UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act

of 1934 for the Fiscal Year EndedJune 30, 20162017

Commission File Number: 000-55609

Rocky Mountain High Brands, Inc.

(Exact name of registrant as specified in its charter)

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

Common Stock, $0.001 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [ ] No [X]

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 past 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 [ X ] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [x] No [X][ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X ]

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

Large accelerated filer [ ] Accelerated filer [ ]

Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes [ ] No [X]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. Approximately $19,082,549$24,827,241 as of December 31, 2015,2016, using an averagethe closing price of bid and asked prices of $0.04055$0.044 per share.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 623,097,784793,266,046 of as of September 28, 2016.October 10, 2017.

PART I

PART I

When used in this Annual Report, unless otherwise indicated, the terms “the Company,” “RMHB,” “we,” “us” and “our” refers to Rocky Mountain High Brands, Inc. and/or its subsidiaries. All references in this report to “$” or “dollars” are to United States dollars, unless specifically stated otherwise.

Forward-Looking Statements

This Annual Report contains forward-looking statements that reflect our current views about future events. We use the words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “will,” “intend,” “may,” “plan,” “project,” “should,” “could,” “seek,” “designed,” “potential,” “forecast,” “target,” “objective,” “goal,” or the negatives of such terms or other similar expressions. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Item 1. Business

Overview

Rocky Mountain High Brands, Inc. is a Nevada corporation. RMHB currently operates through its parent company, twothree wholly-owned subsidiaries and an unconsolidated subsidiary:one minority-owned subsidiary, which the Company controls. All subsidiaries are consolidated for financial reporting purposes:

RMHB is a consumer goods brand development company specializing in developing, manufacturing, marketing, and distributing high quality,brand development of health conscious, hemp-infused food and beverage products and spring water.products. The Company currently markets a lineup of five naturally flavored hemp-infused beverages. RMHB isbeverages (Citrus Energy, Black Tea, Mango Energy and Lemonade) and a low-calorie hemp-infused Coconut Lime Energy drink. The Company also researchingoffers hemp-infused 2oz. Mango Energy Shots and Mixed Berry Energy Shots. In August 2016 the developmentCompany launched Eagle Spirit Spring Water, a line of a lineup of products containing Cannabidiol (CBD). The Company’s intention is to be on the cutting edge of the use of CBD in consumer products while complying with all state and federal laws and regulations. See New Product Pipeline below.naturally high alkaline spring water.

After developing the beverage products, RMHB completed its first production run in February of 2015. Since then RMHB has had production runs for hemp-infused beverages totaling over 3,700,0003,900,000 cans. Each beverage contains approximately 50mg (our first production run) to 100mg of hempseed extract and all of the non-alcoholic beverages will consist of all-natural ingredients. The non-alcoholichemp-infused products are shelf stable (no refrigeration necessary) with a shelf life oftwo(2) years. The Wine Based Ready-to-Drink Cocktails contain 12.5% alcohol and are packaged in 375ml, 750ml and 1.5 liter PET bottles. These alcoholic beverages are also shelf stable (norefrigerationnecessary) andhaveashelflifeof18months.Packaging for our line-up of products containing cannabinoids (CBD) will be determined at a later date.

TheDuring fiscal year 2017, the Company has also run its first production run of both Energy Shotsproduced energy shots and Relaxation Brownies.

In addition, in August,September 2016, the Company bottled hisits first high alkaline spring water.

Business Developmentwater, Eagle Spirit Spring Water and has completed several production runs since, including approximately 110,000 16.9 oz. bottles and 1,800 2.64-gallon (10-liter) “Bag in the Last Three Years

The Company is a C corporation, and was incorporated in the State of Nevada in 2000.

Over the past three years, the Company developed as follows:Box.”

In May 2011,March and April 2017, the Company changedcompleted additional production runs of its name from Precious Metals Exchange Corp. to Legends Food Company, with a business plan of selling quick frozen barbecue over the internet to consumersmore popular hemp-infused beverages, Citrus Energy and engaging celebrities to help sell the product, thus the Legends name. The Company started development of a web-site with a shopping cart to accommodate sales. Prior to launching, the Company modified its strategy.

In November, 2011, the Company was able to trademark the name “Republic of Texas Brands, and shifted its operations from the frozen barbecue over the internet to sales of Texas based products over the internet, utilizing an updated version of the shopping cart that was developed as a part of the Legends Foods website. The Company operated the website during the first quarter of fiscal year ending June 30, 2012 and generated approximately $100,000 in sales during that time period.

When the Chief Executive Officer and Chief Marketing Officer resigned from the Company, remaining management changed strategies and focused on acquisition of a barbecue restaurant chain with twelve operating restaurants. The Company entered into a Letter of Intent to purchase the restaurant chain, but was unable to close the transaction due to its inability to raise sufficient capital.

The development of the business over the past three years has been interrupted by a Chapter 11 bankruptcy, from which the Company successfully emerged on July 11, 2014 with a confirmed Plan of Reorganization (“Plan”) by order of United States Bankruptcy Judge Barbara Houser. The bankruptcy proceeding is more fully set forth hereinafter under the section entitled Involvement in Certain Legal Proceedings. In early 2013, the Company had sought to purchase a barbeque chain located in the Dallas, Texas area, but was ultimately unable to secure financing and was sued by the party with whom the Company had contractedto arrange and secure the financing. The Company filed a Voluntary Petition under Chapter 11 of the Bankruptcy Code. During the bankruptcy proceeding, the Company determined that a new business model would provide the best opportunity to grow the Company. The Company entered into a newly emerging sector of hemp-infused beverages. The Plan called for the acquisition by the Company of Chill Texas, a business with distribution rights to Chillo, a hemp-infused energy drink.Mango Energy.

In August 2014,2017, the Company made a decisionsold its remaining inventory of Smarterita wine-based beverages. There are currently no plans to develop its own lineresume production of hemp-infused beverages, and followed through by creating formulas, logos, trademarks and conducting the requisite market research to determine the viability of such a lineup of hemp-infused drinks. During this developmental phase of the Company as a hemp-infused beverage business, the Company was successful in trademarking the name Rocky Mountain High for its drinks.

In early 2015, the Company scheduled its first production run of drink products and in February, 2015 completed its first production run. Since that first production run in its Minnesota co-packing facility, the Company has produced nearly 4,000,000 cans of hemp-infused beverages in its first year in the hemp-infused beverage business. The Company had established a distribution network for the distribution of its products and continues to pursue distributor affiliations in order to place its drinks in national retail chains.

The only purchase and sale of assets outside the ordinary course of business was the purchase of assets from Dollar Shots Club, LLC and subsequent sale of those assets to Dollar Shots Club, Inc. A more detailed description of those transactions are set forth on page 4 under Acquisition Agreements.

During 2015 the Company acquired all of the interests in Smarterita, LLC for 4,500,000 shares of restricted Rule 144 common stock of the Company.

In the past three years, the Company changed its corporate name from Republic of Texas Brands, Inc. (RTXB) to Totally Hemp Crazy, Inc. (THCZ) and then to the current name of Rocky Mountain High Brands, Inc. (RMHB).alcoholic beverage.

Corporate History

Rocky Mountain High Brands Inc. 10/23/2014 to present – Articles of Amendment filed with the State of

Nevada

f/k/a Totally Hemp Crazy Inc. 07/17/2014 to 10/23/2014 – Articles of Amendment filed with the State of

Nevada

f/k/a Republic of Texas Brands Incorporated 11/2011 to 07/17/2014 – Articles of Amendment filed with the State of

Nevada

f/k/a Legends Food Corporation 05/2011 to 11/2011 – Articles of Amendment filed with the State of Nevada

f/k/a Precious Metals Exchange Corp. (hereinafter referred to as “PMEC,” the “Issuer” or the “Company”) – Articles of Amendment filed with the State of Nevada on December 23, 2008

f/k/a Stealth Industries, Inc. – Articles of Amendment filed with the State of Minnesota on October 25, 1999 (name change). Articles of Incorporation filed with the State of Nevada on October 30, 2000 (Change of Domicile; Merger with Stealth Industries, Inc. (Minnesota)

f/k/a Assisted Living Corporation – Articles of Amendment filed with the State of Minnesota on November 3, 1993 (name change)

f/k/a Electric Reel Corporation of America, Inc. -- Articles of Incorporation filed with the State of Minnesota on August 15, 1968

Acquisition AgreementsAcquisitions

On March 31, 2015Rocky Mountain High Water Company LLC

In July 2016, the Company acquired 100%entered into a business alliance with Poafpybitty Family, LLC to launch Eagle Spirit Spring Water, a line of the ownership interests of Smarterita, LLC, a Texas Limited Liability Companypurified, high-alkaline spring water sourced from Vintage Specialists, LLC and Thomas Shuman, the former President and Chief Executive Officer of the Company. Smarterita, LLC owned certain inventory definedNative American tribal land in theOklahoma.

The agreement and the trade name "Smarterita". Considerationcalls for the acquisition was 3,000,000 restrictedsharesoftheCompany’scommonstocktotheownersofVintageSpecialists,LLCfor66%ofSmarterita,LLCand$1,500Company to pay a royalty on each gallon of water collected at the spring. Production of filtered spring water filled bottles commenced in August 2016 and sales began in October 2016.

In consideration for the 20-year water and surface rights, and a related 10-year renewal option, the Company paid Poafpybitty Family, LLC cash to Thomas Shumanpayments of $22,500 and issued a warrant for his 34% of Smarterita, LLC. Prior to the series of transactions that effected the acquisition, Mr. Shuman owned 17% of Smarterita, LLC. He acquired an additional 17% from Michael Martin,whowas issued 1,500,000500,000 shares of the Company’s restricted common stock exercisable at $.03 per share over a three-year period beginning July 27, 2016.

The agreement grants the Company an exclusive right to develop land adjacent to the spring for commercial purposes as considerationagreed to by both parties. Additionally, the Company has agreed to grow hemp for deliveryexperimental or commercial purposes on the land within three years.

On November 12, 2016, the agreement with the Poafpybitty Family was amended to give the Company a controlling voting interest of 75% of RMHW, while the Poafpybitty Family received 51% of the interests to Mr. Shuman and ultimately the Company.equity interest. The acquisition wasamended agreement is being accounted for as a business combinationstep-acquisition, with the resulting goodwill of $49,911 included in accordance with ASC 805 "Business Combinations".other assets. The total purchase price for the acquisition was allocated to the net tangible assets based upon their estimated fair values as set forth below. The excessCompany is obtaining an outside valuation of the purchase price overrights to use the net assets was recorded as goodwill. The following table summarizesland and obtain the estimated fair valueswater described in the agreement. Beginning November 12, 2016, the operations of RMHW are consolidated in the assets assumed at the acquisitiondate.financial statements of RMHB.

 The Company initially considered entering into the markets served by Smarterita, LLC, but decided to refocus its efforts on other business opportunities. As of June 30, 2015, the full amount of goodwill acquired has been impaired. Smarterita, LLC did not have any revenues prior to the acquisition and minimal operating expenses.

On July 17, 2015, the Company acquired all of the assets of Dollar Shots Club, LLC. The purpose of the acquisition was to acquire formulas developed by Dollar Shots Club, LLC for inclusion in the Company’s hemp-based energy shots, which were being developed at the time.

The Company issued 2,000,000 shares of its common stock to seven individuals who owned 100% of membership units in Dollar Shots Club, LLC.  The investment in Dollar Shots Club, LLC was recorded on the Company’s books at a price of $166,000, which was based on the closing price of the Company’s common stock on the day the stock was issued.   The assets purchased included the trademark and other intellectual property of the LLC, inventory, all websites and ecommerce sites, goodwill, formulas and all other general intangibles (the “assets”).

On September 18, 2015, the Company sold these assets to Dollar Shots Club, Inc. in exchange for 5,000,000 shares of Dollar Shots Club, Inc. common stock. The Company retained the rights to the formulas to the shots so that it could develop a similar hemp-infused energy version of them to be sold under Rocky Mountain High Brands. To the best of the Company’s knowledge, there is no relationship between the Dollar Shots Club entities. The Company fully impaired this investment during the year ended June 30, 2016.

 Trademarks Related to Our Business

•  Rocky Mountain High Energy Drink

•  Smarterita

•  Totally Hemp Crazy

•  Get Your Hemp On

•        Blue Leaf Pharmaceuticals

•  Rock the Road Trip

•  Eagle Sprint

Existing ProductsCurrent Product Offerings

TheUnder its Rocky Mountain High Brands name, the Company has developedcurrently markets a lineup of five hemp-infused 16 oz. beverages that include three energy drinks and a black tea and lemonade:including:

The Company is also currently marketing a two-flavor lineup of energy shots.

The Company plans to sell its remaining inventory of these products during the first half of fiscal year 2018. In order to execute this plan, the Company will offer larger discounts to distributors and retailers and higher commissions to its broker network, likely resulting in lower gross profit margins for the first and second quarter of 2018.

Our Eagle Spirit Land and Water Company currently markets its naturally high alkaline spring water in two sizes: a 16.9 oz. plastic bottle sold in cases of 24 and a 2.64-gallon (10-liter) Bag in a Box.

Strategic Update and Planned Product Offerings

The Company has recently updated its long-term strategic plan. Management’s goal is to become the category leader in the hemp-infused beverage market, a segment of the functional beverage market. Functional beverages, or beverages that convey health benefits, are the fastest growing segment within the beverage market.

The Company is developing four newly reformulated, sugar-free, non-energy, hemp-infused beverage flavors. In addition to the new formulas, the beverages will feature 12 oz. cans, an all-new look and will replace all current hemp-infused beverage offerings. Two of the four beverage flavors will be carbonated. Flavor choices will be similar to past offerings. Management plans to begin production on the new beverages in February 2018. Marketing will focus on the health benefits of hemp, including Omega-3 and Omega-6 fatty acids, amino acids, and natural, plant-based fiber.

The Company is also reviewing its other product offerings, but there are no immediate plans to produce additional Relaxation Brownies or energy shots.

The Board of Directors is currently evaluating its plans with regard to the Eagle Spirit Water business.

The Company also plans to hire a Vice President of Sales and a Director of Marketing during fiscal year 2018.

Sales Channels

The Company depends upon a network of brokers and distributors to represent its product in the market. During its first year of operation, the Company signed twenty-four distributors across the country. For the year ended June 30, 2017, the Company’s two largest distributors accounted for 50% and 7% of sales, respectively.

The various distribution channels differ in costs, customer relationships, complexity and the resources required to operate the channel. We strategically build sales distribution channels to match and reinforce the goals and objectives of our marketing plan. To increase competitiveness and sales, we have a specific sales strategy in order to maximize revenues that includes the following:

Direct Selling

We utilize direct sales to retailers, which eliminates the delays and additional expense of a standard distribution channel. In this way we are better able to preserve more revenue, and protect capital under the control of the company. Direct selling to certain segments supports our marketing plan that has identified, researched and segmented certain final customers.

We utilize Amazon and our two proprietary websites – www.liverockymountainhigh.com and www.eaglespiritspringwater.com – to sell directly to consumers.

Wholesale Distribution

Another sales channel includes wholesale distribution. This method is designed for our potential customers who are widely dispersed. Wholesale distribution leaves the selling to wholesalers and retailers specialized in retail sales, which enables us to focus on production. Product is sold to distributors under a variety of terms from cash to credit terms.

Beverage Brokers

Beverage brokers develop local, regional, and national product campaigns with attention to long-term sustainable success. They assist in matching brands with the needs of an evolving market. Scheduling appointments, making presentations, securing product approval, and shelf resets, have added greatly to the time line from ship to shelf, making the role of the beverage broker all the more important. Beverage brokers represent a cost-efficient method of doing business for our drink brands. A commission-based beverage broker is a variable cost directly tied to the volume sold.

The Company is re-assessing its go-to-market strategy. Specifically, channels of distribution and distributor and broker agreements are being reviewed. Going forward, management plans to focus on key domestic markets.

Outsourced Production and Storage Services

In May 2016, the Company executed a one-year agreement with MBA Beverage to coordinate the manufacturing of our hemp-infused beverage products. MBA Beverage actsacted as our outsourced supply-chain management and coordinatescoordinated every aspect of the manufacturing process. The contract expired in May 2017. We have not executed a new contract with MBA Beverage also purchases all ingredients that are used in the manufacturing process since it has established relationships with all suppliers. MBA Beverage purchases hemp from Global Essence, Global Essence provides MBA Beverage independent third party testing documentation that all hemp used in our manufacturing process is THC free.

or any other outsourced production coordinator.

New Product PipelineBlues City Brewery, LLC (“Blues City”) in Memphis, Tennessee, a subsidiary of City Brewing Company, LLC, has completed all of beverage production and canning to-date. Blues City is an FDA registered facility that is audited annually to ensure compliance with FDA GMP (Good Manufacturing Practices) for food safety. MBA Beverage schedules beverage production with Blues City. Upon completion of the production, the Company stores finished product at Blues City, awaiting sale to our distributor network. The Company does not contract with Blues City directly.

Wine Based Ready-to-Drink Cocktails

The wine based ready-to-drink cocktails are still in pre-development stage. One flavor is SmarteRita Gold, a low-calorie drink with natural flavors that tastes like a margarita.the Company for product formulation under an informal agreement. The Company owns the formulapropriety formulas to Smarterita Gold and is targeting third quarter of fiscal year 2017 to market it. We plan to generate revenue from its sales by the fourth quarter of fiscal year 2017.our products.

Cannabinoid “CBD”- infused Beverages

The CBD beverage line is in pre-development stage. Any CBD beverages will be THC-free. Therefore, these products will be 100% legal in all 50 states. Products containing Cannabidiol (CBD) can be a source of essential fatty acids, vitamin E, and trace minerals in addition to containingOur naturally high amounts of protein. CBD is extracted and separated from specific varieties of cannabis, often known as hemp. Chemically, CBD is one of 85 chemical substances known as cannabinoids, which are all found in the cannabis plant. CBD is the second most abundant compound in hemp, typically representing up to 40% of its extracts. CBD is actually unrelated to the chemical chain that results in tetrahydrocannabinol (THC). They share some characteristics but are created via different paths. The chemical properties of CBD and THC vary widely enough to classify THC as a psychotropic drug strictly controlled by federal authorities, while CBD is considered a legal dietary supplement.

The Company will seek an independent legal opinion to ensure that it remains in compliance with the Controlled Substances Act prior to marketing any products containing CBDs. Both plans are contingent upon appropriate legal vetting.

Hemp-infused Energy Shots

Hemp-infused energy shots have been developed and are ready to bottle. Energy shots are a unique form of energy drink. Usually, they are sold in 2-oz containers, whereas most energy drinks are sold in larger cans or bottles. Energy shots can be considered concentrated forms of energy drinks. The leading energy shot brand in the United States is 5-Hour Energy, based on sales of about $1.05 billion in 2015.The Company is targeting first quarter of fiscal year 2017 to market it. We plan to generate revenue from its sales by the first quarter of fiscal year 2017.

Hemp Protein Bars and Hemp Chia Seed Bars

Hemp Protein Bars and Hemp Chia Seed Bars are in pre-development stage. Ingredients are projected to include: honey, butter, rice protein, oats, coconut, almonds, hemp proteins, brown rice, vanilla bean, sea salt, and in one variety, chia seeds. The chia seed is calorie sparse and nutrient dense, and contains anti-oxidants and other essential nutrients. It also contains protein, and a range of essential and non-essential amino acids and fiber.

The Company is targeting second quarter of fiscal year 2017 to market it. We plan to generate revenue from its sales by the third quarter of fiscal year 2017.

Hemp-infused Natural Spring Water

Adding hemp-infused naturalalkaline spring water to our beverage line is in pre-development stage. The Company is currently negotiating an agreement for access to natural spring water. If successful, the Company plans to bottle thecold-filtered and packaged by a third-party water market and sell it in the first quarter of fiscal year 2017. Revenue generation should commence in the same quarter.processor, Water Event Pure Water Solutions (“Water Event”).

Regulatory Requirements

We are subject to numerous federal, state, local, and foreign laws and regulations, including those relating to:

Since our hemp-based products are derived from industrial hemp and are THC free,containing a tetrahydrocannabinol (“THC”) level of 0.3% or less, they are not subject to the Controlled Substances Act. The express language of the federal Controlled Substances Act ("CSA"(“CSA”) provides that hemp stalk, fiber, oil, and sterilized seed are not controlled as marijuana. Thus, products containing industrial hemp – defined as thecannabis sativaplant containing a tetrahydrocannabinol (“THC”)THC level of 0.3% or less - have been sold legally in every state in the U.S. for decades. In 2004, the U.S. Court of Appeals invalidated U.S. Drug Enforcement Administration (“DEA”) regulations that would have banned the manufacture and sale of edible products made from hemp seed and oil.Hemp Industries Ass’n v.Drug Enforcement Administration,357 F.2d 1012 (9^th Cir. 2004). For this reason, U.S. companies may import hemp stalk, fiber, seed and oil, to trade in it, and to use it in the manufacture of products. The Company purchases imported hemp seed extract and uses it in the manufacture of its products. The Company does not have plans to grow marijuana, distribute marijuana or infuse our beveragesfood or beverage products with marijuana, as defined in the Controlled Substance Act.

Our beverage products are not subject to direct FDA approval as the FDA does not perform review testing or approval of food, beverages or dietary supplements. The FDA requires that we manufacture our products in commercial manufacturing facilities that are annually audited to ensure that they pass inspection based on Good Manufacturing Practices (GMP) for food safety.

Possession of hemp in the United States is legal, including possession of the sterilized seed, hemp seed oil, hemp seed flour, hemp seed cake, hulled hemp seeds, hemp clothing, hemp fabrics, hemp fuel or any other product made from industrial hemp. Because the industrial hemp plant is the same species as marijuana, until recently, it has been illegal for U.S. farmers to grow the plant itself. However, in the federal Agricultural Act of 2014, Congress specifically exempted from the CSA cultivation of industrial hemp under agricultural pilot programs authorized by state law.

More recently, the Consolidated Appropriations Act for FY 2016 (the "Omnibus Law") clarified that during the current fiscal year - that ends on September 30, 2016 -- no agency can expand any monies that were authorized by federal law to interfere with duly registered agricultural pilot programs. The Omnibus Law also clarifies that this prohibition on federal interference extends pursuant to the 2014 Farm Bill.

Sales Channels

The Company depends upon a network of brokers and distributors to represent its product in the market. During its first year of operation, the Company signed twenty four distributors across the country. For the year ending June 30, 2016, the Company’s two largest distributors accounted for 28% and 26% of sales, respectively. The Company is currently evaluating the performance of its brokers and distributors and restructuring its agreements and methods of distribution to support our future growth.

The various distribution channels differ in costs, customer relationships, complexity and the resources required to operate the channel. We strategically build sales distribution channels to match and reinforce the goals and objectives of our marketing plan. To increase competitiveness and sales, we have a specific sales strategy in order to maximize revenues that includes the following:

Direct Selling

We utilize direct sales to retailers which eliminates the delays and additional expense of a standard distribution channel. In this way we are better able to preserve more revenue, and protect capital under the control of the company. Direct selling to certain segments supports our marketing plan that has identified, researched and segmented certain final customers.

Historically, our only outlet for direct selling has been two different online sales platforms and has accounted for approximately 7% of our sales.

Wholesale

Another sales channel includes wholesale distribution. This choice is designed for our potential customers who are widely dispersed. Wholesale distribution leaves the selling to wholesalers and retailers specialized in retail sales, which enables us to focus on manufacturing needs.

Beverage Broker

Our beverage brokers develop local, regional, and national product campaigns with attention to long-term sustainable success. They assist in matching brands with the needs of an evolving market. Scheduling appointments, making presentations, securing product approval, and shelf resets, have added greatly to the time line from ship to shelf, making the role of the beverage broker all the more important. Beverage brokers represent a cost-efficient method of doing business for our drink brands. A commission-based beverage broker is a variable cost directly tied to the volume sold.

We have recently entered into an agreement with Function Beverage LLC, which is included as an Exhibit to this filing. In Exhibit A of the agreement, Function Brands has identified a number of national chains to whom they will represent our product.

Historically, sales under this sales channel have been zero. Since the Company recently entered into an agreement with Function Beverage, we anticipate that this will become a significant sales channel for our products.

Beverage Broker/Distributor

The broker/distributor relationship adds credibility for new brands entering the market. Sales efforts consist of procuring new channels of distribution and distributor support. Beverage brokers/distributors provide a service to both RMHB and customers by selling to chain wholesalers, independent wholesalers, and retail stores. Beverage brokers and distributors often provide avenues to significantly decrease overhead costs. Wholesalers and retailers also benefit by working with one broker/distributor rather than with many manufacturers' representatives. Historically, 85% of our sales fall into this category.

The Packaged Food and Beverage Market

Our hemp-infused products (both non-alcoholic and alcoholic) are targeted toward health conscious lifestyle persons 16 to 34 years of age.

Methods & Competitive Position – Advantages & Disadvantages

The Company competes with start-ups and middle market CPG manufacturers and distributions that specialize in brand development. RMHB also competes with established brands and large multi-national firms that manage established brand portfolios. Consumer packaged goods (CPG) are a type of goods consumed that need to be replaced frequently, compared to those that are usable for extended periods of time.

While there is certainly a lot of competition in the beverage industry, there are also great opportunities. The beverage market also includes hemp-infused energy drinks, teas, lemonades, and wine based cocktails.

Advantages:

We are achieving our competitive advantage by concentrating on two major objectives: Establish the corporate brand, and engage target audiences by building a consumer brand for loyalty and awareness.

To establish Rocky Mountain High Brands as an industry leader, the corporate logo was redesigned to align itself with product identity that focuses on the overall company message. Rocky Mountain High Brands will engage brand identity by focusing on the following:

Differentiation is a strategy used to set ourselves apart from competitors. One of our best marketable attributes is our Rocky Mountain High name. It differentiates us from other beverage drinks by developing brand recognition and loyalty. Our drinks provide an alternative to competitor’s drinks. Our can design helps the brand stand out on the shelf. Our eye-catching drink designs communicates the brand's attributes.

·Cost Leadership

We achieve cost leadership as an advantage when we offer a better quality product than our competitors at a lower price. We identify opportunities to produce goods at a lower cost through the production improvements and by changes to our supply chain.

·Defensive Strategies

Broker/distributor/wholesale relationships allow us to maintain higher levels of customer service than larger beverage companies, provide direct knowledge of our customers, and help us to provide our customers a more personalized consumer experience.

Disadvantages:

Large beverage companies typically can negotiate favorable costs with suppliers because of their volume, therefore we strategically plan opportunities to leverage our budget dollars.

The most glaring disadvantage is a limited budget. We would like to have more money to spend on advertising and promotion, hiring experienced consumer products sales professionals, training, marketing and product development. Competing for target market attention against larger competitors that invest millions or billions is difficult. These companies can invest significant resources to maintain their positions in the market, and their drinks are well integrated into their consumer branding. We plan to position our brand to take significant market share with strategic marketing, and consistent branding that maximizes brand exposure and awareness to the consumer.

Future Goals

The hemp-infused beverages are fully developed and in the marketplace today. Hemp Energy Bars, Hemp Protein Bars, and Hemp Chia Crisp Bars are developed and ready for production. Hemp Energy Shots are developed and ready for production. Hemp-infused alcoholic beverages and CBD products are in varying stages of research and development.

Employees and Independent Contractors

Periodically, theThe Company may hire independent contractors to support finance, accounting,currently has five officers and operations functions. In addition to the officers of the Company there are currently fivetwo non-officer employees. The Company has a total of ten employees, consisting of five officers and five non-officer employees.uses independent contractors, when necessary, to support operational or back-office functions.

Implications of Emerging Growth Company Status

As a company with less than $1 billion in revenue in our last fiscal year, we are defined as an “emerging growth company” under the Jumpstart Our Business Startups (“JOBS”) Act.  We will retain “emerging growth company” status until the earliest of:

Pursuant to Section 107(b) of the JOBS Act, we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of The JOBS Act.  This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.  As a result, our financial statements may not be comparable to companies that comply with public company effective dates.  Section 107 of the JOBS Act provides that our decision to opt into the extended transition period for complying with new or revised accounting standards is irrevocable.

Because the worldwide market value of our common stock held by non-affiliates, or public float, is below $75 million, we are also a “smaller reporting company” as defined under the Exchange Act.  Some of the foregoing reduced disclosure and other requirements are also available to us because we are a smaller reporting company and may continue to be available to us even after we are no longer an emerging growth company under the JOBS Act but remain a smaller reporting company under the Exchange Act.  As a smaller reporting company we are not required to:

Item 1A. Risk Factors.

Smaller reporting companies are not required to provide the information required by this item. Please see our Registration Statement on Form 10/A filed September 29, 2016 to review our current risk factors.

Item 2. Properties

At present, we do not own any real property.  As of June 30, 2016,2017, we leased approximately 4,0007,000 square feet of office space at 9101 LBJ Freeway, Suite 200, Dallas, TXTexas 75243. Our premises were leased for a monthly cost of $6,020. On May 11, 2016, we executed a new lease for the existing space and 2,172 square feet of additional space at the same address for a three-year term beginning Julyperiod began on September 1, 2016 and terminatingterminates on June 30,August 31, 2019. Due to the landlord’s inability to make the additional space ready for us as of July 1, we were not able to commence the new lease until September 2016. The lease that was due to expire on June 30 was extended on a month-to-month basis until September. Lease paymentsPayments under the lease are as follows:

In connection with the new lease, we also purchased used office furniture from the landlord and financed this purchase with a note payable in the amount of $40,121.54$40,122 with an interest rate of 0% and monthly payments of $1,114.49$1,114 over thirty sixthirty-six monthly installments..installments.

The Company leases the following warehouse space on a month to monthmonth-to-month basis:

Our monthly rents at both locations vary depending on how much inventory for approximately $1,400 per month. Since Smarterita has alcoholic content, we are required to store it at an FDA approved facility.is stored. Inventory levels fluctuate based on production and sales.

The Company is currently evaluating its growth requirements and researching alternatives to lower its recurring expenses for warehouse space.

Item 3. Legal Proceedings

193rd Judicial District Court of Dallas County Texas. Rocky Mountain High Brands, Inc. (RMHB) FKA Totally Hemp Crazy, Inc. V Rodney Peterson (Peterson) and Rocky Mountain High Canada, Inc. (RMHC), Case #DC-16-01416; Date Filed: February 4, 2016.

Parties entered into a written agreement for the manufacture and supply of products produced under the Rocky Mountain High Brands, Inc. brand. The terms of the agreement are RMHB would manufacture and supply one million cans of our product FOB Memphis, Tennessee to Peterson, upon receipt of $650,000 from Peterson to RMHB to pay for the manufacture of the cans. Peterson paid $500,000 toward the $650,000 manufacture. Peterson defaulted under the terms of the agreement by failing to pay the remaining $150,000. RMHB tendered default notice, but Peterson failed to cure the default. RMHB terminated the agreement in accordance with its terms. RMHB seeks declaratory judgment that it is entitled to its profits as damages in the amount in excess of $500,000.

Peterson and RMHC have answered the lawsuit and discovery on the matter is being initiated by all parties.

44th Judicial District Court of Dallas County Texas. Rocky Mountain High Brands, Inc. (RMHB) FKA Totally Hemp Crazy, Inc. VClaims Against Donna Rayburn (Rayburn), Case #DC-16-02131; Date Filed: February 23, 2016.

RMHB and Rayburn entered into a convertible promissory note dated February 2, 2015 for the original principal amount of $165,000 (with a $5,000 original issue discount). On August 29. 2015, RMHB paid to Rayburn $197,773.95,$197,774, representing return of principal and interested earned during the life of the loan. On February 19, 2016, Rayburn issued an additional demand of interest and penalties totaling $99,487.92.$99,488. Rayburn has charged $137,261.87$137,262 in interest and penalties on a $160,000 loan for one year and 17 days for an effective annual interest rate of 85.77%. As additional consideration for the note, RMHB was required to issue a warrant to Rayburn for 10,000,000 of common stock.

Ms. Rayburn is the daughter of Roy J. Meadows (“Meadows”), and resides in his residence and is under his employ.

RMHB suedhas claims against Rayburn for violation of Florida Usury Laws. RMHB seekswill seek a cancellation of the note and additional monetary recovery in the total amount paid to Rayburn, plus additional recovery for all usurious interest charged. RMHB will also seeksseek to void the warrant for 10,000,000 shares of common stock, which was issued under a voidable note. The amount which RMHB seekswill seek from Rayburn is in excess of $300,000. This case was non suited and will be filed as a counterclaim in the Rayburn suit in Seminole County, Florida.

On March 14, 2016, RMHB amended the Rayburn suit to add Meadows as a party Defendant. RMHB has asserted usury claims in connection with $1,500,000 demand convertible note referenced below in the section pertaining to the Meadows Arbitration Claim. RMHB seeks unspecified monetary damages in connection with the Meadows Note, and further seeks cancellation of a warrant for 41,454,851 shares of common stock issued to Meadows in connection with the Meadows Note and cancellation of the Meadows Note.

Because of the pending litigation in Florida relating to Roy Meadows, which deals with the same issues as the instant suit, RMHB entered a non suited without prejudice as to Roy Meadows.

On July 28, 2016, Donna Rayburn removed this case to the United States District Court For The Northern District of Texas, Dallas Division, Civil Action No. 3:CV-2193. Rayburn is challenging the jurisdiction of Texas Courts in this suit. The State court case is closed as a result of the Removal Action.

On April 4, 2016, RMHB engaged the law firm of Allred Wilcox & Hartley PLLC to act as counsel in pursuing these claims. 

Arbitration Claim of Roy J. Meadows Against Rocky Mountain High Brands, Inc. (RMHB) dated February 24, 2016.

2016

Meadows claims a breach of an exchange agreement dated November 3, 2015. RMHB has denied the breach. Meadows has demanded that RMHB remove him as a Control Person under RMHB’s OTC Markets Disclosure Statement as of December 31, 2015 filed on January 29, 2016. Meadows has rejected the interest payment under the exchange agreement dated January 30, 2016. He has not given an explanation of his rejection. Meadows also demands the exchange of the Series C Preferred back to the original $1,500,000 convertible note. RMHB will not comply with this request without a Court Order to do so.

Meadows has initiated arbitration claiming notice of an Arbitration Claim against RMHB. RMHB has objected to this claim, as well as to the arbitration process itself. Meadows seeks damages of $2,947,093.99.$2,947,094. He has further demanded that RMHB comply with an Agreement dated November 16, 2015 which is a part of the litigation described in the disclosure above. This agreement, which was a requirement of Meadows to execute the Exchange Agreement, requires the Company to issue warrants for common stock of 110,760,000 for not redeeming the Series C Preferred Shares by March 24, 2016.

On April 4, 2016, RMHB engaged the law firm of Allred Wilcox & Hartley PLLC to act as counsel in defending these claims.

As a result of the arbitration, RMHB filed suit in Florida,Eighteenth Judicial Circuit Court of Seminole County, Florida, Rocky Mountain High Brands, Inc. v. Roy Meadows, David Meadows et al, Case No. 2016-CA-000958-15-W.

The Company filed suit for an injunction against continuation of the Meadows Arbitration. The Meadows Arbitration hearing currently has no date for commencement of the Arbitration hearing. Shortly after the suspension of the Arbitration hearing, on April 20, 2016, false, malicious, and defamatory allegations were asserted by the Shareholder Alert inappropriately released by the Law Office of A.A. McClanahan, Meadow’s attorney.

The Company has filed in the Seminole Suit a Motion for Leave To Amend its current suit to add claims against Meadows for usury, cancellation of warrants and defamation as a result of the Shareholder Alert press release.

The Company is investigating facts surrounding Meadows and others and may amend its Florida lawsuit to seek more than $20 Million in damages and disgorgement of Meadows and Rayburn profits on questionable trading activities.

The Amended Suit will deal with the following:

RMHB has asserted usury claims in connection with $1,500,000 demand convertible note referenced below in the section pertaining to the Meadows Arbitration Claim. RMHB seeks unspecified monetary damages in connection with the Meadows Note, and further seeks cancellation of a warrantwarrants for 41,454,851 shareand 13,641,974 shares of common stock issued to Meadows in connection with the Meadows Note and cancellation of the Meadows Note. RMHB also seeks additional monetary damages from Meadows for his violations of SEC and other applicable securities laws relating to the loss of value to both RMHB’s shareholders and to RMHB as a business entity. RMHB will vigorously contest all claims of Meadows and aggressively seek monetary damages against Meadows.

During the six months ended December 31, 2015, the Company issued 68,220,350 shares of common stock for the conversion of $104,220 of convertible debt to Roy Meadows and Trinexus, Inc. (a corporation formed and controlled by Mr. Meadows to which he sold a portion of his convertible debt) prior to executing the exchange agreement to Series C preferred stock. These issuances gave Mr. Meadows in excess of 10% of the outstanding common stock, making him a Control Person.

RMHB believes that as a result of Meadows’ actions in this suit, the Arbitration is effectively waived and that the Court in Seminole County, Florida will resolve this matter.

Meadows has filed a counter claim in this suit for the damages he asserted in the arbitration claim. He has also filed for relief under elderly laws of Florida.

101192^stndJudicial District Court of Dallas County Texas, filed February 2016, DC-16-01220. Fanco Global Acquisitions, LLC16, 201, DC-17-02058. Rocky Mountain High Brands, Inc. v. Dewmar International BMC, Inc. RMHB filed suit against Dewmar for breach of contract and for an accounting. RMHB is in the process of obtaining a default judgment against Dewmar for its failure to file an answer to the suit.

134^thJudicial District Court of Dallas County, Texas, filed April 28, 2017. Rocky Mountain High Brands, Inc. v Lyonpride Music, LLC. RMHB filed suit against Lyonpride for fraud and for declaratory relief with respect to a contract between the parties. RMHB seeks monetary damages against said Defendant.

134^thJudicial District Court of Dallas County, Texas. Filed June 26, 2017. Rocky Mountain High Brands, Inc. v Statewide Beverage Company, Inc. RMHB has filed suit for breach of contract, common law fraud and declaratory relief.

Los Angeles Superior Court, BC669367, filed July 24, 2017. Statewide Beverage Company, Inc. v. Rocky Mountain High Brands, Inc. Suit for alleged commissions. Plaintiff seeks approximately $30,000.00Statewide filed a breach of contract claim, dealing with the same fact issues in damages, an unspecified amountthe above case of RMHB v Statewide. RMHB still has not been served in fraud damages, attorney’s fees and costs of court. RMHB will vigorously oppose the claims.this case.

District Court, Douglas County, Colorado. 2015CV 30672. Filed June 26, 2015. Totally Hemp Crazy, Inc. and Jerry Grisaffi v. Cannalife USA, Ltd and Mark Spoone. RMHB and Grisaffi filed suit against the Defendants on claims for libel and business disparagement. . This suit was settled in July, 2016, with no party having any liability to the others.

Our agent for service of process in Nevada is Joe Laxague, Esq., 1 East Liberty, Suite 600, Reno, NV 89501

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Unregistered Sales of Equity Securities and Use of Proceeds

Market Information

Our common stock is quoted on the PinkOTCQB tier of the OTC Markets Group quotation system (www.otcmarkets.com) under the trading ticker “RMHB.”  The following tables set forth the range of high and low prices for our common stock for the two most recent fiscal years, as reported on the OTC Market Group’s quotation system. These quotations reflect inter-dealer prices, without retail mark-up, mark-downmarkup, markdown, or commission and may not necessarily represent actual transactions.

On September 28, 2016,October 10, 2017, the last sales price per share of our common stock was $0.03$0.0297.

Penny Stock

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.

Holders of Our Common Stock

As of September 28, 2016,October,9 2017, there were approximately 22317,700 holders of record of our common stock.stock .

Dividends 

There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:

1. we would not be able to pay our debts as they become due in the usual course of business, or;

2. our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.

We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

ToOn March 17, 2017, our Board of Directors approved the Rocky Mountain High Brands, Inc. 2017 Incentive Plan (the “2017 Incentive Plan”). The purpose of the Incentive Plan is to provide a means for the Company to continue to attract, motivate and retain management, key employees, consultants and other independent contractors, and to provide these individuals with greater incentive for their service to the Company by linking their interests in the Company’s success with those of the Company and its shareholders. The Plan provides that up to a maximum of 35,000,000 shares of the Company’s common stock (subject to adjustment) are available for issuance under the Plan. The Board of Directors awards these shares at its sole discretion. 

Also on March 31, 2017, certain of our officers and directors returned a total of 25,041,732 shares of common stock to treasury for cancellation. On that same date, we havegranted to each of these officers and directors an equivalent number of restricted shares of common stock under our 2017 Incentive Plan. The restricted shares so granted may not adoptedbe transferred, sold, or encumbered until six (6) months from the date of issue.

In April and June 2017, a Board member was granted 7,000,000 and 13,000,000 options to purchase common stock, option plan or other equity compensation plan and have not issued any stock,respectively. In May 2017 another Board member was granted 7,000,000 options. An additional 350,000 options or other securities as compensation.were granted to a consultant to the Company in April 2017. All options were granted through the 2017 Incentive Plan.

On July 14, 2017 the Board of Directors increased the authorized shares in the 2017 Incentive Plan to 65,000,000.

Item 6. Selected Financial Data

A smaller reporting company is not required to provide the information required by this Item.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward LookingForward-Looking Statements

This document contains certain forward- lookingforward-looking statements as defined by federal securities laws.  For this purpose, forward- looking statements are any statements contained herein that are not statements of historical fact and include, but are not limited to, those preceded by or that include the words, “estimate”, “could”, “should”, “would”, “likely”, “may”, “will”, “plan”, “intend”, “believes”, “expects”, “anticipates”, “projected”,“estimate,” “could,” “should,” “would,” “likely,” “may,” “will,” “plan,” “intend,” “believes,” “expects,” “anticipates,” “projected,” or similar expressions.  Those statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those contemplated by such statements.  The forward lookingforward-looking information is based on various factors and was derived using numerous assumptions.  For these statements, we claim the protection of the “bespeaks caution” doctrine. Such forward-looking statements include, but are not limited to:

•

• Statement

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

•  

Overview

The Company generates revenue from finished product sales to distributors (resellers)., retailers and consumers. The wholesale market for the Company’s products includes all retailers in the C-Store, Mass,convenience and Grocerygrocery store channels as well as a number of specialty retail niche markets including health food, “smoke shops”shop,” and novelty stores. Additionally, the Company has an online retail presence on Amazon.com through an agreement with an Amazon selling specialist.and via our Company websites.

Results of Operations

Year Ended June 30, 20162017 Compared to Year Ended June 30, 20152016

Financial Summary

The Company’s net income for the year ended June 30, 2016 was $2,325,726 compared to a net loss of ($16,624,202) for the year ended June 30, 2015. The Company was reorganized in July of 2014, under bankruptcy according to Chapter 11 of the United States Bankruptcy Code. The Statement of Operations for June 30, 2015 is presented in compliance with ACS 852.

Our sales for the year ended June 30, 2016,2017 were $401,974 compared to $1,075,476 versus $489,849 for the year ended June 30, 2015. The sales increase was driven by distributor and online sales beginning late in the third quarter of fiscal year 2015, which increased in 2016.

The Company’s net loss for the year ended June 30, 2017 was $9,276,251 compared to net income of $2,325,726 for the year ended June 30, 2016.

Sales

For the year ended June 30, 2016,2017, sales were $1,075,476$401,974 compared to $489,849$1,075,476 for the year ended June 30, 2015, an increase2016, a decrease of $585,627$673,502 or 120%63%. The increasesales decrease was driven by the launchlack of four beverage SKUs in March 2015, which resulted infunding for inventory production, direct sales support, and advertising and promotion of the Company’s products, as well as a fullrestructuring of our outside broker agreements, and product returns. In the year of sales for 2016 as compared to only 4 months for 2015, and the addition of a fifth SKU in November 2015. The Company also added several distributors in 2016. In 2016,ended June 30, 2017 sales consisted of approximately 80% distributor sales and 20% online sales, compared to 93% distributor sales and 7% online sales compared to 2015 when 72% of sales was to distributors and 28% of sales was online.for the year ended June 30, 2016.

Cost of Sales

For the year ended June 30, 2016,2017, cost of sales was $1,134,636$251,920 or 105%63% of sales, versus $212,458$1,134,636 or 43%105% of sales for the year ended June 30, 2015. Cost2016, a decrease of $882,716 or 78 %. In 2017 the Company recorded inventory obsolescence expense of $100,998 compared to $725,718 in 2016, resulting in a lower cost of sales increased inpercentage. In 2017 the obsolescence expense was comprised of a $72,161 write-off of the remaining “mountain can” packaging and a $28,837 write-off of the Company’s expired brownie inventory. In 2016 duethe obsolescence expense related primarily to inventory obsolescence write-downs and increased sales. Inventory obsolescence write-downs in 2016 were $725,718 compared to $0 in 2015. The factors impacting inventory obsolescence were (1) two changes in can design during 2016, that rendered the previous designs less marketable to customers, (2) management’s decision to move the brand to a 16 ounce can to broaden its market appeal and lower production costs and (3) prior management’s decision to date code all production runs prior to May 2016 with a shorter than necessary one-year shelf-life when a two-year shelf-life was applicable. Cost of sales in 2016 before the write-downs was $408,918 or 38% of sales.expiring hemp-infused beverage product.

Reorganization Items – Income (Expense)

Operating Expenses

For the year ended June 30, 2015, the Company recorded a Net Settlement of Disputed Consulting Fees of $127,200 and Net Settlement of Officers and Directors Claims of $21,662. There2017, operating expenses were no reorganization expenses in 2016.

Operating Expenses

Operating expenses consist of all other costs incurred during the year other than cost$7,265,097 or 1,807% of sales, as discussed above.  Our operating expenses decreased $868,254compared to $3,649,412 or 20% to $3,483,412 versus operating expenses339% of $4,351,666sales for the year ended June 30, 2015.2016, an increase of $3,615,685 or 99%. Areas in which wethe Company experienced material changes in operating expenses are discussed below.

General and Administrative

For the year ended June 30, 2017, general and administrative expenses were $5,751,464 or 1,431% of sales, compared to $2,142,984 or 199% of sales for the year ended June 30, 2016, an increase of $3,608,480 or 168%. The increase in general and administrative expenses in 2017 was driven by an increase in officer and employee compensation, including approximately $1,439,096 in stock option-related compensation to two new outside Board Directors in the fourth quarter of fiscal year 2017, rent and storage expenses, and expenses related to the startup of the Eagle Spirit Water brand.

Advertising and Marketing

For the year ended June 30, 2017, advertising and marketing expenses were $1,513,633 or 377% of sales, compared to $1,340,428 or 125% of sales for the year ended June 30, 2016, an increase of $173,205 or 13%. The increase in advertising and marketing expenses in 2017 was due to increased promotional spending, broker commissions, promotions contractors, and advertising and promotional expenses related to the startup of the Eagle Spirit water brand.

Impairment

For the year ended June 30, 2016, general and administrative expenses decreased $445,179 or 17%the Company recorded an impairment expense of $166,000 related to $2,142,984 compared to $2,588,163 forits investment in Dollar Shots Club. This represented a 100% impairment on this investment. There was no impairment recorded during the year ended June 30, 2015. This decrease was driven by a reduction in consulting fees and officer salaries, partially offset by increases in other employee-related expenses and audit and accounting fees.2017.

Advertising and Marketing

For the year ended June 30, 2016, advertising and marketing expenses increased $601,283 or 81% to $1,340,428 compared to $739,145 for the year ended June 30, 2015. The increase in 2016 was driven by an increase in samples provided to prospective customers, salaries for sales employees, and the design, artwork and production of advertising and displays.

Impairment Expense

For the years ended June 30, 2016 and 2015, the Company recorded impairment expenses of $166,000 and $1,024,358, respectively. In 2016 the Company recorded a 100% impairment of its investment in Dollar Shots Club as the Company determined it was not likely to recover its $166,000 investment. The Dollar Shots Club investment is carried on the cost basis. In 2015, the Company recorded goodwill impairment of $1,024,358 consisting of a write-down of the Smarterita acquisition.

Other (Income) ExpensesExpense

Interest Expense

For the year ended June 30, 2016,2017, interest expense decreased $886,789 or 81%was $1,044,431, compared to $203,496 compared to $1,090,285 for the year ended June 30, 2015. During 2016, several high-interestan increase of $573,907 or 282%. The increase in interest expense, which includes the amortization of the discount on convertible notes were converteddebt and interest on Series C Preferred Stock, was due to common and Preferred C stock.increased debt in 2017.

Debt Inducement Expense

ForDuring the year ended June 30, 2016, the Company recorded debt inducement expense wasof $3,887,618. In order to induce the holder of certain convertible debt to convert his note, he was issued warrants to purchase 41,454,851 shares of common stock at a reduced exercise price. The value of this inducement was $3,887,618. There was no debt inducement expense in 2015.2017.

Loss on Extinguishment of Debt

ForDuring the year ended June 30, 2016, the Company recorded a loss of $945,838 on the extinguishment of debt of $945,838 related to the Company’s conversionsettlement of convertible debt with a bifurcated conversion feature.Theredebt. There was no gain or loss on extinguishment of debt in 2015.2017.

Gain on Change in Redemption Value of Series C Preferred Stock

For the year ended June 30, 2017, the Company recorded a gain of $834,242 on the change in the redemption value of the Series C Preferred stock. The redemption value of the Series C Preferred stock is determined based on a formula in the Company’s amended Articles of Incorporation. There was no change in the redemption value during the year ended June 30, 2016.

Gain on the Change in Fair Value of Derivative Liability

For the year ended June 30, 2016,2017, the Company recorded a gainloss on the change in fair value of the derivative liability of $11,071,250$1,951,019 compared to a lossgain of $11,608,504$11,071,250 for the year ended June 30, 2015. Because2016. In 2017 the loss resulted from the increase in the price of the Company’s underlying derivative,stock, which is used to calculate the Company’s common stock, decreased during 2016 the calculation in fair value of the related derivative liability, over the period from July 1, 2016 to June 30, 2017. The gain in 2016 resulted infrom a gain. In 2015, the Company stock price increased, which created an increasedecrease in the liabilityprice of the Company’s stock during the year ended June 30, 2016 and athe related loss.decrease in the derivative liability.

Income Taxes

For the years ended June 30, 2017 and 2016, and 2015,the Company recorded no income tax provision was recorded.benefit due to a full valuation allowance provided on deferred tax assets resulting from net operating losses.

Year EndedLiquidity and Capital Resources

As of June 30, 2016 Compared to Year Ended2017, we had current assets of $1,153,976, consisting of cash of $91,675, accounts receivable (net) of $63,268, inventory of $224,695, and prepaid expenses and other current assets of $774,338. As of June 30, 20152017, we had current liabilities of $8,583,643, consisting of accounts payable and accrued liabilities of $441,188, related party convertible notes payable (net) of $266,247, convertible notes payable (net) of $733,253, other notes payable of $26,130, redemption value of Series C Preferred stock of $1,661,424, accrued interest of $382,820, and derivative liability of $5,072,579. During the year ended June 30, 2017, the Company received proceeds of $991,350 related to private offering stock sales of 65,667,587 shares of common stock. Sales prices ranged from $.001 to $.05 per share.

Cash flows from operating activities

Net cash used in operating activities during the years ended June 30, 2017 and 2016 was $1,902,790 and 2015$1,779,167, respectively. In both years the Company used funds for inventory production, sales and promotions, and administrative expenses. The increase in cash used in operating activities during the year ended June 30, 2017 was ($1,779,167)a result of increased officer and ($1,385,001), respectively. The change was principally driven byemployee compensation, rent and storage expenses, and expenses related to the loss on the change in the fair valuestartup of the derivative liability in 2016 compared to a gain in 2015. This drove the change from a net loss of ($16,624,202) in 2015 to net income of $2,325,726 in 2016. Other significant changes in cash from operating activities were the result of an increase in inventory of $260,625 in 2016 compared to an increase of $716,329 in 2015, an increase in accounts payable of $144,853 in 2016 compared to a decrease in 2015 and an increase in deferred revenue in 2016 of $470,058 compared to $29,952 in 2015.Eagle Spirit Water brand.

Cash flows from investing activities

Net cash used in investing activities during the years ended June 30, 2017 and 2016 was $89,870 and 2015 was ($119,042)$119,042, respectively. In 2017 the Company invested in the startup of the Eagle Spirit Water brands as well as delivery vehicles and ($14,687), respectively. The change iscomputer equipment. During 2016 the Company’s investment primarily duerelated to the acquisition of several delivery vehicles in 2016 compared to one in 2015.vehicles.

Cash flows from financing activities

Net cash provided by financing activities during the years ended June 30, 2017 and 2016 was $1,982,080 and 2015 was $1,904,728 and $1,495,060,$1,904,738, respectively. In 2016,both years, over 50% of the net cash provided by financing activities was from the proceeds of $1,282,406 weresales of common stock with the remainder coming from net proceeds of notes payable. In 2017 the Company received proceeds of $991,350 from the issuance of common stock, compared to $244,316$1,282,406 in 2015. In 2016, proceeds from related party convertible notes payable were $318,322 compared to $0 in 2015. Proceeds from the issuance of convertible notes decreased to $500,000 in 2016 compared to $1,250,744 in 2015.2016.

Material Indebtedness

As of June 30, 2017 and 2016 the Company’s outstanding debt totaled $1,634,580 and $895,832, respectively. The increase in debt during 2017 was to fund the Company’s operations, including inventory production and the startup of the Eagle Spirit Water brand.

Recently, our operations have been funded primarily through the issuance of convertible promissory notes, which are convertible to common stock at fixed prices ranging from $0.001 to $0.04,$0.024, or at discountsa specified percentage discount off market prices. Discounts are generally 50% and based on a contracted look-back period. Interest rates on our notes payable range from 6% to market price ranging from 50% to 80%, or combinations thereof.8%. Our ability to successfully execute our business plan is contingent upon us obtaining additional financing and/or upon realizing sales revenue sufficient to fund our ongoing expenses. Until we are able to sustain our ongoing operations through sales revenue, we intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures, working capital, or other cash requirements. We do not have any

The Company has the following formal commitments or arrangementsfunding arrangement:

During 2011 and 2012, the Company entered into a series of convertible notes with six lenders aggregating $110,000. These were one-year terms notes at 12% interest and convertible to Common Stock at a conversion price of $.05 per share. As a part of the Bankruptcy Reorganization Plan confirmed in July 2014, the accrued interest on these notes was forgiven and the notes became zero interest bearing notes. During year ended June 30, 2016, $40,000 of these notes were converted into 24,000,000 shares of common stock. As of June 30,December 31, 2016, the principal balance on these notes was $70,000.$30,000.

In 2012, the Company entered into a $40,000 Convertible Note Payable with an individual. The notes matured one-year from the date of issuance, bear interest at 12% per annum, and is convertible into shares of Common Stock at $.001. In 2015, the lender sold and re-assigned $17,500 of this note. The new note holders converted the $17,500 of principal into 17,500,000 shares of Common Stock. As of June 30, 2016,During the six months ended December 31, 2016, the holder converted the remaining principal balance on these notes was $22,500.of $22,500 to 25,000,000 shares of common stock.

On March 25, 2015, the Company entered into an amended and restated convertible promissory note with Roy Meadows, which amended two previously issued notes dated February 5, 2013 and July 17, 2014. According to the terms of the note, the Company may borrow up to an aggregate of $1,500,000. The note bears interest at 12% per annum, and the holder may demand repayment of any portion of the note after one year from the effective date of the note. The note is convertible in whole or in part at a conversion price per share equal to the lesser of $.001 per share, or at an 80% discount to the average of the five lowest bid prices during the thirty trading days prior to the date of the conversion notice. Mr. Meadows is limited in his conversions whereby he may not at any time own more than 9.99% of the Company’s outstanding common stock. Mr. Meadows may, at his option, file a UCC-1 financing statement against all assets of the Company and have a guarantee and security agreement with the principal controlling for majority shareholders of the Company. On November 16, 2015, the debtholderdebt holder converted $1,107,606 of principal and accrued interest into 1,107,607 shares of Preferred C Shares of the Company. Each Series C Preferred Share can be converted to 50 Shares of Common Stock.

In connection with the conversion, and as an inducement for the debtholderdebt holder to convert, the Company issued him two warrants to purchase 41,454,851a total of 55,096,825 shares of the Company’s common stock at an exercise price per share of the lesser of $.005 or an eighty percent discount to the average of the five lowest bid prices during the 30 trading days prior to the date of exercise. The warrant may be exercised, in whole or in part, beginning on the date which is the earlier of six months from the Company becoming a Reporting Company (as defined in the warrant) or one year from the date of issuance. The warrant is for a period of 3 years, and contains customary anti-dilution provisions.

On October 5, 2014, the Company entered into a convertible note with an individual for $12,500. The note matured on October 5, 2015, bears interest at 8% per annum, and contains a conversion feature at a conversion price of $0.001 per share. On February 2, 2106, the noteholder sold the convertible note to three separate third parties who converted the notes for a total of 12,500,000 shares of Common Stock.

On February 2, 2015, the Company entered into a convertible note with an individual for $165,000 (with a $5,000 original issue discount). The note matured on May 2, 2015, which was extended to August 2, 2015, bears interest at 12% per annum, and is convertible in whole or in part at a conversion price per share equal to the lesser of $.001 per share, or at an 80% discount to the average of the five lowest bid prices during the thirty trading days prior to the date of the conversion notice. The holder is limited in his conversions, whereby, he may not at any time own more than 9.99% of the Company’s outstanding Common Stock. In August 2015, the Company repaid the note plus accrued interest.

On March 20 and March 23, 2015, the Company entered into separate Convertible note with an individual for $25,000 each. The notes mature one-year from the date of issuance, bear interest at a rate of 7% per annum, and contained a conversion feature at 50% of the average bid price for Common Stock over a trailing 10-day period. The holders are limited in their conversions whereby they may not at any time own more than 4.9% of the Company’s outstanding common stock. On April 28, 2016, the individual converted the note to 2,160,105 of Common Shares. See Note 11.

On March 23, 2015, the Company entered into a convertible note with an individual for $12,500. The note matured one-year from the date of issuance, bears interest at a rate of 18% per annum, and is convertible into shares of the Company’s common stock at a conversion price of $.04 per share. The note was repaid to the individual on March 22, 2016.

In October 2015, the Company entered into a $500,000 note payable at 12% simple interest for a one yearone-year period with Roy Meadows. The note is convertible upon maturity if not paid by the company prior thereto at $0.02 per share and a 25,000,000 sharemaximum.There is an option to renew with a fee of 10% principle and accrued interest.

In April 2016, a debtholder converted his $50,000 note payable, plus accrued interestOur prior disclosures indicating that Mr. Meadows was an affiliate of $4,003, into 2,160,000 sharesthe Company were made in error. We affirm that Mr. Meadows is not, and never has been, an “affiliate” of common stock.the Company within the meaning of Rule 144(a)(1) or otherwise.

The Company has determined that the conversion feature embedded in the notes referred to above, that contain a potential variable conversion amount, constitutes a derivative which has been bifurcated from the note and recorded as a derivative liability, with a corresponding discount recorded to the associated debt. The excess of the derivative value over the face amount of the note is recorded immediately to interest expense at inception. The discounts related to the above notes are presented netwere completely amortized as of a discount of $0 and $53,013 on June 30 2016 and June 30, 2015, respectively,December 31, 2016 on the accompanying balance sheet.

Future Liquidity Requirements

The anticipated operational shortfall for the next twelve months is $1,200,000. Forapproximately$2,000,000.The Company plans to utilize the two year period beyond the next twelve months, we anticipateEagle Equities agreement to partially fund our operating needs and anticipates securing a revolving businessan equity financing arrangement or line of credit to meet its additional needs over the next 12 to 24 months. This would finance inventory production, advertising and accounts receivable. We anticipate the line of credit needs to be between $2,000,000marketing, and $5,000,000. This allows flexibility needed to meet short term fundingother working capital needs.

We have recently entered into a non-exclusive agreement for institutional financing services with Carter, Terry & Company. Our goal is to work with them and our private sources of capital to raise capital to finance inventory production, increase advertising and promotion budgets, develop new products and cover any shortfall from continuing operations.

We anticipate that initial funds raised will be through debt financing with additional capital raised through the sale of restricted securities through an offering memorandum, the structure of which has yet to be determined.

Plans for Meeting Debt Obligations and Reaching Profitability

Going forward, the Company intends to fund its operations and meet its debt obligations through:

We project increased salesales revenue in the new fiscal year starting July 1, 2016. Our brands are becoming positioned and differentiated in the marketplace through various marketing techniques, such as advertising, public relations, name, and logo development that ultimately will result in sustained revenue.

We expect that our sales, as well as our operating expenses, will continue to increase2018 as we move forward with transitioningexecute our beverage products into new markets. As such, we will continue to explore new products to expandupdated strategy, which includes updating our brandcan design and provide new revenue streams.formulas.

We intend to retain our future earnings in order to reinvest in the development and growth of our business and, therefore, do not intend to pay dividends on our common stock for the foreseeable future.

The company goingGoing forward, the Company intends to achieve profitability by:

We believeThe Company has recently updated its long-term strategic plan. Management’s goal is to become the category leader in the hemp-infused beverage market, a segment of the functional beverage market. Functional beverages, or beverages that expanding where we sell our products will significantly boost our sales and revenues without requiring any changes to our marketing or pricing. We evaluateconvey health benefits, are the effects of using online selling, wholesalers, retailers, distributors, and outside sales reps to project how each method can affect our sales volumes, profit margins, and total profits.fastest growing segment within the beverage market.

Qualified employees who promote ourThe Company is developing four newly reformulated, sugar-free, non-energy, hemp-infused beverage flavors. In addition to the new formulas, the beverages will feature 12 oz. cans, an all-new look and will replace all current hemp-infused beverage offerings. Two of the four beverage flavors will be carbonated. Flavor choices will be similar to past offerings. Management plans to begin production on the new beverages in January 2018. Marketing will focus on the health benefits of hemp, including Omega-3 and Omega-6 fatty acids, amino acids, and natural, plant-based fiber.

The Company is also reviewing its other product offerings, but there are no immediate plans to produce additional Relaxation Brownies or service will drive sales and revenues. Though our beverages have a distinct branding, we generally haveenergy shots.

The Board of Directors is currently evaluating its plans with regard to the same target customer as other beverage brands. We have built a following with a strong customer base.Eagle Spirit Water business.

We raise or lower our prices based on strategic goals. Lowering our prices can increase revenues to make up for lower margins. Raising our prices can create a higher perceived value in the mindsThe Company is re-assessing its go-to-market strategy. Specifically, channels of consumersdistribution and increase our margins. Raising our prices can also increase our revenues without increasing sales.distributor and broker agreements are being reviewed.

AsManagement plans to focus on key domestic markets.

The Company plans to hire a growing company weVice President of Sales and a Director of Marketing during fiscal year 2018. These executives will be adding newkey to the successful roll-out of the Company’s newly reformulated products and services to create growth. We study our target customers and determine a product’skey market profitably, and evaluate our product portfolio.strategy.

Off BalanceOff-Balance Sheet Arrangements

As of June 30, 2016,2017, there were no off balanceoff-balance sheet arrangements

Going Concern

We have experienced recurring

The Company has a shareholders’ deficit of $7,304,278, an accumulated deficit of $26,154,633 as of June 30, 2017, and has generated operating losses from operations and to date, we have not been able to produce sufficient sales to become cash flow positive and profitable on a consistent basis. The success of our business plan during the next 12 months and beyond will be contingent upon generating sufficient revenue to cover our costs of operations and/or upon obtaining additional financing. For these reasons, our auditor has raisedsince inception. These factors, among others, raise substantial doubt about ourthe ability of the Company to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue raising capital from third parties.

On February 28, 2017, LSW Holdings, LLC (“LSW”) purchased all outstanding shares of Series A Preferred Stock from our former controlling shareholder. Our Vice President of International Sales is the Managing Member of LSW. Both parties to the agreement assured management that the purchase agreement requires LSW to provide the Company sufficient capital to move forward with its expansion plans. Management has recently obtained the executed agreement and determined that agreement contains no such requirement. As a result, management is actively pursuing other funding arrangements with outside investors and creditors.

Critical Accounting Policies

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We do not believe that the following accounting policies currently fit this definition:

Use of Estimates

The preparation of the financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Certain of the Company’s estimates could be affected by external conditions, including those unique to its industry, and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ from its estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and record adjustments when necessary.

Cash

The Company considers all short-term highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents.

Revenue Recognition

The Company follows the guidance of the Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition.” It records revenue when persuasive evidence of an arrangement exists, product delivery has occurred, the selling price to the customer is fixed or determinable and collectability of the revenue is reasonably assured. The Company has not experienced any significant returns from customers and accordingly, in management’s opinion, no reserve for returns has been provided. Payments received prior to shipment of goods are recorded as deferred revenue.

Accounts Receivable and Allowance for Doubtful Accounts Receivable

The Company has a policy of reserving for uncollectible accounts based on the best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to customers based on an evaluation of their financial condition and other factors. The Company generally does not require collateral or other security to support accounts receivable and perform ongoing credit evaluations of customers and maintain an allowance for potential bad debts if required.

It is determined whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. The Company may also record a general allowance as necessary.

Direct write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate the collectability of receivables.

Inventories

Inventories, which consist of the Company’s product held for resale, are stated at the lower of cost, determined using the first-in, first-out, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose of the product.

If the Company identifies excess, obsolete or unsalable items, its inventories are written down to their realizable value in the period in which the impairment is first identified. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales in the Company's statements of operations.

Fair Value Measurements

The Company 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 our 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 derivative liability, in connection withwhich relates to the conversion feature of the convertible debt and common stock warrants and options, is classified as a Level 3 liability, and is the only financial liability measure at fair value on a recurring basis.

The change in the Level 3 financial instrumentinstruments is as follows:

The estimated fair value of the derivative instruments waswere valued using the Black-Scholes option pricing model, using the following assumptions as of June 30, 2017 and June 30, 2016:

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.

Impairment of Long-Lived Assets

The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flow and recognizes an impairment loss when the estimated undiscounted future cash flow expected to result from the use of the asset plus the net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When the Company identifies an impairment, it reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values. DuringThe Company recorded an impairment charge of $166,000 during the year ended June 30, 2015, the Company recorded impairment of $1,024,358 relating to goodwill recognized in the acquisition disclosed in Note 11.2016. No impairment charges werecharge was recorded during the year ended June 30, 2016.2017.

Share-Based Payments

Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values, in accordance with FASB ASC Topic 718. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company had no common stock options or common stock equivalents granted or outstanding for all periods presented.

The Company issued restricted stock to consultants and employees for various services. Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is to be measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete.

Convertible Instruments

The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”.Activities.” Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

Preferred Stock

We apply the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity” when determining the classification and measurement of preferred stock. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. We classify conditionally redeemable preferred shares (if any), which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control, as temporary equity. At all other times, we classified our preferred shares in stockholders’ equity. Our preferred shares do not feature any redemption rights within the holders’ control or conditional redemption features not within our control. Accordingly, unless otherwise noted, all issuances of preferred stock are presented as a component of consolidated stockholders’ equity (deficit).

Advertising

Advertising and marketing expenses are charged to operations as incurred.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. 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 the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company has no material uncertain tax positions.

Recently Issued Accounting Pronouncements

Unless otherwise noted, we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.  This allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.  As a result of our election, our financial statements may not be comparable with other public companies.

In August 2014, the FASB issued Accounting Standard Update No. 2014-15,Presentation of Financial Statements—Going Concern(Subtopic 205-40), (ASU No. 2014-15), which requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, ASU 2014-15 provides a definition of the term substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated. ASU No. 2014-15 is effective for fiscal years, and interim periods within those years,the Company beginning after December 15, 2016, and early application is permitted.July 1, 2017.

Table of Contents

In May 2014, the Financial Accounting Standards Board ("FASB"(“FASB”) issued ASU No.Accounting Standards Update (“ASU”) 2014-09,Revenue from Contracts with Customers. This, which will replace most existing revenue recognition guidance requires companiesin U.S. GAAP and is intended to improve and converge with international standards the financial reporting requirements for revenue from contracts with customers. The core principle of ASU 2014-09 is that an entity should recognize revenue in a manner that depictsfor the transfer of promised goods or services equal to customers in amountsthe amount that reflect the consideration to which a companyit expects to be entitled in exchangeto receive for those goods or services. The new standardASU 2014-09 also will result in enhancedrequires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, with customers. The guidance is effective for public company fiscal years beginning after December 15, 2017. The standardincluding significant judgments and changes in judgments. ASU 2014-09 allows for adoption either on a full retrospective basis to each prior reporting period presented or on a modified retrospective transition method.basis with the cumulative effect of initially applying the new guidance recognized at the date of initial application, which will be effective for the Company beginning July 1, 2019. The Company is currently evaluating the impact of this standard,ASU 2014-09, including the transition method, on its consolidated results of operations, financial position and cash flows.statements.

As noted above, we have electedIn November 2015, the FASB issued ASU 2015-17,Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The amendments in this update simplify the presentation of deferred income taxes and require that deferred tax liabilities and assets be classified as noncurrent in a consolidated statement of financial position. These amendments may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The amendments will be effective for the Company beginning July 1, 2018. If the Company chooses retrospective application, the impact of ASU 2015-17 would not be material to the consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02,Leases, which requires lessees to recognize on the balance sheet a right-of-use asset, representing their right to use the extended transition periodunderlying asset for complyingthe lease term, and a lease liability for all leases with new or revisedterms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for the Company beginning July 1, 2020. The Company is currently evaluating the impact that ASU 2016-02 will have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09,Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The standard is intended to simplify several areas of accounting standards under Section 102(b)(1)for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for the JOBS Act.  This allowsCompany beginning July 1, 2018 and will require us to delayprospectively recognize excess tax benefits and tax deficiencies in the adoptionconsolidated statement of newincome when the awards vest or revised accounting standardsare settled. Additionally, the guidance requires excess tax benefits to be presented as an operating activity in the statement of cash flows rather than as a financing activity. The Company is currently evaluating the impact of ASU 2016-09 on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13,Financial Instruments-Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for the Company beginning July 1, 2021 and the Company is currently evaluating the impact that ASU 2016-13 will have differenton its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01,Business Combinations: Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is required to be applied prospectively and will be effective dates for public and private companies until those standards apply to private companies.  As a result ofthe Company beginning July 1, 2019. The impact on our election, ourconsolidated financial statements may not be comparable to thosewill depend on the facts and circumstances of companies that comply with public company effective dates.any specific future transactions.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required by this Item.

Item 8. Financial Statements and Supplementary Data

Index to Financial Statements Required by Article 8 of Regulation S-X:

Audited Financial Statements: 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Rocky Mountain High Brands, Inc.

We have audited the accompanying consolidated balance sheets of Rocky Mountain High Brands, Inc.(formerly known as Totally Hemp Crazy, Inc)Inc as of June 30, 20162017 and 20152016 and the related consolidated statements of operations, shareholders’ deficit and cash flows for the years ended June 30, 20162017 and 2015.2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Rocky Mountain High Brands, Inc.as of June 30, 2017 and 2016, and 2015, and the consolidated results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As discloseddiscussed in noteNote 3 to the financial statements the Company has a shareholders’ deficit of $1,477,250,$7,304,278, an accumulated deficit of $16,878,382$26,154,633 at June 30, 2016,2017, and has generated operating losses since inception. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/S/Paritz & Company, P.A.

Hackensack, New Jersey

September 28, 2016October 11, 2017

Rocky Mountain High Brands, Inc.

(Formerly Known as Totally Hemp Crazy, Inc.)

Consolidated Balance Sheets