UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

		For the quarterly period ended~~September~~June 30, ~~2019~~2020

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

		For the transition period from ~~______~~March 31, 2020, to ~~______~~June 30, 2020.

Commission File Number:000-55609

Rocky Mountain High Brands, Inc.

(Exact name of registrant as specified in its charter)

Nevada	90-0895673
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

~~9101 LBJ Freeway,~~1000 Shiloh Rd., Suite 200, ~~Dallas,~~Plano, TX ~~75243~~75074

(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: ~~133,811,183~~284,451,184 common shares as of ~~November 18, 2019.~~

June 30, 2020.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

Table of Contents

	TABLE OF CONTENTS PART 1- FINANCIAL STATEMENTS
	~~Page~~
Item 1:	Consolidated Financial Statements	3Pages F1 - F21
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Pages 4 - 8
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	10Page 8
Item 4:	Controls and Procedures	10Page 8
	PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	11Page 10
Item 1A:	Risk Factors	11Page 10
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	11Page 10
Item 3:	Defaults Upon Senior Securities	11Page 10
Item 4:	Mine Safety Disclosures	11Page 10
Item 5:	Other Information	11Page 10
Item 6:	Exhibits	11Page 10

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

F-1	Consolidated Balance Sheets as of ~~September~~June 30, ~~2019~~2020 (unaudited) and December 31, ~~2018 (unaudited);~~2019;
F-2	Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September~~June 30, ~~2019~~2020 (unaudited) and ~~2018 (unaudited);~~2019;
F-3	Consolidated Statements of Cash Flows for the three ~~and nine~~ months ended ~~September~~June 30, ~~2019~~2020 (unaudited) and ~~2018 (unaudited);~~2019;
F-4	Consolidated Statements of Shareholders’ Deficit for the three ~~and nine~~ months ended ~~September~~June 30, ~~2019~~2020 (unaudited) and ~~2018 (unaudited);~~2019;
F-5	Notes to Consolidated Financial Statements (unaudited).

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 ~~September~~June 30, ~~2019~~2020, are not necessarily indicative of the results that can be expected for the full year.

Table of Contents

Rocky Mountain High Brands, Inc.

Consolidated Balance Sheets

	June 30, 2020			December 31,2019

CURRENT ASSETS

Cash	$	32,240		$	53,606
Restricted Cash					14,474
Accounts Receivable, net of allowance of $0 and $0, respectively					18,162
Inventory		150,039			238,035
Prepaid Expenses and Other Current Assets		1,105,610			174,726
TOTAL CURRENT ASSETS		1,287,889			499,003

Property and Equipment, net		2,136,017			19,342
Intangible Assets		1,408,367			13,008
Other Assets		11,593			14,606

TOTAL ASSETS	$	4,843,866		$	545,959

LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES

Accounts Payable and Accrued Liabilities	$	1,262,740		$	1,143,217
Other Payables & Stock related payables		3,003,912			30,406
Convertible Notes Payable, net of debt discount		971,142			1,008,950
Notes Payable		180,100			30,000
Accrued Interest		115,737			96,134
Deferred Revenue		510,696			445,925
Derivative Liability		771,391			413,678
TOTAL LIABILITIES		6,815,787			3,168,310

SHAREHOLDERS' DEFICIT
Preferred Stock - Series A - Par Value of $.001; 1,000,000 shares designated; No shares issued and outstanding as of June 30, 2020		—			—
Preferred Stock - Series B - Par Value of $.001; 7,000,000 shares designated; No shares issued and outstanding as of June 30, 2020		—			—
Preferred Stock - Series C - Par Value of $.001; 2,000,000 shares designated; No shares issued and outstanding as of June 30, 2020		—			—
Preferred Stock - Series D - Par Value of $.001; 2,000,000 shares designated; No shares issued and outstanding as of June 30, 2020		—			—
Preferred Stock - Series E - Par Value of $.001; 789,474 shares designated; No shares issued and outstanding as of June 30, 2020		—			—
Preferred Stock - Series F - Par Value of $.001; 1,680 shares designated; No shares issued and outstanding as of June 30, 2020					—
Preferred Stock - Series G - Par Value of $.001; 10,000 shares designated; no shares issued and outstanding as of June 30, 2020, and 10 shares issued and outstanding as of December 31, 2019		—			10
Preferred Stock - Series H - Par Value of $.001; 5,000 shares designated; No shares issued and outstanding as of June 30, 2020,					—
Common Stock - Par Value of $.001; 1,000,000,000 shares authorized; 284,451,184 shares issued and outstanding as of June 30, 2020; 137,915,630 shares issued and outstanding as of December 31, 2019		284,451			137,915
Additional Paid-In Capital		40,482,224			37,528,496
Accumulated Deficit		(42,734,969	)		(40,285,145)
Total Rocky Mountain High Brands Shareholders' Deficit		(1,968,294	)		(2,618,724)
Noncontrolling Interests		(3,627	)		(3,627)
TOTAL SHAREHOLDERS' DEFICIT		(1,971,921	)		(2,622,351

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	4,843,866		$	545,959

September 30, 2019 December 31, 2018
(Unaudited)
CURRENT ASSETS

Cash $ 68,811 $ 613,686
Accounts Receivable, net of allowance of $0 and $5,275, respectively 326,470 17,324
Inventory 278,212 146,722
Prepaid Expenses and Other Current Assets 398,441 388,074
TOTAL CURRENT ASSETS 1,071,934 1,165,806

Property and Equipment, net 22,705 34,280
Intangible Assets 15,610 148,647
Other Assets 20,503 26,245

TOTAL ASSETS $ 1,130,752 $ 1,374,978

LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES

Accounts Payable and Accrued Liabilities $ 693,022 $ 505,214
Convertible Notes Payable, net of debt discount 651,775 666,596
Notes Payable 30,000 37,493
Accrued Interest 65,405 25,758
Deferred Revenue 466,300 466,300
Derivative Liability 263,530 376,172
TOTAL CURRENT LIABILITIES 2,170,032 2,077,533

SHAREHOLDERS' DEFICIT
Preferred Stock - Series A - Par Value of $.001;  1,000,000 shares designated; No shares issued and outstanding as of September 30, 2019 and December 31, 2018 —   —
Preferred Stock - Series B - Par Value of $.001;  7,000,000 shares designated; No shares issued and outstanding as of September 30, 2019 and December 31, 2018 —   —
Preferred Stock - Series C - Par Value of $.001;  2,000,000 shares designated; No shares issued and outstanding as of September 30, 2019 and December 31, 2018 —   —
Preferred Stock - Series D - Par Value of $.001;  2,000,000 shares designated; No shares issued and outstanding as of September 30, 2019 and December 31, 2018 —   —
Preferred Stock - Series E - Par Value of $.001;  789,474 shares designated; No shares issued and outstanding as of September 30, 2019 and December 31, 2018 —   —
Common Stock - Par Value of $.001;  200,000,000 shares authorized; 126,162,146 shares issued and outstanding as of September 30, 2019; 94,580,869 shares issued and outstanding as of December 31, 2018 126,162 94,581
Additional Paid-In Capital 36,703,086 34,221,215
Accumulated Deficit (37,867,494 ) (35,018,351)
Total Rocky Mountain High Brands Shareholders' Deficit (1,038,246 ) (702,555)
Noncontrolling Interests (1,034 ) —
TOTAL SHAREHOLDERS' DEFICIT (1,039,280 ) (702,555)

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 1,130,752 $ 1,374,978

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

F-1

Table of Contents

Rocky Mountain High Brands, Inc.

Consolidated Statements of Operations

(Unaudited)

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018

Sales $ 353,863 $ 117,117 $ 466,864 $ 240,701

Cost of Sales 352,517 110,940 467,101 275,730
Inventory Obsolescence 107,594 13,721 107,594 25,145

Gross Loss (106,248 ) (7,544 ) (107,831 ) (60,174)

Operating Expenses
General and Administrative 617,378 823,173 2,270,864 2,813,479
Advertising and Marketing 101,225 340,666 469,600 621,783
Impairment Expense 118,066 —   118,066 —
Total Operating Expenses 836,669 1,163,839 2,858,530 3,435,262

Loss from Operations (942,917 ) (1,171,383 ) (2,966,361 ) (3,495,436)

Other (Income)/Expenses:
Interest Expense 296,692 580,904 929,446 3,763,602
(Gain) Loss on Extinguishment of Debt —   —   (689,991 ) 191,138
Gain on Lawsuit Judgment and Legal Settlement —   (688,724 ) (230,840 ) (688,724)
Gain on Change in Fair Value of Derivative Liability (319,367 ) (71,591 ) (124,304 ) (2,059,621)
Total Other (Income) Expenses (22,675 ) (179,411 ) (115,689 ) 1,206,395

Loss Before Income Tax Provision (920,242 ) (991,972 ) (2,850,672 ) (4,701,831)

Income Tax Provision —   —   —   —

Net Loss $ (920,242 ) $ (991,972 ) $ (2,850,672 ) $ (4,701,831)

Net Loss Attributable to Noncontrolling Interests (1,529 ) —   (1,529 ) —

Net Loss Attributable to Rocky Mountain High Brands $ (918,713 ) $ (991,972 ) $ (2,849,143 ) $ (4,701,831)

Net Loss per Common Share - Basic and Diluted $ (0.01 ) $ (0.01 ) $ (0.03 ) $ (0.06)

Weighted Average Shares Outstanding 121,033,557 81,798,422 109,033,820 74,150,686

	Three Months Ended						Six Months Ended
	June 30, 2020			June 30, 2019		June 30, 2020		June 30, 2019

Sales	$	669,489		$	36,572	$	782,932	$	113,001

Cost of Sales		742,258			38,854		959,338		114,584

Gross Profit (Loss)		(72,769	)		(2,282)		(176,406)		(1,583)

Operating Expenses
General and Administrative		1,248,234			696,846		1,832,303		1,653,486
Advertising and Marketing		24,442			158,985		69,104		368,375
Total Operating Expenses		(1,272,676	)		858,831		(1,901,407)		2,021,861

Loss from Operations		(1,345,445	)		(858,113)		(2,007,813)		(2,023,444)

Other (Income)/Expenses:
Interest Expense		108,863			339,368		260,418		632,754
Loss on Extinguishment of Debt		—			(689,991)		74,164		(230,840)
(Gain) Loss on Change in Fair Value of Derivative Liability		15,894			(390,520)		37,429		195,063
Total Other (Income) Expenses		124,757			(190,943)		369,011		(93,014)

Loss Before Income Tax Provision		(1,470,202	)		(667,170)		(2,815,835)		(1,930,430)

Income Tax Provision		—			—		—		—

Net Loss	$	(1,470,202	)	$	(667,170)	$	(2,815,835)	$	(1,930,430)

Net Loss Attributable to Noncontrolling Interests		—			—		—		—

Net Loss Attributable to Rocky Mountain High Brands	$	(1,470,202	)	$	(667,170)		(2,815,835		(1,930,430)

Net Loss per Common Share - Basic and Diluted	$	(0.01	))	$	(0.01)	$	(0.01)	$	(0.02

Weighted Average Shares Outstanding		1,569,700			106,076,970		142,225,592		102,934

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

F-2

Table of Contents

Rocky Mountain High Brands, Inc.

Consolidated Statements of Cash Flows

~~(Unaudited)~~

Nine Months Ended
September 30, 2019 September 30, 2018

Operating Activities:
Net Loss $ (2,850,672 ) $ (4,701,831)
Adjustments to reconcile net loss to net cash used in operating activities:
  Stock-based compensation 146,017 390,758
  Stock-based payments to vendors —   67,750
  Warrants and options issued for services rendered —   91,982
  Non-cash interest expense 919,013 3,638,816
  Fees and penalties on debt —   120,251
  Noncash portion of gain on lawsuit judgment and legal settlement (30,840 ) (688,724)
  (Gain) Loss on change in fair value of derivative liability (124,304 ) (2,059,621)
  (Gain) Loss on extinguishment of debt (689,991 ) 191,138
  Bad debt expense 1,678 1,188
  Depreciation and amortization expense 30,436 19,701
  Impairment of goodwill and other intangibles 118,066 —
  Inventory obsolescence 107,594 25,145
Changes in operating assets and liabilities:
  Accounts receivable (310,824 ) (39,722)
  Inventory (239,084 ) (54,458)
  Prepaid expenses and other current assets (116,211 ) (39,878)
  Other assets 1,852 (4,232)
  Accounts payable and accrued liabilities 189,337 (60,428)
NET CASH USED IN OPERATING ACTIVITIES (2,847,933 ) (3,102,165)

Investing Activities:
  Investments in other assets (500 ) (31,220)
  Acquisition of property and equipment —   (13,008)
NET CASH USED IN INVESTING ACTIVITIES (500 ) (44,228)

Financing Activities:
  Proceeds from issuance of convertible notes 367,500 825,000
  Repayment of convertible notes —   (172,932)
  Repayment of notes payable (7,493 ) (10,206)
  Proceeds from issuance of common stock 1,943,551 2,558,045
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,303,558 3,199,907

INCREASE (DECREASE) IN CASH (544,875 ) 53,514

CASH - BEGINNING OF PERIOD 613,686 16,983

CASH - END OF PERIOD $ 68,811 $ 70,497

Supplemental cash flow information:
  Cash paid for interest $ 10,433 $ 10,567
  Cash paid for taxes $ —   $ —
Supplemental disclosure of non-cash financing and investing activities:
  Common stock issued for conversion of debt $ 188,870 $ 4,000,604
Common stock issued for acquisition $ — $ 75,000
  Debt and accrued interest converted for common stock $ 271,189 $ 499,053
  Derivative liability relieved upon conversion of related debt $ —   $ 3,021,935
  Beneficial conversion feature recognized as debt discount $ 367,500 $ 4,000,230

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

~~F-3~~(Unaudited)

~~Table of Contents~~

~~Rocky Mountain High Brands, Inc.~~

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

~~(Unaudited)~~

Common Stock Preferred Stock A Preferred Stock C Preferred Stock E
Shares Amount Shares Amount Shares Amount Shares Amount APIC Accumulated Deficit Total RMHB Shareholders’ Deficit Noncontrolling Interests Total Equity/(Deficit)
Balance - December 31, 2018 94,580,869 $ 94,581 —   $ —   —   $ —   —   $ —   $ 34,221,215 $ (35,018,351 ) $ (702,555 ) $ —   $ (702,555)
Shares issued for cash 7,813,337 7,813 —   —   —   —   —   —   1,009,233 —   1,017,046 —   1,017,046
Shares issued for compensation 25,403 25 —   —   —   —   —   —   3,976 —   4,001 —   4,001
Shares issued upon conversion of convertible notes 1,750,000 1,750 —   —   —   —   —   —   169,592 —   171,342 —   171,342
Net loss for the three months ended March 31, 2019 —   —   —   —   —   —   —   —   —   (1,263,260 ) (1,263,260 ) —   (1,263,260)
Balance - March 31, 2019 104,169,609 $ 104,170 —   $ —   —   $ —   —   $ —   $ 35,404,015 $ (36,281,611 ) $ (773,426 ) $ —   $ (773,426)
Shares issued for cash 2,490,932 2,491 —   —   —   —   —   —   119,636 —   122,127 —   122,127
Shares issued upon conversion of convertible notes 2,315,980 2,316 —   —   —   —   —   —   15,213 —   17,529 —   17,529
Stock option forfeiture —   —   —   —   —   —   —   —   7,530 —   7,530 —   7,530
Beneficial conversion feature recognized on convertible notes payable —   —   —   —   —   —   —   —   367,500 —   367,500 —   367,500
Fractional shares issued as a result of the reverse stock split 3,470 3 —   —   —   —   —   —   (3 ) —   —   —   —
Net loss for the three months ended June 30, 2019 —   —   —   —   —   —   —   —   —   (667,170 ) (667,170 ) —   (667,170)
Balance - June 30, 2019 108,979,991 $ 108,980 —   $ —   —   $ —   —   $ —   $ 35,913,891 $ (36,948,781 ) $ (925,910 ) $ —   $ (925,910)
Sweet Ally purchase of Sweet Rock, Inc. shares —   —   —   —   —   —   —   —   —   —   —   495 495
Shares issued for cash 17,182,155 17,182 —   —   —   —   —   —   787,195 —   804,377 —   804,377
Warrant forfeiture —   —   —   —   —   —   —   —   2,000 —   2,000 —   2,000
Net loss for the three months ended September 30, 2019 —   —   —   —   —   —   —   —   —   (918,713 ) (918,713 ) (1,529 ) (920,242)
Balance - September 30, 2019 126,162,146 $ 126,162 —   $ —   —   $ —   —   $ —   $ 36,703,086 $ (37,867,494 ) $ (1,038,246 ) $ (1,034 ) $ (1,039,280)

	Six Months Ended
	June 30, 2020			June 30, 2019
Operating Activities:
Net Loss		(1,470,202	)		1,930,430
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		511,750			110,209
Non-cash interest expense		—			622,367
Non-cash portion of gain on lawsuit judgement and legal settlement		—			(30,840)
(Gain) Loss on change in fair value of derivative liability		357,713			195,063
Loss on extinguishment of debt		—			(689,991)
Bad debt expense		—			1,678
Depreciation and amortization expense		20,482			14,773
Changes in operating assets and liabilities:		—			—
Accounts receivable		6,738			12,029
Inventory		—			(228,905)
Prepaid expenses and other current assets		(966,692	)		(238,945)
Other assets		13,058			49,432
Accounts payable and accrued liabilities		(12,922	)		68,188
Other payables & Stock related payables		3,003,912			—
Deferred revenue		(223,267	)		—
NET CASH (USED) IN OPERATING ACTIVITIES		(1,301,422	)		2,045,372

Financing Activities:
Investments in intangible assets, net		(1,397,960	)		—
Acquisition of property and equipment		(1,828,820	)		—
Disposal of property and equipment					—
NET CASH PROVIDED BY INVESTING ACTIVITIES		(3,226,720	)		—

Financing Activities:
Proceeds from mezzanine Financing					367,500
Assumption of both notes		1,007,000
Increase of notes payable		573,382			(6424)
Proceeds from issuance of common stock		201,523			1,139,173
NET CASH PROVIDED BY FINANCING ACTIVITIES		1,781,905			1,500,249

INCREASE (DECREASE) IN CASH		(154,675	)		(545,123)

CASH AND RESTRICTED CASH - BEGINNING OF PERIOD		123,455			613,686

CASH AND RESTRICTED CASH- END OF PERIOD	$	31,245		$	68,563

Supplemental cash flow information:
Cash paid for interest	$	—		$	10,387
Cash paid for taxes	$	—		$	—
Supplemental disclosure of non-cash financing and investing activities:
Common stock issued for conversion of debt	$	9,976		$	188,870
Debt and accrued interest converted for common stock	$	—		$	271,189
Beneficial conversion feature recognized as debt discount	$	—		$	367,500

~~Rocky Mountain High Brands, Inc.~~

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

~~(Unaudited)~~

Common Stock Preferred Stock A Preferred Stock C Preferred Stock E
Shares Amount Shares Amount Shares Amount Shares Amount APIC Accumulated Deficit Total RMHB Shareholders’ Deficit Noncontrolling Interests Total Equity/(Deficit)
Balance - December 31, 2017 57,985,323 $ 57,985 1,000,000 $ 1,000 —   $ —   —   $ —   $ 24,561,530 $ (31,662,414 ) $ (7,041,899 ) $ —   $ (7,041,899)
Shares issued for cash 6,757,451 6,757 —   —   —   —   —   —   1,463,243 —   1,470,001 —   1,470,001
Shares issued for compensation 1,984,690 1,985 —   —   —   —   —   —   154,280 —   156,265 —   156,265
Shares issued upon conversion of convertible notes 8,440,262 8,440 —   —   —   —   —   —   3,363,554 —   3,371,994 —   3,371,994
Shares to vendors for services rendered 296,271 296 —   —   —   —   —   —   61,204 —   61,500 —   61,500
Beneficial conversion feature recognized on convertible notes payable —   —   —   —   —   —   —   —   3,328,740 —   3,328,740 —   3,328,740
Net loss for the three months ended March 31, 2018 —   —   —   —   —   —   —   —   —   (2,332,064 ) (2,332,064 ) —   (2,332,064)
Balance - March 31, 2018 75,463,997 $ 75,464 1,000,000 $ 1,000 —   $ —   —   $ —   $ 32,932,550 $ (33,994,478 ) $ (985,464 ) $ —   $ (985,464)
Shares issued for cash 5,453,434 5,453 —   —   —   —   —   —   1,039,108 —   1,044,561 —   1,044,561
Shares issued for compensation 124,247 124 —   —   —   —   —   —   27,104 —   27,228 —   27,228
Options issued for compensation —   —   —   —   —   —   —   —   44,476 —   44,476 —   44,476
Shares issued upon conversion of convertible notes 467,742 468 —   —   —   —   —   —   116,719 —   117,187 —   117,187
Shares to vendors for services rendered 20,547 21 —   —   —   —   —   —   3,729 —   3,750 —   3,750
Net loss for the three months ended June 30, 2018 —   —   —   —   —   —   —   —   —   (1,377,795 ) (1,377,795 ) —   (1,377,795)
Balance - June 30, 2018 81,529,967 $ 81,530 1,000,000 $ 1,000 —   $ —   —   $ —   $ 34,163,686 $ (35,372,273 ) $ (1,126,057 ) $ —   $ (1,126,057)
Shares issued for cash 289,116 289 —   —   —   —   —   —   43,194 —   43,483 —   43,483
Shares issued for compensation 25,757 26 —   —   —   —   —   —   3,764 —   3,790 —   3,790
Options issued for compensation —   —   —   —   —   —   —   —   47,506 —   47,506 —   47,506
Shares issued upon conversion of convertible notes 3,305,360 3,305 —   —   —   —   —   —   508,118 —   511,423 —   511,423
Shares to vendors for services rendered 15,708 16 —   —   —   —   —   —   2,484 —   2,500 —   2,500
Shares issued for acquisition 373,134 373 —   —   —   —   —   —   74,627 75,000 —   75,000
Shares returned as part of legal settlement (90,909 ) (91 ) (1,727 ) (1,818 ) —   (1,818)
Beneficial conversion feature recognized on convertible notes payable —   —   —   —   —   —   —   —   671,490 671,490 —   671,490
Net loss for the three months ended September 30, 2018 —   —   —   —   —   —   —   —   —   (991,972 ) (991,972 ) —   (991,972)
Balance - September 30, 2018 85,448,133 $ 85,448 1,000,000 $ 1,000 —   $ —   —   $ —   $ 35,513,142 $ (36,364,245 ) $ (764,655 ) $ —   $ (764,655)

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

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Rocky Mountain High Brands, Inc.

Consolidated Statements of Shareholders' Deficit for the Six Months Ended June 30, 2020

(Unaudited)

	Common Stock			Preferred Stock F			Preferred Stock G					Preferred Stock H
	Shares		Amount	Shares		Amount	Shares			Amount		Shares		Amount		APIC		Accumulated Deficit			Total RMHB Shareholders' Deficit			Noncontrolling Interests			Total Equity/(Deficit)

Balance - December 31, 2019	137,914,630	$	137,915	130	$	—	10,000		$	10		—	$	—	$	37,528,496	$	(40,285,145	)	$	(2,618,724	)	$	(3,627	)	$	(2,622,351)
Shares issued for cash	—		—	200		—	—			—		11		—		211,000		—			211,000			—			211,000
Shares issued for compensation	802,700		803	—		—	—			—		—		—		15,251		—			16,054			—			16,054
Series G preferred stock shares converted to common shares	500,000		500	—		—	(10,000	)		(10	)	—		—		—		—			490			—			490
Shares issued upon conversion of convertible notes	12,437,084		12,437	—		—	—			—		—		—		195,963		—			208,400			—			208,400
Shares issued for payment of related party payables	4,895,286		4,895	—		—	—			—		—		—		93,010		—			97,905			—			97,905
Net loss for the three months ended March 31, 2020	—		—	—		—	—			—		—		—		—		(979,622	)		(979,622	)		—			(979,622)
Balance - March 31, 2020	156,549,700	$	156,500	—	$	—	—		$	—		—	$	—	$	38,043,720	$	(41,264,767	)		(3,064,497	)	$	(3,627)		$	(3,068,124)
Stock issued for services	150,000		150	—		—	—			—		—		—		3,075		—			3,225			—			3,225
Stock issued for Professional services	600,000		600	—		—	—			—		—		—		15,000		—			15,600			—			15,600
Shares issued for compensation	22,250,000		22,250	—		—	—			—		—		—		489,500		—			511,750			—			511,750
Business of Raw Pharma	27,000,000		27,000													513,000		—			540,000			—			540,000
Shares issued upon conversion of convertible notes	9,976,484		9,976	—		—	—			—		—		—		89,004		—			98,980			—			98,980
Stock issued for Prepaid services	50,000,000		50,000	—		—	—			—		—		—		950,000		—			1,000,000			—			1,000,000
Shares issued for legal settlement	17,500,000		17,500	—		—	—			—		—		—		370,000		—			387,500			—			387,500
Stock issued for marketing	425,000		425	—		—	—			—		—		—		8,925		—			9,350			—			9,350
Net loss for the three months ended June 30, 2020	—		—	—		—	—			—		—		—		—		(1,470,202	)		(1,470,202	)		—			(1,470,202)
Balance - June 30, 2020	284,451,184	$	284,451	—	$	—	—		$	—		—	$	—	$	40,482,224	$	(42,734,969	)	$	(1,968,294	)	$	(3,627)		$	(1,971,921)

Rocky Mountain High Brands, Inc.

Consolidated Statements of Shareholders' Deficit for the Six Months Ended June 30, 2019

(Unaudited)

	Common Stock			Preferred Stock F			Preferred Stock G			Preferred Stock H
	Shares		Amount	Shares		Amount	Shares		Amount	Shares		Amount		APIC			Accumulated Deficit			Total RMHB Shareholders' Deficit			Noncontrolling Interests		Total Equity/(Deficit)
Balance - December 31, 2018	94,580,869	$	94,581	—	$	—	—	$	—	—	$	—	$	34,221,215		$	(35,018,351	)		(702,555	)	$	—	$	(702,555)
Shares issued for cash	7,813,337		7,813	—		—	—		—	—		—		1,009,233			—			1,017,046			—		1,017,046
Shares issued for compensation	25,403		25	—		—	—		—	—		—		3,976			—			4,001			—		4,001
Shares issued upon conversion of convertible notes	1,750,000		1,750	—		—	—		—	—		—		169,592			—			171,342			—		171,342
Net loss for the three months ended March 31, 2019	—		—	—		—	—		—	—		—		—			(1,263,260	)		(1,263,260	)		—		(1,263,260)
Balance - March 31, 2019	104,169,609	$	104,170	—	$	—	—	$	—	—	$	—	$	35,404,015		$	(36,281,611	)	$	(773,426	)	$	—	$	(773,426)

Shares issued for cash	2,490,932		2,491	—		—	—		—	—		—		119,636			—			122,127			—		122,127
Shares issued upon conversion of convertible notes	2,315,980		2,316	—		—	—		—	—		—		15,213			—			17,529			—		17,529
Stock option forfeiture	—		—	—		—	—		—	—		—		7,530			—			7,530			—		7,530
Beneficial conversion feature recognized on convertible notes payable	—		—	—		—	—		—	—		—		367,500			—			367,500			—		367,500
Fractional shares issued as a result of the reverse stock split	3,470		3	—		—	—		—	—		—		(3	)		—			—			—		—
Net loss for the three months ended June 30, 2019	—		—	—		—	—		—	—		—		—			(667,170	)		(667,170	)		—		(667,170)
Balance - June 30, 2019	108,979,991	$	108,980	—	$	—	—	$	—	—	$	—	$	35,913,891		$	(36,948,781	)	$	(925,910	)	$	—	$	(925,910)

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

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

RMHB is a consumer goods company that specializes in the developing, manufacturing, marketing, and distributing high-quality, health conscious, ~~cannabidiol (“CBD”)~~hemp oil and ~~hemp- infused~~hemp extract-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. All products comply with federal regulations on hemp products and contain 0.0% tetrahydrocannabinol (“THC”), the psychoactive constituent of cannabis. Recently, through a newly created subsidiary of RMHB, Rocky Mountain Productions, Inc. (“RMPI”), the Company acquired a bottling and canning facility and is now also in the business of canning both its own beverages as well as canning beverages for other customers. Furthermore, as a result of equipment included in the acquisition of the facility, RMHB is also in the business of bottling hand sanitizer. Because of the demand resulting with the COVID-19 pandemic, RMHB anticipates continuing in the bottling of hand sanitizer for the foreseeable future.

In March 2018, the Company launched the HEMPd brand with ~~tinctures,~~ gummies, water soluble drops, capsules, tinctures, lotions, ~~salves,~~ and ~~E-juice liquids. In October 2018, the~~salves. The Company introduced four flavors of CBD-infused waters in ~~four flavors and plans to introduce additional HEMPd product offerings~~12 oz. cans in ~~the future. HEMPd products are marketed through the Company’s Wellness For Life Colorado, Inc. subsidiary. In~~ November ~~2018, the Company discontinued sales of its vape-related products.~~2018.

OnIn 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,~~and formed a new subsidiary, FitWhey ~~trademark, recipes and formulas~~Brands Inc. FitWhey marketed a line-up of ~~BFIT’s FitWhey branded~~five water-based protein drinks ~~containing~~that include caffeine and ~~a vitamin-B pack.~~

~~On April 22,~~B vitamins. In August 2019, the ~~reverse split~~Company suspended the production 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.~~FitWhey products.

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,~~chocolate, hard candies, and baked ~~goods~~goods.

On April 29, 2020, the Company formed Rocky Mountain Productions, Inc. (“RMPI”), a wholly owned Nevada corporation. On April 30, 2020, RMPI acquired Raw Pharma, LLC (“Raw Pharma”) for ~~distribution~~approximately $1,971,200, as adjusted by the Global Settlement Agreement, November 12, 2020. The company financed the acquisition by assuming bank debt, collateralized by equipment issuing common stock and cash payments. The facility has the capability to can and bottle products, including 12 oz. regular and sleek cans, 16 oz. cans, shots, and bottles.

The following shows the allocation of the purchase price for Raw Pharma, LLC to acquired intangible assets, assumed liabilities and proforma goodwill:

Total Purchase Price		1,971,200
Production Equipment		1,448,020
Leasehold Improvements		380,000
Total Proforma Goodwill	$	143,180

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Effective April 30, 2020, the company’s subsidiary, Rocky Mountain Productions, Inc acquired all the assets relating and used in the ~~United States.~~acquired business for cash and 31,700,000 shares of the company’s common stock. The results of operations since April 30, 2020, are included in financial statement. The Company will report in the Annual Report, the balance sheet for comparison purposes as required by agreement with the Securities and Exchange Commission.

~~RMHB~~During early 2019, the Company continued to market its lineup of naturally flavored hemp-infused functional beverages.

The Company also bottles and distributes its naturally high alkaline spring water under the name Eagle Spirit Spring ~~Water~~Water.

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 ~~plans to re-introduce its hemp-infused energy drinks later~~per share amounts in ~~2019 or early 2020.~~this document reflects this reverse split.

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~~June 30, ~~2019~~2020, and the results of operations and cash flows for the periods presented. The results of operations for the three ~~and nine~~ months ended ~~September~~June 30, ~~2019~~2020, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s ~~form~~Form 10-K for the year ended December 31, ~~2018~~2019, filed with the SEC on ~~April 15, 2019.~~July 9, 2020.

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~~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.

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Cash

The Company ~~considers all short-term highly liquid investments with an original maturity~~maintains cash balances at ~~the date of purchase of three months or less to be cash equivalents.~~various financial institutions. At times, these balances may exceed federally insured limits.

Restricted Cash

~~Revenue Recognition~~

The Company ~~follows the guidance of the Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers,”~~classifies any cash that is legally restricted as ~~amended. It records revenue when persuasive evidence of an arrangement exists, product delivery has occurred, the selling price~~ to ~~the customer is fixed~~its withdrawal 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 recordedusage as ~~deferred revenue.~~restricted cash.

The following table ~~represents sales by sales channel for each~~provides a reconciliation of cash and restricted cash reported on the ~~periods:~~consolidated balance sheets to the total of those same amounts shown in our consolidated statements of cash flows:

Three Months Ended Nine Months Ended
September 30, 2019
September 30, 2018
September 30, 2019 September 30, 2018
Online $ 30,356 $ 96,063 $ 127,667 $ 171,322
Private Label 322,000 — 322,000 —
Distributor 66 6,449 381 47,237
Retailer 1,441 14,605 16,816 22,142
Total $ 353,863 $ 117,117 $ 446,864 $ 240,701

	June 30, 2020		December 31, 2019		June 30, 2019		December 31, 2018
Cash	$	31,245	$	53,606	$	196,704	$	147,386
Restricted cash		—		14,474		80,751		466,300
Cash and restricted cash	$	31,245	$	68,080	$	277,455	$	613,686

~~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,we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. The Company may also record a general allowance, as necessary.

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

Inventories

Inventories, which consist 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.

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Fair Value Measurements

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

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

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

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

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

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

The derivative liability, 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

Balance, December 31, 2019	$	413,678
Issued during the three months ended June 30, 2020		357,719
Exercises/Conversions		—
Change in fair value recognized in operations		—
Balance, June 30, 2020	$	771,391

The estimated fair value of the derivative instruments was valued using the Black-Scholes option pricing model, using the following assumptions as of ~~September 30, 2019:~~March 31, 2020:

Estimated Dividends			None
Expected Volatility			~~125.2%~~145.0%
Risk Free Interest Rate			~~1.88%~~0.041%
Expected term			.1 to ~~3.25~~1.5 years

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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.~~assets, which generally range from three to five years. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.

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Leases

~~The~~On January 1, 2020, the Company ~~accounts for leases in accordance with~~adopted Financial Accounting Standards Board (“FASB”) (~~Topic 840~~)~~Leases~~~~. In February 2016, the FASB issued~~ Accounting Standards Update (“ASU”) 2016-02,Leases (Topic 842), as amended, which requires ~~lessees~~a lessee to recognize on the balance sheet a right-of-use asset, representing ~~their~~its 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~~Upon 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~~did not have any leases that ~~ASU 2016-02 will have~~would require recognition on its consolidated ~~financial statements.~~balance sheet.

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~~June 30, ~~2019~~2020, and ~~2018.~~

2019.

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~~is 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.

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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.

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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.

Revenue Recognition

The Company follows the guidance of the Accounting Standards Codification (“ASC”) Topic 606, “Revenue 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:

	Three Months Ended
	June 30, 2020		June 30, 2019
Online	$	20,195	$	21,103
Private Label		636,240		—
Distributor		12,224		1,421
Retailer		830		14,048
Total	$	669,489	$	36,572

All sales for all periods presented were to domestic customers, except private label sales of $80,194 for the three months ended June 30, 2020. These private label sales were to CBD Life, S.A. (“CBD Life”) of Mexico. All sales to CBD Life are delivered to Laredo, Texas, where the customer takes title.

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.

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In June 2020, the Company produced and delivered 146,880 cans of Rocket High, California Limonada, and California Te Negro branded product to CBD Life. 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 and accrued related costs of $68,648 as of June 30, 2020. The production-related costs, including start-up costs and production overruns, were approximately $109,000. The customer has not requested, and the Company has not offered, any refund of the sales amount or to provide any other consideration to the customer. The $80,194 sales amount is included in sales for the three months ended June 30, 2020.

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.

Reclassifications

Certain reclassifications have been made to prior year consolidated financial statements to conform to classifications used in the current year.

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~~As of June 30, 2020, the Company has a shareholders’ deficit of ~~$1,039,280~~$1,207,165 and an accumulated deficit of ~~$37,867,494 as of September 30, 2019~~$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 June 27, 2018,~~

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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 ~~entered into a~~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 ~~(“SPA”)~~dated December 20, 2019, with GHS Investments, LLC (“GHS”), which provides for GHS to purchase up to $15,000,000 of the Company’s common stock over a 24-month period based on a contractually agreed upon market discount. The SPA replaces the Equity Financing Agreement the Company entered 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 up to 16,000,000 shares of our common stock to be purchased by GHS under the SPA. The registration statement became effective on October 10, 2018 and the Company sold all the available shares under the SPA. On May 15, 2019, the Company filed a registration statement for 30,000,000 shares to be purchased by GHS. This registration statement became effective on June 18, 2019 and the Company began selling shares in June. Management believes the SPA, along with bridge financing from GHS or other sources, will provide sufficient funds to make up for any operating cash ~~flows until cash flows from operations become consistently positive.~~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

Inventory consists of the following:

September 30, 2019 December 31, 2018
Finished inventory $ 38,493 $ 84,730
Raw materials and packaging 239,719 61,992
Total $ 278,212 $ 146,722

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.

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	June 30, 2020		December 31, 2019
Finished inventory	$	51,591	$	160,763
Raw materials and packaging		98,349		77,272
Total	$	149,940	$	238,035

NOTE 5 – Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Prepaid officers’ compensation	$	179,041	$	291,617	$	—	$	143,233
Prepaid directors’ compensation		—		29,442
Prepaid production		167,400		—		12,500		—
Other prepaid expenses and current assets		52,000		67,015		1,093,110		31,493
Total	$	398,441	$	388,074	$	1,105,610	$	174,726

NOTE 6 – Property and Equipment

Property and equipment consist of the following:

	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Vehicles	$	29,598	$	29,598	$	14,687	$	14,687
Furniture and equipment		45,322		41,422		2,101,920		45,322
Personal computers		17,901		17,901		16,667		17,901
		92,821		88,921		2,193,270		77,910
Less: accumulated depreciation		70,116		54,641		57,257		58,568
Total	$	22,705	$	34,280	$	2,136,017	$	19,342

For the three months ended ~~September~~June 30, ~~2019~~2020, and ~~2018,~~2019, depreciation expense was ~~$3,550~~$2,933 and ~~$4,367,~~$4,161, 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 vitamin-B pack. The Company paid $230,438 including common stock issued to the 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 purchase of FitWhey. This resulted in an impairment charge of $118,066 for the three and 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.

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~~The following represents the unaudited pro forma statement~~

NOTE 7 – Intangible Assets

Intangible assets consist of ~~operations of the Company for~~capitalized software. For the three ~~and nine~~ months ended ~~September~~June 30, ~~2018 had FitWhey been acquired on January 1, 2018:~~2020, and 2019, amortization expense was $2,601 and $2,601, respectively.

Three Months Ended Nine Months Ended
September 30, 2018 September 30, 2018
Sales $ 121,911 $ 245,495
Cost of Sales 128,590 293,380
Inventory Obsolescence 13,721 25,145
Gross Profit (Loss) (20,400 ) (73,030)
Operating Expenses 1,165,093 3,436,516
Loss From Operations (1,185,493 ) (3,509,546)
Other (Income) Expenses (179,411 ) 1,206,395
Loss Before Income Tax Provision (1,006,082 ) (4,715,941)
Income Tax Provision — —
Net Loss $ (1,006,082 ) $ (4,715,941)
Net Loss Per Common Share-Basic and Diluted $ (0.01 ) $ (0.06)
Weighted Average Shares Outstanding 81,798,422 74,150,686

NOTE 8 – Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of the following:

	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Accounts payable	$	517,075	$	308,717	$	458,904	$	440,788
Accrued compensation		30,000		25,500		—		51,500
Common stock payable						396,850		417,850
Other accrued expenses		145,947		170,997		406,986		233,079
Total	$	693,022	$	505,214	$	1,262,740	$	1,143,217

NOTE 9 – Convertible Notes Payable

Convertible notes payable ~~consist~~consists of the following:

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

	Interest Rates		Term		Conversion Rates		June 30, 2020			December 31, 2019
GHS Investments, LLC (fixed conversion)		10%		.3 - .75 years	$	0.01	$	849,208		$	1,035,750
Eagle Equities, LLC		8%		1.3 – 1.5 years		(a)		298,750			—
LSW Holdings, LLC (variable conversion)		6%		—		(b)		179,000			179,000
Discount								(345,048	)		(205,800)
Total							$	981,910		$	1,008,950

	(a)	Fixed conversion rate for the first 180 days ($0.03 as of March 31, 2020). 40% discount on the lowest closing bid price during the 20 trading days prior to conversion after 180 days.
	(b)	50% discount on the average of the 3 lowest closing bid prices during the 10 trading days prior to conversion ($~~0.045)~~0.019).

For the three months ended ~~September~~June 30, ~~2019~~2020, and ~~2018,~~2019, interest expense on these notes, including amortization of the discount, was ~~$295,585~~$135,671 and ~~$308,239,~~$293,189, respectively. ~~For~~

As of June 30, 2020, and December 31, 2019, the ~~nine months ended September 30, 2019~~Company’s derivate liability related to its convertible note’s payable was $728,976 and ~~2018, interest expense on these notes, including amortization of the discount, was $928,142 and $1,048,765,~~$403,971, respectively.

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

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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

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Interest Rate

Term

June 30, 2020

December 31, 2019

Notes payable

Due

603,382

30,000

As of ~~September~~June 30, 2020, and December 31, 2019, notes payable includes two ~~non-interest bearing~~non-interest-bearing notes totaling $30,000 that originated prior to the Company’s 2014 bankruptcy proceedings. As of December 31, 2018, notes payable also includes a three-year note executed on September 1, 2016 relating to the purchase of used office furniture and equipment from our landlord. The Company executed the 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. The office furniture note was repaid in August 2019.

For the three months ended September 30, 2019 and 2018, interest expense on the furniture and equipment note was $0 and $559, respectively. For the nine 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 (“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, ~~will be~~is our exclusive distributor in Mexico for all of our CBD-infused energy and functional beverages. In turn,we are~~will be~~ CBD ~~Alimentos’~~Life’s exclusive supplier of such products. The beverages supplied to CBD ~~Alimentos will be~~Life are private label products made to order for CBD ~~Alimentos,~~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), andwe~~will cooperate~~ 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 ~~laboratory~~the pricing the Company agreed to, the total of the purchase order is $932,600. In December 2018, the Company received a deposit of $466,300 to begin the procurement process for packaging (aluminum can bodies, lids, labels) and ~~taste-testing~~raw materials (CBD and other ingredients), co-packing services, and the Company’s contracted margin of ~~each batch~~$.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 ~~beverages at~~$156,000 to secure the co-packing ~~facility.~~ 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 ~~Agreement,~~MMA, RMHB opened a separate operating bank account for all deposits made by CBD ~~Alimentos towards the purchase of ingredients and packaging.~~Life. CBD ~~Alimentos~~Life is required to always maintain a positive cash balance in the ~~account at all times.~~account. The Company has full unilateral authority to disburse funds from the bank 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 ~~Alimentos’ initial purchase order, including a deposit~~Life restricted bank account to its corporate account in accordance with the terms of ~~$466,300 was received in December 2018. The $466,300 is accounted for as Deferred Revenue as~~the MMA. As of ~~September~~June 30, ~~2019~~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.

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

December 28, 2018, deposit received	$	466,300
December 2019 delivery		(20,375)
Balance as of December 31, 2019	$	445,925
January 30, 2020, deposit received		97,060
June 2020 deliveries		32,289
Balance as of June 30, 2020	$	462,791

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 ~~delivery~~accrued related cost of ~~finished product had~~$68,648 as of June 30, 2020. The production-related costs, including start-up costs and production overruns, were approximately $109,000. The Company has not ~~yet been completed.~~agreed to refund the sales amount or provide any other consideration to the customer.

NOTE 12 – Shareholders’ Deficit

Common Stock

As of ~~September~~June 30, ~~2019,~~2020, the Company has ~~200,000,000~~1,000,000,000 shares of common stock authorized and ~~126,162,146~~284,451,184 shares issued and outstanding. On April 22, 2019, the 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~~June 30, ~~2019~~2020, the Company issued ~~17,182,155 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~~18,635,070 shares of common stock, including ~~4,065,980~~12,437,084 shares for convertible notes payable conversions, ~~27,486,424~~4,895,286 shares for ~~cash, and 25,403~~amounts due to a board member, 802,700 shares for ~~compensation. The remaining 3,470~~compensation, and 500,000 shares ~~were issued as a result of the Company’s reverse stock split, which was effective on April 22, 2019.~~

for Series G Preferred Stock conversions.

Preferred Stock

The Company has 20,000,000 shares of preferred stock authorized as of ~~September~~June 30, ~~2019,~~2020, of which ~~12,789,474~~12,801,154 are specifically designated to a series of preferred stock and ~~7,210,526~~7,198,846 remain undesignated.

Series A Preferred Stock

The Company has 1,000,000 shares of Series A Preferred Stock designated, of which none were outstanding as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. LSW Holdings LLC was the holder of these 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, had the authority to direct voting and investment decisions with regard to its holdings in the 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.

Series B Preferred Stock

The Company has 7,000,000 shares of Series B Preferred Stock designated, of which none were outstanding as of ~~September~~June 30, ~~2019~~2020, and December 31, ~~2018.~~2019.

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Series C Preferred Stock

The Company has 2,000,000 shares of Series C Preferred Stock designated, of which none were outstanding as of ~~September~~June 30, ~~2019~~2020, and December 31, ~~2018.~~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 2.5 shares of common stock.

Series D Preferred Stock

The Company has 2,000,000 shares of Series D Preferred Stock designated, of which none were outstanding as of ~~September 30, 2019~~March 31, 2020, and December 31, ~~2018.~~2019. Series D Preferred Stock is a non-voting, ~~non-interest bearing~~non-interest-bearing convertible preferred stock. Each Series D preferred share is convertible to 5 shares of common stock.

Series E Preferred Stock

~~On September 19, 2017, the Board~~The 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 100 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 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 39,47420 shares of common stock.

Series 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 March 31, 2020, the Company sold 200 shares of Series F Preferred Stock to GHS. As of ~~September~~June 30, ~~2019~~2020, and December 31, ~~2018~~2019, there were 330 and 130 shares issued and outstanding, respectively.

Series G Preferred Stock

On December 20, 2019, the Board of Directors designated 10,000 shares of Series G Preferred Stock. On that same day, the Company granted 10,000 shares of Series G Preferred Stock to Charles 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. The 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 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

On February 25, 2020, the Board 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, 2020, there were 11 shares outstanding. As of December 31, 2019, there were no shares issued and outstanding.

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Warrants

During the ~~nine~~three months ended ~~September~~June 30, 2020, and 2019 the Company granted no common stock warrants, none were exercised, and none were ~~exercised. During that period, 25,000~~forfeited. As of June 30, 2020, and December 31, 2019, there were 607,500 warrants ~~were forfeited.~~outstanding. Exercise prices range from $.02 to $.40 per share.

Options

During the ~~nine~~three months ended ~~September~~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 ~~with a term~~to an employee. There were no exercises or forfeitures during that period.

As of ~~three years~~June 30, 2020, and ~~an exercise price of $.06. The~~December 31, 2019, there were no options ~~never vested and were forfeited in May 2019. No options were exercised and no others were cancelled during the nine months ended September 30, 2019.~~outstanding.

NOTE 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~~June 30, ~~2019~~2020, Sweet Rock ~~incurred marketing expenses of $3,120. This activity is included in the consolidated financial statements of the Company with corresponding noncontrolling interests.~~recorded no revenue or expenses.

NOTE 14– Concentrations

During the three months ended ~~September~~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 ~~91%~~17% and ~~less than 1% of sales, respectively. During the three months ended September 30, 2018, the Company’s two largest customers accounted for approximately 12% and 3%~~2% 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 15 – Income Taxes

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

Nine Months Ended
September 30, 2019 September 30, 2018
U.S. federal statutory rate (21 %) (21%)
State income tax, net of federal benefit (0.0 %) (0.0%)
Increase in valuation allowance 21 % 21%
Income tax provision (benefit) 0.0 % 0.0%

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	Three Months Ended
	June 30, 2020			June 30, 2019
U.S. federal statutory rate		(21	%)		(21	%)
State income tax, net of federal benefit		(0.0	%)		(0.0	%)
Increase in valuation allowance		21	%		21	%
Income tax provision (benefit)		0.0	%		0.0	%

The tax effects of temporary differences that give rise to the Company’s net deferred tax liability as of ~~September~~June 30, ~~2019~~2020, and December 31, ~~2018~~2019, are:

	June 30, 2020			December 31, 2019
Deferred Tax Assets
Net Operating Losses	$	4,700,000		$	4,620,000
Less: Valuation Allowance	$	(4,700,000	)	$	(4,620,000)
Deferred Tax Assets – Net		—			—

September 30, 2019 December 31, 2018
Deferred Tax Assets
Net Operating Losses $ 4,400,000 $ 3,960,000
Less: Valuation Allowance $ (4,400,000 ) $ (3,960,000)
Deferred Tax Assets – Net — —

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As of ~~September~~June 30, ~~2019~~2020, the Company had approximately ~~$21,000,000~~$22,000,000 of federal and state net operating loss carryovers (“NOLs”), which begin to expire in 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.

On 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~~June 30, 2020, and 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.~~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

~~Office Leases~~The Company executed a three-year lease for corporate office space effective September 1, 2016. The lease included monthly payments of $7,715 in year one, $7,972 in year two, and $8,229 in year three plus common area maintenance. The lease was accounted for on a straight-line basis over its term.

On September 5, 2019, the Company ~~amended~~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 ~~amendment extended~~lease includes new, smaller space within the ~~lease, which had expired August 31, 2019, through February 29, 2020. Monthly payments are $8,065~~same office building at a monthly payment of $3,549 per month plus ~~certain maintenance fees.~~common area maintenance.

On January 18, 2018, ~~the RMHC~~WFLC entered into a 12-month office use agreement for office space in Denver, Colorado. Monthly payments ~~are~~were $91. The lease ~~was renewed~~automatically renews for ~~another~~ 12 months ~~in January 2019.~~each January. Monthly payments ~~remained $91.~~are $122.

Other Leases

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

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NOTE 17 – Legal Proceedings

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.

The Company filed a suit against Lyonpride Music, LLC (“Lyonpride”) for fraud and for declaratory relief with respect to a contract between the parties. Lyonpride is seeking monetary damages from the Company for breach of contract and 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.

The parties have settled the matter and the settlement documents have been signed by the parties. This matter has been concluded.

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.

The Company sought the return of ~~our~~the Series A Preferred Stock (“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.~~Board. The Company further 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.

Grisaffi 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.

In June 2018 LSW Holdings, LLC (“LSW”) and Lily Li (“Li”) filed counterclaims against the Company, generally seeking an increase of voting rights of the Series A shares to 60:1, a declaration 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 respect to the Series A Shares purchased from Grisaffi and other common stock allegedly purchased by LSW and Li, as well as fraud, breach of contract and negligent misrepresentation by the Company. LSW seeks $10,000,000 in damages from the 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 cover, and the remaining $6,500,000 for money allegedly spent by LSW in “developing a distribution system in China” and other alleged “investments” of Li and LSW in the Company. LSW and Li also sought exemplary damages.

himself. On August 30, 2018, the Trial Court in the 192nd District Court of Dallas County, Texas entered a final judgment ~~and order~~ in the Company’s favor and against ~~Grisaffi. On August 29, 2018, after a show cause hearing, the Trial Court entered an order sanctioning~~ Grisaffi ~~for his repeated and unexcused refusals to make discovery~~ in the ~~case. As a sanction,~~amount of $3,500,000 for fraud, breach of fiduciary duty, and conversion with respect to the ~~Trial~~Series A preferred stock. The Court ~~struck Grisaffi’s pleadings in~~further voided ab initio the ~~case and, on August 30, 2018, entered a Default Judgment against him. Under the Trial Court’s Default Judgment:~~

The Court entered a monetary judgment against Grisaffi and in favor of the Company 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 declared that the Employment Agreement with Grisaffi dated April 1, 2013 was void~~~~ab initio~~~~and unenforceable, and that all stock and promissory notes issued in connection with the Employment Agreement were also void~~~~ab initio~~~~and of no force and effect, including but not limited to:~~

~~The 1,000,000 shares of Series A Preferred Stock issued to Grisaffi;~~

~~The Convertible Promissory Note issued to Grisaffi in the principal amount of $184,300 dated April 1, 2016; and~~

~~The Convertible Promissory Note issued to Grisaffi in the principal amount of $200,150 dated June 19, 2017.~~

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~~The Court declared that Grisaffi’s sale of the Series A Preferred Stock to LSW was made with actual intent to hinder, delay, or defraud creditors and was thus a fraudulent transfer under Texas law.~~

The Court declared that the issuance of 500,000 shares of common stock to Li and the 550,000 shares of common stock issued to Epic One Group, LLC were made without lawful consideration, and constituted breaches of fiduciary duty by Grisaffi.

~~The Court declared that an Indemnification was procured through fraud and breach of fiduciary duty and is therefore void and unenforceable.~~

Series A Preferred Shares. The Court further ruled that Grisaffi ~~shall~~ take nothing by his counterclaims in the ~~case.~~

Furthermore, the Court ruled that our continuing claims against the other defendants in the case were to be severed and docketed under a separate cause of action and case number. We have continued to pursue our claims against the other defendants in the below referenced case.

~~The judgment and order entered August 30, 2018 concludes our litigation in district court as against Grisaffi. On September 4, 2018, Mr. Grisaffi filed a Notice of Appeal in the case against him.~~

In The Court Ofof 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 ~~appeal of~~Adversary Proceeding to deny Grisaffi the ~~Default~~ability to discharge the judgment. A Motion for Summary Judgment ~~and submitted his brief~~ on ~~or about February 28, 2019. The Company is prepared and filed its brief. Grisaffi did not appeal~~ the Order Dismissing Derivative Claims. Grisaffi only seeks in his appeal to reverse in part the Default Judgment by striking the paragraph awarding monetary damages, leaving the remainder of the Default Judgment intact. Appellate briefs wereAdversary Proceeding has been filed and ~~the appeal was submitted to oral argument~~is set for hearing. The Chapter 11 case has been converted by the ~~parties, with such arguments being heard by the~~Bankruptcy Court to a Chapter 7 case. The Trustee who has been appointed is actively conducting proceedings to locate assets of ~~Appeals on November 6, 2019. The parties are awaiting the decision of the Court of Appeals.~~Grisaffi.

~~RMHB is actively engaged in collection efforts on the Grisaffi Default Judgment.~~

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 was the surviving case of the above case, having been severed on September 12, 2018. In this case, on October 26, 2018 the Court granted our Motion For Summary Judgment, per a Summary Judgment Order, against LSW, holding that all Series A Preferred Shares in RMHB, including the shares issued to Grisaffi and later sold by him to LSW evidenced by Stock Certificate N0. 604 issued by RMHB, to LSW Holdings LLC in the amount of 1,000,000 shares, were~~void ab initio~~, and any potential rights thereunder were terminated as of July 11, 2014, when the bankruptcy court signed the Order Confirming Debtor’s Amended Plan of Reorganization. The Series A Preferred Shares have no legal force or effect. The Court also granted a take nothing judgment against LSW on counterclaim Counts 1, 2 and 3. The Company’s transfer agent has cancelled the Series A Preferred Shares. Later, on November 26, 2018, the Court entered an Order of Sanctions against Li and LSW. In the Order of Sanctions, and in response to Li and LSW’s repeated refusals to make proper discovery in the case, the Court struck the pleadings of these parties and ruled that RMHB was entitled to take a default judgment against them.

~~On February 4, 2019, the Court entered its Default Judgment against Li and LSW. In the Default Judgment, the Court ruled as follows:~~

~~The Employment Agreement with Grisaffi dated April 1, 2013 was void~~~~ab initio~~ ~~and unenforceable, and that all stock or other instruments issued on the basis or authority of that Employment Agreement were also void~~~~ab initio~~ ~~and of no force and effect;~~

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~~The Series A Preferred Shares that RMHB issued to Grisaffi and later sold by Grisaffi to LSW were void~~~~ab initio~~~~and any potential rights or remedies thereunder were terminated on July 11, 2014 pursuant to the Order Confirming Debtor’s Amended Plan of Reorganization;~~

Grisaffi’s issuance and transfer to himself of the 1,000,000 Series A Preferred Shares, and his subsequent transfer of those shares to LSW Holdings, were fraudulent transfers and are voided and set aside;

Grisaffi breached his fiduciary duties to RMHB by, among other things: (i), purporting to sell the Series A Preferred Shares to LSW, (ii) causing the issuance of 550,000 shares of common stock to Epic Group One, LLC, and 500,000 shares of common stock to Li for no consideration, and (iii) causing the issuance of 5,684,432 shares to the Radcliffe Group at deeply discounted prices;

~~LSW and Li knowingly participated in Grisaffi’s breaches of fiduciary duty and are therefore jointly and severally liable for all damages and equitable relief arising from such breaches;~~

~~The issuance of 10,000,000 shares of common stock to Li was not authorized by the Board of Directors and was both void~~~~ab initio~~~~and a fraudulent conveyance;~~

~~RMHB is entitled to recover all damages proximately resulting from the improper issuance of the 10,000,000 shares of common stock to Li;~~

~~Li did not perform and materially breached her agreement to raise money for RMHB;~~

~~The 10,000,000 shares of purported common stock issued to Li belongs to RMHB and Li has no further rights or remedies arising out of or related to the 10,000,000 shares;~~

~~10.~~

By virtue of their actions described above, Li and LSW have taken advantage of RMHB and have unjustly enriched themselves at Rocky Mountain High Brands’ expense, and RMHB is entitled to full restitution of all its losses and damages;

~~11.~~

LSW Holdings and Li engaged in a civil conspiracy with Grisaffi to commit the wrongs against RMHB described above, and RMHB is entitled to recover from them actual, consequential, and special damages resulting from such wrongs, including their knowing participation in Grisaffi’s breaches of fiduciary duty, breaches of contract, receipt of fraudulent conveyances, and unjust enrichments.

~~12.~~

~~The torts against RMHB committed by LSW Holdings and Li were aggravated by fraud and malice, and RMHB is therefore entitled to exemplary damages.~~

~~13.~~

~~LSW Holdings and Li shall take nothing by their counterclaims; and~~

~~14.~~

~~RMHB is entitled to court costs and reasonable attorneys’ fees from LSW Holdings and Li.~~

~~On August 12, 2019, the Court entered its~~ Final Judgment in the Case. Prior to that, on June 25, 2019, the Court had entered an Agreed Order of Dismissal With Prejudice Of Certain Claims And Parties, after the Court was advised that claims dismissed by the order had been settled and released between RMHB and Joe Radcliffe, Kenneth Radcliffe, Dennis Radcliffe, Crackerjack Classic, LLC and Universal Consulting, LLC and joined by Epic One Group, LLC.

~~The Final Judgment was entered~~ against Lily Li and LSW Holdings, ~~LLC.~~LLC is final for all purposes and was not appealed. The ~~Court incorporated~~Company plans to outsource the ~~rulings~~collection of this Judgment. Other than collection of the ~~February 4, 2019 Default~~ Judgment ~~into~~ this Final Judgment, together with an award that RMHB have and recover, of and from, Lily Li and LSW Holdings, jointly and severally with Jerry Grisaffi, actual damages of $3.5 million for their knowing participation of Grisaffi’s breaches of fiduciary duties, breach of contract, fraudulent conveyances and unjust enrichment. The Court also awarded RMHB $88,000 in attorney fees, and the additional $10,000 in accordance with the previous Sanctions Order.

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LSW Holdings and Lily Li filed a Motion for New Trial, which was overruled by operation of law, and failed to timely file a Notice of Appeal. RMHB will begin its collection efforts against LSW Holdings and Lily Li on the Final Judgment.matter has been finalized.

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

This is a case whereby the Company is attempting to collect on the ~~Default~~ 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. ~~This~~The case ~~is currently set for trial for December 16, 2019.~~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.

Chet – 5 Broadcasting, Inc. v Rocky Mountain High Brands, Inc., Supreme Court of the State of New ~~Your,~~York, County of Ulster, Case No. 18-4416.

The Plaintiff sued the Company, seeking $21,000 in damages for breach of contract. The Company is contesting that claim in its entirety and has filed a counterclaim against the Plaintiff for an unspecified amount of damages. This case is newparties have settled this matter and the ~~parties~~settlement documents have ~~not yet conducted any discovery.~~been signed by the parties. This matter has been concluded.

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NOTE 18 – Other (Income)/Expenses

~~Gain/~~Loss on Extinguishment of Debt

~~On May 6, 2019~~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 ~~amendment of convertible debt. The conversion ratio on all~~change in the market value of the Company’s ~~fixed convertible notes payable outstanding as of that date (principal amount of $909,000) was changed from $.005 to $.05 and~~common stock during the ~~due dates were extended.~~three months ended June 30, 2019

Gain (Loss) on ~~Lawsuit Judgment and Legal Settlement~~Change in Fair Value of Derivative Liability

~~On May~~For the three months ended June 30, ~~2019~~2020, the Company recorded a ~~gain~~loss onl~~awsuit judgment and legal settlement~~ the change in fair value of ~~$230,840 related~~derivative liability of $15,894 compared to the settlement of a lawsuit the Company filed in 2017 against several defendants. The settlement was reached on May 30, 2019 and included a $200,000 cash payment by the defendants to the Company, the forgiveness of debt of $30,840 owed by the Company to one of the defendants, and the return of 6,750,000 shares of common stock. During the three and nine months ended September 30, 2018 the Company recorded gains totaling $688,724 in two separate legal proceedings, including a judgment against its former chairman that resulted in a $654,289 gain and a settlement with a former customer that resulted in a gain of ~~$34,435.~~$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 ~~October~~April 1 ~~2019~~ and ~~November 13, 2019~~September 8, 2020, the Company issued ~~7,649,037~~133,183,537 shares of common stock, ~~all~~including 27,000,000 for the acquisition of ~~which were~~the assets of Raw Pharma, 21,925,000 for legal settlements, 9,976,484 for convertible notes payable conversions, 22,000,000 for director and employee compensation, 51,000,000 for 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 April 7, 2020, the Company executed a three-year consulting agreement with Eagle Processing & Distribution, Inc. (“EPD”). Under the agreement, EPD is to provide outsourced services related to sales and distribution, marketing, social media, and website maintenance, logistics and order fulfillment, production, inventory management, customer service, risk management, and assistance with obtaining financing. EPD was granted 50,000,000 shares of common stock as compensation for the first eight months of the contract with compensation for the remainder of the contract to be negotiated prior to the end of the initial eight months. On June 30, 2020, EPD returned 25,000,000 common shares of the previously issued 50,000,000 shares pending the execution of an amendment to the April 7, 2020, consulting agreement. These common shares have not been cancelled and are included in shares outstanding.

On April 21, 2020, the Company filed 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. (“RMPI”), a wholly owned Nevada corporation. On April 30, 2020, RMPI purchased certain of the assets 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, and the assumption or refinancing of Raw Pharma’s bank debts secured by equipment in the amount of $1,007,000. The Company is also assuming the lease of Raw Pharma’s 20,000 square foot facility and certain equipment leases. The Company assumed no other liabilities in the transaction. 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 delivered product were leaking. The Company has agreed to replace the production run at its own expense and accrued 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 the equipment issues.

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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.

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

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-owned~~ wholly owned subsidiaries, ~~one~~two majority-owned ~~subsidiary,~~subsidiaries, and one minority-owned subsidiary, which the Company controls. All subsidiaries are consolidated for financial reporting purposes:

Rocky Mountain High Brands, Inc., an active Nevada corporation (Parent)

Wellness For Life Colorado, Inc. (“WFLC”) (f/k/a Rocky Mountain Hemp Company and Wellness For Life, Inc.), an active Colorado corporation (Subsidiary)

Rocky Mountain Productions, Inc. (“RMPI”), an active Nevada corporation (Subsidiary)

Eagle Spirit Land & Water Company (“Eagle Spirit”), an active Oklahoma corporation (Subsidiary)

Rocky Mountain High Water Company, LLC (“WaterCo”), an active Delaware limited liabilitycompany~~(Subsidiary-consolidated beginning November 12, 2016)~~(Subsidiary)

FitWhey Brands Inc. (“FitWhey”), an active Nevada corporation (Subsidiary)

Sweet Rock, LLC (“Sweet Rock”), an active Michigan limited liability company (Subsidiary)

Rocky Mountain High Clothing Company, Inc., an inactive Texas Corporation (Subsidiary)

Smarterita, LLC, an inactive Texas limited liability company (Subsidiary)

RMHB is a ~~lifestyle brand management~~consumer goods company that ~~markets primarily CBD~~specializes in the developing, manufacturing, marketing, and ~~hemp-infused~~distributing high-quality, health conscious, hemp oil and hemp extract-infused products ~~to health-conscious consumers. Our products~~that span various categories including beverage, food, fitness, skin care, and ~~skin care.~~more. RMHB also markets a naturally high alkaline spring water ~~and a water-based protein drink with caffeine and B vitamins.~~as part of our brand portfolio. All products comply with federal regulations on hemp products and contain 0.0% tetrahydrocannabinol ~~(THC)~~(“THC”), the psychoactive constituent of cannabis. Recently, through a newly created subsidiary of RMHB, Rocky Mountain Productions, Inc., the Company acquired a bottling and canning facility and is now also in the business of canning both its own beverages as well as canning beverages for other customers. Furthermore, as a result of equipment included in the acquisition of the facility, RMHB is also in the business of bottling hand sanitizer. Because of the demand resulting with the COVID-19 pandemic, RMHB anticipates continuing in the bottling of hand sanitizer for the foreseeable future.

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In 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.~~2018 and sold those beverages in carbonated and non-carbonated offerings in 2019.

In July 2018, the Company acquired the assets of BFIT Brands, LLC and formed a new subsidiary, FitWhey Brands LLC. FitWhey ~~markets~~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.

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On April 29, 2020, the Company formed Rocky Mountain 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 capability to can and bottle products, including 12 oz. regular and sleek cans, 16 oz. cans, shots, and bottles.

RMHB also bottles and distributes its naturally high alkaline spring water under the name Eagle Spirit Spring ~~Water and plans to re-introduce its hemp-infused energy drinks later in 2019 or early 2020.~~Water.

RMHB 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.

Results of Operations

Three Months Ended ~~September~~June 30, ~~2019~~2020, Compared to Three Months Ended ~~September~~June 30, ~~2018~~2019

Financial Summary

The Company’s sales for the three months ended ~~September~~June 30, ~~2019~~2020, were ~~$353,863~~$669,489 compared to ~~net~~ sales of ~~$117,117~~$36,572 for the three months ended ~~September~~June 30, ~~2018.~~2019.

The Company’s net loss for the three months ended ~~September~~June 30, ~~2019~~2020, was ~~$920,242~~1,207,165 compared to a net loss of ~~$991,972~~$667,170 for the three months ended ~~September~~June 30, ~~2018.~~2019.

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Sales

For the three months ended ~~September~~June 30, ~~2019~~2020, sales were ~~$353,863~~$669,489 compared to ~~net~~ sales of ~~$117,117~~$36,572 for the three months ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~$236,746~~$632,917 or ~~202%~~1.73%. The sales increase was driven by the sale of private label beverages to ~~a new customer. This~~CBD Life. The increase was partially offset by a reduction in ~~website~~ sales ~~due to~~of HEMPd branded products as the ~~loss~~Company sold off inventory in anticipation of ~~the Company’s merchant services provider~~a change in suppliers and lower Eagle Spirit Water sales in 2019. Website sales were negatively impacted by the loss of merchant services in the May 2019. A new merchant services provider that began processing in July 2019 proved to be unreliable so the Company made another change in October 2019. The Company completed a production run of its previously out-of-stock Eagle Spirit Water in late August 2019 that provided sales in September 2019.2020. For the three months ended ~~September~~June 30, ~~2019~~2020, sales consisted of approximately ~~8% online sales, 91%~~70% private label sales, 0%18% online sales, 11% distributor sales, and 1% direct to retailer sales, compared to approximately ~~79%~~80% online sales, ~~18%~~2% distributor sales, and 3%18% direct to retailer sales for the three months ended ~~September~~June 30, ~~2018.~~2019.

Cost of Sales

For the three months ended ~~September~~June 30, ~~2019~~2020, cost of sales was ~~$460,111~~$624,209 or ~~130%~~.93% of sales, compared to ~~$124,661~~$38,855 or ~~106%~~1.06% of sales for the three months ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~$335,450~~$141,350 or ~~269%~~187%. The increase in ~~2019~~2020 was primarily due to the accrual 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 for~~cost of sales. The Company also incurred start-up costs and production overruns related to CBD Life that increased the ~~same period. In 2019, $107,594 of~~related cost of sales ~~was due~~ to ~~inventory obsolescence compared to $13,721~~approximately $109,000, resulting in 2018. For the three months ended September 30, 2019 inventory obsolescence related to expired or unusable finished goods, ingredients, and packaging, primarily related to the FitWhey brand. In August 2019 management determineda negative gross margin. Additionally in 2020, the Company ~~would suspend~~sold off HEMPd inventory in anticipation of supplier changes and the ~~production of water-based protein and caffeine-infused products, which had been produced under the FitWhey brand, until it develops~~resulting promotions caused a ~~related hemp or CBD-infused product and/or brand.~~deterioration in gross margin.

Operating Expenses

For the three months ended ~~September~~June 30, ~~2019,~~2020, operating expenses were ~~$836,669~~$1,096,091 or ~~236%~~1.63% of sales, compared to ~~$1,163,839~~$858,831 or ~~994%~~2.35% of sales for the three months ended ~~September~~June 30, ~~2018.~~2019. Areas in which the Company experienced significant changes in operating expenses are discussed below.

General and Administrative

For the three months ended ~~September~~June 30, ~~2019,~~2020, general and administrative expenses were ~~$617,378~~$1,094,09169 or ~~174%~~1.63% of sales, compared to ~~$823,173~~$696,846 or ~~703%~~19.05% of sales for the three months ended ~~September~~June 30, ~~2018,~~2019, a ~~decrease~~increase of ~~$205,795~~$397,282 or ~~25%~~59%. The decrease in general and administrative expenses in ~~2019~~2020 was primarily driven by decreasesin compensation ~~partially offset by increases in~~and legal ~~expenses and research and development costs.~~expenses.

Advertising and Marketing

For the three months ended ~~September~~June 30, ~~2019,~~2020, advertising and marketing expenses were ~~$101,225~~$1,963 or ~~29%~~.3% of sales, compared to ~~$340,666~~$158,985 or ~~291%~~4.34% of sales for the three months ended ~~September~~June 30, ~~2018,~~2019, a decrease of ~~$239,441~~$157,022 or ~~70%~~23%. The decrease in advertising and marketing expenses in ~~2019~~2020 was primarily due to the Company’s reduction in online advertising and ~~marketing. This was primarily~~outside marketing consultant and agency fees. Additionally, the ~~result of the loss of Company’s ability~~Company incurs no advertising or marketing expenses related to ~~sell product on its HEMPd website after the loss of its merchant services provider. Also,~~ private label ~~customers are responsible for their own advertising so the Company does not bear those costs.~~sales.

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~~Impairment Expense~~

For the three months ended September 30, 2019, impairment expense was $118,066 or 33% of sales. There was no impairment expense for the three months ended September 30, 2018. The 2019 impairment expense was a result of management’s decision to suspend the production of water-based protein and caffeine-infused products, which had been produced under the FitWhey brand, until it develops a related hemp or CBD-infused product and/or brand. The Company impaired all software, formula, trademark, and goodwill assets related to FitWhey.

Other (Income) Expense

Interest Expense

For the three months ended ~~September~~June 30, ~~2019,~~2020, interest expense was ~~$296,692,~~$119,525, compared to ~~$580,904~~$339,368 for the three months ended ~~September 30, 2018,~~March 31, 2019, a decrease of ~~$284,212.~~$219,843. The decrease in interest expense, which includes the amortization of the discount on convertible debt, and the excess of the beneficial conversion feature on certain convertible notes payable, was due to decreased debt ~~levels and~~ activity in ~~2019.~~2020.

~~Gain~~Loss on ~~Lawsuit Judgment and Legal Settlement~~Extinguishment of Debt

For the three months ended ~~September~~June 30, ~~2018,~~2020, the Company recorded a ~~gain~~loss onl~~awsuit judgment~~ extinguishment of debt of $37,429 related to the amendment and ~~legal~~ settlement of ~~$688,724 related to two separate legal proceedings, including a judgment against its former chairman that resulted in a $654,289 gain and a settlement with a former customer that resulted in a gain~~convertible notes payable. There $689,991 extinguishment of ~~$34,435. There were no such gains for~~debt during the three months ended ~~September~~June 30, 2019.

Gain on Change in Fair Value of Derivative Liability

For the three months ended ~~September~~June 30, ~~2019,~~2020, the Company recorded a ~~gain~~loss on the change in fair value of derivative liability of ~~$319,367~~$37,429 compared to a ~~gain~~loss of ~~$71,591~~$390,520 for the three months ended ~~September~~June 30, ~~2018.~~2019. In ~~2019~~2020 the ~~gain~~loss resulted from the ~~decrease~~change in the ~~price~~convertibility of two convertible notes payable that were made in February and March 2020 and increase in the ~~Company’s underlying stock at the end of the period, which is used to calculate the fair value~~valuation of the related derivative liability ~~thereby reducing~~based on the ~~derivative liability resulting~~change in ~~a gain.~~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 March 31, 2019.

Income Taxes

For the three months ended ~~September~~June 30, ~~2019~~2020, and ~~September 30, 2018,~~2019 the Company recorded no income tax provision due to a full valuation allowance provided on deferred tax assets resulting from net operating losses.

Net Loss Attributable to Noncontrolling Interests

For the three months ended ~~September~~June 30, ~~2019~~2020, the Company ~~incurred expenses of $3,120~~recorded no income or loss attributable to noncontrolling interests as there was no activity in its 51%-owned subsidiary, Sweet Rock. ~~The 49% allocated to noncontrolling interests was $1,529.~~ There were no noncontrolling interests in ~~2018.~~2019.

~~Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018~~Liquidity and Capital Resources

~~Financial Summary~~As of June 30, 2020, the Company had working capital of ($3,300,316). The Company had current assets of $1,215,178, consisting of cash and restricted cash of $31,245, accounts receivable (net) of $0, inventory of $149,940, and prepaid expenses and other current assets of $1,033,993. As of March 31, 2020, the Company had current liabilities of $4,515,494, consisting of accounts payable and accrued liabilities of $1,100,928, convertible notes payable (net) of $1,033,776, notes payable of $30,000, accrued interest of $90,551, deferred revenue of $445,925, and derivative liability of $413,678.

~~The Company’s sales for the nine months ended September 30, 2019 were $466,864 compared to net sales of $240,701 for the nine months ended September 30, 2018.~~

~~The Company’s net loss for the nine months ended September 30, 2019 was $2,850,672 compared to a net loss of $4,701,831 for the nine months ended September 30, 2018.~~

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~~Sales~~

For the nine months ended September 30, 2019 sales were $466,864 compared to net sales of $240,701 for the nine months ended September 30, 2018, an increase of $226,163 or 94%. The sales increase in 2019 was driven by the sale of private label beverages to a new customer. This increase was partially offset by a reduction in website sales due to the loss of the Company’s merchant services provider and lower Eagle Spirit Water sales in 2019. Website sales were negatively impacted by the loss of merchant services in the May 2019. A new merchant services provider that began processing in July 2019 proved to be unreliable so the Company made another change in October 2019. The Company completed a production run of its previously out-of-stock Eagle Spirit Water in late August 2019 that provided sales in September 2019. Due to production-related issues, the Company was out-of-stock of Eagle Spirit Water for most of 2019. For the nine months ended September 30, 2019 sales consisted of approximately 27% online sales, 69% private label sales, 0% distributor sales, and 4% direct to retailer sales, compared to approximately 71% online sales, 20% distributor sales, and 9% direct to retailer sales for the nine months ended September 30, 2018.

~~Cost of Sales~~

For the nine months ended September 30, 2019 cost of sales was $574,695 or 123% of sales, compared to $300,875 or 125% of sales for the nine months ended September 30, 2018, an increase of $273,820 or 91%. The increase in 2019 was primarily due to the increase in sales for the same period. In 2019, $107,594 of cost of sales was due to inventory obsolescence compared to $25,145 in 2018. For the nine months ended September 30, 2019 inventory obsolescence related to expired or unusable finished goods, ingredients, and packaging, primarily related to the FitWhey brand. In August 2019 management determined the Company would suspend the production of water-based protein and caffeine-infused products, which had been produced under the FitWhey brand, until it develops a related hemp or CBD-infused product and/or brand.

~~Operating Expenses~~

For the nine months ended September 30, 2019, operating expenses were $2,858,530 or 612% of sales, compared to $3,435,262 or 1427% of sales for the nine months ended September 30, 2018. Areas in which the Company experienced significant changes in operating expenses are discussed below.

~~General and Administrative~~

For the nine months ended September 30, 2019, general and administrative expenses were $2,270,864 or 486% of sales, compared to $2,813,479 or 1169% of sales for the nine months ended September 30, 2018, a decrease of $542,615 or 19%. The decrease in general and administrative expenses in 2019 was primarily driven by decreases~~in compensation, partially offset by increases inlegal expenses and research and development costs.~~

~~Advertising and Marketing~~

For the nine months ended September 30, 2019, advertising and marketing expenses were $469,600 or 101% of sales, compared to $621,783 or 258% of sales for the nine months ended September 30, 2018, a decrease of $152,183 or 24%. The decrease in advertising and marketing expenses in 2019 was due to the Company’s reduction in online advertising and marketing. This was primarily the result of the loss of Company’s ability to sell product on its HEMPd website after the loss of its merchant services provider. Also, private label customers are responsible for their own advertising so the Company does not bear those costs.

~~Impairment Expense~~

For the nine months ended September 30, 2019, impairment expense was $118,066 or 33% of sales. There was no impairment expense for the nine months ended September 30, 2018. The 2019 impairment expense was a result of management’s decision to suspend the production of water-based protein and caffeine-infused products, which had been produced under the FitWhey brand, until it develops a related hemp or CBD-infused product and/or brand. The Company impaired all software, formula, trademark, and goodwill assets related to FitWhey.

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~~Other (Income) Expense~~

~~Interest Expense~~

For the nine months ended September 30, 2019, interest expense was $929,446, compared to $3,763,602 for the nine months ended September 30, 2018, a decrease of $2,834,156. The decrease in interest expense, which includes the amortization of the discount on convertible debt, and the excess of the beneficial conversion feature on certain convertible notes payable, was due to decreased debt levels and activity in 2019.

~~(Gain) Loss on Extinguishment of Debt~~

For the nine months ended September 30, 2019, the Company recorded a gain on the extinguishment of debt of $689,991 related to the amendment of convertible debt. The conversion ratio on all of the Company’s fixed convertible notes payable outstanding as of May 6, 2019 was changed from $.005 to $.05 and the due dates were extended. The Company recorded a $191,138 loss on extinguishment of debt for the nine months ended September 30, 2018 as a result of the conversion of variable rate convertible notes payable into common stock.

~~Gain on Lawsuit Judgment and Legal Settlement~~

~~For the nine months ended September 30, 2019, the Company recorded a gain on~~lawsuit judgment and legal settlement of $230,840 related to the settlement of a lawsuit the Company filed in 2017 against several defendants. The settlement was reached on May 30, 2019 and included a $200,000 cash payment by the defendants to the Company,the forgiveness of debt of $30,840 owed by the Company to one of the defendants, and the return of 6,750,000 shares of common stock. For the nine months ended September 30, 2018, the Company recorded a gain onlawsuit judgment and legal settlement of $688,724 related to two separate legal proceedings, including a judgment against its former chairman that resulted in a $654,289 gain and a settlement with a former customer that resulted in a gain of $34,435.

~~Gain on Change in Fair Value of Derivative Liability~~

For the nine months ended September 30, 2019, the Company recorded a gain on the change in fair value of derivative liability of $124,304 compared to a gain of $2,059,621 for the nine months ended September 30, 2018. In both periods the gain resulted from the decrease in the price of the Company’s underlying stock at the end of the period, which is used to calculate the fair value of the related derivative liability, thereby reducing the derivative liability resulting in a gain.

~~Income Taxes~~

For the nine months ended September 30, 2019 and September 30, 2018, the Company recorded no income tax provision due to a full valuation allowance provided on deferred tax assets resulting from net operating losses.

~~Net Loss Attributable to Noncontrolling Interests~~

For the nine months ended September 30, 2019 the Company incurred expenses of $3,120 in its 51%-owned subsidiary, Sweet Rock. The 49% allocated to noncontrolling interests was $1,529. There were no noncontrolling interests in 2018.

~~Liquidity and Capital Resources~~

As of September 30, 2019, the Company had current assets of $1,071,934, consisting of cash of $68,811, accounts receivable (net) of $326,470, inventory of $278,212, and prepaid expenses and other current assets of $398,441. As of September 30, 2019,~~theCompany~~had current liabilities of $2,170,032, consisting of accounts payable and accrued liabilities of $693,022, convertible notes payable (net) of $651,775, notes payable of $30,000, accrued interest of $65,405, deferred revenue of $466,300, and derivative liability of $263,530.

Cash flows from operating activities

Net cash used in operating activities during the ~~nine~~three months ended ~~September~~June 30, ~~2019~~2020, was ~~$2,847,933~~$1,720,087 compared to ~~$(3,102,165)~~$2,045,372 used during the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. The change was principally driven by the ~~2019~~reduced net loss and increase in accounts ~~receivable and the buildup of inventory and prepaid expenses and other current assets~~payable in ~~anticipation of production runs.~~2020.

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Cash flows from investing activities

Net cash ~~used in~~provided by investing activities was ~~$500~~$1,549,025 during the three months ended ~~September~~June 30, ~~2019.~~2020. This represents the Company’s ~~investment in Sweet Rock, LLC. During~~proceeds from the ~~nine~~sale of miscellaneous office furnishings. There were no cash flows from investing activities during the three months ended ~~September~~June 30, ~~2018 net cash used in investing activities was $44,228. In 2018, the Company invested $31,220 in new software for the HEMPd brand and acquired new computer equipment.~~2019.

Cash flows from financing activities

Net cash provided by financing activities during the ~~nine~~three months ended ~~September~~June 30, 2020, was $3,717,947 compared to $1,500,249 during the three months ended June 30, 2019. During the three months ended March 31, 2020, the Company received proceeds of $275,000 from the issuance of convertible notes payable and $211,000 from the issuance of preferred stock. During the three months ended June 30, 2019, ~~was $2,303,558 compared to $3,199,907 during~~ the ~~nine months ended September 30, 2018. In 2019,~~Company received proceeds ~~of $1,943,551 were~~ from the issuance of common stock ~~compared to $2,558,045 in 2018. Also in 2019, the Company repaid $7,498~~of $1,139,173 and paid $6,424 on notes payable compared to $10,206 in 2018. In 2019, the Company received proceeds of $367,500 related to the issuance of convertible notes payable compared to $825,000 in 2018. In 2018 the Company repaid $172,932 of convertible notes payable.

Outstanding Material Indebtedness

Recently, the Company’s operations have been funded primarily through the private sales of common stock or the issuance of convertible promissory notes, which are currently convertible to common stock at a fixed prices ranging from ~~$0.03~~$0.01 to ~~$0.05~~$0.03 or at a discount to market price (as defined in the agreements) of 50%. As of ~~September~~June 30, ~~2019,~~2020, the Company had total notes payable outstanding of ~~$681,775 (net~~$1,607,158, less a discount of ~~discount).~~$332,857.

Known Trends and Uncertainties Expected to Have a Material Impact on Revenues

We expect our revenues to increase materially during the remainder of ~~2019~~2020 andin ~~2020,~~2021, primarily due to anticipated sales under our private label manufacturing contracts with CBD Alimentos SA de CV (“CBD Alimentos”) and Texas Wellness Center, Inc. (“Green Lotus”). Although the initial order from CBD Alimentos was expected during the second quarter of ~~2018,we received the initial~~order and a $466,300 deposit in December 2018. Due to production-related issues, we delayed the initial production run of 2,000,000 cans and now expect to begin production of the initial order in the fourth quarter of 2019. We completed the first production run of 200,000 cans of Green Lotus in September 2019 and expect additional purchase orders.hand sanitizer. Wealsoexpect revenue growth from our HEMPd branded CBD-infused flavored waters and other HEMPd branded ~~products. Revenue from the HEMPd products is inherently difficult to project and will depend on the level of market acceptance and market penetration that can be achieved for these~~ products.

Future Liquidity Requirements

The Company’s anticipated operational shortfall for the next twelve months is $1,500,000 to $2,000,000. We plan to utilize the SPA executed with GHS in June 2018, as well as bridge financing, to raise the required capital.

Off Balance Sheet Arrangements

As of ~~September~~June 30, ~~2019,~~2020, there are no off-balance sheet arrangements.

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~~As of June 30, 2020, the Company has a shareholders’ deficit of ~~$1,039,280~~$1,709,064 and an accumulated deficit of ~~$37,867,494 as of September 30, 2019~~$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 June 27, 2018, the Company entered into a Securities Purchase Agreement (“SPA”) with GHS Investments, LLC (“GHS”), which provides for GHS to purchase up to $15,000,000 of the Company’s common stock over a 24-month period based on a contractually agreed upon market discount. The SPA replaces the Equity Financing Agreement the Company entered 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 up to 16,000,000 shares of our common stock to be purchased by GHS under the SPA. The registration statement became effective on October 10, 2018 and the Company sold all the available shares under the SPA. On May 15, 2019, the Company filed a registration statement for 30,000,000 shares to be purchased by GHS. This registration statement became effective on June 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.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Item 4. Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of ~~September~~June 30, ~~2019.~~2020. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, ~~Michael Welch,~~David Seeberger, and our Chief Financial Officer, Jens Mielke. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September~~June 30, ~~2019~~2020, our disclosure controls and procedures are not effective. There have been no changes in our internal controls over financial reporting during the ~~nine~~three months ended ~~September~~June 30, ~~2019.~~2020.

Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Limitations on the Effectiveness of Internal Controls

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Please refer to our Annual Report on Form 10-K filed ~~April 15, 2019~~July 9, 2020, for information regarding our pending legal proceedings. There are no updates to the information disclosed in that filing.

Item 1A. Risk Factors

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

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

The following equity securities were issued between ~~August 13, 2019~~June 1, 2020 and ~~November 18, 2019:~~September 2, 2020:

Date Name Shares Issued Issue Price Description Exemption
8/23/2019 GHS Investments 1,466,625 $    0.050 Shares Sold Rule 506
9/6/2019 GHS Investments 1,735,793        0.050 Shares Sold Rule 506
9/20/2019 GHS Investments 1,592,938        0.039 Shares Sold Rule 506
10/4/2019 GHS Investments 1,609,177        0.033 Shares Sold Rule 506
10/17/2019 GHS Investments 1,947,826        0.029 Shares Sold Rule 506
10/30/2019 GHS Investments 1,982,323        0.026 Shares Sold Rule 506
11/12/2019 GHS Investments 2,109,711        0.026 Shares Sold Rule 506
Date Name Shares Issued Issue Price Description Exemption
7/15/2020 Brian Rose 854,701 $    0.0234 Shares Sold Rule 506
7/21/2020 Charles Smith 213,676 $    0.0234 Shares Sold Rule 506
7/28/2020 Lyon Pride Media, LLC 4,000,000   $    0.02905 Legal Settlement Rule 506
8/17/2020 Winton Morrison 213,676 $    0.0234 Shares Sold Rule 506

Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number Description of Exhibit
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 Materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2019~~2020 formatted in Extensible Business Reporting Language (XBRL)

1110
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SIGNATURES

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

Rocky Mountain High Brands, Inc.

Date: ~~November 19, 2019~~
August 20, 2021

By:/s/ ~~Michael Welch~~David Seeberger
~~Michael Welch~~David Seeberger
Title: ~~Chairman of the Board of Directors,~~ President and Chief Executive Officer

Date: ~~November 19, 2019~~
August 20, 2021

By:/s/ ~~Jens Mielke~~Charles Smith
~~Jens Mielke~~Charles Smith
Title: Chairman and Chief Operating Officer
Date: August 20, 2021
By: /s/ Wally Stock
Wally Stock
Title: Chief Financial Officer
1211

	Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018

Sales	$	353,863		$	117,117		$	466,864		$	240,701

Cost of Sales		352,517			110,940			467,101			275,730
Inventory Obsolescence		107,594			13,721			107,594			25,145

Gross Loss		(106,248	)		(7,544	)		(107,831	)		(60,174)

Operating Expenses
General and Administrative		617,378			823,173			2,270,864			2,813,479
Advertising and Marketing		101,225			340,666			469,600			621,783
Impairment Expense		118,066			—			118,066			—
Total Operating Expenses		836,669			1,163,839			2,858,530			3,435,262

Loss from Operations		(942,917	)		(1,171,383	)		(2,966,361	)		(3,495,436)

Other (Income)/Expenses:
Interest Expense		296,692			580,904			929,446			3,763,602
(Gain) Loss on Extinguishment of Debt		—			—			(689,991	)		191,138
Gain on Lawsuit Judgment and Legal Settlement		—			(688,724	)		(230,840	)		(688,724)
Gain on Change in Fair Value of Derivative Liability		(319,367	)		(71,591	)		(124,304	)		(2,059,621)
Total Other (Income) Expenses		(22,675	)		(179,411	)		(115,689	)		1,206,395

Loss Before Income Tax Provision		(920,242	)		(991,972	)		(2,850,672	)		(4,701,831)

Income Tax Provision		—			—			—			—

Net Loss	$	(920,242	)	$	(991,972	)	$	(2,850,672	)	$	(4,701,831)

Net Loss Attributable to Noncontrolling Interests		(1,529	)		—			(1,529	)		—

Net Loss Attributable to Rocky Mountain High Brands	$	(918,713	)	$	(991,972	)	$	(2,849,143	)	$	(4,701,831)

Net Loss per Common Share - Basic and Diluted	$	(0.01	)	$	(0.01	)	$	(0.03	)	$	(0.06)

Weighted Average Shares Outstanding		121,033,557			81,798,422			109,033,820			74,150,686

	Common Stock				Preferred Stock A				Preferred Stock C				Preferred Stock E
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		APIC			Accumulated Deficit			Total RMHB Shareholders’ Deficit			Noncontrolling Interests			Total Equity/(Deficit)
Balance - December 31, 2018		94,580,869	$	94,581		—	$	—		—	$	—		—	$	—	$	34,221,215		$	(35,018,351	)	$	(702,555	)	$	—		$	(702,555)
Shares issued for cash		7,813,337		7,813		—		—		—		—		—		—		1,009,233			—			1,017,046			—			1,017,046
Shares issued for compensation		25,403		25		—		—		—		—		—		—		3,976			—			4,001			—			4,001
Shares issued upon conversion of convertible notes		1,750,000		1,750		—		—		—		—		—		—		169,592			—			171,342			—			171,342
Net loss for the three months ended March 31, 2019		—		—		—		—		—		—		—		—		—			(1,263,260	)		(1,263,260	)		—			(1,263,260)
Balance - March 31, 2019		104,169,609	$	104,170		—	$	—		—	$	—		—	$	—	$	35,404,015		$	(36,281,611	)	$	(773,426	)	$	—		$	(773,426)
Shares issued for cash		2,490,932		2,491		—		—		—		—		—		—		119,636			—			122,127			—			122,127
Shares issued upon conversion of convertible notes		2,315,980		2,316		—		—		—		—		—		—		15,213			—			17,529			—			17,529
Stock option forfeiture		—		—		—		—		—		—		—		—		7,530			—			7,530			—			7,530
Beneficial conversion feature recognized on convertible notes payable		—		—		—		—		—		—		—		—		367,500			—			367,500			—			367,500
Fractional shares issued as a result of the reverse stock split		3,470		3		—		—		—		—		—		—		(3	)		—			—			—			—
Net loss for the three months ended June 30, 2019		—		—		—		—		—		—		—		—		—			(667,170	)		(667,170	)		—			(667,170)
Balance - June 30, 2019		108,979,991	$	108,980		—	$	—		—	$	—		—	$	—	$	35,913,891		$	(36,948,781	)	$	(925,910	)	$	—		$	(925,910)
Sweet Ally purchase of Sweet Rock, Inc. shares		—		—		—		—		—		—		—		—		—			—			—			495			495
Shares issued for cash		17,182,155		17,182		—		—		—		—		—		—		787,195			—			804,377			—			804,377
Warrant forfeiture		—		—		—		—		—		—		—		—		2,000			—			2,000			—			2,000
Net loss for the three months ended September 30, 2019		—		—		—		—		—		—		—		—		—			(918,713	)		(918,713	)		(1,529	)		(920,242)
Balance - September 30, 2019		126,162,146	$	126,162		—	$	—		—	$	—		—	$	—	$	36,703,086		$	(37,867,494	)	$	(1,038,246	)	$	(1,034	)	$	(1,039,280)

	Three Months Ended				Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Online	$	30,356	$	96,063	$	127,667	$	171,322
Private Label		322,000		—		322,000		—
Distributor		66		6,449		381		47,237
Retailer		1,441		14,605		16,816		22,142
Total	$	353,863	$	117,117	$	446,864	$	240,701

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

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

Date	Name	Shares Issued	Issue Price	Description	Exemption
8/23/2019	GHS Investments	1,466,625	$ 0.050	Shares Sold	Rule 506
9/6/2019	GHS Investments	1,735,793	0.050	Shares Sold	Rule 506
9/20/2019	GHS Investments	1,592,938	0.039	Shares Sold	Rule 506
10/4/2019	GHS Investments	1,609,177	0.033	Shares Sold	Rule 506
10/17/2019	GHS Investments	1,947,826	0.029	Shares Sold	Rule 506
10/30/2019	GHS Investments	1,982,323	0.026	Shares Sold	Rule 506
11/12/2019	GHS Investments	2,109,711	0.026	Shares Sold	Rule 506

Exhibit Number	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	Materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2019~~2020 formatted in Extensible Business Reporting Language (XBRL)