SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the :
OR
For the transition period from ________________ to _________________
Commission
File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| (Address of principal executive offices) | |
| ( | |
| (Registrant's telephone number, including area code) | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and
(2)
has been subject to such filing requirements for the past 90 days. ☑
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). ☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and smaller reporting company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☑ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
The number of shares outstanding of the Registrant's $0.0001 par value Common Stock as of January 24, 2023, was shares.
INNERSCOPE HEARING TECHNOLOGIES, INC.
FORM 10-Q
Quarterly Period Ended September 30, 2020
INDEX
FORWARD-LOOKING STATEMENTS Page
PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements | |
| Condensed Consolidated Balance Sheets at September 30, 2020, (Unaudited) and December 31, 2019 (Unaudited) | 2 | |
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (Unaudited) |
3 | |
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and nine months ended September 30, 2020 and 2019 (Unaudited) |
4 | |
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (Unaudited) |
6 | |
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 7 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risks | 24 |
| Item 4. | Controls and Procedures | 25 |
PART II. OTHER INFORMATION
| Item 1. | Legal Proceedings | 25 |
| Item 1A. | Risk Factors | 25 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 25 |
| Item 3. | Defaults Upon Senior Securities | 25 |
| Item 4. | Mine Safety Disclosures | 26 |
| Item 5. | Other Information | 26 |
| Item 6. | Exhibits | 26 |
| SIGNATURES | 27 | |
INNERSCOPE HEARING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| As of September 30, | As of December 31, | |||||||
| 2020 (Unaudited) | 2019 (Unaudited) | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts | ||||||||
| Employee advances | ||||||||
| Prepaid assets | ||||||||
| Inventory | ||||||||
| Total current assets | ||||||||
| Security deposits | ||||||||
| Domain name | ||||||||
| Intangible assets, net of accumulated amortization | ||||||||
| Property and equipment, net of accumulated depreciation | ||||||||
| Operating leases right-of-use assets, net | ||||||||
| Investment in undivided interest in real estate | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Bank overdraft | $ | $ | ||||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable to related party | ||||||||
| Notes payable - stockholder | ||||||||
| Current portion of convertible notes payable, net of discounts | ||||||||
| Note payable, other & related party | ||||||||
| Customer deposits | ||||||||
| Current portion of note payable - undivided interest in real estate | ||||||||
| Derivative liabilities | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Total current liabilities | $ | |||||||
| Long term portion of note payable- undivided interest in real estate | ||||||||
| Paycheck Protection Program loan | ||||||||
| Operating lease liabilities, Less current portion | ||||||||
| Total liabilities | $ | |||||||
| Commitments and contingencies | ||||||||
| Stockholders' Deficit: | ||||||||
| Preferred stock, $ par value; shares authorized; | ||||||||
| Series A preferred stock, par value $, -- (2020) and -- (2019) | ||||||||
| Series B preferred stock, par value $, (2020) and (2019) shares authorized, and (2020) and (2019) shares issued and outstanding | 90 | 90 | ||||||
| Common stock, $par value; and shares authorized, respectively; (2020) and (2019) shares issued and outstanding, respectively | ||||||||
| Common stock to be issued, $par value, (2020) and (2019) shares | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Shareholder Equity | $ | $ | ||||||
See notes to condensed consolidated financial statements.
| 2 |
INNERSCOPE HEARING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenues: | ||||||||||||||||
| Revenues, other | $ | $ | $ | $ | ||||||||||||
| Revenues, related party | ||||||||||||||||
| Total revenues | ||||||||||||||||
| — | ||||||||||||||||
| Cost of sales | — | |||||||||||||||
| Cost of sales, other | ||||||||||||||||
| Total cost of sales | ||||||||||||||||
| Gross profit | $ | $ | $ | $ | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Compensation and benefits (including stock-based fees of $ for the three and nine months ended September 30, 2020 and $ and $ for the three and nine months ended September 30, 2019) | ||||||||||||||||
| Advertising and promotion | ||||||||||||||||
| Professional fees (including stock-based fees of $ for the three and nine months ended September 30, 2020 and $ and $ for the three and nine months ended September 30, 2019 ) | ||||||||||||||||
| Rent,
including related party (including related party rent of $ | ||||||||||||||||
| Investor relations | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| Other general and administrative | ||||||||||||||||
| Total operating expenses | $ | $ | $ | $ | ||||||||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other Income (Expense): | ||||||||||||||||
| Derivative income (loss) | ( | ) | ||||||||||||||
| Gain (loss) on equity investment | ( | ) | ( | ) | ||||||||||||
| Amortization of debt discount | ( | ) | ( | ) | ||||||||||||
| Gain/Loss on debt extinguishment | ( | ) | ||||||||||||||
| Interest expense and finance charges | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense), net | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Earnings Before Taxes (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income tax provision | ||||||||||||||||
| Net Income (Loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted income (loss) per share | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Weighted average number of common shares outstanding - Basic and diluted | ||||||||||||||||
See notes to condensed consolidated financial statements.
| 3 |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
DEFICIT THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
| Series B Preferred stock | Common stock | Common stock to be issued | Additional Paid-in | Deferred Stock | Retained | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Compensation | deficit | Deficit | |||||||||||||||||||||||||||||||
| Balances June 30, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Amortization of deferred stock compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | ||||||||||||||||||||||||||||||||||||||
| Stock issued from common stock to be issued | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Common stock issued for convertible notes and accrued interest | — | — | ||||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liabilities upon payment of convertible debt | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net loss for the period ended September 30, 2019 | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balances September 30, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balances June 30, 2020 | $ | $ | $ | $ | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Net loss for the period ended September 30, 2020 | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balances September 30, 2020 | $ | $ | $ | $ | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
See notes to condensed consolidated financial statements.
| 4 |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
DEFICIT NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
| Series B Preferred stock | Common stock | Common stock to be issued | Additional Paid-in | Deferred Stock | Retained | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Compensation | deficit | Deficit | |||||||||||||||||||||||||||||||
| Balances January 1, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Stock issued from common stock to be issued | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Amortization of deferred stock compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | ( | ) | |||||||||||||||||||||||||||||||||||||
| Common stock issued for convertible notes | — | |||||||||||||||||||||||||||||||||||||||
| Common stock to be issued for settlement of accounts payable | — | — | ||||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liabilities upon payment of convertible debt | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net loss for the period ended September 30, 2019 | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balances September 30, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balances January 1, 2020 | $ | $ | $ | $ | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Debt conversion and retirement of derivative liabilities | — | |||||||||||||||||||||||||||||||||||||||
| Net loss for the period ended September 30, 2020 | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balances September 30, 2020 | $ | $ | $ | $ | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
See notes to condensed consolidated financial statements.
| 5 |
INNERSCOPE HEARING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities: | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operations: | — | |||||||
| (Gain) loss on fair value of derivatives | ( | ) | ||||||
| Amortization of debt discounts | ||||||||
| Depreciation and amortization | ||||||||
| Non cash interest expense | ||||||||
| Penalties on convertible notes | ||||||||
| (Gain) loss on investment in undivided interest in real estate | ( | ) | ||||||
| Loss on debt extinguishment | ||||||||
| Stock based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Employee advances | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid assets | ||||||||
| Related party receivable | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Security deposit | ||||||||
| Customer deposits | ( | ) | ||||||
| Related party advances | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Payment of security deposit | ( | ) | ||||||
| Purchase of office and computer equipment | ( | ) | ( | ) | ||||
| Change in equity investment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of note payable | ||||||||
| Bank overdraft | ||||||||
| Proceeds from PPP loan | ||||||||
| Payments/Proceeds from convertible notes payable | ||||||||
| Repayments of note payable | ( | ) | ||||||
| Advances (repayments) to stockholder, net | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, Beginning of period | $ | $ | ||||||
| Cash and cash equivalents, End of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | ||||||||
| Schedule of non-cash Investing or Financing Activity: | ||||||||
| Reclassification of derivative liabilities upon principal repayments of convertible notes | $ | $ | ||||||
| Conversion of notes payable and accrued interest in common stock | $ | $ | ||||||
| Common stock to be issued for settlement of accounts payable | $ | $ | ||||||
| Operating lease right-of-use assets and liabilities | $ | $ | ||||||
| Acquisition of Assets | ||||||||
| Issuance of common stock as consideration for assets purchased | $ | — | $ | 22,974 | ||||
| Assumed liabilities | — | 33,047 | ||||||
| Property and equipment | — | (38,400 | ) | |||||
| Other assets | — | (4,614 | ) | |||||
| Customer base | — | (300 | ) | |||||
| Non-compete | — | (12,707 | ) | |||||
| $ | — | $ | — | |||||
See notes to condensed consolidated financial statements.
| 6 |
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 hearing health technology company that manufactures, develops, distributes, and sells numerous innovative hearing health-related products, hearing treatments, and hearing solutions direct to consumer (DTC) with a scalable business model.
NOTE 2 – 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, 2019, filed with the United States Securities and Exchange Commission (the “SEC”) on September 14, 2022. Interim results of operations for the three and nine months ended September 30, 2020, and 2019, are not necessarily indicative of future results for the full year. Certain amounts from the 2019 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 when acquired 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 September 30, 2020, and December 31, 2019. Cash balances may, at certain times, exceed federally insured limits. If the amount of a deposit at any time exceeds the federally insured amount at a bank, the uninsured portion of the deposit could be lost, in whole or in part, if the bank were to fail.
Accounts receivable
The Company records accounts receivable at the time products and services are delivered. An allowance for losses is established through a provision for losses charged to expense. Receivables are charged against the allowance for losses when management believes collectability is unlikely. The allowance (if any) is an amount that management believes will be adequate to absorb estimated losses on existing receivables, based on evaluation of the collectability of the accounts and prior loss experience. As of September 30, 2020, and December 31, 2019, management’s evaluation required the establishment of an allowance for uncollectible receivables of $27,991.
| 7 |
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 nine months ended September 30, 2020 and 2019 and accounts receivable as of September 30, 2020 and 2019.
| September 30, | Accounts Receivable as of September 30, 2020 | Accounts Receivable as of September 30, 2019 | ||
| 2020 | 2019 | |||
| % | % | |||
| Customer A, related | ||||
| Customer B | ||||
| Customer C | ||||
Inventory
Inventory is valued at the lower of cost or net realizable value. Cost is determined using the first in first out (FIFO) method. Provision for potentially obsolete or slow-moving inventory is made based on management analysis or inventory levels and future sales forecasts. As of September 30, 2020, and December 31, 2019, management’s analysis did not require any provisions to be recognized.
Intangible Assets
Costs for intangible assets are accounted for through the capitalization of those costs incurred in connection with developing or obtaining such assets. Capitalized costs are included in intangible assets in the consolidated balance sheets. On October 3, 2018, the Company entered into a Manufacturing Design and Marketing Agreement (the “Agreement”) with Zounds Hearing, Inc., a Delaware corporation (“Zounds”), whereby, Zounds as the Subcontractor will provide design, technology, manufacturing and supply chain services to the Company (see Note 15) for a period of ten years. The Company will pay Zounds One Million ($1,000,000) 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. During the year ended December 31, 2020 (subsequent to period end), the Company determined that they do not expect to realize any benefit in the foreseeable future, therefore, have recorded an impairment of $775,000.
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 property and equipment consisted of the following at September 30, 2020, and December 31, 2019:
| September 30, 2020 | December 31, 2019 | |||||||
| Computer and equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Machinery and equipment | ||||||||
| Furniture and equipment | ||||||||
| 99,133 | 93,785 | |||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense of $14,027 and $13,101 was recorded for the nine months ended September 30, 2020 and 2019, respectively. Depreciation expense of $4,676 and $5,211was recorded for the three months ended September 30, 2020 and 2019, respectively.
| 8 |
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 September 30, 2020 and 2019, the Company recognized a gain of $15,450 and a loss of $9,245, respectively. For the nine months ended September 30, 2020 and 2019, the Company recognized a gain of $22,982 and a loss of $4,429, respectively. As of September 30, 2020, and December 31, 2019, the carrying value of the Company’s investment in undivided interest in real estate was $1,220,069 and $1,210,526 respectively (see Note 8).
Fair Value of Financial Instruments
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of inputs to measure fair value:
| | Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities. |
| | Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| | Level 3 - Unobservable inputs reflecting the Company's assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. |
The carrying amounts of the Company's financial assets and liabilities, such as cash, prepaid expenses, accounts receivable, accounts payable and accrued expenses, certain notes payable and notes payable - related party, approximate their fair values because of the short maturity of these instruments. The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis as of September 30, 2020, and December 31, 2019, for each fair value hierarchy level:
| September 30, 2020 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| $ | — | $ | — | $ | 4,596,530 | $ | 4,596,530 | |||||||||
| December 31, 2019 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| $ | — | $ | — | $ | 3,515,055 | $ | 3,515,055 | |||||||||
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.
| 9 |
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 September 30, 2020 and December 31, 2019, the Company had received $13,321 and $21,505 of customer deposits, where revenue will be recognized 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.
| 10 |
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 September 30, 2020 and 2019 advertising and marketing expenses were $3,703 and $197,733, respectively. For the nine months ended September 30, 2020 and 2019 advertising and marketing expenses were $19,775 and $575,050, respectively.
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 September 30, 2020 and 2019, the Company’s outstanding convertible debt is convertible into 4,707,741,429 and 393,621,118 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 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 (for “emerging growth company” beginning after December 15, 2020). Subsequent to period end, the Company has adopted this standard, and the adoption of this standard did not have any significant impact on the consolidated financial statements.
The FASB recently issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to reduce complexity in applying GAAP to certain financial instruments with characteristics of liabilities and equity. The guidance in ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, which requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract. The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. The amendments in ASU 2020-06 are effective for public entities for fiscal years beginning after December 15, 2021, with early adoption permitted (for “emerging growth company” beginning after December 15, 2023). The Company will be evaluating the impact this standard will have on the Company’s consolidated financial statements.
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In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases (ASU 2018-10), which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU No. 2018-11, Leases (Topic 842) —Targeted Improvements (ASU 2018-11), which addressed implementation issues related to the new lease standard. These and certain other lease-related ASUs have generally been codified in ASC 842. ASC 842 supersedes the lease accounting requirements in ASC Topic 840, Leases (ASC 840). ASC 842 establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases. Under ASC 842, leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 was effective for annual reporting periods beginning after December 15, 2018 and interim periods within that reporting period (for “emerging growth company” from January 1, 2020). The Company adopted ASC 842 on January 1, 2019 using the effective date transition method.
The Company elected the practical expedient to not record short-term leases on its consolidated balance sheet.
NOTE 3 – 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 $4,208,363 for the nine months ended September 30, 2020. At September 30, 2020, the Company had a working capital deficit of $10,685,835, and an accumulated deficit of $18,504,831. 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.
NOTE 4 – INTANGIBLE ASSETS, NET (OTHER THAN GOODWILL)
The Company’s intangible assets consist of a customer list and non-compete acquired from Amos Audiology and a Technology Access Fee required to be paid by the Company in connection with a manufacturing design and marketing agreement executed with a supplier (see Note 12). The estimated useful lives of these intangible assets are as follows:
| Customer list | 2years |
| Non-compete | 2years |
| Technology access fee | 10years |
The Company's intangible assets consisted of the following at September 30, 2020, and December 31, 2019:
| September 30, 2020 | December 31, 2019 | |||||||
| Customer List | $ | $ | ||||||
| Non-Compete | ||||||||
| Technology Access Fee | ||||||||
| Intangibles | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Intangibles, net | $ | $ | ||||||
The Company recognized $26,626 and $79,336 of amortization expense for the three and nine months ended September 30, 2020. The Company recognized $26,626 and $104,878 of amortization expense for the three and nine months ended September 30, 2019, respectively. Subsequent to period end, the technology fee was fully impaired, resulting in impairment expense of $775,000.
| 12 |
NOTE 5 – NOTE PAYABLE, STOCKHOLDER
A summary of the activity for the nine months ended September 30, 2020, and the year ended December 31, 2019, of amounts the Company’s CEO (stockholder) loaned the Company and amounts repaid is as follows:
| September 30, 2020 | December 31, 2019 | |||||||
| Beginning Balance | $ | $ | ||||||
| Amounts loaned to the Company | ||||||||
| Repaid | ||||||||
| Ending Balance | $ | $ | ||||||
The note is interest free and ending balance amount is due on demand.
NOTE 6 – NOTE PAYABLE
In July of 2019, the Company entered into a Loan Agreement for $60,000 with a third- party. The loan requires the Company to make weekly payments of $1,538. As of September 30, 2020, and December 31, 2019, the note balance is $50,581 and $50,581. The Company has not been making weekly payments in 2021. In October of 2022, the full balance of the loan was paid off by the Company.
In November of 2019, the Company entered into a Loan Agreement for $87,000 with a third- party, whereby the Company received $58,000. The loan requires the Company to make weekly payments of principal and interest of $790. As of September 30, 2020, and December 31, 2019, the note balance is $56,946 and $37,938, net of unamortized discounts of $0 and $21,380 respectively.
In December of 2019, the Company entered into a Loan Agreement for $21,750 with a third- party. The loan requires the Company to make weekly payments of principal and interest of $255. As of September 30, 2020, and December 31, 2019, the note balance is $11,259 and $18,423.
NOTE 7 – RELATED PARTY TRANSACTIONS
As of September 30, 2020 we had $41,604 of the amount payable to related parties as compared to $266,419 as of December 31, 2019. The balance primarily represents advance payable to shareholders and management of the Company on behalf of the Company.
Effective August 1, 2016, the Company agreed to compensation of $225,000 and $125,000 per year for the Company’s CEO and CFO, respectively. On November 15, 2016, the Company entered into employment agreements with its CEO and CFO, which includes their annual base salaries of $225,000 and $125,000, respectively. On January 1, 2019, the Company agreed to increase compensation to $150,000 per year for the Company’s CFO. For the period ending September 30, 2020 and 2019, the Company recorded expenses to its officers in the following amounts:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||
| Description | 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| CEO | $ | $ | $ | $ | ||||||||||||||
| CFO | ||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||
As of September 30, 2020, and December 31, 2019, the Company in the aggregate owes the CEO and CFO $543,681 and $262,431, respectively, for accrued and unpaid wages. These amounts are included in Accounts payable and accrued expenses on the balance sheets included herein.
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 and nine months ended September 30, 2020, and 2019, the Company expensed $36,000 and $75,000, respectively, related to this lease and is included in Rent, on the condensed consolidated statement of operations, included herein.
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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 8).
NOTE 8– INVESTMENT IN UNDIVIDED INTEREST IN REAL ESTATE
On May 9, 2017, the Company and LLC1 purchased certain real property from an unaffiliated party. The Company and LLC1 have agreed that the Company purchased and owns 49% of the building and LLC1 purchased and owns 51% of the building. The contracted purchase price for the building was $2,420,000 and the total amount paid at closing was $2,501,783 including, fees, insurance, interest and real estate taxes. The Company paid for their building interest by delivering cash at closing of $209,971 and being a co-borrower on a note in the amount of $2,057,000, of which the Company has agreed with LLC1 to pay $1,007,930.
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 September 30, 2020, a gain of $15,450, and a loss of $9,245 for the three months end September 30, 2019, is included in “Other income (expense)”. For the nine months ended September 30, 2020 and 2019, a gain of $22,982, and a loss of $4,429, respectively, is included in “Other income (expense)”. As of September 30, 2020, and December 31, 2019, the carrying value of the Company’s investment in undivided interest in real estate was $1,220,069 and $1,210,526, respectively.
The unaudited condensed balance sheets as of September 30, 2020, and December 31, 2019, and the statement of operations for the nine months ended September 30, 2020 and 2019, for the real property is as follows:
| Current assets: | (Unaudited) September 30, 2020 | (Unaudited) December 31, 2019 | ||||||
| Cash | $ | $ | ||||||
| Accounts Receivable | ||||||||
| Due from related parties | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Land and Building, net | ||||||||
| Other Assets, net | ||||||||
| Total assets | $ | $ | ||||||
| Accounts Payable | $ | $ | ||||||
| Current portion of mortgage payable | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Mortgage payable, long-term | ||||||||
| Security deposits | ||||||||
| Total liabilities | $ | |||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
| 14 |
| (Unaudited) September 30, 2020 | (Unaudited)
December 31, 2019 | |||||||
| Rental income | $ | $ | ||||||
| Expenses: | ||||||||
| Property taxes | ||||||||
| Depreciation and amortization | ||||||||
| Insurance | ||||||||
| Repairs and maintenance | ||||||||
| Utilities and other | ||||||||
| Interest expenses | ||||||||
| Total expenses | ||||||||
| Net income (loss) | $ | $ |
NOTE 9– NOTE PAYABLE - UNDIVIDED INTEREST IN REAL ESTATE
On May 9, 2017, the Company and LLC1 purchased certain real property from an unaffiliated party. The Company and LLC1 have agreed that the Company purchased and owns 49% of the building and LLC1 purchased and owns 51% of the building. The contracted purchase price for the building was $2,420,000 and the total amount paid at closing was $2,501,783 including, fees, insurance, interest and real estate taxes. The Company is a co-borrower on a $2,057,000 Small Business Administration Note (the “SBA Note”). The SBA Note carries a 25-year term, with an initial interest rate of 6% per annum, adjustable to the Prime interest rate plus 2%, and is secured by a first position Deed of Trust and business assets located at the property. The Company initially recorded a liability of $1,007,930 for its portion of the SBA Note, with the offset being to Investment in undivided interest in real estate on the balance sheet presented herein. As of September 30, 2020, the long-term portion of the SBA Note is $938,002 and short-term portion is $22,150. Future principal payments for the Company’s portion are:
| Period ending September 30, | Amount | |||||
| 2021 | $ | |||||
| 2022 | ||||||
| 2023 | ||||||
| 2024 | ||||||
| 2025 | ||||||
| 2026 | ||||||
| Thereafter | ||||||
| Total | $ | |||||
NOTE 10– CONVERTIBLE NOTES PAYABLE
At various times during the nine months ended September 30, 2020, the Company entered into convertible promissory notes with principal amounts totaling $242,000 with a third party for which the proceeds were used for operations. The Company received net proceeds of $199,650, and a $42,350 original issuance discount was recorded. The convertible promissory notes incur interest at rates from 8% to 12% per annum and mature on dates ranging from November 2019 to March 2021. Further, an additional $58,117 of penalties were added during current period The convertible promissory notes are convertible to shares of the Company’s common stock 6 months after issuance. The conversion price per share is equal to 65-70% of the lowest trading prices of the Company’s common stock during the fifteen (15) trading days immediately preceding the applicable conversion date. The trading price is defined within the agreement as the closing bid price on the applicable trading market. The convertible promissory notes include various default provisions for which the default interest rate increases to 24%.
A summary of the convertible note balances as of September 30, 2020, and December 31, 2019, is as follows:
| September 30, 2020 | December 31, 2019 | |||||||
| Principal balance | $ | $ | ||||||
| Unamortized discounts | ( | ) | ( | ) | ||||
| Ending balance, net | $ | $ | ||||||
| 15 |
During period ending September 30, 2020, the company recognized $1,143,973 of debt discount amortization, which is recorded under interest expense and finance charges account in the other income (expense).
| Principal Balance | Debt Discounts | Total | ||||||||||
| Balance at January 1, 2020 | $ | $ | ( | ) | $ | |||||||
| New issuance | ( | ) | ||||||||||
| Penalties | 58,116 | — | 58,116 | |||||||||
| Conversions | ( | ) | ( | ) | ||||||||
| Amortization | ||||||||||||
| Ending balance, net | $ | $ | ( | ) | $ | |||||||
NOTE 11 – 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.
The Company valued the derivative liabilities at issuance, September 30, 2020, and December 31, 2019, at $412,806 and $4,745,194, respectively. The Company used the multinomial lattice valuation model with the following assumptions for new notes issued during the period ended September 30, 2020, risk-free interest rate of 0.05% and volatility of 150% to 250%, and as of December 31, 2019, risk-free interest rate of 0.05% and volatility of 200% to 300%.
A summary of the activity related to derivative liabilities during the nine months period ended September 30, 2020 is as follows:
| September 30, 2020 | ||||
| Beginning Balance | $ | |||
| Initial derivative liability | ||||
| Fair value change | ||||
| Reclassification for principal payments and conversions | ( | ) | ||
| Ending Balance | $ | |||
NOTE 12- OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES
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 with a related party. Upon adoption of ASC 842, the Company recognized $434,504 of right-to-use assets as operating leases and operating lease obligations.
On September 10, 2018, pursuant to the Amos Audiology acquisition, the Company assumed a lease dated December 1, 2017 and expiring April 30, 2023, in Walnut Creek, California. Lease payments in the first year of the lease are $3, 988 per month and increase by 3% on December 1 each new lease year. As of December 31, 2018, the Company was in arrears of $25,182 (including late fees) in lease payments and has agreed with the landlord to pay the arrears in seven monthly payments of $3,597 in addition to the monthly lease payments for January 2019 through July 2019. Settlement fees were fully paid during the year ending December 31, 2019.
On October 15, 2018, the Company entered into a lease to operate a retail hearing aid clinic in Roseville, California expiring December 31, 2023. Initial lease payments of $3,102 began on January 1, 2019, and increase by 3% on January 1 each new lease year. Upon adoption of ASC 842, the Company recognized $160,623 of right-to-use assets as operating leases and operating lease obligations. The Company abandoned the lease location subsequent to period end.
| 16 |
On November 18, 2019, the Company entered into a lease to operate a retail hearing aid clinic in Walnut Creek, expiring in October of 2022. Initial lease payments of $3,930 began on December 1, 2019, and increase by 3% on December 1 each new lease year. Upon adoption of ASC 842, the Company recognized $129,281 of right-to-use assets as operating leases and operating lease obligations. The Company abandoned the lease location subsequent to period end.
On December 1, 2018, the Company entered into a lease to operate a retail hearing aid clinic in Sacramento, California expiring March 31, 2024. Initial lease payments of $3,002 began on April 1, 2019, and increase by 3.33% on April 1, 2020 and 2021, and by 3% on April 1, 2022. Upon adoption of ASC 842, the Company recognized $149,507 of right-to-use assets as operating leases and operating lease obligations. The Company abandoned the lease location subsequent to period end.
On February 1, 2019, the Company entered into a lease to operate a retail hearing aid clinic in Elk Grove, California expiring January 31, 2024. Initial lease payments of $2,307 began on February 1, 2019, and increase by an average of 2.6% on February 1, each new lease year. Upon adoption of ASC 842, the Company recognized $116,153 of right-to-use assets as operating leases and operating lease obligations. The Company abandoned the lease location subsequent to period end.
On May 31, 2019, the Company entered into a lease to operate a retail hearing aid clinic in Greenhaven, California expiring September 30, 2022. Initial lease payments of $1,450 began on July 1, 2019, and increase by 5% on July 1, each new lease year. Upon adoption of ASC 842, the Company recognized $48,512 of right-to-use assets as operating leases and operating lease obligations. The Company abandoned the lease location subsequent to period end.
The operating lease expense for the nine months period ending September 30, 2020 was $255,427. These leases will expire between 2021 and 2023. The weighted average discount rate used for these leases were 8% (average borrowing rate of the Company). Future principal payments for the Company’s portion are:
| Amount | ||||||
| 2020 | $ | |||||
| 2021 | ||||||
| 2022 | ||||||
| 2023 | ||||||
| 2024 | ||||||
| Thereafter | ||||||
| Total | $ | |||||
Consulting Agreements
On October 3, 2018, the Company entered into a Manufacturing Design and Marketing Agreement (the “Agreement”) with Zounds, whereby, Zounds will provide design, technology, manufacturing and supply chain services to the Company, to enable the Company to manufacture comparable hearing aids and related components and accessories to be sold under the Company’s exclusive brand names (the “Manufacturer’s Products”) through the Company’s various marketing and distribution channels. The Company will pay Zounds One Million ($1,000,000) (the “Technology Access Fee”). The Technology Access Fee, as amended will be paid in eight (8) installments of $75,000 each, in four- week intervals until $600,000 is paid and $400,000 is to be paid as Product Surcharges based on $200 per unit manufactured for up to the first 2,000 units. Once $400,000 of Product Surcharges are paid said per unit surcharge will be discontinued. As of December 31, 2018, the Company has paid $183,200 towards the Technology Access Fee and as of December 31, 2018, $816,800 is included in accounts payable and accrued expenses. No additional payments has been made in 2019 and 2020. Subsequent to period end, the Company determined that it was unable to substantiate the actual fair value of the technology that was acquired, therefore, full impairment was recorded.
NOTE 13 – PAYCHECK PROTECTION PROGRAM LOAN
During the nine months period ending September 30, 2020, the Company borrowed $262,445 under the Paycheck Protection Program. Interest accrues at 1% and the loan is due in two years. Payments are to be paid monthly, however, the first nine months payments are deferred but not waived. A portion of the loan could be forgiven provided 75% of the proceeds are used for payroll. Outstanding amount as of September 30, 2020 was $262,445.
| 17 |
NOTE 14 – 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. As of March 31, 2020, and December 31, 2019, there were no shares of Series A Preferred Stock issued and outstanding.
Series B Preferred Stock
On June 4, 2018, the Company also filed in the State of Nevada a Certificate of Designation of a series of preferred stock, the Series B Preferred Stock. 900,000 shares were designated as Series B Preferred Stock. The Series B Preferred Stock is not convertible into common stock, nor does the Series B Preferred Stock have any right to dividends and any liquidation preference. The Series B Preferred Stock entitles its holder to a number of votes per share equal to 1,000 votes. As of March 31, 2020, and December 31, 2019, there were 900,000 shares of Series B Preferred Stock issued and outstanding.
Common Stock
On January 30, 2020, the Company increased a number of authorized common shares to 14,975,000,000. As of September 30, 2020, there are 3,456,123,614 shares of common stock outstanding.
During the nine months period end September 30, 2020, the Company issued 3,114,005,479 shares of common stock for partial conversion of principal and accrued interest.
Common Stock to be issued
As of September 30, 2020 there are 2,415,671 shares of common stock to be issued for prior services.
NOTE 15 – RISKS AND UNCERTAINTIES
The Company's business and operations are sensitive to general business and economic conditions in the United States. A host of factors beyond the Company's control could cause fluctuations in these conditions. Adverse conditions may include recession, downturn or otherwise, local competition or changes in consumer taste. These adverse conditions could affect the Company's financial condition and the results of its operations.
In December 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China and has spread throughout the United States and the rest of the world. The World Health Organization has declared the outbreak to constitute a “Public Health Emergency of International Concern.” This contagious disease outbreak, which has not been contained, and is disrupting supply chains and affecting production and sales across a range of industries in United States and other companies as a result of quarantines, facility closures, and travel and logistics restrictions in connection with the outbreak, as well as the worldwide adverse effect to workforces, economies, and financial markets, leading to a global economic downturn. As a result, the Company experienced a negative impact to its operating results. Regarding future operations, the related financial impact and duration cannot be reasonably estimated at this time.
| 18 |
NOTE 16 – SUBSEQUENT EVENTS
Subsequent to period end, the Company received conversion notices for the issuance of 4,749,544,256 shares of common stock for conversion of $3,651,848 of principal and $1,067,034 of accrued interest on convertible notes.
Subsequent to period end, the Company issued 66,410,092 as part of compensation for services based on the market price of the common stock on the date the Company agreed to issue the shares.
Subsequent to period end, the Company issued 65,000,000 shares of common stock for cash for a total value of $650,000.
Subsequent to period end, the Company issued 127,653,805 shares of common stock to settle payables in the amount of $651,034.
Subsequent to period end, 216,000,000 common shares were cancelled.
Subsequent to period end, the Company determined that they do not expect to realize any benefit in the foreseeable future related to Technology Access Fee (Note 4), therefore, have recorded an impairment of $775,000.
At various times subsequent to period end, the Company entered into convertible promissory notes with principal amounts totaling $3,132,504 with a third parties for which the proceeds were used for operations. The convertible promissory notes incur interest at rates from 8% to 12% per annum and mature on dates ranging from March 2021 to December 2022. The convertible promissory notes are convertible to shares of the Company’s common stock 6 months after issuance. The conversion price per share is equal to 65-90% of the lowest trading prices of the Company’s common stock during the fifteen (15) trading days immediately preceding the applicable conversion date. The trading price is defined within the agreement as the closing bid price on the applicable trading market. The convertible promissory notes include various default provisions for which the default interest rate increases to 24%.
At various times subsequent to period end, the Company entered into convertible promissory notes with principal amounts totaling $1,640,000 with a third parties for which the proceeds were used for operations. The convertible promissory notes incur interest at rates from 8% to 12% per annum and mature on dates ranging from March 2021 to February 2023. The convertible promissory notes are convertible to shares of the Company’s common stock 6 months after issuance. The conversion price is set at price of $0.01 per shares. The convertible promissory notes include various default provisions for which the default interest rate increases to 24%.
At various times subsequent to period end, the Company entered into promissory notes with principal amounts totaling $2,435,210 with a third parties for which the proceeds were used for operations. The promissory notes incur interest at rates from 8% to 10% per annum and mature on dates ranging from June 2023 to August 2023. The convertible promissory notes are convertible to shares of the Company’s common stock 6 months after issuance. The conversion price is set at price of $0.01 per shares. The promissory notes include various default provisions for which the default interest rate increases to 14-24%.
Subsequent to period end, convertible promissory notes in the total principal amount of $3,432,300 and accrued interest of $192,294 were forgiven.
Subsequent to period end, promissory notes in the total principal amount of $2,435,210 and accrued interest of $68,793 were forgiven.
On November 22, 2021, the Company purchased Hearing Assist II, LLC. The Company acquired 100% interest in the entity for a total consideration of 591,209,963 common shares valued at $8,513,423 on the day of purchase. As part of the acquisition, the Company assumed assets in the amount of $15,713,000, consisting of trademarks, domains, customer lists, customer contracts, licenses, royalties, other contracts, and liabilities in the amount of $7,199,678.
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Subsequent to period end, the Company designated 10,000,000 shares to Series C Preferred Stock, 5,000,000 to Series D Preferred Stock and 250,000 shares to each Series E, F and G Preferred Stock.
On September 30, 2021, the Company entered into an Asset Purchase agreement with iHear Medical, Inc. pursuant to which the Company received a number of intangible assets, equipment, customer database and inventory for a total consideration of 400,000 preferred series C shares and $1,000,000 convertible note. Preferred shares valued at $666,667 on the day of purchase. As part of the acquisition, the Company assumed assets in the amount of $1,666,667, consisting of inventory, equipment, customer lists, patents and other technology-based intangibles.
The Company has evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission. The Company has determined that there are no other such events that warrant disclosure or recognition in the financial statements, except as stated herein.
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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 year ended December 31, 2019 and filed by the Company on Form 10-K with the Securities and Exchange Commission on September 14, 2022.
This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future.
While our financial statements are presented on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, our independent auditor’s report on our financial statements for the years ended December 31, 2020 and 2019 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 4 to the unaudited condensed consolidated financial statements.
Corporate History and Current Business
InnerScope Hearing Technologies, Inc. (“Company”, “InnerScope”) is a Nevada Corporation incorporated on June 15, 2012, with its principal place of business in Roseville, California. The Company was originally named InnerScope Advertising Agency, Inc. and was formed to provide advertising and marketing services to retail establishments in the hearing device industry. On August 25, 2017, the Company changed its name to InnerScope Hearing Technologies, Inc. to better reflect the Company’s current direction as a technology driven company with a scalable business to business (BTB) solution and business to consumer (and BTC) solution. The Company also competes in the DTC (Direct-to-Consumer) markets with its own line of “Hearables”, and “Wearables”, including APPs on the iOS and Android markets. On September 10, 2018, the Company acquired all of the assets and assumed certain liabilities of Kathy L Amos Audiology (“Amos Audiology”) in exchange for 340,352 shares of common stock (the “Acquisition”). Amos Audiology provides retail hearing aid sales and audiological services in the East Bay area of San Francisco. Additionally, the Company has opened 9 retail hearing device clinics, manages two clinics owned by a related party 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.
Results of Operations
For the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019 revenues.
Revenues for the three months ended September 30, 2020 were $47,331 compared to $250,781 for the three months ended September 30, 2019. The revenue decrease was primarily due to COVID-19. Revenues for the nine months ended September 30, 2020 were $144,318 compared to $656,983 for the nine months ended September 30, 2019. The revenue decrease was primarily due to COVID-19.
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. Online sales are down in the current periods due to the marketing resources being reallocated to the Retail Centers sales operations. Online marketing platforms are ready to go with the potential of revenue increases, once the company has the proper capital resources to be allocated to online marketing. Online sales will be a major part and focus of management once the company is properly capitalized.
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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 $0 and $15,000 of revenues for the nine months ended September 30, 2020 and 2019. There was no such revenue during three months ended September 30, 2020 and 2019. The Marketing Agreement was terminated.
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 September 30, 2020 and 2019, was $5,687and $103,010. Cost of sales for the nine months ended September 30, 2020 and 2019, was $63,049 and $284,837.
Operating Expenses
Operating expenses were $349,607 and $1,002,985 for the three months ended September 30, 2020 and 2019, respectively, and $1,161,773 and $3,118,674 for the nine months ended September 30, 2020 and 2019, respectively. The increase in expenses in the current periods was as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| Operating Expenses: | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Compensation and benefits | 202,511 | 462,770 | 559,792 | 1,261,594 | ||||||||||||
| Advertising and promotion | 3,703 | 197,733 | 19,775 | 575,050 | ||||||||||||
| Professional fees | 7,527 | 92,966 | 102,885 | 404,550 | ||||||||||||
| Rent, including related party | 91,549 | 100,240 | 255,427 | 294,302 | ||||||||||||
| Investor relations | — | 11,297 | 14,795 | 176,073 | ||||||||||||
| Depreciation and Amortization expense | 30,760 | — | 93,364 | — | ||||||||||||
| Other general and administrative | 13,557 | 137,979 | 115,735 | 407,105 | ||||||||||||
| Total operating expenses | $ | 349,607 | $ | 1,002,985 | $ | 1,161,773 | $ | 3,118,674 | ||||||||
Overall decrease in operating expenses across the board was mainly due to shutdowns related to COVID-19.
Increase in depreciation and amortization is mainly related amortization of the Technology Fee Access.
Other income (expense), net
Other expenses, net, were $143,050 for the three months ended September 30, 2020, compared to $616,833 for the three months ended September 30, 2019. Interest expense of $100,539 significantly decreased compared to interest expense of $1,109,565 for the three months ended September 30, 2019. Amortization of debt discount of $184,552 decreased compared to amortization of $1,002,192 for the three months ended September 30, 2019. For the three months ended September 30, 2020, derivative income of $126,561 decreased compared to derivative income of $501,977 for the three months ended September 30, 2019. There was a gain on equity investment in the amount of $15,450 during three months ended September 30, 2020 and a loss of $9,245 during three months ended September 30, 2019.
Other expenses, net, were $3,127,859 for the nine months ended September 30, 2020, compared to $2,233,968 of other expenses, net, for the nine months ended September 30, 2019. Interest expense of $445,858 significantly decreased compared to interest expense of $2,344,763 for the nine months ended September 30, 2019. Amortization of debt discount of $1,143,973 decreased compared to amortization of $2,183,394 for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, a derivative loss of $1,561,010 increased compared to derivative income of $159,617 for the nine months ended September 30, 2019. Also included in other expenses, net, for the nine months ended September 30, 2019, was a loss on extinguishment of debt of $44,393. There was a gain on equity investment in the amount of $22,982 during nine months ended September 30, 2020 and a loss of $4,429 during nine months ended September 30, 2019.
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Net Income/Loss
Net loss for the three months ended September 30, 2020, was $451,013 compared to net loss of $1,472,047 for the three months ended September 30, 2019, as a result of the changes in operating and other expenses as described above. Net loss for the nine months ended September 30, 2020, was $4,208,363 compared to net loss of $4,980,496 for the nine months ended September 30, 2019, as a result of the changes 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 September 30, 2020, we had cash of $4,736, an increase of $277, from $4,459 as of December 31, 2019. As of September 30, 2020, we had current liabilities of $10,816,207 (including derivative liabilities of $4,596,530) compared to current assets of $130,372which resulted in working capital deficit of $10,685,835. 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. 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 $461,329 for the nine months ended September 30, 2020 compared to $2,282,037 for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, the cash used in operations was a result of the net loss of $4,208,363, a loss on fair value of derivatives of $1,561,011, amortization of debt discount in the amount of $1,143,973, depreciation and amortization in the amount of $93,364, gain on equity investment in the amount of $9,543 and the changes in operating assets and liabilities of $888,272. For the three months ended September 30, 2019, the cash used in operations was a result of the net loss of $4,980,496 a gain on fair value of derivatives of $159,617, amortization of debt discount in the amount of $1,181,202, depreciation and amortization in the amount of $317,388, a loss on equity investment in the amount of $4,429, loss on debt extinguishment in the amount of $44,393, non-cash interest expense of $2,500, stock-based compensation of $554,791, and the changes in operating assets and liabilities of $248,819.
Investing Activities
Cash used in investing activities was $18,789 for the nine months ended September 30, 2020 and consisted of purchases of equipment of $5,349 and changes in equity investment of $13,440. Cash used in investing activities was $73,095 for the nine months ended September 30, 2019 and consisted of purchases of equipment of $49,614 and payment of security deposit of $23,481.
Financing Activities
For the nine months ended September 30, 2020, cash provided by financing activities was $480,395 compared to $2,277,783 for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, the Company has received $199,650, net of debt issuance costs, from the issuance of convertible notes and $262,445 proceeds from Paycheck Protection Program loan. Further a $18,300 change in bank overdraft occurred during nine months ending September 30, 2020. For the nine months ended September 30, 2019, the Company has received $2,308,775 from the issuance of convertible notes and cash of $89,100 from the issuance of a note payable. For the nine months ended September 30, 2019, the Company made payments of $102,530 on notes payable, and net advances of $17,562 to a related party resulting in net cash provided by financing activities of $2,277,783.
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.
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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 September 30, 2020 and 2019, the Company’s outstanding convertible debt is convertible into approximately 4,707,741,429 and 393,621,118 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 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
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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 September 30, 2020 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 11th 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
During the period end September 30, 2020, the Company issued 3,114,005,479 shares of common stock for partial conversion of principal and accrued interest.
The issuances described above were made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(1) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by each shareholder, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, the shareholders were not affiliates, and they had held the underlying debt securities for the required time. The holders provided legal opinions pursuant to Section 4(a)(1) of Securities Act, or Rule 144 promulgated thereunder.
Item 3. Defaults upon Senior Securities
None.
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Item 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. |
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| 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 |
* Previously filed.
+ Confidential Treatment has been requested for certain portions thereof pursuant to Confidential Treatment Request under Rule 406 promulgated under the Securities Act. Such provisions and attachments have been filed with the Securities and Exchange Commission.
** Filed Herewith
# Denotes management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 20, 2023
INNERSCOPE HEARING TECHNOLOGIES, INC.
By: /s/ Matthew Moore
Matthew Moore
Chief Executive Officer (principal executive officer)
By: /s/ Kimberly Moore
Kimberly Moore
Chief Financial Officer (principal financial and accounting officer)
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