INNERSCOPE HEARING TECHNOLOGIES, INC.
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(Unaudited)
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
34,914
|
|
|
$
|
87,826
|
|
Accounts receivable, allowance for doubtful accounts $18,383
|
|
|
24,229
|
|
|
|
6,112
|
|
Accounts receivable from related party
|
|
|
245,213
|
|
|
|
203,325
|
|
Employee advances
|
|
|
58,123
|
|
|
|
40,942
|
|
Prepaid assets
|
|
|
150,596
|
|
|
|
167,992
|
|
Inventory
|
|
|
133,081
|
|
|
|
91,510
|
|
Total current assets
|
|
|
646,156
|
|
|
|
597,707
|
|
|
|
|
|
|
|
|
|
|
Security deposits
|
|
|
20,237
|
|
|
|
11,056
|
|
Domain name
|
|
$
|
3,000
|
|
|
$
|
3,000
|
|
Intangible assets, net of accumulated amortization of $53,794 (2019) and $2,168 (2018)
|
|
|
959,214
|
|
|
|
1,010,840
|
|
Property and equipment, net of accumulated depreciation of $7,555 (2019) and $4,705 (2018)
|
|
|
57,921
|
|
|
|
43,450
|
|
Operating leases right-of-use assets, net
|
|
|
1,047,719
|
|
|
|
—
|
|
Investment in undivided interest in real estate
|
|
|
1,225,923
|
|
|
|
1,226,963
|
|
Total assets
|
|
$
|
3,960,170
|
|
|
$
|
2,893,014
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,195,319
|
|
|
$
|
1,233,653
|
|
Accounts payable to related party
|
|
|
22,548
|
|
|
|
22,548
|
|
Notes payable - stockholder
|
|
|
95,800
|
|
|
|
95,800
|
|
Advances payable, stockholders
|
|
|
16,132
|
|
|
|
57,526
|
|
Convertible notes payable, net of discounts
|
|
|
368,423
|
|
|
|
151,166
|
|
Current portion of notes payable, net of deferred loan fees
|
|
|
23,085
|
|
|
|
29,270
|
|
Current portion of note payable-undivided interest in real estate
|
|
|
19,795
|
|
|
|
19,660
|
|
Customer deposits
|
|
|
90,417
|
|
|
|
56,698
|
|
Officer salaries payable
|
|
|
194,451
|
|
|
|
188,942
|
|
Income taxes payable
|
|
|
23,998
|
|
|
|
23,998
|
|
Derivative liabilities
|
|
|
2,617,809
|
|
|
|
1,807,404
|
|
Operating lease liabilities, current portion
|
|
|
245,711
|
|
|
|
—
|
|
Total current liabilities
|
|
|
4,913,487
|
|
|
|
3,686,665
|
|
|
|
|
|
|
|
|
|
|
Long term portion of note payable- undivided interest in real estate
|
|
|
960,610
|
|
|
|
964,847
|
|
Operating lease liabilities, less current portion
|
|
|
816,308
|
|
|
|
—
|
|
Total liabilities
|
|
|
6,690,406
|
|
|
|
4,651,512
|
|
|
|
|
|
|
|
|
|
|
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; 149,588,383 (2019) and 120,425,344 (2018) shares issued and outstanding, respectively
|
|
|
14,958
|
|
|
|
12,042
|
|
Common stock to be issued, $0.0001 par value, 3,561,592 (2019) and 6,373,848 (2018) shares, respectively
|
|
|
356
|
|
|
|
637
|
|
Additional paid-in capital
|
|
|
5,767,304
|
|
|
|
4,836,557
|
|
Deferred stock compensation
|
|
|
(137,777
|
)
|
|
|
(235,694
|
)
|
Accumulated deficit
|
|
|
(8,375,167
|
)
|
|
|
(6,372,129
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' deficit
|
|
|
(2,730,236
|
)
|
|
|
(1,758,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,960,170
|
|
|
$
|
2,893,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
|
INNERSCOPE HEARING TECHNOLOGIES, INC.
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Unaudited)
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
171,529
|
|
|
$
|
27,281
|
|
Revenues, related party
|
|
|
15,000
|
|
|
|
28,696
|
|
Total revenues
|
|
|
186,529
|
|
|
|
55,977
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
82,364
|
|
|
|
24,781
|
|
Cost of sales, related
|
|
|
—
|
|
|
|
14,083
|
|
Total cost of sales
|
|
|
82,364
|
|
|
|
38,864
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
104,165
|
|
|
|
17,113
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
Compensation and benefits (including stock-
based fees of $14,084 (2019))
|
|
|
363,737
|
|
|
|
159,539
|
|
Advertising and promotion
|
|
|
167,784
|
|
|
|
25,321
|
|
Professional fees (including stock- based fees
of $110,416 (2019) and $50,690 (2018))
|
|
|
137,394
|
|
|
|
115,487
|
|
Rent (including related party of $36,000 (2019
and 2018))
|
|
|
95,929
|
|
|
|
36,000
|
|
Investor relations
|
|
|
75,248
|
|
|
|
52,641
|
|
Other general and administrative
|
|
|
136,639
|
|
|
|
41,242
|
|
Total operating expenses
|
|
|
976,731
|
|
|
|
430,230
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(872,566
|
)
|
|
|
(413,116
|
)
|
|
|
|
|
|
|
|
|
|
Other Expense:
|
|
|
|
|
|
|
|
|
Derivative expense
|
|
|
(577,838
|
)
|
|
|
(151,259
|
)
|
Loss on investment in undivided interest in
real estate
|
|
|
(1,040
|
)
|
|
|
(2,305
|
)
|
Loss on debt extinguishment
|
|
|
(44,852
|
)
|
|
|
—
|
|
Interest expense and finance
charges
|
|
|
(506,742
|
)
|
|
|
(131,263
|
)
|
Total other expense, net
|
|
|
(1,130,472
|
)
|
|
|
(284,827
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,003,038
|
)
|
|
$
|
(697,943
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
134,411,801
|
|
|
|
61,631,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
|
INNERSCOPE HEARING TECHNOLOGIES , INC.
|
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
|
THREE MONTHS ENDED MARCH 31, 2019
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
|
Common
stock to be issued
|
|
|
|
Deferred stock
|
|
|
|
Series
B Preferred stock
|
|
|
|
Additional
Paid-in
|
|
|
|
Retained
|
|
|
|
Total Stockholders’
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Compensation
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Capital
|
|
|
|
Deficit
|
|
|
|
Deficit
|
|
Balances January 1, 2019
|
|
|
120,425,344
|
|
|
$
|
12,042
|
|
|
|
6,373,848
|
|
|
$
|
637
|
|
|
$
|
(235,694
|
)
|
|
|
900,000
|
|
|
$
|
90
|
|
|
$
|
4,836,556
|
|
|
$
|
(6,372,129
|
)
|
|
$
|
(1,758,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
870,826
|
|
|
|
87
|
|
|
|
113,637
|
|
|
|
11
|
|
|
|
97,918
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,485
|
|
|
|
—
|
|
|
|
124,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued from common stock to be issued
|
|
|
3,550,893
|
|
|
|
355
|
|
|
|
(3,550,893
|
)
|
|
|
(355
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
—
|
|
|
|
40,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of derivative liabilities upon
payment of convertible debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
580,908
|
|
|
|
—
|
|
|
|
580,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,003,038
|
)
|
|
|
(2,003,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances March 31, 2019
|
|
|
149,588,383
|
|
|
$
|
14,958
|
|
|
|
3,561,592
|
|
|
$
|
356
|
|
|
$
|
(137,777
|
)
|
|
|
900,000
|
|
|
$
|
90
|
|
|
$
|
5,767,304
|
|
|
$
|
(8,375,167
|
)
|
|
$
|
(2,730,236
|
)
|
INNERSCOPE HEARING TECHNOLOGIES , INC.
|
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
|
THREE MONTHS ENDED MARCH 31, 2018
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
|
Common
stock to be issued
|
|
|
|
Deferred
stock
|
|
|
|
Series
B Preferred stock
|
|
|
|
Additional
Paid-in
|
|
|
|
Retained
|
|
|
|
Total
Stockholders’
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Compensation
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Capital
|
|
|
|
Deficit
|
|
|
|
Deficit
|
|
Balances January 1, 2018
|
|
|
61,539,334
|
|
|
$
|
6,153
|
|
|
|
102,564
|
|
|
$
|
10
|
|
|
$
|
(25,000
|
)
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
331,227
|
|
|
$
|
(1,787,012
|
)
|
|
$
|
(1,474,623
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
224,072
|
|
|
|
23
|
|
|
|
266,401
|
|
|
|
27
|
|
|
|
25,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,640
|
|
|
|
—
|
|
|
|
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
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(697,943
|
)
|
|
|
(697,943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances March 31, 2018
|
|
|
61,763,406
|
|
|
$
|
6,176
|
|
|
|
266,401
|
|
|
$
|
27
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
$
|
417,922
|
|
|
$
|
(2,484,955
|
)
|
|
$
|
(2,060,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
|
INNERSCOPE HEARING TECHNOLOGIES, INC.
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
|
|
|
|
|
|
|
For the three months ended
March 31,
|
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,003,038
|
)
|
|
$
|
(697,943
|
)
|
Adjustments to reconcile net loss to net cash used in operations:
|
|
|
|
|
|
|
|
|
Loss on fair value of derivatives
|
|
|
577,838
|
|
|
|
151,259
|
|
Amortization of debt discounts
|
|
|
456,030
|
|
|
|
110,266
|
|
Depreciation and amortization
|
|
|
111,226
|
|
|
|
221
|
|
Stock compensation expense
|
|
|
124,500
|
|
|
|
50,690
|
|
Non cash interest expense
|
|
|
2,500
|
|
|
|
—
|
|
Loss on investment in undivided interest in real estate
|
|
|
1,040
|
|
|
|
2,305
|
|
Loss on debt extinguishment
|
|
|
44,852
|
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease (increase) in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(18,117
|
)
|
|
|
(1,646
|
)
|
Employee advances
|
|
|
(17,181
|
)
|
|
|
—
|
|
Inventory
|
|
|
(41,571
|
)
|
|
|
(22,775
|
)
|
Prepaid assets
|
|
|
17,396
|
|
|
|
24,951
|
|
Accounts receivable, related party
|
|
|
(41,888
|
)
|
|
|
(23,808
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
4,527
|
|
|
|
60,086
|
|
Officer salaries payable
|
|
|
5,509
|
|
|
|
47,944
|
|
Customer deposits
|
|
|
33,719
|
|
|
|
—
|
|
Operating lease liabilities
|
|
|
(42,450
|
)
|
|
|
—
|
|
Net cash used in operating activities
|
|
|
(785,107
|
)
|
|
|
(298,450
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Payment of security deposit
|
|
|
(9,181
|
)
|
|
|
—
|
|
Purchases of office and computer equipment
|
|
|
(17,322
|
)
|
|
|
—
|
|
Net cash used in investing activities
|
|
|
(26,503
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of note payable
|
|
|
7,400
|
|
|
|
32,600
|
|
Advances (repayments) to stockholder, net
|
|
|
(41,394
|
)
|
|
|
10,922
|
|
Proceeds from advances, stockholder
|
|
|
—
|
|
|
|
27,500
|
|
Proceeds from issuances of convertible notes payable, net of debt issuance costs
|
|
|
813,475
|
|
|
|
210,000
|
|
Repayments of note payable
|
|
|
(20,784
|
)
|
|
|
(4,407
|
)
|
Repayments of advances, shareholder
|
|
|
—
|
|
|
|
(1,000
|
)
|
Repayments of principal of convertible note payable
|
|
|
—
|
|
|
|
(38,500
|
)
|
Net cash provided by financing activities
|
|
|
758,697
|
|
|
|
237,115
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(52,912
|
)
|
|
|
(61,335
|
)
|
|
|
|
|
|
|
|
|
|
Cash, Beginning of period
|
|
|
87,826
|
|
|
|
84,720
|
|
|
|
|
|
|
|
|
|
|
Cash, End of period
|
|
$
|
34,914
|
|
|
$
|
23,385
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
13,671
|
|
|
$
|
5,707
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Schedule of non-cash Investing or Financing Activity:
|
|
|
|
|
|
|
|
|
Reclassification of derivative liabilities upon principal repayments of convertible notes
|
|
$
|
580,900
|
|
|
$
|
61,044
|
|
Intangible assets in accounts payable
|
|
$
|
680,000
|
|
|
|
—
|
|
Conversion of notes payable and accrued interest in common stock
|
|
$
|
253,539
|
|
|
$
|
—
|
|
Common stock to be issued for settlement of accounts payable
|
|
$
|
40,624
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
|
NOTE 1 - ORGANIZATION
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 model, encompassing;
business to business (B2B) solutions, direct to consumer (DTC) sales and marketing and 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 Cannabidiol (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 operates seven retail hearing device clinics in California.
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 Audiology
provides 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.
NOTE 3 – 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, filed with the United States Securities and Exchange Commission (the “SEC”) on
April 16, 2019. Interim results of operations for the three months ended March 31, 2019, and 2018, are not necessarily indicative
of future results for the full year. Certain amounts from the 2018 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
The Company considers all highly liquid investments
with an original term 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 March 31, 2019, and December 31, 2018. 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 March 31, 2019, and December 31, 2018, management’s
evaluation required the establishment of an allowance for uncollectible receivables of $18,383.
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 months ended March 31, 2018. No customer accounted
for more than ten percent (10%) of the Company’s revenues for the three months ended March 31, 2019.
|
|
Three months ended March 31, 2018
%
|
|
Accounts receivable balance as of
March 31, 2019
|
Customer A, related
|
|
|
51.3
|
%
|
|
$
|
160,505
|
|
Customer B
|
|
|
24.4
|
%
|
|
|
—
|
|
Invent
ory
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 March 31, 2019, and December 31, 2018, 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 s
upply chain services to the Company (see Note 15) for a period of ten years. The Company will pay Zounds One Million
($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. The Company also acquired intangible assets from an
asset purchase agreement (see Note 2). For the three months ended March 31, 2019, the Company recorded $51,626 of amortization
expense.
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 equipment
|
5 years
|
Furniture and fixtures
|
5 years
|
The
Company's prop
erty and equipment consisted of the following at March 31, 2019, and December 31, 2018:
|
|
March 31,
2019
|
|
December 31,
2018
|
Computer equipment
|
|
$
|
4,272
|
|
|
$
|
2,651
|
|
Machinery and equipment
|
|
|
42,838
|
|
|
|
31,122
|
|
Furniture and fixtures
|
|
|
2,160
|
|
|
|
2,160
|
|
Leasehold improvements
|
|
|
16,206
|
|
|
|
12,222
|
|
Accumulated depreciation
|
|
|
(7,555
|
)
|
|
|
(4,705
|
)
|
Balance
|
|
$
|
57,921
|
|
|
$
|
43,450
|
|
Depreciation expense of $2,850 and $221 was
recorded for the three months ended March 31, 2019 and 2018, respectively.
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 three months ended March 31, 2019 and 2018, the Company recognized a loss of $1,040 and $2,305, respectively. As
of March 31, 2019, and December 31, 2018, the carrying value of the Company’s investment in undivided interest in real estate
was $1,225,923 and $1,226,963 respectively (see Note 11).
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 March 31, 2019 and December 31, 2018, for each
fair value hierarchy level:
March
31, 2019
|
|
|
Derivatives
Liabilities
|
|
|
|
Total
|
|
Level I
|
|
$
|
—
|
|
|
$
|
—
|
|
Level II
|
|
$
|
—
|
|
|
$
|
—
|
|
Level
III
|
|
$
|
2,617,809
|
|
|
$
|
2,617,809
|
|
|
|
|
|
|
|
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Level I
|
|
$
|
—
|
|
|
$
|
—
|
|
Level II
|
|
$
|
—
|
|
|
$
|
—
|
|
Level III
|
|
$
|
1,807,404
|
|
|
$
|
1,807,404
|
|
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.
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 would 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. 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.
As of March 31, 2019,
the Company had received $90,417 of customer deposits, that will be recognized as revenue after March 31, 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.
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 months ended March 31, 2019, and 2018, advertising and marketing expenses were $167,784 and $25,321,
respectively.
Leases
The Company accounts
for leases under ASU 2016-02. 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 March 31, 2019, and 2018, the Company’s outstanding convertible debt is convertible
into approximately 79,395,431 and 18,095,361 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.
Recent Accounting Pronouncements
In February 2016,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases
(Topic 842)”. Under this guidance, an entity is required to recognize right-of-use assets and lease liabilities on its balance
sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee,
a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information
about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows
arising from leases. This guidance is effective for annual reporting periods beginning after December 15, 2018, including
interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The
Company adopted this ASU on January 1, 2019 (see Note 14).
In July 2017, the 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. The Company will be evaluating the impact this standard will have on the Company’s
consolidated financial statements.
Other accounting standards that have been issued
or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated
financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact
on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
NOTE 4 – 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
$2,003,038 for the three months ended March 31, 2019. At March 31, 2019, the Company had a working capital deficit of $4,267,331,
and an accumulated deficit of $8,375,167. These factors raise substantial doubt about the 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 year ended December 31, 2018, the Company opened 2 retail clinics, and during the three months
ended March 31, 2019, the Company opened 3 more retail clinics, as well as 2 additional clinics since April 1, 2019.
On July 5, 2018, the Company signed
a supplier agreement as a direct shipped vendor for Walmart.com. The Company is selling its FDA-Registered Hearing Aids and its
Personal Sound Amplification Products (“PSAP’s”) to Walmart.com as the retailer on their Direct-To-Consumer online
retail sale, and plans on increasing market awareness to consumers.
NOTE 5 – INTANGIBLE ASSETS, NET (OTHER THAN 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 agr
eement executed with a supplier
(see Note 13). The estimated useful lives of these intangible assets are as follows:
Customer
list
|
2 years
|
Non-compete
|
2 years
|
Technology access fee
|
10 years
|
The Company's
intangible assets consisted of the following at March 31, 2019, and December 31, 2018:
|
|
March
31,
2019
|
|
December
31,
2018
|
Customer list
|
|
$
|
300
|
|
|
$
|
300
|
|
Non-compete
|
|
|
12,708
|
|
|
|
12,708
|
|
Technology access fee
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
Amortization
|
|
|
(53,794
|
)
|
|
|
(2,168
|
)
|
Balance
|
|
$
|
959,214
|
|
|
$
|
1,010,840
|
|
The Company recognized $51,626 and $0 of amortization expense for
the three months ended March 31, 2019, and 2018, respectively.
NOTE 6 – ADVANCES PAYABLE, SHAREHOLDERS
Chief Executive Officer
A summary of the activity for the three months
ended March 31, 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.
|
|
March 31,
2019
|
|
December 31,
2018
|
Beginning Balance
|
|
$
|
57,526
|
|
|
$
|
138,637
|
|
Amounts paid on Company’s behalf
|
|
|
154,568
|
|
|
|
589,524
|
|
Amount applied to accrued officer salaries
|
|
|
17,228
|
|
|
|
—
|
|
Reimbursements
|
|
|
(213,190
|
)
|
|
|
(625,635
|
)
|
Cancelled in exchange
for Series B preferred stock
|
|
|
—
|
|
|
|
(45,000
|
)
|
Ending Balance
|
|
$
|
16,132
|
|
|
$
|
57,526
|
|
The ending balances as of March 31, 2019, and
December 31, 2018, are included in Advances payable, stockholders on the condensed consolidated balance sheets included herein.
NOTE 7 – NOTE PAYABLE, STOCKHOLDER
A summary of the activity for the three months
ended March 31, 2019, and the year ended December 31, 2018, of amounts the Company’s CEO (stockholder) loaned the Company
and amounts repaid is as follows:
|
|
March 31,
2019
|
|
December 31,
2018
|
Beginning Balance
|
|
$
|
95,800
|
|
|
$
|
65,000
|
|
Amounts loaned to the Company
|
|
|
—
|
|
|
|
36,800
|
|
Repaid
|
|
|
—
|
|
|
|
—
|
|
Ending Balance
|
|
$
|
95,800
|
|
|
$
|
95,800
|
|
The ending balance amount is due on demand,
carries interest at 8% per annum and is included Notes payable, stockholder on the consolidated balance sheets included herein.
NOTE 8 – NOTE PAYABLE
On October 8, 2018, the Company entered into
a Business Loan Agreement (the “October BLA”) for $47,215 with a third- party, whereby the Company received $35,500
on October 10, 2018. The October BLA requires the Company to make the first six monthly 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.
As of March 31, 2019, and December 31, 2018, there was a balance of $24,880 and $38,280, respectively, on the October BLA, with
carrying values of $18,572 and $29,270, respectively, net of unamortized discounts of $6,308 and $9,011, respectively.
On February 4, 2019, the Company entered into
a Business Loan Agreement (the “Feb 2019 BLA”) for $8,584 with a third- party, whereby the Company received $7,400
on February 5, 2019. The Feb 2019 BLA requires the Company to make the first two monthly 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.
As of March 31, 2019, there was a balance of $5,303, with a carrying value of $4,513, net of unamortized discounts of $790.
NOTE 9 – RELATED PARTY TRANSACTIONS
During the three months ended March 31, 2019,
and the year ended December 31, 2018, our CEO (stockholder) paid expenses and accounts payable on behalf of the Company (see Note
6). As of March 31, 2019, and December 31, 2018, the Company owed the CEO $16,132 and $57,526, respectively, which is included
in Advances payable, stockholders on the condensed consolidated balance sheets included herein.
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 March 31, 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.
For the three months ended March 31, 2019, and
2018, the Company recorded expenses to its officers in the following amounts:
|
|
Three months ended March 31,
|
|
Description
|
|
2019
|
|
2018
|
|
CEO
|
|
|
$
|
56,057
|
|
|
$
|
56,250
|
|
|
CFO
|
|
|
|
31,143
|
|
|
|
30,289
|
|
|
Total
|
|
|
$
|
87,200
|
|
|
$
|
86,538
|
|
As of March 31, 2019,
and December 31, 2018, the Company owes the CEO and CFO $194,451 and $188,942, respectively, for accrued and unpaid wages. These
amounts are included in Officer salaries payable on the balance sheets included herein.
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 March 31, 2019, and 2018. Additionally, for the three months ended
March 31, 2018, the Company invoiced LLC1 $12,421 for the Company’s production, printing and mailing services and $1,275
for sale of products. As of March 31, 2019, and December 31, 2018, LLC1 owes the Company $245,213 and $203,325, respectively, for
the consulting fees and mailing services as well 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. For the
three months ended March 31, 2019, and 2018, the Company expensed $36,000, related to this lease and is included in Rent, on the
condensed consolidated statement of operations, included herein. As of March 31, 2019, and December 31, 2018, the Company owed
LLC1 $41,500 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).
NOTE 10– 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.
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 months ended March 31, 2019, and 2018, a net loss of $1,040 and
$2,305, respectively, is included in “Other income (expense), net”. As of March 31, 2019, and December 31, 2018, the
carrying value of the Company’s investment in undivided interest in real estate was $1,225,923 and $1,226,963, respectively.
T
he
unaudited condensed balance sheets as of March 31, 2019, and December 31, 2018, and the statement of operations for the three
months ended March 31, 2019, and 2018, for the real property is as follows:
Current assets:
|
|
(Unaudited)
March
31, 2019
|
|
(Unaudited)
December
31, 2018
|
Cash
|
|
$
|
227
|
|
|
$
|
2,257
|
|
Due from InnerScope
|
|
|
41,500
|
|
|
|
30,500
|
|
Prepaid expenses and other current assets
|
|
|
64,524
|
|
|
|
72,931
|
|
Total current assets
|
|
|
106,251
|
|
|
|
105,958
|
|
Land and Building, net
|
|
|
2,343,392
|
|
|
|
2,354,282
|
|
Other Assets, net
|
|
|
51,478
|
|
|
|
53,323
|
|
Total assets
|
|
$
|
2,501,121
|
|
|
$
|
2,513,563
|
|
|
|
|
|
|
|
|
|
|
Current portion of mortgage payable
|
|
$
|
40,398
|
|
|
$
|
40,122
|
|
Other current liabilities
|
|
|
46,601
|
|
|
|
48,551
|
|
Total current liabilities
|
|
|
86,999
|
|
|
|
88,673
|
|
Mortgage payable, long-term
|
|
|
1,960,429
|
|
|
|
1,969,076
|
|
Security deposits
|
|
|
13,064
|
|
|
|
13,064
|
|
Total liabilities
|
|
|
2,060,492
|
|
|
|
2,070,813
|
|
Total equity
|
|
|
440,629
|
|
|
|
442,750
|
|
Total liabilities and equity
|
|
$
|
2,501,121
|
|
|
$
|
2,513,563
|
|
|
|
2019
|
|
2018
|
Rental income
|
|
$
|
74,521
|
|
|
$
|
63,211
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Property taxes
|
|
|
2,215
|
|
|
|
6,646
|
|
Depreciation and amortization
|
|
|
12,735
|
|
|
|
11,446
|
|
Insurance
|
|
|
11,804
|
|
|
|
2,033
|
|
Repairs and maintenance
|
|
|
3,668
|
|
|
|
3,549
|
|
Utilities and other
|
|
|
9,436
|
|
|
|
10,087
|
|
Interest
expense
|
|
|
36,784
|
|
|
|
32,355
|
|
Total
expenses
|
|
|
76,642
|
|
|
|
67,916
|
|
Net
income (loss)
|
|
$
|
(2,121
|
)
|
|
$
|
(4,705
|
)
|
NOTE 11– 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 March
31, 2019, the current and long-term portion of the SBA Note is $19,795 and $960,610, respectively. Future principal payments for
the Company’s portion are:
|
Twelve months ending March 31,
|
|
Amount
|
|
2020
|
|
|
$
|
19,369
|
|
|
2021
|
|
|
|
20,401
|
|
|
2022
|
|
|
|
21,782
|
|
|
2023
|
|
|
|
23,168
|
|
|
2024
|
|
|
|
24,596
|
|
|
Thereafter
|
|
|
|
879,158
|
|
|
Total
|
|
|
$
|
980,405
|
|
NOTE 12– CONVERTIBLE NOTES PAYABLE
On March 2, 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 $50,000. Principal and interest was due and payable March 2, 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 $13,399, and an initial derivative liability of $13,399. For the three months ended March
31, 2019, amortization of the debt discount of $2,233 was charged to interest expense. As of December 31, 2018, the note balance
is $50,000, with a carrying value of $47,767, net of unamortized discounts of $2,233. During the three months ended March 31, 2019,
the investor converted $50,000 of principal and $2,514 of interest into 2,236,291 shares of common stock. As of March 31, 2019,
and December 31, 2018, the note balance was $-0- and $50,000. respectively.
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 three months ended March 31, 2019, amortization of the debt discount of
$1,628 was charged to interest expense. As of March 31, 2019, and December 31, 2018, the note balance is $25,000, with
carrying values of $25,000 and $23,372, respectively, 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 for the 20 days prior to conversion. The note was
funded on May 16, 2018, when 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 three months ended
March 31, 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 three months ended March 31, 2019. During the three months
ended March 31, 2019, the investor converted $50,000 of principal and $3,564 of interest into 5,539,273 shares of common stock.
As of March 31, 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 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 three months ended March 31, 2019, amortization of the debt discount of $12,757 was charged to interest expense.
As of March 31, 2019, and December 31, 2018, the note balance is $50,000, with carrying values of $24,770 and $12,014, respectively,
net of unamortized discounts of $25,230 and $37,986, respectively.
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 for the 15 days prior 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 three months ended March 31, 2019, amortization of the debt discount of $62,500 was charged to interest
expense. The Company also recorded a debt issue discount of $30,500 and amortized $7,625 to interest expense for the three months
ended March 31, 2019. During the three months ended March 31, 2019, the investor converted $69,400 of principal and $1,882 of interest
into 6,788,715 shares of common stock. As of March 31, 2019, and December 31, 2018, the first note balance is $211,100 and $280,500,
respectively, with a carrying value of $47,475 and $46,750, respectively, net of unamortized discounts of $163,625 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 three months ended March 31, 2019, amortization of the debt discount
of $48,901 was charged to interest expense. The Company also recorded a debt issue discount of $20,333 and amortized $5,966 to
interest expense for the three months ended March 31, 2019. As of March 31, 2019, and December 31, 2018, the partial back-end note
balance is $187,000, with carrying values of $57,794 and $2,926, respectively, net of unamortized discounts of $129,206 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 three months ended March 31, 2019, amortization of the debt
discount of $16,471 was charged to interest expense. The Company also recorded a debt issue discount of $10,167 and amortized $2,233
to interest expense for the three months ended March 31, 2019. As of March 31, 2019, the second partial back-end note balance is
$93,500, with carrying values of $27,037, net of unamortized discounts of $66,463.
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 three months ended March 31,
2019, amortization of the debt discount of $34,375 was charged to interest expense. The Company also recorded a debt issue discount
of $20,833 and amortized $5,208 to interest expense for the three months ended March 31, 2019. As of March 31, 2019, and December
31, 2018, the note balance is $158,333, with carrying values of $52,778 and $13,194, respectively, net of unamortized discounts
of $105,555 and $145,139, respectively.
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 three months ended March 31, 2019, amortization of the debt
discount of $52,500 was charged to interest expense. The Company also recorded a debt issue discount of $20,000 and amortized $5,000
to interest expense for the three months ended March 31, 2019. During the three months ended March 31, 2019, the investor converted
$15,000 of principal and $66 of interest into 1,537,321 shares of common stock. As of March 31, 2019, and December 31, 2018, the
initial note balance is $230,000, with carrying values of $19,167, net of unamortized discounts of $210,833. 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 three
months ended March 31, 2019, amortization of the debt discount of $11,763 was charged to interest expense. The Company also recorded
a debt issue discount of $10,000 and amortized $1,250 to interest expense for the three months ended March 31, 2019. As of March
31, 2019, the first back-end note balance is $115,000, with a carrying value of $23,912 net of unamortized discounts of $91,088.
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 three months ended March 31, 2019, amortization of the debt discount of $4,430 was charged to interest
expense. The Company also recorded a debt issue discount of $10,000 and amortized $452 to interest expense for the three months
ended March 31, 2019. As of March 31, 2019, the second back-end note balance is $11,707, with carrying values of $27,037, net of
unamortized discounts of $103,293.
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 three months ended March 31, 2019, amortization of the debt
discount of $44,250 was charged to interest expense. The Company also recorded a debt issue discount of $18,000 and amortized $4,500
to interest expense for the three months ended March 31, 2019. As of March 31, 2019, and December 31, 2018, the initial note balance
is $195,000, with carrying values of $51,350 and $2,600, respectively, net of unamortized discounts of $143,650 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 three months ended March 31, 2019, amortization of the debt
discount of $37,500 was charged to interest expense. The Company also recorded a debt issue discount of $25,000 and amortized $4,688
to interest expense for the three months ended March 31, 2019. As of March 31, 2019, the initial note balance is $245,000, with
a carrying value of $62,187, net of unamortized discounts of $182,813.
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 three
months ended March 31, 2019, amortization of the debt discount of $9,375 was charged to interest expense. The Company also recorded
a debt issue discount of $16,667, and amortized $4,688 to interest expense for the three months ended March 31, 2019. As of March
31, 2019, the note balance is $116,667, with a carrying value of $30,511, net of unamortized discounts of $86,156.
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 three months ended
March 31, 2019, amortization of the debt discount of $6,619 was charged to interest expense. The Company also recorded a debt issue
discount of $19,333, and amortized $1,205 to interest expense for the three months ended March 31, 2019. As of March 31, 2019,
the note balance is $133,333, with carrying values of $15,624, net of unamortized discounts of $117,709.
On March 20, 2019, the Company issued to a
third-party investor a convertible redeemable note (the “Note”) with a face value of $89,085 and a back-end convertible
redeemable note for $89,085. The notes mature on March 2, 2020, have a stated interest of 8% and are 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 three months ended March 31, 2019, amortization of the debt discount of $2,057 was charged to interest
expense. The Company also recorded a debt issue discount of $9,150, and amortized $253 to interest expense for the three months
ended March 31, 2019. As of March 31, 2019, the initial note balance is $89,085, with carrying values of $7,175, net of unamortized
discounts of $81,900.
Also, on March 20, 2019, the Company issued
to a third-party investor a convertible redeemable note (the “Note”) with a face value of $89,085 and a back-end convertible
redeemable note for $89,085. The notes mature on March 2, 2020, have a stated interest of 8% and are 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 three months ended March 31, 2019, amortization of the debt discount of $2,057 was charged to interest
expense. The Company also recorded a debt issue discount of $9,150, and amortized $253 to interest expense for the three months
ended March 31, 2019. As of March 31, 2019, the initial note balance is $89,085, with carrying values of $7,175, net of unamortized
discounts of $81,900.
A summary of the convertible note balances
as of March 31, 2019, and December 31, 2018, is as follows:
|
|
March 31,
2019
|
|
December 31,
2018
|
Principal balance
|
|
$
|
2,038,103
|
|
|
$
|
1,277,108
|
|
Unamortized discounts
|
|
|
(1,669,680
|
)
|
|
|
(1,125,942
|
)
|
Ending balance, net
|
|
$
|
368,423
|
|
|
$
|
151,166
|
|
The following is a summary of the Company’s
convertible notes and related discounts as of March 31, 2019:
|
|
Principal Balance
|
|
Debt Discounts
|
|
Total
|
Balance at January 1, 2019
|
|
$
|
1,277,108
|
|
|
$
|
(1,125,942
|
)
|
|
$
|
151,166
|
|
New issuances
|
|
|
996,670
|
|
|
|
(996,670
|
)
|
|
|
—
|
|
Conversions
|
|
|
(235,675
|
)
|
|
|
—
|
|
|
|
(235,675
|
)
|
Amortization
|
|
|
—
|
|
|
|
452,932
|
|
|
|
452,932
|
|
Balance at March 31, 2019
|
|
$
|
2,038,103
|
|
|
$
|
(1,669,680
|
)
|
|
$
|
368,423
|
|
NOTE 13 – 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 used the Monte Carlo simulation
valuation model with the following assumptions for new notes issued during the three months ended March 31, 2019, risk-free interest
rates from 2.47% to 2.59% and volatility of 364% to 387%, and as of December 31, 2018, risk-free interest rates from 2.56% to
2.62% and volatility of 355% to 391%.
A summary of the activity related to derivative liabilities for
the three months ended March 31, 2019, is as follows:
|
|
March 31,
2019
|
Beginning Balance
|
|
$
|
1,807,404
|
|
Initial Derivative Liability
|
|
|
1,354,727
|
|
Fair Value Change
|
|
|
36,586
|
|
Reclassification for conversions
|
|
|
(580,908
|
)
|
Ending Balance
|
|
$
|
2,617,809
|
|
Derivative liability expense of $577,838 for
the three months ended March 31, 2019, consisted of the initial derivative expense of $541,252 and the above fair value change
of $36,586.
NOTE 14- 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 months ended March 31, 2019 and 2018, the Company recorded $95,929 and $36,000, respectively as operating
lease expense which is included in rent expense on the statements of operations and includes $36,000 of rent to a related party
during both period ends March 31, 2019, and 2018.
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.
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.
On October 15, 2018,
the Company entered into lease to operate a retail hearing aid clinic in Roseville, California expiring December 31, 2023. Initial
lease payments of $3,102 begin on January 1, 2019, and increase by 3% on January 1 each new lease year.
On December 1, 2018,
the Company entered into lease to operate a retail hearing aid clinic in Sacramento, California expiring March 31, 2024. Initial
lease payments of $3,002 begin on April 1, 2019, and increase by 3.33% on April 1, 2020 and 2021, and by 3% on April 1, 2022.
On February 1, 2019,
the Company entered into lease to operate a retail hearing aid clinic in Elk Grove, California expiring January 31, 2024. Initial
lease payments of $2,307 begin 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 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.
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. On January
1, 2019, upon adoption of ASC Topic 842, the Company recorded right-of-use assets and lease liabilities of $1,104,469.
Right-of-use assets
are summarized below:
|
|
March 31,
2019
|
Office and retail leases
|
|
$
|
1,104,469
|
|
Less accumulated amortization
|
|
|
(56,750
|
)
|
Right-of-use assets, net
|
|
$
|
1,047,719
|
|
Operating lease liabilities are summarized as follows:
|
|
March 31,
2019
|
Lease liability
|
|
$
|
1,062,019
|
|
Less current portion
|
|
|
(245,711
|
)
|
Long term portion
|
|
$
|
816,308
|
|
Maturity of lease liabilities are as follows:
|
|
Amount
|
For the nine months ending March 31, 2019
|
|
$
|
238,953
|
|
For the year ending December 31, 2020
|
|
|
320,805
|
|
For the year ending December 31, 2021
|
|
|
304,064
|
|
For the year ending December 31, 2022
|
|
|
232,774
|
|
For the year ending December 31, 2023
|
|
|
127,261
|
|
Thereafter
|
|
|
12,423
|
|
Total
|
|
$
|
1,236,681
|
|
Less: present value discount
|
|
|
(174,662
|
)
|
Lease liability
|
|
$
|
1,062,019
|
|
Rent expense for the
three months ended March 31, 2019, and 2018, was $95,929 ($36,000 related) and $36,000 (all related), respectively.
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 prices for the three days prior to each monthly payment. For the three months
ended March 31, 2019, the Company issued 515,818 shares of common stock under the CSMA and the parties agreed to terminate the
CSMA.
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.
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 three months ended March 31, 2019, the Company has paid $136,800 towards the Technology Access Fee
and as of March 31, 2019, and December 31, 2018, $680,000 and $816,800 is included in accounts payable and accrued expenses, respectively.
On October 31, 2018, 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 part 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 months ended March 31, 2019, the Company amortized $8,333 as stock-based compensation.
As of March 31, 2019, there remains $51,667, of deferred stock compensation on the condensed consolidated balance sheet, to be
amortized over the three-year contract term.
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
amortized $31,250 for the three months ended March 31, 2019, and is included in Professional fees on the condensed consolidated
Statement of operations. As of March 31, 2019, and December 31, 2018, there remains $86,111 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 11
th
Judicial Circuit in and for Miami-Dade County, Florida,
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 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, 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.
NOTE 16 –
STOCKHOLDERS’ EQUITY
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 March 31, 2019, and December 31, 2018, 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 March 31, 2019, and December 31, 2018, there were 900,000 shares of Series B Preferred Stock issued and outstanding.
Common Stock
The Company has 490,000,000 authorized shares
of $0.0001 common stock. As of March 31, 2019, and December 31, 2018, there are 149,588,383 and 120,425,344, respectively, shares
of common stock outstanding.
On January 24, 2019, 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 three months ended March 31, 2019,
the Company issued 3,550,893 shares of common stock that were classified as common stock to be issued as of December 31, 2018.
During the three months ended March 31, 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 six- 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. The Company valued the stock at the market price on the days
of issuance and accordingly recorded stock-based compensation of $1,108, included in Compensation and benefits in the condensed
consolidated statement of operations, included herein.
During the three months ended March 31, 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 six- 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. The Company valued the stock at the market price on the days of issuance and accordingly
recorded stock-based compensation of $3,854, included in Compensation and benefits in the condensed consolidated statement of operations,
included herein.
During the three months ended March 31, 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 six- 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. The Company valued the stock at the market price on the days of issuance and accordingly
recorded stock-based compensation of $2,500, included in Compensation and benefits in the condensed consolidated statement of operations,
included herein.
During the three months ended March 31, 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 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 $3,250, included in Compensation and benefits in the condensed consolidated statement of operations, included herein.
During the three months ended March 31, 2019,
the Company issued 24,741,320 shares of common stock for conversion of $235,675 of principal and $49,591 of accrued interest and
fees, for a total of $285,266.
Common Stock to be issued
On March 29, 2019, the Company
issued 625,000 shares of restricted common stock in settlement of $25,000 of accounts payable owed. The Company recorded a
loss on debt extinguishment of $15,624 related to the issuance of 625,000 shares.
During the three months ended March 31, 2019,
the Company recorded 113,637 shares of common stock to be issued 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 highest closing price of the Company’s
common stock for the 5 days prior to employment, and accordingly recorded stock-based compensation of $3,371, included in Compensation
and benefits in the consolidated statement of operations, included herein.
As of March 31, 2019, there were 3,561,592
shares of common stock to be issued.
NOTE 17 –
SUBSEQUENT EVENTS
On April 1, 2019, the Company entered
into a six-month Consulting Agreement for business development and planning services pertaining to strategic marketing and corporate
communications. Pursuant to the agreement the Company also agreed to issue 2,000,000 shares of restricted common stock.
On April 3, 2019, the Company entered
into a Consulting Agreement for marketing services pertaining to strategic marketing and public relations campaigns. Pursuant to
the agreement the Company agreed to issue 1,000,000 shares of restricted common stock and cash compensation of $30,000.
On April 17, 2019, the Company entered
into a six-month Consulting Agreement pertaining to consulting services for general strategy for corporate communications and marketing
to bring investor awareness to the Company. Pursuant to the agreement the Company agreed to issue 1,000,000 shares of restricted
common stock.
From April 1, 2019, through May
16, 2019, the Company received a conversion notice for the issuance of 2,495,107 shares of common stock for conversion of $50,000
of principal and $2,397 of accrued interest on convertible notes.
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.
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 years ended December 31, 2018 and 2017 and filed by the Company on Form 10-K with the Securities and Exchange Commission on
April 16, 2019.
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, 2018 and 2017 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 3 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. Additionally, the Company has opened 5 retail hearing
device clinics and
plans on
using management’s unique and successful talents
on acquiring and opening additional audiological brick and mortar clinics to be owned and operated by the company.
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 Audiology
provides retail hearing
aid sales and audiological services in the East Bay area of San Francisco.
Results of Operations
For the three months ended March 31, 2019
compared to the three months ended March 31, 2018
Revenues
Revenues for the three months ended March 31,
2019 were $186,529, compared to $55,977 for the three months ended March 31, 2018. The revenue increase was primarily the result
of the sales from retail clinics during the period ending March 31, 2019, partially offset by a decrease in direct print and mail
services of $31,145 (including related party revenues of $13,696) for the three months ending March 31, 2019. The Company is focusing
on the higher margin associated with the sales of hearing aids and hearing aid products. A breakdown of the net increase in sales
is as follows:
|
|
Three months ended March 31,
|
|
|
2019
|
|
2018
|
Online sales
|
|
$
|
5,635
|
|
|
$
|
9,832
|
|
Retail clinic sales
|
|
|
165,894
|
|
|
|
—
|
|
Direct print, mail services and product
|
|
|
—
|
|
|
|
17,449
|
|
Sub total
|
|
|
171,529
|
|
|
|
27,281
|
|
|
|
|
|
|
|
|
|
|
Related party- direct print and mail services
|
|
|
—
|
|
|
|
13,696
|
|
Related party-Marketing and consulting fee
|
|
|
15,000
|
|
|
|
15,000
|
|
Sub total
|
|
|
15,000
|
|
|
|
28,696
|
|
Total revenues
|
|
$
|
186,529
|
|
|
$
|
55,977
|
|
Retail clinic sales
Retail clinic sales
were $165,894, of which $94,338 were as a result of the acquisition of the Amos Audiology acquisition, and $71,556 from the Company’s
other retail clinics. Retail clinic sales will continue to grow as the Company has opened two additional retail clinics since March
31, 2019, and anticipates to open as many as 15 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 introduced the products through new marketing
campaigns, to bring awareness to the products and anticipates sales of these products to increase during the remainder of 2019
and beyond.
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- 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 $15,000 of revenues for the three months ended March 31, 2019, and 2018. The Marketing
Agreement is currently on a month to month basis. For the three months ended March 31, 2018, the Company also provided direct print
and mailing services for the two retail sales and recognized revenue of $13,696, for the services.
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 months ended March 31, 2019, was
$82,634 compared to $38,864 for the three months ended March31, 2018.
Operating Expenses
Operating expenses increased to $976,731
for the three months ended March 31, 2019, from $430,230 for the three months ended March 31, 2018. The increase in expenses in
the current periods was as follows:
|
|
|
Description
|
|
2019
|
|
2018
|
Compensation and benefits
|
|
$
|
363,737
|
|
|
$
|
159,539
|
|
Professional fees
|
|
|
137,394
|
|
|
|
115,487
|
|
Investor relations
|
|
|
75,248
|
|
|
|
62,641
|
|
Advertising and promotion
|
|
|
167,784
|
|
|
|
25,321
|
|
Rent, including related party $36,000 each period
|
|
|
95,929
|
|
|
|
36,000
|
|
General and other administrative
|
|
|
136,639
|
|
|
|
41,242
|
|
Total
|
|
$
|
976,731
|
|
|
$
|
430,230
|
|
Compensation and benefits increased in
the current period, as the Company acquired Amos Audiology in September 2018 as well as having five Company owned retail clinics
as of March 31, 2019, all of which required staffing as well as additional office support staff.
Professional fees for the three months
ended March 31, 2019, were $137,394 compared to $115,487 for the three months ended March 31, 2018, respectively. Professional
fees consisted of:
|
|
2019
|
|
2018
|
Legal fees
|
|
$
|
8,930
|
|
|
$
|
32,687
|
|
Business consulting
|
|
|
670
|
|
|
|
12,000
|
|
Stock-based compensation
|
|
|
110,416
|
|
|
|
50,690
|
|
Accounting and auditing fees
|
|
|
13,500
|
|
|
|
15,848
|
|
Information technology
|
|
|
3,878
|
|
|
|
4,262
|
|
Total
|
|
$
|
137,394
|
|
|
$
|
115,487
|
|
Stock based
compensation
of $110,416 for the three months ended March 31, 2019, is comprised of:
|
•
|
The
amortization of deferred stock compensation of $97,916.
|
|
|
|
|
•
|
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 based on the average closing
price for the three days prior to the effective date of the consultant’s agreement.
|
Stock
based compensation of $50,690 for the three months ended March 31, 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.
|
|
•
|
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.
|
|
•
|
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).
|
|
•
|
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).
|
|
•
|
The
amortization of deferred stock compensation of $25,000.
|
Rent, including related party, increased for
the three months ended March 31, 2019, compared to the three months ended March 31, 2018 as a result of the five new leases related
to the Company’s retail clinics as of March 31, 2019.
Other income (expense), net
Other expenses, net, was $1,130,472 for the
three months ended March 31, 2019, compared to $284,827 for the three and months ended March 31, 2018. For the three months ended
March 31, 2019, derivative expenses of $577,838 related to convertible notes, interest expense of $506,742, including amortization
of debt discounts increased significantly comparable to the same period in 2018e as a result of more issuances of convertible notes.
The 2018 period was comprised of interest expense of $131,263 pursuant to the terms and conditions of the convertible notes issued
by the Company, and derivative expense of $151,529 comprised of the initial derivative expense recorded on the convertible notes
of $15,525 and change in the fair value of the derivatives of $135,734.
Net loss
Net loss for the three months ended March
31,2019, was $2,003,038 compared to $697,943 for the three months ended March 31, 2018, as a result of the increases in operating
and other expenses as described above.
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 March 31, 2019, we had cash of $34,914,
a decrease of $52,912, from $87,826 as of December 31, 2018. As of March 31, 2019, we had current liabilities of $4,913,487 (including
derivative liabilities of $2,617,809) compared to current assets of $646,156 which resulted in working capital deficit of $4,267,331.
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.
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 March 31, 2019, we generated cash flows of $350,000, from the
issuance of $416,000 of convertible notes and approximately $137,000 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 $785,107
for the three months ended March 31, 2019 compared to $298,450 for the three months ended March 31, 2018. For the three months
ended March 31, 2019, the cash used in operations was a result of the net loss of $2,003,038, partially offset by the non- cash
expense items of depreciation and amortization of $567,256, derivative expense of $577,838 and stock- based compensation of $124,500.
For the three months ended March 31, 2018, the cash used in operations was a result of the net loss of $697,943 and increases in
assets of $23,278, offset by increases in liabilities of $118,951 and the non- cash expense items of depreciation and amortization
of $110,487, derivative expense of $151,259 and stock- based compensation of $50,690.
Investing Activities
Cash used in investing activities was $26,503
for the three months ended March 31, 2019, and consisted of purchases of office and computer equipment of $17,322 and payments
of $9,181 for security deposits.
Financing Activities
For the three months ended March 31, 2019,
the Company has received $813,475 from the issuance of $996,670 of convertible notes and cash of $7,400 from the issuance of a
note payable of $8,584. For the three months ended March 31, 2019, the Company made payments of $20,784 on notes payable, and net
repayments of $41,394 to a related party resulting in net cash provided by financing activities of $758,697. For the three months
ended March 31, 2018, the Company has received $270,100 from the issuance of $218,300 of convertible notes, a note issued of $43,358,
and related party notes payable issued of in the aggregate of $27,500. For the three months ended March 31, 2018, the Company made
principal payments of $38,500 on convertible notes and $4,407 on notes payable.
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.
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.
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 March 31, 2019, and 2018, the Company’s outstanding convertible debt is convertible
into approximately 79,395,431 and 18,095,361 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.
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.
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 March 31, 2019, that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial reporting.
Part II.
Other Information
Item 1
.
Legal
Proceedings
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 11
th
Judicial 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 January 8, 2019, the Company issued 21,468
shares of common stock each to two employees as part of their compensation. The Company agreed to issue $20,000 of stock over a
six- month period 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 $1,146, included in Compensation and benefits
in the consolidated statement of operations, included herein.
On January 10, 2019, the Company issued in
the aggregate 1,712,329 shares of restricted common stock to two consultants pursuant to their agreement. The shares were part
of a commitment to issue 3,125,000 shares, which were valued in their entirety at $125,000 (based on the market price of the common
stock on that date) and recorded as deferred stock compensation, to be amortized over the one-year term of the agreement.
On January 12, 2019, the Company issued 34,722
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 highest closing price of the Company’s common stock for the 5 days
prior to employment, and accordingly recorded stock-based compensation of $833, included in Compensation and benefits in the consolidated
statement of operations, included herein.
On January 24, 2019, the Company issued 515,818
shares of restricted common stock pursuant to a consultant. 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 January 26, 2019, the Company issued 28,090
shares of common stock to an employee as part of their compensation. The Company agreed to issue $10,000 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 3 days
prior to employment, and accordingly recorded stock-based compensation of $506, included in Compensation and benefits in the consolidated
statement of operations, included herein.
On January 29, 2019, the Company issued 12,588
shares of common stock to an employee as part of their compensation. The Company agreed to issue $10,000 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 3 days
prior to employment, and accordingly recorded stock-based compensation of $214, included in Compensation and benefits in the consolidated
statement of operations, included herein.
On February 1, 2019, the Company issued 21,468
shares of common stock each to two employees as part of their compensation. The Company agreed to issue $20,000 of stock over a
six- month period 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 $730, included in Compensation and benefits
in the consolidated statement of operations, included herein.
On February 12, 2019, the Company issued 34,722
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 highest closing price of the Company’s common stock for the 5 days
prior to employment, and accordingly recorded stock-based compensation of $1,458, included in Compensation and benefits in the
consolidated statement of operations, included herein.
On February 26, 2019, the Company issued 28,090
shares of common stock to an employee as part of their compensation. The Company agreed to issue $10,000 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 3 days
prior to employment, and accordingly recorded stock-based compensation of $761, included in Compensation and benefits in the consolidated
statement of operations, included herein.
On February 26, 2019, the Company issued 12,588
shares of common stock to an employee as part of their compensation. The Company agreed to issue $10,000 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 3 days
prior to employment, and accordingly recorded stock-based compensation of $341, included in Compensation and benefits in the consolidated
statement of operations, included herein.
On March 1, 2019, the Company issued 21,468
shares of common stock each to two employees as part of their compensation. The Company agreed to issue $20,000 of stock over a
six- month period 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 $1,374, included in Compensation and benefits
in the consolidated statement of operations, included herein.
On March 12, 2019, the Company issued 34,722
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 highest closing price of the Company’s common stock for the 5 days
prior to employment, and accordingly recorded stock-based compensation of $1,563, included in Compensation and benefits in the
consolidated statement of operations, included herein.
On March 26, 2019, the Company issued 28,090
shares of common stock to an employee as part of their compensation. The Company agreed to issue $10,000 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 3 days
prior to employment, and accordingly recorded stock-based compensation of $1,233, included in Compensation and benefits in the
consolidated statement of operations, included herein.
On March 26, 2019, the Company issued 12,588
shares of common stock to an employee as part of their compensation. The Company agreed to issue $10,000 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 3 days
prior to employment, and accordingly recorded stock-based compensation of $553, included in Compensation and benefits in the consolidated
statement of operations, included herein.
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 January 7, 2019, the Company issued 1,000,000
shares of common stock to EMA Financial LLC (“EMA”) in partial satisfaction of its obligations under, and the holder's
election to convert a $9,500 principal portion and $500 of fees, of, the Company's convertible promissory note issued to EMA on
May 22, 2018.
On January 15, 2019, the Company issued 905,412
shares of common stock to One44 Capital LLC (“One44”) in partial satisfaction of its obligations under, and the holder's
election to convert a $10,000 principal portion and $666 of interest, of, the Company's convertible promissory note issued to One44
on May 11, 2018.
On January 16, 2019, the Company issued 1,200,000
shares of common stock to EMA in partial satisfaction of its obligations under, and the holder's election to convert a $10,900
principal portion and $500 of fees, of, the Company's convertible promissory note issued to EMA on May 22, 2018.
On January 29, 2019, the Company issued 1,000,000
shares of common stock to EMA in partial satisfaction of its obligations under, and the holder's election to convert a $7,750 principal
portion and $500 of fees, of, the Company's convertible promissory note issued to EMA on May 22, 2018.
On January 30, 2019, the Company issued 2,158,369
shares of common stock to One44 in partial satisfaction of its obligations under, and the holder's election to convert a $20,000
principal portion and $1,414 of interest, of, the Company's convertible promissory note issued to One44 on May 11, 2018.
On February 5, 2019, the Company issued 1,000,000
shares of common stock to EMA in partial satisfaction of its obligations under, and the holder's election to convert a $7,500 principal
portion and $500 of fees, of, the Company's convertible promissory note issued to EMA on May 22, 2018.
On February 12, 2019, the Company issued 3,709,037
shares of common stock to EMA in partial satisfaction of its obligations under, and the holder's election to convert a $15,625
principal portion and $10,338 of interest and fees, of, the Company's convertible promissory note issued to EMA on May 22, 2018.
On February 12, 2019, the Company issued 2,475,222
shares of common stock to One44 in partial satisfaction of its obligations under, and the holder's election to convert a $20,000
principal portion and $1,485 of interest, of, the Company's convertible promissory note issued to One44 on May 11, 2018.
On March 19, 2019, the Company issued 2,236,291
shares of common stock to Lee Family Living Trust (“Lee”) in satisfaction of its obligations under, and the holder's
election to convert $50,000 principal and $2,514 of interest, of, the Company's convertible promissory note issued to Lee on March
2, 2018.
On March 19, 2019, the Company issued 1,575,553
shares of common stock to SRC & PBB, LLC (“SRC”) in satisfaction of its obligations under, and the holder's election
to convert $50,000 principal and $1,205 of interest, of, the Company's convertible promissory note issued to SRC on March 26, 2018.
On March 19, 2019, the Company issued 993,694
shares of common stock to Mileidy’s Medrano Living Trust (“Mileidys”) in satisfaction of its obligations under,
and the holder's election to convert $50,000 principal and $1,205 of interest, of, the Company's convertible promissory note issued
to Mileidys on December 20, 2017.
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 a long time. The holders provided legal opinions pursuant to Section 4(a)(1) of Securities Act,
or Rule 144 promulgated thereunder.
On March 4, 2019, the Company issued 1,537,321
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 $15,000 principal portion and $66 of interest, of, the Company's convertible promissory
note issued to GS Capital on December 4, 2018.
On March 4, 2019, the Company issued 6,788,715
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 $69,400 principal portion and $1,882 of interest, of, the Company's convertible promissory
note issued to Eagle on December 4, 2018.
Item 3. Defaults upon Senior Securities
None.
I
tem
4.
Mine Safety Disclosures
Not applicable.
Item 5. Other Information
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, LLC
|
10.5*
|
|
Promissory
Note dated April 1, 2013, between the Company and Matthew Moore
|
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.
|
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.
|
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
|
+
|
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: May 20, 2019
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)
37