NOTE 3 – Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. TheAs of March 31, 2020 the Company has a shareholders’ deficit of $925,910$3,068,124 and an accumulated deficit of $36,948,781 as of June 30, 2019$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.

On June 27, 2018,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 arelies 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:

NOTE 5 – Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

NOTE 6 – Property and Equipment

Property and equipment consist of the following:

For the three months ended June 30,March 31, 2020 and 2019, and 2018, depreciation expense was $3,843$2,933 and $5,448, respectively. For the six months ended June 30, 2019 and 2018, depreciation expense was $8,004 and $10,129,$4,161, respectively.

NOTE 7 – AcquisitionIntangible Assets

FitWhey Brands Inc. (acquisitionIntangible assets consist 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:

The Company is obtaining an outside valuation of these assets.

The following represents the unaudited pro forma statement of operations of the Company forcapitalized software. For the three and six months ended June 30, 2018 had FitWhey been acquired on January 1, 2018: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:

NOTE 9 – Convertible Notes Payable

Convertible notes payable consist of the following:

		Interest Rates				Term				Conversion Rates			June 30, 2019				December 31,2018
GHS Investments, LLC (fixed conversion)			10%				.1 - .75 years			$	0.03 - 0.05		$	973,750			$	871,079
LSW Holdings, LLC (variable conversion)			6%				—				(a)			179,000				179,000
Discount														(774,172	)			(383,483)
Total													$	378,578			$	666,596

For the three months ended June 30,March 31, 2020 and 2019, and 2018, interest expense on these notes, including amortization of the discount, was $339,286$135,671 and $365,011,$293,189, respectively. For

As of March 31, 2020 and December 31, 2019, the six months ended June 30, 2019Company’s derivate liability related to its convertible notes payable was $728,976 and 2018, interest expense on these notes, including amortization of the discount, was $632,557 and $740,526,$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				June 30, 2019				December 31, 2018
Notes payable		0 %			.3 years			$	31,069			$	37,493

As of June 30, 2019March 31, 2020 and December 31, 2018,2019, notes payable includes three notes: two non-interest bearing notes totaling $30,000 that originated prior to the Company’s 2014 bankruptcy proceedings and 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.proceedings.

For the three months ended June 30, 2019 and 2018, interest expense on the furniture and equipment note was $82 and $559, respectively. For the six months ended June 30, 2019 and 2018, interest expense on the furniture and equipment note was $197 and $1,220, 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 beis our exclusive distributor in Mexico for all of our CBD-infused energy and functional beverages. In turn,we arewill be CBD Alimentos’Life’s exclusive supplier of such products. The beverages supplied to CBD Alimentos will beLife 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), andwewill 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 laboratorythe pricing the Company agreed to, the total of the purchase order is $932,600. In December 2018, the Company received a deposit of $466,300 to begin the procurement process for packaging (aluminum can bodies, lids, labels) and taste-testingraw materials (CBD and other ingredients), co-packing services, and the Company’s contracted margin of each batch$.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 March 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 AlimentosLife 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 Alimentos’ initial purchase order, including a depositLife 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 asthe MMA. As of June 30, 2019March 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:

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 deliveryaccrued related cost of finished product had$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 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 June 30, 2019,March 31, 2020, the Company has 200,000,0001,000,000,000 shares of common stock authorized and 108,979,991156,549,700 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 sixthree months ended June 30, 2019March 31, 2020 the Company issued 14,399,12218,635,070 shares of common stock, including 4,065,98012,437,084 shares for convertible notes payable conversions, 10,304,2694,895,286 shares for cash, and 25,403amounts due to a board member, 802,700 shares for compensation. The remaining 3,470compensation, 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 June 30, 2019,March 31, 2020, of which 12,789,47412,801,154 are specifically designated to a series of preferred stock and 7,210,5267,198,846 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 June 30, 2019March 31, 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 June 30, 2019March 31, 2020 and December 31, 2018.2019.

Series C Preferred Stock

The Company has 2,000,000 shares of Series C Preferred Stock designated, of which none were outstanding as of June 30, 2019March 31, 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 June 30, 2019March 31, 2020 and December 31, 2018.2019. 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

On September 19, 2017, the BoardThe Company has 789,474 shares of Directors approved a new Series E Preferred Stock.Stock designated, of which none were outstanding as of March 31, 2020 and December 31, 2019. Holders of Series E Preferred Stock are entitled to cast 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 June 30, 2019March 31, 2020 and December 31, 20182019 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 sixthree months ended June 30,March 31, 2020 and 2019 the Company granted no common stock warrants, none were exercised, and none were cancelled.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

In FebruaryDuring 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 an employee to purchase common stock withto 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.

NOTE 13– Noncontrolling Interests

In July 2019, the Company invested $500 in Sweet Rock, LLC, a termMichigan 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 three yearsSweet Rock and an exercise price of $.06. The options never vested and were forfeited in May 2019 due toaccounts for Sweet Ally’s ownership as a noncontrolling interest. During the employee’s termination. No other options were granted and none were exercised or cancelled during the sixthree months ended June 30, 2019.March 31, 2020 Sweet Rock recorded no revenue or expenses.

NOTE 13–14– Concentrations

During the three months ended June 30, 2019 no customers accounted for more than 10% of sales. During the three months ended June 30, 2018,March 31, 2020 the Company’s two largest customers accounted for approximately 16%71% and 3%12% of sales, respectively.

During the sixthree months ended June 30,March 31, 2019, the Company’s two largest customers accounted for approximately 12%17% and 1% of sales, respectively. During the six months ended June 30, 2018, the Company’s two largest customers accounted for approximately 12% and 9%2% of sales, respectively.

NOTE 1415 – 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 as follows:

The tax effects of temporary differences that give rise to the Company’s net deferred tax liability as of June 30, 2019March 31, 2020 and December 31, 20182019 are:

As of June 30, 2019March 31, 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 six months ended June 30,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 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 1516 – Commitments

Office Leases

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

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

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

On January 18, 2018, the RMHCWFLC entered into a 12-month office use agreement for office space in Denver, Colorado. Monthly payments arewere $91. The lease was renewedautomatically 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.

NOTE 17 – Legal Proceedings

NOTE 16 – 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 is currently set for November 5, 2019.

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 ourthe 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 onhimself. On August 3,30, 2018, the Trial Court in the 192nd District Court of Dallas County, Texas entered an Order Dismissing Derivative Claims, dismissinga final judgment in the derivative suit with prejudice. That Order is final.

In June 2018 LSW Holdings, LLC (“LSW”)Company’s favor and Lily Li (“Li”) filed counterclaims against Grisaffi in the Company, generally seeking an increaseamount of voting rights$3,500,000 for fraud, breach 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 Companyfiduciary duty, and conversion 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 forpreferred stock. The Court further voided ab initio 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 spentPreferred Shares. The Court further ruled that Grisaffi take nothing by LSW in “developing a distribution system in China” and other alleged “investments” of Li and LSWhis counterclaims in the Company. LSW and Li also sought exemplary damages.case.