. Improvements and replacements of property, plant and equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the Consolidated Statements of Operations. Depreciation is provided over the estimated economic useful lives of each class of assets and is computed using the straight-line method.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

 

The carrying value of long-lived assets are reviewed when facts and circumstances suggest that the assets may be impaired or that the amortization period may need to be changed. The Company considers internal and external factors relating to each asset, including cash flows, local market developments, industry trends and other publicly available information. If these factors and the projected undiscounted cash flows of the Company over the remaining amortization period indicate that the asset will not be recoverable, the carrying value will be adjusted to the fair market value. The Company has determined that no impairment exists at March 31, 2020 and December 31, 2019.

Compensation and Benefits

Compensation and Benefits

 

The Company records compensation and benefits expense for all cash and deferred compensation, benefits, and related taxes as earned by its employees. Compensation and benefits expense also includes compensation earned by temporary employees and contractors who perform similar services to those performed by the Company’s employees.

Stock-Based Compensation

Stock-Based Compensation

 

The Company accounts for share-based payments in accordance with ASC 718, "Compensation - Stock Compensation," which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant date fair value of the award. In accordance with ASC 718-10-30-9, "Measurement Objective – Fair Value at Grant Date," the Company estimates the fair value of the award using the Black-Scholes option pricing model for valuation of the share- based payments. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of option holders.

 

The simplified method is used to determine compensation expense since historical option exercise experience is limited relative to the number of options issued. The compensation cost is recognized ratably using the straight-line method over the expected vesting period.

 

The Company accounts for stock-based compensation to other than employees in the same manner in which it accounts for employees.

Income Taxes

Income Taxes

 

The Company accounts for income taxes under ASC 740 Income Taxes.  Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs.  A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

 

In accordance with Financial Accounting Standards Board ASC Topic 740, Income Taxes, management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. The Company is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.

 

Income tax benefits are recognized for income tax positions taken or expected to be taken in a tax return, only when it is determined that the income tax position will more-likely than-not be sustained upon examination by taxing authorities. The Company has analyzed tax positions taken for filings with the Internal Revenue Service and all tax jurisdictions where it operates. The Company believes that income tax filing positions will be sustained upon examination and does not anticipate any adjustments that would result in a material adverse effect on the Company’s financial condition, results of operations or cash flows. Accordingly, the Company has not recorded any reserves, or related accruals for interest and penalties for uncertain income tax positions at March 31, 2020 and December 31, 2019.

Lease

Leases

 

The Company has two leased buildings one in Fort Lauderdale, Florida and the other in Aurora, Colorado that are classified as operating lease right-of use (“ROU”) assets and operating lease liabilities in the Company’s consolidated balance sheet. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of Selling, General and Administrative expenses.

 

The standard was effective for us beginning January 1, 2019. The Company elected the available practical expedients on adoption. The adoption had a material impact on our consolidated balance sheets, but did not have a material impact on our consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. Finance leases are not material to the Company and were not impacted by the adoption of ASC 842, as finance lease liabilities and the corresponding assets were already recorded in the balance sheet under the previous guidance, ASC 840.

Related Party Transactions

Related Party Transactions

 

The Company follows FASB ASC subtopic 850-10, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. Pursuant to ASC 850-10-20, related parties include: a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The consolidated financial statements shall include disclosures of related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

Recent Accounting Pronouncements

Recent Accounting Pronouncements 

 

No new pronouncements are applicable to the Company.

XML 32 R21.htm IDEA: XBRL DOCUMENT v3.20.2
Inventories (Tables)
3 Months Ended
Mar. 31, 2020
Inventory Disclosure [Abstract]  
Schedule of inventories
   March 31,   December 31, 
   2020   2019 
Inventory        
Work In Progress  $4,010,239   $4,062,890 
Finished Goods   2,097,896    1,983,107 
Other   554,458    554,458 
           
Inventory  $6,662,593   $6,600,455 
XML 33 R22.htm IDEA: XBRL DOCUMENT v3.20.2
Property and Equipment (Tables)
3 Months Ended
Mar. 31, 2020
Property, Plant and Equipment [Abstract]  
Schedule of property and equipment
      March 31,   December  31, 
   Life  2020   2019 
PROPERTY AND EQUIPMENT             
Land and Land Improvements  -  $398,126    398,126 
Building and Improvements  39   1,510,175    1,510,175 
Greenhouse  39   965,388    920,896 
Fencing and Irrigation  15   203,793    203,793 
Machinery and Equipment  7   2,480,475    2,480,475 
Furniture and Fixtures  7   269,275    236,344 
Computer Equipment  5   20,053    20,053 
Vehicles  5   120,206    120,206 
      $5,967,491   $5,890,068 
Less Accumulated Depreciation      (1,104,663)   (976,005)
Property and Equipment     $4,862,828    4,914,063 
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.20.2
Long-Term Debt (Tables)
3 Months Ended
Mar. 31, 2020
Long-term Debt, Unclassified [Abstract]  
Schedule of long-term debt
   March 31,   December 31, 
   2020   2019 
         
Notes Payable which require monthly payments of $3,690, $669, and $1,691, including interest at 5.16% per annum until December 1, 2022, May 1, 2023, and August 1, 2024, when the balance is due in full.  The note is secured by specific assets of the Company.   196,868    211,952 
           
Note Payable which require monthly payments of $758, including interest at 3.4% per annum until April 1, 2025, when the balance is due in full. The note is secured by specific assets of the Company.   38,955    40,870 
    235,823    252,822 
Less Current Portion   (67,996)   (67,996)
Long-Term Debt - net of current portion  $167,827   $184,826 
Schedule of future principal payments
2020  $50,997 
2021   67,996 
2022   67,996 
2023   27,299 
2024   18,980 
Thereafter   2,554 
   $235,823 
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.20.2
Stock-Based Compensation (Tables)
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Schedule of stock-based compensation expense
   Three Months Ended 
   Mar 31: 
   2020   2019 
Non-Qualified Stock Options - Immediate  $472,726   $661,302 
Incentive Stock Options - Time Bases   -    - 
           
Total Stock-based Compensation Expense  $472,726   $661,302 
Schedule of stock option
       Weighted-   Weighted- 
   Stock   Average   Average 
   Options   Exercise   Remaining 
Outstanding at December 31, 2019   4,318,750   $1.14    8.91 
Granted   -   $-    - 
Exercised   -           
Forfeited/Canceled   -           
Outstanding at March 31, 2020   4,318,750   $1.14    8.66 
                
Vested at March 31, 2020   3,154,407   $1.14    8.48 
Exercisable at March 31, 2020   3,154,407   $1.14    8.48 
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.20.2
Leases (Tables)
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Lease

   December 31,   December 31, 
   2019   2018 
Right of Use Lease Liabilities          
Current portion  $80,046   $             - 
Long-term portion   52,798    - 
   $132,844   $- 

XML 37 R26.htm IDEA: XBRL DOCUMENT v3.20.2
Income Tax (Tables)
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Schedule of income tax reconciliation
   Three Months Ended   Three Months Ended 
   March 31,
2020
   March 31,
2019
 
Federal Taxes (credits) at statutory rates  $(500,000)  $(400,000)
State and local taxes, net of Federal benefit   (100,000)   (84,000)
Change in valuation allowance   600,000    484,000 
   $-   $-
Schedule of deferred tax assets
  Three Months Ended
March 31,

2020
   December 31,
2019
 
Deferred Tax Assets;          
Net Operating Loss Carryforwards  $4,320,000   $3,930,000 
Stock Compensation   980,000    910,000 
Accrued Related Party Expenses   15,000    - 
Total Deferred Tax Assets   5,315,000    4,840,000 
Valuation Allowance   (4,900,000)   (4,300,000)
Total Deferred Tax Assets net of Valuation Allowance  $415,000   $540,000 
Depreciation and Amortization   330,000    370,000 
Prepaid Expense   85,000    170,000 
Total Deferred Tax Liabilities   415,000    540,000 
Net Deferred Tax Assets  $-   $- 
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.20.2
Going Concern (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Going Concern (Textual)      
Accumulated deficit $ (21,399,877)   $ (19,074,608)
Net loss $ (2,325,269) $ (1,826,924)  
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.20.2
Inventories (Details) - USD ($)
Mar. 31, 2020
Dec. 31, 2019
Inventory    
Work In Progress $ 4,010,239 $ 4,062,890
Finished Goods 2,097,896 1,983,107
Other 554,458 554,458
Inventory $ 6,662,593 $ 6,600,455
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.20.2
Inventories (Details Textual) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Inventory Disclosure [Abstract]    
Loss from destruction of plants $ 0 $ 77,387
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.20.2
Property and Equipment (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Dec. 31, 2019
PROPERTY AND EQUIPMENT    
Property and equipment, gross $ 5,967,491 $ 5,890,068
Less Accumulated Depreciation (1,104,663) (976,005)
Property and Equipment 4,862,828 4,914,063
Land and Land Improvements    
PROPERTY AND EQUIPMENT    
Property and equipment, gross 398,126 398,126
Building and Improvements [Member]    
PROPERTY AND EQUIPMENT    
Property and equipment, gross $ 1,510,175 1,510,175
Greenhouse [Member]    
PROPERTY AND EQUIPMENT    
Life 39 years  
Property and equipment, gross $ 965,388 920,896
Fencing and Irrigation [Member]    
PROPERTY AND EQUIPMENT    
Life 15 years  
Property and equipment, gross $ 203,793 203,793
Machinery and Equipment [Member]    
PROPERTY AND EQUIPMENT    
Life 7 years  
Property and equipment, gross $ 2,480,475 2,480,475
Furniture and Fixtures [Member]    
PROPERTY AND EQUIPMENT    
Life 7 years  
Property and equipment, gross $ 269,275 236,344
Computer Equipment [Member]    
PROPERTY AND EQUIPMENT    
Life 5 years  
Property and equipment, gross $ 20,053 20,053
Vehicles [Member]    
PROPERTY AND EQUIPMENT    
Life 5 years  
Property and equipment, gross $ 120,206 $ 120,206
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.20.2
Property and Equipment (Details Textual) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Property and Equipment (Textual)    
Depreciation expense $ 128,658 $ 83,998
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.20.2
Long-Term Debt (Details) - USD ($)
Mar. 31, 2020
Dec. 31, 2019
Long-term debt $ 235,823 $ 252,822
Less Current Portion (67,996) (67,996)
Long-Term Debt - net of current portion 167,827 184,826
Note Payable [Member]    
Long-term debt 196,868 211,952
Note Payable Two [Member]    
Long-term debt $ 38,955 $ 40,870
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.20.2
Long-Term Debt (Details 1)
Mar. 31, 2020
USD ($)
Long-term Debt, Unclassified [Abstract]  
2020 $ 50,997
2021 67,996
2022 67,996
2023 27,299
2024 18,980
Thereafter 2,554
Total $ 235,823
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.20.2
Long-Term Debt (Details Textual)
3 Months Ended
Mar. 31, 2020
USD ($)
Note Payable [Member]  
Monthly payments $ 3,690
Debt interest rate, percentage 5.16%
Maturity term Dec. 01, 2022
Note Payable Two [Member]  
Monthly payments $ 669
Debt interest rate, percentage 5.16%
Maturity term May 01, 2023
Note Payable Three [Member]  
Monthly payments $ 1,691
Debt interest rate, percentage 5.16%
Maturity term Aug. 01, 2024
Note Payable Four [Member]  
Monthly payments $ 758
Debt interest rate, percentage 3.40%
Maturity term Apr. 01, 2025
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.20.2
Convertible Debt (Details)
3 Months Ended
Mar. 31, 2020
USD ($)
$ / shares
Convertible promissory note 10.00%
Convertible Note interest rate 10.00%
Common stock at a conversion price | $ / shares $ 40
Amount of beneficial conversion feature $ 95,000
Investor [Member]  
Convertible Debt $ 200,000
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.20.2
Stock-Based Compensation (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Total Stock-based Compensation Expense $ 472,726 $ 661,302
2017 Incentive Stock Plan [Member] | Non-Qualified Stock Options [Member]    
Total Stock-based Compensation Expense 472,726 661,302
2017 Incentive Stock Plan [Member] | Incentive Stock Options [Member]    
Total Stock-based Compensation Expense
XML 48 R37.htm IDEA: XBRL DOCUMENT v3.20.2
Stock-Based Compensation (Details 1)
3 Months Ended
Mar. 31, 2020
$ / shares
shares
Stock Options  
Outstanding beginning balance 4,318,750
Granted
Exercised
Forfeited/Canceled
Outstanding ending balance 4,318,750
Vested 3,154,407
Exercisable 3,154,407
Weighted- Average Exercise Price per Share  
Outstanding beginning balance (in dollars per share) | $ / shares $ 1.14
Granted (in dollars per share) | $ / shares
Outstanding ending balance (in dollars per share) | $ / shares 1.14
Vested (in dollars per share) | $ / shares 1.14
Exercisable (in dollars per share) | $ / shares $ 1.14
Weighted Average Remaining Contractual  
Outstanding (in years) 8 years 10 months 28 days
Outstanding (in years) 8 years 7 months 28 days
Vested (in years) 8 years 5 months 23 days
Exercisable (in years) 8 years 5 months 23 days
XML 49 R38.htm IDEA: XBRL DOCUMENT v3.20.2
Stock-Based Compensation (Details Textual) - 2017 Incentive Stock Plan [Member] - shares
3 Months Ended
Mar. 31, 2020
Sep. 27, 2017
Authorized stock   45,000,000
Incentive Stock Options [Member]    
Stock options term 10 years  
Stock options vesting term 3 years  
Description of stock options vesting Vest in their entirety at the end of three-year periods, time-based share awards where 33.3% of the award vests on each of the three anniversary dates.  
XML 50 R39.htm IDEA: XBRL DOCUMENT v3.20.2
Leases (Details) - USD ($)
Mar. 31, 2020
Dec. 31, 2019
Leases [Abstract]    
Current portion $ 255,768 $ 80,046
Long-term portion 906,020 52,798
Operating lease, liability $ 1,161,788 $ 132,844
XML 51 R40.htm IDEA: XBRL DOCUMENT v3.20.2
Leases (Details Textual)
3 Months Ended
Jan. 15, 2017
USD ($)
a
Mar. 31, 2020
USD ($)
Mar. 31, 2019
USD ($)
Water lease expense   $ 12,876 $ 8,159
Right of use liability   $ 1,049,067 214,952
Lease interest rate   5.00%  
ESDA Inc., a Florida Corporation [Member]      
Depreciation expense related to lease   $ 20,152 20,152
Majestic Realty Co [Member]      
Depreciation expense related to lease   $ 17,198 $ 0
Pueblo CO Board of Water Works [Member] | Agreement One [Member]      
Operating lease term 10 years    
Lease expiration date Oct. 31, 2026    
Operating additional extend year 10 years    
Non-refundable minimum service fee $ 15,000    
Water usage charge $ 1,063    
Area of land | a 30    
XML 52 R41.htm IDEA: XBRL DOCUMENT v3.20.2
Common Stock (Details) - USD ($)
1 Months Ended 3 Months Ended
Sep. 30, 2019
Mar. 31, 2020
Mar. 31, 2019
Common Stock (Textual)      
Common stock issued   153,279  
Stock warrants     191,667
Stock warrants were exercised     $ 115,000
Received from exercising warrants     $ 1,343,125
Description of reverse stock split The board of directors approved an amendment to the Company's Certificate of Incorporation, as amended, to effect a 1-for-4 reverse stock split on the issued and outstanding common.    
XML 53 R42.htm IDEA: XBRL DOCUMENT v3.20.2
Income Tax (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Tax Disclosure [Abstract]    
Federal taxes (credits) at statutory rates $ (500,000) $ (400,000)
State and local taxes, net of Federal benefit (100,000) (84,000)
Change in valuation allowance 600,000 484,000
Income tax provision
XML 54 R43.htm IDEA: XBRL DOCUMENT v3.20.2
Income Tax (Details 1) - USD ($)
Mar. 31, 2020
Dec. 31, 2019
Deferred Tax Assets;    
Net Operating Loss Carryforwards $ 4,320,000 $ 3,930,000
Stock Compensation 980,000 910,000
Accrued Related Party Expenses 15,000
Total Deferred Tax Assets 5,315,000 4,840,000
Valuation Allowance (4,900,000) (4,300,000)
Total Deferred Tax Assets net of Valuation Allowance 415,000 540,000
Depreciation and Amortization 330,000 370,000
Prepaid Expense 85,000 170,000
Total Deferred Tax Liabilities 415,000 540,000
Net Deferred Tax Assets
XML 55 R44.htm IDEA: XBRL DOCUMENT v3.20.2
Income Tax (Details Textual)
3 Months Ended
Mar. 31, 2020
USD ($)
Income Tax (Textual)  
Net operating loss carry forward $ 16,000,000
Operating loss carry forwards expiration date Dec. 31, 2038
Depreciation and amortization $ 69,000
XML 56 R45.htm IDEA: XBRL DOCUMENT v3.20.2
Concentrations (Details) - Customer
3 Months Ended 12 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Sales Revenue, Net [Member] | First Customer [Member]      
Concentration risk, percentage 13.00% 10.00%  
Number of customer 1 1  
Accounts Receivable [Member] | First Customer [Member]      
Concentration risk, percentage 59.00%   46.00%
Number of customer 3   2
Accounts Receivable [Member] | Second Customer [Member]      
Concentration risk, percentage 11.00%   12.00%
Number of customer 3   2
Accounts Receivable [Member] | Third Customer [Member]      
Concentration risk, percentage 10.00%  
Number of customer 3  
XML 57 R46.htm IDEA: XBRL DOCUMENT v3.20.2
Related Party (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Related Party (Textual)    
Related party legal expenses $ 57,500 $ 37,500
XML 58 R47.htm IDEA: XBRL DOCUMENT v3.20.2
Subsequent Events (Details) - Subsequent Event [Member] - USD ($)
May 13, 2020
Apr. 07, 2020
Subsequent Events (Textual)    
Subsequent event, description The Company received loan proceeds of $800,000 pursuant to the U.S. Small Business Administration ("SBA") COVID-19 Paycheck Protection Program (PPP). Under the terms of this program, loan proceeds may be forgiven if used for payroll costs, rent, and utilities within 24 weeks of receipt.  
Common stock issued for marketing services, value   $ 50,000
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