Rocky Mountain High Brands, Inc. - Annual Report: 2019 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Commission File Number: 000-55609

Rocky Mountain High Brands, Inc.

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

Indicate by checkmark 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.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an 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 [ ] No [X]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. Approximately $10,897,999 as of June 30, 2019, using the closing price of $0.10 per share.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 284,451,184 of as of July 6, 2020.

TABLE OF CONTENTS

EXPLANATORY NOTE

On March 30, 2020, Rocky Mountain High Brands, Inc. (the “Company”) filed a Current Report on Form 8-K, and is filing this Annual Report on Form 10-K, in reliance on the Order of the Securities and Exchange Commission dated March 4, 2020, as modified March 25, 2020, pursuant to Section 36 of the Securities Exchange Act of 1934 modifying exemptions from the reporting and proxy delivery requirements for public companies (Release No. 34-22465).

Dallas County, Texas, where the Company is headquartered, issued an order requiring all individuals anywhere in Dallas County to remain at home, with the sole exception of essential business and government services. As a result of this and other disruptions caused by the Covid-19 pandemic, the preparation of the Company’s Annual Report, including its financial statements, was delayed. Certain Company officers and management, as well as professional staff, were unable to conduct the work required to prepare and file the Company’s financial report for the year ended December 31, 2019 on a timely basis.

PART I

When used in this Annual Report, unless otherwise indicated, the terms “the Company,” “RMHB,” “we,” “us,” and “our” refers to Rocky Mountain High Brands, Inc. and/or its subsidiaries. All references in this report to “$” or “dollars” are to United States dollars, unless specifically stated otherwise.

Forward-Looking Statements

This Annual Report contains forward-looking statements that reflect our current views about future events. We use the words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “will,” “intend,” “may,” “plan,” “project,” “should,” “could,” “seek,” “designed,” “potential,” “forecast,” “target,” “objective,” “goal,” or the negatives of such terms or other similar expressions. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Item 1. Business 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:

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.   

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.

On April 29, 2020 the Company formed Rocky Mountain Productions, Inc. (“RMPI”), a wholly-owned Nevada corporation. On April 30, 2020, RMPI purchased certain assets of Raw Pharma, LLC (“Raw Pharma”) including machinery, equipment, and fixtures. The facility has the capability to can and bottle products, including 12 oz. regular and sleek cans, 16 oz. cans, shots, and bottles.

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

Corporate History

Rocky Mountain High Brands Inc. October 23, 2014 to present – Articles of Amendment filed with the State of Nevada

f/k/a Totally Hemp Crazy Inc. July 17, 2014 to October 23, 2014 – Articles of Amendment filed with the State of Nevada

f/k/a Republic of Texas Brands Incorporated November 2011 to July 17, 2014 – Articles of Amendment filed with the State of Nevada

f/k/a Legends Food Corporation May 2011 to November 2011 – Articles of Amendment filed with the State of Nevada

f/k/a Precious Metals Exchange Corp. – Articles of Amendment filed with the State of Nevada on December 23, 2008

f/k/a Stealth Industries, Inc. – Articles of Amendment filed with the State of Minnesota on October 25, 1999 (name change). Articles of Incorporation filed with the State of Nevada on October 30, 2000 (Change of Domicile; Merger with Stealth Industries, Inc. (Minnesota)

f/k/a Assisted Living Corporation – Articles of Amendment filed with the State of Minnesota on November 3, 1993 (name change) f/k/a Electric Reel Corporation of America, Inc. -- Articles of Incorporation filed with the State of Minnesota on August 15, 1968

Acquisitions

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

In July 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. The acquisition included $98,297 of assets including cash, accounts receivable, inventory, and prepaid production costs and $132,141 of intangible assets, including the FitWhey software, trademark, formulas, and goodwill.

In August 2019 management determined the Company would suspend the production of water-based protein and caffeine-infused products until it develops a related hemp or CBD-infused product. As a result, the Company fully impaired the intangible assets related to its purchase of FitWhey. This resulted in an impairment charge of $118,066 for the year ended December 31, 2019.

Raw Pharma, LLC (acquisition of certain assets of Raw Pharma, LLC)

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 is located in Plano, Texas and has the capability to can and bottle products, including 12 oz. regular and sleek cans, 16 oz. cans, shots, and bottles.

 Trademarks Related to Our Business

•     Rocky Mountain High

•     HEMPd

•     HEMPFIT

•     Smarterita

•     Totally Hemp Crazy

•     Blue Leaf

•     Rock the Road Trip

•     Eagle Spirit

•     Eagle Paa

•     FitWhey

Current Product Offerings

The Company’s Wellness For Life Colorado, Inc. subsidiary currently markets the following lineup of CBD-infused products under the HEMPd brand:

Under its Rocky Mountain High Brands name, the Company marketed a lineup of five hemp-infused 16 oz. beverages in 2017 and 2018, including:

RMHB sold its remaining inventory of these products in March 2019.

Our Eagle Spirit Land and Water Company currently markets its naturally high alkaline spring water in two sizes: a 500ml (16.9 oz.) plastic bottle sold in cases of 24 and a 10-liter (2.64-gallon) Bag in a Box product. The Company also previously sold a 1-liter bottle in cases of 12.

Private Label

CBD Life

In December 2017, the Company executed a three-year Master Manufacturing Agreement with CBD Alimentos SA de CV (“CBD-Alimentos”), a Mexican food and beverage distributor. Under the agreement (as amended), CBD Alimentos, through its sister company, CBD Life, will be our exclusive distributor in Mexico for all of our CBD-infused energy and functional beverages. In turn, we will be CBD Life’s exclusive supplier of such products. The beverages supplied to CBD Life will be private label products made to order for CBD Life, and we will cooperate on laboratory and taste-testing of each batch of beverages at the co-packing facility. In accordance with the Agreement, RMHB opened a separate operating bank account for all deposits made by CBD Life towards the purchase of ingredients and packaging. CBD Life is required to maintain a positive cash balance in the account at all times. The Company will have full unilateral authority to disburse funds from the bank account to vendors, suppliers, co-packers and the Company solely for the purposes of production and the Company’s margin on the sale. CBD Life’s initial purchase order, including a deposit of $466,300 was received in December 2018. The Company completed and delivered its initial production run of three flavors in December 2019.

Green Lotus

On February 21, 2019 the Company entered into a Beverage Manufacture and Supply Agreement with Texas Wellness Center, LLC, (“TWC”)(a subsidiary of GL Brands, Inc.) a marketer and distributor of hemp and CBD products under the “Green Lotus” brand. Under the agreement, the Company was named the exclusive supplier to TWC for CBD-infused beverages for the Green Lotus brand. In September 2019, the Company completed its initial 200,000 can production run and delivery of the Green Lotus branded beverages. In late 2019, TWC informed the Company that some of the cans developed leaks and were unsaleable. In May 2020, the Company agreed to a settlement and release agreement whereby the Company agreed to issue common stock to TWC in exchange for mutual releases.

Upcoming Product Offerings

In May 2020 the Company began producing hand sanitizer at its newly acquired facility in Plano, Texas.

The Company plans to continually update and improve its product offerings in accordance with consumer demand, changes in federal and local regulations, and internal research and development. Ongoing research and development costs are not expected to be material.

Sales Channels

The Company sells its company-branded products to retailers, distributors, and online directly to consumers via the Company’s websites www.HEMPd.com and www.EagleSpiritWater.com and Amazon and its non-company branded products to private label customers.

For the year ended December 31, 2019, sales by channel were 70% online, 13% distributor, 10% private label, and 7% retailer compared to 67% online, 21% distributor, and 12% retailer for the year ended December 31, 2018.

Outsourced Production and Storage Services

Through early 2018, Blues City Brewery, LLC (“Blues City”) in Memphis, Tennessee, a subsidiary of City Brewing Company, LLC, completed all beverage production and canning. The Company completed its last production run with Blues in 2018.

On January 9, 2019 the Company executed an agreement with Optimus Fulfill LLC (“Optimus”) in Coppell Texas to co-pack beverages. The Company did not complete any production runs with Optimus before Optimus filed for bankruptcy protection in 2019.

Since mid-2019, the Company has utilized Raw Pharma, a Plano, Texas-based canning facility for its 12 oz. and 16 oz. canned beverage products. On April 30, 2020 the Company purchased certain assets of Raw Pharma and agreed to assume Raw Pharma’s facility sublease. This facility is expected to provide enough beverage and hand sanitizer manufacturing capacity for the foreseeable future. The Company plans to utilize a portion of the space at this facility for the storage of ingredients, packaging, and finished goods, thereby eliminating or reducing the need to rent other storage space from third parties.

The Company utilizes numerous vendors for its nutraceutical products and to collaborate on product formulation. All formulas developed for the Company through outside vendors are the property of the Company.

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

Our naturally high alkaline spring water is cold-filtered and packaged by a third-party water processor, Water Event Pure Water Solutions (“Water Event”).

Regulatory Requirements

We are subject to numerous federal, state, local, and foreign laws and regulations, including those relating to: 

The Company’s hemp and CBD products are derived from industrial hemp, not marijuana. There is a clear scientific distinction between the two plants: The Company’s products contain less than 0.3% tetrahydrocannabinol (“THC”), the psychoactive compound found in marijuana. (Most marijuana contains over 10% THC). There is also a clear legal distinction between the two plants. While marijuana is illegal under U.S. federal law, the industrial hemp used in our products is 100% legal at the federal level. It is grown under a duly licensed state agricultural pilot program conducted by the Colorado Department of Agriculture, as authorized by the 2014 U.S. Farm Bill. The Farm Bill explicitly exempts hemp products from the definition of “marijuana” and explicitly exempts hemp products from the purview and regulation of the Controlled Substances Act. Furthermore, the 2016 Omnibus Appropriations Act specifically instructs federal agencies not to interfere with the transport or sale of pilot program hemp products such as the ones sold by the Company. The 2018 Farm Bill specifically removed hemp from Schedule 1 of the Controlled Substances Act. The law also prohibits states from interfering with the transportation of hemp and hemp products from one state to another. 

Our beverage products are not subject to direct FDA approval as the FDA does not perform review testing or approval of food, beverages or dietary supplements. The FDA requires that we manufacture our products in commercial manufacturing facilities that are annually audited to ensure that they pass inspection based on Good Manufacturing Practices for food safety. 

Employees and Independent Contractors

The Company currently has three officers and two non-officer employees. The Company uses independent contractors, when necessary, to support operational or back-office functions.

Implications of Emerging Growth Company Status

As a company with less than $1 billion in revenue in our last fiscal year, we are defined as an “emerging growth company” under the Jumpstart Our Business Startups (“JOBS”) Act. We will retain “emerging growth company” status until the earliest of:

Pursuant to Section 107(b) of the JOBS Act, we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of The JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result, our financial statements may not be comparable to companies that comply with public company effective dates. Section 107 of the JOBS Act provides that our decision to opt into the extended transition period for complying with new or revised accounting standards is irrevocable.

Because the worldwide market value of our common stock held by non-affiliates, or public float, is below $75 million, we are also a “smaller reporting company” as defined under the Exchange Act. Some of the foregoing reduced disclosure and other requirements are also available to us because we are a smaller reporting company and may continue to be available to us even after we are no longer an emerging growth company under the JOBS Act but remain a smaller reporting company under the Exchange Act. As a smaller reporting company we are not required to:

Item 1A. Risk Factors.

Smaller reporting companies are not required to provide the information required by this item. Please see our Registration Statement on Form S-1/A filed June 12, 2019 to review our current risk factors.

Item 2. Properties

At present, we do not own any real property. As of December 31, 2019, we leased approximately 7,000 square feet of office space for our corporate offices. Our lease period began on September 1, 2016 and terminated on August 31, 2019. Payments under the lease are as follows:

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 six-month extension of its corporate office lease. The lease includes new 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 in 2019 were $101.

The Company leases the following warehouse space on a month-to-month basis:

Our monthly rent varies depending on how much inventory is stored. Inventory levels fluctuate based on production and sales.

In April 2020 the Company executed an agreement to purchase certain assets from Raw Pharma, LLC (“Raw Pharma”). The agreement included the sublease of Raw Pharma’s production facility. The Company plans to utilize a portion of the space at this facility for the storage of ingredients, packaging, and finished goods, thereby eliminating or reducing the need to rent other storage space from third parties.

Item 3. 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 sought monetary damages from the Company for breach of contract and the Company sought monetary damages against Lyonpride. The parties have settled the matter and are in the process of finalizing settlement documents. The settlement documents have had to be modified because of the Covid 19 issue as a portion of the settlement relates to performance by Lyonpride and the scheduling of the performance has had to be extended.

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.

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 and has filed a motion to remove Grisaffi as the debtor in possession or to convert the case to a Chapter 7. The case has been converted by the Bankruptcy Court to a Chapter 7 case.

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 is the surviving case of the above case, having been severed on September 12, 2018. In this case, on August 12, 2019 the Court entered as Final Judgment, against Lily Li and LSW, holding that all Series A Preferred Shares in RMHB, including the shares issued to Grisaffi and later sold by him to LSW evidenced by Stock Certificate N0. 604 issued by RMHB, to LSW Holdings LLC in the amount of 1,000,000 shares, were void ab initio, and any potential rights thereunder were terminated. The Court further entered joint and several judgments against Lily Li and LSW Holdings LLC for $3,500,000, which was also joint and several with the Final Judgment against Grisaffi. 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. The remaining Defendants settled with the Company by either returning shares of stock in the Company or paying a settlement sum to the Company which totaled $200,000. 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. Grisaffi is attempting to stay this case with his bankruptcy, 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 Plaintiff sued the Company, seeking $21,000 in damages for breach of contract. The Company contested that claim in its entirety and filed a counterclaim against the Plaintiff for an unspecified amount of damages. The parties have settled this matter.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Unregistered Sales of Equity Securities and Use of Proceeds Between November 19, 2019 and June 1, 2020:

Market Information

Our common stock is quoted on the OTCQB tier of the OTC Markets Group quotation system (www.otcmarkets.com) under the trading ticker “RMHB.” The following tables set forth the range of high and low prices for our common stock for the two years ended December 31, 2019, as reported on the OTC Market Group’s quotation system. These quotations reflect inter-dealer prices, without retail markup, markdown, or commission and may not necessarily represent actual transactions.

On July 6, 2020, the last sales price per share of our common stock was $0.026.

Penny Stock

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.

Dividends

There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:

1.  we would not be able to pay our debts as they become due in the usual course of business, or;

2.  our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.

 We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

On March 17, 2017, our Board of Directors approved the Rocky Mountain High Brands, Inc. 2017 Incentive Plan (the “2017 Incentive Plan”). The purpose of the Incentive Plan is to provide a means for the Company to continue to attract, motivate and retain management, key employees, consultants and other independent contractors, and to provide these individuals with greater incentive for their service to the Company by linking their interests in the Company’s success with those of the Company and its shareholders. Initially, the Board authorized 1,750,000 shares of the Company’s common stock to be included in the Plan. The Board of Directors awards these shares at its sole discretion. On July 14, 2017 the Board of Directors increased the authorized shares in the 2017 Incentive Plan to 3,250,000. On December 19, 2017 the Board of Directors increased the authorized shares in the 2017 Incentive Plan to 5,000,000.

During the year ended December 31, 2019, the Company issued 125,000 options to purchase common stock to an employee. The employee was terminated during 2019 and the options were forfeited prior to vesting. The options had a vesting schedule of 2 years and an exercise price of $.20. Also during 2019, former members of the Board of Directors and consultants forfeited 2,312,839 options to purchase common stock. As of December 31, 2019 are were no options issued and outstanding.

During the year ended December 31, 2018, the Company issued 678,339 options to purchase common stock. The options had an exercise price of $.06 and vested immediately. During the year ended December 31, 2018, 1,755,000 options were exercised and none were forfeited. As of December 31, 2018, there were 2,312,839 options issued and outstanding.

Item 6. Selected Financial Data

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

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This document contains certain forward-looking statements as defined by federal securities laws. For this purpose, forward- looking statements are any statements contained herein that are not statements of historical fact and include, but are not limited to, those preceded by or that include the words, “estimate,” “could,” “should,” “would,” “likely,” “may,” “will,” “plan,” “intend,” “believes,” “expects,” “anticipates,” “projected,” or similar expressions. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those contemplated by such statements. The forward-looking information is based on various factors and was derived using numerous assumptions. For these statements, we claim the protection of the “bespeaks caution” doctrine. Such forward-looking statements include, but are not limited to:

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

Overview

The Company generates revenue from finished product sales to distributors (resellers), private label customers, retailers, and consumers. The wholesale market for the Company’s products includes all retailers in the convenience and grocery store channels as well as certain specialty retail niche markets including health food, “smoke shop,” and novelty stores. Additionally, the Company has an online retail presence via our Company websites and Amazon.com and via our Company websites. We custom manufacture beverages for private label customers that own their brand, but don’t have manufacturing capabilities or prefer to outsource the production of their products.

Results of Operations

Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

Financial Summary

The Company’s sales for the year ended December 31, 2019 were $205,250 compared to $379,238 for the year ended December 31, 2018.

The Company’s net loss for the year ended December 31, 2019 was $5,270,917 compared to a net loss of $3,355,937 for the year ended December 31, 2018.

Sales

For the year ended December 31, 2019, sales were $205,250 compared to $379,238 for the year ended December 31, 2018, a decrease of $173,988 or 46%. The sales decrease was driven by a reduction in HEMPd website sales due to the loss of the Company’s merchant services provider and lower Eagle Spirit Water sales in 2019, partially offset by the sales from the first shipment of product to CBD Life, our Mexican private label customer. HEMPd website sales were negatively impacted by the loss of merchant services in the May 2019. A new merchant services provider that began processing in July 2019 proved to be unreliable so the Company made another change in October 2019. Additionally, the Company decided to no longer use its wellness products co-packer, which resulted in less available product to sell. The Company completed a production run of its previously out-of-stock Eagle Spirit Water in late August 2019. This was the first production run of Eagle Spirit Water in 2019. Lastly, the Company sold off the remaining inventory of its Rocky Mountain High branded hemp-infused energy drinks in the first half of 2019.

In September 2019, the Company completed its initial production run and delivery of Green Lotus branded CBD-infused canned beverages for its private label customer, Texas Wellness Center (“TWC”), a subsidiary of GL Brands, Inc. In late 2019, TWC informed the Company that some of the cans developed leaks and were unsaleable. In May 2020, the Company agreed to a settlement and release agreement whereby the Company agreed to issue common stock to TWC in exchange for mutual releases. The Company recorded this settlement in 2019 as a refund of the sales price of $322,000 that had been recorded as revenue in September 2019.

For the year ended December 31, 2019, sales by channel were 70% online, 13% distributor, 10% private label, and 7% retailer compared to 67% online, 21% distributor, and 12% retailer for the year ended December 31, 2018.

Cost of Sales

For the year ended December 31, 2019, cost of sales was $741,136 or 361% of sales, versus $410,818 or 108% of sales for the year ended December 31, 2018, an increase of $330,318 or 80%. The increase in cost of sales primarily related to the production costs for the TWC production run in September 2019. The related sale was refunded as a result of the defective product, but the production costs were recognized in 2019.

In 2019 the Company recorded inventory obsolescence expense of $130,364 compared to $25,145 in 2018. In 2019 the obsolescence related to expired or unusable finished goods, ingredients, and packaging, primarily related to the FitWhey brand. In August 2019 management determined the Company would suspend the production of water-based protein and caffeine-infused products, which had been produced under the FitWhey brand, until it develops a related hemp or CBD-infused product and/or brand. In 2018 the obsolescence expense related primarily to E-Juice and vape products that the Company no longer carries.

Operating Expenses

For the year ended December 31, 2019, operating expenses were $3,859,354, compared to $4,523,108 for the year ended December 31, 2018, a decrease of $663,754 or 15%. Areas in which the Company experienced significant changes in operating expenses are discussed below.

General and Administrative

For the year ended December 31, 2019, general and administrative expenses were $3,098,964 or 1510% of sales compared to $3,689,175 or 973% of sales for the year ended December 31, 2018, a decrease of $590,211 or 16%. The decrease in general and administrative expenses in 2019 was primarily driven by decreases in compensation, partially offset by increases in legal expenses and research and development costs.

Advertising and Marketing

For the year ended December 31, 2019, advertising and marketing expenses were $642,324 or 313% of sales, compared to $833,933 or 220% of sales for the year ended December 31, 2018, a decrease of $191,609 or 23%. The decrease in advertising and marketing expenses in 2019 was a result of the Company’s reduction in online advertising and marketing. This was primarily the result of the loss of Company’s ability to sell product on its HEMPd website after the loss of its merchant services provider. Also, private label customers are responsible for their own advertising so the Company does not bear those costs.

Impairment Expense

During the year ended December 31, 2019, impairment expense was $118,066. There was no impairment expense for the year ended December 31, 2018. The 2019 impairment expense was a result of management’s decision to suspend the production of water-based protein and caffeine-infused products, which had been produced under the FitWhey brand, until it develops a related hemp or CBD-infused product and/or brand. The Company impaired all software, formula, trademark, and goodwill assets related to FitWhey.

Other (Income) Expense

Interest Expense

For the year ended December 31, 2019, interest expense was $877,740, compared to $1,275,693 for the year ended December 31, 2018, a decrease of $397,953 or 31%. The decrease in interest expense, which includes the amortization of the discount on convertible debt, beneficial conversion features on convertible debt, and interest on newly issued convertible debt was due to decreased debt activity in 2019.

Loss on Extinguishment of Debt

For the year ended December 31, 2019, the Company recorded a loss on extinguishment of debt of $172,910 related to the amendment and extinguishment of convertible notes payable. For the year ended December 31, 2018, the Company recorded a net loss on extinguishment of debt of $191,138 related to the extinguishment of convertible notes payable.

Gain on Lawsuit Judgment and Legal Settlement

During the year ended December 31, 2019 the Company recorded a net Gain on Lawsuit and Legal Settlement of $200,817. On May 30, 2019 the Company recorded a gain on lawsuit judgment and legal settlement of $230,840 related to the settlement of a lawsuit the Company filed in 2017 against several defendants. The settlement was reached on May 30, 2019 and included a $200,000 cash payment by the defendants to the Company, the forgiveness of debt of $30,840 owed by the Company to one of the defendants, and the return of 337,500 shares of common stock. In December 2019 the Company agreed to pay $30,023 to settle its lawsuit with LyonPride Music, LLC.

During the year ended December 31, 2018 the Company recorded a net Gain on Lawsuit and Legal Settlement of $689,724. In August 2018, the Company recorded a $654,289 gain related to the lawsuit judgment the Company received against Jerry Grisaffi, our former Chairman of the Board. The Company de-recognized two notes payable to Mr. Grisaffi, plus accrued interest, in the amount of $418,865, and de-recognized the related derivative liability of $235,424. In September 2018, the Company executed a settlement with Statewide Beverage and recorded a gain on legal settlement of $34,435. As part of the settlement, the Company received 90,909 of its common shares that had previously been issued to the owners of Statewide Beverage and cancelled them. The Company also recorded the extinguishment of liabilities that had been recorded at the time of the sale of product to Statewide Beverage in 2016. In November 2018, the Company recorded a gain related to the lawsuit judgment the Company received against LSW in the amount of $1,000 related to a court order to void the Series A Preferred Stock initially issued to the Company’s former Chairman of the Board and later purchased by LSW. The $1,000 gain represents the par value of the 1,000,000 shares cancelled.

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

For the year ended December 31, 2019, the Company recorded a loss on the change in fair value of derivative liability of $25,844 compared to a gain of $1,975,858 for the year ended December 31, 2018. In 2019 the loss resulted from the impact of a decrease in the price of the Company’s common stock and its impact on convertible debt, while in 2018 the gain resulted from the decrease in the price of the Company’s underlying stock, which is used to calculate the fair value of the related derivative liability, from the beginning of the year to the end of the year.

Income Taxes

For the years ended December 31, 2019 and December 31, 2018, the Company recorded no income tax provision due to a full valuation allowance provided on deferred tax assets resulting from net operating losses.

Net Loss Attributable to Noncontrolling Interests

For the year ended December 31, 2019 the Company incurred marketing expenses of $8,398 in its 51%-owned subsidiary, Sweet Rock. The 49% allocated to noncontrolling interests was $4,123. There were no noncontrolling interests in 2018.

Liquidity and Capital Resources

As of December 31, 2019, we had current assets of $499,003, consisting of cash of $68,080, accounts receivable (net) of $18,162, inventory of $238,035, and prepaid expenses and other current assets of $174,726. As of December 31, 2019, we had current liabilities of $3,168,310, consisting of accounts payable and accrued liabilities of $1,143,217, related party payables of $30,406, convertible notes payable (net) of $1,008,950, notes payable of $30,000, accrued interest of $96,134, deferred revenue of $445,925, and derivative liability of $413,678.

Cash flows from operating activities

Net cash used in operating activities during the year ended December 31, 2019 was $3,267,564 compared to $3,728,782 during the year ended December 31, 2018. In both years, the Company used funds for advertising, promotions, storage, and administrative expenses.

Cash flows from investing activities

Net cash provided by investing activities during the year ended December 31, 2019 was $6,667 compared to net cash used in investing activities of $33,915 during the year ended December 31, 2018. In 2019 the cash provided was due to the disposal of a company van. In 2018 the cash used was due to software expenditures for the Company’s new HEMPd.com website. Property and equipment purchased in 2018 consisted of office and computer equipment.

Cash flows from financing activities

Net cash provided by financing activities during the year ended December 31, 2019 was $2,715,291 compared to $4,359,400 during the year ended December 31, 2018. In 2019, proceeds of $367,500 were from the issuance of convertible notes payable compared to $877,500 in 2018. In 2019 the Company repaid $7,493 of notes payable compared to $14,672 in 2018. In 2019 the Company received proceeds of $100,000 from the sale of the newly designated Series F Preferred Stock. In the years ended December 31, 2019 and 2018, the Company received proceeds from sales of common stock of $2,255,284 and $3,669,504, respectively.

Material Indebtedness

As of December 31, 2019 and 2018, the Company’s outstanding debt, net of discounts, totaled $1,038,950 and $704,089, respectively. The increase in debt during the year ended December 31, 2019 resulted from the modification of notes payable.

As of December 31, 2019, convertible promissory notes payable were convertible for common stock at fixed prices ranging from $.02 to $.03 or at a discount to market price, as defined, of 50%.

As of December 31, 2018, convertible promissory notes payable were convertible for common stock at fixed prices ranging from $.10 to $.16 or at a discount to market price, as defined, of 50%.

The Company has determined that the conversion feature embedded in the notes referred to above, that contain a potential variable conversion amount, constitutes a derivative which has been bifurcated from the note and recorded as a derivative liability, with a corresponding discount recorded to the associated debt. The excess of the derivative value over the face amount of the note is recorded immediately to interest expense at inception.

Future Liquidity Requirements

During the year ending December 31, 2020, the Company expects to have positive cash flows from operations. Depending on timing of cash flows from the manufacturing facility acquired in April 2020, the Company will need debt or equity financing, particularly for equipment and short-term operational needs. We expect any operational cash needs will be met by our current funding arrangements with GHS Investments, LLC or other sources.

Off-Balance Sheet Arrangements

As of December 31, 2019, there were no off-balance sheet arrangements

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a total shareholders’ deficit of $2,662,351 and an accumulated deficit of $40,285,145 as of December 31, 2019 and has generated operating losses since inception. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue raising capital.

During 2019 the Company 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.

Critical Accounting Policies

A Critical Accounting Policy is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

The Company’s business may be 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.

Any significant disruption to communications and travel, including travel restrictions and other potential protective quarantine measures against COVID-19 by governmental agencies, may increase the difficulty and could make it impossible for us to deliver goods to our customers. 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.

The extent to which COVID-19 impacts our business, sales and results of operations will depend on future developments, which are highly uncertain and cannot be predicted.

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.

Revenue Recognition

The Company follows the guidance of the Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers,” as amended. We record 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.

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:

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 instruments is as follows:

 The estimated fair value of the derivative instruments was valued using the Black-Scholes option pricing model, using the following assumptions as of December 31, 2019 and December 31, 2018:

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.

Recently Issued Accounting Pronouncements

Unless otherwise noted, we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of our election, our financial statements may not be comparable with other public companies.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which requires lessees to recognize on the balance sheet a right-of-use asset, representing their right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. The Company adopted Topic 842, as amended, on January 1, 2020. Upon adoption, the Company did not have any leases that would require recognition on the its consolidated balance sheet.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires the immediate recognition of management’s estimates of current and expected credit losses. ASU 2016-13 is effective for the Company beginning January 1, 2021. The Company is currently evaluating the potential impact of adopting this guidance on its financial statements.

In May 2018, the FASB issued ASU 2018-09, Compensation-Stock Compensation: Scope of Modification Accounting. This ASU amends the scope of modification accounting for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions of share-based payment awards an entity is required to apply modification accounting under ASC 718. This update is effective for the Company beginning January 1, 2021. The Company is currently evaluating the impact that ASU 2018-09 will have on its consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The guidance is intended to reduce the complexity associated with issuers’ accounting for share-based payment transactions for acquiring goods and services. The ASU is effective for the Company beginning January 1, 2022. The Company is currently evaluating the impact that ASU 2018-07 will have on its consolidated financial statements.

In July 2018, the FASB issued ASU 2018-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480): Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The guidance is intended to reduce the complexity associated with issuers’ accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, a down round feature (as defined) would no longer cause a freestanding equity-linked financial instrument (or an embedded conversion option) to be accounted for as a derivative liability at fair value with changes in fair value recognized in current earnings. The amendments in this ASU are effective for the Company beginning January 1, 2020. Management does not believe that ASU 2018-11 will have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurements: Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement. This update modifies the disclosure requirements on fair value measurements in Topic 820. The ASU is effective for the Company beginning January 1, 2021. The Company is currently evaluating the impact that ASU 2018-13 will have on its consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

Item 8. Financial Statements and Supplementary Data

Index to Financial Statements Required by Article 8 of Regulation S-X:

Audited Financial Statements:

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Rocky Mountain High Brands, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Rocky Mountain High Brands, Inc. and Subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, shareholders’ deficit and cash flows for the years ended December 31, 2019 and 2018, and the related notes to the consolidated financial statements (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the results of its operations, shareholders’ deficit and its cash flows for the years ended December 31, 2019 and 2018, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 3 to the consolidated financial statements, the Company has a shareholders’ deficit of $2,622,351 and an accumulated deficit of $40,285,145 as of December 31, 2019 and has generated operating losses since inception. These factors among others, raise substantial doubt regarding the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3 to the accompanying financial statements. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulation of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included

evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Prager Metis CPAs, LLC

We have served as the Company’s auditor since 2018

Basking Ridge, New Jersey

July 8, 2020

 Rocky Mountain High Brands, Inc. and Subsidiaries

Consolidated Balance Sheets  

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

 Rocky Mountain High Brands, Inc. and Subsidiaries

Consolidated Statements of Operations 

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

 Rocky Mountain High Brands, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Deficit

For the Years Ended December 31, 2019 and 2018 

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

 Rocky Mountain High Brands, Inc. and Subsidiaries

Consolidated Statements of Cash Flows