UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

Commission File Number: 000-55609

[X]       Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period endedSeptember 30, 2017

[ ]       Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to_______

Commission File Number:000-55609

Rocky Mountain High Brands, Inc.

(Exact name of registrant as specified in its charter)

Nevada90-0895673

(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

9101 LBJ Freeway,1000 Shiloh Rd., Suite 200, Dallas,Plano, TX 7524375074

(Address of principal executive offices)

(800)-260-9062

(Registrant’s telephone number)

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

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

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

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

[ ] Large, accelerated filer [ ] Accelerated filer

[ ] Non-accelerated filer [X] Smaller reporting company

[X] Emerging growth company

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

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

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 896,655,520284,451,184 common shares as of November 13, 2017.June 30, 2020.

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 (§ 229.405 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 [ ]

TABLE OF CONTENTS

PART 1- FINANCIAL STATEMENTS

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Our financial statements included in this Form 10-Q are as follows:

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended SeptemberJune 30, 20172020, are not necessarily indicative of the results that can be expected for the full year.

Rocky Mountain High Brands, Inc.

Consolidated Balance Sheets

(Unaudited)

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.Statements

Rocky Mountain High Brands, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

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. TheAs of June 30, 2020, the Company has a shareholders’ deficit of $6,446,224$1,207,165 and an accumulated deficit of $25,469,361 as of September 30, 2017,$42,471,932 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, 2017 the Company executed an Equity Financing Agreement (“EFA”) with GHS Investments LLC (“GHS”). Under the agreement, GHS has committed to purchase up $12 million of the Company’s common stock over a 24-month period at a 20% discount off the market price, as defined in the agreement. The agreement contains certain restrictions on the timing of the stock purchases and requires the Company to file a registration statement with the Securities and Exchange Commission (“SEC”) to register the common shares issuable under the agreement. In conjunction with the Equity Financing Agreement, 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 common shares based on a formula with a discount to market price. On November 2, 2017, the Company entered into a second $250,000 secured convertible promissory note with similar terms after filing a registration statement on Form S-1 with the SEC on November 1, 2017 to register 300,000,000 shares at $.02 per share for a total offering of $6 million. The Company expects to fund its operational and investing needs through the EFA over the next two years.

The Company has historically funded its operations with sales of equity and debt securities. The COVID-19 pandemic of 2020 has added uncertainty into the financial markets that the Company relies on for its operating and investment funding. It is unclear how long, or to what extent, the pandemic will impact the Company in 2020 and beyond. On April 30, 2020, the Company purchased certain assets of Raw Pharma, LLC (“Raw Pharma”) and agreed to sublease Raw Pharma’s production facility. Management believes its Securities Purchase Agreement dated December 20, 2019, with GHS Investments, LLC (“GHS”), along with bridge financing from GHS or other sources, will provide sufficient funds to make up for any operating cash flows.

The Company’s business has been adversely affected by the instability, disruption, and quarantine restrictions caused by the recent COVID-19 pandemic. The COVID-19 pandemic may cause customers to suspend their decisions on ordering our products, make it impossible to attend or sponsor trade shows or other conferences in which our products are presented to distributors, customers and potential customers, for our customers to visit our physical location, and give rise to sudden significant changes in regional and global economic conditions and cycles that could interfere with purchases of goods, or commitments to develop new brands and private label products.

Significant disruptions to communications and travel, including travel restrictions and other protective quarantine measures against COVID-19 by governmental agencies, have increased the difficulty in delivering goods to our customers and could ultimately make such deliveries impossible. Travel restrictions and protective measures against COVID-19 could cause us to incur additional unexpected labor costs and expenses or could restrain our ability to retain the highly skilled personnel we need for our operations.

The COVID-19 pandemic has added uncertainty to the financial markets that the Company relies on for its operating and investment funding. It has also negatively impacted the Company’s ability to meet its external financial reporting deadlines.

NOTE 4 – Inventory

As of September 30, 2017 and June 30, 2017, inventory consistedInventory consists of the following:

NOTE 5 – Prepaid Expenses and Other Current Assets

As of September 30, 2017 and June 30, 2017, prepaidPrepaid expenses and other current assets were as follows:consist of the following:

NOTE 6 – Property and Equipment

As of September 30, 2017 and June 30, 2017, propertyProperty and equipment were as follows:consist of the following:

For the three months ended SeptemberJune 30, 20172020, and September 30, 2016,2019, depreciation expense was $4,584$2,933 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, interest expense on these notes, including amortization of the discount, was $124,584 and $29,089,$4,161, respectively.

The Company has determined 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 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 $101,587 and $0 of interest expense for the three months ended September 30, 2017 and 2016, respectively, at the inception of the notes relating to the excess of derivative value over the face of the notes.

NOTE 7 – Intangible Assets

NOTE 8 – Note Payable-Other

On September 1, 2016, the Company purchased used office furniture and equipment from its landlord. The Company executed a note payable in the amountIntangible assets consist 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. The term of the note is three years. The balance on the note was $23,164 and $26,130 on September 30, 2017 and June 30, 2017, respectively.capitalized software. For the three months ended SeptemberJune 30, 20172020, and September 30, 2016, interest2019, amortization expense on this note was $377$2,601 and $183,$2,601, respectively.

NOTE 8 – Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of the following:

NOTE 9 – Related Party Convertible Notes Payable

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

For the three months ended SeptemberJune 30, 20172020, and 2016,2019, interest expense on these notes, including amortization of the discount, was $191,826$135,671 and $82,934,$293,189, respectively.

As of June 30, 2020, and December 31, 2019, the Company’s derivate liability related to its convertible note’s payable was $728,976 and $403,971, respectively. 

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

NOTE 10 – Notes Payable

Notes payable consist of the following:

As of June 30, 2020, and December 31, 2019, notes payable includes two non-interest-bearing notes totaling $30,000 that originated prior to the Company’s 2014 bankruptcy proceedings.

NOTE 11 – Deferred Revenue

In December 2017, the Company executed a three-year Master Manufacturing Agreement (“MMA”) with CBD Alimentos SA de CV (“CBD-Alimentos”), a Mexican food and beverage distributor. Under the agreement (as amended), CBD Alimentos, through its sister company, CBD Life, is our exclusive distributor in Mexico for all our CBD-infused energy and functional beverages. In turn, we are CBD Life’s exclusive supplier of such products. The beverages supplied to CBD Life are private label products made to order for CBD Life. On December 24, 2018, the Company received its first purchase order under the MMA. The purchase order is for a total of 2,000,000 cans, consisting of three flavors: Rocket High Energy Drink, California Black Tea (Te Negro), and California Lemonade (Limonada) to be delivered to CBD Life’s facility in Laredo, Texas. Each flavor consists of a sugar and sugar-free version. Based on the pricing the Company agreed to, the total of the purchase order is $932,600. In December 2018, the Company received a deposit of $466,300 to begin the procurement process for packaging (aluminum can bodies, lids, labels) and raw materials (CBD and other ingredients), co-packing services, and the Company’s contracted margin of $.05 per can. During 2019 the Company ordered, received and paid for packaging and raw materials and contracted for co-packing services with Optimus Fulfill, a Coppell, Texas-based beverage processor. The contract with Optimus Fulfill required the Company to make deposits of $156,000 to secure the co-packing services. These deposits were made in January 2019. Subsequent to the Company’s payment of the deposits, Optimus Fulfill filed for bankruptcy protection. The Company received a total of $20,000 in refunds in 2019 and was forced to secure another co-packer. The lengthy lead time associated with procuring co-packing services coupled with the normal lead times for packaging and raw materials pushed the production schedule into the last quarter of 2019. Additionally, a change in Mexico’s Presidential administration resulted in additional scrutiny of CBD Life’s permits in November 2019. Once these hurdles were cleared, production began in December 2019 with an initial run of 38,400 cans with a selling price of $20,375, and production-related costs of $64,526, including start-up costs and production overruns. In January 2020, the Company received an additional deposit of $97,060 from CBD Life to help restore the lost deposit with Optimus Fulfill. The Company procured additional packaging and raw materials and restarted production in March 2020, with a total of 146,880 cans produced and delivered in that month. The revenue recorded in June 2020 was $80,194.

In accordance with the MMA, RMHB opened a separate operating bank account for all deposits made by CBD Life. CBD Life is required to always maintain a positive cash balance in the account. The Company has determined thatfull unilateral authority to disburse funds from the conversion feature embeddedbank account to vendors, suppliers, co-packers, and the Company solely for the purposes of production, other administrative costs, and the Company’s margin on the sale. During 2019 the Company transferred $80,000 ($.04 per can ordered) from the CBD Life restricted bank account to its corporate account in certainaccordance with the terms of the notes referred to above that contain a potential variable conversion amount constitutes a derivative which has been bifurcatedMMA. As of June 30, 2020, and December 31, 2019, the balances in the separate operating bank account were $27,645 and $14,474, respectively, and are included in restricted cash on the Company’s balance sheet.

A summary rolls forward of the Deferred Revenue balance from the noteDecember 28, 2018 (receipt of first deposit) until June 30, 2020, is as follows:

In July 2020 CBD Life informed the Company that numerous cans of the delivered product were leaking. The Company has agreed to replace the production run at its own expense and recordedaccrued related cost of $68,648 as a derivative liability, with a corresponding discount recordedof June 30, 2020. The production-related costs, including start-up costs and production overruns, were approximately $109,000. The Company has not agreed to refund the sales amount or provide any other consideration 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 three months ended September 30, 2017 and 2016, respectively, at the inception of the notes relating to the excess of derivative value over the face of the notes.customer.

NOTE 1012 – Shareholders’ Deficit

Common Stock

As of September 30, 2017 and June 30, 20172020, the Company has 950,000,0001,000,000,000 shares of common stock authorized.authorized and 284,451,184 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 SeptemberJune 30, 20172020, the Company issued 6,740,92818,635,070 shares of common stock, including 6,240,92812,437,084 shares for convertible notes payable conversions, 4,895,286 shares for amounts due to a board member, 802,700 shares for compensation, and 500,000 shares for cash.

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.Series G Preferred Stock conversions.

Preferred Stock

The Company has 20,000,000 shares of preferred stock authorized as of SeptemberJune 30, 2017,2020, of which 10,000,00012,801,154 are specifically designated to a series of preferred stock and 10,000,0007,198,846 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, 2017 and June 30, 2017.2020 and December 31, 2019. 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 July 5, 2017, theOctober 26, 2018, these shares were ruled void ab initio by a District Court in Dallas County, Texas. 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 1,200cancelled these 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 Stockeffective that changed the voting rights back to 400 votes from 1,200 for every share of Series A Preferred Stock.date.

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, 2017 and June 30, 2017.2020, and December 31, 2019.

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, 2017 and June 30, 2017. The shares are2020, and December 31, 2019. 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, 2017March 31, 2020, and June 30, 2017.December 31, 2019. Series D Preferred Stock is a non-voting, non-interest bearingnon-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 BoardThe Company has 789,474 shares of Directors approved a new Series E Preferred Stock.Stock designated, of which none were outstanding as of March 31, 2020, and December 31, 2019. 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. Each share of Series E Preferred Stock is convertible to common stock on a 1:1 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 789,47420 shares of common stock.

WarrantsSeries F Preferred Stock

On December 20, 2019, the Board of Directors designated 1,680 shares of Series F Preferred Stock. On that same day, the Company sold 130 shares of Series F Preferred Stock to GHS Investments, LLC ("GHS") in accordance with a Securities Purchase Agreement with GHS. The Series F Preferred Stock has a par value of $.001, stated value of $1,200, accrues dividends at 12%, is convertible to common stock based on a 20-day trailing volume weighted average low share price, and is senior to other preferred stock. During the three months ended September 30, 2017March 31, 2020, the Company granted no common stock warrants, nonesold 200 shares of Series F Preferred Stock to GHS. As of June 30, 2020, and December 31, 2019, there were exercised,330 and 1,187,500 were cancelled.130 shares issued and outstanding, respectively.

OptionsSeries G Preferred Stock

DuringOn December 20, 2019, the three months ended September 30, 2017Board of Directors designated 10,000 shares of Series G Preferred Stock. On that same day, the Company granted 650,000 options10,000 shares of Series G Preferred Stock to purchaseCharles Smith, a Board member, and Chief Operating Officer of the Company, in exchange for $10,000 owed to Mr. Smith in compensation. The Series G Preferred Stock has a par value of $.001, is non-interest and non-dividend earning, and each share is convertible to 50 shares of common stock. No optionsThe holder of Series G Preferred Stock has the right to cast 20,000 votes for every one share of Series G Preferred Stock on any and all proposals to amend the Company’s Articles of Incorporation to increase the authorized capital stock of the Company. Mr. Smith exercised that right in December 2019 and the Series G Preferred Shares were exercised or cancelled.converted to common stock on March 20, 2020. As of June 30, 2020, there were no shares of Series G Preferred Stock issued and outstanding.

Series H Preferred Stock

NOTE 11– Concentrations

DuringOn February 25, 2020, the three months ended SeptemberBoard of Directors designated 5,000 shares of Series H Preferred Stock. The Board amended the designation on April 7, 2020. The Series H Preferred Stock has a par value of $.001, stated value of $1,200, accrues dividends at 12%, and is convertible to common stock based on a 20-day trailing volume weighted average low share price. As of June 30, 2017, the Company’s two largest customers accounted for approximately 18%2020, there were 11 shares outstanding. As of December 31, 2019, there were no shares issued and 7% of sales, respectively. During the three months ended September 30, 2016, the Company’s two largest customers accounted for approximately 81% and 3% of sales, respectively.outstanding.

Warrants

During the three months ended June 30, 2020, and 2019 the Company granted no common stock warrants, none were exercised, and none were forfeited. As of June 30, 2020, and December 31, 2019, there were 607,500 warrants outstanding. Exercise prices range from $.02 to $.40 per share.

Options

During the three months ended June 30, 2020, the Company did not grant any options to purchase the Company’s common stock and there were no exercises or forfeitures of such options.

During the three months ended June 30, 2019, the Company granted 500,000 options to purchase common stock to an employee. There were no exercises or forfeitures during that period.

As of June 30, 2020, and December 31, 2019, there were no options outstanding.

NOTE 1213– 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 months ended June 30, 2020, Sweet Rock recorded no revenue or expenses.

NOTE 14– Concentrations

During the three months ended June 30, 2020, the Company’s two largest customers accounted for approximately 71% and 12% of sales, respectively. During the three months ended June 30, 2019, the Company’s two largest customers accounted for approximately 17% and 2% of sales, respectively.

NOTE 15 – 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, 2017 and June 30, 2017 are as follows:2020, and December 31, 2019, are:

As of SeptemberJune 30, 2017,2020, the Company had approximately $13,900,000$22,000,000 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 months ended June 30, 2020, and 2019.

Office LeaseThe 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 March 31, 2020. 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

The Company hasexecuted a three-year lease for corporate office space.space effective September 1, 2016. The lease commenced on September 1, 2016 withincluded monthly payments of $7,715 in year one, $7,972 in year two, and $8,229 in year three.three plus common area maintenance. The lease is beingwas accounted for on a straight-line basis over its term.

On September 5, 2019, the Company executed a six-month extension of its corporate office lease at $8,065 per month plus common area maintenance. The lease expired on February 29, 2020.

On February 28, 2020, the Company executed a second six-month extension of its corporate office lease. The lease includes new, smaller space within the same office building at a monthly payment of $3,549 per month plus common area maintenance.

On January 18, 2018, WFLC entered into a 12-month office use agreement for office space in Denver, Colorado. Monthly payments were $91. The lease automatically renews for 12 months each January. Monthly payments are $122.

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,

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.

134thJudicial United States District Court Northern District of Dallas County, Texas. Filed June 26, 2017.Texas, 3:18-cv-00045-C, now Lyonpride Music LLC v Rocky Mountain High Brands, Inc. v Statewide Beverage Company, Inc., Before the American Arbitration Association, 01-18-0003-1428.

RMHBThe parties have settled the matter and the settlement documents have been signed by the parties. This matter has filed suit for breach of contract, common law fraud and declaratory relief.been concluded.

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 the Series A Preferred stock and common stockStock (“Series A”) issued to certain defendants or later obtained by certain other defendants for little or no consideration paid to the Company.  RMHB alleges the Company’sJerry Grisaffi (“Grisaffi”), RMHB’s former Chairman of the BoardBoard. The Company further alleged, among other things, that Grisaffi breached his fiduciary duty to the Company by issuing these Series A shares to himselfhimself. On August 30, 2018, the Trial Court in the 192nd District Court of Dallas County, Texas entered a final judgment in the Company’s favor and others.

against Grisaffi in the amount of $3,500,000 for fraud, breach of fiduciary duty, and conversion with respect to the Series A preferred stock. The Court further voided ab initio the Series A Preferred Shares. The Court further ruled that Grisaffi take nothing by his counterclaims in the case.

NOTE 15 – AcquisitionsIn The Court of Appeals For The Fifth District Of Texas Dallas, Texas, Jerry Grisaffi, Appellant v. Rocky Mountain High Brands, Inc, f/k/a Republic of Texas Brands, Inc., Appellee, No. 05-18-01020-CV.

Grisaffi appealed the Judgment described above. The Court of Appeals affirmed in part and reversed in part the Judgment and remanded it to the trial court for the purpose of the Company electing its remedy. The Company has elected its remedy of the $3,500,000 judgment against Grisaffi. Grisaffi has again appealed this matter. On November 19, 2019, Grisaffi filed a chapter 11 bankruptcy in the United States Bankruptcy Court for the Northern District of Texas, Case No. 19-33855-sgj. The Company has filed an Adversary Proceeding to deny Grisaffi the ability to discharge the judgment. A Motion for Summary Judgment on the Adversary Proceeding has been filed and is set for hearing. The Chapter 11 case has been converted by the Bankruptcy Court to a Chapter 7 case. The Trustee who has been appointed is actively conducting proceedings to locate assets of Grisaffi.

Dallas County Texas, Case Number DC-18-13491. Rocky Mountain High Brands, Inc. f/k/a Republic of Texas Brands, Inc. Plaintiff, vs. 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.

This Final Judgment against Lily Li and LSW Holdings, LLC is final for all purposes and was not appealed. The Company plans to outsource the collection of this Judgment. Other than collection of the Judgment this matter has been finalized.

Rocky Mountain High WaterBrands, Inc. v La Dolce Vita Trust and Christine Guthrie, In Her Capacity as Trustee, In The 382nd District Court of Rockwall County, Texas, Cause No. 1-18-1608.

This is a case whereby the Company LLCis attempting to collect on the Judgment obtained against Grisaffi. More specifically the Company is requesting the Court to order the La Dolce Vita Trust to turnover fraudulently transferred assets and for additional relief necessary to enforce the Company’s judgment against Grisaffi. The case has been stayed, and the Company will seek an order from the Bankruptcy Court to continue in this case or will work in conjunction with the Trustee appointed in the Chapter 7 case on this matter.

In July 2016, the Company entered into a business alliance with Poafpybitty Family, LLC to launch Eagle Spirit Spring Water, a line of purified, high-alkaline spring water sourced from Native American tribal land in Oklahoma. The agreement calls for the Company 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 payments of $22,500 and issued a warrant for 500,000 sharesChet – 5 Broadcasting, Inc. v Rocky Mountain High Brands, Inc., Supreme Court of the Company’s common stock exercisable at $.03 per share over a three-year period beginning July 27, 2016.State of New York, County of Ulster, Case No. 18-4416.

The agreement grantsparties have settled this matter and the Company an exclusive right to develop land adjacent tosettlement documents have been signed by the spring for commercial purposes as agreed to by both parties. Additionally, the CompanyThis matter has agreed to grow hemp for experimental or commercial purposes on the land within three years.been concluded.

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 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 land and obtain the water described in the agreement. Beginning November 12, 2016, the operations of RMHW are consolidated in the financial statements of RMHB.

NOTE 1618 – Other (Income)/Expenses

Loss on Extinguishment of Debt

For the three months ended June 30, 2020, the Company recorded no loss on extinguishment of debt . The Company recorded a gain on the extinguishment of debt of $689,991 related to the change in the market value of the Company’s common stock during the three months ended June 30, 2019

Gain (Loss) on Change in Fair Value of Derivative Liability

For the three months ended June 30, 2020, the Company recorded a loss on the change in fair value of derivative liability of $15,894 compared to a gain of $390,520 for the three months ended June 30, 2019. In 2020 the loss resulted from the change in the convertibility of two convertible notes payable that were made in February and March 2020 and increase in the valuation of the related derivative liability based on the change in the market value of the Company’s common stock. The gain in 2019 was due to the decrease in the market value of the Company’s common stock between January 1, 2019, and June 30, 2019.

NOTE 19 – Subsequent Events

Between OctoberApril 1 2017 and November 13, 2017September 8, 2020, the Company issued 103,389,474133,183,537 shares of common stock, including 27,000,000 for the acquisition of which 52,000,000 werethe assets of Raw Pharma, 21,925,000 for debtlegal settlements, 9,976,484 for convertible notes payable conversions, 45,000,000 were22,000,000 for a legal settlement,director and 6,389,474 wereemployee compensation, 51,000,000 for services rendered.payments to vendors, and 1,282,053 for cash.

Between April 1 and September 8, 2020, holders of convertible notes payable converted $98,742 of outstanding principal.

On October 6, 2017April 7, 2020, the Company executed a Releasethree-year consulting agreement with Eagle Processing & Distribution, Inc. (“EPD”). Under the agreement, EPD is to provide outsourced services related to sales and Settlement Agreementdistribution, marketing, social media, and website maintenance, logistics and order fulfillment, production, inventory management, customer service, risk management, and assistance with Roy Meadows (“Meadows Settlement”) regardingobtaining financing. EPD was granted 50,000,000 shares of common stock as compensation for the litigation between the parties. As partfirst eight months of the Meadows Settlement,contract with compensation for the Company agreedremainder of the contract to issue 45 millionbe negotiated prior to the end of the initial eight months. On June 30, 2020, EPD returned 25,000,000 common shares of the Company’s common stock, including 20 millionpreviously issued 50,000,000 shares issued immediately and 25 million shares to be issued uponpending the effectivenessexecution 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 backamendment 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. Also on October 6, 2017 the Company exchanged that note for a new secured convertible promissory note to GHS with a principal of $1,107,607, a term of nine months, and interest of 10% annually. The new note is convertible toApril 7, 2020, consulting agreement. These common shares based on a formula with a discount to market price. Mr. Meadows released the Company from all claimshave not been cancelled and returned 55,096,825 stock warrants.

The Company also executed a Release and Settlement Agreement with Donna Rayburn (“Rayburn Settlement”) regarding the litigation between the Company and Ms. Rayburn. Ms. Rayburn released the Company from all claims and returned 10 million stock warrants.are included in shares outstanding.

On October 12, 2017April 21, 2020, the Company executed an Equity Financing Agreementfiled a Registration on Form S-8 to register 600,000 shares of common stock issued to a vendor as compensation for services provided.

On April 29, 2020, the Company formed Rocky Mountain Productions, Inc. (“EFA”RMPI”) with GHS. Under the agreement, GHS has committed to purchase up $12 million, a wholly owned Nevada corporation. On April 30, 2020, RMPI purchased certain of the Company’sassets of Raw Pharma, LLC (“Raw Pharma”) including machinery, equipment, and fixtures. The facility has the capability to can and bottle product, including 12 oz. regular and sleek cans, 16 oz. cans, shots, and bottles. The purchase price for the assets consists of a combination of $1,750,000 in cash, 27,000,000 shares of common stock, over a 24-month period at a 20% discount offand the market price, as definedassumption or refinancing of Raw Pharma’s bank debts secured by equipment in the agreement.amount of $1,007,000. The agreement containsCompany is also assuming the lease of Raw Pharma’s 20,000 square foot facility and certain restrictions onequipment leases. The Company assumed no other liabilities in the timingtransaction. In March and April 2020, the Company produced and delivered 146,880 and 149,760, respectively, cans of beverage to CBD Life. In July 2020 CBD Life informed the Company that numerous cans of the stock purchasesdelivered product were leaking. The Company has agreed to replace the production run at its own expense and requiresaccrued related cost of $68,648 as of March 31, 2020. The production-related costs, including start-up costs and production overruns, were approximately $109,000 in June 2020. The Company has not agreed to refund the sales amount or provide any other consideration to the customer. The Company has investigated the cause of the leaking cans and is in the process of remediating the equipment issues it believes caused the packaging failures. Management believes the manufacturing issues will be resolved and the plant will be able to resume all production by September 15, 2020. Management has also held discussions with the prior owners of Raw Pharma (where the product was produced prior to our acquisition) and is negotiating an agreement to compensate the Company for losses related to file a registration statement with the Securities and Exchange Commission (“SEC”) to register the common shares issuable under the agreement. In conjunction with the EFA, 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 common shares based on a formula with a discount to market price. On November 2, 2017, the Company entered into a second $250,000 secured convertible promissory note with similar terms after filing a registration statement on Form S-1 with the SEC on November 1, 2017. The Company expects to fund its operational and investing needs through the EFA over the next two years.

In October 2017, the Company hired a Chief Commercialization Officer and a Director of Marketing.

On October 31, 2017, the Company increased its common stock share authorization to 4,000,000,000.equipment issues.

On April 29, 2020, the Company executed a $150,100 loan agreement with Comerica Bank under the Paycheck Protection Program (“PPP”) of the Small Business Administration (“SBA”). The loan bears interest at 1% and is due on April 29, 2022. If the Company meets certain PPP qualifications the loan will be forgiven by the SBA. Otherwise, monthly loan payments will commence November 1, 2020.

On May 12, 2020, the Company executed a Settlement Agreement and Release with Texas Wellness Center (“TWC”), a subsidiary of GL Brands, Inc., related to the 200,000 can production run the Company ran for TWC in September 2019. Pursuant to the Settlement Agreement the Company agreed to issue 17,500,000 shares of common stock, with a market value of $367,500, on the settlement date. As of December 31, 2019, the Company reversed the $322,000 previously recorded in September 2019, recorded a common stock payable of $367,500 and accrued a $15,000 payment made to TWC in January 2020 to assist with TWC’s customer service-related issues. The companies mutually released each other from all other liabilities, including a $75,000 account payable to TWC for CBD used in the manufacturing of the beverages. The companies further agreed that if RMHB files a lawsuit seeking damages against its can vendor, it would pay TWC 30% of any net recovery. RMHB is not required to take any further action.

On May 20, 2020, the Company executed a Release and Settlement Agreement with CHET-5 Broadcasting, Inc. (“CHET-5”) related to a breach of contract lawsuit filed by CHET-5 related to an advertising contract between the Company and CHET-5. The Company agreed to pay CHET-5 $9,000 in cash and 425,000 shares of common stock in exchange for full mutual releases.

On September 9, 2020, the Company issued 420 shares of Series F Preferred Stock to GHS Investments, LLC in exchange for the maturity date extensions on three convertible notes payable and to waive any breaches related to the Company’s delinquent first and second quarter 2020 financial statement filings.

Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results ofOperations

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,”“may,”“will,” “would,”“willbe,”“willcontinue,”“willlikely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

Company Overview

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

RMHB is a consumer goods company specializingthat specializes in brand development ofthe developing, manufacturing, marketing, and distributing high-quality, health conscious, hemp-infusedhemp oil and hemp extract-infused products that span various categories including beverage, food, fitness, skin care, and beverage products. The Company currentlymore. RMHB also markets a lineup of five naturally flavored hemp-infused beverages (Citrus Energy, Black Tea, Mango Energy and Lemonade) and a low-calorie hemp-infused Coconut Lime Energy drink. The Company also offers hemp-infused 2oz. Mango Energy Shots and Mixed Berry Energy Shots. In August 2016 the Company launched Eagle Spirit Spring Water, a line of naturally high alkaline spring water.

After developingwater as part of our brand portfolio. All products comply with federal regulations on hemp products and contain 0.0% tetrahydrocannabinol (“THC”), the beverage products,psychoactive constituent of cannabis. Recently, through a newly created subsidiary of RMHB, completed its first production run in February of 2015. Since then RMHB has had production runs for hemp-infused beverages totaling over 3,900,000 cans. Each beverage contains approximately 50mg (our first production run) to 100mg of hempseed extract and all-natural ingredients. The hemp-infused products are shelf stable (no refrigeration necessary) with a shelf life oftwo years.

During fiscal year 2017,Rocky Mountain Productions, Inc., the Company acquired a bottling and canning facility and is now also produced energy shots and Relaxation Brownies.

In September 2016,in the Company bottledbusiness of canning both its first high alkaline spring water, 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) “Bagown beverages as well as canning beverages for other customers.  Furthermore, as a result of equipment included in a Box.”

In March and April 2017, the Company completed additional production runsacquisition of its more popular hemp-infused beverages, Citrus Energy and Mango Energy.

In August 2017, the Company sold its remaining inventoryfacility, RMHB is also in the business of Smarterita wine-based beverages. There are currently no plans to resume productionbottling hand sanitizer.  Because of this alcoholic beverage.the demand resulting with the COVID-19 pandemic, RMHB anticipates continuing in the bottling of hand sanitizer for the foreseeable future.   

Current Product OfferingsIn March 2018, the Company launched the HEMPd brand with gummies, water soluble drops, capsules, tinctures, lotions, and salves. The Company introduced four flavors of HEMPd CBD-infused waters in 12 oz. cans in November 2018 and sold those beverages in carbonated and non-carbonated offerings in 2019.

Under itsIn July 2018, the Company acquired the assets of BFIT Brands, LLC and formed a new subsidiary, FitWhey Brands LLC. FitWhey marketed a line-up of five water-based protein drinks that include caffeine and B vitamins. In August 2019 management determined the Company would suspend the production of FitWhey branded products until it develops a related hemp or CBD-infused product.

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

On April 29, 2020, the Company formed Rocky Mountain High Brands name,Productions, Inc. (“RMPI”), a wholly owned Nevada corporation. On April 30, 2020, RMPI purchased certain assets of Raw Pharma, LLC (“Raw Pharma”) including machinery, equipment, and fixtures. The facility has the Company currently markets a lineup of five hemp-infusedcapability to can and bottle products, including 12 oz. regular and sleek cans, 16 oz. beverages including:

bottles.

The Company isRMHB 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 distributorsbottles 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 marketsdistributes 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.under the name Eagle Spirit Spring Water.

Strategic Update and Planned Product OfferingsRMHB has entered into the business of producing National Brand Equivalent (NBE) products. RMHB is currently finalizing the production process for the filling of Pediatric Electrolyte drink under the Great Choice brand, which brand was licensed by RMHB.

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 segmentResults of the functional beverage market. Functional beverages, or beverages that convey health benefits, are the fastest growing segment within the beverage market.Operations

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.

In October 2017 the Company hired a Chief Commercialization Officer and a Director of Marketing.

Results of Operations

Three Months Ended SeptemberJune 30, 20172020, Compared to Three Months Ended SeptemberJune 30, 20162019

Financial Summary

The Company’s sales for the three months ended SeptemberJune 30, 20172020, were $41,002$669,489 compared to $295,587sales of $36,572 for the three months ended SeptemberJune 30, 2016.2019.

The Company’s net loss for the three months ended June 30, 2020, was 1,207,165 compared to a net loss of $667,170 for the three months ended June 30, 2019.

The Company’s net income for the three months ended September 30, 2017 was $685,272 compared to a net loss of $730,277 for the three months ended September 30, 2016.

Sales

For the three months ended SeptemberJune 30, 20172020, sales were $41,002$669,489 compared to $295,587sales of $36,572 for the three months ended SeptemberJune 30, 2016, a decrease2019, an increase of $254,585$632,917 or 86%1.73%. The sales decreaseincrease was driven by the lacksale of funding forprivate label beverages to CBD Life. The increase was partially offset by a reduction in sales of HEMPd branded products as the Company sold off inventory production, directin anticipation of a change in suppliers and lower Eagle Spirit Water sales support, and advertising and promotion of the Company’s products. Inin 2020. For the three months ended SeptemberJune 30, 20172020, sales consisted of approximately 57%70% private label sales, 18% online sales, 11% distributor sales, 33%and 1% direct to retailer sales, and 10%compared to approximately 80% online sales, compared to 95%2% distributor sales, and 5% online18% direct to retailer sales for the three months ended SeptemberJune 30, 2016.2019.

Cost of Sales

For the three months ended SeptemberJune 30, 2017,2020, cost of sales was $43,800$624,209 or 107%.93% of sales, compared to $90,020$38,855 or 31%1.06% of sales for the three months ended SeptemberJune 30, 2016, a decrease2019, an increase of $46,220$141,350 or 51%187%. Cost of sales decreasedThe increase in 20172020 was primarily due to the decreaseaccrual of additional production costs related to CBD Life, our private label customer. In July 2020, the customer informed the Company that numerous cans of the delivered product were leaking. The Company agreed to replace the entire production run at its own expense. As of June 30, 2020, the Company established an accrual of $68,648 for the estimated production costs with a corresponding increase in sales, butcost of sales. The Company also incurred start-up costs and production overruns related to CBD Life that increased as a percentagethe related cost of sales to approximately $109,000, resulting in 2017 as a result of lower net selling prices asnegative gross margin. Additionally in 2020, the Company sells its remaining hemp-infused beveragesold off HEMPd inventory in anticipation of supplier changes and shots inventories.the resulting promotions caused a deterioration in gross margin.

Operating Expenses

For the three months ended SeptemberJune 30, 2017,2020, operating expenses were $661,069$1,096,091 or 1,612%1.63% of sales, compared to $1,182,089$858,831 or 400%2.35% of sales for the three months ended SeptemberJune 30, 2016.2019. Areas in which the Company experienced materialsignificant changes in operating expenses are discussed below.

General and Administrative

For the three months ended SeptemberJune 30, 2017,2020, general and administrative expenses were $604,751$1,094,09169 or 1,475%1.63% of sales, compared to $864,549$696,846 or 293%19.05% of sales for the three months ended SeptemberJune 30, 2016.2019, a increase of $397,282 or 59%. The decrease in general and administrative expenses in 20172020 was primarily driven by management’s efforts to reduce expenses as a result of the Company’s lack of funding. The increase decreases in generalcompensation and administrative expenses as a percentage of sales is due to lower sales in 2017.legal expenses.

Advertising and Marketing

For the three months ended SeptemberJune 30, 2017,2020, advertising and marketing expenses were $56,318$1,963 or 137%.3% of sales, compared to $317,540$158,985 or 107%4.34% of sales for the three months ended SeptemberJune 30, 2016.2019, a decrease of $157,022 or 23%. The decrease in advertising and marketing expenses in 20172020 was primarily driven by management’s effortsdue to reduce expenses as a result of the Company’s lack of funding. Also,reduction in 2016online advertising and outside marketing consultant and agency fees. Additionally, the Company incurred significant promotionalincurs no advertising or marketing expenses related to a large sale to a distributor. There was no comparable sale in 2017. The increase in advertising and marketing expenses as a percentage of sales is due to lower sales in 2017.private label sales.

Other (Income) Expense

Interest Expense

For the three months ended September 30, 2017, interest expense was $464,110, compared to $234,519 for the three months ended September 30, 2016. The increase in interest expense, which includes the amortization of the discount on convertible debt and interest on Series C Preferred Stock, was due to increased debt in 2017.

Gain on Change in Fair Value of Derivative Liability

For the three months ended September 30, 2017, the Company recorded a gain on the change in fair value of derivative liability of $1,813,249 compared to a gain of $480,764 for the three months ended September 30, 2016. In both periods, the gain resulted from the decrease in the price of the Company’s underlying stock, which is used to calculate the fair value of the related derivative liability, from the beginning of the period to the end of the period.