Max Sound Corp - Annual Report: 2012 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
| x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2012
| o TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______to______.
Commission file number 000-51886
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MAX SOUND CORPORATION
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(Exact name of registrant as specified in its charter)
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Delaware
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26-3534190
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State or other jurisdiction of incorporation or organization
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(I.R.S. Employer Identification No.)
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2902A Colorado Avenue
Santa Monica, CA 90404
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90404
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: 888-777-1987
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Securities registered pursuant to Section 12(b) of the Act:
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None.
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Securities registered pursuant to Section 12(g) of the Act:
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None.
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(Title of class)
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Form 10-K. x
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.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
(Do not check if a smaller reporting company)
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Smaller reporting company
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x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2012 was approximately $10,855,738.00.
As of March 29, 2013, the registrant had 291,534,980 shares issued and outstanding.
Documents Incorporated by Reference:
None.
TABLE OF CONTENTS
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PART I
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ITEM 1.
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BUSINESS
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1
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ITEM 1A.
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RISK FACTORS
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6
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ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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6
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ITEM 2.
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PROPERTIES
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6
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ITEM 3.
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LEGAL PROCEEDINGS
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6
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ITEM 4.
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MINE SAFETY DISCLOSURES
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6
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PART II
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ITEM 5.
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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6
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ITEM 6.
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SELECTED FINANCIAL DATA
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7
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ITEM 7.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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7
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ITEM 7A.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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14
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ITEM 8.
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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F-1
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ITEM 9.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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15
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ITEM 9A.
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CONTROLS AND PROCEDURES
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15
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PART III
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ITEM 10.
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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16
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ITEM 11.
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EXECUTIVE COMPENSATION
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17
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ITEM 12.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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19
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ITEM 13.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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19
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ITEM 14.
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PRINCIPAL ACCOUNTING FEES AND SERVICES
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20
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PART IV
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ITEM 15.
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EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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21
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SIGNATURES
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PART I
Overview
We were incorporated in the State of Delaware as of December 9, 2005 as 43010, Inc. to engage in any lawful corporate undertaking, including, but not limited to, locating and negotiating with a business entity for combination in the form of a merger, stock-for-stock exchange or stock-for-assets exchange. On October 7, 2008, pursuant to the terms of a stock purchase agreement, Mr. Greg Halpern purchased a total of 100,000 shares of our common stock from Michael Raleigh for an aggregate of $30,000 in cash. The total of 100,000 shares represents 100% of our issued and outstanding common stock at the time of the transfer. As a result, Mr. Halpern became our sole shareholder. As part of the acquisition, and pursuant to the Stock Purchase Agreement, Michael Raleigh, our then President, CEO, CFO, and Chairman resigned from all the positions he held in the company, and Mr. Halpern was appointed as our President, CEO CFO and Chairman. The original business model was developed by Mr. Halpern in September of 2008 and began when he joined the company on October 7, 2008. In October 2008, we became a development stage company focused on creating an Internet search engine and networking web site.
From October 2008 until January 17, 2011, Mr. Halpern was our CEO, and during that time the Company was focused on developing their Internet search engine and networking web site. In January of 2010, the Company launched their Internet search engine and networking website ( www.soact.net ). In 2011, the Company decided to abandon its' social networking website. On May 11, 2010, the Company acquired the worldwide rights, title, and interest to all fields of use for Max Sound®.
On January 17, 2011, Mr. Halpern resigned as the Company’s CEO and John Blaisure was appointed as CEO. In February of 2011, the Company elected to change its business operations and focus primarily on developing and launching the Max Sound® technology. Our current website ( www.maxsound.com ) is used to showcase the Max Sound® technology. On March 8, 2011, the Company changed its name to Max Sound Corporation, and its trading symbol on the OTC Bulletin Board to MAXD.
On December 3, 2012, the Company, completed the purchase of the assets of Liquid Spins, Inc., a Colorado corporation (“LSI”). Pursuant to the Asset Purchase Agreement, dated November 15, 2012, the assets of LSI were exchanged for 24,752,475 shares of common stock of the Company (the “Shares”), equal to $10,000,000 and a purchase price of $.404 per share. The price of the Shares was determined by taking the average of the daily closing prices for the Company’s common stock as reported on the OTC Bulletin Board on the ten (10) trading days immediately preceding the closing. The assets of LSI purchased included: record label distribution agreements; Liquid Spins technology inventory; independent arts programs; retail contracts for music distribution; gift card retail contracts via incomm; physical inventory and office equipment; design and retail ready concepts; brand value; records; publishing catalog; and web assets.
Max Sound® Corporation owns the worldwide rights to all fields of use to Max Sound® HD Audio which was invented by Lloyd Trammell, the top sound designer and audio engineer who developed and sold the first working Surround Sound System to Hughes Aircraft. Mr. Trammell, who is now the CTO of Max Sound® also developed MIDI for Korg and owns five patents in dimensional sound processing. Max Sound® is to Audio what High Definition is to video. Max Sound® works by converting all audio files to their highest possible acoustically perfect equivalent without increasing files size or bandwidth usage.
Description of Our Business
The Company has grown this year to a staff 23 including employees and sub contractor’s. We now have an infrastructure that is allowing us to expand and execute quickly. In addition we have established business relationships with the leading companies in the Smartphone, Tablet, Chip, Music and Consumer Retail business. The Company is now executing its “Go To Market” strategy and sales programs as a first market mover solving the degraded compressed audio issues plaguing the audio currently being consumed. These companies dominate the multi-media and electronics technology arena providing audio delivery across all channels of the exploding smartphone tablet device phenomenon. In addition the Company gained the artist “PitBull” as our Global Ambassador taking MAX-D App’s and Music worldwide with over 43 million Social Media followers.
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List of 2012 contracted companies
| Qualcomm | (Leader in Chips Smartphones & Tablets) |
| Incomm | (Leader in retail music transaction distribution encompassing the largest Big Box company’s) |
| EMI | (Leading Music Distribution) |
| Sony Music | (Leading Music Distribution) |
| UMG | (Leading Music Distribution) |
| RED Records | (Leading Music Distribution) |
| Curb Records | (Leading Music Distribution) |
Acquisition of Liquid Spins
In December of 2012 we completed the purchase of Liquid Spins (LiquidSpins.com) an online MP3 digital music service with agreements in place with all the major record labels listed above. Currently we have over 2 million tracks. We are currently in talks to add another 7.5 million tracks bringing us to a total of over 9.5 million. In addition we have added a Liquid Spins MAX-D HD Audio Player App to the Google Play Store along with a Liquid Spins Downloader App that allows the consumer to effortlessly download the MP3 tracks to any Google, Apple or Windows device. In addition the downloader keeps record of all purchased music for future downloads if needed.
All music on Liquid Spins is “DRM Free” “Digital Music Rights Free” which sets us apart from the leading music download company Apple. Apple limits the number of devices that will play your music. Digital music sales now represent 53% of all music sold in a 5.6 Billion USA market growing at 17% annually. The Incomm partnership will place liquid Spins and MAX-D in retail locations representing over 200 million consumers a week in the USA purchasing over 1 Billion in music annually. International expansion into Latin America and Asia is slated for Q-3 & Q-4 2013.
Liquid Spins and MAX-D White Label Partnership
Pitbull was the first major artist to have a “Pitbull branded” MAX-D HD Audio player app that is attached to the LiquidSpins.com music store to market to his 43 million fans on Facebook. We are currently in talks with major companies to White Label their brand to their consumers using Liquid Spins and MAX-D HD Audio Player Apps. We anticipate this to be the fastest way to massive consumer adoption and creating the first Consumer Audio Brand MAX-D.
Update Qualcomm:
We are currently testing our MAX-D technology on the Qualcomm test platform on the Qualcomm Smartphone. Residing on the Snapdragon DSP will give the MAX-D technology the ability to control and convert to HD Audio up to 8 audio processes simultaneously. This will include Cellular Voice transmission and termination, streaming video, streaming audio and all content stored on the device in memory. Qualcomm currently has 49% of the entire global chip market for all smartphones and tablets with a growth rate that mirrors the industry. When MAX-D is deployed on the chip it will have the ability to be offered to 86 OEM’s on 100’s of millions of devices every quarter. We anticipate a strong adoption from the OEM’s licensing the MAX-D technology. We also expect increasing licensing revenue as we announce the growth among the retail sector through Incomm and Liquid Spins.
Max Sound® (MAX) is engaged in activities to sell and license products and services based on its patent-pending Max Sound® technology for sound recording and playback that dramatically improves the listener’s experience. The Company is marketing Max Sound® on the basis that it is to audio what HD is to video. Max Sound® technology improves all types of audio; moreover, it is intended to be particularly valuable in improving the ever-growing use of compressed audio and video as used in mp3 files, iPods, internet, and satellite/terrestrial broadcasting. For example, a listener using a portable mp3 player with Max Sound® will experience sound quality that is comparable to the original CD before it was converted into an mp3 file. In another example, cell phone users using a cell phone equipped with Max Sound® will hear the other person's voice as if they are speaking directly in front of them. The Company’s current business model is to license the technology to content creators, manufacturers, and network broadcasters. The Company’s patent-pending technology stands customer ready today. The Company’s market pursuits include motion picture, music recording, video game, broadcasting, Internet Video and Audio, and consumer electronics.
Max Sound® Benefits:
● Increases dynamic range, eliminates destructive effects of audio compression with no increase in file size or transmission bandwidth
● High-resolution audio reproduction with an omni-directional sound field using only two speakers
● “Real” three-dimensional sound field, versus artificial sound field created by competing technologies
● More realistic “live performance” quality of all recordings with optimal dynamic range, bass response, and overall clarity
Max Sound® Markets:
● Licensing the technology to creators of film, music, broadcast, and gaming content and selling them the service of applying the Max Sound® technology to their end product. Max Sound® is fully compatible with existing playback technology. No current competitor can provide the level of sound quality and end user experience that Max Sound® delivers. Max Sound® technology is ready for these markets now.
●Licensing the technology to manufacturers of consumer electronics products such as portable mp3 players, TV’s, Set Top Boxes, Car Stereo, Home Theatre, Smartphones and Tablets.
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Max Sound® Revenue Model:
The Company is negotiating Licensing of its HD Audio technology onto hardware and software across the primary vertical markets in Entertainment, Multi-media and Mobile Communications technology and White Labeling its Liquid Spins Music Store into all of these sectors and National Retailers as well.
Max Sound® Embedded Chip Solution: The Max Sound® Embedded Chip technology is being designed to restore the natural sound field, causing compressed audio to sound like the original audio at playback time in any device. The audio does not have to be pre-processed or encoded. The Chip is being designed to be imbedded into TV Receivers, Digital Projection TVs, LCD TVs, Plasma TVs, Component DVD Players/Recorders, DVD Recorders, Set-Top Boxes, Personal Video Recorders (PVRs), Direct Broadcast Satellite (DBS) Receivers, Personal Computers, Satellite Radio Receivers, Mobile Video Devices, Domestic Factory Installed Auto Sound, Camcorders, MP3 Players, Electronic Gaming Hardware, Wireless Telephones, Cell Phones, and Personal Digital Assistants (PDAs).
Max Sound® Dynamic Software Module: Max Sound has delivered and is working to implement a API for all Internet applications to process all audio/video content streamed or downloaded by consumers. One of the viable target candidates is streaming Movies and Music services such as Netflix and Spotify. Companies selling downloaded MP3’s are also expected to find immense value in our technology due to their dominance in web-based audio and video. This Module is a lossless dynamic process requiring no destructive encoding or decoding and needs no additional hardware or critical monitoring stage after processing. Finally, no specialized decoder is necessary on any audio system!
Technology
Max Sound® is a unique approach to processing sound, based on the physics of acoustics rather than electronics. Remarkably simple to deploy, Max Sound® is a new technology that dramatically raises the standard for sound quality, with no increase in file size or transmission channel bandwidth! In fact, audio processed with Max Sound can be lowered in size. This is accomplished by processing audio with our proprietary, patent-pending process. This embedded and duplicating format either remains the same, or can be converted to whatever format the user desires, while retaining unparalleled fidelity and dynamic range.
Max Sound® restores the original recorded acoustical space in any listening environment. Max Sound® is the only technology that both aligns phase and corrects phase distortion in a completed recording. Max Sound® supplies missing audio content by adding acoustics and frequency response lost in the original recording or in the compression and transmission processes. Max Sound® corrects and optimizes harmonic content and low frequency responses, greatly enhancing acoustic accuracy and reducing ear fatigue.
Max Sound® integrates time, phase, harmonics, dynamics, and sub-harmonic region optimizations in a fully dynamic fashion. Max Sound® is a lossless dynamic process, requiring no destructive encoding/decoding process. Max Sound® needs no additional hardware or critical monitoring stage after processing. Finally, no specialized decoder is necessary for playback on any audio system! The end result is that every aspect of audio processed with Max Sound® - voice, instrument, or special effects -sounds refreshingly clear, realistic, and natural. Max Sound® technology creates an optimum sound field throughout every listening environment – from the corners of a theater; on your living room couch; to the back seat of your car.
Market
2012 was a year of creating relationships with company’s across all vertical markets understanding the value of those industries and what it would mean to Max Sound. It became clear that the Device market was the largest for potential revenue and profits for the company. The deal with Qualcomm established the foundation for entry into this market. The MAX-D HD Audio player App provided the consumer the ability to experience MAX-D. The acquisition of Liquid Spins provided a music gateway directly to the retail consumer and the record labels and the ability to provide MAX-D HD Audio.
The company is now clearly positioned to accomplish the following goals in these markets.
MAX-D audio in the Qualcomm Snapdragon DSP and available on 100’s of millions of device’s to be licensed by the 86 OEM’s around the world.
Liquid Spins music and MAX-D HD Audio Apps in over 200,000 retail locations in the USA with international expansion in Q-3 and Q-4 2013 through the Incomm relationship.
MAX-D API’s to be deployed and reside in the memory of streaming Video/Audio and stand alone Audio service.
Max Sound® products and services are designed and intended to solve problems and add value to audio components of several separate industries, including consumer electronics, motion picture, broadcasting, video game, recording, cell phone, internet, and VOIP applications.
Competition
Max Sound Management believes there are no current competitors capable of delivering the high quality of audio products and services produced by the company.
We believe we will be considered friendly competition in the future for four reasons; (1) Max Sound® technology delivers the best sound quality available today, (2) Max Sound® does not require any additional equipment in theatres, CD or DVD players (3) Max Sound® can lower file size to save on bandwidth, and (4) Max Sound makes all other audio processes sound better.
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Intellectual Property
Max Sound and HD Audio technologies and designs are Patent Pending and Trademarked. On February 8, 2011 the words Max Sound was issued to the Company by the U.S. Patent and Trademark office under Serial Number 85050705 and the words HD Audio are pending under serial number 85232456 for the following applications - Computer application software for mobile phones, namely, software for HD audio; Computer hardware and software systems for delivery of improved HD audio; Computer hardware for communicating audio, video and data between computers via a global computer network, wide-area computer networks, and peer-to-peer computer networks; Computer software for manipulating digital audio information for use in audio media applications; Computer software to control and improve computer and audio equipment sound quality; Digital materials, namely, CD's, DVD's, MP3's, streaming media, movies, videos, music, concerts, news, pre-recorded video, downloadable audio and video and high definition audio and video featuring improved HD audio; Digital media, namely, pre-recorded DVDs, downloadable audio and video recordings, and CDs featuring and promoting improved HD audio; Digital media, namely, pre-recorded video cassettes, digital video discs, digital versatile discs, downloadable audio and video recordings, DVDs, and high definition digital discs featuring improved HD audio.; Digital media, namely, CD's, DVD's, MP3's, movies, videos, music, concerts, news, pre-recorded video, downloadable and streaming audio and video and high definition audio and video featuring improved HD audio.; Downloadable MP3 files, MP3 recordings, on-line discussion boards, webcasts, webinars and podcasts featuring music, audio books in the field of entertainment and general subjects, and news broadcasts; Software to control and improve audio equipment sound quality; Sound recordings featuring improved HD audio. The Company is in the process of filing 48 additional patents for its technology.
Research and Development
Throughout 2012, in addition to acquiring and building out Liquid Spins, which is now one of our primary focus do to the large demand we are receiving, the Company continued to build out corporate infrastructure adding personal in critical areas. In the R&D department we added four more additional programmers to a total of 6 to assist in the building of the Max Sound Android APP, which is currently available on Google Play and also the Apple IOS App for the iPhone, and tablets that is currently in beta. The Android application is available for all Android dual core operating systems as well as a Windows Smartphone version succeeding the IOS APP. In addition advancements were made on the next revision of the Max Sound audio server that will be available in Windows, Linux and Apple operating systems. The new additions to our R&D team have also been working diligently on the Qualcomm Hexagon program. In addition we have a MAX-D API ready for market and implementation.
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Employees
Greg Halpern, Chairman, CFO & Founder
Greg Halpern is the founder and visionary of Max Sound®, Mr. Halpern has invested nearly $270,000 into the Company in cash, notes, accrued salary, office space, and accrued salary/debt conversions.
From 1997 to 2001, Mr. Halpern was the CEO of Circle Group Internet, Inc. (CRGQ: OTCBB). From 2002 to 2005, Mr. Halpern was the Chief Executive Officer of Circle Group Holdings Inc. (AMEX: CXN, formerly CRGQ.OB) and continued to be the CEO after it changed its name to Z-Trim Holdings Inc. (AMEX: ZTM) from 2006 - 2007. Circle Group was a venture capital firm for emerging technology companies which provided small business infrastructure, funding and intellectual capital to bring timely life-changing technologies to market through all early phases of the commercialization process. Mr. Halpern’s efforts there were focused on acquiring life improving technologies and bringing these products to the marketplace. In 2003, Mr. Halpern and his wife founded an unincorporated non-profit organization “People for Ultimate Kindness Toward All Living Creatures on Earth” whose purpose is and has been to identify problems on earth and those who are working to solve them. The Ultimate Kindness is a non-profit organization independent from the So Act Network. The Ultimate Kindness and the So Act Network share no financial interest or otherwise. In 2007, Mr. Halpern resigned from his position at Z-Trim Holdings and took a one (1) year sabbatical from business touring the Continental United States in his RV with his family. Currently, Mr. Halpern serves as the Chairman and Chief Financial Officer of Max Sound Corporation, and devotes approximately 50 hours each week to the management and operations of Max Sound Corporation.
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John Blaisure, President & Chief Executive Officer.
John Blaisure is the President and Chief Executive officer of Max Sound Corporation. Prior to Mr. Blaisure joining Max Sound Corporation, he was the Founder, President, and CEO of Effective Network Systems (ENS) from 1996 to 2010. Effective Network Systems is a telephony software company that was debuted at the Intel Technology Summit in 1999 as one of the top 40 telephony software companies in the world. Prior to his work at ENS, he was the Founder, President, and CEO of Fonz By The Day Stores from 1990 to 1996. Fonz By The Day Stores is a cellular communication reseller and retailer in Dallas Texas. Fonz By The Day Stores achieved success as a market leader in the Dallas Fort Worth area in retail sales. The company also achieved success as a national leader in cellular rentals. Mr. Blaisure brings over 20 years of experience in managing and marketing of communication technology companies from the ground up.
Lloyd Trammell, Chief Technical Officer
Lloyd Trammell is the Chief Technical officer of Max Sound®. Mr. Trammell has more than 30 years experience designing high-end professional audio and musical equipment and sound design for industry leaders, such as Yamaha, Korg, Roland, Atlas Sound, Crest, Peavey Electronics, Alesis, Kawai and Ensoniq. In the early eighties, Mr. Trammell was instrumental in creating MIDI, the Musical Instrument Digital Interface. Because of his standing, Mr. Trammell aided in achieving standardized specifications and approval from electronic keyboard manufacturers for MIDI. In the mid-eighties, he designed one of the first working surround sound processors, selling it to Hughes Audio, which later spun off to become SRS (NASDAQ:SRSL). Today’s SRS technology is still based on this design. Mr. Trammell holds several patents, including patent # 7,136,493 for “Sub-harmonic generator and stereo expansion processor.” He holds numerous patents for Dimensional Sound Processing and ACM (Analog Acoustic Modeling). He was Senior Product Development Manager at Atlas Sound, developing new digital and analog products for the high-end audio contractor market. At Peavey, he invented the Kosmos audio processor, winning the “Rack Processor of the Year Award” at the 2002 National Association of Music Merchants (NAMM). While at Peavey, Mr. Trammell managed the prestigious MediaMatrix product line of high-end professional digital audio systems used by Disney, U.S. Congress, Sydney Opera House and the Olympics. In his roles as Product Manager, he has overseen all aspects of product development from initial design and manufacturing to marketing. Mr. Trammell also designs custom sounds for many of the world’s top musicians and performing artists: U2, Pink Floyd, Robert Plant, Yes, Heart, Boston, Madonna, Genesis, Prince, Cher, Bonnie Raitt, Hank Williams, Jr., Rippingtons, Emerson Lake and Palmer, Journey and Def Leppard.
Chris Record, Chief Internet Officer
Chris Record is the Chief Internet Officer of Max Sound Corporation. Mr. Record has over 12 years sales and marketing experience and a 10-year background in web design and search engine optimization combined with a 7-year background in direct sales managing 2,500 sales reps nationwide. Mr. Record brings with him 100,000+ loyal followers from combined social media networks along with several existing multi-million dollar business clients to Max Sound Corporation
We are a publicly reporting company under the Exchange Act and are required to file periodic reports with the Securities and Exchange Commission. The public may read and copy any materials we file with the Commission at the SEC's Public Reference Room at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission and state the address of that site (http://www.sec.gov). In addition, you can obtain all of the current filings at our Internet website at www.maxsound.com.
Milestones for the Next Twelve Months
For the next twelve months, our most important goal is to become cash flow positive by growing Max Sound HD Audio sales through licensing and recurring revenue streams. Our goal is to have this growth improve our stock value and investor liquidity. We expect our financial requirements to increase with the additional expenses needed to promote the Max Sound® Audio technology. We plan to fund these additional expenses by equity loans from our existing lines of credit and we are also considering various private funding opportunities until such time that our revenue stream is adequate enough to provide the necessary funds.
Over the next twelve months, our focus will be in the achieving and implementing the following:
1. The marketing of the MAX-D Android and Windows APP for tablets and smartphones in addition to an APP that will run on the Apple OS into the direct consumer market. This will bring relevant traffic to the Liquid Spins Music Store producing music sales and subscription based revenue.
2. The launch of White Label on line music stores and MAX-D HD Audio App’s through the partnership with Incomm and other partners through out retail America.
3. MAX-D in the Qualcomm Snapdragon DSP through the Hexagon program.
4. Deployment of Max Sound audio appliances for Key industry engineers and Internet streaming companies allowing them to broadcast in MAX-D.
5. Early adoption from the movie industry producing “Mastered in MAX-D” content.
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Key Outcomes
1. Increase Max Sound’s customer base substantially producing large consumer adoption and branding.
2. Make a financial return on the investments of the last year, with increased sales and reduction of indirect costs, to become cash flow positive and then profitable in 2013.
3. Increased adoption by industry leaders and differentiated as a deliverer of game-changing audio technology.
Not applicable for smaller reporting companies.
Not applicable for smaller reporting companies.
ITEM 2. PROPERTIES.
Office Arrangements and Operational Activities
We are renting our Texas location, located at 10685-B Hazelhurst Drive, #6572, Houston, TX 77043 from a business service corporation on a month-to-month basis. The office provides us with general office services such as mail, phone, fax, shipping and receiving capabilities. We do not have a lease with the business service corporation.
In November 2010, we leased our new Max Sound® post production facility at 2902A Colorado Ave., Santa Monica, CA, 90404. The lease is for two years with one-year renewable options.
In December of 2012, the Company took over a month-to-month operating lease upon the acquisition of Liquid Spins. The office is located at 5525 Erindale Drive, Suite 200, Colorado Springs, CO, 80918.
To the best of our knowledge, there are no known or pending litigation proceedings against us.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our shares of common stock are traded on the OTC Bulletin Board under the symbol MAXD.
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Price
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High
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Low
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|||||||
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2011
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||||||||
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First quarter
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$
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.25
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$
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.04
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||||
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Second quarter
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$
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.40
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$
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.04
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||||
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Third quarter
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$
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.49
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$
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.22
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||||
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Fourth quarter
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$
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.95
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$
|
.33
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2012
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||||||||
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First quarter
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$
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.75
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$
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.16
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||||
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Second quarter
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$
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.39
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$
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.04
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||||
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Third quarter
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$
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.56
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$
|
.28
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Fourth quarter
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$
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.45
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$
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.26
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The number of holders of record for our Common Stock as of December 31, 2012 was approximately 590. This number excludes individual stockholders holding stock under nominee security position listings.
Holders
As of March 29, 2013, in accordance with our transfer agent records, we had 632 record holders of our Common Stock.
6
Dividends
To date, we have not declared or paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock, when issued pursuant to this offering. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future.
Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.
Securities authorized for issuance under equity compensation plans.
None.
Stock Option Grants
On January 17, 2011, we entered into an employment agreement with our CEO, John Blaisure. Pursuant to the employment agreement with Mr. Blaisure, we issued to Mr. Blaisure 12,000,000 options to buy common stock of the Company at $.12 per share for a period not to exceed three years from the date of the employment agreement.
Not applicable.
The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.
Overview
We were incorporated in the State of Delaware as of December 9, 2005 as 43010, Inc. to engage in any lawful corporate undertaking, including, but not limited to, locating and negotiating with a business entity for combination in the form of a merger, stock-for-stock exchange or stock-for-assets exchange. On October 7, 2008, pursuant to the terms of a stock purchase agreement, Mr. Greg Halpern purchased a total of 100,000 shares of our common stock from Michael Raleigh for an aggregate of $30,000 in cash. The total of 100,000 shares represents 100% of our issued and outstanding common stock at the time of the transfer. As a result, Mr. Halpern became our sole shareholder. As part of the acquisition, and pursuant to the Stock Purchase Agreement, Michael Raleigh, our then President, CEO, CFO, and Chairman resigned from all the positions he held in the company, and Mr. Halpern was appointed as our President, CEO CFO and Chairman. The current business model was developed by Mr. Halpern in September of 2008 and began when he joined the company on October 7, 2008. In October 2008, we became a development stage company focused on creating an Internet search engine and networking web site.
In May of 2010, we acquired the world-wide rights to all fields of use for Max Sound HD Audio technology. In November of 2010, we opened our post-production facility for Max Sound HD Audio in Santa Monica California. In February of 2011, after several successful demonstrations to multi-media industry company executives, we decided to shift the focus of the Company to the marketing of the Max Sound HD Audio technology and commenced the name change from So Act Network, Inc. to Max Sound Corporation and the symbol from SOAN to MAXD.
On December 3, 2012, the Company completed the purchase of the assets of Liquid Spins, Inc., a Colorado corporation (“LSI”). Pursuant to the Asset Purchase Agreement, the assets of LSI were exchanged for 24,752,475 shares of common stock of the Company (the “Shares”), equal to $10,000,000 and a purchase price of $.404 per share. T he assets of LSI purchased included: record label distribution agreements; Liquid Spins technology inventory; independent arts programs; retail contracts for music distribution; gift card retail contracts via incomm; physical inventory and office equipment; design and retail ready concepts; brand value; records; publishing catalog; and web assets.
The Company is in negotiations with several multi-media companies that will utilize our HD Audio solution in the future.
A new video is currently available on the company website at http://www.maxsound.com. The amazing Max Sound® Technology Highlights Video is 10 minutes long and summarizes the HD Audio™ process including meeting the inventor of the technology and showing the need for high definition audio in several key vertical markets. The video explains Max Sound® as currently the only Company offering dynamic HD Audio™ to various markets and how the technology reduces the audio file size during the conversion process to help reduce bandwidth issues companies are currently facing and how it also decreases compressed square waves which can damage listeners hearing.
7
Plan of Operation
We began our operations on October 8, 2008, when we purchased the Form 10 Company from the previous owners. Since that date and through 2011, we have completed financing to raise initial start-up money for the building of our internet search engine and social networking website and to start our operations. In 2011, the Company shifted the focus of its' business operations from their social networking website to the marketing of the Max Sound HD Audio Technology.
We have also received three loans from Mr. Greg Halpern, in the amount of $9,500, $15,000 or $16,700 on May 11, May 22, and May 26, 2009, respectively. Each of the loans bears an interest rate equal to the primate rate as of the date of issuance. These loans matured and expired in 2011. We have entered into three Credit Line Agreements with Greg Halpern. The first two were for $100,000 each and matured and expired in 2011. The third Credit Line Agreement issued by Mr. Halpern in March 2010 is for an additional $500,000 and will mature in 2012. All three agreements accrue interest at the prime rate as of the date of issuance. The prime rate of interest is the rate of interest that major banks charge their most creditworthy customers. For the purposes of these agreements, we shall determine the prime rate by using the prime rate reported by the Wall Street Journal on the date funds are extended to the Company. Based on the prime rate as of the date of issuance, the prime rate shall be 3.25%. As of December 31, 2012, the Company owed $0 in principal and $0 in accrued interest related to these loans and lines of credit. We believe that the $500,000 line of credit issued will not be sufficient to cover the additional expense arising from maintenance of our regulatory filings with the SEC, and the marketing of our technology over the next twelve months, thus the Company will continue to pursue additional financing and/or additional funding in 2013 to continue marketing the Max Sound HD Audio Technology aggressively to Multi-Media Industry Users of Audio and Audio with Video products.
In 2011, the Company has received from Mr. Halpern additional net advances on the established lines of credit in the amount of $134,000 and forgiveness of $244,000 through conversion of debt notes and accrued salary into shares at 11 cents per share. This further demonstrates our Chairman’s ongoing commitment to continue financing the Company’s needs. While the Company expects to have ongoing needs for additional financing, the amount of those needs are not clearly established as the Company moves forward.
The Company believes that Max Sound HD Audio Technology is a game changer for several vertical markets whose demand will create revenue opportunities in 2013 that will meet the Company’s needs to eliminate its going concern status in 2014.
We expect our financial requirements to increase with the additional expenses needed to market and promote the Max Sound® Audio technology. We plan to fund these additional expenses by loans from Mr. Halpern based on existing lines of credit and we are also considering various private funding opportunities until such time that our revenue stream is adequate enough to provide the necessary funds.
In the event that we are unable to obtain additional financing and/or funding or Mr. Halpern either fails to extend us more financing, declines to loan additional cash, declines to fund the line of credit, or declines to defer his salary payments, we will no longer be able to continue to operate and will have to cease operations unless we begin to generate sufficient revenue to cover our costs.
8
Results of Operations
The following tables set forth key components of our results of operations for the periods indicated, in dollars, and key components of our revenue for the period indicated, in dollars.
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
|||||||
|
Revenue
|
$
|
5
|
$
|
13,000
|
||||
|
Operating Expenses
|
||||||||
|
General and Administrative
|
1,385,540
|
255,589
|
||||||
|
Endorsement Fees
|
-
|
1,573,273
|
||||||
|
Consulting
|
614,298
|
1,348,753
|
||||||
|
Professional Fees
|
164,059
|
146,935
|
||||||
|
Website Development
|
-
|
-
|
||||||
|
Compensation
|
704,223
|
2,182,794
|
||||||
|
Total Operating Expenses
|
2,868,120
|
5,507,344
|
||||||
|
Loss from Operations
|
(2,868,115
|
)
|
(5,494,344
|
)
|
||||
|
Other Income / (Expense)
|
||||||||
|
Interest Income
|
177
|
511
|
||||||
|
Interest Expense
|
(41,371
|
)
|
(5,940
|
)
|
||||
|
Derivative Expense
|
(201,395)
|
-
|
||||||
|
Amortization of debt offering costs
|
(126,854)
|
-
|
||||||
|
Amortization of Debt Discount
|
(825,819
|
)
|
(13,710
|
)
|
||||
|
Change in fair value of embedded derivative liability
|
(44,805)
|
21,836
|
||||||
|
Total Other Income / (Expense)
|
(1,240,067)
|
2,697
|
)
|
|||||
|
Provision for Income Taxes
|
-
|
-
|
||||||
|
Net Loss
|
$
|
(4,108,182
|
)
|
$
|
(5,491,647
|
)
|
||
|
Net Loss Per Share - Basic and Diluted
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
||
|
Weighted average number of shares outstanding
|
||||||||
|
during the year Basic and Diluted
|
260,207,229
|
242,287,741
|
||||||
9
For the Fiscal Year Ended December 31, 2012 and for the Fiscal Year Ended December 31, 2011
General and Administrative Expenses: Our general and administrative expenses for the years ended December 31, 2012 and 2011, were $1,385,540 and $255,589, respectively. The increase of 1,129,951 or approximately 442%, was a result of our increased advertising and promotional expenses which include the cost of public relations and product promotion activities, and a decrease in other expenses associated with the operation of the company.
Endorsement Fees: Our endorsement fees for the years ended December 31, 2012 and 2011, were $0 and $1,573,273, respectively. The decrease of $1,573,273 or approximately (100%) was a result of a decrease in expenses associated with having high profile individuals promote and market our social networking website.
Consulting Fees: Our consulting fees for the years ended December 31, 2012 and 2011, were $614,298 and $1,348,753, respectively. The decrease of $734,455 or approximately (54%) was a result of a decrease in expenses associated with the additional consulting, promotional and marketing services related to our social networking website, and an increase in expenses associated with the further development of our Max Sound® HD Audio technology.
Professional Fees: Our professional fees for the years ended December 31, 2012 and 2011, were $164,059 and $146,935, respectively. The increase of $17,124, or approximately12%, was a result of an increase in the expenses associated with the preparation of our financial statements and regulatory filings required for publicly traded companies.
Compensation: Our compensation expenses for the years ended December 31, 2012 and 2011, were $704,223 and $2,182,794, respectively. The decrease of $1,478,571, or approximately (68%), was a result of our decrease in the expensing of stock options, , and an increase due to additional employees hired during 2012.
Net Loss: Our net loss for the year ended December 31, 2012, was $4,108,182, compared to $5,491,647 for the year ended December 31, 2011. The decrease in net loss was the result of the decrease in expenses associated with our prior business operations which were abandoned in 2011, expensing in stock options, and an increase in expenses associated with the promotion and marketing of the Max Sound HD Audio Technology.
Liquidity and Capital Resources
Revenues for the fiscal years ended December 31, 2012, and 2011, were $5 and $13,000, respectively. We have an accumulated deficit of $18,468,166 for the period from December 9, 2005 (inception) to December 31, 2012, and have negative cash flow from operations of $3,676,694 from inception.
Our financial statements have been presented on the basis that it is a going concern, which contemplates the realization of revenues from our subscriber base and the satisfaction of liabilities in the normal course of business. We have incurred losses from inception. These factors raise substantial doubt about our ability to continue as a going concern.
From our inception through December 31, 2012, our primary source of funds has been the proceeds of private offerings of our common stock, private financing, and loans from stockholders. Our need to obtain capital from outside investors is expected to continue until we are able to achieve profitable operations, if ever. There is no assurance that management will be successful in fulfilling all or any elements of its plans.
10
We have received three loans from Mr. Greg Halpern, in the amount of $9,500, $15,000 or $16,700 on May 11, May 22, and May 26, 2009, respectively. During the year ended December 31, 2011, the Company repaid $18,000 in principal and $2,116 of accrued interest to the principal stockholder. Each of these loans accrue interest at the prime rate as of the date of issuance. These loans matured and expired in 2011. The prime rate of interest is the rate of interest that major banks charge their most creditworthy customers. For the purposes of this agreement, we shall determine the prime rate by using the prime rate reported by the Wall Street Journal on the date funds are extended to the Company. Based on the prime rate as of the date of issuance, we have determined that the prime rate shall be 3.25%. As of December 31, 2012, we owed $0 in principal and $0 in accrued interest.
For the year ended December 31, 2011, we received $134,000 from Mr. Greg Halpern, our principal shareholder, by way of the established lines of credit. Pursuant to the lines of credit agreements, the lines of credits bear an annual interest rate of 3.25% and are due on May 29, 2011, November 11, 2011, and March 25, 2012. During the year ended December 31, 2011, the Company repaid $255,480 in principal and $11,283 in accrued interest to the principal stockholder. As of December 31, 2012, we owe $0 in principal and accrued interest of $0.
On October 13, 2008, the Company entered into an employment agreement with the principal stockholder whereby the principal stockholder would be paid $18,000 per month for a term of ten (10) years for services rendered as the Chief Executive Officer of the Company.
On February 18, 2011 the Company’s Board authorized the issuance and conversion of 2,218,182 shares of par value $.0001 common stock at $.11 per share as payment to the principal stockholder for conversion of $100,000 of the debt outstanding and the full $144,000 in accrued wages payable owed as of January 31, 2011. Pursuant to the Board’s authorization and resulting issuance of shares, the principal shareholder has entered into an agreement (the “Conversion Agreement”) with the Company relinquishing the Company from any further obligation to the principal shareholder with respect to $100,000 of the note payable outstanding and all amounts due and payable as wages as of January 31, 2011.
Subscription Agreement
On August 2, 2011 the Company entered into a subscription agreement (“Subscription Agreement”) with certain investors (the “Investors”) for the issuance and sale of 18,857,000 shares of the Company’s common stock, $.0001 par value per share, for $0.10 per share, aggregating $1,857,000 in gross proceeds (the “Offering”). The shares sold pursuant to the Offering do not have any registration rights. The officers of the Company conducted the offering. Other than an Asset Sale Agreement that the Company previously entered into with Adam Nelson, as disclosed in the Form 8-K filed with the SEC on January 21, 2011, there are no other material relationships between the Company and the Investors.
As more fully described in paragraph above, on August 2, 2011, pursuant to the Subscription Agreement, we issued an aggregate of 18,857,000 shares of common stock, for aggregate gross proceeds of $1,885,700. Such securities were not registered under the Securities Act. The issuance of these securities was exempt from registration under Rule 506 of Regulation D and/or Regulation S promulgated under the Securities Act of 1933, as amended. We made this determination based on the representations of Investors, which included, in pertinent part, that such shareholders were either (a) “accredited investors” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, or (b) not a “U.S. person” as that term is defined in Rule 902(k) of Regulation S under the Act, and that such shareholders were acquiring our common stock, for investment purposes for their own respective accounts and not as nominees or agents, and not with a view to the resale or distribution thereof, and that the shareholders understood that the shares of our common stock may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption therefrom.
However, additional expenses may arise from existing employee agreements, and the maintenance of our regulatory filings and responsibilities which include legal, accounting and electronic filing services. It is anticipated that the cost to maintain these activities will be no less than $780,000 and no more than $1,000,000. We have entered into a Line of Credit Note with Greg Halpern who has agreed to establish a revolving line of credit for us with a maximum amount of $500,000 that will mature and expire on March 25, 2012. The Line of Credit Note shall accrue interest at the prime rate as of the date of issuance. The prime rate of interest is the rate of interest that major banks charge their most creditworthy customers. For the purposes of this agreement, we shall determine the prime rate by using the prime rate reported by the Wall Street Journal on the date funds are extended to the Company. Based on the prime rate as of the date of issuance, the prime rate shall be 3.25%.
In the event that we are unable to obtain additional financing and/or funding or Mr. Halpern either fails to extend us more financing, declines to loan additional cash, declines to fund the line of credit, or declines to defer his salary payments, we will no longer be able to continue to operate and will have to cease operations unless we begin to generate sufficient revenue to cover our costs.
Recent Accounting Pronouncements
In February 2013, FASB issued Accounting Standards Update 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force). This guidance requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. This stipulates that (1) it will include the amount the entity agreed to pay for the arrangement between them and the other entities that are also obligated to the liability and (2) any additional amount the entity expects to pay on behalf of the other entities. The objective of this update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements. The amendments in this update are effective for fiscal periods (and interim reporting periods within those years) beginning after December 15, 2013. This standard is not expected to have a material impact on the Company’s reported results of operations or financial position.
In February 2013, FASB issued Accounting standards update 2013-02, Comprehensive Income Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income. This update requires an entity to provide information amount the amount reclassified out of accumulated other comprehensive income by component. The entity is also required to disclose significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting periods. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other discourses required under U.S. GAAP that provide additional detail about those amounts. The objective in this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update should be applied prospectively for reporting periods beginning after December 15, 2012. This standard is not expected to have a material impact on the Company’s reported results of operations or financial position.
11
Critical Accounting Policies and Estimates
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Use of Estimates:
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.
Revenue Recognition:
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is assured. We had $5 and $13,000 in revenue for the years ended December 31, 2012 and 2011, respectively.
Stock-Based Compensation:
In December 2004, the FASB issued FASB Accounting Standards Codification No. 718, Compensation – Stock Compensation . Under FASB Accounting Standards Codification No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.
Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting Standards Codification No. 718. FASB Accounting Standards Codification No. 505, Equity Based Payments to Non-Employees defines the measurement date and recognition period for such instruments. In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification.
Derivative Financial Instruments
Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.
Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.
Impairment of Long-Lived Assets
The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, Accounting for the Impairment or Disposal of Long-Lived Assets." ASC Topic 360-10-05 requires that long-lived assets, such as technology rights, be reviewed for impairment annually, or whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including the eventual disposition. If the future net cash flows are less than the carrying value of an asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value or disposable value. For the year ended December 31, 2012, the Company completed an impairment analysis on its' long-lived assets, their technology rights, and determined that no impairment was necessary.
The Company believes that the accounting estimate related to asset impairment is a "critical accounting estimate" because the impairment methodology is highly susceptible to change from period to period, because it requires management to make assumptions about future cash flows, and because the impact of recognizing impairment could have a significant effect on operations. Management's assumptions about future cash flows require significant judgment because actual business operations of marketing the technology rights is in its infancy stages and managements expects that their future operating levels to fluctuate. The analysis included assumptions that are based on annual business plans and other forecasted results which are used to reflect market-based estimates of the risks associated with the projected cash flows, based on the best information available as of the date of the impairment test. There can be no assurance that the estimates and assumptions used in the impairment tests will prove to be accurate predictions of the future. If the future adversely differs from management's best estimate of key economic assumptions, and if associated future cash flows materially decrease, the Company may be required to record impairment charges related to its indefinite life intangible asset.
12
Prior to February of 2011, the Company's business operations were related to the development and launching of a social networking website. However, since February of 2011, our business focus has been on the marketing of our Max Sound HD Audio Technology. Since 2011, was our initial year of marketing our technology, management considers past operational levels to be inconsistent with future operations mainly due to the shift in business focus. In our impairment testing, the Company made assumptions towards the income and expenses expected in the future including, but not limited to, determining the actual expenses incurred in the current year that were attributable to the new business focus in order to develop an annual cost benchmark, trends in the marketplace, feedback from current and past marketing activities, and assessments upon the useful life of the technology rights.
The Company's primary focus over the next three to five years will be centered around the marketing and implementation of their technology in order to take advantage of the current trends in the marketplace for users of their technology. In particular, the Company expects that expenses will increase significantly from year to year over the next five years, at which time in year six and beyond the year to year change will be a minimal increase. In addition, the Company expects minimal revenue over the next two years, while in year three to six the Company expects to realize significant year to year increases in revenue, at which time in year seven and beyond the year to year change will be a minimal increase.
As part of the impairment test, the Company reviewed its' initial useful life analysis, in reference to their technology, and updated this analysis with factors that existed at the time of the impairment testing and determined that nothing had occurred in the marketplace that would change their initial determination of the useful life of their technology. The analysis included researching known technological advances in the marketplace and determining if those advances which are similar to the Company's products would limit the useful life of the asset. The Company believes that the technological advances in the marketplace are geared to developing different playback devices and the implementation of technology that is similar to the Company's technology. Thus, the Company concluded that their technology rights continue to have an indefinite useful life. However, it is understood that technological advancements could happen in the future that would limit the useful life of their technology. If a technology was created in the future that would limit the useful life of the technology, the Company would be required to update their impairment testing to include a useful life determination of the technology and may be required to record impairment charges at some time in the future.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
Subsequent Events
Subsequent to December 31, 2012, the Company issued 3,362,532 shares in common stock related to the conversion of convertible debt.
On January 24, 2013, the Company entered into an agreement whereby the Company will issue up to $166,000 in a convertible note. The note matures on October 24, 2013 and bears an interest rate of 8%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The Company received $150,000 in proceeds, less the $16,000 finder’s fee pursuant to the terms of this convertible note, on January 24, 2013.
On January 25, 2013, the Company entered into an agreement whereby the Company will issue up to $100,000 in a convertible note. The note matures on January 25, 2014 and bears an interest rate of 4%. The conversion price equals the “Variable Conversion Price”, which is the lower of 70% of the “Market Price”, which is the average of the lowest ten (10) trading day period prior to the conversion, or closing bid price on the date of conversion. The Company received $90,000 in proceeds, less the $10,000 finder’s fee pursuant to the terms of this convertible note, on January 25, 2013.
On January 31, 2013, the Company entered into an agreement whereby the Company will issue up to $83,300 in a convertible note. The note matures on February 1, 2014 and bears an interest rate of 4%. The conversion price equals the “Variable Conversion Price”, which is the lower of 70% of the “Market Price”, which is the average of the lowest ten (10) trading day period prior to the conversion, or closing bid price on the date of conversion. The Company received $75,000 in proceeds, less the $8,333 finder’s fee pursuant to the terms of this convertible note, on February 1, 2013.
On February 6, 2013, the Company entered into an agreement whereby the Company will issue up to $333,000 in a convertible note. The note matures on February 6, 2014 and bears an interest rate of 10%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the twenty (20) trading day period prior to the conversion. The Company received $25,000 in proceeds, on February 19, 2013.
13
On February 25, 2013, the Company entered into an agreement whereby the Company will issue up to $62,500 in a convertible note. The note matures on November 27, 2013 and bears an interest rate of 8%. The conversion price equals the “Variable Conversion Price”, which is 65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the twenty (10) trading day period prior to the conversion. The Company received $60,000 in proceeds, on March 1, 2013.
On February 27, 2013, the Company received $92,000 in reference to the convertible noted dated November 19, 2012.
On March 5, 2013, the suit, which was filed on February 6, 2012, was settled in favor of Max Sound Corporation and 750,000 shares issued to the former consultant were returned to the treasury.
On March 13, 2013, the Company entered into an agreement whereby the Company will issue up to $111,000 in a convertible note. The note matures on December 13, 2013 and bears an interest rate of 8%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The Company received $100,000 in proceeds, less the $11,000 finder’s fee pursuant to the terms of this convertible note, on March 13, 2013.
On March 14, 2013, the Company entered into an agreement whereby the Company will issue up to $55,500 in a convertible note. The note matures on December 14, 2013 and bears an interest rate of 8%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The Company received $50,000 in proceeds, less the $5,500 finder’s fee pursuant to the terms of this convertible note, on March 18, 2013.
On January 9, 2013, the Company executed an employment agreement with its Director of New Business Development. The term of the agreement is for three years. As compensation for services, the Director will receive a monthly compensation of $10,000. Upon the first million dollars in gross sales the salary will increase to $12,000 per month. In addition, the Director will receive up to 1,000,000 shares of common stock payable in lots of 125,000 per quarter beginning on January 1, 2013. Also, the Director, for the first eight quarters of employment, has a right to earn 125,000 additional 3 year stock options with a strike price of $0.50 per share for each million dollars of new gross business the Company receives in year one of the agreement that is directly related to the Director.
On January 31, 2013, a warrant holder exercised 430,800 of stock warrants at an exercise price of $0.10 per share, and received 430,800 in shares of stock.
On February 1, 2013, the Company entered into a consulting agreement with an unrelated third party for a period from February 1, 2013 through July 31, 2013. In exchange for the services provided, the Company issued 250,000 shares of common stock having a fair value of $60,000 ($2.43/share) based upon fair value on the date of grant. If the Company chooses to continue with the consulting agreement for an additional year, an additional 250,000 shares will be issued for the service period of September 1, 2013 through March 1, 2014.
We are subject to certain market risks, including changes in interest rates and currency exchange rates. We have not undertaken any specific actions to limit those exposures.
14
MAX SOUND CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
|
PAGE
|
F-2
|
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
|
|
PAGE
|
F-3
|
BALANCE SHEETS AS OF DECEMBER 31, 2012 AND AS OF DECEMBER 31, 2011.
|
|
PAGE
|
F-4
|
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 AND FOR THE PERIOD DECEMBER 9, 2005 (INCEPTION) TO DECEMBER 31, 2012.
|
|
PAGE
|
F-5
|
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE PERIOD FROM DECEMBER 9, 2005 (INCEPTION) TO DECEMBER 31, 2012.
|
|
PAGE
|
F-6
|
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 AND FOR THE PERIOD DECEMBER 9, 2005 (INCEPTION) TO DECEMBER 31, 2012.
|
|
PAGES
|
F-7 – F-51
|
NOTES TO FINANCIAL STATEMENTS.
|
F-1
ALAN R. SWIFT, CPA, P.A.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Max Sound Corporation
(A Development Stage Company)
We have audited the accompanying balance sheets of Max Sound Corporation (A Developmental Stage Company) as of December 31, 2012 and 2011, and the related statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2012, and for the period from December 9, 2005 (inception) to December 31, 2012. Max Sound Corporation’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Max Sound Corporation (A Developmental Stage Company) as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2012, and for the period December 9, 2005 (inception) through to December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is in the development stage and has suffered recurring losses, and has an accumulated deficit of $18,468,166 for the period from December 9, 2005 (Inception) to December 31, 2012, and has a negative cash flow from operations of $3,676,694 from inception. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
|
/s/ Alan R. Swift, CPA, P.A.
|
||
|
Alan R. Swift, CPA, P.A.
Certified Public Accountants and Consultants
Palm Beach Gardens, Florida
March 25, 2013
|
800 VILLAGE SQUARE CROSSING, SUITE 118, PALM BEACH GARDENS, FL 33410
PHONE (561) 656-0818 FAX (561) 658-0245
www.aswiftcpa.com
F-2
|
Max Sound Corporation
|
||||||||
|
(A Development Stage Company)
|
||||||||
|
Balance Sheets
|
||||||||
|
ASSETS
|
||||||||
|
December 31, 2012
|
December 31, 2011
|
|||||||
|
Current Assets
|
||||||||
|
Cash
|
$ | 135,298 | $ | 516,532 | ||||
|
Inventory
|
8,796 | - | ||||||
|
Prepaid expenses
|
51,554 | 23,659 | ||||||
|
Debt offering costs - net
|
87,879 | - | ||||||
|
Total Current Assets
|
283,527 | 540,191 | ||||||
|
Property and equipment, net
|
327,525 | 146,000 | ||||||
|
Other Assets
|
||||||||
|
Security deposit
|
413 | 413 | ||||||
|
Intangible assets
|
17,455,863 | 7,800,275 | ||||||
|
Total Other Assets
|
17,456,276 | 7,800,688 | ||||||
|
Total Assets
|
$ | 18,067,328 | $ | 8,486,879 | ||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current Liabilities
|
||||||||
|
Accounts payable
|
$ | 32,786 | $ | 25,470 | ||||
|
Accrued expenses
|
66,440 | 165,897 | ||||||
|
Derivative liability
|
1,166,286 | - | ||||||
|
Convertible note payable, net of debt discount of $643,813
|
603,240 | - | ||||||
|
Total Current Liabilities
|
1,868,752 | 191,367 | ||||||
|
Commitments and Contingencies
|
||||||||
|
Stockholders' Equity
|
||||||||
|
Preferred stock, $0.0001 par value; 10,000,000 shares authorized,
|
||||||||
|
No shares issued and outstanding
|
- | - | ||||||
|
Common stock, $0.0001 par value; 400,000,000 shares authorized,
|
||||||||
|
287,366,648 and 255,184,661 shares issued and outstanding, respectively
|
28,737 | 25,519 | ||||||
|
Additional paid-in capital
|
35,243,005 | 22,629,977 | ||||||
|
Deferred compensation
|
(605,000 | ) | - | |||||
|
Deficit accumulated during the development stage
|
(18,468,166 | ) | (14,359,984 | ) | ||||
|
Total Stockholders' Equity
|
16,198,576 | 8,295,512 | ||||||
|
Total Liabilities and Stockholders' Equity
|
$ | 18,067,328 | $ | 8,486,879 | ||||
See accompanying notes to financial statements
F-3
|
Max Sound Corporation
|
||||||||||||
|
(A Development Stage Company)
|
||||||||||||
|
Statements of Operations
|
||||||||||||
|
For the Years Ended
|
For the Period From
December 9, 2005
(Inception) to
|
|||||||||||
|
December 31, 2012
|
December 31, 2011
|
December 31, 2012
|
||||||||||
|
Revenue
|
$ | 5 | $ | 13,000 | $ | 23,831 | ||||||
|
Operating Expenses
|
||||||||||||
|
General and administrative
|
1,385,540 | 255,589 | 2,008,908 | |||||||||
|
Endorsement fees
|
- | 1,573,273 | 4,942,277 | |||||||||
|
Consulting
|
614,298 | 1,348,753 | 6,010,244 | |||||||||
|
Professional fees
|
164,059 | 146,935 | 530,370 | |||||||||
|
Website development
|
- | - | 251,263 | |||||||||
|
Compensation
|
704,223 | 2,182,794 | 3,362,566 | |||||||||
|
Total Operating Expenses
|
2,868,120 | 5,507,344 | 17,105,628 | |||||||||
|
Loss from Operations
|
(2,868,115 | ) | (5,494,344 | ) | (17,081,797 | ) | ||||||
|
Other Income / (Expense)
|
||||||||||||
|
Interest income
|
177 | 511 | 688 | |||||||||
|
Gain on extinguishment of debt
|
- | - | 6,643 | |||||||||
|
Interest expense
|
(41,371 | ) | (5,940 | ) | (58,372 | ) | ||||||
|
Derivative Expense
|
(201,395 | ) | - | (201,395 | ) | |||||||
|
Amortization of debt offering costs
|
(126,854 | ) | - | (126,854 | ) | |||||||
|
Amortization of debt discount
|
(825,819 | ) | (13,710 | ) | (849,802 | ) | ||||||
|
Change in fair value of embedded derivative liability
|
(44,805 | ) | 21,836 | (20,822 | ) | |||||||
|
Total Other Income / (Expense)
|
(1,240,067 | ) | 2,697 | (1,249,914 | ) | |||||||
|
Provision for Income Taxes
|
- | - | - | |||||||||
|
Net Loss
|
$ | (4,108,182 | ) | $ | (5,491,647 | ) | $ | (18,331,711 | ) | |||
|
Net Loss Per Share - Basic and Diluted
|
$ | (0.02 | ) | $ | (0.02 | ) | ||||||
|
Weighted average number of shares outstanding
|
||||||||||||
|
during the year Basic and Diluted
|
260,207,229 | 242,287,741 | ||||||||||
See accompanying notes to financial statements
F-4
|
Max Sound Corporation
|
||||||||||||||||||||||||||||||||||||
|
(A Development Stage Company)
|
||||||||||||||||||||||||||||||||||||
|
Statement of Changes in Stockholders' Equity
|
||||||||||||||||||||||||||||||||||||
|
For the Period from December 9, 2005 (Inception) to December 31, 2012
|
||||||||||||||||||||||||||||||||||||
|
Additional
|
Total
|
|||||||||||||||||||||||||||||||||||
|
Preferred stock
|
Common stock
|
paid-in
|
Accumulated
|
Subscription
|
Deferred
|
Stockholder's
|
||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
capital
|
Deficit
|
Receivable
|
Compensation
|
Equity
|
||||||||||||||||||||||||||||
|
Balance, December 9, 2005 (Inception)
|
- | $ | - | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||
|
Stock issued on acceptance of incorporation expenses
|
- | - | 100,000 | 10 | 90 | - | - | - | 100 | |||||||||||||||||||||||||||
|
Net loss for the period December 9, 2005 (Inception) to December 31, 2005
|
- | - | - | - | - | (400 | ) | - | - | (400 | ) | |||||||||||||||||||||||||
|
Balance, December 31, 2005
|
- | - | 100,000 | 10 | 90 | (400 | ) | - | - | (300 | ) | |||||||||||||||||||||||||
|
Net loss for the year ended December 31, 2006
|
- | - | - | - | - | (1,450 | ) | - | - | (1,450 | ) | |||||||||||||||||||||||||
|
Balance, December 31, 2006
|
- | - | 100,000 | 10 | 90 | (1,850 | ) | - | - | (1,750 | ) | |||||||||||||||||||||||||
|
Net loss for the year ended December 31, 2007
|
- | - | - | - | - | (1,400 | ) | - | (1,400 | ) | ||||||||||||||||||||||||||
|
Balance, December 31, 2007
|
- | - | 100,000 | 10 | 90 | (3,250 | ) | - | - | (3,150 | ) | |||||||||||||||||||||||||
|
Common stock issued for services to founder ($0.001/sh)
|
- | - | 44,900,000 | 4,490 | 40,410 | - | - | - | 44,900 | |||||||||||||||||||||||||||
|
Common stock issued for cash ($0.25/sh)
|
- | - | 473,000 | 47 | 118,203 | - | (67,750 | ) | - | 50,500 | ||||||||||||||||||||||||||
|
Common stock issued for services ($0.25/sh)
|
- | - | 12,000 | 1 | 2,999 | - | - | - | 3,000 | |||||||||||||||||||||||||||
|
Shares issued in connection with stock dividend
|
- | - | 136,455,000 | 13,646 | 122,809 | (136,455 | ) | - | - | - | ||||||||||||||||||||||||||
|
In kind contribution of rent - related party
|
- | - | - | - | 2,913 | - | - | - | 2,913 | |||||||||||||||||||||||||||
|
Accrued expenses payment made by a former shareholder
|
- | - | - | - | 4,400 | - | - | - | 4,400 | |||||||||||||||||||||||||||
|
Net loss for the year ended December 31, 2008
|
- | - | - | - | - | (117,115 | ) | - | - | (117,115 | ) | |||||||||||||||||||||||||
|
Balance, December 31, 2008
|
- | - | 181,940,000 | 18,194 | 291,824 | (256,820 | ) | (67,750 | ) | - | (14,552 | ) | ||||||||||||||||||||||||
|
Common stock issued for cash ($0.25/sh)
|
- | - | 62,000 | 6 | 15,494 | - | - | - | 15,500 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.25/sh)
|
- | - | 24,000 | 2 | 5,998 | - | - | - | 6,000 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.35/sh)
|
- | - | 1,700,000 | 170 | 594,830 | - | - | (499,333 | ) | 95,667 | ||||||||||||||||||||||||||
|
Common stock issued for services ($0.0625/sh)
|
- | - | 935,714 | 94 | 58,388 | - | - | - | 58,482 | |||||||||||||||||||||||||||
|
Warrants issued for services
|
- | - | - | - | 823,077 | - | - | - | 823,077 | |||||||||||||||||||||||||||
|
Common stock issued for services ($1.50/sh)
|
- | - | 30,000 | 3 | 44,997 | - | - | (39,699 | ) | 5,301 | ||||||||||||||||||||||||||
|
Common stock issued for services ($1.77/sh)
|
- | - | 30,000 | 3 | 53,097 | - | - | (53,100 | ) | - | ||||||||||||||||||||||||||
|
Common stock issued for services ($1.78/sh)
|
- | - | 100,000 | 10 | 177,990 | - | - | (166,052 | ) | 11,948 | ||||||||||||||||||||||||||
|
Common stock issued for services ($1.80/sh)
|
- | - | 100,000 | 10 | 179,990 | - | - | (168,904 | ) | 11,096 | ||||||||||||||||||||||||||
|
Common stock issued for services ($1.93/sh)
|
- | - | 2,830,000 | 283 | 5,461,617 | - | - | (5,459,098 | ) | 2,802 | ||||||||||||||||||||||||||
|
Common stock issued for services ($1.94/sh)
|
- | - | 30,000 | 3 | 58,197 | - | - | (58,200 | ) | - | ||||||||||||||||||||||||||
|
Common stock issued for services ($1.95/sh)
|
- | - | 920,000 | 92 | 1,793,908 | - | - | (1,135,808 | ) | 658,192 | ||||||||||||||||||||||||||
|
Common stock issued for services ($2.00/sh)
|
- | - | 300,000 | 30 | 599,970 | - | - | (506,423 | ) | 93,577 | ||||||||||||||||||||||||||
|
Return of common stock issued for services ($0.35/sh)
|
- | - | (1,100,000 | ) | (110 | ) | (384,890 | ) | - | - | 385,000 | - | ||||||||||||||||||||||||
|
Shares issued in connection with stock dividend
|
- | - | 258,000 | 26 | (26 | ) | - | - | - | - | ||||||||||||||||||||||||||
|
Stock offering costs
|
- | - | - | - | (850 | ) | - | - | - | (850 | ) | |||||||||||||||||||||||||
|
Collection of subscription receivable
|
- | - | - | - | - | - | 67,750 | - | 67,750 | |||||||||||||||||||||||||||
|
In kind contribution of rent - related party
|
- | - | - | - | 12,600 | - | - | - | 12,600 | |||||||||||||||||||||||||||
|
Deferred compensation realized
|
- | - | - | - | - | - | - | 114,333 | 114,333 | |||||||||||||||||||||||||||
|
Net loss for the year ended December 31, 2009
|
- | - | - | - | - | (2,298,552 | ) | - | - | (2,298,552 | ) | |||||||||||||||||||||||||
|
Balance, December 31, 2009
|
- | - | 188,159,714 | 18,816 | 9,786,211 | (2,555,372 | ) | - | (7,587,284 | ) | (337,629 | ) | ||||||||||||||||||||||||
|
Common stock issued for cash ($0.25/sh)
|
- | - | 1,200,000 | 120 | 299,880 | - | - | - | 300,000 | |||||||||||||||||||||||||||
|
Accrued salary conversion into common stock ($0.30/sh)
|
- | - | 945,507 | 95 | 283,557 | - | - | - | 283,652 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.15/sh)
|
- | - | 250,000 | 25 | 37,475 | - | - | - | 37,500 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.18/sh)
|
- | - | 100,000 | 10 | 17,990 | - | - | - | 18,000 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.19/sh)
|
- | - | 100,000 | 10 | 18,990 | - | - | - | 19,000 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.20/sh)
|
- | - | 210,000 | 21 | 41,979 | - | - | - | 42,000 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.25/sh)
|
- | - | 140,000 | 14 | 34,986 | - | - | - | 35,000 | |||||||||||||||||||||||||||
|
Common stock issued in exchange for technology rights ($0.25/sh)
|
- | - | 30,000,000 | 3,000 | 7,497,000 | - | - | - | 7,500,000 | |||||||||||||||||||||||||||
|
Return of common stock issued for services ($1.05/sh)
|
- | - | (150,000 | ) | (15 | ) | 15 | - | - | - | - | |||||||||||||||||||||||||
|
Common stock issued for services ($1.24/Sh)
|
- | - | 1,000,000 | 100 | 1,239,900 | - | - | (1,097,315 | ) | 142,685 | ||||||||||||||||||||||||||
|
Common stock issued for services ($1.70/sh)
|
- | - | 100,000 | 10 | 169,990 | - | - | (152,534 | ) | 17,466 | ||||||||||||||||||||||||||
|
Cancellation of shares held in escrow ($1.93/sh)
|
- | - | (1,000,000 | ) | (100 | ) | (1,929,900 | ) | - | - | 487,802 | (1,442,198 | ) | |||||||||||||||||||||||
|
Warrants issued for services
|
- | - | - | - | 10,559 | - | - | - | 10,559 | |||||||||||||||||||||||||||
|
Blue sky fees
|
- | - | - | - | (400 | ) | - | - | - | (400 | ) | |||||||||||||||||||||||||
|
Stock and financing offering costs
|
- | - | - | - | (8,000 | ) | (8,000 | ) | ||||||||||||||||||||||||||||
|
In kind contribution of rent - related party
|
- | - | - | - | 9,450 | - | - | - | 9,450 | |||||||||||||||||||||||||||
|
Deferred compensation realized
|
- | - | - | - | - | - | - | 6,546,046 | 6,546,046 | |||||||||||||||||||||||||||
|
Net loss for the year ended December 31, 2010
|
- | - | - | - | - | (6,312,965 | ) | - | - | (6,312,965 | ) | |||||||||||||||||||||||||
|
Balance, December 31, 2010
|
- | - | 221,055,221 | 22,106 | 17,509,682 | (8,868,337 | ) | - | (1,803,285 | ) | 6,860,166 | |||||||||||||||||||||||||
|
Common stock issued in exchange for assets ($0.10/sh)
|
- | - | 3,000,000 | 300 | 299,700 | - | - | - | 300,000 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.07/sh)
|
- | - | 2,000,000 | 200 | 139,800 | - | - | - | 140,000 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.08/sh)
|
- | - | 1,006,500 | 100 | 80,420 | - | - | - | 80,520 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.10/sh)
|
- | - | 3,066,462 | 307 | 306,339 | - | - | - | 306,646 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.11/sh)
|
- | - | 500,000 | 50 | 54,950 | - | - | - | 55,000 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.22/sh)
|
- | - | 15,403 | 2 | 3,386 | - | - | - | 3,388 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.23/sh)
|
- | - | 100,000 | 10 | 22,990 | - | - | - | 23,000 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.25/sh)
|
- | - | 702,860 | 70 | 175,645 | - | - | - | 175,715 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.33/sh)
|
- | - | 100,000 | 10 | 32,990 | - | - | - | 33,000 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.35/sh)
|
- | - | 2,443 | - | 855 | - | - | - | 855 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.39/sh)
|
- | - | 101,500 | 10 | 39,575 | - | - | - | 39,585 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.47/sh)
|
- | - | 123,795 | 12 | 58,172 | - | - | - | 58,184 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.50/sh)
|
- | - | 100,000 | 10 | 49,990 | - | - | - | 50,000 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.54/sh)
|
- | - | 200,000 | 20 | 107,980 | - | - | - | 108,000 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.70/sh)
|
- | - | 100,000 | 10 | 69,990 | - | - | - | 70,000 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.88/sh)
|
- | - | 100,000 | 10 | 87,990 | - | - | - | 88,000 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.0295/sh)
|
- | - | 271,186 | 27 | 7,973 | - | - | - | 8,000 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.0315/sh)
|
- | - | 587,382 | 59 | 18,444 | - | - | - | 18,503 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.032/sh)
|
- | - | 109,375 | 11 | 3,489 | - | - | - | 3,500 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.0336/sh)
|
- | - | 357,143 | 36 | 11,964 | - | - | - | 12,000 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.0454/sh)
|
- | - | 220,264 | 22 | 9,978 | - | - | - | 10,000 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.1339/sh)
|
- | - | 116,505 | 12 | 15,588 | - | - | - | 15,600 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.1455/sh)
|
- | - | 96,220 | 9 | 13,991 | - | - | - | 14,000 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.1554/sh)
|
- | - | 77,220 | 8 | 11,992 | - | - | - | 12,000 | |||||||||||||||||||||||||||
|
Accrued salary conversion into common stock ($0.11/sh)
|
- | - | 1,309,091 | 131 | 143,869 | - | - | - | 144,000 | |||||||||||||||||||||||||||
|
Line of credit conversion into common stock ($0.11/sh)
|
- | - | 909,091 | 91 | 99,909 | - | - | - | 100,000 | |||||||||||||||||||||||||||
|
Common stock issued for cash ($0.10/sh)
|
- | - | 18,857,000 | 1,886 | 1,883,814 | - | - | - | 1,885,700 | |||||||||||||||||||||||||||
|
Warrants issued for services
|
- | - | - | - | 248,498 | - | - | - | 248,498 | |||||||||||||||||||||||||||
|
Stock offering costs
|
- | - | - | - | (79,780 | ) | - | - | - | (79,780 | ) | |||||||||||||||||||||||||
|
Amortization of stock options
|
- | - | - | - | 1,199,794 | - | - | - | 1,199,794 | |||||||||||||||||||||||||||
|
Deferred compensation realized
|
- | - | - | - | - | - | - | 1,803,285 | 1,803,285 | |||||||||||||||||||||||||||
|
Net loss for the year ended December 31, 2011
|
- | - | - | - | - | (5,491,647 | ) | - | - | (5,491,647 | ) | |||||||||||||||||||||||||
|
Balance, December 31, 2011
|
- | - | 255,184,661 | 25,519 | 22,629,977 | (14,359,984 | ) | - | - | 8,295,512 | ||||||||||||||||||||||||||
|
Common stock issued in exchange for assets ($0.404/sh)
|
- | - | 24,752,475 | 2,475 | 9,997,525 | 10,000,000 | ||||||||||||||||||||||||||||||
|
Common stock issued for services ($0.62/sh)
|
- | - | 733 | - | 454 | - | - | - | 454 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.21/sh)
|
- | - | 150,000 | 15 | 31,485 | - | - | - | 31,500 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.25/sh)
|
- | - | 250,000 | 25 | 62,475 | - | - | - | 62,500 | |||||||||||||||||||||||||||
|
Common stock issued for services ($0.30/sh)
|
- | - | 850,000 | 85 | 254,915 | - | - | (125,000 | ) | 130,000 | ||||||||||||||||||||||||||
|
Common stock issued for services ($0.32/sh)
|
- | - | 3,000,000 | 300 | 959,700 | - | - | (480,000 | ) | 480,000 | ||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.17032/sh)
|
- | - | 146,780 | 15 | 24,985 | - | - | - | 25,000 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.1764/sh)
|
- | - | 150,000 | 15 | 26,445 | - | - | - | 26,460 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.18013/sh)
|
- | - | 277,572 | 28 | 49,972 | - | - | - | 50,000 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.18128/sh)
|
- | - | 113,805 | 11 | 20,489 | - | - | - | 20,500 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.18619/sh)
|
- | - | 917,031 | 92 | 170,649 | - | - | - | 170,741 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.19159/sh)
|
- | - | 180,000 | 18 | 34,468 | - | - | - | 34,486 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.19670/sh)
|
- | - | 101,678 | 10 | 19,990 | - | - | - | 20,000 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.1995/sh)
|
- | - | 200,501 | 20 | 39,980 | - | - | - | 40,000 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.2394/sh)
|
- | - | 48,454 | 5 | 11,595 | - | - | - | 11,600 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.2513/sh)
|
- | - | 198,965 | 20 | 49,980 | - | - | - | 50,000 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.27067/sh)
|
- | - | 92,365 | 9 | 24,991 | - | - | - | 25,000 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.2741/sh)
|
- | - | 91,208 | 9 | 24,991 | - | - | - | 25,000 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.2763/sh)
|
- | - | 72,385 | 7 | 19,993 | - | - | - | 20,000 | |||||||||||||||||||||||||||
|
Convertible debt conversion into common stock ($0.322/sh)
|
- | - | 528,035 | 53 | 169,974 | - | - | - | 170,027 | |||||||||||||||||||||||||||
|
Common stock issued for financing costs ($0.34/sh)
|
- | - | 60,000 | 6 | 20,394 | - | - | - | 20,400 | |||||||||||||||||||||||||||
|
Reclassification of derivative liability associated with convertible debt
|
- | - | - | - | 549,547 | - | - | - | 549,547 | |||||||||||||||||||||||||||
|
Warrants issued for services
|
- | - | - | - | 48,031 | - | - | - | 48,031 | |||||||||||||||||||||||||||
|
Net loss for the year ended December 31, 2012
|
- | - | - | - | - | (4,108,182 | ) | - | - | (4,108,182 | ) | |||||||||||||||||||||||||
|
Balance, December 31, 2012
|
- | $ | - | 287,366,648 | $ | 28,737 | $ | 35,243,005 | $ | (18,468,166 | ) | $ | - | $ | (605,000 | ) | $ | 16,198,576 | ||||||||||||||||||
See accompanying notes to financial statements
F-5
|
Max Sound Corporation
|
||||||||||||
|
(A Development Stage Company)
|
||||||||||||
|
Statements of Cash Flows
|
||||||||||||
|
For the Years Ended
|
For the Period From
December 9,
2005
(Inception) to
|
|||||||||||
|
December 31, 2012
|
December 31, 2011
|
December 31, 2012
|
||||||||||
|
Cash Flows From Operating Activities:
|
||||||||||||
|
Net Loss
|
$ | (4,108,182 | ) | $ | (5,491,647 | ) | $ | (18,331,711 | ) | |||
|
Adjustments to reconcile net loss to net cash used in operations
|
||||||||||||
|
Depreciation/Amortization
|
54,103 | 32,309 | 119,580 | |||||||||
|
Depreciation for abandonment of website
|
- | 38,794 | 57,063 | |||||||||
|
In kind contribution of rent - related party
|
- | - | 24,963 | |||||||||
|
Shares issued for intellectual property
|
- | - | ||||||||||
|
Stock issued for services
|
199,454 | 1,231,894 | 2,734,065 | |||||||||
|
Stock issued for debt financing costs
|
20,400 | 20,400 | ||||||||||
|
Warrants issued for services
|
48,031 | 248,498 | 1,130,165 | |||||||||
|
Amortization of stock options
|
- | 1,199,794 | 1,199,794 | |||||||||
|
Bluesky Fees
|
- | (500 | ) | (1,750 | ) | |||||||
|
Amortization of stock based compensation
|
505,000 | 1,803,285 | 7,526,466 | |||||||||
|
Security deposit
|
- | 3,297 | (413 | ) | ||||||||
|
Amortization of debt offering costs
|
126,854 | - | 126,854 | |||||||||
|
Amortization of debt discount
|
825,819 | 13,710 | 850,751 | |||||||||
|
Change in fair value of derivative liability
|
44,805 | (21,836 | ) | 19,873 | ||||||||
|
Derivative Expense
|
201,395 | - | 201,395 | |||||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
(Increase)/Decrease in prepaid expenses
|
127,456 | (17,860 | ) | 103,797 | ||||||||
|
Increase/(Decrease) accounts payable
|
7,316 | (134,057 | ) | 32,784 | ||||||||
|
Increase/(Decrease) in accrued expenses
|
(87,922 | ) | 55,347 | 509,230 | ||||||||
|
Net Cash Used In Operating Activities
|
(2,035,471 | ) | (1,038,972 | ) | (3,676,694 | ) | ||||||
|
Cash Flows From Investing Activities:
|
||||||||||||
|
Register of trademark
|
- | - | (275 | ) | ||||||||
|
Cash received in connection with shares issed for assets and intellectual property
|
62,884 | 62,884 | ||||||||||
|
Purchase of property equipment
|
(118,247 | ) | (151,733 | ) | (386,787 | ) | ||||||
|
Net Cash Used In Investing Activities
|
(55,363 | ) | (151,733 | ) | (324,178 | ) | ||||||
|
Cash Flows From Financing Activities:
|
||||||||||||
|
Proceeds from stockholder loans
|
- | 134,000 | 620,583 | |||||||||
|
Repayment of stockholder loans
|
- | (273,480 | ) | (520,583 | ) | |||||||
|
Accrued expenses payment made by a former shareholder
|
- | - | 4,400 | |||||||||
|
Proceeds from issuance of convertible note, net of offering costs
|
1,709,600 | 37,500 | 1,794,100 | |||||||||
|
Proceeds from issuance of stock, net of subscriptions receivable and net of offering costs
|
- | 1,411,920 | 1,772,920 | |||||||||
|
Proceeds from collection of stock subscription receivable
|
- | 397,000 | 464,750 | |||||||||
|
Net Cash Provided by Financing Activities
|
1,709,600 | 1,706,940 | 4,136,170 | |||||||||
|
Net Increase / (Decrease) in Cash
|
(381,234 | ) | 516,235 | 135,298 | ||||||||
|
Cash at Beginning of Period
|
516,532 | 297 | - | |||||||||
|
Cash at End of Period
|
$ | 135,298 | $ | 516,532 | $ | 135,298 | ||||||
|
Supplemental disclosure of cash flow information:
|
||||||||||||
|
Cash paid for interest
|
$ | 231 | $ | - | $ | 231 | ||||||
|
Cash paid for taxes
|
$ | - | $ | - | $ | - | ||||||
|
Supplemental disclosure of non-cash investing and financing activities:
|
||||||||||||
|
Shares issued in connection with assets and intellectual property
|
$ | 10,000,000 | $ | 300,000 | $ | 17,800,000 | ||||||
|
Shares issued in conversion of related party accrued compensation
|
$ | - | $ | 144,000 | $ | 427,652 | ||||||
|
Shares issued in conversion of related party line of credit
|
$ | - | $ | 100,000 | $ | 100,000 | ||||||
|
Shares issued in conversion of convertible debt and accrued interest
|
$ | 688,814 | $ | 93,603 | $ | 782,417 | ||||||
|
Shares issued in connection with stock dividend
|
$ | - | $ | - | $ | 136,713 | ||||||
|
Reclassification of derivative liability to additional paid in capital
|
$ | 549,547 | $ | - | $ | 549,547 | ||||||
|
Stock sold for subscription
|
$ | - | $ | 397,000 | $ | 464,750 | ||||||
|
Debt discount recorded on convertible and unsecured debt accounted for as a derivative liability
|
$ | 1,469,633 | $ | 24,932 | $ | 1,494,565 | ||||||
During the year ended December 31, 2012 the Company issued 24,752,475 shares of common stock to Liquid Spins, Inc in exchange for assets and intellectual property with a value of $10,000,000.
See accompanying notes to financial statements
F-6
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
|
NOTE 1
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
|
(A) Organization
Max Sound Corporation (f/k/a So Act Network, Inc.) (the "Company") was incorporated in Delaware on December 9, 2005. The Company is currently in the development stage, and on or around February 2011, the Company changed its business operations to focus primarily on developing and launching audio technology software.
Prior to February 2011, the Company's business operations were focused on creating search technologies within an online networking platform.
Activities during the development stage include developing the online networking platform, launching and marketing our audio technology, and raising capital.
Effective March 1, 2011, the Company filed with the State of Delaware a Certificate of Amendment of Certificate of Incorporation changing our name from So Act Network, Inc. to Max Sound Corporation.
(B) Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.
(C) Cash and Cash Equivalents
For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. As of December 31, 2012 and December 31, 2011, the Company had no cash equivalents.
(D) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is provided using the straight-line method over the estimated useful life of three to five years.
(E) Research and Development
The Company has adopted the provisions of FASB Accounting Standards Codification No. 350, Intangibles – Goodwill & Other. Costs incurred in the planning stage of a website are expensed as research and development while costs incurred in the development stage are capitalized and amortized over the life of the asset, estimated to be three years. Expenses subsequent to the launch of our website and the development of our technology have been expensed as website development expenses and consulting expenses.
F-7
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
(F) Concentration of Credit Risk
The Company at times has cash in banks in excess of FDIC insurance limits. The Company had approximately $0 and $251,578 in excess of FDIC insurance limits as of December 31, 2012 and December 31, 2011, respectively.
(G) Revenue Recognition
The Company recognized revenue on arrangements in accordance with FASB Codification Topic 605, “Revenue Recognition” (“ASC Topic 605”). Under ASC Topic 605, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. We had revenue of $5, and $13,000 for the years ended December 31, 2012 and 2011, respectively.
(H) Advertising Costs
Advertising costs are expensed as incurred and include the costs of public relations activities. These costs are included in consulting and general and administrative expenses and totaled $104,707 and $29,249 for the years ended December 31, 2012 and 2011, respectively.
(I) Identifiable Intangible Assets
As of December 31, 2012 and December 31, 2011, $17,455,863 and $7,800,275, respectively of costs related to registering our trademarks, acquiring distribution agreements, and acquiring technology rights have been capitalized. The distribution agreements were deemed to have a useful life and will be subject to amortization upon them being placed in service at a future date. It has been determined that the trademark and technology rights have an indefinite useful life and are not subject to amortization. However, the trademark and technology rights will be reviewed for impairment annually or more frequently if impairment indicators arise.
(J) Impairment of Long-Lived Assets
The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets, such as technology rights, be reviewed for impairment annually, or whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. No impairments were recorded for years ended December 31, 2012, and for the year ended December 31, 2011.
F-8
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
(K) Loss Per Share
In accordance with accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share,” Basic earnings per share (“EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive. Because of the Company’s net losses, the effects of stock warrants and stock options would be anti-dilutive and accordingly, is excluded from the computation of earnings per share. The number of such shares excluded from the computations of diluted loss per share totaled 2,415,800 and 2,715,800 for stock warrants, and 12,000,000 and 12,000,000 for stock options, and 6,201,734 and 0 shares issuable upon the conversion of convertible debt, for the years ended December 31, 2012 and 2011, respectively.
(L) Income Taxes
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”) Income Taxes. Under ASC 740-10-25, 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The net deferred tax liability in the accompanying balance sheets includes the following amounts of deferred tax assets and liabilities:
|
2012
|
2011
|
|||||||
|
Deferred tax liability:
|
$
|
-
|
$
|
-
|
||||
|
Deferred tax asset
|
||||||||
|
Stock options for services
|
-
|
407,930
|
||||||
|
Net Operating Loss Carryforward
|
2,269,804
|
966,291
|
||||||
|
Valuation allowance
|
(2,269,804
|
) |
(1,374,221
|
) | ||||
|
Net deferred tax asset
|
-
|
-
|
||||||
|
Net deferred tax liability
|
$
|
-
|
$
|
-
|
||||
F-9
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
The provision for income taxes has been computed as follows:
|
2012
|
2011
|
|||||||
|
Expected income tax recovery (expense) at the statuary rate of 34%
|
$
|
1,396,782
|
$
|
1,867,160
|
||||
|
Tax effect of expenses that are not deductible for income tax purposes (net of other amounts deductible for tax purposes)
|
(1,372
|
) |
(827
|
) | ||||
|
Tax effect of differences in the timing of deductibility of items for income tax purposes:
|
(499,827
|
) |
(986,704
|
) | ||||
|
Utilization of non-capital tax losses to offset current taxable income
|
-
|
-
|
||||||
|
Change in valuation allowance
|
(895,583
|
) |
(879,629
|
) | ||||
|
Provision for income taxes
|
-
|
-
|
||||||
The valuation allowance was established to reduce the deferred tax asset to the amount that will more likely than not be realized. This is necessary due to the Company’s continued operating losses and the uncertainty of the Company’s ability to offset future taxable income through 2032.
The net change in the valuation allowance for the year ended December 31, 2012 and 2011 was an increase of $895,583 and $879,629, respectively.
The components of income tax expense related to continuing operations are as follows:
|
2012
|
2011
|
|||||||
|
Federal
|
||||||||
|
Current
|
$ | - | $ | - | ||||
|
Deferred
|
- | - | ||||||
| $ | - | $ | - | |||||
|
State and Local
|
||||||||
|
Current
|
$ | - | $ | - | ||||
|
Deferred
|
- | - | ||||||
| $ | - | $ | - | |||||
The Company's federal income tax returns are no longer subject to examination by the IRS for the years prior to 2009, and the related state income tax returns are no longer subject to examination by state authorities for the years prior to 2009.
(M) Business Segments
The Company operates in one segment and therefore segment information is not presented.
F-10
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
(N) Recent Accounting Pronouncements
In February 2013, FASB issued Accounting Standards Update 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force). This guidance requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. This stipulates that (1) it will include the amount the entity agreed to pay for the arrangement between them and the other entities that are also obligated to the liability and (2) any additional amount the entity expects to pay on behalf of the other entities. The objective of this update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements. The amendments in this update are effective for fiscal periods (and interim reporting periods within those years) beginning after December 15, 2013. This standard is not expected to have a material impact on the Company’s reported results of operations or financial position.
In February 2013, FASB issued Accounting standards update 2013-02, Comprehensive Income Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income. This update requires an entity to provide information amount the amount reclassified out of accumulated other comprehensive income by component. The entity is also required to disclose significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting periods. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other discourses required under U.S. GAAP that provide additional detail about those amounts. The objective in this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update should be applied prospectively for reporting periods beginning after December 15, 2012. This standard is not expected to have a material impact on the Company’s reported results of operations or financial position.
(O) Fair Value of Financial Instruments
The carrying amounts on the Company’s financial instruments including prepaid expenses, accounts payable, accrued expenses, derivative liability, convertible note payable, and loan payable-related party, approximate fair value due to the relatively short period to maturity for these instruments.
(P) Stock-Based Compensation
In December 2004, the FASB issued FASB Accounting Standards Codification No. 718, Compensation – Stock Compensation. Under FASB Accounting Standards Codification No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.
Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting Standards Codification No. 718. FASB Accounting Standards Codification No. 505, Equity Based Payments to Non-Employees defines the measurement date and recognition period for such instruments. In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification.
(Q) Reclassification
Certain amounts from prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on the Company's net loss or cash flows.
F-11
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
(R) Derivative Financial Instruments
Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.
Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.
F-12
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
|
NOTE 2
|
GOING CONCERN
|
As reflected in the accompanying financial statements, the Company is in the development stage with minimal operations, has an accumulated deficit of $18,468,166 for the period from December 9, 2005 (inception) to December 31, 2012, and has negative cash flow from operations of $3,676,694 from inception. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.
|
NOTE 3
|
NOTE PAYABLE – PRINCIPAL STOCKHOLDER
|
During the year ended December 31, 2008, the Company received $18,803 from the principal stockholder. Pursuant to the terms of the loan, the loan is bearing an annual interest rate of 3.25% and due on demand. In 2008, the Company repaid $15,000 in principal to the principal stockholder. In 2009, the Company repaid $3,803 in principal to the principal stockholder. As of December 31, 2010, the principal portion of this principal stockholder loan balance has been repaid (See Note 10).
On May 11, 2009, the Company received $9,500 from the principal stockholder. During the year ended December 31, 2009, the Company repaid $1,500 in principal to the principal stockholder. Pursuant to the terms of the loan, the loan is bearing an annual interest rate of 3.25% and is due on demand (See Note 10).
On May 22, 2009, the Company received $15,000 from the principal stockholder. During the year ended December 31, 2010, the Company repaid $6,000 in principal to the principal stockholder under the terms of the loan. Pursuant to the terms of the loan, the loan is bearing an annual interest rate of 3.25% and is due on demand (See Note 10).
On May 26, 2009, the Company received $16,700 from the principal stockholder. During the year ended December 31, 2010, the Company repaid $15,700 in principal to the principal stockholder under the term of this loan. Pursuant to the terms of the loan, the loan is bearing an annual interest rate of 3.25% and is due on demand (See Note 10).
F-13
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
During the year ended December 31, 2011, the Company repaid $18,000 in principal and $2,116 of accrued interest to the principal stockholder related to these principal stockholder loans (See Note 10).
|
NOTE 4
|
LINE OF CREDIT – PRINCIPAL STOCKHOLDER
|
On May 28, 2009, the Company entered into a two year line of credit agreement with the principal stockholder in the amount of $100,000. The line of credit carries an interest rate of 3.25%. As of December 31, 2011, the principal stockholder has advanced the Company $100,000 under the terms of this line of credit agreement (See Note 10).
On November 10, 2009, the Company entered into a two year line of credit agreement with the principal stockholder in the amount of $100,000. The line of credit carries an interest rate of 3.25%. As of December 31, 2011, the principal stockholder has advanced $100,000 to the Company under the terms of this line of credit agreement (See Note 10).
On March 25, 2010, the Company entered into a two year line of credit agreement with the principal stockholder in the amount of $500,000. The line of credit carries an interest rate of 3.25%. On February 17, 2011, the principal stockholder converted $100,000 of the line of credit owed into 909,091 shares of common stock at $0.11 per share. As of December 31, 2011, the principal stockholder has advanced $360,580 to the Company under the terms of this line of credit agreement. (See Note 8(G) and Note 10).
As of December 31, 2011, the Company repaid $460,580 in principal and $11,283 of accrued interest to the principal stockholder related to these lines of credit (See Note 10).
|
NOTE 5
|
PROPERTY AND EQUIPMENT
|
At December 31, 2012, and December 31, 2011, respectively, property and equipment is as follows:
|
December 31, 2012
|
December 31, 2011
|
|||||||
|
Website Development
|
$ | 294,795 | $ | 127,722 | ||||
|
Furniture and Equipment
|
98,613 | 103,906 | ||||||
|
Leasehold Improvements
|
6,573 | 6,573 | ||||||
|
Software
|
53,897 | 18,888 | ||||||
|
Office Equipment
|
48,162 | 9,323 | ||||||
|
Domain Name
|
1,500 | 1,500 | ||||||
|
Sign
|
628 | 628 | ||||||
|
Less accumulated depreciation and amortization
|
(176,643 | ) | (122,540 | ) | ||||
| $ | 327,525 | $ | 146,000 | |||||
F-14
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
Depreciation/amortization expense for the years ended December 31, 2012, and 2011, was $54,103 and $71,103, respectively.
|
NOTE 6
|
CONVERTIBLE DEBTS – DERIVATIVE LIABILITIES
|
On July 6, 2010, the Company entered into an agreement whereby the Company will issue up to $50,000 in a convertible note. The note matured on March 30, 2011, and bears an interest rate of 8%. Any unpaid amount as of the maturity date bears an interest rate of 22%. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock. The conversion prices equals the "Variable Conversion Price", which is 59% of the "Market Price", which is the average of the lowest six trading prices for the Common Stock during the ten (10) trading day period prior to the conversion. In July of 2010, the Company received $50,000 proceeds less the $3,000 finder’s fee pursuant to the terms of this convertible note. As of December 31, 2012 the convertible note balance and accrued interest is $0.
On February 17, 2011, the Company entered into an agreement whereby the Company will issue up to $40,000 in a convertible note. The note matures on November 17, 2011, and bears an interest rate of 8%. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock. The conversion prices equals the "Variable Conversion Price", which is 59% of the "Market Price", which is the average of the lowest six (6) trading prices for the Common Stock during the ten trading day period prior to the conversion. In February of 2011, the Company received $40,000 proceeds less the $2,500 finder’s fee pursuant to the terms of this convertible note. As of December 31, 2012 the convertible note balance and accrued interest is $0.
On March 8, 2012, the Company entered into an agreement whereby the Company will issue up to $166,667 in a convertible note. The note matures on March 9, 2013 and bears an interest rate of 4%. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest ten (10) trading prices for the common stock during the ten trading day period prior to the conversion. The Company received $150,000 proceeds, less the $16,667 finder’s fee pursuant to the terms of this convertible note, on March 14, 2012. As of December 31, 2012 the convertible note balance and accrued interest is $0.
On March 14, 2012, the Company entered into an agreement whereby the Company will issue up to $102,500 in a convertible note. The note matures on December 19, 2012 and bears an interest rate of 8%. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. The conversion price equals the “Variable Conversion Price”, which is 65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten trading day period prior to the conversion. The Company received $102,500 proceeds, less the $2,500 finder’s fee pursuant to the terms of this convertible note, on March 20, 2012. As of December 31, 2012 the convertible note balance and accrued interest is $0.
F-15
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On April 4, 2012, the Company entered into an agreement whereby the Company will issue up to $166,000 in a convertible note. The note matures on December 28, 2012 and bears an interest rate of 8%. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten trading day period prior to the conversion. The Company received $138,000 proceeds, less the $28,000 finder’s fee pursuant to the terms of this convertible note, on April 4, 2012. As of December 31, 2012, the Company has $10,500 of convertible note and $7,801 in accrued interest outstanding.
On April 25, 2012, the Company entered into an agreement whereby the Company will issue up to $166,667 in a convertible note. The note matures on April 25, 2013 and bears an interest rate of 4%. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average trading prices for the common stock during the ten trading day period prior to the conversion. The Company received $150,000 proceeds, less the $16,667 finder’s fee pursuant to the terms of this convertible note, on April 25, 2012. As of December 31, 2012 the convertible note balance and accrued interest is $0.
On May 8, 2012, the Company entered into an agreement whereby the Company will issue up to $333,000 in a convertible note subject to a $33,300 original issue discount (OID). On October 31, 2012 the Company entered into a new agreement whereby up to $833,000 in convertible note will be issued subject to an $83,300 original issue discount (OID). In connection with the increase in the convertible note loan amount, the Company issued 60,000 shares to the note holder. The note matures on May 8, 2013, and bears an interest rate of 0% if note is repaid on or before 90 days from the effective date. If the note is not repaid within 90 days, a one-time interest charge of 5% will be applied to the principal. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the fifteen (15) trading day period prior to the conversion. During 2012, the Company received $276,000 proceeds, less the $24,000 finder’s fee and $31,000 OID pursuant to the terms of this convertible note, dated October 31, 2012. As of December 31, 2012, the Company has $270,054 of convertible note and $4,291 in accrued interest outstanding.
On June 22, 2012, the Company entered into an agreement whereby the Company will issue up to $62,500 in a convertible note. The note matures on March 27, 2013 and bears an interest rate of 8%. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. The conversion price equals the “Variable Conversion Price”, which is 65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten trading day period prior to the conversion. During 2012, the Company received $60,000 proceeds, less the $2,500 finder’s fee pursuant to the terms of this convertible note. As of December 31, 2012, the Company has $37,500 of convertible note and $2,656 in accrued interest outstanding.
F-16
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On July 16, 2012, the Company entered into an agreement whereby the Company will issue up to $58,333 in a convertible note. The note matures on January 15, 2013 and bears an interest rate of 10%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the low traded price of the common stock during the twenty (20) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. During 2012, the Company received $50,000 proceeds, less the $8,333 finder’s fee pursuant to the terms of this convertible note. As of December 31, 2012, the Company has $58,333 of convertible note and $2,721 in accrued interest outstanding.
On July 30, 2012, the Company entered into an agreement whereby the Company will issue up to $111,000 in a convertible note. The note matures on April 30, 2013 and bears an interest rate of 8%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. During 2012, the Company received $100,000 proceeds, less the $11,000 finder’s fee pursuant to the terms of this convertible note. As of December 31, 2012, the Company has $111,000 of convertible note and $3,775 in accrued interest outstanding.
On August 3, 2012, the Company entered into an agreement whereby the Company will issue up to $83,333 in a convertible note. The note matures on August 3, 2013 and bears an interest rate of 4%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is lower of the average closing bid price for the common stock during the ten trading day period. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. During 2012, the Company received $75,000 proceeds, less the $8,333 finder’s fee pursuant to the terms of this convertible note. As of December 31, 2012, the Company has $83,333 of convertible note and $1,362 in accrued interest outstanding.
On September 10, 2012, the Company entered into an agreement whereby the Company will issue up to $83,333 in a convertible note. The note matures on September 10, 2013 and bears an interest rate of 4%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is lower of the average closing bid price for the common stock during the ten trading day period. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. During 2012, the Company received $75,000 proceeds, less the $8,333 finder’s fee pursuant to the terms of this convertible note. As of December 31, 2012, the Company has $83,333 of convertible note and $1,021 in accrued interest outstanding.
F-17
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On September 26, 2012, the Company entered into an agreement whereby the Company will issue up to $166,000 in a convertible note. The note matures on June 26, 2013 and bears an interest rate of 8%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. During 2012, the Company received $150,000 proceeds, less the $16,000 finder’s fee pursuant to the terms of this convertible note. As of December 31, 2012, the Company has $166,000 of convertible note and $3,491 in accrued interest outstanding.
On October 9, 2012, the Company entered into an agreement whereby the Company will issue up to $62,500 in a convertible note. The note matures on July 11, 2013 and bears an interest rate of 8%. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. The conversion price equals the “Variable Conversion Price”, which is 65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten trading day period prior to the conversion. During 2012, the Company received $60,000 proceeds, less the $2,500 finder’s fee pursuant to the terms of this convertible note. As of December 31, 2012, the Company has $62,500 of convertible note and $1,142 in accrued interest outstanding.
On November 29, 2012, the Company entered into an agreement whereby the Company will issue up to $166,000 in a convertible note. The note matures on August 29, 2013 and bears an interest rate of 8%. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten trading day period prior to the conversion. During 2012, the Company received $150,000 proceeds, less the $16,000 finder’s fee pursuant to the terms of this convertible note. As of December 31, 2012, the Company has $166,000 of convertible note and $1,143 in accrued interest outstanding.
On November 30, 2012, the Company entered into an agreement whereby the Company will issue up to $78,500 in a convertible note. The note matures on September 4, 2013 and bears an interest rate of 8%. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. The conversion price equals the “Variable Conversion Price”, which is 65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten trading day period prior to the conversion. During 2012, the Company received $76,000 proceeds, less the $2,500 finder’s fee pursuant to the terms of this convertible note. As of December 31, 2012, the Company has $78,500 of convertible note and $523 in accrued interest outstanding.
F-18
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
During the years ended December 31, 2012 and 2011, the Company issued convertible notes totaling $1,924,333 and $40,000 respectively. The Convertible notes consist of the following terms:
|
Year ended
|
Year ended
|
|||||||
|
December 31, 2012
|
December 31, 2011
|
|||||||
|
Amount of
|
Amount of
|
|||||||
|
Principal Raised
|
Principal Raised
|
|||||||
| 0% - 10% | 8% | |||||||
| 0% - 22% | 22% | |||||||
|
December 19, 2012 -
|
||||||||
|
November 19, 2013
|
February17, 2012
|
|||||||
|
59% of the "Market Price", which is the average of the lowest six (6) trading prices for the Common Stock during the ten trading day period prior to the conversion
|
40,000 | |||||||
|
70% of the “Market Price”, which is the average of the lowest ten (10) trading prices for the common stock during the ten trading day period prior to the conversion.
|
$ | 166,667 | $ | - | ||||
|
65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten trading day period prior to the conversion
|
$ | 102,500 | $ | - | ||||
|
70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten trading day period prior to the conversion
|
$ | 166,000 | $ | - | ||||
|
70% of the “Market Price”, which is the average trading prices for the common stock during the ten trading day period prior to the conversion.
|
$ | 166,667 | $ | - | ||||
|
70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the fifteen (15) trading day period prior to the conversion.
|
$ | 111,000 | $ | - | ||||
|
65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten trading day period prior to the conversion.
|
$ | 62,500 | $ | - | ||||
|
70% of the “Market Price”, which is the low traded price of the common stock during the twenty (20) trading day period prior to the conversion
|
$ | 58,333 | $ | - | ||||
|
70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion.
|
$ | 111,000 | $ | - | ||||
|
70% of the “Market Price”, which is lower of the average closing bid price for the common stock during the ten trading day period
|
$ | 83,333 | $ | - | ||||
|
70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the fifteen (15) trading day period prior to the conversion.
|
$ | 55,000 | $ | - | ||||
|
70% of the “Market Price”, which is lower of the average closing bid price for the common stock during the ten trading day period.
|
$ | 83,333 | $ | - | ||||
|
70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion
|
$ | 166,000 | $ | - | ||||
|
65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten trading day period prior to the conversion
|
$ | 62,500 | $ | - | ||||
|
70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the fifteen (15) trading day period prior to the conversion.
|
$ | 165,000 | $ | - | ||||
|
70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion
|
$ | 166,000 | $ | - | ||||
|
65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten trading day period prior to the conversion.
|
$ | 78,500 | $ | - | ||||
|
Conversion price of $0.50 per share
|
$ | 120,000 | ||||||
| $ | 1,924,333 | $ | 40,000 | |||||
F-19
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
The debt holders are entitled, at their option, to convert all or part of the principal and accrued interest into shares of the Company’s common stock at conversion prices and terms discussed above. The Company classifies embedded conversion features in these notes as a derivative liability due to management’s assessment that the Company may not have sufficient authorized number of shares of common stock required to net-share settle or due to the existence of a ratchet due to an anti-dilution provision. See Note 6 regarding accounting for derivative liabilities.
During the year ended December 31, 2012, the Company converted debt and accrued interest, totaling $688,814 into 3,118,779 shares of common.
During the year ended December 31, 2011, the Company converted debt and accrued interest, totaling $93,603 into 1,835,295 shares of common.
During 2012 and 2011, Convertible debt consisted of the following activity and terms:
|
Interest
|
|||||||||
|
Rate
|
Maturity
|
||||||||
|
Convertible Debt Balance as of December 31, 2010
|
$ | 50,000 | |||||||
|
Borrowings during the year
|
40,000 | 8% |
March 30, 2011 & November 17, 2011
|
||||||
|
Conversion of debt to into 1,835,295 shares of common stock with a valuation of $93,603 ($0.0295 - $0.1554/share) less accrued interest of $3,603
|
(90,000 | ) | |||||||
|
Convertible Debt Balance as of December 31, 2011
|
- | ||||||||
|
Borrowings during the year
|
1,924,333 | 0% - 10% |
December 19, 2012 - November 19, 2013
|
||||||
|
Conversion of debt to into 3,118,779 shares of common stock with a valuation of $688,814 ($0.17032 - $0.322/share) less accrued interest of$11,534
|
(677,280 | ) | |||||||
|
Convertible Debt Balance as of December 31, 2012
|
$ | 1,247,053 | 0% - 10% | ||||||
Debt Issue Costs
During the years ended 2012 and 2011, the Company paid debt issue costs totaling $214,733 and $2,500, respectively.
F-20
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
The following is a summary of the Company’s debt issue costs:
|
2012
|
2011
|
|||||||
|
Debt issue costs
|
$ | 214,733 | $ |
-
|
||||
|
Accumulated amortization of debt issue costs
|
(126,854 | ) |
-
|
|||||
|
Debt issue costs – net
|
$ | 87,879 | $ | - | ||||
During 2012 and 2011, the Company amortized $126,854 and $0, respectively.
Debt Discount
During the years ended 2012 and 2011, the Company recorded debt discounts totaling $1,469,633 and $24,932, respectively.
The debt discount recorded in 2012 and 2011 pertains to convertible debt that contains embedded conversion options that are required to bifurcated and reported at fair value.
The Company amortized $825,819 in 2012 and $13,710 in 2011 to amortization of debt discount.
|
2012
|
2011
|
|||||||
|
Debt discount
|
$ | 1,469,633 | $ | 13,710 | ||||
|
Amortization of debt discounts
|
(825,819 | ) | (13,710 | ) | ||||
|
Debt discount – net
|
$ | 643,814 | $ | - | ||||
Derivative Liabilities
The Company identified conversion features embedded within convertible debt issued in 2012 and 2011. The Company has determined that the features associated with the embedded conversion option should be accounted for at fair value as a derivative liability as the Company could not determine if a sufficient number of shares would be available to settle all transactions.
As a result of the application of ASC No. 815, the fair value of the conversion feature is summarized as follow:
|
Derivative liability - December 31, 2010
|
$
|
13,710
|
||
|
Fair value mark to market adjustment
|
13,710
|
|||
|
Derivative liability - December 31, 2011
|
-
|
|||
|
Fair value at the commitment date for convertible instruments
|
1,671,028
|
|||
|
Fair value mark to market adjustment for convertible instruments
|
44,805
|
|||
|
Reclassification to additional paid in capital for financial instruments
|
(549,547
|
)
|
||
| $ |
1,166,286
|
|||
|
Derivative liability - December 31, 2012
|
F-21
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
The Company recorded the debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining value of the derivative as it exceeded the gross proceeds of the note. The Company recorded a derivative expense of $201,395 and $0 for 2012 and 2011, respectively.
The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2012:
|
Commitment Date
|
Re-measurement Date
|
|||||||
|
Expected dividends
|
0
|
%
|
0
|
%
|
||||
|
Expected volatility
|
228.61% -251.93
|
%
|
156
|
%
|
||||
|
Expected term:
|
0.5– 1 years
|
0.5 – 1 years
|
||||||
|
Risk free interest rate
|
0.16% -.21
|
%
|
0.16%
|
|||||
The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2011:
|
Commitment Date
|
Re-measurement Date
|
|||||||
|
Expected dividends
|
0
|
%
|
0
|
%
|
||||
|
Expected volatility
|
456.63
|
%
|
514.06
|
%
|
||||
|
Expected term:
|
0.74 years
|
0
|
||||||
|
Risk free interest rate
|
0.27
|
%
|
0.19
|
%
|
||||
|
NOTE 7
|
CONVERTIBLE DEBT
|
On December 11, 2012, the Company entered into an agreement whereby the Company will issue up to $120,000 in a convertible note. The note matures on September 4, 2013 and bears an interest rate of 8%. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock at 50 cents per share. During 2012, the Company received $120,000 proceeds pursuant to the terms of this convertible note. As of December 31, 2012, the Company has $120,000 of convertible note and $526 in accrued interest outstanding.
|
NOTE 8
|
STOCKHOLDERS’ EQUITY
|
(A) Common Stock Issued for Cash
On December 31, 2005, the Company issued 100,000 shares of common stock for cash of $100 in exchange for acceptance of the incorporation expenses for the Company ($0.001/share). As a result of the forward split, the 100,000 shares were increased to 400,000 shares ($0.00025/share) (See Note 8(D)).
For the year ended December 31, 2008, the Company issued 473,000 shares of common stock for cash of $118,250 ($0.25/share), of which $67,750 was a subscription receivable. During the month of January 2009, $67,750 of stock subscription receivable was collected. As a result of the forward split, the 473,000 shares were increased to 1,892,000 shares ($0.0625/share). (See Note 8(D)).
F-22
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On January 2, 2009, the Company entered into stock purchase agreements to issue 20,000 shares of common stock for cash of $5,000 ($0.25/share). As a result of the forward split, the 20,000 shares were increased to 80,000 shares ($0.0625/share) (See Note 8(D)).
On January 3, 2009, the Company entered into stock purchase agreements to issue 2,000 shares of common stock for cash of $500 ($0.25/share). As a result of the forward split, the 2,000 shares were increased to 8,000 shares ($0.0625/share) (See Note 8(D)).
On January 3, 2009, the Company entered into stock purchase agreements to issue 2,000 shares of common stock for cash of $500 ($0.25/share). As a result of the forward split, the 2,000 shares were increased to 8,000 shares ($0.0625/share) (See Note 8(D)).
On January 11, 2009, the Company entered into stock purchase agreements to issue 32,000 shares of common stock for cash of $8,000 ($0.25/share). As a result of the forward split, the 32,000 shares were increased to 128,000 shares ($0.0625/share) (See Note 8(D)).
On January 12, 2009, the Company entered into stock purchase agreements to issue 2,000 shares of common stock for cash of $500 ($0.25/share). As a result of the forward split, the 2,000 shares were increased to 8,000 shares ($0.0625/share) (See Note 8(D)).
On January 15, 2009, the Company entered into stock purchase agreements to issue 4,000 shares of common stock for cash of $1,000 ($0.25/share). As a result of the forward split, the 4,000 shares were increased to 16,000 shares ($0.0625/share) (See Note 8(D)).
In February of 2009, the Company paid direct offering costs of $850 related to the securities sold.
On May 27, 2010, the Company issued one unit; each unit consisted of 100,000 shares of common stock and 100,000 warrants to purchase common stock, for cash of $22,500 net of the $2,500 finder’s fee ($0.25/share). Each warrant is exercisable for a three year period and has an exercise price of $0.50 per share (See Note 8(C)).
On July 23, 2010, the Company issued one unit; each unit consisted of 100,000 shares of common stock and 100,000 warrants to purchase common stock, for cash of $25,000 ($0.25/share). Each warrant is exercisable for a three year period and has an exercise price of $0.50 per share (See Note 8(C).
On August 5, 2010, the Company issued 10 units; each unit consisted of 100,000 shares of common stock and 100,000 warrants to purchase common stock, for cash of $250,000 ($0.25/share). Each warrant is exercisable for a three year period and has an exercise price of $0.50 per share (See Note 8(C).
F-23
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
During the year ended December 31, 2010, the Company paid direct offering costs of $2,900 related to the securities sold.
On January 24, 2011, the Company issued 10,000 shares of common stock for cash of $1,000 ($0.10/share).
On February 23, 2011, the Company issued 300,000 shares of common stock for cash of $30,000 ($0.10/share).
On March 21, 2011, the Company issued 150,000 shares of common stock for cash of $15,000 ($0.10/share).
On May 2, 2011, the Company issued 2,000,000 shares of common stock for cash of $200,000 ($0.10/share).
During the month of June 2011, the Company issued 5,460,000 shares of common stock for cash of $546,000 ($0.10/share) of which $397,000 was a subscription receivable. The Company received the entire $397,000 of subscription receivable in July 2011.
During the months of July, August and September of 2011, the Company issued 10,937,000 shares of common stock for cash of $1,093,700 ($0.10/share).
During the year-ended December 31, 2011, the Company paid $76,780 in finder’s fees and issued 955,800 warrants (See Note 8(C)).
(B) Stock Issued for Services
On October 14, 2008, the Company issued 44,900,000 shares of common stock to its founder having a fair value of $44,900 ($0.001/share) in exchange for services provided. As a result of the forward split, the 44,900,000 shares were increased to 179,600,000 shares and its purchase price was similarly adjusted to $0.00025((See Note 8(D) and Note10).
On November 24, 2008, the Company issued 4,000 shares of common stock having a fair value of $1,000 ($0.25/share) in exchange for consulting services. As a result of the forward split, the 4,000 shares were increased to 16,000 shares and its purchase price was similarly adjusted to $0.0625/share (See Note 8(D)).
On December 5, 2008, the Company issued 4,000 shares of common stock having a fair value of $1,000 ($0.25/share) in exchange for consulting services. As a result of the forward split, the 4,000 shares were increased to 16,000 shares and its purchase price was similarly adjusted to $0.0625/share (See Note 8(D)).
On December 20, 2008, the Company issued 4,000 shares of common stock having a fair value of $1,000 ($0.25/share) in exchange for consulting services. As a result of the forward split, the 4,000 shares were increased to 16,000 shares and its purchase price was similarly adjusted to $0.0625/share (See Note 8(D)).
F-24
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On January 12, 2009, the Company issued 4,000 shares of common stock having a fair value of $1,000 ($0.25/share) in exchange for consulting services. As a result of the forward split, the 4,000 shares were increased to 16,000 shares and its purchase price was similarly adjusted to $0.0625/share (See Note 8(D)).
On January 14, 2009, the Company issued 20,000 shares of common stock having a fair value of $5,000 ($0.25/share) in exchange for services related to a development services agreement entered on January 19, 2009. As a result of the forward split, the 20,000 shares were increased to 80,000 shares and its purchase price was similarly adjusted to $0.0625/share (See Note 8(D) and Note 9(B)).
On August 25, 2009, the Company issued 50,000 shares of common stock having a fair value of $3,125 ($0.0625/share), based upon the fair value on the date of grant, in exchange for professional services.
On August 31, 2009, the Company issued 885,714 shares of common stock in exchange for services valued at $62,000 related to the development services agreement entered into on January 19, 2009. Based on the most recent fair market value at that time, the shares were valued at $55,357 ($0.0625/share), resulting in the recognition of a gain on the extinguishment of debt of $6,643 (See Note 9(B)).
On September 18, 2009, the Company issued 500,000 shares of common stock as compensation pursuant to the terms of a consulting agreement, having a fair value of $175,000 ($0.35/share) based upon fair value on the date of grant. On November 11, 2009, the Company cancelled the agreement and 300,000 shares of common stock were returned to the Company. As of December 31, 2009, $70,000 is recorded as consulting expense and $105,000 of deferred compensation was reclassified to $0 (See Note 9(B)).
On September 18, 2009, the Company issued 600,000 shares of common stock as compensation pursuant to the terms of a consulting agreement, having a fair value of $210,000 ($0.35/share) based upon fair value on the date of grant. On November 18, 2009, the Company cancelled the agreement and 400,000 shares of common stock were returned to the Company. As of December 31, 2009, $70,000 is recorded as consulting expense and $140,000 of deferred compensation was reclassified to $0 (See Note 9(B)).
On September 21, 2009, the Company issued 600,000 shares of common stock as compensation pursuant to the terms of a consulting agreement, having a fair value of $210,000 ($0.35/share) based upon fair value on the date of grant. On December 18, 2009, the Company terminated the consulting agreement and 400,000 shares were returned to the Company. As of December 31, 2009, $70,000 is recorded as consulting expense and $140,000 of deferred compensation was reclassified to $0 (See Note 9(B)).
F-25
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On November 12, 2009, the Company issued 100,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $178,000 ($1.78/share) based upon fair value on the date of grant. During 2009 and 2010, $11,948 and $89,000 was recorded as consulting expense, respectively. For the year ended December 31, 2011, $77,052 is recorded as consulting expense and $0 is recorded as deferred compensation (See Note 9(B)).
On November 12, 2009, the Company issued 200,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $400,000 ($2.00/share) based upon fair value on the date of grant. During 2009 and 2010, $22,466 and $200,000 was recorded as consulting expense, respectively. For the year ended December 31, 2011, $177,534 is recorded as consulting expense and $0 is recorded as deferred compensation (See Note 9(B)).
On November 16, 2009, the Company issued 100,000 shares of common stock as compensation pursuant to the terms of the consulting agreements, having a fair value of $180,000 ($1.80/share) based upon fair value on the date of grant. During 2009 and 2010, $11,096 and $90,000 was recorded as consulting expense, respectively. For the year ended December 31, 2011, $78,904 is recorded as consulting expense and $0 is recorded as deferred compensation (See Note 9(B)).
On November 18, 2009, the Company issued 30,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $45,000 ($1.50/share) based upon fair value on the date of grant. During 2009, $5,301 was recorded as consulting expense. For the year ended December 31, 2010, $39,699 was recorded as consulting expense. (See Note 9(B)).
On November 21, 2009, the Company issued 30,000 shares of common stock as compensation pursuant to the terms of the marketing agreement, having a fair value of $53,100 ($1.77/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $53,100 was recorded as consulting expense (See Note 9(B)).
On December 3, 2009, the Company issued 240,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $468,000 ($1.95/share) based upon fair value on the date of grant. As of December 31, 2009, $468,000 was recorded as consulting expense (See Note 9(B)).
On December 3, 2009, the Company issued 35,000 shares of common stock as compensation pursuant to the terms of the commission agreement, having a fair value of $68,250 ($1.95/share) based upon fair value on the date of grant. As of December 31, 2009, $68,250 was recorded as consulting expense (See Note 9(B)).
On December 3, 2009, the Company issued 35,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $68,250 ($1.95/share) based upon fair value on the date of grant. As of December 31, 2009, $68,250 was recorded as consulting expense (Note 9(B)).
F-26
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On December 3, 2009, the Company issued 10,000 shares of common stock as compensation pursuant to the terms of the commission agreement, having a fair value of $19,500 ($1.95/share) based upon fair value on the date of grant. As of December 31, 2009, $19,500 is recorded as consulting expense (See Note 9(B)).
On December 15, 2009, the Company issued 100,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $200,000 ($2.00/share) based upon fair value on the date of grant. During 2009, $71,111 was recorded as consulting expense. For the year ended December 31, 2010, $128,889 was recorded as consulting expense (See Note 9(B)).
On December 27, 2009, the Company issued 10,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $19,400 ($1.94/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $19,400 was recorded as consulting expense (See Note 9(B)).
On December 27, 2009, the Company issued 10,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $19,400 ($1.94/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $19,400 was recorded as consulting expense (See Note 9(B)).
On December 27, 2009, the Company issued 10,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $19,400 ($1.94/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $19,400 was recorded as consulting expense (See Note 9(B)).
On December 30, 2009, the Company issued 1,500,000 shares of common stock as compensation pursuant to the terms of the advertising agreement, having a fair value of $2,895,000 ($1.93/share) based upon fair value on the date of grant. In 2010, the Company cancelled a portion of the agreement and as a result, 1,000,000 shares of common stock were returned to the Company. For the year ended December 31, 2010, $965,000 was recorded as consulting expense (See Note 9(B)).
On December 31, 2009, the Company issued 75,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $144,750 ($1.93/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $116,374 was recorded as consulting expense. For the year ended December 31, 2011, $28,376 is recorded as consulting expense (See Note 9(B)).
On December 31, 2009, the Company issued 75,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $144,750 ($1.93/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $116,374 was recorded as consulting expense. For the year ended December 31, 2011, $28,376 is recorded as consulting expense (See Note 9(B)).
F-27
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On December 31, 2009, the Company issued 500,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $965,000 ($1.93/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $965,000 was recorded as consulting expense (See Note 9(B)).
During December of 2009, the Company issued 680,000 shares of common stock as compensation pursuant to the terms of the consulting agreements, having a fair value of $1,312,400 ($1.93/share) based upon fair value on the date of grant. During 2009 and 2010, $2,802 and $709,116 was recorded as consulting expense, respectively. For the year ended December 31, 2011, $600,482 is recorded as consulting expense and $0 is recorded as deferred compensation (See Note 9(B)).
During December of 2009, the Company issued 600,000 shares of common stock as compensation pursuant to the terms of the consulting agreements, having a fair value of $1,170,000 ($1.95/share) based upon fair value on the date of grant. During 2009 and 2010, $34,192 and $585,000 was recorded as consulting expense, respectively. For the year ended December 31, 2011, $550,808 is recorded as consulting expense and $0 is recorded as deferred compensation (See Note 9(B)).
On January 15, 2010, the Company issued 100,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $170,000 ($1.70/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $81,507 was recorded as consulting expense. For the year ended December 31, 2011, $88,493 is recorded as consulting expense and $0 is recorded as deferred compensation (See Note 9(B)).
On February 17, 2010, the Company entered into a twelve month consulting agreement with an unrelated third party effective February 17, 2010. In exchange for the services provided, the Company issued 1,000,000 shares of common stock having a fair value of $1,240,000 ($1.24/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $1,066,740 was recorded as consulting expense. For the year ended December 31, 2011, $173,260 is recorded as consulting expense (See Note 9(B)).
On June 1, 2010, the Company entered into a twelve month consulting agreement for consulting and business services. As part of the agreement, the Company issued 40,000 shares as a nonrefundable retainer fee having a value of $10,000 ($0.25/share) based upon fair value on the date of the agreement. (See Note 9(B)).
On July 23, 2010, the Company issued 10,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $2,000 ($0.20/share) based upon fair value on the grant date (See Note 9(B)).
F-28
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On August 1, 2010, the Company issued 200,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $40,000 ($0.20/share) based upon fair value on the grant date (See Note 9(B)).
On September 1, 2010, the Company issued 100,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $19,000 ($0.19/share) based upon fair value on the grant date (See Note 9(B)).
On October 1, 2010, the Company issued 100,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $18,000 ($0.18/share) based upon fair value on the grant date (See Note 9(B)).
On November 1, 2010, the Company issued 100,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $25,000 ($0.25/share) based upon fair value on the grant date (See Note 9(B)).
On December 14, 2010, the Company issued 250,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $37,500 ($0.15/share) based upon fair value on the grant date (See Note 9(B)).
On January 17, 2011, the Company issued 3,000,000 shares of common stock to its' new CEO pursuant to an employment agreement having a fair value of $300,000 ($0.10/share) based upon fair value on the grant date. (See Note 9(A)).
On February 17, 2011, the Company issued 500,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $55,000 ($0.11/share) based upon fair value on the grant date (See Note 9(B)).
On March 3, 2011, the Company issued 1,000,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $80,000 ($0.08/share) based upon fair value on the grant date (See Note 9(B)).
On May 17, 2011, the Company issued 2,000,000 shares of common stock pursuant to an employment agreement having a fair value of $140,000 ($0.07/share) based upon fair value on the grant date. (See Note 9(A)).
During June 2011, the Company issued 300,000 shares of common stock pursuant to consulting agreements for consulting services having a fair value of $75,000 ($0.25/share) based upon fair value on the grant date (See Note 9(B)).
On June 15, 2011, the Company issued 15,980 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $1,598 ($0.10/share) based upon the terms of the consulting agreement (See Note 9(B)).
F-29
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On July 1, 2011, the Company issued 6,500 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $520 ($0.08/share) based upon the terms of the consulting agreement (See Note 9(B)).
On August 14, 2011, the Company issued 2,443 shares of common stock pursuant to two consulting agreements for consulting services having a fair value of $855 ($0.35/share) based upon the terms of the consulting agreements (See Note 9(B)).
On September 12, 2011, the Company issued 2,860 shares of common stock pursuant to two consulting agreements for consulting services having a fair value of $715 ($0.25/share) based upon the terms of the consulting agreements (See Note 9(B)).
On September 18, 2011, the Company issued 15,403 shares of common stock pursuant to two consulting agreements for consulting services having a fair value of $3,388 ($0.22/share) based upon the terms of the consulting agreements (See Note 9(B)).
On September 25, 2011, the Company issued 1,500 shares of common stock pursuant to two consulting agreements for consulting services having a fair value of $585 ($0.39/share) based upon the terms of the consulting agreements (See Note 9(B)).
During the three months ended September 30, 2011, the Company issued 50,482 shares of common stock pursuant to two consulting agreements for consulting services having a fair value of $5,048 ($0.10/share) based upon the terms of the consulting agreements (See Note 8(B)).
On September 19, 2011, the Company issued 100,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $23,000 ($0.23/share) based upon the terms of the consulting agreement (See Note 9(B)).
On September 21, 2011, the Company issued 400,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $100,000 ($0.25/share) based upon the terms of the consulting agreement (See Note 9(B)).
On September 24, 2011, the Company issued 100,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $33,000 ($0.33/share) based upon the terms of the consulting agreement (See Note 9(B)).
On September 27, 2011, the Company issued 100,000 shares of common stock pursuant to two consulting agreements for consulting services having a fair value of $39,000 ($0.39/share) based upon the terms of the consulting agreements (See Note 9(B)).
During October 2011, the Company issued 123,795 shares of common stock for services having a fair value of $58,184 ($0.47/share).
F-30
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On October 28, 2011, the Company issued 100,000 shares of common stock for consulting services having a fair value of $88,000 ($0.88/share).
On November 18, 2011, the Company issued 100,000 shares of common stock for consulting services having a fair value of $70,000 ($0.70/share).
During December 2011, the Company issued 200,000 shares of common stock for services having a fair value of $108,000 ($0.54/share).
On December 18, 2011, the Company issued 100,000 shares of common stock for consulting services having a fair value of $50,000 ($0.50/share).
On January 25, 2012 the Company issued 733 shares of common stock pursuant to two consulting agreements for consulting services having a fair value of $454 ($0.62/share) based upon the terms of the consulting agreements (See Note 9(B)).
On March 14, 2012, the Company entered into a settlement agreement with a former employee with relation to the restriction on shares owned by the former employee. The settlement agreement will lift the restriction on his 6 million shares, and thus agreed to allow the former employee to sell 250,000 of the Company stock per quarter for two years. In addition, the Company settled a dispute over the termination of the employment agreement by agreeing to give the former employee an additional 150,000 shares to eliminate any dispute over anything owed under his old employment agreement. He is not an affiliate, not an insider and not a 5% or greater shareholder. For the year ended December 31, 2012, the Company issued 150,000 shares of common stock for consulting services having a fair value of $31,500 ($0.21/share), in relation to this settlement agreement.
On April 22, 2012, the Company issued 200,000 shares of common stock for services having a fair value of $60,000 ($0.30/share).
For the year ended December 31, 2012 , the Company issued 250,000 shares of stock to an employee per an employment agreement dated June 11, 2012 having a fair value of $62,500 ($0.25/share) based upon the terms of the employment agreement (See Note 9(A)).
On August 3, 2012, the Company issued 3,000,000 shares of common stock at an offering price of $.32 per share in exchange for consulting services rendered having a fair value at the grant date of $960,000. The Company will recognize the value of the shares over the life of the agreement. As of December 31, 2012, the Company recognized $480,000 in expense and recorded deferred compensation of $480,000 (See Note 8(B)).
On August 17, 2012, the Company issued 150,000 shares of common stock for consulting services having a fair value of $45,000 ($0.30/share).
F-31
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On August 22, 2012, the Company issued 500,000 shares of common stock at an offering price of $.30 per share in exchange for consulting services rendered having a fair value at the grant date of $150,000. The Company will recognize the value of the shares over the life of the agreement. As of December 31, 2012, the Company recognized $25,000 in expenses and recorded deferred compensation of $125,000 (See Note 9(B)).
On October 31, 2012, the Company issued 60,000 shares of common stock for financing costs having a fair value of $20,400 ($0.34/share).
(C) Common Stock Warrants
On December 30, 2009, the Company issued 500,000 warrants under a consulting agreement. The Company recognized an expense of $823,077 for the year ended December 31, 2009. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2009, dividend yield of zero, expected volatility of 112.80%; risk-free interest rates of 1.65%, expected life of three years. The warrants vested immediately. The warrants expire in three years from the date of issuance and have an exercise price of $0.52 per share.
On May 27, 2010, the Company issued 10,000 warrants under a consulting agreement. The Company recognized an expense of $1,782 for the year ended December 31, 2010. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2010, dividend yield of zero, expected volatility of 152.80%; risk-free interest rates of 1.35%, expected life of three years. The warrants vested immediately. The warrants expire in three years from the date of issuance and have an exercise price of $0.50 per share (See Note 9(B)).
On June 1, 2010, the Company issued 40,000 warrants under a consulting agreement. The Company recognized an expense of $7,184 for the year ended December 31, 2010. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2010, dividend yield of zero, expected volatility of 145.70%; risk-free interest rates of 1.26%, expected life of three years. The warrants vested immediately. The warrants expire in three years from the date of issuance and have an exercise price of $0.50 per share (See Note 9(B)).
On July 23, 2010, the Company issued 10,000 warrants under a consulting agreement. The Company recognized an expense of $1,593 for the year ended December 31, 2010. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2010, dividend yield of zero, expected volatility of 172.90%; risk-free interest rates of 0.94%, expected life of three years. The warrants vested immediately. The warrants expire in three years from the date of issuance and have an exercise price of $0.50 per share (See Note 9(B)).
F-32
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
During the year ended December 31, 2010, the Company issued 1,200,000 warrants in conjunction with the sale of the Company stock (See Note 8(A)).
On September 2, 2011, the Company issued 955,800 warrants under consulting agreements. The Company recognized an expense of $248,498 for the year ended December 31, 2011. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2011, dividend yield of zero, expected volatility of 461.11%; risk-free interest rates of 0.33%, expected life of three years. The warrants vested immediately. The warrants expire in three years from the date of issuance and have an exercise price of $0.10 per share (See Note 9(B)).
On June 11, 2012, the Company issued 200,000 warrants under consulting agreements. The Company recognized an expense of $48,031 for the year ended December 31, 2012. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2012, dividend yield of zero, expected volatility of 237.76%; risk-free interest rates of 0.19%, expected life of three years. The warrants vested immediately. The warrants expire in three years from the date of issuance and have an exercise price of $0.25 per share (See Note 9(B)).
The following tables summarize all warrant grants as of December 31, 2012 and September 30, 2011, and the related changes during these periods are presented below:
|
Number of
Warrants
|
Weighted
Average
Exercise Price
|
|||||||
|
Stock Warrants
|
||||||||
|
Balance at December 31, 2010
|
1,760,000 | $ | 0.51 | |||||
|
Granted
|
955,800 | 0.1 | ||||||
|
Exercised
|
||||||||
|
Forfeited
|
||||||||
|
Balance at December 31, 2011
|
2,715,800 | $ | 0.36 | |||||
|
Granted
|
200,000 | $ | 0.25 | |||||
|
Exercised
|
- | |||||||
|
Forfeited
|
(500,000 | ) | $ | 0.52 | ||||
|
Balance at December 31, 2012
|
2,415,800 | $ | 0.28 | |||||
|
Options Exercisable at December 31, 2012
|
2,415,800 | $ | 0.28 | |||||
|
Weighted Average Fair Value of Options Granted
|
$ | 0.28 | ||||||
F-33
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
|
Warrants Outstanding
|
Warrants Exercisable
|
|||||||||||||||||||||
|
Range of Exercise Price
|
Number
Outstanding at
December 31, 2012
|
Weighted
Average
Remaining
Contractual Life
|
Weighted
Average
Exercise Price
|
Number
Exercisable at
December 31, 2012
|
Weighted
Average
Exercise Price
|
|||||||||||||||||
|
$
|
0.50
|
1,260,000
|
0.41
|
$
|
0.50
|
1,260,000
|
$
|
0.50
|
||||||||||||||
|
$
|
0.10
|
955,800
|
1.67
|
$
|
0.10
|
955,800
|
$
|
0.10
|
||||||||||||||
|
$
|
0.25
|
200,000
|
2.44
|
$
|
0.25
|
200,000
|
$
|
0.25
|
||||||||||||||
|
Warrants Outstanding
|
Warrants Exercisable
|
||||||||||||||||||||
|
Range of Exercise Price
|
Number
Outstanding at
December 31, 2011
|
Weighted
Average
Remaining
Contractual Life
|
Weighted Average Exercise Price
|
Number
Exercisable at
December 31, 2011
|
Weighted
Average
Exercise Price
|
||||||||||||||||
|
$
|
0.52
|
500,000
|
1.00
|
$
|
0.52
|
500,000
|
$
|
0.52
|
|||||||||||||
|
$
|
0.50
|
1,260,000
|
1.28
|
$
|
0.50
|
1,260,000
|
$
|
0.50
|
|||||||||||||
|
$
|
0.10
|
955,800
|
2.67
|
$
|
0.10
|
955,800
|
$
|
0.10
|
|||||||||||||
In connection with the warrants issued for cash and services, the Company has an aggregate of 2,415,800 and 2,715,800 warrants outstanding as of December 31, 2012 and 2011, respectively. As of December 31, 2012, the Company has reserved 2,415,800 shares of common stock for the future exercise of the warrants.
(D) Stock Split Effected in the Form of a Stock Dividend
On January 16, 2009, the Company's Board of Directors declared a four-for-one stock split to be effected in the form of a stock dividend. The stock split was distributed on January 16, 2009 to shareholders of record. A total of 136,713,000 shares of common stock were issued. All basic and diluted loss per share and average shares outstanding information has been adjusted to reflect the aforementioned stock dividend.
(E) Amendment to Articles of Incorporation
On January 27, 2009, the Company amended its Articles of Incorporation to provide for an increase in its authorized share capital. The authorized capital stock increased to 250,000,000 common shares at a par value of $0.001 per share, and 10,000,000 preferred shares at a par value of $0.001 with class and series designations, voting rights, and relative rights and preferences to be determined by the Board of Directors of the Company from time to time.
F-34
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On June 2, 2010, the Company amended its Articles of Incorporation to provide for an increase in its authorized share capital. The authorized capital stock increased to 295,000,000 common shares at a par value of $0.001 per share.
On September 20, 2010, the Company amended its Articles of Incorporation to provide for an increase in its authorized share capital and a change in the par value per share. The authorized capital stock increased to 400,000,000 common shares at a par value of $0.0001 per share.
Effective March 1, 2011, the Company filed with the State of Delaware a Certificate of Amendment of Certificate of Incorporation changing our name from So Act Network, Inc. to Max Sound Corporation.
(F) In Kind Contribution
During the fourth quarter of 2008, a former stockholder of the Company paid $4,400 of operating expenses on behalf of the Company.
During the fourth quarter of 2008, the principal stockholder contributed office space with a fair market value of $2,913 (See Note 10).
For the year ended December 31, 2009, the principal stockholder contributed office space with a fair market value of $12,600 (See Note 10).
For the year ended December 31, 2010, the principal stockholder contributed office space with a fair value of $9,450 (See Note 10).
(G) Share Conversion
On June 2, 2010, a principal stockholder converted $283,652 of accrued compensation into 945,507 shares of common stock at $0.30 per share (See Note 10).
On February 17, 2011, a principal stockholder converted $144,000 of accrued compensation into 1,309,091 shares of common stock at $0.11 per share (See Note 10).
On February 17, 2011, a principal stockholder converted $100,000 of a line of credit owed into 909,091 shares of common stock at $.011 per share (See Note 4 and Note 10).
On January 18, 2011, the Company entered into a conversion agreement executed by a note holder for 109,375 shares based on a conversion price of $0.032 per share (See Note 6).
On February 9, 2011, the Company entered into a conversion agreement executed by a note holder for 271,186 shares based on a conversion price of $0.0295 per share (See Note 6).
F-35
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On February 15, 2011, the Company entered into a conversion agreement executed by a note holder for 357,143 shares based on a conversion price of $0.0336 per share (See Note 6).
On February 23, 2011, the Company entered into a conversion agreement executed by a note holder for 220,264 shares based on a conversion price of $0.0454 per share (See Note 6).
On April 11, 2011, the Company entered into a conversion agreement executed by a note holder for 587,382 shares based on a conversion price of $0.0315 per share (See Note 6).
On August 25, 2011, the Company entered into a conversion agreement executed by a note holder for 77,220 shares based on a conversion price of $0.1554 per share (See Note 6).
On August 30, 2011, the Company entered into a conversion agreement executed by a note holder for 96,220 shares based on a conversion price of $0.1455 per share (See Note 6).
On September 12, 2011, the Company entered into a conversion agreement executed by a note holder for 116,505 shares based on a conversion price of $0.1339 per share (See Note 6).
On September 14, 2012, the Company entered into a conversion agreement executed by a note holder for 528,035 shares based on a conversion price of $0.322 per share (See Note 6).
On September 21, 2012, the Company entered into a conversion agreement executed by a note holder for 72,385 shares based on a conversion price of $0.2763 per share (See Note 6).
On September 27, 2012, the Company entered into a conversion agreement executed by a note holder for 91,208 shares based on a conversion price of $0.2741 per share (See Note 6).
On October 2, 2012, the Company entered into a conversion agreement executed by a note holder for 79,586 shares based on a conversion price of $0.2513 per share (See Note 6).
On October 3, 2012, the Company entered into a conversion agreement executed by a note holder for 119,379 shares based on a conversion price of $0.2513 per share (See Note 6).
On October 5, 2012, the Company entered into a conversion agreement executed by a note holder for 92,365 shares based on a conversion price of $0.27067 per share (See Note 6).
On October 9, 2012, the Company entered into a conversion agreement executed by a note holder for 48,454 shares based on a conversion price of $0.2394 per share (See Note 6).
F-36
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On October 19, 2012, the Company entered into a conversion agreement executed by a note holder for 200,501 shares based on a conversion price of $0.1995 per share (See Note 6).
On November 1, 2012, the Company entered into a conversion agreement executed by a note holder for 101,678 shares based on a conversion price of $0.19670 per share (See Note 6).
On November 5, 2012, the Company entered into a conversion agreement executed by a note holder for 917,031 shares based on a conversion price of $0.18619 per share (See Note 6).
On November 14, 2012, the Company entered into a conversion agreement executed by a note holder for 111,029 shares based on a conversion price of $0.18013 per share (See Note 6).
On November 19, 2012, the Company entered into a conversion agreement executed by a note holder for 113,805 shares based on a conversion price of $0.18128 per share (See Note 6).
On November 19, 2012, the Company entered into a conversion agreement executed by a note holder for 150,000 shares based on a conversion price of $0.1764 per share (See Note 6).
On November 23, 2012, the Company entered into a conversion agreement executed by a note holder for 166,543 shares based on a conversion price of $0.18013 per share (See Note 6).
On December 12, 2012, the Company entered into a conversion agreement executed by a note holder for 180,000 shares based on a conversion price of $0.19151 per share (See Note 6).
On December 31, 2012, the Company entered into a conversion agreement executed by a note holder for 146,780 shares based on a conversion price of $0.17032 per share (See Note 6).
(H) Share Exchange
On May 11, 2010, the Company acquired the rights to an audio technology known as Max Audio Technology (Max) through a share exchange, whereby the Company issued 30,000,000 shares of common stock to two individuals in exchange for their rights in Max having a value of $7,500,000 based upon recent market value ($0.25/share) (See Note 9(B)).
F-37
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On January 17, 2011, the Company acquired the rights to software technology known as Blog Software, Social Media Vault, Social Media Bar and Trending Topix (BSST) through a share exchange, whereby the Company issued 3,000,000 shares of common stock to two individuals in exchange for their rights to BSST having a value of $300,000 based upon recent market value ($0.10/share).
On November 15, 2012, the Company acquired the rights to assets and audio technology known as Liquid Spins, Inc. through a share exchange, whereby the Company issued 24,752,475 shares of common stock for their rights in Liquid Spins technology and other assets having a value of $10,000,000 based upon recent market value ($0.404/share). The following assets were acquired in the transaction:
|
Consideration transferred at fair value:
|
||||
|
Common stock - 24,752,475 Shares
|
$ | 10,000,000 | ||
|
Total consideration
|
$ | 10,000,000 | ||
|
Net assets acquired:
|
||||
|
Current assets
|
$ | 164,146 | ||
|
Property and equipment
|
117,381 | |||
|
Cash
|
62,885 | |||
|
Total net assets acquired
|
$ | 344,412 | ||
|
Intangible assets
|
$ | 9,655,588 | ||
(I) Stock Options
On January 17, 2011, the Company issued 12,000,000 options to buy common shares of the Company's stock at $0.12 per share, good for three years, to its' new CEO pursuant to an employment agreement. The Company recognized an expense of $1,199,794 for the year ended December 31, 2011. The Company recorded the fair value of the options based on the fair value of each option grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2010; dividend yield of zero, expected volatility of 436.04%, risk-free interest rates of 1.00%, expected life of three years. The options vest immediately (See Note9 (A)).
F-38
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
The following tables summarize all option grants as of December 31, 2012 and September 30, 2011, and the related changes during these periods are presented below:
|
Number of
Options
|
Weighted
Average
Exercise Price
|
|||||||
|
Stock Options
|
||||||||
|
Balance at December 31, 2011
|
12,000,000 | $ | 0.12 | |||||
|
Granted
|
- | $ | - | |||||
|
Exercised
|
- | |||||||
|
Forfeited
|
- | |||||||
|
Balance at December 31, 2012
|
12,000,000 | $ | 0.12 | |||||
|
Options Exercisable at December 31, 2012
|
12,000,000 | $ | 0.12 | |||||
|
Weighted Average Fair Value of Options Granted
|
$ | 0.12 | ||||||
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||
|
Range of Exercise Price
|
Number
Outstanding at
December 31, 2012
|
Weighted
Average Remaining
Contractual Life
|
Weighted
Average
Exercise Price
|
Number
Exercisable at
December 31, 2012
|
Weighted
Average
Exercise Price
|
|||||||||||||||||
|
$
|
0.12
|
12,000,000
|
1.04
|
$
|
0.12
|
12,000,000
|
$
|
0.12
|
||||||||||||||
|
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||||
|
Range of Exercise Price
|
Number
Outstanding at
December 31, 2011
|
Weighted
Average Remaining
Contractual Life
|
Weighted
Average
Exercise Price
|
Number
Exercisable at
December 31, 2011
|
Weighted
Average
Exercise Price
|
||||||||||||||||
|
$
|
0.12
|
12,000,000
|
2.05
|
$
|
0.12
|
12,000,000
|
$
|
0.12
|
|||||||||||||
In connection with the options issued for cash and services, the Company has an aggregate of 12,000,000 and 12,000,000 options outstanding as of December 31, 2012 and 2011, respectively. As of December 31, 2012, the Company has reserved 12,000,000 shares of common stock for the future exercise of the options.
|
NOTE 9
|
COMMITMENTS
|
(A) Employment Agreement
On October 13, 2008, the Company executed an employment agreement with its President and CEO. The term of the agreement is for ten years. As compensation for services, the President will receive a monthly compensation of $18,000 beginning October 13, 2008. In addition, to the base salary, the employee is entitled to receive a 10% commission of all sales of the Corporation. The agreement also calls for the employee to receive health benefits. For the year ended December 31, 2012, the Company has recorded $216,000 in compensation expense (See Note 10).
F-39
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On January 17, 2011, the Company executed an employment agreement with an executive to be CEO for five years. As compensation for services, the executive will receive a monthly compensation of $8,000 beginning after the completion of at least one million dollars of new funding to the Corporation or can be paid as commissions from sales brought to the Company, whichever comes first. In addition to the base salary, the employee is entitled to receive a 20% commission of all sales the executive is directly responsible for bringing to the Company. The agreement also calls for the executive to receive, upon execution of the agreement, three million shares of Rule 144 common stock and twelve million options, which are good for three years, to buy shares of Rule 144 common stock at $0.12/share. As a supplement to the agreement, on February 4, 2011, the executive shall receive an additional twenty million common shares directly from the President of the Company. On August 25, 2011, the agreement was updated to increase the monthly compensation to $12,000 per month beginning September 1, 2011. The agreement also calls for the employee to receive health benefits (See Note 8(B) and 8(I)).
On May 17, 2011, the Company executed an employment agreement with its Chief Internet Officer (“CIO”). The term of the agreement is for five years. As compensation for services, the CIO will receive a monthly compensation of $9,000 beginning at the completion of at least one million dollars of new funding. In addition to the base salary, the employee is entitled to receive health benefits. The agreement also calls for the CIO to receive two million shares of Rule 144 common stock upon the execution of the agreement. On August 25, 2011, the agreement was updated to increase the monthly compensation to $12,000 per month beginning October 1, 2011. (See Note 8(B)).
On October 1, 2011, the Company executed an employment agreement with its Chief Technical Officer (“CTO”). The term of the agreement is for five years. As compensation for services, the CTO will receive a monthly compensation of $10,000, monthly commission equal to 5% of all profits derived from the sales of all products and services related to Max Sound, and an annual bonus of 5% of all profits derived from the sales of all products and services related to Max Sound that is over one million dollars. In addition to the base salary, the employee is entitled to receive health benefits. Effective January 1, 2012, the Company increased the monthly compensation to $12,000. On December 31, 2012, the Company amended the agreement such that effective January 1, 2013, the CTO will receive 300,000 shares of common stock and 700,000 three year options at 50 cents per share.
On June 11, 2012, the Company executed an employment agreement with its Senior Audio Engineer. The term of the agreement is for five years. As compensation for services, the Engineer will receive a monthly compensation of $6,000 beginning July 1, 2012. In addition to the base salary, the employee is entitled to receive health benefits, and the employee will receive up to 1,000,000 shares of common stock payable in 125,000 increments per quarter beginning on July 1, 2012. For the year ended December 31, 2012, the Company issued 250,000 shares with a fair value of $62,500 ($0.25/share) (See Note 8(B)).
F-40
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
(B) Consulting Agreement
On January 19, 2009, the Company entered into a development services agreement to construct social network software for a fee of $150 and $375 an hour. The contract will remain in place until either party desires to cancel. A retainer fee of $20,000 has been paid upon the execution of the agreement and will be used towards the services provided. In addition, on January 14, 2009 the Company issued 20,000 shares in exchange for services valued at $5,000 ($0.25/share). As a result of the forward split, the 20,000 shares were increased to 80,000 shares and its purchase price was similarly adjusted to $0.0625 (See Note 7(B) and Note 7(D)). On May 29, 2009, the Company amended the consulting agreement by reducing the hourly rate to $75 an hour and reducing the outstanding balance due by $17,163. On August 31, 2009, the Company issued 885,714 shares of common stock in exchange for services valued at $62,000 related to the development services agreement entered into on January 19, 2009. Based on the most recent fair market value at that time, the shares were valued at $55,357 ($0.0625/share), resulting in the recognition of a gain on the extinguishment of debt of $6,643 (See Note 8(B)).
On January 20, 2009, the Company entered into a service agreement with a transfer agent to become the Company's transfer agent for the purpose of maintaining stock ownership and transfer records for the Company.
On September 17, 2009, the Company entered into a six month consulting agreement with an unrelated third party to provide public relations services. In exchange for the services provided, on September 18, 2009 the Company issued 500,000 shares of common stock having a fair value of $175,000 ($0.35/share) based upon fair value on the date of grant. The Company has an option to cancel the contract during the first ninety days of the agreement and 200,000 shares will be returned back to the Company. On November 11, 2009, the Company cancelled the agreement and 300,000 shares of common stock were returned to the Company. As of December 31, 2009, $70,000 is recorded as consulting expense and $105,000 of deferred compensation was reclassified to $0 (See Note 8(B)).
On September 18, 2009, the Company entered into a six month consulting agreement with an unrelated third party to provide public relations services. In exchange for the services provided the Company issued 600,000 shares of common stock having a fair value of $210,000 ($0.35/share) based upon fair value on the date of grant. Shares will be issued on or before December 18, 2009 in six 100,000 increments. The Company has an option to cancel the contract at any time, in such event; the consultant will return a prorated amount of shares based on the months remaining in the consulting agreement. On November 18, 2009, the Company cancelled the agreement and 400,000 shares of common stock were returned to the Company. As of December 31, 2009, $70,000 is recorded as consulting expense and $140,000 of deferred compensation was reclassified to $0 (See Note 8(B)).
F-41
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On September 21, 2009, the Company entered into an eight month consulting agreement with an unrelated third party to provide public relations services. In exchange for the services provided, the Company issued 600,000 shares of common stock having a fair value of $210,000 ($0.35/share) based upon fair value on the date of grant. Shares will be issued on or before September 18, 2009, December 18, 2009, and March 18, 2010, in 200,000 increments. The Company has an option to cancel the contract at any time and no additional stock issuances will be due. On December 18, 2009, the Company cancelled the agreement and 400,000 shares of common stock were returned to the Company. As of December 31, 2009, $70,000 is recorded as consulting expense and $140,000 of deferred compensation was reclassified to $0 (See Note 8(B)).
On October 20, 2009, the Company entered into a marketing agreement with an unrelated third party. In exchange for the services provided, on November 21, 2009, the Company issued 30,000 shares of common stock having a fair value $53,100 ($1.77/share) based upon fair value on the date of grant, and compensation of $5,000, of which $2,500 was paid in 2009 upon the execution of the agreement and the remaining $2,500 was paid in 2010 upon completion (See Note 8(B)).
During the months of November and December 2009, the Company entered into celebrity endorsement agreements for a period of one to two years of service. In total, 1,710,000 shares of common stock were issued having a fair value of $3,285,400 based upon fair value on the respective date of grant. During 2009 and 2010, $87,805 and $1,712,815 was recorded as consulting expense, respectively. For the year ended December 31, 2011, $1,484,780 is recorded as consulting expense, and $0 is recorded as deferred compensation (See Note 8(B)).
On December 3, 2009, the Company entered into a commission agreement with an unrelated third party. The company will pay a 10% commission in shares of common stock for every passive endorsement. In exchange for the services provided the Company issued 35,000 shares of common stock having a fair value $68,250 ($1.95/share) based upon fair value on the date of grant (See Note 8(B)).
On December 3, 2009, the Company entered into a commission agreement with an unrelated third party. The company will pay a 10% commission in shares of common stock for every passive endorsement. In exchange for the services provided the Company issued 240,000 shares of common stock having a fair value $468,000 ($1.95/share) based upon fair value on the date of grant (See Note 8(B)).
On December 3, 2009, the Company entered into a commission agreement with an unrelated third party. The company will pay a 10% commission in shares of common stock for every passive endorsement. In exchange for the services provided the Company issued 35,000 shares of common stock having a fair value $68,250 ($1.95/share) based upon fair value on the date of grant (See Note 8(B)).
F-42
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On December 3, 2009, the Company entered into a commission agreement with an unrelated third party. The company will pay a 10% commission in shares of common stock for every passive endorsement. In exchange for the services provided the Company issued 10,000 shares of common stock having a fair value $19,500 ($1.95/share) based upon fair value on the date of grant (See Note 8(B)).
On December 15, 2009, the Company entered into a consulting agreement with an unrelated third party to provide investor services. The Company will receive a 10% of the gross receipts from the investor relations revenue for a two year period. In exchange for the satisfactory services provided, on December 15, 2009, the Company issued 100,000 shares of common stock having a fair value of $200,000 ($2/share) based upon fair value on the date of grant (See Note 8(B)).
On December 27, 2009, the Company entered into a consulting agreement with an unrelated third party to provide film work. In exchange for the services provided the Company issued 10,000 shares of common stock having a fair value $19,400 ($1.94/share) based upon fair value on the date of grant (See Note 8(B)).
On December 27, 2009, the Company entered into an endorsement agreement with an unrelated third party to provide film work. In exchange for the services provided the Company issued 10,000 shares of common stock having a fair value $19,400 ($1.94/share) based upon fair value on the date of grant (See Note 8(B)).
On December 27, 2009, the Company entered into a consulting agreement with an unrelated third party to provide film scripting, editing and production work. In exchange for the services provided the Company issued 10,000 shares of common stock having a fair value $19,400 ($1.94/share) based upon fair value on the date of grant (See Note 8(B)).
On December 30, 2009, the Company entered into a marketing agreement with an unrelated third party for a period from January 2010 to December 2010. In exchange for the services provided, the Company issued 500,000 shares of common stock having a fair value of $965,000 ($1.93/share) based upon fair value on the date of grant. An additional 1,000,000 shares of common stock having a fair value of $1,930,000 ($1.93/share) based upon fair value on the date of grant, were issued for an additional sponsorship commitment. The additional 1,000,000 shares were to be held in escrow until June 30, 2010, at which point the unrelated party would have 15 days to accept or decline the additional shares. As of December 31, 2010, the shares were returned back to the Company’s treasury due to non-performance of services and no additional shares will be issued (See Note 8(B)).
On December 31, 2009, the Company entered into a consulting agreement with an unrelated third party for a period from December 31, 2009 through March 30, 2011. In exchange for the services provided, the Company issued 75,000 shares of common stock having a fair value of $144,750 ($1.93/share) based upon fair value on the date of grant, and deliverable in three increments of 25,000 shares of common stock each. The first 25,000 shares will be delivered upon the execution of the agreement and the other two increments will be delivered in six and twelve months upon the successful fulfillment of the agreement (See Note 8(B)).
F-43
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On December 31, 2009, the Company entered into a consulting agreement with an unrelated third party for a period from December 31, 2009 through March 30, 2011. In exchange for the services provided, the Company issued 75,000 shares of common stock having a fair value of $144,750 ($1.93/share) based upon fair value on the date of grant, and deliverable in three increments of 25,000 each. The first 25,000 shares will be delivered upon the execution of the agreement and the other two will be delivered in six and twelve months upon the successful fulfillment of the agreement (See Note 8(B)).
On December 31, 2009, the Company entered into a consulting agreement with an unrelated third party for a period from December 31, 2009 through December 31, 2010. In exchange for the services provided, the Company issued 500,000 shares of common stock having a fair value of $965,000 ($1.93/share) based upon fair value on the date of grant (See Note 8(B)).
On January 11, 2010, the Company entered into a twelve month agreement with an unrelated third party for investor relations press release service for an annual fee of $14,250 and an initial onetime fee of $250.
On January 15, 2010, the Company entered into a two year celebrity endorsement agreement. In total, 100,000 shares of common stock were issued having a fair value of $170,000($1.70/share) based upon fair value on the date of grant (See Note 8(B)).
On February 1, 2010, the Company entered into a twelve month consulting agreement effective February 5, 2010, with an unrelated third party to produce music compositions for a fee of $500. The agreement can be renewed for up to two additional years for a fee of $500 for the first renewal year and $750 for the second renewal year.
On February 17, 2010, the Company entered into a twelve month consulting agreement with an unrelated third party effective February 17, 2010. In exchange for the services provided, the Company issued 1,000,000 shares of common stock having a fair value of $1,240,000 ($1.24/share) based upon fair value on the date of grant (See Note 8(B)).
On June 1, 2010, the Company entered into a twelve month consulting agreement to provide for consulting and business services in raising capital. The Company agrees to pay a finder’s fee on all capital raised in stock and warrants. The Company paid an initial nonrefundable retainer fee by issuing 40,000 shares of stock having a value of $10,000 ($0.25/share) based upon fair value on the date of the agreement. In conjunction with the stock payment, the Company also issued one warrant attached to each share of stock exercisable at $0.50 per warrant. Based upon the number of shares (40,000 shares) of stock issued, the Company issued 40,000 warrants (See Note 8(B) and Note 8(C).
F-44
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On May 11, 2010, the Company acquired the rights to an audio technology known as Max Audio Technology (Max) through a share exchange, whereby the Company issued 30,000,000 shares of common stock to two individuals in exchange for their rights in Max having a value of $7,500,000 based upon recent market value ($0.25/share). (See Note 8(H)).
In accordance with the share exchange, the former owners to the rights of Max became Executives of the Company. The two new executives individually entered into employment agreements with the Company on May 11, 2010. The term of the employment agreements are for ten years of service at a monthly compensation of $8,500 for each executive. In addition, the Executives are entitled to receive 5% of all revenues derived from the sale of all products and services related to the Max Audio Technology. On January 2, 2011, the agreement was cancelled.
On April 15, 2010, the Company entered into a finder’s fee agreement. For each qualified investor introduced to the Company by the consultant, the Company will pay a 10% fee in cash equal to 10% of the dollar amount of securities purchased, In addition, the Company will pay a 10% fee in warrants equal to 10% of the number of shares of stock purchased (See Note 8(C)).
On August 8, 2010, the Company entered into a consulting agreement with an unrelated third party to provide consulting services. Upon the execution of the agreement, the consultant received 100,000 shares of common stock. A monthly issuance of 100,000 shares of common stock will be issued as a compensation of services provided. The term of the agreement is for three months and will continue to renew for three month intervals unless cancelled by either party. The agreement was cancelled on November 1, 2010 (See Note 8(B)).
On August 17, 2010, the Company entered into a consulting agreement. The agreement shall remain in effect until terminated. In exchange for the services provided, the consultant will receive a $500 a month allowance for general expenses. In addition, for all the new business brought to the Company the consultant will receive a 10% compensation for each gross dollar received by the Company. On February 15, 2011, the Company terminated the agreement.
On December 14, 2010, the Company entered into to a consulting agreement for consulting and advertising services. Upon the execution of the agreement, the consultant received 250,000 shares with an additional 750,000 shares to be issued upon consultant obtaining sponsorship rights in the year 2011. The sponsorship rights were not obtained and the agreement was cancelled in 2011 and the additional 750,000 shares were never issued (See Note 8(B)).
F-45
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On February 17, 2011, the Company entered into a consulting agreement for public relations and communications services. In exchange for the services provided, the consultant received 500,000 shares of common stock. The term of the agreement is for one year (See Note 8 (B)).
On March 3, 2011, the Company entered into a consulting agreement for public relations and communications services. In exchange for the services provided, the consultant received 1,000,000 shares of common stock. The term of the agreement is for one year (See Note 8 (B)).
On June 10, 2011, the Company entered into a five year advisory board consulting agreement with three persons to provide for consulting and business services. In exchange for the services provided, the consultants received 100,000 shares of common stock each. (See Note 8(B)).
On June 15, 2011, the Company entered into a consulting agreement with an unrelated third party for software and computer technology services. In exchange for the services provided, the consultant will be paid $70 per hour with $50 per hour paid in cash and $20 per hour paid in Company stock at $0.10 per share. The term of the agreement is for one year. (See Note 8(B)).
On July 1, 2011, the Company entered into a consulting agreement with an unrelated third party for trade show services. In exchange for the services provided, the consultant received 6,500 shares of common stock at $0.08/per share. The agreement was for one-time services. (See Note 8(B)).
During the year ended December 31, 2011, the Company entered into an agreement with an unrelated third party for software and computer technology services. In exchange for the services provided, the consultant received 76,483 shares of common stock at $0.10 – 0.39 per share. The term of the agreement is for one year. (See Note 8(B)).
In September 2011, the Company entered into a five year advisory board consulting agreement with three persons to provide for consulting and business services. In exchange for the services provided, the consultants received 100,000 shares of Company stock at $0.23 – 0.39 per share. The terms of the agreements are for five years. (See Note 8(B)).
On September 21, 2011, the Company entered into a consulting agreement with an unrelated third party for investor relation services. In exchange for the services provided, the consultant received 400,000 shares of Company stock at $0.25 per share. The term of the agreement is for six months. (See Note 8(B)).
During the three months ended December 31, 2011, the Company entered into a five year advisory board consulting agreement with five persons to provide for consulting and business services. In exchange for the services provided, the consultants received 100,000 shares of Company stock at $0.47 – 0.88 per share. The terms of the agreements are for five years. (See Note 8(B)).
F-46
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On June 11, 2012, the Company issued 200,000 warrants under consulting agreements. During the year ended December 31, 2012, the Company recognized an expense of $48,031. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2012, dividend yield of zero, expected volatility of 237.76%; risk-free interest rates of 0.19%, expected life of three years. The warrants vested immediately. The warrants expire in three years from the date of issuance and have an exercise price of $0.25 per share (See Note 8(B)).
On August 3, 2012, the Company entered into an endorsement agreement with an unrelated third party for a period from August 3, 2012 through August 3, 2015. In exchange for the services provided, the Company issued 3,000,000 shares of common stock having a fair value of $960,000 ($0.30/share) based upon fair value on the date of grant (See Note 8(B)). The delivery of the shares will be made in four 750,000 tranches to coincide with each of the four points listed below:
| ● |
Record two (2) one-minute video endorsements (English and Spanish)
|
|
| ● |
Release of Mobile Application
|
|
| ● |
Use of MAX-D HD technology in the next two major music projects.
|
|
| ● |
Any addition projects that effectively promote the use of MAX-D technology.
|
As December 31, 2012, the first two of the four points listed above have been completed and the Company recorded $480,000 as deferred compensation and $480,000 in endorsement expense.
On August 22, 2012, the Company entered into a consulting agreement with an unrelated third party for a period from September 1, 2012 through August 31, 2013. In exchange for the services provided, the Company issued 500,000 shares of common stock having a fair value of $150,000 ($0.30/share) based upon fair value on the date of grant (See Note 8(B)).
On September 14, 2012, the Company entered into a licensing agreement with an unrelated third party for a period from September 14, 2012 through September 14, 2013. The agreement will automatically extend on a year to year basis unless terminated by either party. Upon the execution of the agreement, the Company paid a non-refundable $15,000 upfront fee for the use of the license. Any additional technical support will be provided on as needed basis at an hourly rate of $250/hour.
On December 1, 2012, the Company entered into a consulting agreement with an unrelated third party for a period from December 1, 2012 through November 30, 2013. In exchange for the services provided, the Company will pay a monthly consulting fee of $10,000. A bonus may be provided for $26,000 after one year of service in the sole discretion of the Company. In addition, the Company will grant 500,000 three year warrants with an exercise price of $0.45 per share. The consultant agreed that within 10 days of executing the consulting agreement, they would loan the Company $120,000 in the form of a convertible note convertible at 50 cents per share (See Note 7).
F-47
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
(C) Operating Lease Agreements
On September 1, 2010, the Company executed a three-year non-cancelable operating lease for its new corporate office space. The lease began on October 1, 2010 and expires on September 30, 2013. Total base rent due during the term of the lease is $134,880.
On December 5, 2012, the Company took over a month to month operating lease upon completing the asset purchase agreement with Liquid Spins. The lease began on October 1, 2012 at a monthly rate of $1,585.
|
NOTE 10
|
RELATED PARTY TRANSACTIONS
|
During the year ended December 31, 2008, the Company received $18,803 from the principal stockholder. Pursuant to the terms of the loan, the loan is bearing an annual interest rate of 3.25% and due on demand. In 2008, the Company repaid $15,000 in principal to the principal stockholder. In 2009, the Company repaid $3,803 in principal to the principal stockholder. As of December 31, 2010, the principal portion of this principal stockholder loan balance has been repaid (See Note 3).
On May 11, 2009, the Company received $9,500 from a principal stockholder. During the year ended December 31, 2009, the Company repaid $1,500 in principal to the principal stockholder. Pursuant to the terms of the loan, the loan is bearing an annual interest rate of 3.25% and is due on demand (See Note 3).
On May 22, 2009, the Company received $15,000 from a principal stockholder. During the year ended December 31, 2010, the Company repaid $6,000 in principal to a principal stockholder under the terms of the loan. Pursuant to the terms of the loan, the loan is bearing an annual interest rate of 3.25% and is due on demand (See Note 3).
On May 26, 2009, the Company received $16,700 from a principal stockholder. During the year ended December 31, 2010, the Company repaid $15,700 in principal to the principal stockholder under the terms of this loan. Pursuant to the terms of the loan, the loan is bearing an annual interest rate of 3.25% and is due on demand (See Note 3).
During the year ended December 31, 2011, the Company repaid $18,000 in principal and $2,116 of accrued interest to the principal stockholder related to these principal loans (See Note 3).
On May 28, 2009, the Company entered into a two year line of credit agreement with a principal stockholder in the amount of $100,000. The line of credit carries an interest rate at 3.25%. As of December 31, 2011, the principal shareholder has advanced the Company $100,000 under the terms of this line of credit agreement (See Note 4).
F-48
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On November 10, 2009, the Company entered into a two year line of credit agreement with a principal stockholder in the amount of $100,000. The line of credit carries an interest rate at 3.25%. As of December 31, 2011, the principal shareholder has advanced $100,000 to the Company under the terms of this line of credit agreement (See Note 4).
On March 25, 2010, the Company entered into a two year line of credit agreement with the principal stockholder in the amount of $500,000. The line of credit carries an interest rate of 3.25%. On February 17, 2011, the principal stockholder converted $100,000 of the line of credit owed into 909,091 shares of common stock at $0.11 per share. As of December 31, 2011, the principal stockholder has advanced $360,580 to the Company under this line of credit agreement (See Note 8(G) and Note 4).
As of December 31, 2011, the Company repaid $460,580 in principal and $11,283 of accrued interest to the principal stockholder related to these lines of credit (See Note 4).
On October 14, 2008, the Company issued 44,900,000 shares of common stock to its founder having a fair value of $44,900 ($0.001/share) in exchange for services provided. As a result of the forward split, the 44,900,000 shares were increased to 179,600,000 shares and its purchase price was similarly adjusted to $0.00025 (See Note 8(B) and Note 7(D)).
On October 13, 2008, the Company executed an employment agreement with its President and CEO. The term of the agreement is ten years. As compensation for services, the President will receive a monthly compensation of $18,000 beginning October 13, 2008. In addition, to the base salary, the employee is entitled to receive a 10% commission of all sales of the Corporation. The agreement also calls for the employee to receive health benefits (See Note 9(A)).
On June 2, 2010, a principal stockholder converted $283,652 of accrued compensation into 945,507 shares of common stock at $0.30 per share. (See Note 8(G)).
On February 17, 2011, a principal stockholder converted $144,000 of accrued compensation into 1,309,091 shares of common stock at $.0.11 per share. (See Note 8(G)).
During the fourth quarter of 2008, the principal stockholder contributed office space with a fair market value of $2,913 (See Note 8(F)).
For the year ended December 31, 2009, the principal stockholder contributed office space with a fair market value of $12,600 (See Note 8(F)).
For the year ended December 31, 2010, the principal stockholder contributed office space with a fair value of $9,450 (See Note 8(F)).
F-49
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
|
NOTE 11
|
LITIGATION
|
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business.
On February 6, 2012, the Company filed a suit for declaratory judgment and rescission of contract associated with a former consultant for failure to perform contractual requirements. It seeks clarification that the former consultant is not owed 750,000 shares of restricted common stock. The defendants have been served. This case will be vigorously prosecuted and has a good likelihood of a favorable outcome. The case seeks in excess of the jurisdictional amount, which is $50,000 dollars. Subsequent to the year end, on March 5, 2013, the suit was settled in favor of Max Sound Corporation and 750,000 shares issued to the former consultant were returned to the treasury.
On February 21, 2012, the Company filed a suit for breach of contract, intentional misrepresentation, negligent misrepresentation, fraud, false advertising, and unfair competition with a former consultant. It seeks damages due to their alleged failure to meet the contractual requirements regarding promotions. The defendant has been served. This case will be vigorously prosecuted and has a good likelihood of success. The case seeks in excess of the jurisdictional amount which is $50,000 dollars.
No assurance can be given as to the ultimate outcome of these actions or its effect on the Company.
|
NOTE 12
|
SUBSEQUENT EVENTS
|
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure as follows:
Subsequent to December 31, 2012, the Company issued 3,362,532 shares in common stock related to the conversion of convertible debt.
On January 24, 2013, the Company entered into an agreement whereby the Company will issue up to $166,000 in a convertible note. The note matures on October 24, 2013 and bears an interest rate of 8%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The Company received $150,000 in proceeds, less the $16,000 finder’s fee pursuant to the terms of this convertible note, on January 24, 2013.
On January 25, 2013, the Company entered into an agreement whereby the Company will issue up to $100,000 in a convertible note. The note matures on January 25, 2014 and bears an interest rate of 4%. The conversion price equals the “Variable Conversion Price”, which is the lower of 70% of the “Market Price”, which is the average of the lowest ten (10) trading day period prior to the conversion, or closing bid price on the date of conversion. The Company received $90,000 in proceeds, less the $10,000 finder’s fee pursuant to the terms of this convertible note, on January 25, 2013.
On January 31, 2013, the Company entered into an agreement whereby the Company will issue up to $83,300 in a convertible note. The note matures on February 1, 2014 and bears an interest rate of 4%. The conversion price equals the “Variable Conversion Price”, which is the lower of 70% of the “Market Price”, which is the average of the lowest ten (10) trading day period prior to the conversion, or closing bid price on the date of conversion. The Company received $75,000 in proceeds, less the $8,333 finder’s fee pursuant to the terms of this convertible note, on February 1, 2013.
On February 6, 2013, the Company entered into an agreement whereby the Company will issue up to $333,000 in a convertible note. The note matures on February 6, 2014 and bears an interest rate of 10%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the twenty (20) trading day period prior to the conversion. The Company received $25,000 in proceeds, on February 19, 2013.
F-50
MAX SOUND CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011
On February 25, 2013, the Company entered into an agreement whereby the Company will issue up to $62,500 in a convertible note. The note matures on November 27, 2013 and bears an interest rate of 8%. The conversion price equals the “Variable Conversion Price”, which is 65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the twenty (10) trading day period prior to the conversion. The Company received $60,000 in proceeds, on March 1, 2013.
On February 27, 2013, the Company received $92,000 in reference to the convertible noted dated November 19, 2012.
On March 5, 2013, the suit filed on February 6, 2012, the suit was settled in favor of Max Sound Corporation and 750,000 shares issued to the former consultant were returned to the treasury.
On March 13, 2013, the Company entered into an agreement whereby the Company will issue up to $111,000 in a convertible note. The note matures on December 13, 2013 and bears an interest rate of 8%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The Company received $100,000 in proceeds, less the $11,000 finder’s fee pursuant to the terms of this convertible note, on March 13, 2013.
On March 14, 2013, the Company entered into an agreement whereby the Company will issue up to $55,500 in a convertible note. The note matures on December 14, 2013 and bears an interest rate of 8%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The Company received $50,000 in proceeds, less the $5,500 finder’s fee pursuant to the terms of this convertible note, on March 18, 2013.
On January 9, 2013, the Company executed an employment agreement with its Director of New Business Development. The term of the agreement is for three years. As compensation for services, the Director will receive a monthly compensation of $10,000. Upon the first million dollars in gross sales the salary will increase to $12,000 per month. In addition, the Director will receive up to 1,000,000 shares of common stock payable in lots of 125,000 per quarter beginning on January 1, 2013. Also, the Director, for the first eight quarters of employment, has a right to earn 125,000 additional 3 year stock options with a strike price of $0.50 per share for each million dollars of new gross business the Company receives in year one of the agreement that is directly related to the Director.
On January 31, 2013, a warrant holder exercised 430,800 of stock warrants at an exercise price of $0.10 per share, and received 430,800 in shares of stock.
On February 1, 2013, the Company entered into a consulting agreement with an unrelated third party for a period from February 1, 2013 through July 31, 2013. In exchange for the services provided, the Company issued 250,000 shares of common stock having a fair value of $60,000 ($2.43/share) based upon fair value on the date of grant. If the Company chooses to continue with the consulting agreement for an additional year, an additional 250,000 shares will be issued for the service period of September 1, 2013 through March 1, 2014.
F-51
Our accountant is Alan R. Swift, CPA, P.A. Independent Registered Public Accounting Firm. We do not presently intend to change accountants. At no time have there been any disagreements with such accountants regarding any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control Over Financial Reporting.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. The framework used by management in making that assessment was the criteria set forth in the document entitled “ Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our CEO and CFO have determined and concluded that, as of December 31, 2012, the Company’s internal control over financial reporting was effective.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Changes in Internal Control over Financial Reporting
No change in our system of internal control over financial reporting occurred during the period covered by this report, fourth quarter of the fiscal year ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
15
PART III
Our executive officers and directors and their respective age as of March 31, 2013, are as follows:
|
NAME
|
AGE
|
POSITION
|
||
|
Greg Halpern
|
54
|
Chairman, Chief Financial Officer
|
||
|
John Blaisure
|
54
|
President & Chief Executive Officer
|
||
|
Lloyd Trammel
|
61
|
Chief Technical Officer
|
||
|
Chris Record
|
34
|
Chief Internet Officer
|
Set forth below is a brief description of the background and business experience of our executive officers and directors for the past five years.
Greg Halpern, Chairman, CFO & Founder
Greg Halpern is the founder and visionary of Max Sound®, Mr. Halpern has invested nearly $760,000 into the Company in cash, notes, accrued salary, office space, and debt conversions.
Greg Halpern is the founder of Max Sound Corporation From 1997 to 2001 Mr. Halpern was the CEO of Circle Group Internet, Inc. (CRGQ: OTCBB). From 2002 to 2005, Mr. Halpern was the Chief Executive Officer of Circle Group Holdings Inc. (AMEX: CXN, formerly CRGQ.OB) and continued to be the CEO after it changed its name to Z-Trim Holdings Inc. (AMEX: ZTM) from 2006 - 2007. Circle Group was a venture capital firm for emerging technology companies which provided small business infrastructure, funding and intellectual capital to bring timely life-changing technologies to market through all early phases of the commercialization process. Mr. Halpern’s efforts there were focused on acquiring life improving technologies and bringing these products to the marketplace. In 2003, Mr. Halpern and his wife founded an unincorporated non-profit organization “People for Ultimate Kindness Toward All Living Creatures on Earth” whose purpose is and has been to identify problems on earth and those who are working to solve them. The Ultimate Kindness is a non-profit organization independent from the So Act Network. The Ultimate Kindness and the So Act Network share no financial interest or otherwise. In 2007, Mr. Halpern resigned from his position at Z-Trim Holdings and took a one (1) year sabbatical from business touring the Continental United States in his RV with his family. Currently, Mr. Halpern serves as the Chairman and Chief Financial Officer of Max Sound Corporation, and devotes approximately 50 hours each week to the management and operations of Max Sound Corporation.
16
John Blaisure, President & Chief Executive Officer.
John Blaisure is the President and Chief Executive officer of Max Sound Corporation. Prior to Mr. Blaisure joining Max Sound Corporation, he was the Founder, President, and CEO of Effective Network Systems (ENS) from 1996 to 2010. Effective Network Systems is a telephony software company that was debuted at the Intel Technology Summit in 1999 as one of the top 40 telephony software companies in the world. Prior to his work at ENS, he was the Founder, President, and CEO of Fonz By The Day Stores from 1990 to 1996. Fonz By The Day Stores is a cellular communication reseller and retailer in Dallas Texas. Fonz By The Day Stores achieved success as a market leader in the Dallas Fort Worth area in retail sales. The company also achieved success as a national leader in cellular rentals. Mr. Blaisure brings over 20 years of experience in managing and marketing of communication technology companies from the ground up.
Lloyd Trammell, Chief Technical Officer
Lloyd Trammell is the Chief Technical officer of Max Sound®. Mr. Trammell has more than 30 years experience designing high-end professional audio and musical equipment and sound design for industry leaders, such as Yamaha, Korg, Roland, Atlas Sound, Crest, Peavey Electronics, Alesis, Kawai and Ensoniq. In the early eighties, Mr. Trammell was instrumental in creating MIDI, the Musical Instrument Digital Interface. Because of his standing, Mr. Trammell aided in achieving standardized specifications and approval from electronic keyboard manufacturers for MIDI. In the mid-eighties, he designed one of the first working surround sound processors, selling it to Hughes Audio, which later spun off to become SRS (NASDAQ:SRSL). Today’s SRS technology is still based on this design. Mr. Trammell holds several patents, including patent # 7,136,493 for “Sub-harmonic generator and stereo expansion processor.” He holds numerous patents for Dimensional Sound Processing and ACM (Analog Acoustic Modeling). He was Senior Product Development Manager at Atlas Sound, developing new digital and analog products for the high-end audio contractor market. At Peavey, he invented the Kosmos audio processor, winning the “Rack Processor of the Year Award” at the 2002 National Association of Music Merchants (NAMM). While at Peavey, Mr. Trammell managed the prestigious MediaMatrix product line of high-end professional digital audio systems used by Disney, U.S. Congress, Sydney Opera House and the Olympics. In his roles as Product Manager, he has overseen all aspects of product development from initial design and manufacturing to marketing. Mr. Trammell also designs custom sounds for many of the world’s top musicians and performing artists: U2, Pink Floyd, Robert Plant, Yes, Heart, Boston, Madonna, Genesis, Prince, Cher, Bonnie Raitt, Hank Williams, Jr., Rippingtons, Emerson Lake and Palmer, Journey and Def Leppard.
Chris Record, Chief Internet Officer
Chris Record is the Chief Internet officer of Max Sound Corporation. Mr. Record has over 12 years sales and marketing experience and a 10-year background in web design and search engine optimization combined with a 7-year background in direct sales managing 2,500 sales reps nationwide. Mr. Record brings with him 100,000+ loyal followers from combined social media networks along with several existing multi-million dollar business clients to Max Sound Corporation
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board
Current Issues and Future Management Expectations
No board audit committee has been formed as of the filing of this Annual Report.
Compliance With Section 16(A) Of The Exchange Act.
Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and are required to furnish copies to the Company. To the best of the Company’s knowledge, any reports required to be filed were timely filed in fiscal year ended December 31, 2012.
Code of Ethics
The Company has adopted a Code of Ethics applicable to its Chief Executive Officer and Chief Financial Officer. This Code of Ethics is filed herewith as an exhibit.
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers during the years ended December 31, 2012, and 2011 in all capacities for the accounts of our executive, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO):
17
SUMMARY COMPENSATION TABLE
|
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option Awards
($)
|
Non-Equity Incentive Plan Compensation ($)
|
Non-Qualified Deferred Compensation Earnings
($)
|
All Other Compensation
($)
|
Totals
($)
|
|||||||||||||||||||||||||
|
Greg Halpern,(1)
|
2012
|
216,000
|
0
|
0
|
0
|
0
|
0
|
0
|
216,000
|
|||||||||||||||||||||||||
|
CFO
|
2011
|
216,000
|
0
|
0
|
0
|
0
|
0
|
0
|
216,000
|
|||||||||||||||||||||||||
|
John Blaisure (2)
|
2012
|
144,000
|
0
|
0
|
0
|
0
|
0
|
0
|
144,000
|
|||||||||||||||||||||||||
|
2011
|
114,000
|
0
|
300,000
|
1,199,794
|
0
|
0
|
0
|
1,613,794
|
||||||||||||||||||||||||||
|
Lloyd Trammel (3)
|
2012
|
144,000
|
0
|
0
|
0
|
0
|
0
|
0
|
144,000
|
|||||||||||||||||||||||||
|
2011
|
102,000
|
0
|
0
|
0
|
0
|
0
|
0
|
102,000
|
||||||||||||||||||||||||||
|
Chris Record (4)
|
2012
|
144,000
|
0
|
0
|
0
|
0
|
0
|
0
|
144,000
|
|||||||||||||||||||||||||
|
2011
|
111,000
|
0
|
140,000
|
0
|
0
|
0
|
0
|
251,000
|
||||||||||||||||||||||||||
|
(1)
|
On January 17, 2011 Greg Halpern resigned as CEO. A portion of the salary stated has been accrued and a portion of the accrued amounts remain unpaid. In addition to the base salary, Mr. Greg Halpern shall be entitled to a monthly commission equal to 10% of all of our sales.
|
|
(2)
|
On January 17, 2011 John Blaisure was appointed as CEO, and received 3,000,000 shares and 12,000,000 stock options to buy the Company stock.. In addition to the base salary, Mr. Blaisure shall be entitled to a quarterly commission equal to 10% of gross quarterly profits.
|
|
(3)
|
On October 1, 2011 Lloyd Trammel was appointed as Chief Technical Officer. In addition to his base salary, Mr. Trammel shall be entitled to receive a monthly commission of 5% of gross profits.
|
|
(4)
|
On May 17, 2011 Chris Record was appointed as Chief Internet Officer, and received 2,000,000 shares of Company stock.
|
Option Grants Table. There were 12,000,000 individual grants of stock options to purchase our common stock made to one executive officer named in the above Summary Compensation Table through December 31, 2012.
Aggregated Option Exercises and Fiscal Year-End Option Value Table. There were no stock options exercised during period ending December 31, 2011 by the executive officer named in the Summary Compensation Table.
Long-Term Incentive Plan (“LTIP”) Awards Table. There were no awards made to a named executive officer in the last completed fiscal year under any LTIP
Compensation of Directors
Directors are permitted to receive fixed fees and other compensation for their services as directors. The Board of Directors has the authority to fix the compensation of directors. No amounts have been paid to, or accrued to, directors in such capacity.
Employment Agreements
Mr. Greg Halpern, our President and CFO, entered into an Employment Agreement with us on October 13, 2008. Pursuant to the Employment Agreement, the term of the employment shall be for a period of ten (10) years commencing on October 13, 2008. The term of this Employment Agreement shall automatically be extended for additional terms of one (1) year each unless either party gives prior written notice of non-renewal to the other party no later than sixty (60) days prior to the expiration of the end of the 10 years. Subject to the terms of the Employment Agreement, we shall pay Mr. Halpern eighteen thousand dollars per month as compensation for his services rendered as provided in the Employment Agreement. In addition to the base salary, Mr. Halpern shall be entitled to a monthly commission equal to 10% of all of our sales. The Employment Agreement was attached as Exhibit 10.1 to the Form 8-K filed on October 17, 2008, and is incorporated here within by reference.
18
Mr. John Blaisure, our CEO, entered into an Employment Agreement with us on January 17, 2011. Pursuant to the Employment Agreement, the term of employment shall be for a period of five (5) years commencing on January 7, 2011. Subject to the terms of the Employment Agreement, we shall pay Mr. Blaisure eight thousand dollars per month as compensation for his services rendered as provided in the Employment Agreement. In addition, to the base salary, Mr. Blaisure is entitled to and shall receive a monthly commission equal to 20% of the gross sales of the Company derived from the efforts of Mr. Blaisure after deducting $8,000 from such amount. Further, as of the date of the employment agreement the Company issued to Mr. Blaisure, 3,000,000 shares of common stock and, within 10 days of the signing of the Employment Agreement, 12,000,000 options to buy common stock of the Company at $.12 per share for a period not to exceed three years from the date of the Employment Agreement. On February 4, 2011, Mr. Blaisure entered into a Supplemental Agreement whereby our CFO, Greg Halpern gave twenty million shares of his personally owned common stock in the Company to John Blaisure. The voting rights of such shares remain with Greg Halpern pursuant to a voting trust entered into by Blaisure and Halpern. On August 25, 2011, the agreement was updated to increase the monthly compensation to $12,000 per month beginning September 1, 2011.
On May 17, 2011, the Company executed an employment agreement with its Chief Internet Officer (“CIO”). The term of the agreement is for five years. As compensation for services, the CIO will receive a monthly compensation of $9,000 beginning at the completion of at least one million dollars of new funding. The agreement also calls for the CIO to receive two million shares of Rule 144 common stock upon the execution of the agreement. On August 25, 2011, the agreement was updated to increase the monthly compensation to $12,000 per month beginning October 1, 2011.
On October 1, 2011, the Company executed an employment agreement with its Chief Technical Officer (“CTO”). The term of the agreement is for five years. As compensation for services, the CTO will receive a monthly compensation of $10,000, monthly commission equal to 5% of all profits derived from the sales of all products and services related to Max Sound, and an annual bonus of 5% of all profits derived from the sales of all products and services related to Max Sound that is over one million dollars.
On the 31st of December 2012, Lloyd Trammell - CTO, John Blaisure – CEO and Greg Halpern - CFO amended their Employment Agreements with the Company to eliminate their previous annual bonus entitlements which was previously 10% each of revenues. In exchange for this consideration, the Company agreed that Executives Trammell and Blaisure will each be decreased as their new bonuses to 6% of net profits, and Executive Halpern will each be decreased as his new bonus to 7% of net profits. All three Executives may elect at their option to receive such bonuses in cash or Rule 144 stock or any combination of both.
We have not had a promoter at any time during our past five fiscal years.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table provides the names and addresses of each person known to us to own more than 5% of our outstanding shares of common stock as of March 30, 2012 and by the officers and directors, individually and as a group. Except as otherwise indicated, all shares are owned directly.
|
Title of Class
|
Name and Address
of Beneficial Owner
|
Amount and Nature
of Beneficial Owner
|
Percent of
Class (1)
|
|||
|
Common Stock
|
Greg Halpern
Address: 10685-B Hazelhurst Drive
Houston, TX 77043
|
172,343,182
|
59.1%
|
|||
|
Common Stock
|
John Blaisure
|
3,000,000
|
1.0%
|
|||
|
Common Stock
|
Lloyd Trammell
|
23,700,000
|
8.1%
|
|||
|
Common Stock
|
Chris Record
|
2,000,000
|
.069%
|
|||
|
Common Stock
|
Total Shares owned by Directors and officers
|
201,043,182
|
69.0%
|
Stock Option Grants
On January 17, 2011, we entered into an employment agreement with our CEO, John Blaisure. Pursuant to the employment agreement with Mr. Blaisure, we issued to Mr. Blaisure 12,000,000 options to buy common stock of the Company at $.12 per share for a period not to exceed three years from the date of the employment agreement.
On December 20, 2008, we issued 4,000 shares of common stock to Serena Halpern for the web design services provided to us in late 2008. These shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. After the completion of a 4 for 1 forward split of our common stock on January 16, 2009, the 4,000 shares were increased to 16,000 shares. Serena Halpern is the daughter of Greg Halpern. The services provided were preparation of the Company's prior Logo design which is now a registered Trademark, and all three designs and redesigns of the Company prior social networking website. The Company believes the fee to Ms. Halpern, which consisted of $1,000 paid in restricted stock at $0.25 cents per share is comparable to third party providers of web services of comparable experience and expertise.
19
During the fourth quarter of 2008, Greg Halpern contributed office space with a fair value of $2,913. For the year ended December 31, 2010 and 2009, Greg Halpern contributed office space with a fair value of $9,450 and $12,600, respectively.
On October 14, 2008, we issued 44,900,000 shares of common stock of to Mr. Greg Halpern for his services rendered. The shares were issued as founder’s shares for running the business and beginning its operations. These shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. After the completion of a 4 for 1 forward split of our common stock on January 16, 2009, the 44,900,000 shares were increased to 179,600,000 shares.
On October 13, 2008, we executed an employment agreement with Mr. Greg Halpern, our President and CEO. The term of the agreement is ten (10) years. As compensation for services, Mr. Halpern will receive a monthly compensation of $18,000 beginning October 13, 2008. In addition, to the base salary, Mr. Halpern is entitled to receive a 10% commission of all of our sales.
We have received three loans from Mr. Greg Halpern, in the amount of $9,500, $15,000 or $16,700 on May 11, May 22, and May 26, 2009, respectively. During the term of these loans, the Company received $41,200, and repaid $41,200 in principal. During the year ended December 31, 2011, the Company repaid $18,000 in principal and $2,116 in accrued interest to the principal stockholder. Each of these loans are due upon demand and accrue interest at the prime rate as of the date of issuance. The prime rate of interest is the rate of interest that major banks charge their most creditworthy customers. For the purposes of this agreement, we shall determine the prime rate by using the prime rate reported by the Wall Street Journal on the date funds are extended to the Company. Based on the prime rate as of the date of issuance, we have determined that the prime rate shall be 3.25%. As of December 31, 2011, the Company owed $0 in principal and $0 in accrued interest on these loans.
For the fiscal year ended December 31, 2009, we received $119,500 from Mr. Greg Halpern, our principal shareholder, by way of two lines of credits. For the fiscal year ended December 31, 2011, we received a net $101,980 from Mr. Greg Halpern, our principal shareholder, by way of the established lines of credit. Pursuant to the lines of credit agreements, the lines of credits bear an annual interest rate of 3.25% and are due on May 29, 2011, November 11, 2011, and March 25, 2012. As of December 31, 2011, we owe $0 in principal and accrued interest of $0.
Audit Fees
For the Company’s fiscal years ended December 31, 2012 and 2011, we were billed approximately $39,648 and $46,787, respectively, for professional services rendered for the audit and review of our financial statements.
Audit Related Fees
There were no fees for audit related services for the years ended December 31, 2012 and 2011.
Tax Fees
For the Company’s fiscal years ended December 31, 2012 and 2011, we were not billed for professional services rendered for tax compliance, tax advice, and tax planning.
All Other Fees
The Company did not incur any other fees related to services rendered by our principal accountant for the years ended December 31, 2021 and 2011.
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.
Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
-approved by our audit committee; or
-entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee's responsibilities to management.
We do not have an audit committee. Our entire board of directors pre-approves all services provided by our independent auditors.
The pre-approval process has just been implemented in response to the new rules. Therefore, our board of directors does not have records of what percentage of the above fees were pre-approved. However, all of the above services and fees were reviewed and approved by the entire board of directors either before or after the respective services were rendered.
20
PART IV
3. Exhibits
|
2.1
|
Asset Purchase Agreement and Plan of Reorganization, dated as of November 15, 2012, by and between Max Sound Corporation and Liquid Spins, Inc. [incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K filed with the SEC on November 20, 2012].
|
|
3.1*
|
Amendment to the Articles of Incorporation Filed on October 15, 2008 with the Delaware Secretary of State
|
|
Amendment to the Articles of Incorporation Filed on March 8, 2011 with the Delaware Secretary of State
|
|
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3.2
|
By-Laws [incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form 10SB12G filed with the SEC on April 3, 2006].
|
|
10.1
|
Form of Consulting Agreement dated September 19, 2011 by and between Max Sound Corporation and Bradley Spalter [incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on November 2, 2011.].
|
|
10.2
|
Form of Consulting Agreement dated September 24, 2011 by and between Max Sound Corporation and Norman Whitfield, Jr. [incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on November 2, 2011.].
|
|
10.3
|
Form of Consulting Agreement dated September 27, 2011 by and between Max Sound Corporation and Sugar Ratbord and Lane Davis. [incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on November 2, 2011.].
|
|
10.4
|
Form of Consulting Agreement dated October 4, 2011 by and between Max Sound Corporation and Carl Stubner [incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed with the SEC on November 2, 2011.].
|
|
10.5
|
Form of Subscription Agreement by and between Max Sound Corporation and certain investors dated August 2, 2011[incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on October 24, 2011.].
|
|
10.6
|
Form of Consulting Agreement with Frank Correa dated June 10, 2011[incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on July 18, 2011.].
|
|
10.7
|
Form of Consulting Agreement with Frank Serafine dated June 10, 2011[incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on July 18, 2011.].
|
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10.8
|
Form of Consulting Agreement with Fred Walecki dated June 23, 2011[incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on July 18, 2011.].
|
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10.9
|
Form of Agreement with Flying Pig Productions dated July 5, 2011[incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed with the SEC on July 18, 2011.].
|
|
10.10
|
Debt Conversion Agreement between So Act Network, Inc. and the principal stockholder dated February 18, 2011 [incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on February 25,2011.].
|
|
10.11
|
Form of 8% Convertible Promissory Note due November 24, 2011[incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on February 25, 2011.].
|
|
10.12
|
Agreement with Equittrend Advisors, LLC dated February 17, 2011 [incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on February 22, 2011.].
|
|
10.13
|
Supplement Agreement dated February 4, 2011, by and between the Corporation and Executive [incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on February 4, 2011.].
|
|
10.14
|
Voting Trust Agreement dated January 17, 2011 by and between the Corporation, Executive Voting Trustee [incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on February 4, 2011.].
|
|
10.15
|
Asset Agreement dated January 17, 2011, by and between the Company and Adam Nelson and Chris Record [incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 21, 2011.].
|
|
10.16
|
Employment Agreement with John Blaisure Effective January 17, 2011[incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 21, 2011.].
|
|
10.17
|
Agreement and Plan of Asset Acquisition, dated as of May 11, 2010, by and between the Company and AIB. [incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on May 13, 2010.].
|
|
10.18
|
Employment Agreement with Lloyd Trammell Effective May 11, 2010 [incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on May 13, 2010.].
|
|
10.19
|
Employment Agreement with Robert Wolff Effective May 11, 2010 [incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on May 13, 2010.].
|
|
10.20
|
Agreement with Global Equity Ventures, LLC dated February 17, 2010 [incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on February 24, 2010.].
|
|
10.21
|
Agreement with William Shatner dated December 30, 2009 [incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 25, 2010.].
|
|
10.22
|
Agreement with Creative Licensing, Inc. dated December 31, 2009 [incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 12, 2010.].
|
|
10.23
|
Agreement with Roy Sciacca [incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on January 12, 2010.].
|
|
10.24
|
Agreement with Venture Point Professional Services Agreement dated December 16, 2009 [incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 4, 2010.].
|
|
31.1
|
Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification of the Principal Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification of the Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101
|
Interactive Data File (Form 10-K for the year ended Decemberber 31, 2012 furnished in XBRL).
|
*Filed as Exhibit 3.1 to the Form 8-K filed on October 17, 2009 and incorporated herein by reference.
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed
21
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: April 1, 2013
By /s/ John Blaisure
John Blaisure,
President and Chief Executive Officer
(Duly Authorized Officer and Principal Executive Officer)
By /s/ Greg Halpern
Greg Halpern,
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/ John Blaisure
|
President, Chief Executive Officer and Director
|
April 1, 2013
|
||
|
John Blaisure
|
(Principal Executive Officer)
|
|||
|
/s/Greg Halpern
|
Chief Financial Officer and Director (Principal Financial Officer)
|
April 1, 2013
|
||
|
Greg Halpern
|
22