SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterlyperiod ended: June 30, 2019ended: March 31, 2020

OR

OR

☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ______________________________ to _________________________________

 

Commission File Number333-209341

 

INNERSCOPE HEARING TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada46-3096516
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
2151 Professional Drive, Second Floor, Roseville, CA95661
(Address of principal executive offices)
(833) 788-0506
(Registrant's telephone number, including area code)

2151 Professional Drive, Second Floor, Roseville, CA 95661

(Address of principal executive offices)

(916) 218-4100

(Registrant's telephone number, including area code)

 

Indicate 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 shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑☐ Yes ☐ ☑No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☑Yes☐ 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. See the definitions of "large accelerated filer," "accelerated filer" and smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☑Smaller reporting company☑
 Emerging growth company☑

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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

Title of each class Trading Symbol(s) Name of each exchange on which registered
None N/A N/A

 

The number of shares outstanding of the Registrant's $0.0001 par value Common Stock as of August 28, 2019,December 12, 2022, was 197,577,017 8,087,822,519shares.

INNERSCOPE HEARING TECHNOLOGIES, INC.

FORM 10-Q

Quarterly Period Ended June 30, 2019March 31, 2020

INDEX

INDEX
FORWARD-LOOKING STATEMENTS

PART I. FINANCIAL INFORMATION

FORWARD-LOOKING STATEMENTSPage
PART I. FINANCIAL INFORMATION
  Page
Item 1.Financial Statements 
 Condensed Consolidated Balance Sheets at June 30, 2019,March 31, 2020, (Unaudited) and December 31, 20182019 (Unaudited)2
 Condensed Consolidated Statements of Operations for the three and six months ended June 30,March 31, 2020
and 2019 and 2018 (Unaudited)

3

 Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the sixthree months
ended June 30,March 31, 2020 and 2019 and 2018 (Unaudited)

4

 Condensed Consolidated Statements of Cash Flows for the sixthree months ended June 30, March 31, 2020 and
2019 and 2018 (Unaudited)

5

6
 Notes to Condensed Consolidated Financial Statements (Unaudited)67
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of
Operations

30

19
Item 3.Quantitative and Qualitative Disclosures about Market Risks3622
Item 4.Controls and Procedures36
 22 
PART II. OTHER INFORMATION

PART II. OTHER INFORMATION

Item 1.Legal Proceedings3723
Item 1A.Risk Factors3723
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds3723
Item 3.Defaults Upon Senior Securities3823
Item 4.Mine Safety Disclosures3823
Item 5.Other Information3823
Item 6.Exhibits3824
   
SIGNATURES25

  

 
 

INNERSCOPE HEARING TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

INNERSCOPE HEARING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 June 30, December 31, 

As of March 31,

2020

 

As of December 31,

2019

 2019 2018  (Unaudited)   (Unaudited) 
ASSETS                
        
Current Assets:                
Cash $5,017  $87,826  $11,868  $4,459 
Accounts receivable, allowance for doubtful accounts $18,383  22,568   6,112 
Accounts receivable from related party  283,064   203,325 
Accounts receivable, net allowance for doubtful accounts  18,350   51,160 
Employee advances  59,721   40,942   3,000   3,750 
Prepaid expenses  107,503   167,992 
Prepaid assets  5,783   73,249 
Inventory  118,331   91,510   8,125   18,781 
Total current assets  596,204   597,707   47,126   151,399 
                
Security deposits  34,537   11,056   12,752   12,752 
Domain name $3,000  $3,000   3,000   3,000 
Intangible assets, net of accumulated amortization of $80,420 (2019) and $2,168 (2018)  932,588   1,010,840 
Property and equipment, net of accumulated depreciation of $12,587 (2019) and $4,705 (2018)  81,833   43,450 
Intangible assets, net of accumulated amortization  852,710   879,336 
Property and equipment, net of accumulated depreciation  70,239   72,241 
Operating leases right-of-use assets, net  1,302,184   —     784,905   846,132 
Investment in undivided interest in real estate  1,231,779   1,226,963   1,226,171   1,210,526 
Total assets $4,182,125  $2,893,014  $2,996,903  $3,175,386 
                
        
LIABILITIES AND STOCKHOLDERS' DEFICIT                
        
Current Liabilities:                
Bank overdraft $7,081  $2,631 
Accounts payable and accrued expenses $1,092,778  $1,233,653   1,398,128   1,316,185 
Accounts payable to related party  22,548   22,548   372,125   266,419 
Notes payable - stockholder  95,800   95,800   95,800   95,800 
Advances payable, stockholders  63,642   57,526 
Convertible notes payable, net of discounts  958,827   151,166 
Current portion of notes payable, net of deferred loan fees  28,721   29,270 
Current portion of note payable-undivided interest in real estate  20,096   19,660 
Current portion of convertible notes payable, net of discounts  2,673,315   2,390,481 
Note payable, other & related party  122,391   106,942 
Customer deposits  71,409   56,698   22,875   21,505 
Officer salaries payable  156,201   188,942 
Income taxes payable  23,998   23,998 
Current portion of note payable - undivided interest in real estate  22,150   20,708 
Derivative liabilities  3,082,068   1,807,404   8,204,211   3,515,055 
Operating lease liabilities, current portion  323,209   —     315,076   299,794 
Total current liabilities  5,939,297   3,686,665  $13,233,152   8,035,520 
                
Long term portion of note payable- undivided interest in real estate  956,542   964,847   951,442   952,884 
Operating lease liabilities, less current portion  994,739   —   
Operating lease liabilities, Less current portion  655,339   731,496 
Total liabilities  7,890,578   4,651,512  $14,839,933   9,719,900 
                
Commitments and contingencies                
        
Stockholders' Deficit:                
Preferred stock, $0.0001 par value; 25,000,000 shares authorized;        
Series A preferred stock, par value $0.0001, 9,510,000 shares authorized and -0- issued and outstanding  —     —   
Series B preferred stock, par value $0.0001, 900,000 shares authorized and issued and outstanding  90   90 
Common stock, $0.0001 par value; 490,000,000 shares authorized; 161,826,468 (2019) and 120,425,344 (2018) shares issued and outstanding, respectively  16,182   12,042 
Common stock to be issued, $0.0001 par value, 2,881,316 (2019) and 6,373,848 (2018) shares, respectively  288   637 
Preferred stock, $0.0001 par value; 25,000,000 shares authorized;        
Series A preferred stock, par value $0.0001, -0- (2020) and -0- (2019)  —     —   
Series B preferred stock, par value $0.0001, 900,000 (2020) and 900,000 (2019) shares authorized, and 900,000 (2020) and 900,000 (2019) shares issued and outstanding  90   90 
Common stock, $0.0001 par value; 14,975,000,000 shares authorized; 2,074,183,163 (2020) and 342,118,136 (2019) shares issued and outstanding, respectively  207,419   34,212 
Common stock to be issued, $0.0001 par value, 2,412,671 (2022) and 2,412,671 (2021) shares  241   241 
Additional paid-in capital  6,397,967   4,836,557   8,446,198   7,717,411 
Deferred stock compensation  (242,402)  (235,694)
Accumulated deficit  (9,880,578)  (6,372,129)  (20,496,978)  (14,296,468)
        
Total stockholders' deficit  (3,708,453)  (1,758,498)  (11,843,030)  (6,544,514)
        
 $4,182,125  $2,893,014 
        
        
See notes to condensed consolidated financial statements.
Total Liabilities and Shareholder Equity $2,996,903  $3,175,386 

See notes to condensed consolidated financial statements.

 2 

 

INNERSCOPE HEARING TECHNOLOGIES, INC.

INNERSCOPE HEARING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
         
  Three months ended June 30, Six months ended June 30,
  2019 2018 2019 2018
Revenues:                
Revenues $219,673  $26,691  $391,202  $53,972 
Revenues, related party  —     23,323   15,000   52,019 
Total revenues  219,673   50,014   406,202   105,991 
                 
Cost of sales                
Cost of sales  99,463   24,477   181,827   49,258 
Cost of sales, related  —     7,325   —     21,408 
Total cost of sales  99,463   31,802   181,827   70,666 
                 
Gross profit  120,210   18,212   224,375   35,325 
                 
Operating Expenses:                
Compensation and benefits (including stock- based fees of $35,917 and $50,000 for the three and six months ended June 30, 2019 and $772,600 for the three and six months ended June 30, 2018)  435,086   925,767   798,823   1,085,306 
Advertising and promotion  143,800   66,007   311,584   91,328 
Professional fees (including stock- based fees of $197,876 and $308,292 for three and six months ended June 30, 2019 and $21,327 and $64,240 for three and six months ended June 30, 2018)  239,923   115,419   377,317   230,906 
Rent (including related party of $36,000 for three months ended June 30, 2019 and 2018 and $72,000 for six months ended June 30, 2019 and 2018  98,133   36,000   194,062   72,000 
Investor relations  89,528   23,778   164,776   76,419 
Other general and administrative  132,487   6,073   269,126   47,316 
Total operating expenses  1,138,958   1,173,044   2,115,689   1,603,274 
                 
Loss from operations  (1,018,748)  (1,154,832)  (1,891,314)  (1,567,949)
                 
Other Expense:                
Derivative (income) expense  235,478   (518,711)  (342,360)  (669,970)
Gain on investment in undivided interest in real estate  5,856   3,046   4,816   741 
Gain (loss) on debt extinguishment  459   —     (44,393)  —   
Interest expense and finance charges  (728,456)  (182,528)  (1,235,198)  (313,792)
Total other expense, net  (486,664)  (698,193)  (1,617,135)  (983,020)
                 
Net loss $(1,505,411) $(1,853,025) $(3,508,449) $(2,550,969)
                 
Basic and diluted loss per share $(0.01) $(0.03) $(0.02) $(0.04)
                 
Weighted average number of common shares outstanding Basic and diluted  155,732,524   57,711,814   145,156,477   59,761,633 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

         
  Three Months Ended March 31,
  2020 2019
Revenues:        
Revenues, other $81,139  $171,529 
Revenues, related party  —     15,000 
Total revenues  81,139   186,529 
         
Cost of sales        
Cost of sales, other $49,412   82,364 
Total cost of sales  49,412   82,364 
         
Gross profit $31,727  $104,165 
         
Operating Expenses:        
Compensation and benefits (including stock-based fees of $0 and $14,084, respectively)  210,769   363,737 
Advertising and promotion  9,689   167,784 
Professional fees (including stock-based fees of $0 and $110,416, respectively)  67,037   137,394 
Rent, including related party  80,963   95,929 
Investor relations  12,797   75,248 
Depreciation and Amortization expense  31,302   —   
Other general and administrative  60,737   136,639 
Total operating expenses $473,294  $976,731 
         
Loss from operations $(441,567) $(872,566)
         
Other Income (Expense):        
Derivative income (loss)  (5,027,581)  (577,838)
Gain (loss) on equity investment  15,645   (1,040)
Amortization of debt discount  (612,718)  —   
Loss on debt extinguishment  —     (44,852)
Interest expense and finance charges  (134,290)  (506,742)
Total other income (expense), net $(5,758,944) $(1,130,472)
         
Earnings Before Tax (loss) $(6,200,511) $(2,003,038)
         
Income tax provision  —     —   
         
Net Loss $(6,200,510) $(2,003,038)
         
Basic and diluted loss per share  (0.01)  (0.01)
         
Weighted average number of common shares outstanding        
Basic and diluted  898,828,413   134,411,801 

See notes to condensed consolidated financial statements.

 3 

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
SIX MONTHS ENDED JUNE 30, 2019 and 2018
(Unaudited)
                                 
   Series A Preferred Stock   Series B Preferred Stock   Common Stock   Common Stock To Be Issued   Additional Paid-in   Deferred Stock   Retained   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Compensation   Deficit   Deficit 
Balances January 1, 2019  —    $—     900,000  $90   120,425,344  $12,042   6,373,848  $637  $4,836,556  $(235,694) $(6,372,129) $(1,758,498)
                                                 
Stock based compensation  —     —     —     —     870,826   87   113,637   11   26,485   97,917   —     124,499 
                                                 
Stock issued from common stock to be issued  —     —     —     —     3,550,893   355   (3,550,893)  (355)  —     —     —     —   
                                                 
Common stock issued for convertible notes and accrued interest  —     —     —     —     24,741,320   2,474   —     —     282,792   —     —     285,266 
                                                 
Common stock to be issued for settlement of accounts payable  —     —     —     —     —     —     625,000   63   40,563   —     —     40,624 
                                                 
Reclassification of derivative liabilities upon payment of convertible debt  —     —     —     —     —     —     —     —     580,908   —     —     580,908 
                                                 
Net loss for the three months ended March 31, 2019  —     —     —     —     —     —     —     —     —     —     (2,003,038)  (2,003,038)
                                                 
Balances March 31, 2019  —     —     900,000   90   149,588,383   14,958   3,561,592   356   5,767,304   (137,777)  (8,375,167)  (2,730,236)
                                                 
Stock based compensation  —     —     —     —     4,780,303   478   355,008   36   337,902   (270,500)  —     67,915 
                                                 
Amortization of deferred stock compensation  —     —     —     —     —     —     —     —     —     165,875   —     165,875 
                                                 
Stock issued from common stock to be issued  —     —     —     —     410,284   41   (410,284)  (41)  —     —     —     —   
                                                 
Common stock issued for settlement of accounts payable  —     —     —     —     625,000   63   (625,000)  (63)  —     —     —     —   
                                                 
Common stock issued for convertible notes and accrued interest  —     —     —     —     6,422,498   642   —     —     135,557   —     —     136,199 
                                                 
Reclassification of derivative liabilities upon payment of convertible debt  —     —     —     —     —     —     —     —     157,204   —     —     157,204 
                                                 
Net loss for the three months ended June 30, 2019  —     —     —     —     —     —     —     —     —     —     (1,505,411)  (1,505,411)
                                                 
Balances June 30, 2019  —    $—     900,000  $90   161,826,468  $16,182   2,881,316  $288  $6,397,967  $(242,402) $(9,880,578) $(3,708,453)

THREE MONTHS ENDED MARCH 31, 2020 AND 2019

                   
  Series B Preferred stock Common stock Common stock to be issued Additional Paid-in Deferred Stock Retained Total Stockholders’
  Shares Amount Shares Amount Shares Amount Capital Compensation deficit Deficit
Balances January 1, 2019  900,000  $90   120,425,344  $12,042   6,373,848  $637  $4,836,555   (235,694) $(6,372,129)  (1,758,499)
                                         
Stock issued from common stock to be issued  —     —     3,550,893   355   (3,550,893)  (355)  —         —     —   
                                         
Stock based compensation  —     —     870,826   87   113,637   11   26,485   97,918   —     124,501 
                                         
Common stock issued for convertible notes  —     —     24,741,320   2,474           282,792       —     285,266 
                                         
Common stock to be issued for settlement of accounts payable  —     —     —     —     625,000   63   40,563       —     40,626 
                                         
Reclassification of derivative liabilities upon payment of convertible debt  —     —     —     —     —     —     580,908       —     580,908 
                                         
Net loss for the period ended March 31, 2019  —     —     —     —     —     —     —     —     (2,003,038)  (2,003,038)
                                         
Balances March 31, 2019  900,000  $90   149,588,383  $14,958   3,561,592  $356  $5,767,303   (137,776) $(8,375,167)  (2,730,236)
                                         
Balances January 1, 2020  900,000  $90   342,118,135  $34,212   2,415,671  $241  $7,717,411   —    $(14,296,468)  (6,544,514)
                                         
Debt conversion and retirement of derivative liabilities  —     —     1,732,065,028   173,207           728,787           901,994 
                                         
Net loss for the period ended March 31, 2020  —     —     —     —     —     —     —     —     (6,200,510)  (6,200,510)
                                         
Balances March 31, 2020  900,000  $90   2,074,183,163  $207,419   2,415,671  $241  $8,446,198   —    $(20,496,978)  (11,843,030)

See notes to condensed consolidated financial statements.

 4 

 

INNERSCOPE HEARING TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   Series A Preferred Stock   Series B Preferred Stock   Common Stock   Common Stock To Be Issued   Additional Paid-in   Deferred Stock   Retained   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Compensation   Deficit   Deficit 
Balances January 1, 2018  —    $—     —    $—     61,539,334  $6,153   102,564  $10  $331,227  $(25,000) $(1,787,012) $(1,474,623)
                                                 
Stock based compensation  —     —     —     —     224,072   23   266,401   27   25,640   25,000   —     50,690 
                                                 
Stock issued from common stock to be issued  —     —     —     —     —     —     (102,564)  (10)  10   —     —     —   
                                                 
Reclassification of derivative liabilities upon payment of convertible debt  —     —     —     —     —     —     —     —     61,044   —     —     61,044 
                                                 
Net loss for the three months ended March 31, 2018  —     —     —     —     —     —     —     —     —     —     (697,945)  (697,945)
                                                 
Balances March 31, 2018  —     —     —     —     61,763,406   6,176   266,401   27   417,921   —     (2,484,957)  (2,060,834)
                                                 
Stock based compensation  —     —     —     —     —     —     547,619   55   13,495   —         13,550 
                                                 
Issuance of Series B preferred stock  —     —     900,000   90   —     —     —     —     817,510   —     —     817,600 
                                                 
Common stock issued or to be issued for convertible notes  —     —     —     —     6,213,539   621   —     —     68,749   —     —     69,370 
                                                 
Common stock shares cancelled in exchange for Series A preferred stock  9,510,000   951   —     —     (19,020,000)  (1,902)  —     —     951   —     —     —   
                                                 
Reclassification of derivative liabilities upon payment of convertible debt  —     —     —     —     —     —     —     —     182,502   —     —     182,502 
                                                 
Net loss for the three months ended June 30, 2018          —     —     —     —     —     —     —     —     (1,853,025)  (1,853,025)
                                                 
Balances June 30, 2018  9,510,000  $951   900,000  $90   48,956,945  $4,896   814,020  $81  $1,501,129  $—    $(4,337,982) $(2,830,837)

(Unaudited)

         
  Three Months Ended March 31,
  2020 2019
Cash flows from operating activities:        
Net Income (Loss) $(6,200,510) $(2,003,038)
Adjustments to reconcile net income (loss) to net cash used in operations:      —   
Loss on fair value of derivatives  5,027,582   577,838 
Amortization of debt discounts  612,718   456,030 
Depreciation and amortization  31,300   111,226 
Non cash interest expense  —     2,500 
(Gain) loss on investment in undivided interest in real estate  (15,645)  1,040 
(Gain) loss on debt extinguishment  —     44,852 
Stock based compensation  —     124,500 
Changes in operating assets and liabilities:        
Accounts receivable  32,810   (18,117)
Employee advances  —     (17,181)
Inventory  10,656   (41,571)
Prepaid assets  67,466   17,398 
Related party receivable  750   (41,888)
Accounts payable and accrued expenses  131,427   10,036 
Security deposit  —     —   
Customer deposits  1,369   33,719 
Related party advances  105,706   —   
Operating lease liabilities  352   (42,450)
Net cash used in operating activities  (194,019)  (785,106)
         
Cash flows from investing activities:        
Payment of security deposit  —     (9,181)
Purchase of office and computer equipment  (2,672)  (17,322)
Net cash used in investing activities  (2,672)  (26,503)
         
Cash flows from financing activities:        
Proceeds from issuance of note payable  199,650   7,400 
Bank overdraft  4,450   —   
Payments/Proceeds from convertible notes payable  —     813,475 
Repayments of note payable  —     (20,784)
Advances (repayments) to stockholder, net  —     (41,394)
Net cash provided by financing activities  204,100   758,697 
         
Net increase (decrease) in cash and cash equivalents  7,409   (52,912)
         
Cash and cash equivalents, Beginning of period $4,459  $87,826 
         
Cash and cash equivalents, End of period $11,868  $34,914 
         
Supplemental disclosure of cash flow information:        
Cash paid for interest  —     13,671 
Cash paid for income taxes  —     —   
         
         
Schedule of non-cash Investing or Financing Activity:        
Reclassification of derivative liabilities upon principal repayments of convertible notes  583,073   580,900 
Conversion of notes payable and accrued interest in common stock  363,920   253,539 
Intangible assets in accounts payable      680,000 
Common stock to be issued for settlement of accounts payable  —     40,624 

See notes to condensed consolidated financial statements.

 5 

 

INNERSCOPE HEARING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
     
  2019 2018
Cash flows from operating activities:        
Net loss $(3,508,449) $(2,550,969)
Adjustments to reconcile net loss to net cash used in operations:        
Loss on fair value of derivatives  342,360   669,970 
Amortization of debt discounts  1,181,202   273,705 
Depreciation and amortization  212,492   442 
Stock compensation expense  358,292   836,840 
Non cash interest expense  2,500   —   
Gain on investment in undivided interest in real estate  (4,816)  (741)
Loss on debt extinguishment  44,393   —   
Changes in operating assets and liabilities:        
Decrease (increase) in:        
Accounts receivable  (16,456)  (2,699)
Employee advances  (18,779)  —   
Inventory  (26,821)  (18,651)
Prepaid assets  60,489   28,878 
Accounts receivable, related party  (79,739)  (15,076)
Increase (decrease) in:        
Accounts payable and accrued expenses  (100,162)  109,181 
Officer salaries payable  (32,741)  135,445 
Customer deposits  14,711   —   
Due to related party  —     (38,946)
Operating lease liabilities  (110,586)  —   
Net cash used in operating activities  (1,682,111)  (572,621)
         
Cash flows from investing activities:        
Payment of security deposits  (23,481)  —   
Purchases of office and computer equipment  (46,274)  —   
Net cash used in investing activities  (69,755)  —   
         
Cash flows from financing activities:        
Proceeds from issuance of note payable  21,000   32,600 
Advances to stockholder, net  6,116   31,200 
Proceeds from issuances of convertible notes payable, net of debt issuance costs  1,678,725   592,250 
Repayments of note payable  (36,784)  (20,671)
Repayments of advances, shareholder  —     (6,000)
Repayments of principal of convertible note payable  —     (94,725)
Net cash provided by financing activities  1,669,057   534,654 
         
Net decrease in cash  (82,809)  (37,967)
         
Cash, Beginning of period  87,826   84,720 
         
Cash, End of period $5,017  $46,753 
         
Supplemental disclosure of cash flow information:        
Cash paid for interest $11,256  $16,284 
Cash paid for income taxes $—    $—   
         
Schedule of non-cash Investing or Financing Activity:        
Reclassification of derivative liabilities upon principal repayments of convertible notes $738,112  $243,546 
Intangible assets in accounts payable $536,000   —   
Conversion of notes payable and accrued interest in common stock $389,738  $—   
Common stock issued for settlement of accounts payable $25,000   —   
Operating lease right-of-use assets and liabilities $1,428,534  $—   
         
         
See notes to condensed consolidated financial statements.

6

NOTE 1 - ORGANIZATION

 

Business

Business

InnerScope Hearing Technologies, Inc. (“Company”, “InnerScope”) is a Nevada Corporation incorporated on June 15, 2012, with its principal place of business in Roseville, California. The Company was originally named InnerScope Advertising Agency, Inc. and was formed to provide advertising and marketing services to retail establishments in the hearing device industry. On August 25, 2017, the Company changed its name to InnerScope Hearing Technologies, Inc.to better reflect the Company’s current direction as a hearing health technology driven company with a scalable business model, encompassing; business to business (B2B)that manufactures, develops, distributes, and sells numerous innovative hearing health-related products, hearing treatments, and hearing solutions direct to consumer (DTC) sales and marketing andwith a scalable business to consumer (and B2C) solutions. The Company is a manufacturer and a DTC distributor/retailer of FDA (Food and Drug Administration) registered hearing aids, personal sound amplifier products (“PSAP’s”), hearing related treatment therapies,doctor-formulated dietary hearing supplements and proprietary CDB oil for treating tinnitus.The Company also owns and operates audiological and retail hearing device clinics and plans to continue to open and acquire additional clinics. As of the date of this filing, the Company owns nine retail hearing device clinics in California and manages two additional clinics that are owned by a related party.model.

NOTE 2 – Asset Purchase Acquisition of Kathy L Amos Audiology 

Effective September 10, 2018, the Company acquired all of the assets and assumed certain liabilities of Kathy L Amos Audiology (“Amos Audiology”) in exchange for 340,352 shares of common stock (the “Acquisition”). Amos Audiologyprovides retail hearing aid sales and audiological services in the East Bay area of San Francisco.

Based on the fair value of the common stock issued of $22,974 and the assumed liabilities of $33,049, the total purchase consideration was $56,023.

The following table summarizes the purchase price allocation of the fair value of assets acquired and liabilities assumed in the acquisition:

  Purchase Price Allocation
 Fair value of consideration for Acquisition $22,974 
 Liabilities assumed  33,049 
   Total purchase consideration $56,023 
     
Tangible assets acquired $43,016 
Intangible assets  13,007 
  $56,023 

The total purchase price of $56,023 has been allocated to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values as of the completion of the Acquisition. The fair value of Amos Audiology’s identifiable intangible assets was estimated primarily using the income approach which requires an estimate or forecast of all the expected future cash flows, either through the use of the relief-from-royalty method or the multi-period excess earnings method. The Company determined the identifiable intangible assets, consisting of a customer base and non-compete had fair values of $300 and $12,707, respectively.

7

NOTE 32 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

 

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements in this report have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated unaudited financial statements should be read in conjunction with a reading of the Company’s financial statements and notes thereto included in the Annual Report for the year ended December 31, 2018,2019, filed with the United States Securities and Exchange Commission (the “SEC”) on April 16, 2019.September 14, 2022. Interim results of operations for the three and six months ended June 30,March 31, 2020, and 2019, and 2018, are not necessarily indicative of future results for the full year. Certain amounts from the 20182019 period have been reclassified to conform to the presentation used in the current period.

 

Emerging Growth Companies

The Company qualifies as an “emerging growth company” under the 2012 JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected to take advantage of the benefits of this extended transition period for certain accounting standards.

 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.

 

Cash

Cash

The Company considers all highly liquid investments with an original term, when acquired, of three months or less to be cash equivalents. These investments are carried at cost, which approximates fair value. We held no cash equivalents as of June 30, 2019,March 31, 2020, and December 31, 2018.2019. Cash balances may, at certain times, exceed federally insured limits. If the amount of a deposit at any time exceeds the federally insured amount at a bank, the uninsured portion of the deposit could be lost, in whole or in part, if the bank were to fail.

 

Accounts receivable

The Company records accounts receivable at the time products and services are delivered. An allowance for losses is established through a provision for losses charged to expense. Receivables are charged against the allowance for losses when management believes collectability is unlikely. The allowance (if any) is an amount that management believes will be adequate to absorb estimated losses on existing receivables, based on evaluation of the collectability of the accounts and prior loss experience. As of June 30, 2019, and DecemberMarch 31 2018,2020 management’s evaluation required the establishment of an allowance for uncollectible receivables of $18,383.$27,991.

6

Sales Concentration and Credit Risk

 

Following is a summary of customers who accounted for more than ten percent (10%) of the Company’s revenues for the three and six months ended June 30, 2018. No customer accounted for more than ten percent (10%)March 31, 2020 and 2019 and accounts receivable as of the Company’s revenues for the threeMarch 31, 2020 and months ended June 30, 2019.

8

     Accounts Receivable
 June 30, 2018 as ofMarch 31,Accounts Receivable as of March 31, 2020Accounts Receivable as of March 31, 2019
 3 months 6 months June 30,20202019
 % % 2019%
Customer A, related  46.6%  49.1% $283,064 0%0%66%13%
Customer B  27.0%  25.6% $—   
Customer B, related0%0%21%13%
Customer C, realted 0%0%0%76%
Customer D19%0%0%0%

 

Inventory

Inventory

Inventory is valued at the lower of cost or net realizable value. Cost is determined using the first in first out (FIFO) method. Provision for potentially obsolete or slow-moving inventory is made based on management analysis or inventory levels and future sales forecasts. As of June 30, 2019,March 31, 2020, and December 31, 2018,2019, management’s analysis did not require any provisions to be recognized.

Intangible Assets

 

Costs for intangible assets are accounted for through the capitalization of those costs incurred in connection with developing or obtaining such assets. Capitalized costs are included in intangible assets in the consolidated balance sheets. On October 3, 2018, the Company entered into a Manufacturing Design and Marketing Agreement (the “Agreement”) with Zounds Hearing, Inc., a Delaware corporation (“Zounds”), whereby, Zounds as the Subcontractor will provide design, technology, manufacturing and supply chain services to the Company (see Note 15) for a period of ten years. The Company will pay Zounds One Million ($1,000,000)$1,000,000 for the right to use proprietary technology (the “Technology Access Fee”). As of December 31, 2018, the Company has capitalized the $1,000,000 Technology Access Fee as an intangible asset on the condensed consolidated balance sheets. The Technology Access Fee will be amortized over the term of the Agreement. TheDuring the year ended December 31, 2020 (subsequent to period end), the Company also acquired intangible assets fromdetermined that they do not expect to realize any benefit in the foreseeable future, therefore, have recorded an asset purchase agreement (see Note 2).impairment of $775,000.

Property and Equipment

 

Property and Equipment

Property and equipment are stated at cost, and depreciation is provided by use of a straight-line method over the estimated useful lives of the assets. The Company reviews property and equipment for potential impairment whenever events or changes in circumstances indicate that the carrying amounts of assets may not be recoverable. The estimated useful lives of property and equipment are as follows:

Computer equipment

3 years
Machinery and equipment5 years
Furniture and fixtures5 years

The Company's property and equipment consisted of the following at June 30, 2019,March 31, 2020, and December 31, 2018:2019:

  June 30,
2019		 December 31,
2018
Computer equipment $4,272  $2,651 
Machinery and equipment  52,102   31,122 
Furniture and fixtures  21,840   2,160 
Leasehold improvements  16,206   12,222 
Accumulated depreciation  (12,587)  (4,705)
Balance $81,833  $43,450 

  March 31, 2020 December 31, 2019
Computer and equipment $4,271  $4,272 
Leasehold improvements  12,222   12,222 
Machinery and equipment  58,126   38,139 
Furniture and equipment  21,840   39,152 
   96,459   93,785 
Accumulated depreciation  (26,220)  (21,544)
Property and equipment, net $70,239  $72,241 

Depreciation expense of $5,032$4,676 and $7,882$2,850 was recorded for the three and six months ended June 30,March 31, 2020 and 2019, respectively, and $221 and $442, for the three and six months ended June 30, 2018, respectively.

 97 

 

Investment in Undivided Interest in Real Estate

The Company accounts for its’ investment in undivided interest in real estate using the equity method, as the Company is severally liable only for the indebtedness incurred with its interest in the property. The Company includes its allocated portion of net income or loss in Other income (expense) in its Statement of Operations, with the offset to the equity investment account on the balance sheet. For the sixthree months ended June 30,March 31, 2020 and 2019, and 2018, the Company recognized a gain of $4,816$15,645 and $741,a loss of $1,040, respectively. As of June 30, 2019,March 31, 2020, and December 31, 2018,2019, the carrying value of the Company’s investment in undivided interest in real estate was $1,231,779$1,226,171 and $1,226,963$1,210,526, respectively (see Note 11)8).

Fair Value of Financial Instruments

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

 

The following are the hierarchical levels of inputs to measure fair value:

 

·•Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
·•Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
·•Level 3 - Unobservable inputs reflecting the Company's assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

 

The carrying amounts of the Company's financial assets and liabilities, such as cash, prepaid expenses, accounts receivable, accounts payable and accrued expenses, certain notes payable and notes payable - related party, approximate their fair values because of the short maturity of these instruments.

The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018,2020, and 2019, for each fair value hierarchy level:

         
  March 31, 2020
  Level 1 Level 2 Level 3 Total
Derivative liabilities $—    $—    $8,204,211  $8,204,211 
  $—    $—    $8,204,211  $8,204,211 

June 30, 2019  Derivative Liabilities   Total 
Level I $—    $—   
Level II $—    $—   
Level III $3,082,068  $3,082,068 
         
December 31, 2018        
Level I $—    $—   
Level II $—    $—   
Level III $1,807,404  $1,807,404 
                 
   December 31, 2019
   Level 1   Level 2   Level 3   Total 
Derivative liabilities $—    $—    $3,515,055  $3,515,055 
  $—    $—    $3,515,055  $3,515,055 

 

10

Embedded Conversion Features

The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion feature.

 

8

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.

 

For option-based simple derivative financial instruments, the Company uses the Monte Carlo simulations to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

 

Debt Issue Costs and Debt Discount

The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense through the maturity of the debt. If a conversion of the underlying debt occurs prior to maturity a proportionate share of the unamortized amounts is immediately expensed.

 

Original Issue Discount

For certain convertible debt issued, the Company may provide the debt holder with an original issue discount. The original issue discount wouldwould be recorded to debt discount, reducing the face amount of the note and is amortized to interest expense through the maturity of the debt. If a conversion of the underlying debt occurs prior to maturity a proportionate share of the unamortized amounts is immediately expensed.

 

Revenue Recognition

Effective January 1, 2018, the Company adopted ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”) and all the related amendments. The Company elected to adopt this guidance using the modified retrospective method. The adoption of this guidance did not have a material effect on the Company’s financial position, results of operations or cash flows.

 

The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

 

The Company’s contracts with customers are generally on a purchase order basis and represent obligations that are satisfied at a point in time, as defined in the new guidance, generally upon delivery or has services are provided. Accordingly, revenue for each sale is recognized when the Company has completed its performance obligations. Obligation is considered to be completed upon delivery of a product to a customer. The Company utilizes third party carriers to ship the product. Any costs incurred before this point in time, are recorded as assets to be expensed during the period the related revenue is recognized. The Company accepts prepayments on hearing aids and records the amount received as customer deposits on its’ balance sheet. When the Company delivers the hearing aid to the customer, revenue is recognized as well as the corresponding cost of sales.

 

11

As of June 30,March 31, 2020 and December 31, 2019, the Company had received $71,409$22,875 and $20,708 of customer deposits, thatwhere revenue will be recognized as revenue after June 30, 2019, when the hearing aids are delivered to the customer.

 

Income Taxes

The Company accounts for income taxes in accordance with ASC 740-10, Income Taxes. Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at the tax rate expected to be in effect at the time of realization. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.

9

 

ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. Interest and penalties are classified as a component of interest and other expenses. To date, the Company has not been assessed, nor paid, any interest or penalties.

 

Uncertain tax positions are measured and recorded by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized.

 

Advertising and Marketing Expenses

The Company expenses advertising and marketing costs as incurred. For the three and six months ended June 30,March 31, 2020 and 2019 advertising and marketing expenses were $143,800$9,689 and $311,584, respectively, and for the three and six months ended June 30, 2018, advertising and marketing expenses were $66,007 and $91,328,$167,784, respectively.

 

Leases

Effective January 1, 2019, the Company began accounting for leases under ASU 2016-02 (see Note 14). Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the condensed consolidated balance sheets. The Company leases an office space and several retail locations used to conduct our business. On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assess whether the contract is, or contains, a lease. Our assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether we have the right to direct the use of the asset. We allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. Leases entered into prior to January 1, 2019, are accounted for under ASC 840 and were not reassessed. We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less.

Operating lease ROU assets represent the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Operating lease expense is recognized on a straight-line basis over the lease term and is included in rent in the condensed consolidated statements of operations.

Earnings (Loss) Per Share

The Company reports earnings (loss) per share in accordance with ASC 260, "Earnings per Share." Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net loss by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. As of June 30,March 31, 2020 and 2019, and 2018, the Company’s outstanding convertible debt is convertible into approximately 155,394,44419,095,107,143 and 90,570,30479,395,431 shares of common stock, subject to adjustment based on changes in the Company’s stock price, respectively. This amount is not included in the computation of dilutive loss per share because their impact is antidilutive.

 

12

Recent Accounting Pronouncements

In July 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-11 “Earnings Per Share (Topic 260)”. The amendments in the update change the classification of certain equity-linked financial instruments (or embedded features) with down round features. The amendments also clarify existing disclosure requirements for equity-classified instruments. For freestanding equity-classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260, Earnings Per Share, to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features would be subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 with early adoption permitted. The Company adopted this pronouncement as of fiscal 2017.

In June 2018, the FASB issued ASU No. 2018-07 “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The guidance is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company does not anticipate this ASU having a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements”, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements, and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.2019 (for “emerging growth company” beginning after December 15, 2020). The Company will be evaluating the impact this standard will have on the Company’s consolidated financial statements.

 

The FASB recently issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to reduce complexity in applying GAAP to certain financial instruments with characteristics of liabilities and equity. The guidance in ASU 2020-06 simplifies the accounting standards that have been issuedfor convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, which requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or proposed by FASB that do not require adoption until a future datepreferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract. The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. The amendments in ASU 2020-06 are effective for public entities for fiscal years beginning after December 15, 2021, with early adoption permitted (for “emerging growth company” beginning after December 15, 2023). The Company will be evaluating the impact this standard will have a material impact on the Company’s consolidated financial statements upon adoption.statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases (ASU 2018-10), which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU No. 2018-11, Leases (Topic 842)—Targeted Improvements (ASU 2018-11), which addressed implementation issues related to the new lease standard. These and certain other lease-related ASUs have generally been codified in ASC 842. ASC 842 supersedes the lease accounting requirements in ASC Topic 840, Leases (ASC 840). ASC 842 establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases. Under ASC 842, leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 was effective for annual reporting periods beginning after December 15, 2018 and interim periods within that reporting period (for “emerging growth company” from January 1, 2020). The Company doesadopted ASC 842 on January 1, 2019 using the effective date transition method.

The Company elected the practical expedient to not discuss recent pronouncements that are not anticipated to have an impactrecord short-term leases on or are unrelated to its financial condition, results of operations, cash flows or disclosures.consolidated balance sheet.

10

 

NOTE 43 – GOING CONCERN AND MANAGEMENT’S PLANS

 

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. which assumes the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company experienced a net loss of $3,508,499$6,200,510 for the sixthree months ended June 30, 2019.March 31, 2020. At June 30, 2019,March 31, 2020, the Company had a working capital deficit of $5,343,093,$13,186,026, and an accumulated deficit of $9,880,578.$20,496,978. These factors raise substantial doubt aboutthe Company’s ability to continue as a going concern and to operate in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

Management’s Plans

The Company continues to implement an industry encompassing revenue strategy, including the current revenue model to other major sectors of the global hearing industry. On September 10, 2018, the Company acquired all of the assets and assumed certain liabilities of Amos Audiology (see Note 2). This transaction is part of management’s plans to expand the Company’s retail clinic business by opening multiple clinics in the next 12 months. During the six months ended June 30, 2019, the Company opened 5 more retail clinics, and opened another clinic in July 2019. The Company currently owns and operates 9 clinics.

 

 

13

NOTE 54 – INTANGIBLE ASSETS, NET (OTHER THAN GOODWILL)GOODWILL

 

The Company’s intangible assets consist of a customer list and non-compete acquired from Amos Audiology (see Note 2) and a Technology Access Fee required to be paid by the Company in connection with a manufacturing design and marketing agreement executed with a supplier (see Note 13)12). The estimated useful lives of these intangible assets are as follows:

 

Customer list

2 years
Non-compete2 years
Technology access fee10 years

The Company's intangible assets consisted of the following at June 30, 2019,March 31, 2020, and December 31, 2018:2019:

  June 30,
2019		 December 31,
2018
Customer list $300  $300 
Non-compete  12,708   12,708 
Technology access fee  1,000,000   1,000,000 
Amortization  (80,420)  (2,168)
Balance $932,588  $1,010,840 

  March 31, 2020 December 31, 2019
Customer List  300   300 
Non-Compete  12,708   12,708 
Technology Access Fee  1,000,000   1,000,000 
Intangibles  1,013,008   1,013,008 
Accumulated amortization  (160,298)  (133,672)
Intangibles, net $852,710  $879,336 

The Company recognized $26,626 and $78,252$51,626 of amortization expense for the three and six months ended June 30,March 31, 2020 and 2019, respectively.

NOTE 6 – ADVANCES PAYABLE, STOCKHOLDER

Chief Executive Officer

A summarySubsequent to period end, the technology fee was fully impaired, resulting in impairment expense of the activity for the six months ended June 30, 2019, and the year ended December 31, 2018, representing amounts paid by the Company’s CEO (stockholder) on behalf of the Company and amounts reimbursed is as follows.$775,000.

  June 30, 2019 December 31, 2018
Beginning Balance $57,526  $138,637 
Amounts paid on Company’s behalf  367,831   589,524 
Amount applied to accrued officer salaries  17,228   —   
Reimbursements  (378,943)  (625,635)
Cancelled in exchange for Series B preferred stock  —     (45,000)
Ending Balance $63,642  $57,526 

The ending balances as of June 30, 2019, and December 31, 2018, are included in Advances payable, stockholder on the condensed consolidated balance sheets included herein.

NOTE 75 – NOTE PAYABLE, STOCKHOLDER

A summary of the activity for the three months ended June 30, 2019,March 31, 2020, and the year ended December 31, 2018,2019, of amounts the Company’s CEO (stockholder) loaned the Company and amounts repaid is as follows:

 

 June 30,
2019		 December 31,
2018		 

March 31, 2020

 

December 31, 2019

Beginning Balance $95,800  $65,000  $95,800  $95,800 
Amounts loaned to the Company  —     36,800   —     —   
Repaid  —     —     —     —   
Ending Balance $95,800  $95,800  $95,800  $95,800 

 

The note is interest free and ending balance amount is due on demand, carries interest at 8% per annumdemand.

NOTE 6 – NOTE PAYABLE

In July of 2019, the Company entered into a Loan Agreement for $60,000 with a third- party. The loan requires the Company to make weekly payments of $1,538. No payments have been made during period ended March 31, 2020. As of March 31, 2020, and December 31, 2019, the note balance is included Notes payable, stockholder on the consolidated balance sheets included herein.$50,581 and $50,581.

 1411 

 

NOTE 8 – NOTE PAYABLE

On October 8, 2018,In November of 2019, the Company entered into a Business Loan Agreement (the “October BLA”) for $47,215$87,000 with a third- party, whereby the Company received $35,500 on October 10, 2018.$58,000. The October BLA loan requires the Company to make the first six monthlyweekly payments of principal and interest of $4,467 per month, and then $3,402 for months seven through twelve. The note carries a 33% interest rate and matures on October 28, 2019. $790. As of June 30, 2019,March 31, 2020, and December 31, 2018, there was a2019, the note balance of $17,010is $57,736 and $38,280, respectively, on the October BLA, with carrying values of $13,641 and $29,270, respectively,$37,938, net of unamortized discounts of $3,379$0 and $9,011,$21,380 respectively.

 

On February 4,In December of 2019, the Company entered into a Business Loan Agreement (the “Feb 2019 BLA”) for $8,584$21,750 with a third- party, whereby the Company received $7,400 on February 5, 2019.party. The Feb 2019 BLA loan requires the Company to make the first two monthlyweekly payments of principal and interest of $1,640 per month, and then $1,326 for months three through six. The note carries a 16% interest rate and matures on August 4, 2019. $255. As of June 30, 2019, there was a balance of $2,653, with a carrying value of $2,455, net of unamortized discounts of $198.

On May 7,March 31, 2020, and December 31, 2019, the Company entered into a Business Loan Agreement (the “May 2019 BLA”) for $18,088 with a third- party, whereby the Company received $13,600 on May 7, 2019. The May 2019 BLA requires the Company to make the first six monthly payments of principalnote balance is $14,073 and interest of $1,711 per month, and then $1,303 for months seven through twelve. The note carries a 33% interest rate and matures on May 7, 2020. As of June 30, 2019, there was a balance of $16,377, with a carrying value of $12,625, net of unamortized discounts of $3,752.$18,423.

 

 

NOTE 97 – RELATED PARTY TRANSACTIONS

 

DuringAs of March 31, 2020 we had $15,944 of the six months ended June 30, 2019, and the year endedaccount payable to related parties as compared to $266,419 as of December 31, 2018, our CEO (stockholder) paid expenses2019. The balance primarily represents advance payable to shareholders and accounts payablemanagement of the Company on behalf of the Company (see Note 6). As of June 30, 2019, and December 31, 2018, the Company owed the CEO $63,642 and $57,526, respectively, which is included in Advances payable, stockholder on the condensed consolidated balance sheets included herein.Company.

Pursuant to a Marketing Agreement (cancelled August 5, 2016), the Company provided marketing programs to promote and sell hearing aid instruments and related devices to Moore Family Hearing Company (“MFHC”). MFHC owned and operated retail hearing aid stores. Based on common control of MFHC and the Company, all transactions with MFHC are classified as related party transactions. The Company has offset the accounts receivable owed from MFHC for these services with expenses of the Company that have been paid by MFHC. As a result of these payments, in addition to MFHC’s payments to the Company through December 31, 2016, the balance due to MFHC as of June 30, 2019, and December 31, 2018, was $22,548, which is included in Accounts payable, related party, on the condensed consolidated balance sheets included herein.

Effective August 1, 2016, the Company agreed to compensation of $225,000 and $125,000 per year for the Company’s CEO and CFO, respectively. On November 15, 2016, the Company entered into employment agreements with its CEO and CFO, which includes their annual base salaries of $225,000 and $125,000, respectively. On January 1, 2019, the Company agreed to increase compensation to $150,000 per year for the Company’s CFO. For the threeperiod ending March 31, 2020 and six months ended June 30, 2019, and 2018, the Company recorded expenses to its officers in the following amounts:

 

  Three months ended June 30, Six months ended June 30,
 Description 2019 2018 2019 2018
 CEO  $56,250  $56,250  $112,500  $112,500 
 CFO   31,250   31,251   62,500   61,540 
 Total  $87,500  $87,501  $175,000  $174,040 
  Period ended Period ended
 Description March 31, 2020 March 31, 2019
 CEO  $37,500  $56,057 
 CFO   56,250   31,143 
 Total  $93,750  $87,200 

 

As of June 30, 2019,March 31, 2020, and December 31, 2018,2019, the Company in the aggregate owes the CEO and CFO $156,201 and $188,942,$356,181and $262,431, respectively, for accrued and unpaid wages. These amounts are included in Officer salaries payable on the balance sheets included herein.

15

In September 2016, the officers and directors of the Company formed a California Limited Liability Company (“LLC1”), for the purpose of acquiring commercial real estate and other business activities. On December 24, 2016, LLC1 acquired two retail stores from the buyer of the MFHC stores. On March 1, 2017, the Company entered into a twelve-month Marketing Agreement with each of the stores to provide telemarketing and design and marketing services for $2,500 per month per store, resulting in related party revenues of $15,000 for the three months ended June 30, 2019, and $15,000 and $30,000 for the three and six months ended June 30, 2018, respectively. Additionally, for the three and six months ended June 30, 2018, the Company invoiced LLC1 $8,323 and $50,744, respectively, for the Company’s production, printing and mailing services and $1,275 for the six months ended June 30, 2018, for sale of products. As of June 30, 2019, and December 31, 2018, LLC1 owes the Company $283,064 and $203,325, respectively, for the consulting fees and mailing services as well as expenses of LLC1 paid by the Company.

 

On June 14, 2017, the Company entered into a five-year lease with LLC1 for approximately 6,944 square feet and a monthly rent of $12,000.$12,000. For the three and six months ended June 30,March 31, 2020, and 2019, and 2018, the Company expensed $36,000 and $72,000,$36,000, respectively, related to this lease and is included in Rent, on the condensed consolidated statement of operations, included herein. As of June 30, 2019, and December 31, 2018, the Company owed LLC1 $50,300 and $30,500, respectively, for unpaid rent.

 

On May 9, 2017, the Company and LLC1 purchased certain real property from an unaffiliated party. The Company and LLC1 have agreed that the Company purchased and owns 49% of the building and LLC1 purchased and owns 51% of the building. The contracted purchase price for the building was $2,420,000 and the total amount paid at closing was $2,501,783 including, fees, insurance, interest and real estate taxes. The Company paid for their building interest by delivering cash at closing of $209,971 and being a co-borrower on a note in the amount of $2,057,000, of which the Company has agreed with LLC1 to pay $1,007,930 (see Note 10)8).

 

 

NOTE 10–8– INVESTMENT IN UNDIVIDED INTEREST IN REAL ESTATE

 

On May 9, 2017, the Company and LLC1 purchased certain real property from an unaffiliated party. The Company and LLC1 have agreed that the Company purchased and owns 49% of the building and LLC1 purchased and owns 51% of the building. The contracted purchase price for the building was $2,420,000 and the total amount paid at closing was $2,501,783 including, fees, insurance, interest and real estate taxes. The Company paid for their building interest by delivering cash at closing of $209,971 and being a co-borrower on a note in the amount of $2,057,000, of which the Company has agreed with LLC1 to pay $1,007,930.

12

The allocated portion of the results in an equity method investment in a privately-held, related party, company are included in the Company’s condensed consolidated statements of operations. For the three and six months ended June 30, 2019,March 31, 2020, a gain of $5,856 and $4,816, respectively,$15,645, and a net gainloss of $3,046 and $741,$1,040, for the three and six months ended June 30, 2018, respectively,March 31, 2019, is included in “Other income (expense), net”. As of June 30, 2019,March 31, 2020, and December 31, 2018,2019, the carrying value of the Company’s investment in undivided interest in real estate was $1,231,779$1,226,171 and $1,226,963,$1,210,526, respectively.

 

The unaudited condensed balance sheets as of June 30, 2019,March 31, 2020, and December 31, 2018,2019, and the statement of operations for the sixthree months ended June 30,March 31, 2020 and 2019, and 2018, for the real property is as follows:

 

Current assets: (Unaudited)
March 31, 2020		 (Unaudited)
December 31, 2019
Cash $2,895  $—   
Accounts Receivable  138,163   106,163 
Due from InnerScope  —     79,934 
Prepaid expenses and other current assets  103,464   —   
Total current assets  244,522   186,097 
Land and Building, net  2,299,830   2,310,722 
Other Assets, net  45,389   45,943 
Total assets $2,589,741  $2,542,762 
         
Accounts Payable $76,734  $72,475 
Current portion of mortgage payable  —     20,708 
Other current liabilities  30,904   16,104 
Total current liabilities  107,638   109,287 
Mortgage payable, long-term  1,986,923   1,966,215 
Security deposits  9,268   13,064 
Total liabilities  2,103,829   2,088,566 
Total equity  485,912   454,196 
Total liabilities and equity $2,589,741  $2,542,762 

   (Unaudited)
March 31, 2020		   (Unaudited)
December 31, 2019		 
Rental income $67,315  $297,383 
Expenses:        
Property taxes  7,550   29,605 
Depreciation and amortization  11,445   50,940 
Insurance  2,638   18,783 
Repairs and maintenance  —     6,202 
Utilities and other  13,649   68,156 
Interest expenses  105   113,858 
Total expenses  35,387   287,544 
Net income (loss) $31,928  $9,839 


 1613 

 

  (Unaudited) (Unaudited)
Current assets: 

June 30,

2019

 

December 31,

2018

Cash $380  $2,257 
Due from InnerScope  50,300   30,500 
Prepaid expenses and other current assets  63,530   72,931 
Total current assets  114,210   105,958 
 Land and Building, net  2,332,502   2,354,282 
Other Assets, net  49,634   53,323 
Total assets $2,496,345  $2,513,563 
         
Current portion of mortgage payable $41,022  $40,122 
Other current liabilities  47,894   48,551 
Total current liabilities  88,916   88,673 
Mortgage payable, long-term  1,941,786   1,969,076 
Security deposits  13,064   13,064 
Total liabilities  2,043,766   2,070,813 
Total equity  452,579   442,750 
Total liabilities and equity $2,496,345  $2,513,563 

  2019 2018
Rental income $149,029  $63,211 
Expenses:        
Property taxes  4,430   6,646 
Depreciation and amortization  21,780   11,446 
Insurance  14,130   2,033 
Repairs and maintenance  13,916   3,549 
Utilities and other  20,703   10,087 
Interest expense  64,242   32,355 
Total expenses  139,201   67,916 
Net income (loss) $9,828  $(4,705)

NOTE 11–9– NOTE PAYABLE - UNDIVIDED INTEREST IN REAL ESTATE

 

On May 9, 2017, the Company and LLC1 purchased certain real property from an unaffiliated party. The Company and LLC1 have agreed that the Company purchased and owns 49% of the building and LLC1 purchased and owns 51% of the building. The contracted purchase price for the building was $2,420,000 and the total amount paid at closing was $2,501,783 including, fees, insurance, interest and real estate taxes. The Company is a co-borrower on a $2,057,000 Small Business Administration Note (the “SBA Note”). The SBA Note carries a 25-year term, with an initial interest rate of 6% per annum, adjustable to the Prime interest rate plus 2%, and is secured by a first position Deed of Trust and business assets located at the property. The Company initially recorded a liability of $1,007,930 for its portion of the SBA Note, with the offset being to Investment in undivided interest in real estate on the balance sheet presented herein. As of June 30, 2019,March 31, 2020, the current and long-term portion of the SBA Note is $20,096 and $956,542, respectively.$973,592. Future principal payments for the Company’s portion are:

 

 Twelve months ending June 30, Amount
 2020  $20,096 
 2021   21,495 
 2022   22,870 
 2023   24,228 
 2024   25,579 
 Thereafter   862,370 
 Total  $976,638 

17

 Twelve months ending March 31, Amount
 2020  $22,150 
 2021   22,150 
 2022   23,516 
 2023   24,966 
 2024   26,500 
 2025   28,118 
 Thereafter   826,192 
 Total  $973,592 

NOTE 12–10– CONVERTIBLE NOTES PAYABLE

 

OnAt various times during the three months ended March 2, 2018,31, 2020, the Company completedentered into convertible promissory notes with principal amounts totaling $242,000 with a third party for which the closingproceeds were used for operations. The Company received net proceeds of $199,650, and a private placement financing transaction (the “Transaction”) when a third-party investor purchased a$42,350 original issuance discount was recorded. The convertible note (the “Convertible Note”).promissory notes incur interest at rates from 8% to 12% per annum and mature on dates ranging from November 2019 to March 2021. The Convertible Note carries a 10% annual interest rate and is in the principal amount of $50,000. Principal and interest was due and payable March 2, 2019, and the Note is convertible intopromissory notes are convertible to shares of the Company’s common stock at any timesix months after one hundred eighty (180) days, at aissuance. The conversion price (the “Conversion Price”)per share is equal to seventy-five percent (75%)65-70% of the average closing pricelowest trading prices of the Company’s common stock forduring the ten (10)fifteen (15) trading days immediately preceding the applicable conversion representing a twenty-five percent (25%) discount.date. The embedded conversion feature included in the note resulted in an initial debt discount of $13,399, and an initial derivative liability of $13,399. For the six months ended June 30, 2019, amortization of the debt discount of $2,233 was charged to interest expense. During the six months ended June 30, 2019, the investor converted $50,000 of principal and $2,514 of interest into 2,236,291 shares of common stock. As of June 30, 2019, and December 31, 2018, the note balance was $-0- and $50,000, respectively, with a carrying value of $47,767 at December 31, 2018, net of unamortized discounts of $2,333.

On March 27, 2018, the Company completed the closing of a private placement financing transaction (the “Transaction”) when a third-party investor purchased a convertible note (the “Convertible Note”). The Convertible Note carries a 10% annual interest rate and is in the principal amount of $25,000. Principal and interest was due and payable March 27, 2019, and the Note is convertible into shares of the Company’s common stock at any time after one hundred eighty (180) days, at a conversion price (the “Conversion Price”) equal to seventy-five percent (75%) of the average closing price of the Company’s common stock for the ten (10) days immediately preceding the conversion, representing a twenty-five percent (25%) discount. The embedded conversion feature included in the note resulted in an initial debt discount of $6,736, and an initial derivative liability of $6,736. For the six months ended June 30, 2019, amortization of the debt discount of $1,628 was charged to interest expense. On April 29, 2019 the Note was sold to a third party investor (see below). As of June 30 2019, and December 31, 2018, the note balance is $-0- and $25,000, respectively, with a carrying value of $23,372, net of unamortized discount of $1,628 as of December 31, 2018.

On May 11, 2018, the Company issued a convertible promissory note (the “Note”), with a face value of $100,000, maturing on May 11, 2019, and stated interest of 10% to a third-party investor. The note is convertible at any time after the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 62% of the lowest trading price foris defined within the 20 days prior to conversion. The note was funded on May 16, 2018, whenagreement as the Company received proceeds of $75,825, after disbursements to vendors and for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $95,000, an initial derivative expense of $60,635 and an initial derivative liability of $155,635. For the six months ended June 30, 2019, amortization of the debt discount of $17,020 was charged to interest expense. The Company also recorded a debt issue discount of $5,000 and amortized $895 to interest expense for the six months ended June 30, 2019. During the six months ended June 30, 2019, the investor converted $50,000 of principal and $3,564 of interest into 5,539,273 shares of common stock. As of June 30, 2019, and December 31, 2018, the note balance is $-0- and $50,000, respectively, with a December 31, 2018, carrying value of $32,085, net of unamortized discounts of $17,915.

On May 23, 2018, the Company issued a convertible promissory note (the “Note”), with a face value of $60,000, with a maturity date of February 22, 2019, and stated interest of 12% to a third-party investor. The note is convertible at any time after the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 65% of the lowest trading price for the 20 days prior to conversion. The note was funded on May 30, 2018, when the Company received proceeds of $57,000, after the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $57,000, an initial derivative expense of $48,033 and an initial derivative liability of $105,033. For the three months ended June 30, 2019, amortization of the debt discount of $11,292 was charged to interest expense. The Company also recorded a debt issue discount of $3,000 and amortized $594 to interest expense for the six months ended June 30, 2019. During the six months ended June 30, 2019, the investor converted $51,275 of principal and $9,838 of interest into 7,909,037 shares of common stock. As of June 30, 2019, and December 31, 2018, the note balance was $-0- and $51,275, respectively, with a carrying value of $39,389, net of unamortized discounts of $11,886 at December 31, 2018.

18

On October 23, 2018, an investor funded the $50,000 remaining of a convertible promissory note (the “Note”) issued on June 26, 2018, with an original face value of $92,000, maturing on September 26, 2019, and stated interest of 10% to a third-party investor. The note is convertible at any time after ninety (90) days of the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 65% of the lowest trading price for the 20 days prior to conversion. On October 23, 2018, the Company recorded a note balance of $50,000 when the Company received proceeds of $50,000. The embedded conversion feature included in the funding of October 23, 2018, resulted in an initial debt discount of $50,000, an initial derivative expense of $45,291 and an initial derivative liability of $95,291. For the six months ended June 30, 2019, amortization of the debt discount of $25,230 was charged to interest expense. During the six months ended June 30, 2019, the investor converted $50,000 of principal and $2,397 of interest into 2,495,107 shares of common stock. As of June 30, 2019, and December 31, 2018, the note balance is $-0- and $50,000, respectively, with a carrying value of $12,014, net of unamortized discounts of $37,986, at December 31, 2018.

On November 2, 2018, the Company issued a convertible redeemable note with a face value of $280,500 and a back-end convertible redeemable note for $280,500 (the “Notes”), maturing on November 2, 2019, and a stated interest of 8% to a third-party investor. The notes are convertible at any time after funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price on the applicable trading market. The convertible promissory notes include various default provisions for which the 15 days priordefault interest rate increases to conversion. The first note was funded on November 2, 2018, when the Company received proceeds of $255,000, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the first note resulted in an initial debt discount of $250,000, an initial derivative expense of $148,544 and an initial derivative liability of $398,544. For the six months ended June 30, 2019, amortization of the debt discount of $125,000 was charged to interest expense. The Company also recorded a debt issue discount of $30,500 and amortized $15,250 to interest expense for the six months ended June 30, 2019. During the six months ended June 30, 2019, the investor converted $87,400 of principal and $2,822 of interest into 7,837,442 shares of common stock. As of June 30, 2019, and December 31, 2018, the first note balance is $193,100 and $280,500, respectively, with a carrying value of $99,600 and $46,750, respectively, net of unamortized discounts of $93,500 and $233,750, respectively. On December 26, 2018, the investor partially funded $187,000 of the back-end note, when the Company received proceeds of $166,667, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the partial funding of the back-end note resulted in an initial debt discount of $166,667, an initial derivative expense of $100,081 and an initial derivative liability of $266,748. For the six months ended June 30, 2019, amortization of the debt discount of $97,803 was charged to interest expense. The Company also recorded a debt issue discount of $20,333 and amortized $11,932 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, and December 31, 2018, the partial back-end note balance is $187,000, with carrying values of $112,661 and $2,926, respectively, net of unamortized discounts of $74,339 and $184,074, respectively. On January 29, 2019, the investor funded $93,500, of and completing the back-end note, when the Company received proceeds of $75,000, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the partial funding of the back-end note resulted in an initial debt discount of $75,000, an initial derivative expense of $63,924 and an initial derivative liability of $138,924. For the six months ended June 30, 2019, amortization of the debt discount of $41,178 was charged to interest expense. The Company also recorded a debt issue discount of $10,167 and amortized $5,582 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, the second partial back-end note balance is $93,500, with carrying values of $55,093, net of unamortized discounts of $38,407.24%.

 

On December 4, 2018, the Company issued a convertible redeemable note (the “Note”) with a face value of $158,333 maturing on December 4, 2019, and a stated interest of 8% to a third-party investor. The note is convertible at any time after funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The note was funded on December 4, 2018, when the Company received proceeds of $137,250, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $137,500, an initial derivative expense of $87,293 and an initial derivative liability of $224,793. For the six months ended June 30, 2019, amortization of the debt discount of $68,750 was charged to interest expense. The Company also recorded a debt issue discount of $20,833 and amortized $10,417 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, and December 31, 2018, the note balance is $158,333, with carrying values of $92,361 and $13,194, respectively, net of unamortized discounts of $65,972 and $145,139, respectively.

19

On December 4, 2018, the Company issued to a third-party investor a convertible redeemable note (the “Note”) with a face value of $230,000 and two back-end convertible redeemable notes for $115,000 each. The notes mature on December 4, 2019, have a stated interest of 8% and each note is convertible at any time following the funding of such note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The initial note was funded on December 4, 2018, when the Company received proceeds of $210,000, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $210,000, an initial derivative expense of $108,922 and an initial derivative liability of $318,292. For the six months ended June 30, 2019, amortization of the debt discount of $105,000 was charged to interest expense. The Company also recorded a debt issue discount of $20,000 and amortized $10,000 to interest expense for the six months ended June 30, 2019. During the six months ended JUne 30, 2019, the investor converted $52,500 of principal and $1,167 of interest into 3,699,862 shares of common stock. As of June 30, 2019, and December 31, 2018, the initial note balance is $177,500 and $230,000, respectively, with carrying values of $81,667 and $19,167, respectively, net of unamortized discounts of $95,833 and $210,833, respectively. On February 12, 2019, the investor funded the first back-end note, when the Company received proceeds of $94,100, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the first back-end note resulted in an initial debt discount of $94,100, an initial derivative expense of $64,364 and an initial derivative liability of $158,464. For the six months ended June 30, 2019, amortization of the debt discount of $35,288 was charged to interest expense. The Company also recorded a debt issue discount of $10,000 and amortized $3,750 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, the first back-end note balance is $115,000, with a carrying value of $49,937 net of unamortized discounts of $65,063. On March 1, 2019, the investor funded the second back-end note, when the Company received proceeds of $98,175, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the funding of the second back-end note resulted in an initial debt discount of $98,175, an initial derivative expense of $62,254 and an initial derivative liability of $160,429. For the six months ended June 30, 2019, amortization of the debt discount of $31,013 was charged to interest expense. The Company also recorded a debt issue discount of $10,000 and amortized $3,159 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, the second back-end note balance is $15,000, with carrying values of $40,997, net of unamortized discounts of $74,003.

On December 24, 2018, the Company issued to a third-party investor a convertible redeemable note (the “Note”) with a face value of $195,000 and two back-end convertible redeemable notes for $97,500 each. The notes mature on December 24, 2019, have a stated interest of 8% and each note is convertible at any time following the funding of such note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The initial note was funded on December 26, 2018, when the Company received proceeds of $177,000, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $177,000, an initial derivative expense of $92,464 and an initial derivative liability of $269,464. For the six months ended June 30, 2019, amortization of the debt discount of $88,500 was charged to interest expense. The Company also recorded a debt issue discount of $18,000 and amortized $9,000 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, and December 31, 2018, the initial note balance is $195,000, with carrying values of $100,100 and $2,600, respectively, net of unamortized discounts of $94,900 and $192,400, respectively.

On January 22, 2019, the Company issued to a third-party investor a convertible redeemable note (the “Note”) with a face value of $245,000 and two back-end convertible redeemable notes for $122,500 each. The notes mature on January 22, 2020, have a stated interest of 8% and each note is convertible at any time following the funding of such note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The initial note was funded on January 22, 2019, when the Company received proceeds of $200,000, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $200,000, an initial derivative expense of $134,208 and an initial derivative liability of $334,208. For the six months ended June 30, 2019, amortization of the debt discount of $87,500 was charged to interest expense. The Company also recorded a debt issue discount of $25,000 and amortized $10,938 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, the initial note balance is $245,000, with a carrying value of $118,437, net of unamortized discounts of $126,563.

20

On February 22, 2019, the Company issued to a third-party investor a convertible redeemable note (the “Note”) with a face value of $116,667. The note matures on February 22, 2020, has a stated interest of 8% and is convertible at any time following the funding of such note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The note was funded on February 22, 2019, when the Company received proceeds of $90,000, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $90,000, an initial derivative expense of $36,138 and an initial derivative liability of $126,138. For the six months ended June 30, 2019, amortization of the debt discount of $31,875 was charged to interest expense. The Company also recorded a debt issue discount of $16,667, and amortized $5,903 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, the note balance is $116,667, with a carrying value of $47,778, net of unamortized discounts of 68,889.

On March 8, 2019, the Company issued to a third-party investor a convertible redeemable note (the “Note”) with a face value of $133,333. The note matures on February 22, 2020, has a stated interest of 8% and is convertible at any time following the funding of such note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The note was funded on March 8, 2019, when the Company received proceeds of $106,200, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $106,200, an initial derivative expense of $82,538 and an initial derivative liability of $188,738. For the six months ended June 30, 2019, amortization of the debt discount of $33,097 was charged to interest expense. The Company also recorded a debt issue discount of $19,333, and amortized $6,025 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, the note balance is $133,333, with carrying values of $46,922, net of unamortized discounts of $86,411.

On March 20, 2019, the Company issued to a third-party investor a convertible redeemable note (the “Note”) with a face value of $89,075 and a back-end convertible redeemable note for $89,075. The notes mature on March 20, 2020, hasa stated interest of 8% and is convertible at any time following the funding of such note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The initial note was funded on March 20, 2019, when the Company received proceeds of $75,000, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $75,000, an initial derivative expense of $48,913 and an initial derivative liability of $123,913. For the six months ended June 30, 2019, amortization of the debt discount of $20,756 was charged to interest expense. The Company also recorded a debt issue discount of $9,210, and amortized $2,549 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, the initial note balance is $89,075, with carrying values of $28,170, net of unamortized discounts of $60,905.

Also, on March 20, 2019, the Company issued to a third-party investor a convertible redeemable note (the “Note”) with a face value of $89,075 and a back-end convertible redeemable note for $89,075. The notes mature on March 20, 2020, has a stated interest of 8% and is convertible at any time following the funding of such note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The initial note was funded on March 20, 2019, when the Company received proceeds of $75,000, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $75,000, an initial derivative expense of $48,913 and an initial derivative liability of $123,913.. For the six months ended June 30, 2019, amortization of the debt discount of $20,756 was charged to interest expense. The Company also recorded a debt issue discount of $9,210, and amortized $2,549 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, the initial note balance is $89,075, with carrying values of $28,170, net of unamortized discounts of $60,905.

On April 12, 2019, the Company issued to a third-party investor a convertible redeemable note (the “Note”) with a face value of $208,000. The note matures on April 12, 2020, has a stated interest of 8% and is convertible at any time following the funding of such note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The note was funded on April 12, 2019, when the Company received proceeds of $175,000, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $175,000, an initial derivative expense of $104,450 and an initial derivative liability of $279,450. For the six months ended June 30, 2019, amortization of the debt discount of $36,359 was charged to interest expense. The Company also recorded a debt issue discount of $21,550, and amortized $4,477 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, the note balance is $208,000, with a carrying value of $52,286, net of unamortized discounts of $155,714.

21

Also, on April 12, 2019, the Company issued to a third-party investor a convertible redeemable note (the “Note”) with a face value of $208,000. The note matures on April 12, 2020, has a stated interest of 8% and is convertible at any time following the funding of such note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The note was funded on April 12, 2019, when the Company received proceeds of $175,000, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $175,000, an initial derivative expense of $104,450 and an initial derivative liability of $279,450. For the six months ended June 30, 2019, amortization of the debt discount of $36,359 was charged to interest expense. The Company also recorded a debt issue discount of $21,550, and amortized $4,477 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, the note balance is $208,000, with a carrying value of $52,286, net of unamortized discounts of $155,714.

On May 15, 2019, the Company issued to a third-party investor a convertible redeemable note (the “Note”) with a face value of $208,000. The note matures on May 15, 2020, has a stated interest of 8% and is convertible at any time following the funding of such note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The note was funded on May 15, 2019, when the Company received proceeds of $175,000, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $175,000, an initial derivative expense of $104,082 and an initial derivative liability of $279,082. For the six months ended June 30, 2019, amortization of the debt discount of $21,815 was charged to interest expense. The Company also recorded a debt issue discount of $21,550, and amortized $2,686 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, the note balance is $208,000, with a carrying value of $35,951, net of unamortized discounts of $172,049.

Also, on May 15, 2019, the Company issued to a third-party investor a convertible redeemable note (the “Note”) with a face value of $167,352. The note matures on May 15, 2020, has a stated interest of 8% and is convertible at any time following the funding of such note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The note was funded on May 15, 2019, when the Company received proceeds of $140,250, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $140,250, an initial derivative expense of $85,329 and an initial derivative liability of $225,579. For the six months ended June 30, 2019, amortization of the debt discount of $17,483 was charged to interest expense. The Company also recorded a debt issue discount of $17,352, and amortized $2,686 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, the note balance is $167,352, with a carrying value of $29,455, net of unamortized discounts of $137,897.

On June 13, 2019, the Company issued to a third-party investor a convertible redeemable note (the “Note”) with a face value of $119,000. The note matures on June 13, 2020, has a stated interest of 8% and is convertible at any time following the funding of such note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The note was funded on June 13, 2019, when the Company received proceeds of $100,000, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $100,000, an initial derivative expense of $49,779 and an initial derivative liability of $149,779. For the six months ended June 30, 2019, amortization of the debt discount of $4,155 was charged to interest expense. The Company also recorded a debt issue discount of $12,500, and amortized $520 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, the note balance is $119,000, with a carrying value of $11,175, net of unamortized discounts of $107,825.

Also, on June 13, 2019, the Company issued to a third-party investor a convertible redeemable note (the “Note”) with a face value of $119,000. The note matures on June 13, 2020, has a stated interest of 8% and convertible at any time following the funding of such note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The note was funded on June 13, 2019, when the Company received proceeds of $100,000, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $100,000, an initial derivative expense of $49,779 and an initial derivative liability of $149,779. For the six months ended June 30, 2019, amortization of the debt discount of $4,155 was charged to interest expense. The Company also recorded a debt issue discount of $12,500, and amortized $520 to interest expense for the six months ended June 30, 2019. As of June 30, 2019, the note balance is $119,000, with a carrying value of $11,175, net of unamortized discounts of $107,825.

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A summary of the convertible note balances as of June 30, 2019,March 31, 2020, and December 31, 2018,2019, is as follows:

  March 31, 2020 December 31, 2019
Principal balance $3,314,234  $3,402,117 
Unamortized discounts  (640,919)  (1,011,636)
Ending balance, net $2,673,315  $2,390,481 

During period ending March 31, 2020, the company recognized $612,718

 

  

June 30,

2019

 

December 31,

2018

Principal balance $2,936,955  $1,277,108 
Unamortized discounts  (1,978,128)  (1,125,942)
Ending balance, net $958,827  $151,166 
  Principal Balance Debt Discounts Total
Balance at January 1, 2020 $3,402,117  $(1,011,636) $2,390,481 
New issuance  242,000   (242,000)  —   
Conversions  (329,884)  —     (329,884)
Amortization  —     612,718   612,718 
Ending balance, net $3,314,233  $(640,918) $2,673,315 

 

 

The following is a summary of the Company’s convertible notes and related discounts as of June 30, 2019:

14

 

  Principal Balance Debt Discounts Total
Balance at January 1, 2019 $1,277,108  $(1,125,942) $151,166 
New issuances  2,026,022   (2,026,022)  —   
Conversions  (366,175)  —     (366,175)
Amortization  —     1,173,836   1,173,836 
Balance at June 30, 2019 $2,936,955  $(1,978,128) $958,827 

NOTE 1311 – DERIVATIVE LIABILITIES

 

The Company determined that the conversion features of the convertible notes represented embedded derivatives since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the notes are not considered to be conventional debt under EITF 00-19 and the embedded conversion feature is bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of these derivative instruments is recorded as liabilities on the consolidated balance sheet with the corresponding amount recorded as a discount to each Note, with any excess of the fair value of the derivative component over the face amount of the note recorded as an expense on the issue date. Such discounts are amortized from the date of issuance to the maturity dates of the Notes. The change in the fair value of the derivative liabilities are recorded in other income or expenses in the condensed consolidated statements of operations at the end of each period, with the offset to the derivative liabilities on the balance sheet. See Note 12.

 

The Company valued the derivative liabilities at issuance, March 31 2020, and December 31, 2019, at $412,800 and $4,745,194, respectively. The Company used the Monte Carlo simulation valuationmultinomial lattice valuation model with the following assumptions for new notes issued during the six monthsperiod ended June 30, 2019,March 31, 2020, risk-free interest rates from 2.00% to 2.59%rate of 0.05% and volatility of 319%150% to 387%250%, and as of December 31, 2018,2019, risk-free interest rates from 2.56% to 2.62%rate of 0.05% and volatility of 355%200% to 391%300%.

 

A summary of the activity related to derivative liabilities for the six monthsduring period ended June 30, 2019,March 31, 2020 is as follows:

  June 30, 2019
Beginning Balance $1,807,404 
Initial Derivative Liability  2,717,846 
Fair Value Change  (696,761)
Reclassification for conversions  (746,421)
Ending Balance $3,082,068 

Derivative liability expense of $342,360 for the six months ended June 30, 2019, consisted of the initial derivative expense of $1,039,121 and the above decrease in the fair value of $696,761.

  March 31, 2020
Beginning Balance $3,515,059 
Initial derivative liability  412,801 
Fair value change  4,814,431 
Reclassification for principal payments and conversions  (538,073)
Ending Balance $8,204,218 

 

 

NOTE 14-12- OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES

Operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 7.5%, as the interest rate implicit in most of our leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term. During the three and six months ended June 30, 2019, the Company recorded $98,133 and $194,062, respectively, and $36,000 and $72,000 for the three and six months ended June 30, 2018, respectively, as operating lease expense which is included in rent expense on the statements of operations and includes $36,000 and $72,000 of rent to a related party during the three and six months ended June 30, 2019, and 2018, respectively.

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On June 14, 2017, the company entered into a five-year lease with LLC1 (see Note 10) for approximately 6,944 square feet and a monthly rent of $12,000.$12,000 with a related party. Upon adoption of ASC 842, the Company recognized $434,504 of right-to-use assets as operating leases and operating lease obligations.

 

On September 10, 2018, pursuant to the Amos Audiology acquisition, the Company assumed a lease dated December 1, 2017 and expiring April 30, 2023, in Walnut Creek, California. Lease payments in the first year of the lease are $3, 988 per month and increase by 3% on December 1 each new lease year. As of December 31, 2018, the Company was in arrears of $25,182 (including late fees) in lease payments and has agreed with the landlord to pay the arrears in seven monthly payments of $3,597 in addition to the monthly lease payments for January 2019 through July 2019. Settlement fees were fully paid during the year ending December 31, 2019.

 

On October 15, 2018, the Company entered into a lease to operate a retail hearing aid clinic in Roseville, California expiring December 31, 2023. Initial lease payments of $3,102 beginbegan on January 1, 2019, and increase by 3% on January 1 each new lease year. Upon adoption of ASC 842, the Company recognized $160,623 of right-to-use assets as operating leases and operating lease obligations. The Company abandoned the lease location subsequent to period end.

On November 18, 2019, the Company entered into a lease to operate a retail hearing aid clinic in Walnut Creek, expiring in October of 2022. Initial lease payments of $3,930 began on December 1, 2019, and increase by 3% on December 1 each new lease year. Upon adoption of ASC 842, the Company recognized $129,281 of right-to-use assets as operating leases and operating lease obligations. The Company abandoned the lease location subsequent to period end.

 

On December 1, 2018, the Company entered into a lease to operate a retail hearing aid clinic in Sacramento, California expiring March 31, 2024. Initial lease payments of $3,002 beginbegan on April 1, 2019, and increase by 3.33% on April 1, 2020 and 2021, and by 3% on April 1, 2022. Upon adoption of ASC 842, the Company recognized $149,507 of right-to-use assets as operating leases and operating lease obligations. The Company abandoned the lease location subsequent to period end.

15

 

On February 1, 2019, the Company entered into a lease to operate a retail hearing aid clinic in Elk Grove, California expiring January 31, 2024. Initial lease payments of $2,307 beginbegan on February 1, 2019, and increase by an average of 2.6% on February 1, each new lease year.

On February 1, 2019, the Company entered into a lease to operate a retail hearing aid clinic in Fremont, California expiring February 28, 2021. Initial lease payments of $2,019 begin on March 1, 2019, and increases by 3% on March 1, 2020.

On April 15, 2019, the Company entered into a lease to operate a retail hearing aid clinic in Pleasanton, California expiring April 30, 2024. Initial lease payments of $3,550 begin on May 1, 2019, and increases by 3% on each new lease year throughout the term.

On June 1, 2019, the Company entered into a lease to operate a retail hearing aid clinic in Hayward, California expiring December 31, 2020. Initial lease payments of $1,816 begin on June 1, 2019, and increases to $1,871 on January 1, 2020.

On June 1, 2019, the Company entered into a lease to operate a retail hearing aid clinic in Santa Rosa, California expiring June 30, 2023. Initial lease payments of $2,327 begin on June 1, 2019, and increases by approximately 2.5% annually beginning on July 1, 2020.

In adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to the Company. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. During the six months ended June 30, 2019, upon Upon adoption of ASC Topic 842, the Company recorded right-of-userecognized $116,153 of right-to-use assets as operating leases and operating lease liabilities of $1,428,534.obligations. The Company abandoned the lease location subsequent to period end.

 

Right-of- use assets are summarized below:

  June 30, 2019
Office and retail leases $1,428,534 
Less accumulated amortization  (126,350)
Right-of-us assets, net $1,302,184 

OperatingThe operating lease liabilities are summarized as follows:

  June 30, 2019
Lease liability $1,317,947 
Less current portion  (323,309)
Long term portion $994,739 

24

Maturity of lease liabilities are as follows:

  Amount
For the six months ending December 31, 2019 $205,506 
For the year ending December 31, 2020  415,006 
For the year ending December 31, 2021  378,257 
For the year ending December 31, 2022  308,645 
For the year ending December 31, 2023  192,785 
Thereafter  28,407 
Total $1,528,606 
Less: present value discount  (210,659)
Lease liability $1,317,947 

NOTE 15– COMMITMENTS AND CONTINGENCIES

Consulting Agreements

On August 9, 2018, the Company entered into a monthly Consulting Services Master Agreement (the “CSMA”). The CSMA requires a two- month minimum and a 30- day termination notice. Pursuant to the CSMA, the Company is to compensate the consultant $12,500 per month by the issuance of restricted shares of common stock, based on the average closing trading pricesexpense for the three days prior to each monthly payment. Forperiod ending March 31, 2020 was $78,033. These leases will expire between 2021 and 2023. The weighted average discount rate used for these leases were 8% (average borrowing rate of the six months ended June 30, 2019,Company). Future principal payments for the Company issued 515,818 shares of common stock under the CSMA and the parties agreed to terminate the CSMA.Company’s portion are:

 For the three months ending March 31, 2020 Amount
 2020  $287,725 
 2021   364,194 
 2022   255,466 
 2023   116,888 
 2024   12,219 
 Thereafter   —   
 Total  $1,036,492 

On August 15, 2018, the Company entered into a six-month Consulting Agreement (the “CA”). Pursuant to the CA, the Company agreed to issue 2,500,000 shares of restricted common stock to the consultant.Agreements

On October 3, 2018, the Company entered into a Manufacturing Design and Marketing Agreement (the “Agreement”) with Zounds,,whereby, Zounds will provide design, technology, manufacturing and supply chain services to the Company, to enable the Company to manufacture comparable hearing aids and related components and accessories to be sold under the Company’s exclusive brand names (the “Manufacturer’s Products”) through the Company’s various marketing and distribution channels. The Company will pay Zounds One Million ($1,000,000) (the “Technology Access Fee”). The Technology Access Fee, as amended will be paid in eight (8) installments of $75,000 each, in four- week intervals until $600,000 is paid and $400,000 is to be paid as Product Surcharges based on $200 per unit manufactured for up to the first 2,000 units. Once $400,000 of Product Surcharges are paid said per unit surcharge will be discontinued. During the six months ended June 30, 2019,As of March 31, 2020 the Company has paid $280,800$183,200 towards the Technology Access Fee and as of June 30, 2019, and DecemberMarch 31, 2018, $536,000 and2020, $816,800 is included in accounts payable and accrued expenses, respectively.

On October 31, 2018,expenses. Subsequent to period end, the Company entered into a three-year Joint Development Agreement (the “JD Agreement”) and an Exclusive Distribution Agreement (the “ED Agreement”) with Erchonia Corporation (“Erchonia”). As partdetermined that it was unable to substantiate the actual fair value of the JD Agreement, the Company and Erchonia will conduct FDA clinical research and trials for the purposes of obtaining 510k FDA Clearances for devices, technologies, methods and techniques used in the treatment of hearing relating conditions and disorders such as Tinnitus, Sensorineural hearing Loss, dizziness and other disorders. The agreements give the Company the exclusive worldwide rights for all designs and any newly developed Erchonia 3LT lasers and related technologies and gives the Company the rights to license and distribute such products worldwide. Pursuant to the JD Agreement, the Company has agreed to issue 1,000,000 shares of common stock. The Company valued the common stock to be issued at $60,000, based on the market price of the common stock on the date of the JD Agreement, to be amortized over the three-year term. For the three and six months ended June 30, 2019, the Company amortized $5,000 and $13,333, respectively, as stock-based compensation. As of June 30, 2019, there remains $46,667, of deferred stock compensation on the condensed consolidated balance sheet, to be amortized over the three-year contract term.

25

On December 7, 2018, the Company entered into a one- year consulting agreement (the “Media Consulting Agreement”) with a third- party consultant (the “Consultant”). The Consultant will provide communication and broadcast services, as well as strategic planning services. Pursuant to the Media Consulting Agreement, the Company has agreed to issue the Consultant 3,125,000 shares of restricted common stock. On December 7, 2018, the Company recorded 3,125,000 shares of common stock to be issued. The Company valued the common stock to be issued at $125,000 based on the market price of the common stock on the date of the Media Consulting Agreement, to be amortized over the term of the agreement. The Company issued 1,712,329 of the shares and there remain 1,412,671 shares to be issued. The Company amortized $31,250 and $62,500 for the three and six months ended June 30, 2019, respectively, and is included in Professional fees on the condensed consolidated Statement of operations. As of June 30, 2019, there remains $54,861 of deferred stock compensation on the consolidated balance sheet, to be amortized in 2019.

On April 1, 2019, the Company entered into a six- month consulting agreement with a third- party consultant (the “Consultant”). The Consultant will provide consulting services related to the conception and implementation of the Company’s business development plan, as well as other strategic planning services. Pursuant to the agreement, the Company issued the Consultant 2,000,000 shares of restricted common stock. The Company valued the common stock at $128,000 based on the market price of the common stock on the date of the agreement, to be amortized over the term of the agreement. The Company amortized $64,000 for the three and six months ended June 30, 2019, and is included in Professional fees on the condensed consolidated Statement of operations. As of June 30, 2019, there remains $64,000 of deferred stock compensation on the consolidated balance sheet, to be amortized in 2019.

On April 3, 2019, the Company entered into a six- month consulting agreement with a third- party consultant (the “Consultant”). The Consultant will provide consulting services related to the conception and implementation of the Company’s marketing plans, promoting the goals and objectives of the Company. Pursuant to the agreement, the Company paid $20,000 and issued 1,000,000 shares of restricted common stock to the Consultant. The Company valued the common stock at $75,000 based on the market price of the common stock on the date of the agreement, to be amortized over the term of the agreement. The Company amortized $37,500 for the three and six months ended June 30, 2019, and is included in Professional fees on the condensed consolidated Statement of operations. As of June 30, 2019, there remains $37,500 of deferred stock compensation on the consolidated balance sheet, to be amortized in 2019.

On April 17, 2019, the Company entered into a six- month consulting agreement with a third- party consultant (the “Consultant”). The Consultant will provide consulting services related to the corporate communications. Pursuant to the agreement, the Company issued 1,000,000 shares of restricted common stock to the Consultant. The Company valued the common stock at $67,500 based on the market price of the common stock on the date of the agreement, to be amortized over the term of the agreement. The Company amortized $28,125 for the three and six months ended June 30, 2019, and is included in Professional fees on the condensed consolidated Statement of operations. As of June 30, 2019, there remains $39,375 of deferred stock compensation on the consolidated balance sheet, to be amortized in 2019.

Legal Matters

On May 26, 2017, Helix Hearing Care (California), Inc. a California corporation (“Helix”), filed a complaint (the “Complaint”) against the InnerScope and the Moores, in the Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, Florida,technology that includes a rescission of the Consulting Agreement and a demand that all monies paid pursuant to the Consulting Agreement be returned, on the basis that an injunction against certain Officers and Directors renders the Consulting Agreement impossible to perform. The Company had previously received $1,250,000 under the Consulting Agreement. InnerScope was not named as an enjoined party in such previous litigation, and the services contemplated under the Consulting Agreement are not within the scope of the injunction, thus InnerScope believes the accusation by the third party is frivolous and without merit, as well as not providing sufficient cause for the Agreement to be terminated. InnerScope and the Moores filed their Answer and Affirmative Defenses to the Complaint on June 27, 2017.  On the same date, InnerScope, the Moores, and MFHC filed a counterclaim. On February 27, 2018, the Counterclaimacquired, therefore, full impairment was amended to include four claims for breach of contract, one claim for anticipatory breach of contract, one claim for negligent misrepresentation, and one claim for account stated. On August 13, 2018, Helix, the Company and the Moores signed a Settlement Agreement, whereby, the Company received $450,000,both parties dismissing all claims against the other party with prejudice and Matthew, Mark and Kimberly have been released from their covenant not to compete agreement signed in August 2016 with Helix.recorded.

26

NOTE 1613 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

Preferred Stock

The Company has 25,000,000 authorized shares of $0.0001 preferred stock.

Series A Preferred Stock

On June 4, 2018, the Company filed in the State of Nevada a Certificate of Designation of a series of preferred stock, the Series A Preferred Stock. 9,510,000 shares were designated as Series A Preferred Stock. The Series A Preferred Stock has mandatory conversion rights, whereby each share of Series A Preferred Stock will convert two (2) shares of common stock upon the Company filing Amended and Restated Articles of Incorporation with the Secretary of State of Nevada, increasing the authorized shares of common stock. The Series A Preferred Stock has voting rights on an is if converted basis. The Series A Preferred Stock does not have any right to dividends. On June 4, 2018 the Company issued 3,170,000 shares of Series A Preferred Stock each to Matthew, Mark and Kimberly, in exchange for each of them cancelling and returning to treasury 6,340,000 shares of common stock.The issuances were made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, and Rule 506(b) promulgated thereunder, as the shareholders are accredited investors, there was no general solicitation, and the transaction did not involve a public offering.On August 8, 2018, Matthew, Mark and Kim each converted 3,170,000 shares of Series A Preferred Stock for 6,340,000 shares of common stock. The common stock issued replaced the 19,010,000 shares in the aggregate that the Moore’s cancelled in June 2018.As of June 30, 2019,March 31, 2020, and December 31, 2018,2019, there were no shares of Series A Preferred Stock issued and outstanding.

 

Series B Preferred Stock

On June 4, 2018, the Company also filed in the State of Nevada a Certificate of Designation of a series of preferred stock, the Series B Preferred Stock. 900,000 shares were designated as Series B Preferred Stock. The Series B Preferred Stock is not convertible into common stock, nor does the Series B Preferred Stock have any right to dividends and any liquidation preference. The Series B Preferred Stock entitles its holder to a number of votes per share equal to 1,000 votes. On June 4, 2018, the Company issued 300,000 shares of its Series B Preferred Stock each to Matthew, Mark and Kimberly, in consideration of $45,000 of accrued expenses, the Company’s failure to timely pay current and past salaries, and the willingness to accrue unpaid payroll and non-reimbursement of business expenses without penalty or action for all amounts.The issuances were made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, and Rule 506(b) promulgated thereunder, as the shareholders are accredited investors, there was no general solicitation, and the transaction did not involve a public offering. The Company determined that fair value of the Series B Preferred Stock issued to the Company’s CEO was $817,600. The fair value was determined as set forth in the Statement of Financial Accounting Standard ASC 820-10-35-37, Fair Value in Financial Instruments.As of June 30, 2019,March 31, 2020, and December 31, 2018,2019, there were 900,000 shares of Series B Preferred Stock issued and outstanding.

 

16

Common Stock

TheOn January 30, 2020, the Company has 490,000,000increased a number of authorized common shares of $0.0001 common stock.to 14,975,000,000. As of June 30, 2019, and DecemberMarch 31, 2018,2020, there are 161,826,468 and 120,425,344, respectively,2,074,183,163 shares of common stock outstanding.

 

On January 24, 2019,During the period end March 31, 2020, the Company issued 515,818 shares of restricted common stock pursuant to the CSMA (See Note 15). The shares were valued at $12,500 based on the average closing price for the three days prior to the effective date of the CSMA.

During the six months ended June 30, 2019, the Company issued 3,961,177 shares of common stock that were classified as common stock to be issued as of December 31, 2018.

During the six months ended June 30, 2019, the Company issued 37,764 shares of common stock to an employee as part of their compensation. The Company agreed to issue $10,000 of stock, over a twelve- month period starting November 2018 based on continual employment, based on the average closing price of the Company’s common stock for the 3 days prior to employment, and accordingly recorded stock-based compensation of $1,392 and $2,500 for the three and six months ended June 30, 2019, included in Compensation and benefits in the condensed consolidated statement of operations, included herein.

.

27

During the six months ended June 30, 2019, the Company issued 104,166 shares of common stock to an employee as part of their compensation. The Company agreed to issue $20,000 of stock, over a twelvemonth period based on continual employment, based on the highest closing price of the Company’s common stock for the 5 days prior to employment, and accordingly recorded stock-based compensation of $1,146 and $5,000 for the three and six months ended June 30, 2019, included in Compensation and benefits in the condensed consolidated statement of operations, included herein.

During the six months ended June 30, 2019, the Company issued 84,270 shares of common stock to an employee as part of their compensation. The Company agreed to issue $10,000 of stock, over a twelve- month period based on continual employment, based on the average closing price of the Company’s common stock for the 3 days prior to employment, and accordingly recorded stock-based compensation of $2,500 for the six months ended June 30, 2019, included in Compensation and benefits in the condensed consolidated statement of operations, included herein.

During the six months ended June 30, 2019, the Company issued 64,404 shares of common stock each to two employees as part of their compensation. The Company agreed to issue $20,000 of stock to each employee over a six- month period starting November 2018 based on continual employment, to each, based on the average closing price of the Company’s common stock for the 3 days prior to employment, and accordingly recorded stock-based compensation of $6,750 and $10,000 for the three and six months ended June 30, 2019, included in Compensation and benefits in the condensed consolidated statement of operations, included herein.

During the six months ended June 30, 2019, the Company issued 113,637 shares of common stock to an employee as part of their compensation. The Company agreed to issue $20,000 of stock, over a twelve- month period based on continual employment, based on the highest closing price of the Company’s common stock for the 5 days prior to employment, and accordingly recorded stock-based compensation of $1,629 and $5,000 for the three and six months ended June 30, 2019, included in Compensation and benefits in the consolidated statement of operations, included herein.

On April 1, 2019, the Company issued the to a consultant 2,000,000 shares of restricted common stock. The Company valued the common stock at $128,000 based on the market price of the common stock on the date of the agreement, to be amortized over the term of the agreement.

On April 2, 2019, the Company issued 625,000 shares of restricted common stock in settlement of $25,000 of accounts payable owed. The Company valued the stock at $40,625 based on the market price of the common stock on the date of the agreement. The Company recorded a loss on debt extinguishment of $15,625 related to the issuance of 625,000 shares.

On April 3, 2019, the Company issued 1,000,000 shares of restricted common stock to a consultant. The Company valued the common stock at $75,000 based on the market price of the common stock on the date of the agreement, to be amortized over the term of the agreement.

On April 17, 2019, the Company issued 1,000,000 shares of restricted common stock to a consultant. The Company valued the common stock at $67,500 based on the market price of the common stock on the date of the agreement, to be amortized over the term of the agreement.

On May 22, 2019, the Company issued 666,666 shares of restricted common stock to a consultant for financial services provided. The Company valued the common stock at $32,000 based on the market price of the common stock on the date of the agreement, and is included in stock-based compensation expense for the three and six months ended June 30, 2019.

During the six months ended June 30, 2019, the Company issued 31,163,8181,732,065,028 shares of common stock for partial conversion of $366,175 of principal and $52,790 of accrued interest and fees, for a total of $418,965.interest.

 

Common Stock to be issued

During the six months ended June 30, 2019, the Company issued 3,961,177 sharesAs of common stock that were classified as common stock to be issued as of DecemberMarch 31, 2018.

28

During the six months ended June 30, 2019, the Company recorded 468,6452020 there are 2,415,671 shares of common stock to be issued to employees as part of their compensation. The Company agreed to issue stock, over a twelve- month period based on continual employment, based on their offer of employment, and, accordingly, recorded $25,000 for the three and six months ended June 30, 2019, for the common stock to be issued (issued on July 5, 2019).issued.

NOTE 14 – RISKS AND UNCERTAINTIES

 

The Company's business and operations are sensitive to general business and economic conditions in the United States. A host of factors beyond the Company's control could cause fluctuations in these conditions. Adverse conditions may include recession, downturn or otherwise, local competition or changes in consumer taste. These adverse conditions could affect the Company's financial condition and the results of its operations.

In December 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China and has spread throughout the United States and the rest of the world. The World Health Organization has declared the outbreak to constitute a “Public Health Emergency of International Concern.” This contagious disease outbreak, which has not been contained, and is disrupting supply chains and affecting production and sales across a range of industries in United States and other companies as a result of quarantines, facility closures, and travel and logistics restrictions in connection with the outbreak, as well as the worldwide adverse effect to workforces, economies, and financial markets, leading to a global economic downturn. As of June 30, 2019, there were 2,881,316 shares of common stocka result, the Company experienced a negative impact to its operating results. Regarding future operations, the related financial impact and duration cannot be issued.reasonably estimated at this time.

 

 

NOTE 1715 – SUBSEQUENT EVENTS

 

From July 1, 2019, through August 24, 2019,Subsequent to period end, the Company received conversion notices for the issuancesissuance of 35,281,9044,749,544,256 shares of common stock for conversion of $365,600$3,651,848 of principal and $19,006$1,067,034 of accrued interest on convertible notes.

On May 31, 2019,

Subsequent to period end, the Company issued 66,410,092 shares of common stock as part of compensation for services based on the market price of the common stock on the date the Company agreed to issue the shares.

Subsequent to period end, the Company issued 65,000,000 shares of common stock for cash for a total value of $650,000.

Subsequent to period end, the Company issued 127,653,805shares of common stock to settle payables in the amount of $651,034.

Subsequent to period end, 216,000,000 common shares were cancelled.

Subsequent to period end, the technology fee was fully impaired, resulting in impairment expense of $775,000 (Note 4).

At various times subsequent to period end, the Company entered into convertible promissory notes with principal amounts totaling $3,132,504 with a lease beginning July 1, 2019,third parties for which the proceeds were used for operations. The convertible promissory notes incur interest at rates from 8% to operate12% per annum and mature on dates ranging from March 2021 to December 2022. The convertible promissory notes are convertible to shares of the Company’s common stock 6 months after issuance. The conversion price per share is equal to 65-90% of the lowest trading prices of the Company’s common stock during the fifteen (15) trading days immediately preceding the applicable conversion date. The trading price is defined within the agreement as the closing bid price on the applicable trading market. The convertible promissory notes include various default provisions for which the default interest rate increases to 24%.

17

At various times subsequent to period end, the Company entered into convertible promissory notes with principal amounts totaling $1,640,000 with a retail hearing aid clinicthird parties for which the proceeds were used for operations. The convertible promissory notes incur interest at rates from 8% to 12% per annum and mature on dates ranging from March 2021 to February 2023. The convertible promissory notes are convertible to shares of the Company’s common stock 6 months after issuance. The conversion price is set at price of $0.01 per shares. The convertible promissory notes include various default provisions for which the default interest rate increases to 24%.

At various times subsequent to period end, the Company entered into promissory notes with principal amounts totaling $2,435,210 with a third parties for which the proceeds were used for operations. The promissory notes incur interest at rates from 8% to 10% per annum and mature on dates ranging from June 2023 to August 2023. The convertible promissory notes are convertible to shares of the Company’s common stock 6 months after issuance. The conversion price is set at price of $0.01 per shares. The promissory notes include various default provisions for which the default interest rate increases to 14-24%.

Subsequent to period end, convertible promissory notes in Greenhaven, California expiring June 30, 2022. Initial lease paymentsthe total principal amount of $1,450 begin on July 1, 2019,$3,432,300 and increase by approximately 5% annually beginning on July 1, 2020.accrued interest of $192,294 were forgiven.

Subsequent to period end, promissory notes in the total principal amount of $2,435,210 and accrued interest of $68,793 were forgiven.

 

On July 1, 2019,November 22, 2021, the Company issued topurchased Hearing Assist II, LLC. The Company acquired 100% interest in the entity for a third-party investor a convertible redeemable note (the “Note”) with a face valuetotal consideration of $183,975. The note matures591,209,963 common shares valued at $8,513,423 on July 1, 2020, has a stated interestthe day of 8% and is convertible at any time following the funding of such note into a variable numberpurchase. As part of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The note was funded on July 1, 2019, whenacquisition, the Company received proceedsassumed assets in the amount of $150,000, after disbursements for$15,713,000, consisting of trademarks, domains, customer lists, customer contracts, licenses, royalties, other contracts, and liabilities in the lender’s transaction costs, fees and expenses.amount of $7,199,678.

 

On July 5, 2019,September 30, 2021, the Company issued 468,645 shares of restricted common stock to employees (see note 16).

On July 18, 2019, the Company received proceeds of $100,000, after disbursements for the lender’s transaction costs, fees and expenses of the $122,500 back-end note dated January 22, 2019.

On August 9, 2019, the Company issued to a third-party investor a convertible redeemable note (the “Note”)entered into an Asset Purchase agreement with a face value of $122,650. The note matures on August 9, 2020, has a stated interest of 8% and is convertible at any time following the funding of such note into a variable number of the Company's common stock, based on a conversion ratio of 70% of the lowest closing bid price for the 15 days prior to conversion. The note was funded on August 9, 2019, when the Company received proceeds of $100,000, after disbursements for the lender’s transaction costs, fees and expenses.

On August 20, 2019, the Company received proceeds of $75,000, after disbursements for the lender’s transaction costs, fees and expenses of the $89,085 back-end note dated March 20, 2019.

On August 26, 2019, the Company filed Amended and Restated Articles of Incorporation (the “Amendment”) with the Nevada Secretary of State,iHear Medical, Inc. pursuant to which the Company increasedreceived a number of intangible assets, equipment, customer database and inventory for a total consideration of 400,000 preferred series C shares and $1,000,000 convertible note. Preferred shares valued at $666,667 on the authorized sharesday of capital stockpurchase. As part of the acquisition, the Company to 1,000,000,000,assumed assets in the amount of $1,666,667, consisting of 975,000,000 shares of common stock, par value $0.0001,inventory, equipment, customer lists, patents and 25,000,000 shares of preferred stock, par value $0.0001 (the “Preferred Stock”), with the Preferred Stock issuable in such series, and with such designations, rights and preferences, as the Board of Directors may determine from time to time.other technology-based intangibles.

 

The Company has evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission. The Company has determined that there are no other such events that warrant disclosure or recognition in the financial statements, except as stated herein.

 

 2918 

 

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

 

The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto for the yearsyear ended December 31, 2018 and 20172019 and filed by the Company on Form 10-K with the Securities and Exchange Commission on April 16, 2019.September 14, 2022.

 

This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future.

 

While our financial statements are presented on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, our independent auditor’s report on our financial statements for the years ended December 31, 20182020 and 20172019 includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern. Management’s plans in regard to the factors prompting the explanatory paragraph are discussed below and also in Note 34 to the unaudited condensed consolidated financial statements.

 

Corporate History and Current Business

 

InnerScope Hearing Technologies, Inc. (“Company”, “InnerScope”) is a Nevada Corporation incorporated on June 15, 2012, with its principal place of business in Roseville, California. The Company was originally named InnerScope Advertising Agency, Inc. and was formed to provide advertising and marketing services to retail establishments in the hearing device industry. On August 25, 2017, the Company changed its name to InnerScope Hearing Technologies, Inc.to better reflect the Company’s current direction as a technology driven company with a scalable business to business (BTB) solution and business to consumer (and BTC) solution. The Company also competes in the DTC (Direct-to-Consumer) markets with its own line of “Hearables”, and “Wearables”, including APPs on the iOS and Android markets.On September 10, 2018, the Company acquired all of the assets and assumed certain liabilities of Kathy L Amos Audiology (“Amos Audiology”) in exchange for 340,352 shares of common stock (the “Acquisition”). Amos Audiologyprovides retail hearing aid sales and audiological services in the East Bay area of San Francisco. Additionally, the Company has opened 9 retail hearing device clinics, manages two clinics owned by a related party andplans onusing management’s unique and successful talents on acquiring and opening additional audiological brick and mortar clinics to be owned and operated by the Company.

 

Results of Operations

 

For the three and six months ended June 30, 2019March 31, 2020 compared to the three and six months ended June 30, 2018

Revenues

March 31, 2019 revenues.

Revenues for the three and six months ended June 30, 2019March 31, 2020 were $219,673 and $406,202, respectively,$81,139 compared to $50,014 and $105,991$186,529 for the three and six months ended June 30, 2018, respectively.March 31, 2019. The revenue increasedecrease was primarily the result of the sales from retail clinics during the three and six month periods ending June 30, 2019, partially offset by a decrease in direct print and mail services for the three and six months ending June 30, 2019. The Company is focusing on the higher margins associated with the sales of hearing aids and hearing aid products. A breakdown of the net increase in sales is as follows:due to COVID-19.

 

30

  

Three months ended

June 30,

 

Six months ended

June 30,

  2019 2018 

2019

 

2018

Retail clinic sales $217,007  $—    $382,901  $—   
Online sales  2,666   9,027   8,301   18,523 
Direct print, mail services and product  —     17,664   —     35,449 
Sub total  219,673   26,691   391,202   53,972 
                 
Related party- direct print and mail services  —     8,323   —     22,019 
Related party-Marketing and consulting fee  —     15,000   15,000   30,000 
Sub total  —     23,323   15,000   52,019 
Total revenues $219,673  $50,014  $406,202  $105,591 

Retail clinic Online sales

 

Retail clinic sales will continue to grow as the Company has opened three additional retail clinics in the second quarter of 2019, and opened an additional clinic in July 2019, bringing the current total to 9 clinics. The Company anticipates to open as many as xx more by December 31, 2019.

Online sales

Beginning in the second quarter of 2018, the Company began to market a line of PSAP hearables and wearables and during the third quarter of 2018, expanded their line of products to include FDA registered hearing aid devices. The Company has introducedOnline sales are down in the products through new marketing campaigns, to bring awarenesscurrent periods due to the productsmarketing resources being reallocated to the Retail Centers sales operations. Online marketing platforms are ready to go with the potential of revenue increases, once the company has the proper capital resources to be allocated to online marketing. Online sales will be a major part and anticipates salesfocus of these products to increase duringmanagement once the remainder of 2019 and beyond.company is properly capitalized.

 

19

Related Party

On December 24, 2016, Moore Holdings, LLC. (“Moore Holdings”) acquired two retail stores from the buyer of the MFHC stores. On March 1, 2017, the Company entered into a twelve- monthtwelve-month Marketing Agreement with each of the stores to provide telemarketing and design and marketing services for $2,500 per month per store, resulting in $0 and $15,000 of revenues for the sixthree months ended June 30, 2019,March 31, 2020 and $15,000 and $30,000 for the three and six months ended June 30, 2018, respectively.2019. The Marketing Agreement is currently on a month to month basis. As of April 1, 2019, the Company stopped recording the marketing income and will ony record such income going forward based on payments received from the related party. For the three and six months ended June 30, 2018, the Company also provided direct print and mailing services for the two retail sales and recognized revenue of $8,323, and $22,019, respectively, for the services.was terminated during year ending December 31, 2019.

 

Cost of sales

The Company records cost of sales on products sold in the retail clinics on delivery to the customer and for online sales, when shipped. We recognize the costs of designing, producing, printing and mailing advertisements for our client’s direct mail marketing campaigns in cost of sales in the month of the mailing as well as the licensing of telemarketing software. Cost of sales for the three and six months ended June 30,March 31, 2020 and 2019, was $99,463$48,852 and $181,827, respectively, compared to $31,802 and $70,666 for the three and six months ended June 30, 2018, respectively.$82,364.

 

Operating Expenses

 

Operating expenses were $1,138,958$473,854 and $2,115,689$976,731 for the three and six months ended June 30, 2019, respectively, compared to $1,173,044March 31, 2020 and $1,603,274 for the three and six months ended June 30, 2018, respectively.2019. The increase in expenses in the current periods was as follows:

 

31

  

Three months ended

June 30,

 

Six months ended

June 30,

  Description 2019 2018 2019 2018
Compensation and benefits $399,170  $153,167  $748,823  $312,705 
Stock compensation  233,793   772,600   358,292   836,840 
Professional fees  42,047   115,419   69,026   166,666 
Advertising and promotion  143,800   66,007   311,584   91,328 
Investor relations  89,528   23,778   164,776   76,419 
Rent, including related party of $36,000 for three months (2018 and 2019) and $72,000 for six months (2018 and 2019)  98,133   36,000   194,062   72,000 
Other general and administrative  132,487   6,073   269,126   47,316 
Total $1,138,958  $1,173,044  $2,115,689  $1,603,274 
Operating Expenses: March 31, 2020 March 31, 2019
Compensation and benefits (including stock-based fees of $0 and $14,084, respectively)  210,769   363,737 
Advertising and promotion  9,689   167,784 
Professional fees (including stock-based fees of $0 and $110,416, respectively)  67,037   137,394 
Rent, including related party  80,963   95,929 
Investor relations  12,797   75,248 
Depreciation and Amortization expense  31,302   —   
Other general and administrative  60,737   136,639 
Total operating expenses  473,294   976,731 

 

Compensation and benefits increased

Overall decrease in operating expenses across the current three and six month periods, as the Company acquired Amos Audiology in September 2018 as well as having opened two additional retail clinics in 2018, comparedboard was mainly due to having a total of eight clinics as of June 30, 2019, all of which required staffing as well as additional office support staff.shutdowns related to COVID-19.

 

Stock based compensation of $233,793Increase in depreciation and $358,292 for the three and six months ended June 30, 2019, respectively,amortization is comprised of:

·Themainly related amortization of deferred stock compensation of $165,876 and $263,792 for the three and six months ended June 30, 2019.

·On January 24, 2019, the Company issued 515,818 shares of restricted common stock pursuant to a consultant agreement. The shares were valued at $12,500 and included in stock- based compensation expense for the six months ended June 30, 2018, based on the average closing price for the three days prior to the effective date of the consultant’s agreement.

·On May 22, 2019, the Company issued 666,666 shares of restricted common stock for financial services performed. The shares were valued at $32,000 and included in stock-based compensation expense for the three and six months ended June 30, 2019.

·During the six months ended June 30, 2019, the Company issued 468,645 shares of restricted common stock and also recorded 468,645 of shares of common stock to be issued (issued July 5, 2019) to employees. The shares were valued at $35,917 and $50,000, based on the market price of the common stock, the date the Company agreed to issue the shares and are included in stock-based compensation expense for the three and six months ended June 30, 2019, respectively.

Stock based compensation for the three and six months ended June 30, 2018, is comprised of:

·On February 23, 2018, the Company issued 111,111 shares of common stock to a marketing consultant. The shares were valued at $7,778, based on the market price of the common stock on January 31, 2018, the date the Company agreed to issue the shares and are included in the six months ended June 30, 2018.

·On February 23, 2018, the Company issued 10,397 shares of common stock to an employee. The shares were valued at $728, based on the market price of the common stock on January 31, 2018, the date the Company agreed to issue the shares and are included in the six months ended June 30, 2018.

·On February 28, 2018, the Company recorded 133,067 shares of common stock to be issued to a marketing consultant (see Note 12) and recorded $8,117 of stock-based compensation expense (based on the market price of the common stock on that date) and are included in the six months ended June 30, 2018.

·On March 31, 2018, the Company recorded 133,333 shares of common stock to be issued to the same marketing consultant and recorded $9,067 of stock-based compensation expense (based on the market price of the common stock on that date) and are included in the six months ended June 30, 2018.

32

·The amortization of deferred stock compensation of $25,000 is included in the six months ended June 30, 2018.

·On April 30, 2018, the Company recorded 166,667 shares of common stock to be issued to the same marketing consultant and recorded $6,883 of stock-based compensation expense (based on the market price of the common stock on that date) and is included in the three and six months ended June 30, 2018.

·On May 31, 2018, the Company recorded 380,952 shares of common stock to be issued to the same marketing consultant and recorded $6,667 of stock-based compensation expense (based on the market price of the common stock on that date) and is included in the three and six months ended June 30, 2018.

·On June 4, 2018, the Company issued 300,000 shares of its Series B Preferred Stock each to Matthew, Mark and Kimberly, in consideration of $45,000 of accrued expenses, the Company’s failure to timely pay current and past salaries, and the willingness to accrue unpaid payroll and non-reimbursement of business expenses without penalty or action for all amounts. The Company determined that fair value of the Series B Preferred Stock issued to the Company’s CEO was $817,600, and accordingly $772,600 is included in stock compensation expense for the three and six months ended June 30, 2018. The fair value was determined as set forth in the Statement of Financial Accounting Standard ASC 820-10-35-37, Fair Value in Financial Instruments.

Professional fees for the three and six months ended June 30, 2019, were $42,047 and $69,026, respectively, compared to $115,419 and $166,666 for the three and six months ended June 30, 2018, respectively. Professional fees consisted of: 

  

Three months ended

June 30,

 

Six months ended

June 30,

  Description 2019 2018 2019 2018
Legal fees $298  $34,481  $9,228  $67,169 
Business consulting  700   32,124   1,370   44,124 
Accounting and auditing fees  40,500   31,152   54,000   47,000 
Information technology  549   4,112   4,427   8,373 
Total $42,047  $115,419  $69,026  $166,666 

Advertising and marketing expenses increased in the three and six months ended June 30, 2019, as a result of the Company heavily promoting their retail clinics. The costs include direct mail advertising as well as newspaper print advertising.Technology Fee Access.

 

Rent, including related party, increased for the three and six months ended June 30, 2019, compared to the three and six months ended June 30, 2018 as a result of the eight new leases related to the Company’s retail clinics in the 2019 periods, none of which were open during the 2018 periods.

Other income (expense), net

Other expenses, net, were $486,664 and $1,617,136$5,758,943 for the three and six months ended June 30, 2019, respectively,March 31, 2020, compared to $698,193 and $983,020other expenses of $1,130,472 for the three and six months ended June 30, 2018. For the three and six months ended June 30, 2019, a credit to derivative expenses of $235,478 and anMarch 31, 2019. Interest expense of $342,360, respectively, related to convertible notes and interest expense of $728,456 and $1,235,198, respectively,$747,007, including amortization of debt discounts increased significantly compared to interest expense of $506,742 for the same periods in 2018, as a result of more issuances of convertible notes.three months ended March 31, 2019. For the three and six months ended June 30, 2018, theMarch 31, 2020, a derivative loss of $5,027,581 compared to derivative expenses of $518,711$577,838 for the three months ended March 31, 2019. Also included in other expenses for the three months ended March 31, 2019, was a loss on extinguishment of debt of

$44,852. There was a gain on equity investment in the amount of $15,645 during three months ended March 31, 2020 and $669,970, respectively. Interest expense also increased as a resultloss of the convertible notes, and interest expense of $182,528 and $313,792, respectively, pursuant to the terms and conditions of the convertible notes issued by the Company.$1,040 during three months ended March 31, 2019.

 

Net loss

Net loss for the three and six months ended June 30,2019,March 31, 2020, was $1,505,411 and $3,508,449, respectively,$6,200,510 compared to $1,853,025 and $2,550,969net loss of $2,003,038 for the three and six months ended June 30, 2018, respectively,March 31, 2019, as a result of the increaseschanges in operating and other expenses as described above.

 

33

Capital Resources and Liquidity

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs to pay ongoing obligations. As of June 30, 2019,March 31, 2020, we had cash of $5,017, a decrease$11,868, an increase of $82,809,$7,409, from $87,826$4,459 as of December 31, 2018.2019. As of June 30, 2019,March 31, 2020, we had current liabilities of $5,939,297$13,354,401 (including derivative liabilities of $3,082,068)$8,204,211) compared to current assets of $596,204$168,375 which resulted in working capital deficit of $5,343,093.$13,186,026. The current liabilities are comprised of accounts payable, accrued expenses, notes payable, convertible notes payable, operating lease liabilities, customer deposits, salaries and taxes payable, and derivative liabilities.

 

20

Our ability to operate over the next twelve months, is contingent upon continuing to realize sales revenue sufficient to fund our ongoing expenses. If we are unable to sustain our ongoing operations through sales revenue, we intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our working capital, or other cash requirements. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all. Since June 30, 2019, we generated cash flows of $483,500, from the issuance of $518,210 of convertible notes and $60,000 note payable and approximately $196,000 received from the sales of hearing aid products. We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time.

 

Operating Activities

 

Cash used in operating activities was $1,682,111$194,019 for the sixthree months ended June 30, 2019March 31, 2020 compared to $572,621$785,106 for the sixthree months ended June 30, 2018.March 31, 2019. For the sixthree months ended June 30,March 31, 2020, the cash used in operations was a result of the net loss of $6,200,510, a loss on fair value of derivatives of $5,027,582, amortization of debt discount in the amount of $628,163, depreciation and amortization in the amount of $31,300, gain on equity investment in the amount of $15,645 and the changes in operating assets and liabilities of $335,091. For the three months ended March 31, 2019, the cash used in operations was a result of the net loss of $3,508,449$2,003,038, a loss on fair value of derivatives of $577,838, amortization of debt discount in the amount of $456,030, depreciation and amortization in the amount of $111,226, loss on equity investment in the amount of $1,040, loss on debt extinguishment in the amount of $44,852, non-cash interest expense of $2,500, stock-based compensation of $124,500 and the changes in operating assets and liabilities of $310,084, partially offset by the non- cash expense items of depreciation, amortization and amortization of debt discounts of $1,393.694, derivative expense of $342,360 and stock- based compensation of $358,292. For the six months ended June 30, 2018, the cash used in operations was a result of the net loss of $2,550,969 and increases in assets of $7,518, offset by increases in liabilities of $283,572 and the non- cash expense items of depreciation and amortization of $274,147, derivative expense of $669,970 and stock- based compensation of $836,840.$100,054.

 

Investing Activities

Cash used in investing activities was $69,755$2,672 for the sixthree months ended June 30,March 31, 2020 and consisted of purchases of equipment of $2,672. Cash used in investing activities was $26,503 for the three months ended March 31, 2019 and consisted of purchases of fixed assetsequipment of $46,274$17,322 and paymentspayment of $23,481 for security deposits. There was no investing activity for the six months ended June 30, 2018.deposit of $9,181.

 

Financing Activities

For the sixthree months ended June 30, 2019,March 31, 2020, cash provided by financing activities was $1,669,057$204,100 compared to $534,654$758,697 for the sixthree months ended June 30, 2018.March 31, 2019. For the sixthree months ended June 30,March 31, 2020, the Company has received $199,650, net of debt issuance costs, from the issuance of convertible notes. Further a $4,450 change in bank overdraft occurred during three months ending March 31, 2020. For the three months ended March 31, 2019, the Company has received $1,678,725$813,475 from the issuance of $2,026,022$996,670 of convertible notes and cash of $21,000$7,400 from the issuance of a note payable of $26,672 and net payments of $6.116 were made from a related party.$8,584. For the sixthree months ended June 30,March 31, 2019, the Company made payments of $36,784 on notes payable. For the six months ended June 30, 2018, the Company has received $592,250 from the issuance of $654,050 of convertible notes, cash of $32,600 from the issuance of a note of $43,358, and related party notes payable issued of in the aggregate of $31,200. For the six months ended June 30, 2018, the Company made principal payments of $94,725 on convertible notes, $20,671$20,784 on notes payable, and $6,000 was paid onnet repayments of $41,394 to a related party notes payable.resulting in net cash provided by financing activities of $758,697. 

 

OFF BALANCE SHEET ARRANGEMENTS

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

 

34

Critical Accounting Policies

 

Basis of presentation

 

The accompanying condensed consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America ("US GAAP"). The condensed consolidated financial statements of the Company include the consolidated accounts of InnerScope and its’ wholly owned subsidiaries ILLC and Intela-Hear, a California limited liability company. All intercompany accounts and transactions have been eliminated in consolidation.

 

Use of estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

21

Revenue Recognition

 

Effective January 1, 2018, the Company adopted ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”) and all the related amendments. The Company elected to adopt this guidance using the modified retrospective method. The adoption of this guidance did not have a material effect on the Company’s financial position, results of operations or cash flows.

 

The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

 

The Company’s contracts with customers are generally on a purchase order basis and represent obligations that are satisfied at a point in time, as defined in the new guidance, generally upon delivery or has services are provided. Accordingly, revenue for each sale is recognized when the Company has completed its performance obligations. Any costs incurred before this point in time, are recorded as assets to be expensed during the period the related revenue is recognized. The Company accepts prepayments on hearing aids and records the amount received as customer deposits on its’ balance sheet. When the Company delivers the hearing aid to the customer, revenue is recognized as well as the corresponding cost of sales.

 

Income taxes

 

The Company uses the liability method of accounting for Income Taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance can be provided for a net deferred tax asset, due to uncertainty of realization.

 

Net loss per common share

 

The Company reports earnings (loss) per share in accordance with ASC 260, "Earnings per Share." Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net loss by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. As of June 30,March 31, 2020 and 2019, and 2018, the Company’s outstanding convertible debt is convertible into approximately 155,394,44419,095,107,143 and 90,570,30479,395,431 shares of common stock, subject to adjustment based on changes in the Company’s stock price, respectively. This amount is not included in the computation of dilutive loss per share because their impact is antidilutive.

 

35

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

Item 4. Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated to allow our management to make timely decisions regarding required disclosure. Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and he determined that our disclosure controls and procedures were not effective due to control deficiencies. During the period we did not have additional personnel to allow segregation of duties to ensure the completeness or accuracy of our information. The Company does not have an Audit Committee to oversee management activities, and the Company is dependent on third party consultants for the financial reporting function.

 

22

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the quarter ended June 30, 2019,Match 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

36

Part II.Other Information

Item 1.Legal Proceedings

 

Item 1. Legal Proceedings

On May 26, 2017, Helix Hearing Care (California), Inc. a California corporation (“Helix”),filed a complaint (the “Complaint”) against the InnerScopeand the Moores,in the Circuit Court of the 11thJudicial Circuit in and for Miami-Dade County, Florida, that includes a rescission of the Consulting Agreement, on the basis that an injunction against certain Officers and Directors renders the Consulting Agreement impossible to perform. InnerScope was not named as an enjoined party in such previous litigation, and the services contemplated under the Consulting Agreement are not within the scope of the injunction, thus InnerScope believes the accusation by the third party is frivolous and without merit, as well as not providing sufficient cause for the Agreement to be terminated.

 

InnerScope and the Moores filed their Answer and Affirmative Defenses to the Complaint on June 27, 2017. On the same date, InnerScope, the Moores, and MFHC filed a counterclaim. On February 27, 2018, the Counterclaim was amended to include four claims for breach of contract, one claim for anticipatory breach of contract, one claim for negligent misrepresentation, and one claim for account stated.On August 13, 2018, Helix, InnerScope and the Moores executed a Settlement Agreement.

 

Item 1A. Risk Factors

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.

 

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

 

On April 1, 2019,During the period end March 31, 2020, the Company issued 113,6371,732,065,028 shares of common stock to an employee as part of their compensation. The Company agreed to issue $20,000 of stock, over a six- month period based on continual employment, based on the average closing price of the Company’s common stock for the 5 days prior to employment, and accordingly recorded stock-based compensation of $5,000, included in Compensation and benefits in the consolidated statement of operations, included herein.

On April 1, 2019, the Company issued the to a consultant 2,000,000 shares of restricted common stock. The Company valued the common stock at $128,000 based on the market price of the common stock on the date of the agreement, to be amortized over the term of the agreement.

On April 2, 2019, the Company issued 625,000 shares of restricted common stock in settlement of $25,000 of accounts payable owed. The Company valued the stock at $40,625 based on the market price of the common stock on the date of the agreement. The Company recorded a loss on debt extinguishment of $15,625 related to the issuance of 625,000 shares.

On April 3, 2019, the Company issued 1,000,000 shares of restricted common stock to a consultant. The Company valued the common stock at $75,000 based on the market price of the common stock on the date of the agreement, to be amortized over the term of the agreement.

On April 3, 2019, the Company recorded 410,284 shares of restricted common stock to be issued pursuant to a consulting agreement. The shares were valued at $12,500 based on the average closing price for the three days prior to the month of service pursuant to the consultant’s agreement.

On April 17, 2019, the Company issued 1,000,000 shares of restricted common stock to a consultant. The Company valued the common stock at $67,500 based on the market price of the common stock on the date of the agreement, to be amortized over the term of the agreement.

On May 22, 2019, the Company issued 666,666 shares of restricted common stock to a consultant for financial services provided. The Company valued the common stock at $32,000 based on the market price of the common stock on the date of the agreement, and is included in stock-based compensation expense for the three and six months ended June 30, 2019.

37

The issuances described above related to the issuance of shares for services and are pursuant to agreements, were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(a)(2) of the Securities Act.

On April 17, 2019, the Company issued 2,495,107 shares of common stock to Carebourn Capital, L.P. (“Carebourn”) in satisfaction of its obligations under, and the holder's election to convert $50,000partial conversion of principal and $2,397 of accrued interest, of the Company's convertible promissory note issued to Carebourn on June 27, 2018.

On May 31, 2019, the Company issued 716,124 shares of common stock to Carebourn in satisfaction of its obligations under, and the holder's election to convert $25,000 of principal and $1,260 of accrued interest, of the Company's convertible promissory note issued on March 27, 2018 to a third party and purchased by Carebourn on April 29, 2019.

On June 25, 2019, the Company issued 1.048.726 shares of restricted common stock to Eagle Equities, LLC (“Eagle”) in partial satisfaction of its obligations under, and the holder's election to convert a $18,000 principal portion and $940 of interest, of, the Company's convertible promissory note issued to Eagle on November 2, 2018.

On June 26, 2019, the Company issued 2,162,541 shares of restricted common stock to GS Capital Partners, LLC (“GS Capital”) in partial satisfaction of its obligations under, and the holder's election to convert a $37,500 principal portion and $1,101 of interest, of, the Company's convertible promissory note issued to GS Capital on December 4, 2018.interest.

 

The issuances described above were made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(1) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by each shareholder, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, the shareholders were not affiliates, and they had held the underlying debt securities for the required time. The holders provided legal opinions pursuant to Section 4(a)(1) of Securities Act, or Rule 144 promulgated thereunder.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item

Item 4.Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

23

 

Item 6. Exhibits

 

Exhibit

Number

 

Description of Exhibit

3.1* Articles of Incorporation
3.2* Bylaws of InnerScope Advertising Agency, Inc.
3.3* Amended and Restated Articles of Incorporation
3.4* Amended and Restated Articles of Incorporation dated August 25, 2017
3.5* Certificate of Designation Series A Preferred Stock dated June 4, 2018
3.6* Certificate of Designation Series B Preferred Stock dated June 4, 2018
3.7* Amended and Restated Articles of Incorporation dated August 7, 2018
4.3* Private Placement Offering Memorandum
10.2* InnerScope, Inc. Marketing Agreement between the Company and Moore Family Hearing Company, Inc.
10.3* Acquisition Agreement and Plan of Share Exchange dated June 20, 2012, between the Company and InnerScope Advertising Agency, LLC
10.4* 

Acquisition Agreement and Plan of Share Exchange dated November 1, 2013, between the Company and Intela-Hear, Intela-Hear, LLC

10.5* Promissory Note dated April 1, 2013, between the Company and Matthew Moore
38

10.6* Promissory Note dated June 25, 2013, between the Company and Matthew Moore
10.7* June 2012 Business Consulting Agreement
10.8+* GN ReSound Sales Agreement
10.9+* Store Expansion Consulting Agreement
10.10+* Consulting Agreement
10.11#* Employment Agreement with Matthew Moore, CEO
10.12#* Employment Agreement with Kimberly Moore, CFO
10.13* Financial Consulting Agreement between the Company and Venture Equity, LLC
10.14* Consulting and Representation Agreement between the Company and CorporateAds.com
10.15* 

Business Loan Agreement, dated May 5, 2017, between InnerScope Advertising Agency, Inc. and Moore Holdings, LLC and First Community Bank.

10.16* 

Commercial Security Agreement, dated May 5, 2017, between InnerScope Advertising Agency, Inc. and Moore

Holdings, LLC and First Community Bank.

10.17* U.S. Small Business Administration Note.
10.18* 

Deed of Trust, dated May 5, 2017, among InnerScope Advertising Agency, Inc. and Moore Holdings, LLC. and First Community Bank and Placer Title Company.

10.19* 

Securities Purchase Agreement dated October 5, 2017 by and between InnerScope Hearing Technologies, Inc.

and Power Up Lending Group, LTD.

10.20* 

Convertible Promissory Note dated October 5, 2017, by and between InnerScope Hearing Technologies, Inc. and Power Up Lending Group, LTD.

10.21* 

Securities Purchase Agreement dated November 10, 2017, by and between InnerScope Hearing Technologies,

Inc. and Carebourn Capital, L.P.

10.22* 

Convertible Promissory Note dated November 10, 2017, by and between InnerScope Hearing Technologies, Inc. and Carebourn Capital, L.P.

10.23* 

Securities Purchase Agreement dated February 8, 2018 by and between InnerScope Hearing Technologies, Inc.

and Power Up Lending Group, LTD.

10.24* 

Convertible Promissory Note dated February 8, 2018, by and between InnerScope Hearing Technologies, Inc. and Power Up Lending Group, LTD.

24

10.25* 

Securities Purchase Agreement dated April 8, 2018, by and between InnerScope Hearing Technologies, Inc. and

Carebourn Capital, L.P.

10.26* 

Convertible Promissory Note dated April 8, 2018, by and between InnerScope Hearing Technologies, Inc. and Carebourn Capital, L.P.

10.27* 

Securities Purchase Agreement dated May 11, 2018, by and between InnerScope Hearing Technologies, Inc. and

One44 Capital LLC

10.28* 

Convertible Promissory Note dated May 11, 2018, by and between InnerScope Hearing Technologies, Inc. and One44 Capital LLC

10.29* 

Convertible Back- End Promissory Note dated May 11, 2018, by and between InnerScope Hearing

Technologies, Inc. and One44 Capital LLC

10.30* Mutual Settlement Agreement and Release with Helix Hearing Care (California), Inc.
10.31* Manufacturing Design and Marketing Agreement.
10.32* 

Securities Purchase Agreement between InnerScope Hearing Technologies, Inc. and Eagle Equities, LLC, dated

November 2, 2018.

10.33* Form of 8% Convertible Redeemable Notes issued by Company to Eagle Equities, LLC, dated November 2, 2018.
10.34* $255,500 Principal Amount 8% Collateralized Secured Promissory Note issued by Eagle Equities, LLC.
10.35* 

First Amendment to Manufacturing Design and Marketing Agreement (the “Zounds Agreement”) between InnerScope Hearing Technologies, Inc. and Zounds Hearing, Inc., a Delaware corporation (“Zounds”), dated November 2, 2018

10.36* Joint Development Agreement between InnerScope Hearing Technologies, Inc. and Erchonia Corporation.
10.37* Exclusive Distributor Agreement between InnerScope Hearing Technologies, Inc. and Erchonia Corporation.
39

31.1** Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2** Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1** Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101.INS** XBRL Instance
101.SCH** XBRL Taxonomy Extension Schema
101.CAL** XBRL Taxonomy Extension Calculation Linkbase
101.DEF** XBRL Taxonomy Extension Definition Linkbase
101.LAB** XBRL Taxonomy Extension Labels Linkbase
101.PRE** XBRL Taxonomy Extension Presentation Linkbase

*Previously filed.

+Confidential Treatment has been requested for certain portions thereof pursuant to Confidential Treatment Request under Rule 406 promulgated under the Securities Act. Such provisions and attachments have been filed with the Securities and Exchange Commission.

**Filed Herewith

#Denotes management contract or compensatory plan or arrangement.

 

* Previously filed.

+ Confidential Treatment has been requested for certain portions thereof pursuant to Confidential Treatment Request under Rule 406 promulgated under the Securities Act. Such provisions and attachments have been filed with the Securities and Exchange Commission.

** Filed Herewith

# Denotes management contract or compensatory plan or arrangement.

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

Dated: August 30, 2019January 26, 2023

 

INNERSCOPE HEARING TECHNOLOGIES, INC.

 

By:/s/ Matthew Moore          

Matthew Moore

Chief Executive Officer (principal executive officer)

 

By:/s/ Kimberly Moore          

Kimberly Moore

Chief Financial Officer (principal financial and accounting officer)

 

25

40