The Accompanying Notes are an Integral Part of the Consolidated Financial Statements

Rocky Mountain High Brands, Inc.

Consolidated Statements of Operations

(Unaudited)

The Accompanying Notes are an Integral Part of the Consolidated Financial Statements.

Rocky Mountain High Brands, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

The Accompanying Notes are an Integral Part of the Consolidated Financial Statements.

Rocky Mountain High Brands, Inc.

 Consolidated Statements of Shareholders' Deficit for the Three and Nine Months Ended September 30, 2019

(Unaudited) 

Rocky Mountain High Brands, Inc.

 Consolidated Statements of Shareholders' Deficit for the Three and Nine Months Ended September 30, 2018

(Unaudited) 

The Accompanying Notes are an Integral Part of the Consolidated Financial Statements.

Rocky Mountain High Brands, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 – General

Rocky Mountain High Brands, Inc. (“RMHB” or the “Company”) was incorporated under the laws of the State of Nevada. On July 17, 2014, the Company changed its name from Republic of Texas Brands Incorporated to Totally Hemp Crazy, Inc and on October 23, 2015, the Company changed its name to Rocky Mountain High Brands, Inc.

RMHB has developedcurrently operates through its parent company, four wholly-owned subsidiaries, one majority-owned subsidiary, and one minority-owned subsidiary, which the Company controls. All subsidiaries are consolidated for financial reporting purposes.

RMHB is currently sellinga consumer goods company that specializes in developing, manufacturing, marketing, and distributing high-quality, health conscious, cannabidiol (“CBD”) and hemp- infused products that span various categories including beverage, food, fitness, skin care and more. RMHB also markets a naturally high alkaline spring water as part of our brand portfolio.

In March 2018, the Company launched the HEMPd brand with tinctures, gummies, water soluble drops, capsules, lotions, salves, and E-juice liquids. In October 2018, the Company introduced CBD-infused waters in four flavors and plans to introduce additional HEMPd product offerings in the marketplace a lineup of five hemp-infused beverages and 2oz. energy shotsfuture. HEMPd products are marketed through its nationwide distributor network and online. Effective June 30, 2016,the Company’s Wellness For Life Colorado, Inc. subsidiary. In November 2018, the Company entered intodiscontinued sales of its vape-related products.

On July 25, 2018 the Company acquired the assets of BFIT Brands, LLC (“BFIT”), an Arizona limited liability company. These assets include the cash, accounts receivable, inventory, FitWhey trademark, recipes and formulas of BFIT’s FitWhey branded water-based protein drinks containing caffeine and a business alliancevitamin-B pack.

On April 22, 2019 the reverse split of the Company’s Stock, at a ratio of one share for every 20 shares, was effective. All common stock share and per share amounts in this document reflect this reverse split.

On June 12, 2019 the Company organized Sweet Rock, LLC (“Sweet Rock”), a 51% owned company, with Poafpybitty Family, LLC to launchSweet Ally, Inc. Sweet Rock will manufacture and market CBD-infused chocolates, hard candies, and baked goods for distribution in the United States.

RMHB also bottles and distributes its naturally high alkaline spring water under the name Eagle Spirit Spring Water a line of purified, high-alkaline spring water sourced from Native American tribal landand plans to re-introduce its hemp-infused energy drinks later in Oklahoma. 2019 or early 2020.

NOTE 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 20172019 and the results of operations and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 20172019 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s form 10-K/A10-K for the year ended June 30, 2017December 31, 2018 filed with the SEC on October 12, 2017.April 15, 2019.

Principles of Consolidation

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The consolidated financial statements include the accounts of the Company, its wholly-owned and controlled subsidiaries. All intercompany balances and transactions have been eliminated.

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 605,606, “Revenue Recognition.from Contracts with Customers,” as amended. 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.

The following table represents sales by sales channel for each of the periods:

All sales for all periods presented were to domestic customers.

Due to the nature of the Company’s revenue from contracts with customers, the Company does not have material contract assets or liabilities that fall under the scope of ASC 606.

The Company’s revenues accounted for under ASC 606, generally, do not require significant estimates or judgments based on the nature of the Company’s revenue streams. The sales prices are generally fixed at the point of sale and all consideration from contracts is included in the transaction price. The Company’s contracts do not include multiple performance obligations or material variable consideration.

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,weuse 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 only of the Company’s finished products 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 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 shortshort- and long termlong-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:

The derivative liability, which relates to the conversion feature of 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 instrument is as follows:

Balance, December 31, 2018		$	376,172
Issued during the nine months ended September 30, 2019		$	21,192
Exercises/Conversions		$	(7,530)
Change in fair value recognized in operations		$	(126,304)
Balance, September 30, 2019		$	263,530

The estimated fair value of the derivative instruments werewas valued using the Black-Scholes option pricing model, using the following assumptions as of September 30, 2017:2019:

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.

Leases

The Company accounts for leases in accordance with Financial Accounting Standards Board (“FASB”) (Topic 840)Leases. In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02,Leases (Topic 842), which requires lessees to recognize on the balance sheet a right-of-use asset, representing their right to use the underlying asset for the lease term, and a lease liability for all leases with terms 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 was effective for calendar year-end public companies on January 1, 2019. The Company’s status as an emerging growth company allows it to defer the adoption of this standard by one year and the Company has elected to do so. The Company plans to adopt this new standard on January 1, 2020. The Company is currently evaluating the impact that ASU 2016-02 will have on its consolidated financial statements.

Capitalized Software

Direct costs related to software development, including coding, website application development, infrastructure development and graphics development, are capitalized and included in other assets. Amortization is provided for on a straight-line basis over the useful life of the software. Costs related to planning, content development, and operating and maintaining software 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. In August 2019 the Company recorded a $118,066 impairment on the intangible assets recorded as a result of the BFIT Brands, LLC acquisition in July 2018. No other impairment charges were recorded during the three and nine months ended September 30, 20172019 and September 30, 2016.2018.

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.” 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 shareholders’ 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.

NOTE 3 – Going Concern

The accompanying 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. The Company has a shareholders’ deficit of $6,446,224$1,039,280 and an accumulated deficit of $25,469,361$37,867,494 as of September 30, 2017,2019 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. The Company’s continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue raising capital.

On October 12, 2017June 27, 2018, the Company executed an Equity Financingentered into a Securities Purchase Agreement (“EFA”SPA”) with GHS Investments, LLC (“GHS”). Under the agreement,, which provides for GHS has committed to purchase up $12 millionto $15,000,000 of the Company’s common stock over a 24-month period atbased on a 20% discount offcontractually agreed upon market discount. The SPA replaces the market price, as defined in the agreement. The agreement contains certain restrictions on the timing of the stock purchases and requiresEquity Financing Agreement the Company to fileentered into with GHS on October 12, 2017. On August 8, 2018, the Company filed a registration statement with the Securities and Exchange Commission (“SEC”) to register theup to 16,000,000 shares of our common shares issuablestock to be purchased by GHS under the agreement. In conjunction with the Equity Financing Agreement,SPA. The registration statement became effective on October 10, 2018 and the Company entered into a $250,000 secured convertible promissory note with a term of nine months and bearing interest at 10%. The note is convertible to commonsold all the available shares based on a formula with a discount to market price.under the SPA. On November 2, 2017,May 15, 2019, the Company entered into a second $250,000 secured convertible promissory note with similar terms after filingfiled a registration statement for 30,000,000 shares to be purchased by GHS. This registration statement became effective on Form S-1June 18, 2019 and the Company began selling shares in June. Management believes the SPA, along with bridge financing from GHS, will provide sufficient cash flows until cash flows from operations become consistently positive.

NOTE 4 – Inventory

Inventory consists of the SEC on November 1, 2017 to register 300,000,000 shares at $.02 per sharefollowing:

For the three and nine months ended September 30, 2019 the Company recorded inventory obsolescence expense of $107,594 for each period. This expense primarily represented the write-down of expired FitWhey beverages and ingredients, obsolete FitWhey labels, and other expired ingredients.

For the three and nine months ended September 30, 2018 the Company recorded inventory obsolescence expense of $13,721 and $25,145, respectively. The expense primarily represented the write-down of expired hemp-infused beverages and shots. 

NOTE 5 – Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

NOTE 6 – Property and Equipment

Property and equipment consist of the following:

For the three months ended September 30, 2019 and 2018, depreciation expense was $3,550 and $4,367, respectively. For the nine months ended September 30, 2019 and 2018, depreciation expense was $11,554 and $16,679, respectively.

NOTE 7 – Acquisition

FitWhey Brands Inc. (acquisition of the assets of BFIT Brands, LLC)

On July 25, 2018, the Company purchased the assets of BFIT Brands, LLC, an Arizona-based company. The acquired assets include the cash, accounts receivable, inventory, FitWhey trademark, recipes and formulas of BFIT’s FitWhey branded water-based protein drinks containing caffeine and a total offering of $6 million.vitamin-B pack. The Company expectspaid $230,438 including common stock issued to fundthe owners of BFIT of $75,000, forgiveness of a note receivable of $80,000 plus accrued interest of $438, and $75,000 to be paid to the owners of BFIT over time based on 5% of net sales of FitWhey products. No liabilities were assumed by the Company in the transaction.

The purchase price of the assets of BFIT Brands, LLC assets was preliminarily allocated as follows:

Purchase Price
Common stock issued		$	75,000
Note payable and accrued interest forgiven			80,438
Earnout liability			75,000
Total		$	230,438
Allocation
Cash		$	15,612
Accounts receivable			5,763
Inventory			76,922
Software			31,000
Formulas			12,500
Trademark			2,500
Goodwill			86,141
Total		$	230,438

In August 2019 management determined the Company would suspend the production of water-based protein and caffeine-infused products until it develops a related hemp or CBD-infused product. As a result, the Company fully impaired the intangible assets related to its operationalpurchase of FitWhey. This resulted in an impairment charge of $118,066 for the three and investing needs through the EFA over the next two years.nine months ended September 30, 2019. Because all intangible assets were 100% impaired, it was determined that completion of an outside valuation was no longer necessary.

NOTE 4 – InventoryThe following represents the unaudited pro forma statement of operations of the Company for the three and nine months ended September 30, 2018 had FitWhey been acquired on January 1, 2018:

As of September 30, 2017

NOTE 8 – Accounts Payable and June 30, 2017, inventory consistedAccrued Liabilities

Accounts payable and accrued liabilities consist of the following:

NOTE 9 – Convertible Notes Payable

 NOTE 5 – Prepaid Expenses and Other Current AssetsConvertible notes payable consist of the following:

As of September 30, 2017 and June 30, 2017, prepaid expenses and other current assets were as follows:

		Interest Rates				Term				Conversion Rates			September 30, 2019				December 31,2018
GHS Investments, LLC (fixed conversion)			10%				.1 - .5 years			$	0.03 - 0.05		$	973,750			$	871,079
LSW Holdings, LLC (variable conversion)			6%				—				(a)			179,000				179,000
Discount														(500,975	)			(383,483)
Total													$	651,775			$	666,596

NOTE 6 – Property and Equipment

As of September 30, 2017 and June 30, 2017, property and equipment were as follows:

For the three months ended September 30, 20172019 and September 30, 2016, depreciation expense was $4,584 and $11,659, respectively.

NOTE 7 – Convertible Notes Payable

As of September 30, 2017 and June 30, 2017, the Company’s convertible notes payable were as follows:

For the three months ended September 30, 2017 and September 30, 2016,2018, interest expense on these notes, including amortization of the discount, was $124,584$295,585 and $29,089,$308,239, respectively. For the nine months ended September 30, 2019 and 2018, interest expense on these notes, including amortization of the discount, was $928,142 and $1,048,765, respectively.

All tangible and intangible assets of the Company are pledged as security.

NOTE 10 – Notes Payable

Notes payable consist of the following:

		Interest Rate		Term				September 30, 2019				December 31, 2018
Notes payable		0 %			Due			$	30,000			$	37,493

The Company has determinedAs of September 30, 2019, notes payable includes two non-interest bearing notes totaling $30,000 that the conversion feature embedded in certain of 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 recordedoriginated prior to the associated debt. The excessCompany’s 2014 bankruptcy proceedings. As of the derivative value over the face amount of theDecember 31, 2018, notes payable also includes a three-year note is recorded immediately to interest expense at inception. The Company recorded $101,587 and $0 of interest expense for the three months endedexecuted on September 30, 2017 and1, 2016 respectively, at the inception of the notes relating to the excesspurchase of derivative value over the face of the notes.

NOTE 8 – Note Payable-Other

On September 1, 2016, the Company purchased used office furniture and equipment from itsour landlord. The Company executed athe note payable in the amount of $40,122 at an interest rate of 0% and with monthly payments of $1,115. The Company imputed interest on the note and recorded a discounted note balance of $36,634 on September 1, 2016.$36,634. The term of the note is three years. The balance on theoffice furniture note was $23,164 and $26,130 on September 30, 2017 and June 30, 2017, respectively. For the three months ended September 30, 2017 and September 30, 2016, interest expense on this note was $377 and $183, respectively.repaid in August 2019.

NOTE 9 – Related Party Convertible Notes Payable

As of September 30, 2017 and June 30, 2017, the Company’s related party convertible notes payable were as follows:

For the three months ended September 30, 20172019 and 2016,2018, interest expense on these notes, including amortization of the discount,furniture and equipment note was $191,826$0 and $82,934,$559, respectively.

The Company has determined that For the conversion feature embedded in certain of 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 Company recorded no interest expense for the threenine months ended September 30, 2019 and 2018, interest expense on the furniture and equipment note was $197 and $1,779, respectively.

NOTE 11 – Deferred Revenue

In December 2017, the Company executed a three-year Master Manufacturing Agreement with CBD Alimentos SA de CV (“CBD-Alimentos”), a Mexican food and 2016, respectively,beverage distributor. Under the agreement (as amended), CBD Alimentos, through its sister company, CBD Life, will be our exclusive distributor in Mexico for all of our CBD-infused energy and functional beverages. In turn,wewill be CBD Alimentos’ exclusive supplier of such products. The beverages supplied to CBD Alimentos will be private label products made to order for CBD Alimentos, andwewill cooperate on laboratory and taste-testing of each batch of beverages at the inceptionco-packing facility. In accordance with the Agreement, RMHB opened a separate operating bank account for all deposits made by CBD Alimentos towards the purchase of ingredients and packaging. CBD Alimentos is required to maintain a positive cash balance in the notes relatingaccount at all times. The Company has full unilateral authority to disburse funds from the excessbank account to vendors, suppliers, co-packers and the Company solely for the purposes of derivative value overproduction and the faceCompany’s margin on the sale. CBD Alimentos’ initial purchase order, including a deposit of the notes.$466,300 was received in December 2018. The $466,300 is accounted for as Deferred Revenue as of September 30, 2019 and December 31, 2018 as production and delivery of finished product had not yet been completed.

NOTE 1012 – Shareholders’ Deficit

Common Stock

As of September 30, 2017 and June 30, 20172019, the Company has 950,000,000200,000,000 shares of common stock authorized.authorized and 126,162,146 shares issued and outstanding. On October 31, 2017April 22, 2019 the authorization was increased to 4,000,000,000.Company effected a 1-for-20 reverse stock split. All common share amounts in this report reflect this stock split.

During the three months ended September 30, 20172019 the Company issued 6,740,92817,182,155 shares of common stock, all of which were issued for cash.

During the nine months ended September 30, 2019 the Company issued 31,581,277 shares of common stock, including 6,240,9284,065,980 shares for convertible notes payable conversions, 27,486,424 shares for cash, and 500,00025,403 shares for cash.compensation. The remaining 3,470 shares were issued as a result of the Company’s reverse stock split, which was effective on April 22, 2019.

On July 14, 2017 the Board of Directors increased the authorized shares in the Rocky Mountain High Brands, Inc. 2017 Incentive Plan to 65,000,000.

Preferred Stock

The Company has 20,000,000 shares of preferred stock authorized as of September 30, 2017,2019, of which 10,000,00012,789,474 are specifically designated to a series of preferred stock and 10,000,0007,210,526 remain undesignated.

Series A Preferred Stock

The Company has 1,000,000 shares of Series A Preferred Stock authorized anddesignated, of which none were outstanding as of September 30, 20172019 and June 30, 2017.December 31, 2018. LSW Holdings LLC (“LSW”),was the holder of these shares is our controlling shareholder.shares. Lily Li, who was the Company’s Executive Vice President until April 5, 2018, is the Managing Member of LSW and, in that capacity, hashad the authority to direct voting and investment decisions with regard to its holdings in the company. See Note 16 – Subsequent Events.Company. On October 26, 2018 these shares were ruled voidab initioby a District Court in Dallas County, Texas. The Company cancelled these shares effective that date.

On July 5, 2017, the Company amended the Certificate of Designation for our Series A Preferred stock. The amendment changed the conversion ratio of our Series A Preferred stock from 1,200 shares of common stock for every share of Series A Preferred stock to 100 shares of common stock for every share of Series A Preferred stock. The amendment was approved by the Company’s Board of Directors and LSW, the holder of our Series A Preferred Stock.

On July 24, 2017, the Company’s Board of Directors approved an amendment to the Certificate of Designation for the Series A Preferred Stock that changed the voting rights back to 400 votes from 1,200 for every share of Series A Preferred Stock.

Series B Preferred Stock

The Company has 5,000,0007,000,000 shares of Series B Preferred Stock authorized,designated, of which none arewere outstanding as of September 30, 20172019 and June 30, 2017.December 31, 2018.

Series C Preferred Stock

The Company has 2,000,000 shares of Series C Preferred Stock authorized,designated, of which 1,107,607 arenone were outstanding as of September 30, 20172019 and June 30, 2017. The shares areDecember 31, 2018. Series C Preferred Stock is 12% interest bearing, cumulative, exchangeable, non-voting, convertible preferred stock of the Company. Each Series C Preferred share is convertible to 502.5 shares of common stock.

The redemption value of the Series C Preferred stock has been reclassified to current liabilities in accordance with the agreement executed between the Company and the holder of the shares.

Series D Preferred Stock

The Company has 2,000,000 shares of Series D Preferred Stock authorized,designated, of which none arewere outstanding as of September 30, 20172019 and June 30, 2017.December 31, 2018. Series D Preferred Stock is a non-voting, non-interest bearing convertible preferred stock. Each Series D preferred share is convertible to 1005 shares of common stock.

Series E Preferred Stock

On September 19, 2017, the Board of Directors approved a new Series E Preferred Stock. Holders of Series E Preferred Stock are entitled to cast 2,000100 votes per share of Series E Preferred Stock on any proposal to increase our authorized capital stock, with no other voting rights. Series E Preferred Stock is convertible to common stock on a 1:20:1 basis. On the same day, the Board granted our Chairman 789,474 shares of Series E Preferred stock as payment for his deferred compensation. On October 31, 2017, Mr. Welch converted his 789,474 shares of Series E Preferred Stock to 789,47439,474 shares of common stock. As of September 30, 2019 and December 31, 2018 there were no shares outstanding.

Warrants

During the threenine months ended September 30, 20172019 the Company granted no common stock warrants and none were exercised, and 1,187,500exercised. During that period, 25,000 warrants were cancelled.forfeited.

Options

Options

During the threenine months ended September 30, 20172019 the Company granted 650,000500,000 options to purchase common stock.stock with a term of three years and an exercise price of $.06. The options never vested and were forfeited in May 2019. No options were exercised or cancelled.and no others were cancelled during the nine months ended September 30, 2019.

NOTE 11–13– Noncontrolling Interests

In July 2019, the Company invested $500 in Sweet Rock, LLC, a Michigan limited liability company. The Company owns 51% and Sweet Ally, Inc. (“Sweet Ally”) invested $495 and owns 49%. The Company consolidates the financial statements of Sweet Rock and accounts for Sweet Ally’s ownership as a noncontrolling interest. During the three and nine months ended September 30, 2019 Sweet Rock incurred marketing expenses of $3,120. This activity is included in the consolidated financial statements of the Company with corresponding noncontrolling interests.

NOTE 14– Concentrations

During the three months ended September 30, 2017,2019 the Company’s two largest customers accounted for approximately 18%91% and 7%less than 1% of sales, respectively. During the three months ended September 30, 2016,2018, the Company’s two largest customers accounted for approximately 81%12% and 3% of sales, respectively.

During the nine months ended September 30, 2019 the Company’s two largest customers accounted for approximately 69% and 3% of sales, respectively. During the nine months ended September 30, 2018, the Company’s two largest customers accounted for approximately 6% and 6% of sales, respectively.

NOTE 1215 – Income Taxes

The reconciliation of income tax benefit at the U.S. statutory rate of 34%21% to the Company’s effective rate for the periods presented is as follows:

The tax effects of temporary differences that give rise to the Company’s net deferred tax liability as of September 30, 20172019 and June 30, 2017 are as follows:December 31, 2018 are:

As of September 30, 2017,2019 the Company had approximately $13,900,000$21,000,000 of federal and state net operating loss carryovers (“NOLs”), which begin to expire in 2027.2028. Utilization of the NOLs may be subject to limitation under the Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined under regulations.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against the entire deferred tax asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset will not be realized.

NOTE 13 – CommitmentsOn December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. We have estimated our provision for income taxes in accordance with the Tax Act and guidance available as of the date of this filing but have kept the full valuation allowance. As a result, the Company has recorded no income tax expense during the three and nine months ended September 30, 2019.

The Company’s deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from 34% to 21%, resulting in a deferred tax expense of approximately $2,000,000 in 2017 that is still fully valued against as of June 30, 2019. This expense is attributable to the Company being in a net deferred tax asset position at the time of remeasurement. As the company maintains fully valuation allowance, this amount can be seen on the rate reconciliation as an adjustment to deferred tax asset and corresponding valuation allowance.

NOTE 16 – Commitments

Office LeaseLeases

TheOn September 5, 2019 the Company has a three-year lease foramended its corporate office space.lease. The amendment extended the lease, which had expired August 31, 2019, through February 29, 2020. Monthly payments are $8,065 plus certain maintenance fees.

On January 18, 2018, the RMHC entered into a 12-month office use agreement for office space in Denver, Colorado. Monthly payments are $91. The lease commenced on September 1, 2016 with monthlywas renewed for another 12 months in January 2019. Monthly payments of $7,715 in year one, $7,972 in year two and $8,229 in year three. The lease is being accounted for on a straight-line basis over its term.remained $91.

Other Leases

The Company rents storage space from various third parties on a month-to-month basis.

NOTE 14 – Legal Proceedings

Please refer to our Annual Report on Form 10-K/A filed October 12, 2017 for information regarding our pending legal proceedings. The following represents an update to the items disclosed in that filing:

Claims Against Donna Rayburn

On October 6, 2017 the Company executed a Release and Settlement Agreement with Donna Rayburn regarding the litigation between the Company and Ms. Rayburn. Ms. Rayburn released the Company from all claims and returned 10 million stock warrants.

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

NOTE 17 – Legal Proceedings

On October 6, 2017 the Company executed a Release and Settlement Agreement with Roy Meadows (“Meadows Settlement”) regarding the litigation between the parties. As part of the Meadows Settlement, the Company agreed to issue 45 million shares of the Company’s common stock, including 20 million shares issued immediately and 25 million shares to be issued upon the effectiveness of the Company’s increased common share authorization. Mr. Meadows is subject to a “leak-out” formula whereby he is limited in the number of shares he can re-sell if the stock price is below $.06 per share. In connection with this settlement, the Company agreed to an exchange of the Preferred C Stock back to the originating note payable in accordance with the terms of the Exchange Agreement. Mr. Meadows assigned the note to GHS Investments, LLC, (“GHS”) an outside investment group, in exchange for consideration paid to him by GHS. Mr. Meadows released the Company from all claims and returned 55,096,825 stock warrants.

192ndJudicial District Court of Dallas County Texas, filed February 16, 2017, 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.

134thJudicial District Court of Dallas County, Texas, filed April 28, 2017. Rocky Mountain High Brands, Inc. v Lyonpride Music, LLC, United States District Court Northern District of Texas, 3:18-cv-00045-C, now Lyonpride Music LLC v Rocky Mountain High Brands, Inc., Before the American Arbitration Association, 01-18-0003-1428.

RMHBThe Company filed a suit against Lyonpride Music, LLC (“Lyonpride”) for fraud and for declaratory relief with respect to a contract between the parties. RMHB seeksLyonpride is seeking monetary damages against said Defendant.

134thJudicial District Court of Dallas County, Texas. Filed June 26, 2017. Rocky Mountain High Brands, Inc. v Statewide Beveragefrom the Company Inc.

RMHB has filed suit for breach of contract common law fraud and declaratory relief.the Company is seeking monetary damages against Lyonpride. The case has been referred to binding arbitration as referenced above. The parties are conducting discovery. The arbitration hearing has been rescheduled from November 5, 2019 to January 14, 2020.

Los Angeles Superior Court, BC669367, filed July 24, 2017. Statewide Beverage Company, Inc. v. Rocky Mountain High Brands, Inc.

Statewide filed a breach of contract claim, dealing with the same fact issues in the above case of RMHB v Statewide. RMHB still has not been served in this case.

Dallas County Texas, Case Number DC-17-15441 filed November 8, 2017. Rocky Mountain High Brands, Inc. f/k/a Republic of Texas Brands, Inc. Plaintiff, vs. Jerry Grisaffi, Joe Radcliffe, LSW Holdings, LLC, Lily Li, Epic Group One, LLC, Kenneth Radcliffe, Dennis Radcliffe, Phil Uhrik, Michael Radcliffe, Frank Izzo, Morgan Albright, John Garrison, BB Winks, LLC, Crackerjack Classic, LLC, and Universal Consulting, LLC.

RMHB is seekingThe Company sought the return of our Series A Preferred stockStock (“Series A”) issued to Jerry Grisaffi (“Grisaffi”), RMHB’s former Chairman of the Board, and common stock issued to certain other defendants or later obtained by certain other defendants for little or no consideration paid to the Company. RMHB alleges the Company’s former Chairman of the BoardThe Company alleged, among other things, that Grisaffi breached his fiduciary duty to the Company by issuing these Series A shares to himself and common stock to himself and others.

RMHB also sought to void the Indemnification and Release Agreement (“Indemnification”) between the Company and Grisaffi that was executed in June 2017.

NOTE 15 – AcquisitionsGrisaffi filed a counterclaim against the Company seeking payment for two promissory notes allegedly owed to him, as well as relief under the Indemnification. Those notes have been accounted for in the Company’s consolidated financial statements. Those counterclaim matters had been proactively addressed in the Company’s original suit, seeking to void the Indemnification and the two notes based on, among other things, fraud of Grisaffi. Grisaffi had also filed a derivative suit within the main lawsuit. The Company filed a motion to dismiss the derivative suit and on August 3, 2018 the Trial Court entered an Order Dismissing Derivative Claims, dismissing the derivative suit with prejudice. That Order is final.

Rocky Mountain High Water CompanyIn June 2018 LSW Holdings, LLC

In July 2016, (“LSW”) and Lily Li (“Li”) filed counterclaims against the Company, entered intogenerally seeking an increase of voting rights of the Series A shares to 60:1, a business alliancedeclaration that the Series A shares were validly issued to Grisaffi, challenging the authorized share increase of the Company, claiming securities fraud by the Company with Poafpybitty Family, LLCrespect to launch Eagle Spirit Spring Water, a linethe Series A Shares purchased from Grisaffi and other common stock allegedly purchased by LSW and Li, as well as fraud, breach of purified, high-alkaline spring water sourcedcontract and negligent misrepresentation by the Company. LSW seeks $10,000,000 in damages from Native American tribal land in Oklahoma. The agreement callsthe Company, for the $3,500,000 which was paid to Grisaffi for the Series A shares and for which LSW claims to be the responsibility of the Company to paycover, and the remaining $6,500,000 for money allegedly spent by LSW in “developing a royalty on each gallondistribution system in China” and other alleged “investments” of water collected atLi and LSW in the spring. Production of filtered spring water filled bottles commenced in August 2016Company. LSW 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 payments of $22,500 and issued a warrant for 500,000 shares of the Company’s 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 agreed to by both parties. Additionally, the Company has agreed to grow hemp for experimental or commercial purposes on the land within three years.Li also sought exemplary damages.

On November 12, 2016,August 30, 2018, the agreement with the Poafpybitty Family was amended to give the CompanyTrial Court entered a controlling voting interest of 75% of RMHW, while the Poafpybitty Family received 51% of the equity interest. The amended agreement is being accounted for as a step-acquisition, with the resulting goodwill of $49,911 included in other assets. The Company is obtaining an outside valuation of the rights to use the landfinal judgment and obtain the water describedorder in the agreement. Beginning November 12, 2016,Company’s favor and against Grisaffi. On August 29, 2018, after a show cause hearing, the operations of RMHW are consolidatedTrial Court entered an order sanctioning Grisaffi for his repeated and unexcused refusals to make discovery in the financial statements of RMHB.case. As a sanction, the Trial Court struck Grisaffi’s pleadings in the case and, on August 30, 2018, entered a Default Judgment against him. Under the Trial Court’s Default Judgment:

NOTE 16 – Subsequent Events