0001663577-17-000379.txt : 20171114 0001663577-17-000379.hdr.sgml : 20171114 20171114161158 ACCESSION NUMBER: 0001663577-17-000379 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 65 CONFORMED PERIOD OF REPORT: 20170930 FILED AS OF DATE: 20171114 DATE AS OF CHANGE: 20171114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Rocky Mountain High Brands, Inc. CENTRAL INDEX KEY: 0001670869 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 900895673 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-55609 FILM NUMBER: 171201616 BUSINESS ADDRESS: STREET 1: 9101 LBJ FREEWAY, SUITE 200 CITY: DALLAS STATE: TX ZIP: 75243 BUSINESS PHONE: 972-833-1584 MAIL ADDRESS: STREET 1: 9101 LBJ FREEWAY, SUITE 200 CITY: DALLAS STATE: TX ZIP: 75243 10-Q 1 mainbody.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2017

 

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

 

 

For the transition period from to _______

 

 

Commission File Number: 000-55609

 

Rocky Mountain High Brands, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada 90-0895673

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

 

9101 LBJ Freeway, Suite 200, Dallas, TX 75243

(Address of principal executive offices)

 

(800)-260-9062

(Registrant’s telephone number)

 

 

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

 

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

 

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

 

[ ] Large accelerated filer [ ] Accelerated filer

 

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

 

[X] Emerging growth company

 

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

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 896,655,520 common shares as of November 13, 2017.

 

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

 

 1 

 

 

 

 

TABLE OF CONTENTS

 

PART 1- FINANCIAL STATEMENTS

 

 

 

 

Page
Item 1: Consolidated Financial Statements 3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
Item 3: Quantitative and Qualitative Disclosures About Market Risk 11
Item 4: Controls and Procedures 11

 

PART II – OTHER INFORMATION

 

Item 1: Legal Proceedings 12
Item 1A: Risk Factors 12
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 13
Item 3: Defaults Upon Senior Securities 13
Item 4: Mine Safety Disclosures 13
Item 5: Other Information 13
Item 6: Exhibits 13

 

 2 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

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

 

F-1 Consolidated Balance Sheets as of September 30, 2017 and June 30, 2017 (unaudited);
F-2 Consolidated Statements of Operations for the three months ended September 30, 2017 and 2016 (unaudited);
F-3 Consolidated Statements of Cash Flows for the three months ended September 30, 2017 and 2016 (unaudited);
F-4 Notes to Consolidated Financial Statements (unaudited).

 

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2017 are not necessarily indicative of the results that can be expected for the full year. 

 

 3 

 

 

Rocky Mountain High Brands, Inc.

Consolidated Balance Sheets

(Unaudited)

 

   September 30, 2017  June 30, 2017
CURRENT ASSETS        
         
Cash  $19,266  $91,675
Accounts Receivable, net of allowance of $221,268 and $138,373   1,657   63,268
Inventory   195,363   224,695
Prepaid Expenses and Other Current Assets   682,435   774,338
TOTAL CURRENT ASSETS   898,721   1,153,976
         
Property and Equipment, net   43,730   48,133
Other Assets   102,256   77,256
         
TOTAL ASSETS  $1,044,707  $1,279,365
         
LIABILITIES AND SHAREHOLDERS' DEFICIT        
         
CURRENT LIABILITIES        
         
Accounts Payable and Accrued Liabilities  $547,137  $441,190
Related Party Convertible Notes Payable, net of debt discount   438,832   266,247
Related Party Notes Payable   —     —  
Convertible Notes Payable, net of debt discount   782,099   733,253
Note Payable-Other   23,164   26,130
Redemption Value of Series C Preferred Stock   1,661,424   1,661,424
Accrued Interest   447,974   382,820
Derivative Liability   3,590,301   5,072,579
TOTAL CURRENT LIABILITIES   7,490,931   8,583,643
         
SHAREHOLDERS' DEFICIT        
Preferred Stock - Series A - Par Value of $.001  1,000,000 shares authorized; 1,000,000 shares issued and outstanding as of September 30, 2017 and June 30, 2017   1,000   1,000
Preferred Stock - Series B - Par Value of $.001  5,000,000 shares authorized;  no shares issued and outstanding   —     —  
Preferred Stock - Series C - Par Value of $.001  2,000,000 shares authorized; 1,107,607 shares outstanding (classified as a liability as of September 30, 2017 and June 30, 2017)   —     —  
Preferred Stock - Series D - Par Value of $.001  2,000,000 shares authorized; no shares issued and outstanding   —     —  
Preferred Stock - Series E - Par Value of $.001  789,474 shares authorized, issued, and outstanding as of September 30, 2017;  No shares authorized, issued, and outstanding as of June 30, 2017   789   —  
Common Stock - Par Value of $.001  950,000,000 shares authorized; 793,266,046 shares issued and outstanding as of September 30, 2017; 786,525,118 shares issued and  outstanding as of June 30, 2017   793,266   786,525
Additional Paid In Capital   18,228,082   18,062,830
Accumulated Deficit   (25,469,361)   (26,154,633)
TOTAL SHAREHOLDERS' DEFICIT   (6,446,224)   (7,304,278)
         
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT  $1,044,707  $1,279,365

  

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

 

 

 F-1 

 

Rocky Mountain High Brands, Inc.

Consolidated Statements of Operations

(Unaudited)

 

   Three Months Ended
   September 30, 2017  September 30, 2016
       
Sales  $41,002   $295,587
          
Cost of Sales   43,800    90,020
          
Gross Profit (Loss)   (2,798)   205,567
          
Operating Expenses         
General and Administrative   604,751    864,549
Advertising and Marketing   56,318    317,540
Total Operating Expenses   661,069    1,182,089
          
Loss from Operations   (663,867)   (976,522)
          
Other (Income)/Expenses:         
Interest Expense   464,110    234,519
Gain on Change in Fair Value of Derivative Liability   (1,813,249)   (480,764)
Total Other (Income) Expenses:   (1,349,139)   (246,245)
          
Income (Loss) Before Income Tax Provision   685,272    (730,277)
          
Income Tax Provision   —      —  
          
Net Income (Loss)  $685,272   $(730,277)
          
Net Income (Loss) per Common Share - Basic and Diluted  $0.00   $(0.00)
          
Weighted Average Shares Outstanding   788,609,275    594,531,676

 

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

  

 F-2 

 

Rocky Mountain High Brands, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

   Three Months Ended
   September 30, 2017  September 30, 2016
Operating Activities:         
Net Income (Loss)  $685,272   $(730,277)
Adjustments to reconcile net loss to net cash used in operating activities:         
  Stock-based compensation   82,824    49,704
  Warrants and options issued for services rendered   23,074    191,969
  Non-cash interest expense   464,110    233,826
  Gain on change in fair value of derivative liability   (1,813,249)   (480,764)
  Loss on disposal of property and equipment   832    —  
  Bad debt expense   64,042    —  
  Depreciation expense   4,584    11,659
Changes in operating assets and liabilities:   —      —  
  Accounts Receivable   (2,431)   (244,503)
  Inventory   29,332    30,738
  Prepaid expenses   24,079    84,540
  Other assets   (25,000)   (18,430)
  Accounts payable and accrued liabilities   65,601    305,482
NET CASH USED IN OPERATING ACTIVITIES   (396,930)   (566,056)
          
Investing Activities:         
  Investment in Rocky Mountain High Water Company   —      (39,774)
  Acquisition of property and equipment   (1,013)   (36,635)
  Disposal of property and equipment   —      35,000
NET CASH USED IN INVESTING ACTIVITIES   (1,013)   (41,409)
          
Financing Activities:         
  Proceeds from issuance of convertible notes   220,000    220,000
  Proceeds from issuance of related party notes   100,000    35,000
  Proceeds from issuance of note payable-other   —      35,960
  Repayment of note payable-other   (2,966)   —  
  Proceeds from issuance of common stock   8,500    214,250
NET CASH PROVIDED BY FINANCING ACTIVITIES   325,534    505,210
          
INCREASE (DECREASE) IN CASH   (72,409)   (102,255)
          
CASH - BEGINNING OF PERIOD   91,675    102,255
          
CASH - END OF PERIOD  $19,266   $—  
          
Supplemental disclosure of non-cash financing and investing activities:         
  Common stock issued for conversion of debt  $126,207   $41,800
  Debt and accrued interest converted for common stock  $85,234   $—  
  Derivative liability incurred for debt discount  $443,482   $—  
  Derivative liability relieved upon conversion of related debt  $52,542   $—  
  Beneficial conversion feature recognized  $—     $128,500

 

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

    

 F-3 

 

Rocky Mountain High Brands, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

NOTE 1 – General

 

Rocky Mountain High Brands, Inc. (“RMHB” or the “Company”) was incorporated under the laws of the State of Nevada. On July 17, 2014, the Company changed its name from Republic of Texas Brands Incorporated to Totally Hemp Crazy, Inc and on October 23, 2015, the Company changed its name to Rocky Mountain High Brands, Inc.

 

RMHB has developed and is currently selling in the marketplace a lineup of five hemp-infused beverages and 2oz. energy shots through its nationwide distributor network and online. Effective June 30, 2016, the Company entered into a business alliance with Poafpybitty Family, LLC to launch Eagle Spirit Spring Water, a line of purified, high-alkaline spring water sourced from Native American tribal land in Oklahoma. 

 

NOTE 2 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2017 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended September 30, 2017 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s form 10-K/A for the year ended June 30, 2017 filed with the SEC on October 12, 2017.

  

Principles of Consolidation

 

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The consolidated financial statements include the accounts of the Company, its wholly-owned and controlled subsidiaries. All intercompany balances and transactions have been eliminated.

 

Use of Estimates

 

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

 

Cash

 

The Company considers all short-term highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents.

 

Revenue Recognition

 

The Company follows the guidance of the Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition.” It records revenue when persuasive evidence of an arrangement exists, product delivery has occurred, the selling price to the customer is fixed or determinable and collectability of the revenue is reasonably assured. The Company has not experienced any significant returns from customers and accordingly, in management’s opinion, no reserve for returns has been provided. Payments received prior to shipment of goods are recorded as deferred revenue.

 

 F-4 

 

Accounts Receivable and Allowance for Doubtful Accounts Receivable

 

The Company has a policy of reserving for uncollectible accounts based on the best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to customers based on an evaluation of their financial condition and other factors. The Company generally does not require collateral or other security to support accounts receivable and perform ongoing credit evaluations of customers and maintain an allowance for potential bad debts if required.

 

It is determined whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. The Company may also record a general allowance as necessary.

 

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

 

Inventories

 

Inventories, which consist only of the Company’s finished products held for resale, are stated at the lower of cost, determined using the first-in, first-out, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to dispose of the product.

 

If the Company identifies excess, obsolete or unsalable items, its inventories are written down to their realizable value in the period in which the impairment is first identified. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales in the Company’s statements of operations.

 

Fair Value Measurements

 

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

 

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

 

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

 

Level 1 — quoted prices in active markets for identical assets or liabilities.
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable.
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions).

  

The derivative liability, which relates to the conversion feature of convertible debt and common stock warrants and options, is classified as a Level 3 liability, and is the only financial liability measure at fair value on a recurring basis.

 

 F-5 

The change in the Level 3 financial instrument is as follows:

 

Balance, June 30, 2017  $5,072,579
Issued during the three months ended September 30, 2017  $443,482
Exercises/Conversions  $(112,511)
Change in fair value recognized in operations  $(1,813,249)
Balance, September 30, 2017  $3,590,301

 

The estimated fair value of the derivative instruments were valued using the Black-Scholes option pricing model, using the following assumptions as of September 30, 2017:

 

Estimate Dividends  None
Expected Volatility   127.3%
Risk-Free Interest Rate   1.06%
Expected Term   .1-1.8 years

 

Property and Equipment

 

Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.

 

Impairment of Long-Lived Assets

 

The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flow and recognizes an impairment loss when the estimated undiscounted future cash flow expected to result from the use of the asset plus the net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When the Company identifies an impairment, it reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values. No impairment charges were recorded during the three months ended September 30, 2017 and September 30, 2016.

 

Share-based Payments

 

Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values, in accordance with FASB ASC Topic 718. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company had no common stock options or common stock equivalents granted or outstanding for all periods presented.

 

The Company issued restricted stock to consultants and employees for various services. Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is to be measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete.

 

Convertible Instruments

 

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

 

 F-6 

 

Preferred Stock

 

We apply the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity” when determining the classification and measurement of preferred stock. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. We classify conditionally redeemable preferred shares (if any), which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control, as temporary equity. At all other times, we classified our preferred shares in stockholders’ equity. Our preferred shares do not feature any redemption rights within the holders’ control or conditional redemption features not within our control. Accordingly, unless otherwise noted, all issuances of preferred stock are presented as a component of consolidated shareholders’ deficit.

 

Advertising

 

Advertising and marketing expenses are charged to operations as incurred.

 

Income Taxes

 

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company has no material uncertain tax positions.

 

 NOTE 3 – Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a shareholders’ deficit of $6,446,224 and an accumulated deficit of $25,469,361 as of September 30, 2017, and has generated operating losses since inception. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue raising capital.

 

On October 12, 2017 the Company executed an Equity Financing Agreement (“EFA”) with GHS Investments LLC (“GHS”). Under the agreement, GHS has committed to purchase up $12 million of the Company’s common stock over a 24-month period at a 20% discount off the market price, as defined in the agreement. The agreement contains certain restrictions on the timing of the stock purchases and requires the Company to file a registration statement with the Securities and Exchange Commission (“SEC”) to register the common shares issuable under the agreement. In conjunction with the Equity Financing Agreement, the Company entered into a $250,000 secured convertible promissory note with a term of nine months and bearing interest at 10%. The note is convertible to common shares based on a formula with a discount to market price. On November 2, 2017, the Company entered into a second $250,000 secured convertible promissory note with similar terms after filing a registration statement on Form S-1 with the SEC on November 1, 2017 to register 300,000,000 shares at $.02 per share for a total offering of $6 million. The Company expects to fund its operational and investing needs through the EFA over the next two years.

 

 F-7 

 

NOTE 4 – Inventory

 

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

 

   September 30, 2017  June 30, 2017
Finished inventory  $186,587  $216,711
Raw materials and packaging   8,776   7,984
Total  $195,363  $224,695

 

 

 NOTE 5 – Prepaid Expenses and Other Current Assets

 

As of September 30, 2017 and June 30, 2017, prepaid expenses and other current assets were as follows:

 

   September 30, 2017  June 30, 2017
Prepaid officers’ compensation  $483,532  $521,916
Prepaid directors’ compensation   176,648   206,090
Prepaid marketing expenses   —     19,250
Other prepaid expenses and current assets   22,255   27,082
Total  $682,435  $774,338

 

 NOTE 6 – Property and Equipment

 

As of September 30, 2017 and June 30, 2017, property and equipment were as follows:

 

   September 30, 2017  June 30, 2017
Vehicles  $29,598  $29,598
Furniture and equipment   42,055   41,042
Personal computers   2,379   3,315
    74,032   73,955
Less:  accumulated depreciation   30,302   25,822
Total  $43,730  $48,133

 

For the three months ended September 30, 2017 and September 30, 2016, depreciation expense was $4,584 and $11,659, respectively.

 

NOTE 7 – Convertible Notes Payable

 

As of September 30, 2017 and June 30, 2017, the Company’s convertible notes payable were as follows:

   Interest Rates  Term  September 30, 2017 

June 30, 2017

Convertible notes payable   6% - 12%   0 -2 year   $1,310,000   $1,115,000
Discount             (527,901)   (381,747) 
Total            $782,099   $733,253

  

For the three months ended September 30, 2017 and September 30, 2016, interest expense on these notes, including amortization of the discount, was $124,584 and $29,089, respectively.

 

 F-8 

The Company has determined that the conversion feature embedded in certain of the notes referred to above that contain a potential variable conversion amount constitutes a derivative which has been bifurcated from the note and recorded as a derivative liability, with a corresponding discount recorded to the associated debt. The excess of the derivative value over the face amount of the note is recorded immediately to interest expense at inception. The Company recorded $101,587 and $0 of interest expense for the three months ended September 30, 2017 and 2016, respectively, at the inception of the notes relating to the excess of derivative value over the face of the notes.

 

NOTE 8 – Note Payable-Other

 

On September 1, 2016, the Company purchased used office furniture and equipment from its landlord. The Company executed a note payable in the 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 on September 1, 2016. The term of the note is three years. The balance on the note was $23,164 and $26,130 on September 30, 2017 and June 30, 2017, respectively. For the three months ended September 30, 2017 and September 30, 2016, interest expense on this note was $377 and $183, respectively.

  

NOTE 9 – Related Party Convertible Notes Payable

 

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

 

   Interest Rate  Term  September 30, 2017  June 30, 2017
Related party convertible notes payable   6%  6 mos. - 1 year  $563,450   $493,450
Discount           (124,618)   (227,203)
Total          $438,832   $266,247

 

For the three months ended September 30, 2017 and 2016, interest expense on these notes, including amortization of the discount, was $191,826 and $82,934, respectively.

 

The Company has determined that the conversion feature embedded in certain of the notes referred to above that contain a potential variable conversion amount constitutes a derivative which has been bifurcated from the note and recorded as a derivative liability, with a corresponding discount recorded to the associated debt. The excess of the derivative value over the face amount of the note is recorded immediately to interest expense at inception. The Company recorded no interest expense for the three months ended September 30, 2017 and 2016, respectively, at the inception of the notes relating to the excess of derivative value over the face of the notes.

 

NOTE 10 – Shareholders’ Deficit

 

Common Stock

 

As of September 30, 2017 and June 30, 2017 the Company has 950,000,000 shares of common stock authorized. On October 31, 2017 the authorization was increased to 4,000,000,000.

 

During the three months ended September 30, 2017 the Company issued 6,740,928 shares of common stock, including 6,240,928 for convertible notes payable conversions and 500,000 for cash.

 

On July 14, 2017 the Board of Directors increased the authorized shares in the Rocky Mountain High Brands, Inc. 2017 Incentive Plan to 65,000,000.

   

Preferred Stock

 

The Company has 20,000,000 shares of preferred stock authorized as of September 30, 2017, of which 10,000,000 are specifically designated to a series of preferred stock and 10,000,000 remain undesignated.

 

 F-9 

 

Series A Preferred Stock

 

The Company has 1,000,000 shares of Series A Preferred Stock authorized and outstanding as of September 30, 2017 and June 30, 2017. LSW Holdings, LLC (“LSW”), the holder of these shares is our controlling shareholder. Lily Li, Executive Vice President, is the Managing Member of LSW and, in that capacity, has the authority to direct voting and investment decisions with regard to its holdings in the company. See Note 16 – Subsequent Events.

 

On July 5, 2017, the Company amended the Certificate of Designation for our Series A Preferred stock. The amendment changed the conversion ratio of our Series A Preferred stock from 1,200 shares of common stock for every share of Series A Preferred stock to 100 shares of common stock for every share of Series A Preferred stock. The amendment was approved by the Company’s Board of Directors and LSW, the holder of our Series A Preferred Stock.

 

On July 24, 2017, the Company’s Board of Directors approved an amendment to the Certificate of Designation for the Series A Preferred Stock that changed the voting rights back to 400 votes from 1,200 for every share of Series A Preferred Stock.

 

Series B Preferred Stock

 

The Company has 5,000,000 shares of Series B Preferred Stock authorized, of which none are outstanding as of September 30, 2017 and June 30, 2017.

 

Series C Preferred Stock

 

The Company has 2,000,000 shares of Series C Preferred Stock authorized, of which 1,107,607 are outstanding as of September 30, 2017 and June 30, 2017. The shares are 12% interest bearing, cumulative, exchangeable, non-voting, convertible preferred stock of the Company. Each Series C Preferred share is convertible to 50 shares of common stock.

 

The redemption value of the Series C Preferred stock has been reclassified to current liabilities in accordance with the agreement executed between the Company and the holder of the shares.

  

Series D Preferred Stock

 

The Company has 2,000,000 shares of Series D Preferred Stock authorized, of which none are outstanding as of September 30, 2017 and June 30, 2017. Series D Preferred Stock is a non-voting, non-interest bearing convertible preferred stock. Each Series D preferred share is convertible to 100 shares of common stock.

 

Series E Preferred Stock

 

On September 19, 2017, the Board of Directors approved a new Series E Preferred Stock. Holders of Series E Preferred Stock are entitled to cast 2,000 votes per share of Series E Preferred Stock on any proposal to increase our authorized capital stock, with no other voting rights. Series E Preferred Stock is convertible to common stock on a 1:1 basis. On the same day, the Board granted our Chairman 789,474 shares of Series E Preferred stock as payment for his deferred compensation. On October 31, 2017, Mr. Welch converted his 789,474 shares of Series E Preferred Stock to 789,474 shares of common stock.

 

Warrants

 

During the three months ended September 30, 2017 the Company granted no common stock warrants, none were exercised, and 1,187,500 were cancelled.

 

Options

 

During the three months ended September 30, 2017 the Company granted 650,000 options to purchase common stock. No options were exercised or cancelled.

  

NOTE 11– Concentrations

 

During the three months ended September 30, 2017, the Company’s two largest customers accounted for approximately 18% and 7% of sales, respectively. During the three months ended September 30, 2016, the Company’s two largest customers accounted for approximately 81% and 3% of sales, respectively.

 

 F-10 

 

NOTE 12 – Income Taxes

 

The reconciliation of income tax benefit at the U.S. statutory rate of 34% to the Company’s effective rate for the periods presented is as follows:

 

  Three Months Ended
  September 30, 2017   September 30, 2016
U.S federal statutory rate (34%)   (34%)
State income tax, net of federal benefit (0.0%)   (0.0%)
Increase in valuation allowance 34%   34%
Income tax provision (benefit) 0.0%   0.0%

The tax effects of temporary differences that give rise to the Company’s net deferred tax liability as of September 30, 2017 and June 30, 2017 are as follows:

 

Deferred Tax Assets   September 30, 2017   June 30, 2017
Net Operating Losses   $ 4,700,000   $ 4,482,000
Less:  Valuation Allowance   $ (4,700,000)   $ (4,482,000)
Deferred Tax Assets - Net     —       —  

 

As of September 30, 2017, the Company had approximately $13,900,000 of federal and state net operating loss carryovers (“NOLs”), which begin to expire in 2027. Utilization of the NOLs may be subject to limitation under the Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined under regulations.

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against the entire deferred tax asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset will not be realized.

 

NOTE 13 – Commitments

 

Office Lease

 

The Company has a three-year lease for corporate office space. The lease commenced on September 1, 2016 with monthly payments of $7,715 in year one, $7,972 in year two and $8,229 in year three. The lease is being accounted for on a straight-line basis over its term.

 

Other Leases

 

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

  

NOTE 14 – Legal Proceedings

 

Please refer to our Annual Report on Form 10-K/A filed October 12, 2017 for information regarding our pending legal proceedings. The following represents an update to the items disclosed in that filing:

 

Claims Against Donna Rayburn

 

On October 6, 2017 the Company executed a Release and Settlement Agreement with Donna Rayburn regarding the litigation between the Company and Ms. Rayburn. Ms. Rayburn released the Company from all claims and returned 10 million stock warrants.

 

 F-11 

 

Arbitration Claim of Roy J. Meadows Against Rocky Mountain High Brands, Inc. (RMHB) dated February 24, 2016

 

On October 6, 2017 the Company executed a Release and Settlement Agreement with Roy Meadows (“Meadows Settlement”) regarding the litigation between the parties. As part of the Meadows Settlement, the Company agreed to issue 45 million shares of the Company’s common stock, including 20 million shares issued immediately and 25 million shares to be issued upon the effectiveness of the Company’s increased common share authorization. Mr. Meadows is subject to a “leak-out” formula whereby he is limited in the number of shares he can re-sell if the stock price is below $.06 per share. In connection with this settlement, the Company agreed to an exchange of the Preferred C Stock back to the originating note payable in accordance with the terms of the Exchange Agreement. Mr. Meadows assigned the note to GHS Investments, LLC, (“GHS”) an outside investment group, in exchange for consideration paid to him by GHS. Mr. Meadows released the Company from all claims and returned 55,096,825 stock warrants.

 

192nd Judicial District Court of Dallas County Texas, filed February 16, 2017, DC-17-02058. Rocky Mountain High Brands, Inc. v. Dewmar International BMC, Inc.

 

RMHB filed suit against Dewmar for breach of contract and for an accounting. RMHB is in the process of obtaining a default judgment against Dewmar for its failure to file an answer to the suit.

 

134th Judicial District Court of Dallas County, Texas, filed April 28, 2017. Rocky Mountain High Brands, Inc. v Lyonpride Music, LLC

 

RMHB filed suit against Lyonpride for fraud and for declaratory relief with respect to a contract between the parties. RMHB seeks monetary damages against said Defendant.

 

134th Judicial District Court of Dallas County, Texas. Filed June 26, 2017. Rocky Mountain High Brands, Inc. v Statewide Beverage Company, Inc.

 

RMHB has filed suit for breach of contract, common law fraud and declaratory relief.

 

Los Angeles Superior Court, BC669367, filed July 24, 2017. Statewide Beverage Company, Inc. v. Rocky Mountain High Brands, Inc.

 

Statewide filed a breach of contract claim, dealing with the same fact issues in the above case of RMHB v Statewide. RMHB still has not been served in this case.

 

Dallas County Texas, Case Number DC-17-15441 filed November 8, 2017.  Rocky Mountain High Brands, Inc. f/k/a Republic of Texas Brands, Inc. Plaintiff, vs. Jerry Grisaffi, Joe Radcliffe, LSW Holdings, LLC, Lily Li, Epic Group One, LLC, Kenneth Radcliffe, Dennis Radcliffe, Phil Uhrik, Michael Radcliffe, Frank Izzo, Morgan Albright, John Garrison, BB Winks, LLC, Crackerjack Classic, LLC, and Universal Consulting, LLC.

 

RMHB is seeking the return of Series A Preferred stock and common stock issued to certain defendants or later obtained by certain other defendants for little or no consideration paid to the Company.  RMHB alleges the Company’s former Chairman of the Board breached his fiduciary duty to the Company by issuing these shares to himself and others.

 

NOTE 15 – Acquisitions

 

Rocky Mountain High Water Company LLC

 

In July 2016, the Company entered into a business alliance with Poafpybitty Family, LLC to launch Eagle Spirit Spring Water, a line of purified, high-alkaline spring water sourced from Native American tribal land in Oklahoma. The agreement calls for the Company to pay a royalty on each gallon of water collected at the spring. Production of filtered spring water filled bottles commenced in August 2016 and sales began in October 2016.

 

In consideration for the 20-year water and surface rights, and a related 10-year renewal option, the Company paid Poafpybitty Family, LLC cash payments of $22,500 and issued a warrant for 500,000 shares of the Company’s common stock exercisable at $.03 per share over a three-year period beginning July 27, 2016.

 

The agreement grants the Company an exclusive right to develop land adjacent to the spring for commercial purposes as agreed to by both parties. Additionally, the Company has agreed to grow hemp for experimental or commercial purposes on the land within three years.

 

On November 12, 2016, the agreement with the Poafpybitty Family was amended to give the Company a controlling voting interest of 75% of RMHW, while the Poafpybitty Family received 51% of the equity interest. The amended agreement is being accounted for as a step-acquisition, with the resulting goodwill of $49,911 included in other assets. The Company is obtaining an outside valuation of the rights to use the land and obtain the water described in the agreement. Beginning November 12, 2016, the operations of RMHW are consolidated in the financial statements of RMHB.

 

 F-12 

 

NOTE 16 – Subsequent Events

 

Between October 1, 2017 and November 13, 2017 the Company issued 103,389,474 shares of common stock, of which 52,000,000 were for debt conversions, 45,000,000 were for a legal settlement, and 6,389,474 were for services rendered.

 

On October 6, 2017 the Company executed a Release and Settlement Agreement with Roy Meadows (“Meadows Settlement”) regarding the litigation between the parties. As part of the Meadows Settlement, the Company agreed to issue 45 million shares of the Company’s common stock, including 20 million shares issued immediately and 25 million shares to be issued upon the effectiveness of the Company’s increased common share authorization. Mr. Meadows is subject to a “leak-out” formula whereby he is limited in the number of shares he can re-sell if the stock price is below $.06 per share. In connection with this settlement, the Company agreed to an exchange of the Preferred C Stock back to the originating note payable in accordance with the terms of the Exchange Agreement. Mr. Meadows assigned the note to GHS Investments, LLC, (“GHS”) an outside investment group, in exchange for consideration paid to him by GHS. Also on October 6, 2017 the Company exchanged that note for a new secured convertible promissory note to GHS with a principal of $1,107,607, a term of nine months, and interest of 10% annually. The new note is convertible to common shares based on a formula with a discount to market price. Mr. Meadows released the Company from all claims and returned 55,096,825 stock warrants.

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

 

On October 12, 2017 the Company executed an Equity Financing Agreement (“EFA”) with GHS. Under the agreement, GHS has committed to purchase up $12 million of the Company’s common stock over a 24-month period at a 20% discount off the market price, as defined in the agreement. The agreement contains certain restrictions on the timing of the stock purchases and requires the Company to file a registration statement with the Securities and Exchange Commission (“SEC”) to register the common shares issuable under the agreement. In conjunction with the EFA, the Company entered into a $250,000 secured convertible promissory note with a term of nine months and bearing interest at 10%. The note is convertible to common shares based on a formula with a discount to market price. On November 2, 2017, the Company entered into a second $250,000 secured convertible promissory note with similar terms after filing a registration statement on Form S-1 with the SEC on November 1, 2017. The Company expects to fund its operational and investing needs through the EFA over the next two years.

 

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

 

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

 

 F-13 

 

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

 

Forward-Looking Statements

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

 

Company Overview

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

 

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

 

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

 

Rocky Mountain High Water Company, LLC, an active Delaware limited liability company (Subsidiary-consolidated beginning November 12, 2016)

 

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

 

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

 

RMHB is a consumer goods company specializing in brand development of health conscious, hemp-infused food and beverage products. The Company currently markets a lineup of five naturally flavored hemp-infused beverages (Citrus Energy, Black Tea, Mango Energy and Lemonade) and a low-calorie hemp-infused Coconut Lime Energy drink. The Company also offers hemp-infused 2oz. Mango Energy Shots and Mixed Berry Energy Shots. In August 2016 the Company launched Eagle Spirit Spring Water, a line of naturally high alkaline spring water.

 

After developing the beverage products, RMHB completed its first production run in February of 2015. Since then RMHB has had production runs for hemp-infused beverages totaling over 3,900,000 cans. Each beverage contains approximately 50mg (our first production run) to 100mg of hempseed extract and all-natural ingredients. The hemp-infused products are shelf stable (no refrigeration necessary) with a shelf life of two years.

 

During fiscal year 2017, the Company also produced energy shots and Relaxation Brownies.

 

In September 2016, the Company bottled its first high alkaline spring water, Eagle Spirit Spring Water and has completed several production runs since, including approximately 110,000 16.9 oz. bottles and 1,800 2.64-gallon (10-liter) “Bag in a Box.”

 

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

 

In August 2017, the Company sold its remaining inventory of Smarterita wine-based beverages. There are currently no plans to resume production of this alcoholic beverage.

 

 4 

 

Current Product Offerings

 

Under its Rocky Mountain High Brands name, the Company currently markets a lineup of five hemp-infused 16 oz. beverages including:

 

Naturally Flavored Citrus Energy Drink - A citrus energy drink that contains 100mg hempseed extract and is complemented with ginseng and guarana extract, caffeine and other ingredients

 

Naturally Flavored Mango Energy Drink - A mango energy drink that contains 100mg hempseed extract and is complemented with ginseng and guarana extract, caffeine and other ingredients.

 

Low Calorie Coconut Energy Lime - A low-calorie coconut lime energy drink that contains 100mg hempseed extract and is complemented with ginseng and guarana extract, caffeine and other ingredients.

 

Naturally Flavored Lemonade - A lemonade drink that contains 100mg hempseed extract and is complemented with ginseng extract and other ingredients.

 

Naturally Flavored Black Tea - A black tea drink that contains 100mg hempseed extract and is complemented with black tea and ginseng extract and other ingredients.

 

 

The Company is also currently marketing a two-flavor lineup of energy shots.

 

The Company plans to sell its remaining inventory of these products during the first half of fiscal year 2018. In order to execute this plan, the Company will offer larger discounts to distributors and retailers and higher commissions to its broker network, likely resulting in lower gross profit margins for the first and second quarter of 2018.

 

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

 

Strategic Update and Planned Product Offerings

 

 

The Company has recently updated its long-term strategic plan. Management’s goal is to become the category leader in the hemp-infused beverage market, a segment of the functional beverage market. Functional beverages, or beverages that convey health benefits, are the fastest growing segment within the beverage market.

 

The Company is developing four newly reformulated, sugar-free, non-energy, hemp-infused beverage flavors. In addition to the new formulas, the beverages will feature 12 oz. cans, an all-new look and will replace all current hemp-infused beverage offerings. Two of the four beverage flavors will be carbonated. Flavor choices will be similar to past offerings. Management plans to begin production on the new beverages in February 2018. Marketing will focus on the health benefits of hemp, including Omega-3 and Omega-6 fatty acids, amino acids, and natural, plant-based fiber.

 

The Company is also reviewing its other product offerings, but there are no immediate plans to produce additional Relaxation Brownies or energy shots.

 

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

 

Results of Operations

 

Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016

 

Financial Summary

 

The Company’s sales for the three months ended September 30, 2017 were $41,002 compared to $295,587 for the three months ended September 30, 2016.

 

 5 

 

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

 

Sales

 

For the three months ended September 30, 2017 sales were $41,002 compared to $295,587 for the three months ended September 30, 2016, a decrease of $254,585 or 86%. The sales decrease was driven by the lack of funding for inventory production, direct sales support, and advertising and promotion of the Company’s products. In the three months ended September 30, 2017 sales consisted of approximately 57% distributor sales, 33% direct to retailer sales, and 10% online sales compared to 95% distributor sales and 5% online sales for the three months ended September 30, 2016.

 

Cost of Sales

 

For the three months ended September 30, 2017, cost of sales was $43,800 or 107% of sales, compared to $90,020 or 31% of sales for the three months ended September 30, 2016, a decrease of $46,220 or 51%. Cost of sales decreased in 2017 due to the decrease in sales, but increased as a percentage of sales in 2017 as a result of lower net selling prices as the Company sells its remaining hemp-infused beverage and shots inventories.

  

Operating Expenses

 

For the three months ended September 30, 2017, operating expenses were $661,069 or 1,612% of sales, compared to $1,182,089 or 400% of sales for the three months ended September 30, 2016. Areas in which the Company experienced material changes in operating expenses are discussed below.

 

General and Administrative

 

For the three months ended September 30, 2017, general and administrative expenses were $604,751 or 1,475% of sales, compared to $864,549 or 293% of sales for the three months ended September 30, 2016. The decrease in general and administrative expenses in 2017 was primarily driven by management’s efforts to reduce expenses as a result of the Company’s lack of funding. The increase in general and administrative expenses as a percentage of sales is due to lower sales in 2017.

 

Advertising and Marketing

 

For the three months ended September 30, 2017, advertising and marketing expenses were $56,318 or 137% of sales, compared to $317,540 or 107% of sales for the three months ended September 30, 2016. The decrease in advertising and marketing expenses in 2017 was primarily driven by management’s efforts to reduce expenses as a result of the Company’s lack of funding. Also, in 2016 the Company incurred significant promotional expenses related to a large sale to a distributor. There was no comparable sale in 2017. The increase in advertising and marketing expenses as a percentage of sales is due to lower sales in 2017.

 

Other (Income) Expense

 

Interest Expense

 

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

 

Gain on Change in Fair Value of Derivative Liability

 

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

 

 6 

Income Taxes

 

For the three months ended September 30, 2017 and September 30, 2016, the Company recorded no income tax provision due to a full valuation allowance provided on deferred tax assets resulting from net operating losses.

 

Liquidity and Capital Resources

 

As of September 30, 2017, the Company had current assets of $898,721, consisting of cash of $19,266, accounts receivable (net) of $1,657, inventory of $195,363, and prepaid expenses and other current assets of $682,435. As of September 30, 2017, we had current liabilities of $7,490,931, consisting of accounts payable and accrued liabilities of $547,137, related party convertible notes payable (net) of $438,832, convertible notes payable (net) of $782,099, other notes payable of $23,164, redemption value of Series C Preferred Stock of $1,661,424, accrued interest of $447,974, and derivative liability of $3,590,301. During the three months ended September 30, 2017, the Company received proceeds of $8,500 related to private offering stock sales of 500,000 shares of common stock.

 

Cash flows from operating activities

 

Net cash used in operating activities during the three months ended September 30, 2017 was $396,930 compared to $566,056 during the three months ended September 30, 2016. The change was principally driven by management’s efforts to conserve cash during 2017.

 

Cash flows from investing activities

 

Net cash used in investing activities during the three months ended September 30, 2017 was $1,013 compared to $41,409 during the three months ended September 30, 2016. In 2017 the Company made equipment acquisitions of $1,013 compared to 2016 when the Company made investments in Rocky Mountain High Water Company of $39,774 and net equipment acquisitions of $1,635.

 

Cash flows from financing activities

 

Net cash provided by financing activities during the three months ended September 30, 2017 was $325,534 compared to $505,210 during the three months ended September 30, 2016. In 2017, proceeds of $220,000 were from the issuance of convertible notes payable compared to $220,000 in 2016. The Company also issued $100,000 in related party notes payable in the three months ended September 30, 2017 compared to $35,000 in 2016. In 2016 the Company issued a note payable for $35,960 related to the purchase of office furniture and equipment. Repayments on that note were $2,966 during the three months ended September 30, 2017. In 2017 there were proceeds of $8,500 from the issuance of stock compared to $214,250 in 2016.

  

Outstanding Material Indebtedness

 

Recently, the Company’s operations have been funded primarily through the private sales of common stock or the issuance of convertible promissory notes, which are convertible to common stock at fixed prices ranging from $0.01 to $0.024, at discounts to market price ranging from 20% to 50%, or combinations thereof. As of September 30, 2017 the Company had total notes payable outstanding of $1,244,095 (net of discount).

 

On July 28, 2017, we executed an agreement with Eagle Equities, LLC (“Eagle Equities”) to sell up to $500,000 in convertible notes to Eagle Equities. On that same date, we issued a 12-month, convertible note bearing interest at 8% to Eagle Equities in exchange for funding $220,000, net of fees. The note is convertible to common stock at a 45% discount to market based on a look-back formula. The Company has the ability to obtain additional funding of $220,000 by issuing another convertible note to Eagle Equities eight months from the date of the original note.

 

On October 12, 2017 the Company executed an Equity Financing Agreement (“EFA”) with GHS Investments LLC (“GHS”). Under the agreement, GHS has committed to purchase up $12 million of the Company’s common stock over a 24-month period at a 20% discount off the market price, as defined in the agreement. The agreement contains certain restrictions on the timing of the stock purchases and requires the Company to file a registration statement with the Securities and Exchange Commission to register the common shares issuable under the agreement. In conjunction with the Equity Financing Agreement, the Company entered into a $250,000 secured convertible promissory note with a term of nine months and bearing interest at 10%. The note is convertible to common shares based on a formula with a discount to market price. On November 2, 2017, the Company entered into a second $250,000 secured convertible promissory note with similar terms after filing a registration statement on Form S-1 on November 11, 2017. The Company expects to fund its operational and investing needs through the EFA over the next two years.

 

 7 

Future Liquidity Requirements

 

The Company’s anticipated operational shortfall for the next twelve months is $1,200,000. For the next two years, we anticipate cash needs to be between $2,000,000 and $5,000,000. We plan to utilize the EFA executed with GHS in October 2017 to raise the required capital.

 

Off Balance Sheet Arrangements

 

As of September 30, 2017, there are no off balance sheet arrangements.

 

Going Concern

 

We have experienced recurring losses from operations and to date, we have not been able to produce sufficient sales to become cash flow positive and profitable on a consistent basis. The success of our business plan during the next 12 months and beyond will be contingent upon generating sufficient revenue to cover our costs of operations and/or upon obtaining additional financing. For these reasons, our auditor has raised substantial doubt about our ability to continue as a going concern.

 

On October 12, 2017 the Company executed an Equity Financing Agreement (“EFA”) with GHS Investments LLC (“GHS”). Under the agreement, GHS has committed to purchase up $12 million of the Company’s common stock over a 24-month period at a 20% discount off the market price, as defined in the agreement. The agreement contains certain restrictions on the timing of the stock purchases and requires the Company to file a registration statement with the Securities and Exchange Commission (“SEC”) to register the common shares issuable under the agreement. In conjunction with the Equity Financing Agreement, the Company entered into a $250,000 secured convertible promissory note with a term of nine months and bearing interest at 10%. The note is convertible to common shares based on a formula with a discount to market price. On November 2, 2017, the Company entered into a second $250,000 secured convertible promissory note with similar terms after filing a registration statement on Form S-1 with the SEC on November 1, 2017. The Company expects to fund its operational and investing needs through the EFA over the next two years.

 

Critical Accounting Policies

 

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that 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. We do not believe that the following accounting policies currently fit this definition:

 

Use of Estimates

 

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

 

Cash

 

The Company considers all short-term highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents.

 

 8 

 

Revenue Recognition

 

The Company follows the guidance of the Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition.” It records revenue when persuasive evidence of an arrangement exists, product delivery has occurred, the selling price to the customer is fixed or determinable and collectability of the revenue is reasonably assured. The Company has not experienced any significant returns from customers and accordingly, in management’s opinion, no reserve for returns has been provided. Payments received prior to shipment of goods are recorded as deferred revenue.

 

Accounts Receivable and Allowance for Doubtful Accounts Receivable

 

The Company has a policy of reserving for uncollectible accounts based on the best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to customers based on an evaluation of their financial condition and other factors. The Company generally does not require collateral or other security to support accounts receivable and perform ongoing credit evaluations of customers and maintain an allowance for potential bad debts if required.

 

It is determined whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. The Company may also record a general allowance as necessary. 

 

Fair Value Measurements

 

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

 

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

 

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

 

Level 1 — quoted prices in active markets for identical assets or liabilities.
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable.
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions).

 

The derivative liability, which relates to the conversion feature of convertible debt and common stock warrants and options, is classified as a Level 3 liability, and is the only financial liability measure at fair value on a recurring basis.

  

The change in the Level 3 financial instrument is as follows:

 

Balance, June 30, 2017   $ 5,072,579
Issued during the three months ended September 30, 2017   $ 443,482
Exercises/Conversions   $ (112,511)
Change in fair value recognized in operations   $ (1,813,249)
Balance, September 30, 2017   $ 3,590,301

 

 9 

 

The estimated fair value of the derivative instruments were valued using the Black-Scholes option pricing model, using the following assumptions as of September 30, 2017:

 

Estimate Dividends   None
Expected Volatility     127.3%
Risk-Free Interest Rate     1.06%
Expected Term     .1-1.8 years

 

Property and Equipment

 

Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.

 

Impairment of Long-Lived Assets

 

The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flow and recognizes an impairment loss when the estimated undiscounted future cash flow expected to result from the use of the asset plus the net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When the Company identifies an impairment, it reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values. No impairment charges were recorded during the three months ended September 30, 2017 and September 30, 2016.

 

Share-Based Payments

 

Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values, in accordance with FASB ASC Topic 718. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company had no common stock options or common stock equivalents granted or outstanding for all periods presented.

 

The Company issued restricted stock to consultants and employees for various services. Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is to be measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete.

 

Convertible Instruments

 

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

  

Preferred Stock

 

We apply the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity” when determining the classification and measurement of preferred stock. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. We classify conditionally redeemable preferred shares (if any), which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control, as temporary equity. At all other times, we classified our preferred shares in stockholders’ equity. Our preferred shares do not feature any redemption rights within the holders’ control or conditional redemption features not within our control. Accordingly, unless otherwise noted, all issuances of preferred stock are presented as a component of consolidated shareholders’ deficit.

 

 10 

 

Advertising

 

Advertising and marketing expenses are charged to operations as incurred.

 

Income Taxes

 

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company has no material uncertain tax positions.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

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

  

Item 4. Controls and Procedures

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2017. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Michael Welch, and our Chief Financial Officer, Jens Mielke. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2017, our disclosure controls and procedures are not effective. There have been no changes in our internal controls over financial reporting during the year ended June 30, 2017.

 

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

 

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

 

Limitations on the Effectiveness of Internal Controls

 

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

 

 11 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Please refer to our Annual Report on Form 10-K/A filed October 12, 2017 for information regarding our pending legal proceedings. The following represents an update to the items disclosed in that filing:

 

Claims Against Donna Rayburn

 

On October 6, 2017 the Company executed a Release and Settlement Agreement with Donna Rayburn regarding the litigation between the Company and Ms. Rayburn. Ms. Rayburn released the Company from all claims and returned 10 million stock warrants.

 

Arbitration Claim of Roy J. Meadows Against Rocky Mountain High Brands, Inc. (RMHB) dated February 24, 2016

 

On October 6, 2017 the Company executed a Release and Settlement Agreement with Roy Meadows (“Meadows Settlement”) regarding the litigation between the parties. As part of the Meadows Settlement, the Company agreed to issue 45 million shares of the Company’s common stock, including 20 million shares issued immediately and 25 million shares to be issued upon the effectiveness of the Company’s increased common share authorization. Mr. Meadows is subject to a “leak-out” formula whereby he is limited in the number of shares he can re-sell if the stock price is below $.06 per share. In connection with this settlement, the Company agreed to an exchange of the Preferred C Stock back to the originating note payable in accordance with the terms of the Exchange Agreement. Mr. Meadows assigned the note to GHS Investments, LLC, (“GHS”) an outside investment group, in exchange for consideration paid to him by GHS. Mr. Meadows released the Company from all claims and returned 55,096,825 stock warrants.

 

192nd Judicial District Court of Dallas County Texas, filed February 16, 201, DC-17-02058

 

Rocky Mountain High Brands, Inc. v. Dewmar International BMC, Inc. RMHB filed suit against Dewmar for breach of contract and for an accounting. RMHB is in the process of obtaining a default judgment against Dewmar for its failure to file an answer to the suit.

 

134th Judicial District Court of Dallas County, Texas, filed April 28, 2017. Rocky Mountain High Brands, Inc. v Lyonpride Music, LLC

 

RMHB filed suit against Lyonpride for fraud and for declaratory relief with respect to a contract between the parties. RMHB seeks monetary damages against said Defendant.

 

134th Judicial District Court of Dallas County, Texas. Filed June 26, 2017 Rocky Mountain High Brands, Inc. v Statewide Beverage Company, Inc.

 

RMHB has filed suit for breach of contract, common law fraud and declaratory relief.

 

Los Angeles Superior Court, BC669367, filed July 24, 2017. Statewide Beverage Company, Inc. v. Rocky Mountain High Brands, Inc.

 

Statewide filed a breach of contract claim, dealing with the same fact issues in the above case of RMHB v Statewide. RMHB still has not been served in this case.

 

Dallas County Texas, Case Number DC-17-15441 filed November 8, 2017.  Rocky Mountain High Brands, Inc. f/k/a Republic of Texas Brands, Inc. Plaintiff, vs. Jerry Grisaffi, Joe Radcliffe, LSW Holdings, LLC, Lily Li, Epic Group One, LLC, Kenneth Radcliffe, Dennis Radcliffe, Phil Uhrik, Michael Radcliffe, Frank Izzo, Morgan Albright, John Garrison, BB Winks, LLC, Crackerjack Classic, LLC, and Universal Consulting, LLC.

 

RMHB is seeking the return of Series A Preferred stock and common stock issued to certain defendants or later obtained by certain other defendants for little or no consideration paid to the Company.  RMHB alleges the Company’s former Chairman of the Board breached his fiduciary duty to the Company by issuing these shares to himself and others.

 

Item 1A. Risk Factors

 

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

  

 12 

 

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

   

The following equity securities were issued between January 1, 2017 and November 13, 2017:

 

Date  Name  Shares Issued  Issue Price  Description  Exemption
1/3/2017   Louis G. Walz   588,236    0.0170   Shares Sold  Rule 506
1/3/2017   Ruth Kerico   500,000    0.0200   Shares Sold  Rule 506
1/3/2017   Bruce Wunsch   100,000    0.0170   Services Rendered  Section 4(2)
1/3/2017   Eagle Manufacturing Solutions   491,176    0.0170   Services Rendered  Section 4(2)
1/3/2017   Patricia Ann Wright   150,000    0.0170   Services Rendered  Section 4(2)
1/3/2017   Eason Wright   500,000    0.0170   Services Rendered  Section 4(2)
1/3/2017   John Jay Saldi   100,000    0.0170   Services Rendered  Section 4(2)
1/3/2017   Earl Pontillo   250,000    0.0200   Shares Sold  Rule 506
1/3/2017   Ann M. Wieringa   900,000    0.0170   Shares Sold  Rule 506
1/4/2017   Ann M. Wieringa   900,000    0.0170   Shares Sold  Rule 506
1/4/2017   Vista Capital Investments   10,000,000    0.0200   Shares Sold  Rule 506
1/6/2017   Eagle Manufacturing Solutions   1,588,236    0.0170   Shares Sold  Rule 506
1/6/2017   Leroy Wheeler   185,185    0.0270   Shares Sold  Rule 506
1/6/2017   David Economon   200,000    0.0170   Shares Sold  Rule 506
1/6/2017   Robert & Kimberly Payne   200,000    0.0250   Shares Sold  Rule 506
1/6/2017   Tammie L. Borders   200,000    0.0250   Shares Sold  Rule 506
1/6/2017   Fred and Linda Borders   600,000    0.0250   Shares Sold  Rule 506
1/12/2017   ValueCorp Trading Company   1,000,000    0.0200   Shares Sold  Rule 506
1/17/2017   John R Anderson   166,667    0.0300   Shares Sold  Rule 506
1/17/2017   Muleshoe Ranch   166,667    0.0300   Shares Sold  Rule 506
1/17/2017   Steve Gill (Shelving Exchange)   166,667    0.0300   Shares Sold  Rule 506
1/18/2017   David Economon   350,000    0.0200   Shares Sold  Rule 506
1/20/2017   Howard Bruckner   200,000    0.0500   Shares Sold  Rule 506
1/20/2017   Brooks Goodson   300,000    0.0500   Shares Sold  Rule 506
1/20/2017   Robert & Kimberly Payne   100,000    0.0500   Shares Sold  Rule 506
1/23/2017   Ronnie Neu   555,556    0.0270   Shares Sold  Rule 506
1/23/2017   Patricia Ann Wright   285,714    0.0350   Shares Sold  Rule 506
1/23/2017   Crackerjack Classic LLC   1,500,000    0.0010   Exercise of Warrants  Rule 506
1/24/2017   Arthur Rezac   100,000    0.0500   Shares Sold  Rule 506
1/27/2017   Patrick Dennehy   100,000    0.0500   Shares Sold  Rule 506
2/1/2017   William Penz   200,000    0.0500   Shares Sold  Rule 506
2/15/2017   Yael Moyal   2,571,429    0.0350   Shares Sold  Rule 506
2/17/2017   Richard B Main   222,222    0.0450   Shares Sold  Rule 506
2/22/2017   Lily Li   10,000,000    0.1150   Services Rendered  Section 4(2)
2/24/2017   Thomas O. Layman   200,000    0.0500   Shares Sold  Rule 506
2/27/2017   Allred, Wilcox, & Hartley PLLC   181,600    0.0840   Services Rendered  Section 4(2)
2/27/2017   Yeal Moyal   1,285,714    0.0350   Shares Sold  Rule 506
2/27/2017   Kathy Fernandez   100,000    0.0200   Shares Sold  Rule 506
2/27/2017   Mark Ussery   100,000    0.1100   Services Rendered  Section 4(2)
2/27/2017   Terry Niedecken   100,000    0.1100   Services Rendered  Section 4(2)
3/1/2017   Kathy Fernandez   505,096    0.0100   Note Payable Conversion  Rule 506
3/27/2017   EPIC Group One   11,000,000    0.0850   Services Rendered  Section 4(2)
3/31/2017   Jens Mielke   357,143    0.0420   Services Rendered  Section 4(2)
3/31/2017   Michael Welch   206,044    0.0420   Services Rendered  Section 4(2)
3/31/2017   David Seeberger   137,363    0.0420   Services Rendered  Section 4(2)
4/7/2017   Small Cap Voice   300,000    0.0877   Services Rendered  Section 4(2)
6/29/2017   Morris Rafi   1,534,089    0.0349   Note Payable Conversion  Rule 506
8/23/2017   Universal Consulting LLC   3,147,288    0.0100   Note Payable Conversion  Rule 506
9/15/2017   Homie Doroodian   3,093,640    0.0177   Note Payable Conversion  Rule 506
10/13/2017   GHS Investments LLC   24,000,000    0.0108   Note Payable Conversion  Rule 506
10/18/2017   Roy Meadows   20,000,000    0.0216   Note Payable Conversion  Rule 506
10/31/2017   Michael Welch   789,474    0.0196   Services Rendered  Section 4(2)
11/1/2017   Roy Meadows   25,000,000    0.0201   Note Payable Conversion  Rule 506
11/3/2017   Metexas Georgatos   750,000    0.0186   Services Rendered  Section 4(2)
11/3/2017   Eduardo Cabrera   2,250,000    0.0186   Services Rendered  Section 4(2)
11/3/2017   Wellington Shields Holdings LLC   2,000,000    0.0186   Services Rendered  Section 4(2)
11/6/2017   Small Cap Voice   600,000    0.0168   Services Rendered  Section 4(2)
11/9/2017   GHS Investments LLC   28,000,000    0.0162   Note Payable Conversion  Rule 506

 

 13 

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

 Exhibit Number Description of Exhibit
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 Materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 formatted in Extensible Business Reporting Language (XBRL)

 

 14 

 

SIGNATURES

 

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

 

Rocky Mountain High Brands, Inc.

 

Date: November 14, 2017

 

 

By: /s/ Michael Welch

Michael Welch

Title: Chairman of the Board of Directors, President, and Chief Executive Officer

 

Date: November 14, 2017

 

 

By: /s/ Jens Mielke

Jens Mielke

Title: Chief Financial Officer

 

 15 

 

 

 

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CERTIFICATIONS

 

I, Michael Welch, certify that;

 

1.   I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2017 of Rocky Mountain High Brands, Inc. (the “registrant”);

 

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 14, 2017

 

/s/ Michael Welch

By: Michael Welch

Title: Chief Executive Officer

EX-31.2 4 ex31_2.htm

CERTIFICATIONS

 

I, Jens Mielke, certify that;

 

1.   I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2017 of Rocky Mountain High Brands, Inc. (the “registrant”);

 

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 14, 2017

 

/s/ Jens Mielke

By: Jens Mielke

Title: Chief Financial Officer

EX-32.1 5 ex32_1.htm

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly Report of Rocky Mountain High Brands, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2017 filed with the Securities and Exchange Commission (the “Report”), I, Michael Welch, Chief Executive Officer of the Company, and I, Jens Mielke, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.             The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

 

2.             The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented.

 

 

By: /s/ Michael Welch
Name: Michael Welch
Title: Principal Executive Officer
Date: November 14, 2017

 

By: /s/ Jens Mielke
Name: Jens Mielke
Title: Principal Financial Officer
Date: November 14, 2017

 

This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Document and Entity Information - shares
3 Months Ended
Sep. 30, 2017
Nov. 13, 2017
Document And Entity Information    
Entity Registrant Name Rocky Mountain High Brands, Inc.  
Entity Central Index Key 0001670869  
Document Type 10-Q  
Document Period End Date Sep. 30, 2017  
Amendment Flag false  
Current Fiscal Year End Date --06-30  
Is Entity a Well-known Seasoned Issuer? No  
Is Entity a Voluntary Filer? No  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   896,655,520
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2018  
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Balance Sheets - USD ($)
Sep. 30, 2017
Jun. 30, 2017
CURRENT ASSETS    
Cash $ 19,266 $ 91,675
Accounts Receivable, net of allowance of $221,268 and $138,373 1,657 63,268
Inventory 195,363 224,695
Prepaid Expenses and Other Current Assets 682,435 774,338
TOTAL CURRENT ASSETS 898,721 1,153,976
Property and Equipment, net 43,730 48,133
Other Assets 102,256 77,256
TOTAL ASSETS 1,044,707 1,279,365
CURRENT LIABILITIES    
Accounts Payable and Accrued Liabilities 547,137 441,190
Related Party Convertible Notes Payable, net of debt discount 438,832 266,247
Related Party Notes Payable
Convertible Notes Payable, net of debt discount 782,099 733,253
Note Payable-Other 23,164 26,130
Redemption Value of Series C Preferred Stock 1,661,424 1,661,424
Accrued Interest 447,974 382,820
Derivative Liability 3,590,301 5,072,579
TOTAL CURRENT LIABILITIES 7,490,931 8,583,643
Preferred Stock - Series A - Par Value of $.001 1,000,000 shares authorized; 1,000,000 shares issued and outstanding as of September 30, 2017 and June 30, 2017 1,000 1,000
Preferred Stock - Series B - Par Value of $.001 5,000,000 shares authorized; no shares issued and outstanding
Preferred Stock - Series C - Par Value of $.001 2,000,000 shares authorized; 1,107,607 shares outstanding (classified as a liability as of September 30, 2017 and June 30, 2017)
Preferred Stock - Series D - Par Value of $.001 2,000,000 shares authorized; no shares issued and outstanding
Preferred Stock - Series E - Par Value of $.001 789,474 shares authorized, issued, and outstanding as of September 30, 2017; No shares authorized, issued, and outstanding as of June 30, 2017 789
Common Stock - Par Value of $.001 950,000,000 shares authorized; 793,266,046 shares issued and outstanding as of September 30, 2017; 786,525,118 shares issued and outstanding as of June 30, 2017 $ 793,266 $ 786,525
Additional Paid In Capital 18,228,082 18,062,830
Accumulated Deficit (25,469,361) (26,154,633)
TOTAL SHAREHOLDERS' DEFICIT (6,446,224) (7,304,278)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT $ 1,044,707 $ 1,279,365
XML 14 R3.htm IDEA: XBRL DOCUMENT v3.8.0.1
Balance Sheets (Parenthetical)
Sep. 30, 2017
$ / shares
shares
Jun. 30, 2017
$ / shares
shares
Stock Transactions, Parenthetical Disclosures [Abstract]    
Preferred Stock Series A Par value | $ / shares $ 0.001 $ 0.001
Preferred Stock Series A shares authorized 1,000,000 1,000,000
Preferred Stock Series A, shares issued 1,000,000 1,000,000
Preferred Stock Series A, shares outstanding 1,000,000 1,000,000
Preferred Stock Series B Par value | $ / shares $ 0.001 $ 0.001
Preferred Stock Series B shares authorized 5,000,000 5,000,000
Preferred Stock Series B shares outstanding 0 0
Preferred Stock Series C Par value | $ / shares $ 0.001 $ 0.001
Preferred Stock Series C shares authorized 2,000,000 2,000,000
Preferred Stock Series C shares issued 0 0
Preferred Stock Series C shares outstanding 0 0
Preferred Stock Series D shares authorized 2,000,000 2,000,000
Preferred Stock Series D Par value 0.001 0.001
Preferred Stock Series D shares outstanding 0 0
Preferred Stock Series E Par value 0.10% 0.10%
Preferred Stock Series E shares outstanding 789,474 0
Common Stock, par value | $ / shares $ 0.001 $ 0.001
Common Stock, shares authorized 950,000,000 950,000,000
Common Stock, shares issued 793,266,046 786,525,118
Common Stock, shares outstanding 793,266,046 786,525,118
XML 15 R4.htm IDEA: XBRL DOCUMENT v3.8.0.1
Statements of Operations - USD ($)
3 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Income Statement [Abstract]    
Sales $ 41,002 $ 295,587
Cost of Sales 43,800 90,020
Gross Profit (Loss) (2,798) 205,567
Operating Expenses    
General and Administrative 604,751 864,549
Advertising and Marketing 56,318 317,540
Total Operating Expenses 661,069 1,182,089
Loss from Operations (663,867) (976,522)
Interest Expense 464,110 234,519
Gain on Change in Fair Value of Derivative Liability (1,813,249) (480,764)
Total Other (Income) Expenses: (1,349,139) (246,245)
Income (Loss) Before Income Tax Provision 685,272 (730,277)
Income Tax Provision
Net Income (Loss) $ 685,272 $ (730,277)
Net Income (Loss) per Common Share - Basic and Diluted $ 0.00 $ (0.00)
Weighted Average Shares Outstanding 788,609,275 594,531,676
XML 16 R5.htm IDEA: XBRL DOCUMENT v3.8.0.1
Statements of Cash Flows - USD ($)
3 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Statement of Cash Flows [Abstract]    
Net Income (Loss) $ 685,272 $ (730,277)
Stock-based compensation 82,824 49,704
Warrants and options issued for services rendered 23,074 191,969
Non-cash interest expense 464,110 233,826
Gain on change in fair value of derivative liability (1,813,249) (480,764)
Loss on disposal of property and equipment 832
Bad debt expense 64,042
Depreciation expense 4,584 11,659
Changes in operating assets and liabilities:    
Accounts Receivable (2,431) (244,503)
Inventory 29,332 30,738
Prepaid expenses 24,079 84,540
Other assets 25,000 18,430
Accounts payable and accrued liabilities 65,601 305,482
NET CASH USED IN OPERATING ACTIVITIES (396,930) (566,056)
Investment in Rocky Mountain High Water Company 39,774
Acquisition of property and equipment 1,013 36,635
Disposal of property and equipment 35,000
NET CASH USED IN INVESTING ACTIVITIES (1,013) (41,409)
Financing Activities:    
Proceeds from issuance of convertible notes 220,000 220,000
Proceeds from issuance of related party notes 100,000 35,000
Proceeds from issuance of note payable-other 35,960
Repayment of note payable-other (2,966)
Proceeds from issuance of common stock 8,500 214,250
NET CASH PROVIDED BY FINANCING ACTIVITIES 325,534 505,210
INCREASE (DECREASE) IN CASH (72,409) (102,255)
CASH - BEGINNING OF PERIOD 91,675 102,255
CASH - END OF PERIOD 19,266
Supplemental disclosure of non-cash financing and investing activities:    
Common stock issued for conversion of debt 126,207 41,800
Debt and accrued interest converted for common stock 85,234
Derivative liability incurred for debt discount 443,482
Derivative liability relieved upon conversion of related debt 52,542
Beneficial conversion feature recognized $ 128,500
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.8.0.1
General
3 Months Ended
Sep. 30, 2017
Business  
Business

NOTE 1 – General

 

Rocky Mountain High Brands, Inc. (“RMHB” or the “Company”) was incorporated under the laws of the State of Nevada. On July 17, 2014, the Company changed its name from Republic of Texas Brands Incorporated to Totally Hemp Crazy, Inc and on October 23, 2015, the Company changed its name to Rocky Mountain High Brands, Inc.

 

RMHB has developed and is currently selling in the marketplace a lineup of five hemp-infused beverages and 2oz. energy shots through its nationwide distributor network and online. Effective June 30, 2016, the Company entered into a business alliance with Poafpybitty Family, LLC to launch Eagle Spirit Spring Water, a line of purified, high-alkaline spring water sourced from Native American tribal land in Oklahoma. 

XML 18 R7.htm IDEA: XBRL DOCUMENT v3.8.0.1
Summary of Significant Accounting Policies
3 Months Ended
Sep. 30, 2017
Basis of Presentation:  
Basis of Presentation

NOTE 2 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2017 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended September 30, 2017 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s form 10-K/A for the year ended June 30, 2017 filed with the SEC on October 12, 2017.

  

Principles of Consolidation

 

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The consolidated financial statements include the accounts of the Company, its wholly-owned and controlled subsidiaries. All intercompany balances and transactions have been eliminated.

 

Use of Estimates

 

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

 

Cash

 

The Company considers all short-term highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents.

 

Revenue Recognition

 

The Company follows the guidance of the Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition.” It records revenue when persuasive evidence of an arrangement exists, product delivery has occurred, the selling price to the customer is fixed or determinable and collectability of the revenue is reasonably assured. The Company has not experienced any significant returns from customers and accordingly, in management’s opinion, no reserve for returns has been provided. Payments received prior to shipment of goods are recorded as deferred revenue.

 

 

Accounts Receivable and Allowance for Doubtful Accounts Receivable

 

The Company has a policy of reserving for uncollectible accounts based on the best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to customers based on an evaluation of their financial condition and other factors. The Company generally does not require collateral or other security to support accounts receivable and perform ongoing credit evaluations of customers and maintain an allowance for potential bad debts if required.

 

It is determined whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. The Company may also record a general allowance as necessary.

 

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

 

Inventories

 

Inventories, which consist only of the Company’s finished products held for resale, are stated at the lower of cost, determined using the first-in, first-out, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to dispose of the product.

 

If the Company identifies excess, obsolete or unsalable items, its inventories are written down to their realizable value in the period in which the impairment is first identified. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales in the Company’s statements of operations.

 

Fair Value Measurements

 

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

 

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

 

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

 

Level 1 — quoted prices in active markets for identical assets or liabilities.
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable.
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions).

  

The derivative liability, which relates to the conversion feature of convertible debt and common stock warrants and options, is classified as a Level 3 liability, and is the only financial liability measure at fair value on a recurring basis.

 

The change in the Level 3 financial instrument is as follows:

 

Balance, June 30, 2017  $5,072,579
Issued during the three months ended September 30, 2017  $443,482
Exercises/Conversions  $(112,511)
Change in fair value recognized in operations  $(1,813,249)
Balance, September 30, 2017  $3,590,301

 

The estimated fair value of the derivative instruments were valued using the Black-Scholes option pricing model, using the following assumptions as of September 30, 2017:

 

Estimate Dividends  None
Expected Volatility   127.3%
Risk-Free Interest Rate   1.06%
Expected Term   .1-1.8 years

 

Property and Equipment

 

Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.

 

Impairment of Long-Lived Assets

 

The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flow and recognizes an impairment loss when the estimated undiscounted future cash flow expected to result from the use of the asset plus the net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When the Company identifies an impairment, it reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values. No impairment charges were recorded during the three months ended September 30, 2017 and September 30, 2016.

 

Share-based Payments

 

Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values, in accordance with FASB ASC Topic 718. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company had no common stock options or common stock equivalents granted or outstanding for all periods presented.

 

The Company issued restricted stock to consultants and employees for various services. Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is to be measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete.

 

Convertible Instruments

 

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

 

 

Preferred Stock

 

We apply the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity” when determining the classification and measurement of preferred stock. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. We classify conditionally redeemable preferred shares (if any), which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control, as temporary equity. At all other times, we classified our preferred shares in stockholders’ equity. Our preferred shares do not feature any redemption rights within the holders’ control or conditional redemption features not within our control. Accordingly, unless otherwise noted, all issuances of preferred stock are presented as a component of consolidated shareholders’ deficit.

 

Advertising

 

Advertising and marketing expenses are charged to operations as incurred.

 

Income Taxes

 

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company has no material uncertain tax positions.

XML 19 R8.htm IDEA: XBRL DOCUMENT v3.8.0.1
Going Concern
3 Months Ended
Sep. 30, 2017
General:  
General

NOTE 3 – Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a shareholders’ deficit of $7,304,278, an accumulated deficit of $26,154,633 as of June 30, 2017, 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 from third parties.

 

On February 28, 2017, LSW Holdings, LLC (“LSW”) purchased all outstanding shares of Series A Preferred Stock from our former controlling shareholder. Our Vice President of International Sales is the Managing Member of LSW. Both parties to the agreement assured management that the purchase agreement requires LSW to provide the Company sufficient capital to move forward with its expansion plans. Management has recently obtained the executed agreement and determined that agreement contains no such requirement. As a result, management is actively pursuing other funding arrangements with outside investors and creditors.

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.8.0.1
Inventory
3 Months Ended
Sep. 30, 2017
Inventory Disclosure [Abstract]  
Inventory

NOTE 4 – Inventory

 

As of June 30, 2017 and 2016 inventory consisted of the following:

 

   June 30, 2017  June 30, 2016
Finished inventory  $216,711   $290,368 
Raw materials and packaging   7,984    —   
Total  $224,695   $290,368 
XML 21 R10.htm IDEA: XBRL DOCUMENT v3.8.0.1
Prepaid Expenses and Other Current Assets
3 Months Ended
Sep. 30, 2017
Going Concern  
Prepaid Expenses and Other Current Assets

NOTE 5 – Prepaid Expenses and Other Current Assets

 

As of June 30, 2017 and 2016 prepaid expenses and other current assets consisted of the following:

 

 

   2017  2016
Prepaid officers’ compensation  $521,916   $1,334,261 
Prepaid directors’ compensation   206,090    323,855 
Prepaid marketing expenses   19,250    33,000 
Other prepaid expenses and current assets   27,082    25,435 
Total  $774,338   $1,716,551 
XML 22 R11.htm IDEA: XBRL DOCUMENT v3.8.0.1
Convertible Notes Payable
3 Months Ended
Sep. 30, 2017
Convertible Notes Payable {1}  
Convertible Notes Payable.

NOTE 8 – Convertible Notes Payable

 

As of June 30, 2017 and 2016, the Company’s convertible notes payable consisted of the following:

 

   Interest Rates  Term  June 30, 2017  June 30, 2016
Convertible notes payable  6% - 12%   0 - 2 years     $1,115,000   $597,500 
Discount             (381,747)   —   
Total            $733,253   $597,500 

 

The convertible notes are convertible to shares of the Company’s common stock at prices ranging from $.01 to 50% of market price. For the years ended June 30, 2017 and 2016, interest expense on these notes, including amortization of the discount, was $172,594 and $26,762, respectively.

 

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. The Company recorded $222,127 and $0 of interest expense for the years ended June 30, 2017 and 2016, respectively, at the inception of the notes relating to the excess of derivative value over the face of the notes.

XML 23 R12.htm IDEA: XBRL DOCUMENT v3.8.0.1
Notes Payable Other
3 Months Ended
Sep. 30, 2017
Debt Disclosure [Abstract]  
Notes Payable Whitestone Offices

NOTE 10 – Note Payable-Other

 

On September 1, 2016, the Company purchased used office furniture and equipment from its landlord. The Company executed a note payable in the 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 on September 1, 2016. The term of the note is three years. The balance on the note was $26,130 on June 30, 2017. For the year ended June 30, 2017, interest expense on this note was $1,755.

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.8.0.1
Related Party Convertible Notes Payable
3 Months Ended
Sep. 30, 2017
Related Party  
Related Party Convertible Notes Payable

NOTE 9 – Related Party Convertible Notes Payable

 

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

 

   Interest Rate  Term  September 30, 2017  June 30, 2017
Related party convertible notes payable   6%  6 mos. - 1 year  $563,450   $493,450
Discount           (124,618)   (227,203)
Total          $438,832   $266,247

 

For the three months ended September 30, 2017 and 2016, interest expense on these notes, including amortization of the discount, was $191,826 and $82,934, respectively.

 

The Company has determined that the conversion feature embedded in certain of the notes referred to above that contain a potential variable conversion amount constitutes a derivative which has been bifurcated from the note and recorded as a derivative liability, with a corresponding discount recorded to the associated debt. The excess of the derivative value over the face amount of the note is recorded immediately to interest expense at inception. The Company recorded no interest expense for the three months ended September 30, 2017 and 2016, respectively, at the inception of the notes relating to the excess of derivative value over the face of the notes.

 

XML 25 R14.htm IDEA: XBRL DOCUMENT v3.8.0.1
Shareholders' Deficit
3 Months Ended
Sep. 30, 2017
Shareholders' Deficiency  
Shareholders' Deficiency

NOTE 12 – Shareholders’ Deficit

 

 

Common Stock

 

During the year ended June 30, 2017 the Company issued 248,535,354 shares of common stock, including 77,800,687 for convertible notes payable conversions, 46,908,834 for warrant exercises, 29,724,139 for services rendered, 21,634,107 for compensation, 6,800,000 as part of a legal settlement, and 65,667,587 for cash. During the year ended June 30, 2016 the Company issued 101,495,350 shares of common stock for convertible notes payable conversions, the acquisition of Dollar Shots Club, cash purchases, and services rendered.

  

On December 29, 2016 the Company executed a securities purchase agreement for the sale of 1,000,000 shares of its common stock. The agreement includes a “true-up” provision whereby the Company must provide the purchaser additional shares of common stock if the stock price is below a predetermined level six months from the date of the agreement. In accordance with this provision, the Company was also required to reserve 10,000,000 shares of common stock in the event that the true-up provision is triggered. The shares will be released if the provision is not triggered six months from the date of the agreement. The fair value of the true-up calculation was $67,000 at inception of the agreement and $11,000 as of March 31, 2017. The true-up provision expired on June 29, 2017 with no additional shares being issued.

 

On March 14, 2017, the Board of Directors and holders of a majority of the voting capital stock of the Company approved an amendment to the Company’s Articles of Incorporation to increase its authorized shares of common stock from 800,000,000 to 950,000,000. The Board of Directors fixed March 14, 2017 as the record date for determining the holders of its voting capital stock entitled to notice of these actions and receipt of this Information Statement. The increase in the authorization was effective June 7, 2017.

 

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. The Plan provides that up to a maximum of 35,000,000 shares of the Company’s common stock (subject to adjustment) are available for issuance under the Plan. The Board of Directors awards these shares at its sole discretion.

 

Also on March 31, 2017, certain of the Company’s officers and directors returned a total of 25,041,732 shares of common stock to treasury for cancellation. On that same date, these officers and directors were granted an equivalent number of restricted shares of common stock under our 2017 Incentive Plan. The restricted shares so granted may not be transferred, sold, or encumbered until six (6) months from the date of issue.

 

In April and June 2017, a Board member was granted 7,000,000 and 13,000,000 options to purchase common stock, respectively. In May 2017 another Board member was granted 7,000,000 options. An additional 350,000 options were granted to a consultant to the Company in April 2017. All options were granted through the 2017 Incentive Plan.

 

On July 14, 2017 the Board of Directors increased the authorized shares in the 2017 Incentive Plan to 65,000,000.

 

Preferred Stock

 

On March 14, 2017, the Board of Directors and holders of a majority of the voting capital stock of the Company approved an amendment to the Company’s Articles of Incorporation to increase its authorized shares of preferred stock from 10,000,000 to 20,000,000 of which 10,000,000 have been specifically designated to a series of preferred stock and 10,000,000 remain undesignated. The Board of Directors fixed March 14, 2017 as the record date for determining the holders of its voting capital stock entitled to notice of these actions and receipt of this Information Statement. The increase in the authorization was effective June 7, 2017.

 

Series A Preferred Stock

 

The Company has 1,000,000 shares of Series A Preferred stock authorized and outstanding as of June 30, 2017 and 2016.

 

On March 13, 2017, our Board of Directors approved a Certificate of Designation for our Series A Preferred stock. This document revises and restates the rights, preferences and features of our Series A Preferred stock, which consists of 1,000,000 shares, all of which are issued and outstanding. Holders of our Series A Preferred stock were formerly entitled to cast 400 votes for every share held, and shares of Series A Preferred stock were convertible to common stock at a rate of 100 shares of common stock for every share of Series A Preferred stock. Following the filing of the Certificate of Designation, holders of Series A Preferred stock were entitled to cast 1,200 votes for every share held, and shares of Series A Convertible Preferred stock were convertible to common stock at a rate of 1,200 shares of common stock for every share of Series A Preferred stock.

 

 

On July 5, 2017, the Company amended the Certificate of Designation for our Series A Preferred stock. The amendment changes the conversion ratio of our Series A Preferred stock from 1,200 shares of common stock for every share of Series A Preferred stock to 100 shares of common stock for every share of Series A Preferred stock. The amendment was approved by our board directors and the holder of our Series A Preferred stock.

 

On July 24, 2017, the Company’s Board of Directors approved an amendment to the Certificate of Designation for the Series A Preferred stock that changed the voting rights back to 400 votes for every share of Series A Preferred stock.

  

Series B Preferred Stock

 

The Company has 5,000,000 shares of Series B Preferred stock authorized and none outstanding as of June 30, 2017 and 2016.

 

Series C Preferred Stock

 

The Company amended its Articles of Incorporation on November 13, 2015 to create a Series C Preferred stock, which are 12% interest bearing, cumulative, exchangeable, non-voting, convertible preferred stock of the Company. Each Series C Preferred share has a par value of $.001 and is convertible to 50 shares of common stock.

 

On November 16, 2015, the holder of a convertible note aggregating $1,107,607 of principal and accrued interest, agreed to a dollar for dollar exchange for same number of Preferred C shares. As of June 30, 2017 and 2016 there were 1,107,607 shares of Series C Preferred shares outstanding.

 

The redemption value of the Series C Preferred stock has been reclassified to current liabilities in accordance with the agreement executed between the Company and the holder of the shares.

 

Series D Preferred Stock

 

The Company amended its Articles of Incorporation on March 21, 2016 to create the Series D Preferred stock class, a non-voting, non-interest bearing convertible preferred stock with a par value of $.001. Each Series D preferred share is convertible to 100 shares of common stock. As of June 30, 2017 and 2016, there are no Series D preferred shares outstanding.

 

Warrants

 

During the year ended June 30, 2017 the Company granted 9,725,000 warrants to purchase common stock and 47,008,834 were exercised. During the year ended June 30, 2016 the Company granted 39,000,000 warrants to purchase common stock and 3,658,914 were exercised. As of June 30, 2017 and 2016, there were 56,934,325 and 94,218,159 warrants outstanding.

 

Options

 

During the fourth quarter of 2017, the Company issued 27,000,000 options to purchase common stock to two new directors. The options have an exercise price ranging from $.035 and $.045 and vested immediately. The Company recognized $1,459,134 as compensation expense. The Company also granted 350,000 options to a vendor at an exercise price of $.045. None of these options had been exercised as of June 30, 2017. There were no options granted or outstanding during fiscal year 2016. The options were valued using the Black-Scholes model using an expected volatility of 114%, expected terms of 2 years, a risk-free interest rate of .84%, and no estimated dividends.

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.8.0.1
Income Taxes
3 Months Ended
Sep. 30, 2017
Income Taxes  
Income Taxes

NOTE 13 – Income Taxes

 

The reconciliation of income tax benefit at the U.S. statutory rate of 34% to the Company’s effective rate for the periods presented is as follows:

 

   2017  2016
U.S federal statutory rate   (34%)  (34%)
State income tax, net of federal benefit   (0.0%)   (0.0%)
Increase in valuation allowance   34%   34%
Income tax provision (benefit)   0.0%   0.0%

 

 

The tax effects of temporary differences that give rise to the Company’s net deferred tax liability as of June 30, 2017 and 2016 consisted of the following:   

 

   2017  2016
Deferred Tax Assets          
Net Operating Losses  $4,482,000   $2,227,000 
Less:  Valuation Allowance   $(4,482,000)  $(2,227,000)
Deferred Tax Assets – Net   —      —   

 

As of June 30, 2017, the Company had approximately $13,184,000 of federal and state net operating loss carryovers (“NOLs”), which begin to expire in 2027. 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.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.8.0.1
Significant Accounting Policies (Policies)
3 Months Ended
Sep. 30, 2017
Significant Accounting Policies (Policies):  
Basis of Presentation

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2017 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended September 30, 2017 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s form 10-K/A for the year ended June 30, 2017 filed with the SEC on October 12, 2017.

Principles of Consolidation

Principles of Consolidation

 

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The consolidated financial statements include the accounts of the Company, its wholly-owned and controlled subsidiaries. All intercompany balances and transactions have been eliminated.

Use of Estimates

Use of Estimates

 

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

Cash

Cash

 

The Company considers all short-term highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents.

Revenue Recognition

Revenue Recognition

 

The Company follows the guidance of the Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition.” It records revenue when persuasive evidence of an arrangement exists, product delivery has occurred, the selling price to the customer is fixed or determinable and collectability of the revenue is reasonably assured. The Company has not experienced any significant returns from customers and accordingly, in management’s opinion, no reserve for returns has been provided. Payments received prior to shipment of goods are recorded as deferred revenue.

Accounts Receivable and Allowance for Doubtful Accounts Receivable

Accounts Receivable and Allowance for Doubtful Accounts Receivable

 

The Company has a policy of reserving for uncollectible accounts based on the best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to customers based on an evaluation of their financial condition and other factors. The Company generally does not require collateral or other security to support accounts receivable and perform ongoing credit evaluations of customers and maintain an allowance for potential bad debts if required.

 

It is determined whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. The Company may also record a general allowance as necessary.

 

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

Inventories

Inventories

 

Inventories, which consist only of the Company’s finished products held for resale, are stated at the lower of cost, determined using the first-in, first-out, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to dispose of the product.

 

If the Company identifies excess, obsolete or unsalable items, its inventories are written down to their realizable value in the period in which the impairment is first identified. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales in the Company’s statements of operations.

Fair Value Measurements

Fair Value Measurements

 

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

 

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

 

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

 

Level 1 — quoted prices in active markets for identical assets or liabilities.
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable.
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions).

  

The derivative liability, which relates to the conversion feature of convertible debt and common stock warrants and options, is classified as a Level 3 liability, and is the only financial liability measure at fair value on a recurring basis.

 

The change in the Level 3 financial instrument is as follows:

 

Balance, June 30, 2017  $5,072,579
Issued during the three months ended September 30, 2017  $443,482
Exercises/Conversions  $(112,511)
Change in fair value recognized in operations  $(1,813,249)
Balance, September 30, 2017  $3,590,301

 

The estimated fair value of the derivative instruments were valued using the Black-Scholes option pricing model, using the following assumptions as of September 30, 2017:

 

Estimate Dividends  None
Expected Volatility   127.3%
Risk-Free Interest Rate   1.06%
Expected Term   .1-1.8 years
Property and Equipment

Property and Equipment

 

Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

 

The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flow and recognizes an impairment loss when the estimated undiscounted future cash flow expected to result from the use of the asset plus the net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When the Company identifies an impairment, it reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values. No impairment charges were recorded during the three months ended September 30, 2017 and September 30, 2016.

Share-based Payments

Share-based Payments

 

Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values, in accordance with FASB ASC Topic 718. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company had no common stock options or common stock equivalents granted or outstanding for all periods presented.

 

The Company issued restricted stock to consultants and employees for various services. Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is to be measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete.

Convertible Instruments

Convertible Instruments

 

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

Preferred Stock

Preferred Stock

 

We apply the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity” when determining the classification and measurement of preferred stock. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. We classify conditionally redeemable preferred shares (if any), which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control, as temporary equity. At all other times, we classified our preferred shares in stockholders’ equity. Our preferred shares do not feature any redemption rights within the holders’ control or conditional redemption features not within our control. Accordingly, unless otherwise noted, all issuances of preferred stock are presented as a component of consolidated shareholders’ deficit.

Advertising

Advertising

 

Advertising and marketing expenses are charged to operations as incurred.

Income Taxes

Income Taxes

 

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company has no material uncertain tax positions.

XML 28 R17.htm IDEA: XBRL DOCUMENT v3.8.0.1
Significant Accounting Policies (Tables)
3 Months Ended
Sep. 30, 2017
Accounting Policies [Abstract]  
change in level 3
Balance, June 30, 2017  $5,072,579
Issued during the three months ended September 30, 2017  $443,482
Exercises/Conversions  $(112,511)
Change in fair value recognized in operations  $(1,813,249)
Balance, September 30, 2017  $3,590,301
The estimated fair value of the derivative instruments
Estimate Dividends  None
Expected Volatility   127.3%
Risk-Free Interest Rate   1.06%
Expected Term   .1-1.8 years
XML 29 R18.htm IDEA: XBRL DOCUMENT v3.8.0.1
Inventory (Tables)
3 Months Ended
Sep. 30, 2017
Inventory Disclosure [Abstract]  
Inventory
   September 30, 2017  June 30, 2017
Finished inventory  $186,587  $216,711
Raw materials and packaging   8,776   7,984
Total  $195,363  $224,695
XML 30 R19.htm IDEA: XBRL DOCUMENT v3.8.0.1
Prepaid Expenses and Other Current Assets (Tables)
3 Months Ended
Sep. 30, 2017
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Prepaid Expenses
   September 30, 2017  June 30, 2017
Prepaid officers’ compensation  $483,532  $521,916
Prepaid directors’ compensation   176,648   206,090
Prepaid marketing expenses   —     19,250
Other prepaid expenses and current assets   22,255   27,082
Total  $682,435  $774,338
XML 31 R20.htm IDEA: XBRL DOCUMENT v3.8.0.1
Property and Equipment (Tables)
3 Months Ended
Sep. 30, 2017
Notes to Financial Statements  
[custom:PropertyAndEquipment]
   September 30, 2017  June 30, 2017
Vehicles  $29,598  $29,598
Furniture and equipment   42,055   41,042
Personal computers   2,379   3,315
    74,032   73,955
Less:  accumulated depreciation   30,302   25,822
Total  $43,730  $48,133
XML 32 R21.htm IDEA: XBRL DOCUMENT v3.8.0.1
Convertible Notes Payable (Tables)
3 Months Ended
Sep. 30, 2017
Cash and Cash Equivalents [Abstract]  
Convertible Notes Payable
   Interest Rates  Term  September 30, 2017 

June 30, 2017

Convertible notes payable   6% - 12%   0 -2 year   $1,310,000   $1,115,000
Discount             (527,901)   (381,747) 
Total            $782,099   $733,253
XML 33 R22.htm IDEA: XBRL DOCUMENT v3.8.0.1
Related Party Convertible Notes Payable (Tables)
3 Months Ended
Sep. 30, 2017
Notes to Financial Statements  
Related Party Convertible Notes Payable
   Interest Rate  Term  September 30, 2017  June 30, 2017
Related party convertible notes payable   6%  6 mos. - 1 year  $563,450   $493,450
Discount           (124,618)   (227,203)
Total          $438,832   $266,247
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.8.0.1
Income Taxes (Tables)
3 Months Ended
Sep. 30, 2017
Income Taxes {3}  
Schedule of Deferred Tax Assets and Liabilities
Deferred Tax Assets   September 30, 2017   June 30, 2017
Net Operating Losses   $ 4,700,000   $ 4,482,000
Less:  Valuation Allowance   $ (4,700,000)   $ (4,482,000)
Deferred Tax Assets - Net     —       —  
Schedule of reconciliation of income tax benefit
  Three Months Ended
  September 30, 2017   September 30, 2016
U.S federal statutory rate (34%)   (34%)
State income tax, net of federal benefit (0.0%)   (0.0%)
Increase in valuation allowance 34%   34%
Income tax provision (benefit) 0.0%   0.0%
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.8.0.1
Level 3 Financial Instrument Narrative (Details)
3 Months Ended
Sep. 30, 2017
USD ($)
Level 3 Financial Instrument Narrative Details  
Opening Balance of Financial Instrument $ 5,072,579
Stock issued 443,482
Exercises (112,511)
Change in fair value recognized in operations (1,813,249)
Closing Balance of Finacial Instrument $ 3,590,301
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.8.0.1
Estimated Fair Value Of Derivative Instruments Using Black-Scholes Option Pricing Model (Details)
Sep. 30, 2017
USD ($)
Estimated Fair Value Of Derivative Instruments Using Black-Scholes Option Pricing Model  
Estimated Dividends $ 0
Expected Volatility 127.30%
Risk Free Interest Rate 1.06%
Expected Term in years Minimum 0.1
Expected Term in years Maximum 1.8
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.8.0.1
Going Concern (Details) - USD ($)
3 Months Ended
Sep. 30, 2017
Nov. 01, 2017
Going Concern Details    
Shareholders deficit $ 6,446,224  
Accumulated deficit $ 25,469,361  
Period of financing agreement 24 months  
Term of Promissory Note 9 months  
Shares registered in Offering   300,000,000
Price Per Share   2.00%
Total Offering   $ 6,000,000
Period offering meets Company needs 2 years  
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.8.0.1
Inventory (Details) - USD ($)
Sep. 30, 2017
Jun. 30, 2017
Inventory Disclosure [Abstract]    
Finished Inventory $ 186,587 $ 216,711
Raw Materials and Packaging 8,776 7,984
Total Inventory $ 195,363 $ 224,695
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.8.0.1
Prepaid Expenses and Other Current Assets (Details) - USD ($)
Sep. 30, 2017
Jun. 30, 2017
Notes to Financial Statements    
Prepaid Officers Compensation $ 485,532 $ 521,916
Prepaid Directors Compensation 176,648 206,090
Prepaid Marketing Expenses   19,250
Other Prepaid Expenses and Current Assets 22,255 27,082
Total $ 682,435 $ 774,338
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.8.0.1
Property And Equipment (Details) - USD ($)
Sep. 30, 2017
Jun. 30, 2017
Property And Equipment Details    
Vehicles $ 29,598 $ 29,598
Furniture and Equipment 42,055 41,042
Personal computer book value 2,379 3,315
Subtotal 74,032 73,955
Less Accumulated Depreciation 30,302 25,822
Total $ 43,730 $ 48,133
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.8.0.1
Property and Equipment (Details Narrative) - USD ($)
3 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Property, Plant and Equipment [Abstract]    
Depreciation Expense $ 4,584 $ 11,659
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.8.0.1
Convertible Notes Payable (Details)
3 Months Ended
Sep. 30, 2017
USD ($)
Sep. 30, 2016
USD ($)
Jun. 30, 2017
USD ($)
Convertible Notes Payable Details      
Convertible Notes Payable $ 1,310,000   $ 1,115,000
Convertible notes of term in years minimum 0    
Convertible notes of term in years maximum 2    
Convertible notes interest rate minimum 6.00%    
Convertible notes interest rate maximum 12.00%    
Discount $ (527,901)   (381,747)
Total 782,099   $ 733,253
Interest Expense, Amortization of the Discount 124,584 $ 29,089  
Interst Expense $ 101,587 $ 0  
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.8.0.1
Notes Payable Other (Details Narrative) - USD ($)
3 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Jun. 30, 2017
Sep. 01, 2016
Debt Disclosure [Abstract]        
Note Payable       $ 40,122
Interst Rate of Note Payable       0.00%
Monthly Payament Amount       $ 1,115
Discount       $ 36,634
Term of Note Payable       3
Balance on the Note $ 23,164   $ 26,130  
Interest Expense $ 377 $ 183    
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.8.0.1
Related Party Convertible Notes Payable (Details) - USD ($)
3 Months Ended
Sep. 30, 2017
Jun. 30, 2017
Related Party Details    
Related Party Convertible Notes Payable $ 563,450 $ 493,450
Interest Rate 6.00%  
Term Minimum 6 months  
Term Maximum 1 year  
Discount $ (124,618) (227,203)
Total $ 438,832 $ 266,247
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.8.0.1
Related Party Convertible Notes (Details Narrative) - USD ($)
3 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Notes to Financial Statements    
Interest Expense $ 191,826 $ 82,934
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.8.0.1
Common and Preferred Stock (Details Narrative) - shares
3 Months Ended
Sep. 30, 2017
Oct. 31, 2017
Jul. 14, 2017
Jun. 30, 2016
Common Stock Details        
Common Stock Authorized 950,000,000     950,000,000
Common Stock Issued 6,740,928      
Convertible Notes Payable Conversion 6,240,928      
Increase of Shares in Incentive Plan     65,000,000  
Preferred Stock Authorized 20,000,000      
Designated Preferred 10,000,000      
Undesignated Preferred 10,000,000      
Shares Issued for Cash 500,000      
Common Stock After Increase   4,000,000,000    
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.8.0.1
Series A Preferred Stock (Details Narrative) - $ / shares
Sep. 30, 2017
Jul. 24, 2017
Jul. 05, 2017
Jun. 30, 2016
Series C Preferred Stock        
Series A Preferred Stock Outstanding 1,000,000     1,000,000
Formerly entitled to vote rate   $ 100 $ 1,200  
Common Stock conversion to preferred stock rate   400 100  
current entitled to vote rate   $ 400 $ 100  
XML 48 R37.htm IDEA: XBRL DOCUMENT v3.8.0.1
Series B Preferred Stock (Details Narrative) - shares
3 Months Ended
Sep. 30, 2017
Jun. 30, 2017
Notes to Financial Statements    
Series B Authorized Stock 5,000,000  
Shares Oustanding Series B 0 0
XML 49 R38.htm IDEA: XBRL DOCUMENT v3.8.0.1
Series C Preferred Stock (Details Narrative) - shares
3 Months Ended
Sep. 30, 2017
Jun. 30, 2017
Series C Preferred Stock    
Series C Preferred Authorized 2,000,000  
Date Articles of Incorporation Amended Nov. 13, 2015  
Series C Preferred Shares bears interest at a rate per annum 12.00%  
Each Series C Preferred Share can be converted in to Shares of Common Stock 50  
Shares Outstanding 1,107,607 1,107,607
XML 50 R39.htm IDEA: XBRL DOCUMENT v3.8.0.1
Series D Preferred Stock (Details Narrative) - $ / shares
3 Months Ended
Sep. 30, 2017
Jun. 30, 2017
Notes to Financial Statements    
Series D Preferred Authorized 2,000,000  
Series Conversion Rate $ 100  
Shares Oustanding 0 0
XML 51 R40.htm IDEA: XBRL DOCUMENT v3.8.0.1
Series E Preferred Stock (Details Narrative) - $ / shares
3 Months Ended
Sep. 30, 2017
Oct. 31, 2017
Notes to Financial Statements    
Series E Preferred Stock Created Sep. 19, 2017  
Votes per share entiled to cast $ 2,000  
Convertible to Common Stock on basis per share $ 1  
Series E Stock Granted to Chairman 789,474  
Welch Converted Series E   789,474
Welch Common stock upon conversion   789,474
XML 52 R41.htm IDEA: XBRL DOCUMENT v3.8.0.1
Warrants and Options (Details)
3 Months Ended
Sep. 30, 2017
shares
Notes to Financial Statements  
Common Stock Warrants Granted 0
Common Stock Warrants exercised 0
Warrants Cancelled 1,187,500
Options Granted to purchase Common stock 650,000
XML 53 R42.htm IDEA: XBRL DOCUMENT v3.8.0.1
Concentrations (Details)
3 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Concentrations Details    
Company's two largest customers percent accounted of sales number one 18.00% 81.00%
Company's two largest customers percent accounted of sales number two 7.00% 3.00%
XML 54 R43.htm IDEA: XBRL DOCUMENT v3.8.0.1
Reconciliation of income tax benefit (Details)
3 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Reconciliation of income tax benefit Details    
U.S federal statutory rate 34.00% 34.00%
State income tax, net of federal benefit 0.00% 0.00%
Increase in valuation allowance 34.00% 34.00%
Income tax provision (benefit) 0.00% 0.00%
XML 55 R44.htm IDEA: XBRL DOCUMENT v3.8.0.1
Net deferred tax liability (Details) - USD ($)
Sep. 30, 2017
Jun. 30, 2017
Net deferred tax liability Details    
Net Operating Losses $ 4,700,000 $ 4,482,000
Less: Valuation Allowance (4,700,000) (4,482,000)
Deferred Tax Assets - Net $ 0 $ 0
XML 56 R45.htm IDEA: XBRL DOCUMENT v3.8.0.1
Income Tax (Details Narrative)
Sep. 30, 2017
USD ($)
Income Tax  
Company had federal and state net operating loss carryovers $ 13,900,000
XML 57 R46.htm IDEA: XBRL DOCUMENT v3.8.0.1
Commitments (Details) - USD ($)
3 Months Ended
Sep. 30, 2017
Sep. 01, 2016
Commitments Details    
Term of Lease 3 years  
Monthly Payment Year One   $ 7,715
Monthly Payments Year Two   7,972
Monthly Payments Year Three   $ 8,229
XML 58 R47.htm IDEA: XBRL DOCUMENT v3.8.0.1
Legal Proceedings (Details) - USD ($)
3 Months Ended 15 Months Ended
Sep. 30, 2017
Sep. 30, 2017
Oct. 06, 2017
Feb. 04, 2016
Date Annual Report Filed regarding pending legal proceedings Oct. 12, 2017      
Release Settlement Executed with Donna Rayburn Oct. 06, 2017      
Stock Warrants returned by Rayburn     10,000,000  
Common Stock Issued for Meadows Settlement     45,000,000  
Issued Immediately     20,000,000  
Issued upon increase of authorized     25,000,000  
Stock Price Limit to re-sell shares $ 0.06      
Stock Warrants Returned     $ 55,096,825  
Rodney Peterson        
Shares Issued to settle claims       6,800,000
Roy Meadows        
Date Claims Asserted Regarding Meadows Case   Apr. 20, 2016    
XML 59 R48.htm IDEA: XBRL DOCUMENT v3.8.0.1
Acquisition (Details) - USD ($)
Jul. 27, 2016
Nov. 16, 2015
Acquisition Details    
Cash paid for acquisition $ 22,500  
Warrant issued for acquisition 500,000  
Exercise Price of Warrant 3.00%  
Agreement amendmed for new voting interest   75.00%
Poafpbybitty interest   51.00%
Goodwill   $ 49,911
XML 60 R49.htm IDEA: XBRL DOCUMENT v3.8.0.1
Subsequent Events (Details Narrative) - USD ($)
1 Months Ended 3 Months Ended
Nov. 13, 2017
Sep. 30, 2017
Nov. 02, 2017
Oct. 31, 2017
Oct. 12, 2017
Oct. 06, 2017
Accounting Policies [Abstract]            
Shares of Common Stock Issued 103,389,474          
Common Stock issued for debt conversions 52,000,000          
Common Stock Issued for Services Rendered 6,389,474          
Common Stock Issued for Legal Settlement 45,000,000          
Common Stock Issued for Meadows Settlement           45,000,000
Issued Immediately           20,000,000
Issued upon increase of authorized           25,000,000
Stock Price Limit to re-sell shares $ .06 $ 0.06        
GHS Note Term 9 months          
GHS note interest $ .10          
Stock Warrants Returned           $ 55,096,825
Ms Rayburn Stock Warrants Returned           10,000,000
Common Stock Authorized Increase       4,000,000,000    
GHS Investments to purchase in stock         $ 12,000,000  
Period of financing agreement 24 months 24 months        
Discount off market price         20.00%  
Secured Convertible Promissory Note     $ 250,000   $ 250,000  
Term of Promissory Note 9 months 9 months        
Interest Rate         10.00%  
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