10-Q 1 rmhb10q.htm

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 March 31, 2020

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

		For the transition period from ______ to ______

Commission File Number: 000-55609

Rocky Mountain High Brands, Inc.

(Exact name of registrant as specified in its charter)

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

1000 Shiloh Rd., Suite 200, Plano, TX 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: 289,733,237 common shares as of September 9, 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	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	10
Item 4:	Controls and Procedures	10
	PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	11
Item 1A:	Risk Factors	11
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	11
Item 3:	Defaults Upon Senior Securities	11
Item 4:	Mine Safety Disclosures	11
Item 5:	Other Information	11
Item 6:	Exhibits	11

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 March 31, 2020 and December 31, 2019 (unaudited);
F-2	Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (unaudited);
F-3	Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited);
F-4	Consolidated Statements of Shareholders’ Deficit for the three months ended March 31, 2020 and 2019 (unaudited);
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 March 31, 2020 are not necessarily indicative of the results that can be expected for the full year.

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Rocky Mountain High Brands, Inc.

Consolidated Balance Sheets

	March 31, 2020			December 31, 2019
		(Unaudited)
CURRENT ASSETS

Cash	$	95,805		$	53,606
Restricted Cash		27,645			14,474
Accounts Receivable, net of allowance of $0 and $0, respectively		6,738			18,162
Inventory		221,733			238,035
Prepaid Expenses and Other Current Assets		138,918			174,726
TOTAL CURRENT ASSETS		490,839			499,003

Property and Equipment, net		14,613			19,342
Intangible Assets		10,407			13,008
Other Assets		24,651			14,606

TOTAL ASSETS	$	540,510		$	545,959

LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES

Accounts Payable and Accrued Liabilities	$	1,275,362		$	1,143,217
Related Party Payables		—			30,406
Convertible Notes Payable, net of debt discount		1,015,967			1,008,950
Notes Payable		30,000			30,000
Accrued Interest		90,551			96,134
Deferred Revenue		462,791			445,925
Derivative Liability		733,963			413,678
TOTAL CURRENT LIABILITIES		3,608,634			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 March 31, 2020 and December 31, 2019		—			—
Preferred Stock - Series B - Par Value of $.001; 7,000,000 shares designated; No shares issued and outstanding as of March 31, 2020 and December 31, 2019		—			—
Preferred Stock - Series C - Par Value of $.001; 2,000,000 shares designated; No shares issued and outstanding as of March 31, 2020 and December 31, 2019		—			—
Preferred Stock - Series D - Par Value of $.001; 2,000,000 shares designated; No shares issued and outstanding as of March 31, 2020 and December 31, 2019		—			—
Preferred Stock - Series E - Par Value of $.001; 789,474 shares designated; No shares issued and outstanding as of March 31, 2020 and December 31, 2019		—			—
Preferred Stock - Series F - Par Value of $.001; 1,680 shares designated; 330 shares issued and outstanding as of March 31, 2020 and 130 shares issued and outstanding as of December 31, 2019		—			—
Preferred Stock - Series G - Par Value of $.001; 10,000 shares designated; no shares issued and outstanding as of March 31, 2020 and 10,000 shares issued and outstanding as of December 31, 2019		—			10
Preferred Stock - Series H - Par Value of $.001; 5,000 shares designated; 11 shares issued and outstanding as of March 31, 2020 and no shares issued and outstanding as of December 31, 2019		—			—
Common Stock - Par Value of $.001; 1,000,000,000 shares authorized; 156,549,700 shares issued and outstanding as of March 31, 2020; 137,914,630 shares issued and outstanding as of December 31, 2019		156,550			137,915
Additional Paid-In Capital		38,043,720			37,528,496
Accumulated Deficit		(41,264,767	)		(40,285,145)
Total Rocky Mountain High Brands Shareholders' Deficit		(3,064,497	)		(2,618,724)
Noncontrolling Interests		(3,627	)		(3,627)
TOTAL SHAREHOLDERS' DEFICIT		(3,068,124	)		(2,622,351)

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	540,510		$	545,959

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

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Rocky Mountain High Brands, Inc.

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended
	March 31, 2020			March 31, 2019

Sales	$	113,443		$	76,429

Cost of Sales		217,080			75,730

Gross Profit (Loss)		(103,637	)		699

Operating Expenses
General and Administrative		584,069			956,640
Advertising and Marketing		44,662			209,390
Total Operating Expenses		628,731			1,166,030

Loss from Operations		(732,368	)		(1,165,331)

Other (Income)/Expenses:
Interest Expense		151,555			293,386
Loss on Extinguishment of Debt		74,164			—
(Gain) Loss on Change in Fair Value of Derivative Liability		21,535			(195,457)
Total Other (Income) Expenses		247,254			97,929

Loss Before Income Tax Provision		(979,622	)		(1,263,260)

Income Tax Provision		—			—

Net Loss	$	(979,622	)	$	(1,263,260)

Net Loss Attributable to Noncontrolling Interests		—			—

Net Loss Attributable to Rocky Mountain High Brands	$	(979,622	)	$	(1,263,260)

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

Weighted Average Shares Outstanding		142,722,300			99,757,126

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

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Rocky Mountain High Brands, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended
	March 31, 2020			March 31, 2019

Operating Activities:
Net Loss	$	(979,622	)	$	(1,263,260)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		51,862			71,826
Non-cash interest expense		144,052			303,691
(Gain) Loss on change in fair value of derivative liability		21,535			(195,457)
Loss on extinguishment of debt		74,164			—
Loss on disposal of property and equipment		587			—
Bad debt expense		—			49
Depreciation and amortization expense		9,240			10,909
Changes in operating assets and liabilities:
Accounts receivable		11,424			7,366
Inventory		16,301			(292,344)
Prepaid expenses and other current assets		—			(128,767)
Other assets		(13,750	)		9,478
Accounts payable and accrued liabilities		245,908			126,379
Related party accounts payable		(30,406	)		—
Deferred revenue		16,866			—
NET CASH USED IN OPERATING ACTIVITIES		(431,839	)		(1,350,130)

Investing Activities:
Disposal of property and equipment		1,209			—
NET CASH PROVIDED BY INVESTING ACTIVITIES		1,209			—

Financing Activities:
Proceeds from issuance of convertible notes		275,000			—
Repayment of notes payable		—			(3,147)
Proceeds from issuance of series F preferred stock		200,000			—
Proceeds from issuance of series H preferred stock		11,000			—
Proceeds from issuance of common stock		—			1,017,046
NET CASH PROVIDED BY FINANCING ACTIVITIES		486,000			1,013,899

INCREASE (DECREASE) IN CASH		55,370			(336,231)

CASH AND RESTRICTED CASH - BEGINNING OF PERIOD		68,080			613,686

CASH AND RESTRICTED CASH- END OF PERIOD	$	123,450		$	277,455

Supplemental cash flow information:
Cash paid for interest	$	7,503		$	10,305
Cash paid for taxes	$	—		$	—
Supplemental disclosure of non-cash financing and investing activities:
Common stock issued for conversion of debt	$	208,400		$	171,342
Debt and accrued interest converted for common stock	$	229,935		$	156,876
Beneficial conversion feature recognized as debt discount	$	298,750		$	—

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

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Rocky Mountain High Brands, Inc.

Consolidated Statements of Shareholders' Deficit for the Three Months Ended March 31, 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	$	156,550	330	$	—	—		$	—		11	$	—	$	38,043,720	$	(41,264,767	)	$	(3,064,497	)	$	(3,627	)	$	(3,068,124)

Rocky Mountain High Brands, Inc.

Consolidated Statements of Shareholders' Deficit for the Three Months Ended March 31, 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)

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 subsidiaries, one majority-owned subsidiary, 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, hemp oil and 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 gummies, water soluble drops, capsules, tinctures, lotions, and salves. The Company introduced four flavors of CBD-infused waters in 12 oz. cans in November 2018.

In July 2018, the Company acquired the assets of BFIT Brands, LLC and formed a new subsidiary, FitWhey Brands Inc. FitWhey marketed a line-up of five water-based protein drinks that include caffeine and B vitamins. In August 2019 the Company suspended the production of 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 chocolate, hard candies, and baked goods.

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.

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.

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

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

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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 March 31, 2020 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Form 10-K for the year ended December 31, 2019 filed with the SEC on 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 and controlled subsidiaries. All intercompany balances and transactions have been eliminated.

Use of Estimates

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

Cash

The Company maintains cash balances at various financial institutions. At times, these balances may exceed federally insured limits.

Restricted Cash

The Company classifies any cash that is legally restricted as to its withdrawal or usage as restricted cash.

The following table provides a reconciliation of cash and restricted cash reported on the consolidated balance sheets to the total of those same amounts shown in our consolidated statements of cash flows:

	March 31, 2020		December 31, 2019		March 31, 2019		December 31, 2018
Cash	$	95,805	$	53,606	$	196,704	$	147,386
Restricted cash		27,645		14,474		80,751		466,300
Cash and restricted cash	$	123,450	$	68,080	$	277,455	$	613,686

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, 2019	$	413,678
Issued during the three months ended March 31, 2020		298,750
Exercises/Conversions		—
Change in fair value recognized in operations		21,535
Balance, March 31, 2020	$	733,963

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

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

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, 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

On January 1, 2020 the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), as amended, which requires a lessee to recognize on the balance sheet a right-of-use asset, representing 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. Upon adoption, the Company did not have any leases that would require recognition on its consolidated 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. No impairment charges were recorded during the three months ended March 31, 2020 and 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 measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is to be measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete.

Convertible Instruments

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

Preferred Stock

We apply the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity” when determining the classification and measurement of preferred stock. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. We classify conditionally redeemable preferred shares (if any), which includes

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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
	March 31, 2020		March 31, 2019
Online	$	20,195	$	60,960
Private Label		80,194		—
Distributor		12,224		1,421
Retailer		830		14,048
Total	$	113,443	$	76,429

All sales for all periods presented were to domestic customers, except private label sales of $80,194 for the three months ended March 31, 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.

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.

In March 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 March 31, 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 March 31, 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

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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. As of March 31, 2020 the Company has a shareholders’ deficit of $3,068,124 and an accumulated deficit of $41,264,767 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.

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

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

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

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

NOTE 4 – Inventory

Inventory consists of the following:

	March 31, 2020		December 31, 2019
Finished inventory	$	51,591	$	160,763
Raw materials and packaging		170,142		77,272
Total	$	221,733	$	238,035

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NOTE 5 – Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

	March 31, 2020		December 31, 2019
Prepaid officers’ compensation	$	107,425	$	143,233
Prepaid production		12,500		—
Other prepaid expenses and current assets		18,993		31,493
Total	$	138,918	$	174,726

NOTE 6 – Property and Equipment

Property and equipment consist of the following:

	March 31, 2020		December 31, 2019
Vehicles	$	14,687	$	14,687
Furniture and equipment		40,516		45,322
Personal computers		16,667		17,901
		71,870		77,910
Less: accumulated depreciation		57,257		58,568
Total	$	14,613	$	19,342

For the three months ended March 31, 2020 and 2019, depreciation expense was $2,933 and $4,161, respectively.

NOTE 7 – Intangible Assets

Intangible assets consist of capitalized software. For the three months ended March 31, 2020 and 2019, amortization expense was $2,601 and $2,601, respectively.

NOTE 8 – Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of the following:

	March 31, 2020		December 31, 2019
Accounts payable	$	633,338	$	440,788
Accrued compensation		—		51,500
Common stock payable		396,850		417,850
Other accrued expenses		245,174		233,079
Total	$	1,275,362	$	1,143,217

NOTE 9 – Convertible Notes Payable

Convertible notes payable consist of the following:

	Interest Rates		Term		Conversion Rates		March 31, 2020			December 31, 2019
GHS Investments, LLC (fixed conversion)		10%		.3 - .75 years	$	0.01	$	871,074		$	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								(332,857	)		(205,800)
Total							$	1,015,967		$	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 ($0.019).

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For the three months ended March 31, 2020 and 2019, interest expense on these notes, including amortization of the discount, was $135,671 and $293,189, respectively.

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

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

NOTE 10 – Notes Payable

Notes payable consist of the following:

Interest Rate

Term

March 31, 2020

December 31, 2019

Notes payable

Due

30,000

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

NOTE 11 – Deferred Revenue

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

In accordance with the MMA, RMHB opened a separate operating bank account for all deposits made by CBD Life. CBD Life is required to maintain a positive cash balance in the account at all times. 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 Life restricted bank account to its corporate account in accordance with the terms of the MMA. As of March 31, 2020 and December 31, 2019 the balances in the separate operating bank account were $27,645 and $14,474, respectively, and are included in restricted cash on the Company’s balance sheet.

A summary rollforward of the Deferred Revenue balance from the December 28, 2018 (receipt of first deposit) until March 31, 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
March 2020 deliveries		(80,194)
Balance as of March 31, 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 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. The Company has not agreed to refund the sales amount or provide any other consideration to the customer.

NOTE 12 – Shareholders’ Deficit

Common Stock

As of March 31, 2020, the Company has 1,000,000,000 shares of common stock authorized and 156,549,700 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 March 31, 2020 the Company issued 18,635,070 shares of common stock, including 12,437,084 shares for convertible notes payable conversions, 4,895,286 shares for amounts due to a board member, 802,700 shares for compensation, and 500,000 shares for Series G Preferred Stock conversions.

Preferred Stock

The Company has 20,000,000 shares of preferred stock authorized as of March 31, 2020, of which 12,801,154 are specifically designated to a series of preferred stock and 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 March 31, 2020 and December 31, 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 void ab initio by a District Court in Dallas County, Texas. The Company cancelled these shares effective that date.

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Series B Preferred Stock

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

Series C Preferred Stock

The Company has 2,000,000 shares of Series C Preferred Stock designated, of which none were outstanding as of March 31, 2020 and December 31, 2019. Series C Preferred Stock is 12% interest bearing, cumulative, exchangeable, non-voting, convertible preferred stock of the Company. Each Series C Preferred share is convertible to 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 March 31, 2020 and December 31, 2019. Series D Preferred Stock is a non-voting, non-interest bearing convertible preferred stock. Each Series D preferred share is convertible to 5 shares of common stock.

Series E Preferred Stock

The Company has 789,474 shares of Series E Preferred 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 20 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 March 31, 2020 and December 31, 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 March 31, 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 March 31, 2020 there were 11 shares outstanding. As of December 31, 2019 there were no shares issued and outstanding.

Warrants

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

Options

During the three months ended March 31, 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 March 31, 2019, the Company granted 500,000 options to purchase common stock to an employee. There were no exercises or forfeitures during that period.

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

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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 months ended March 31, 2020 Sweet Rock recorded no revenue or expenses.

NOTE 14– Concentrations

During the three months ended March 31, 2020 the Company’s two largest customers accounted for approximately 71% and 12% of sales, respectively. During the three months ended March 31, 2019, the Company’s two largest customers accounted for approximately 17% and 2% of sales, respectively.

NOTE 15 – Income Taxes

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

	Three Months Ended
	March 31, 2020			March 31, 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 March 31, 2020 and December 31, 2019 are:

	March 31, 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		—			—

As of March 31, 2020 the Company had approximately $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.

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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 months ended March 31, 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 March 31, 2020. This expense is attributable to the Company being in a net deferred tax asset position at the time of remeasurement. As the company maintains fully valuation allowance, this amount can be seen on the rate reconciliation as an adjustment to deferred tax asset and corresponding valuation allowance.

NOTE 16 – Commitments

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

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

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

Other Leases

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

NOTE 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 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 the Series A Preferred Stock (“Series A”) issued to Jerry Grisaffi (“Grisaffi”), RMHB’s former Chairman of the 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. On August 30, 2018, the Trial Court in the 192nd District Court of Dallas County, Texas entered a final judgment in the Company’s favor and against Grisaffi in the amount of $3,500,000 for fraud, breach of fiduciary duty, and conversion with respect to the Series A preferred stock. The Court further voided ab initio the Series A Preferred Shares. The Court further ruled that Grisaffi take nothing by his counterclaims in the case.

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

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

Dallas County Texas, Case Number DC-18-13491. Rocky Mountain High Brands, Inc. f/k/a Republic of Texas Brands, Inc. Plaintiff, vs. Joe Radcliffe, LSW Holdings, LLC, Lily Li, Epic Group One, LLC, Kenneth Radcliffe, Dennis Radcliffe, Phil Uhrik, Michael Radcliffe, Frank Izzo, Morgan Albright, John Garrison, BB Winks, LLC, Crackerjack Classic, LLC, and Universal Consulting, LLC.

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

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

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

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

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

NOTE 18 – Other (Income)/Expenses

Loss on Extinguishment of Debt

For the three months ended March 31, 2020, the Company recorded a loss on extinguishment of debt of $74,164 related to the amendment and settlement of convertible notes payable. There was no gain or loss on extinguishment of debt during the three months ended March 31, 2019.

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

For the three months ended March 31, 2020, the Company recorded a loss on the change in fair value of derivative liability of $21,535 compared to a gain of $195,457 for the three months ended March 31, 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 March 31, 2019.

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NOTE 19 – Subsequent Events

Between April 1 and September 8, 2020, the Company issued 133,183,537 shares of common stock, including 27,000,000 for the acquisition of 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 March 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.

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.

F-17

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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,” “will be,” “will continue,” “will likely 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, four wholly-owned subsidiaries, one majority-owned subsidiary, and one minority-owned subsidiary, which the Company controls. All subsidiaries are consolidated for financial reporting purposes:

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 liability company (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 consumer goods company that specializes in the developing, manufacturing, marketing, and distributing high-quality, health conscious, hemp oil and 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., 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 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 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.

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

Results of Operations

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Financial Summary

The Company’s sales for the three months ended March 31, 2020 were $113,443 compared to sales of $76,429 for the three months ended March 31, 2019.

The Company’s net loss for the three months ended March 31, 2020 was $979,622 compared to a net loss of $1,263,260 for the three months ended March 31, 2019.

Sales

For the three months ended March 31, 2020 sales were $113,443 compared to sales of $76,429 for the three months ended March 31, 2019, an increase of $37,014 or 48%. The sales increase was driven by the sale of private label beverages to CBD Life. The increase was partially offset by a reduction in sales of HEMPd branded products as the Company sold off inventory in anticipation of a change in suppliers and lower Eagle Spirit Water sales in 2020. For the three months ended March 31, 2020 sales consisted of approximately 70% private label sales, 18% online sales, 11% distributor sales, and 1% direct to retailer sales, compared to approximately 80% online sales, 2% distributor sales, and 18% direct to retailer sales for the three months ended March 31, 2019.

Cost of Sales

For the three months ended March 31, 2020 cost of sales was $217,080 or 191% of sales, compared to $75,730 or 99% of sales for the three months ended March 31, 2019, an increase of $141,350 or 187%. The increase in 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 March 31, 2020 the Company established an accrual of $68,648 for the estimated production costs with a corresponding increase in cost of sales. The Company also incurred start-up costs and production overruns related to CBD Life that increased the related cost of sales to approximately $109,000, resulting in a negative gross margin. Additionally in 2020, the Company sold off HEMPd inventory in anticipation of supplier changes and the resulting promotions caused a deterioration in gross margin.

Operating Expenses

For the three months ended March 31, 2020, operating expenses were $628,731 or 554% of sales, compared to $1,166,030 or 1526% of sales for the three months ended March 31, 2019. Areas in which the Company experienced significant changes in operating expenses are discussed below.

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General and Administrative

For the three months ended March 31, 2020, general and administrative expenses were $584,069 or 515% of sales, compared to $956,640 or 1252% of sales for the three months ended March 31, 2019, a decrease of $372,571 or 39%. The decrease in general and administrative expenses in 2020 was primarily driven by decreases in compensation and legal expenses.

Advertising and Marketing

For the three months ended March 31, 2020, advertising and marketing expenses were $44,662 or 39% of sales, compared to $209,390 or 274% of sales for the three months ended March 31, 2019, a decrease of $164,728 or 79%. The decrease in advertising and marketing expenses in 2020 was primarily due to the Company’s reduction in online advertising and outside marketing consultant and agency fees. Additionally, the Company incurs no advertising or marketing expenses related to private label sales.

Other (Income) Expense

Interest Expense

For the three months ended March 31, 2020, interest expense was $151,555, compared to $293,386 for the three months ended March 31, 2019, a decrease of $141,831. 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 activity in 2020.

Loss on Extinguishment of Debt

Gain on Change in Fair Value of Derivative Liability

Income Taxes

For the three months ended March 31, 2020 and 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 March 31, 2020 the Company recorded no income or loss attributable to noncontrolling interests as there was no activity in its 51%-owned subsidiary, Sweet Rock. There were no noncontrolling interests in 2019.

Liquidity and Capital Resources

As of March 31, 2020 the Company had working capital of ($3,117,795). The Company had current assets of $490,839, consisting of cash and restricted cash of $123,450, accounts receivable (net) of $6,738, inventory of $221,733, and prepaid expenses and other current assets of $138,918. As of March 31, 2020, the Company had current liabilities of $3,608,634, consisting of accounts payable and accrued liabilities of $1,275,362, convertible notes payable (net) of $1,015,967, notes payable of $30,000, accrued interest of $90,551, deferred revenue of $462,791, and derivative liability of $733,963.

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Cash flows from operating activities

Net cash used in operating activities during the three months ended March 31, 2020 was $431,839 compared to $1,350,130 used during the three months ended March 31, 2019. The change was principally driven by the reduced net loss and increase in accounts payable in 2020.

Cash flows from investing activities

Net cash provided by investing activities was $1,209 during the three months ended March 31, 2020. This represents the Company’s proceeds from the sale of miscellaneous office furnishings. There were no cash flows from investing activities during the three months ended March 31, 2019.

Cash flows from financing activities

Net cash provided by financing activities during the three months ended March 31, 2020 was $486,000 compared to $1,013,899 during the three months ended March 31, 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 March 31, 2019 the Company received proceeds from the issuance of common stock of $1,017,046 and paid $3,147 on 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 $0.01 to $0.03 or at a discount to market price (as defined in the agreements) of 50%. As of March 31, 2020, the Company had total notes payable outstanding of $1,378,824, less a discount of $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 2020 and in 2021, primarily due to anticipated sales of hand sanitizer. We also expect revenue growth from our HEMPd branded CBD-infused flavored waters and other HEMPd branded 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 March 31, 2020, there are no off-balance sheet arrangements.

Going Concern

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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 March 31, 2020. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, 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 March 31, 2020 our disclosure controls and procedures are not effective. There have been no changes in our internal controls over financial reporting during the three months ended March 31, 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 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 June 1, 2020 and September 2, 2020:

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 March 31, 2020 formatted in Extensible Business Reporting Language (XBRL)

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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: September 10, 2020

By: /s/ David Seeberger

David Seeberger

Title: President and Chief Executive Officer

Date: September 10, 2020

By: /s/ Jens Mielke

Jens Mielke

Title: Chief Financial Officer