Max Sound Corp - Annual Report: 2019 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2019
OR
| ☐ | 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
MAX SOUND CORPORATION
(Exact name of registrant as specified in its charter)
| DELAWARE | 26-3534190 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
3525 Del Mar Heights Road # 802, San Diego, CA 92130
(Address of principal executive offices) (Zip Code)
800-327-(MAXD)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.00001 per share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
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 ☒ No ☐
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark 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. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Non-accelerated filer | ☐ | |||
| Accelerated filer | ☐ | Smaller reporting company | ☒ | |||
Emerging growth company |
☐ | |||||
f
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of March 26, 2020 was approximately $380,800.
As of March 26, 2020, there were 6,587,102,823 shares issued and outstanding.
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CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions.
Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
CERTAIN TERMS USED IN THIS REPORT
When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to Max Sound Corporation, and “SEC” refers to the Securities and Exchange Commission.
PART I
Overview
Max Sound Corporation (“we,” “us,” “our,” or the “Company”) was incorporated in the State of Delaware on 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 represented 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,
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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 social 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 social networking web site which was launched in January of 2010 featuring an outstanding endorsement and web based commercial by William Shatner for stock warrants. However, by Q1 2011, the Company abandoned the product due to the much better capitalized Facebook and several other emerging well-funded Silicon ventures all beginning to crowd the same space with far more advanced products. On May 11, 2010, the Company acquired the worldwide rights, title and interest to all fields of use for MAX-D HD Audio Technology.
On January 17, 2011, Mr. Halpern hired John Blaisure as CEO. In February of 2011, the Company elected to change its business operations and focus primarily on developing and launching the MAX-D technology. Our current website (maxd.audio) is used to showcase the MAX-D 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.
Max Sound Corporation acquired the worldwide rights to all fields of use to MAX-D HD Audio, which was invented by Lloyd Trammell, a sound designer and audio engineer who helped develop and sell the first working Surround Sound System to Hughes Aircraft. Mr. Trammell also was part of the team that developed MIDI for Korg. MAX-D is to Audio what High Definition is to Video and it works by converting audio files to their highest possible acoustic equivalent without increasing file size and which also saves on bandwidth usage and cost.
In Q2 of 2014, MAXD entered into an exclusive representation agreement with VSL Communications, Inc., making MAXD the sole representative to VSL to enforce its rights with respect to patented technology owned and controlled by VSL at the time. The Company announced that it had acquired the license and representation rights to VSL’s patented video and data technology known as “Optimized Data Transmission System and Method” (ODT) which enables end-user licensees to transport 100% of data bandwidth content in only 3% of the bandwidth with the identical lossless quality. Significantly, this represented a thirty-three times reduction associated with transport cost and the time it takes for the video or digital content to be delivered to and viewed by the end-user. As described more fully in the Legal Proceedings Section, In Q3 of 2014, the Company filed suit against Google, Inc., YouTube, LLC, and On2 Technologies, Inc., alleging willful infringement of the ODT patent stemming from spending the bulk of 2010 learning all about ODT technology while under non-disclosure with VSL. The lawsuit further alleged that soon after Google and VSL initiated negotiations, Google willfully infringed the ODT patent by incorporating it into Google's own VP8, VP9, WebM, YouTube, Google Adsense, Google Play, Google TV, Chromebook, Google Drive, Google Chromecast, Google Play-per-view, Google Glasses, Google+, Google’s Simplify, Google Maps, and Google Earth, without compensating for such use. On May 13, 2015 Google's “motion to dismiss” was denied by the Northern District of California court in a seven-page order, stating that Max Sound had sufficiently alleged the existence and validity of the '339 Patent which led to serious negotiations for a significant settlement between the parties. However, due to numerous new demands by the ODT inventor, and their significant interference with the Company’s ownership rights, on November 24, 2015, the court granted a motion to dismiss for lack of subject matter jurisdiction based on the defendants’ argument that the agreements between the Company and VSL did not clearly give the Company standing to enforce the patent rights. The Company appealed that decision on February 22, 2016. One January 18, 2017 the Company received a notice from the Federal Circuit Court of Appeals that affirmed the order of the District Court dismissing MAXD's patent infringement lawsuit against Google for lack of standing. The Court did not issue a written decision explaining its reasoning or that the Company's arguments were not correct; however, VSL’s inventor then sold its Patent Rights to a new owner and the Company then became co-owners with the strategy to re-file a new lawsuit together with the new owner against Google. The Court also issued an order denying Google's motion arguing that the Company's appeal should be dismissed as moot. On September 25, 2017, the Court issued an order that the Company should reimburse defendants
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for its attorneys’ fees in the amount of $820,321.41. The award was illegally granted in-camera without due process and during the appeal was called out as absurd given that the parties hadn’t even reached discovery and no proof of time spent was required by Judge Edward Davila who also had an equity interest in Google at the time. The Company was informed by counsel that the Order for fees was without merit and appealed but was told at the hearing that Google would lose the appeal if the Company had not committed Waiver. After an excessively long delay by the Federal Appeals Court to hear the case so it could be combined with another case vs Google challenging the patent and using the same Tribunal with the sole intention to harm the Company, and continue to allow Google to steal and destroy the ODT Patent while profiting from it as a key component of its business, the Appeal was finally heard and the Company lost with no reasonable explanation and with the corrupt Tribunal simply rubber stamping both cases “Affirmed. See Fed Rule 36”, which is not only a violation of the Company’s Constitutional Rights, it is known to mean by intellectual property professionals representing small companies and inventors, that the courts won’t even look at the facts because then they would have to consider the actual law that would protect small businesses and the inventors affiliated with them. The Company is exploring additional rights it may have in both cases with its ongoing battle against Judicial Corruption. Since year end 2018, the Company has recorded the judgement payable on the balance sheet and in Q1 of 2020 the Company’s founder has filed a suit against Google, the ODT Inventor (for Conspiring with Google to harm the Company’s rights of the 339 patent) and the same suit also names Charles Graves (the lead attorney for Google) for Libel, Slander of Title and Business Interference among other claims.
On May 22, 2014, MAXD entered into a representation agreement with architect Eli Attia giving MAXD the exclusive rights to sue violators of Eli Attia’s intellectual property rights. While Eli Attia was teaching his invention at Google [x], the project was internally valued by Google at $120 Billion USD a year. Its subsidiary Flux has since been spun-out of Google [x], funded and has quickly grown, into a massive enterprise and industry leader according to its CEO. MAXD secured additional council on behalf of Attia, to file suits against Google, Inc., Flux Factory and various executives of these companies for misappropriation of trade secrets, breach of contract and RICO.
On December 5, 2014, the Company, along with renowned architect Eli Attia, filed a lawsuit in the Superior Court of California, County of Santa Clara, against Google, its co-founders Sergey Brin and Larry Page, Google’s spinoff company Flux Factory, and senior executives of Flux. Plaintiffs’ sued for misappropriation of trade secrets, breach of contract and other contract-related claims, breach of confidence, slander of title, violation of California’s Unfair Competition Law (California Business and Professionals Code §§ 17200 et seq.), and fraud, and also a claim for declaratory relief. The lawsuit acuses that Google and the other Defendants stole Mr. Attia’s trade secrets, proprietary information, and know-how regarding a revolutionary architecture design and building process that he alone had invented, known as Engineered Architecture. Defendants are alleged to have engaged Mr. Attia in 2010 and 2011 to translate his architectural technology into software for a proof of concept, with the goal of determining at that point whether to continue with full-scale development with Mr. Attia. Instead, the lawsuit claims that once Mr. Attia had disclosed the trade secrets and proprietary information Defendants needed to bring the technology to market, they severed ties with Mr. Attia, and continued to use his technology without a license and without compensation, in order to bring the technology to market themselves. Plaintiffs seek a permanent injunction against Google, damages (including punitive damages), and restitution. As exclusive agent to Eli Attia to enforce all rights with respect to the subject technology, the Company retained Buether Joe & Carpenter LLC to represent the Company in the suit, on a contingency fee basis. The case has been vigorously prosecuted, and the Company believes there is a good likelihood of success. Defendants filed multiple demurrers to the complaint, and the Court issued orders allowing the case to proceed. Defendants filed another demurrer on March 17, 2016, which was denied by the Court on August 12, 2016.
On March 1, 2017, at Google's request, Max Sound Management met with Google Representatives to mediate the Attia matter. At the end of the day, no settlement agreement was reached and Max Sound agreed to leave the mediation negotiations open while the case continued.
On October 4, 2017, the Court granted Mr. Attia leave to amend the complaint to add causes of action against defendants for civil violations of the federal Racketeer Influenced and Corrupt Organizations Act (commonly known as RICO). Subsequently, on October 23, 2017, the defendants removed the lawsuit from California state court to the federal district court in the Northern District of California, San Jose Division. In February 2019, that court gave a dismissal without prejudice, and an appeal was filed the same year.
On October 23, 2017, the Defendants exercised their right to move the lawsuit from Santa Clara County Superior Court to the Federal District Court in the Northern District of California, San Jose Division. The Trade Secret Theft and Misappropriation case was remanded to the Santa Clara County Superior Court on March 19, 2019, which based on the historical record, the Company believes would provide the most non-biased opportunity for Attia to finally receive justice in the matter. A Jury Trial has been set for October 28, 2020, a historical precedent as Google has nearly a thousand lawyers and small plaintiffs rarely reach this stage in any action against them. It is especially encouraging at
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a time when public opinion of Google has been declining and the Company is confident that the truth is only on the side of the Plaintiff. The Company assisted with research and information gathering services in the
matter, and while it is not a party to the case, it holds the exclusive rights to negotiate a licensing and/or settlement agreement with the Defendants on the Plaintiff’s behalf.
In 2011, when Google’s annual sales were reported at $39.7 Billion dollars, Larry Page and Sergy Brin its founders approved an Executive Summary that stated that Mr. Attia’s technology was worth $120 Billion dollars annually to Google.
On March 13, 2020, Google’s motion to Show Cause was Denied by the Superior Court, as to Max Sound’s role and rights to settle the Attia matter against Google. This eliminated Google’s endless efforts to distract the court and its resources from its actual theft of Attia’s life work in the multi-trillion-dollar Architecture, Engineering and Construction Industry (AEC).
The RICO case has been appealed in 2019 and is being argued and spearheaded by John E. Floyd, the leading authority on RICO in all fifty states. Mr. Floyd’s illustrious career has made him the go-to attorney for most district and states attorneys seeking to file RICO cases. Mr. Floyd is the protégé of G. Robert Blakey, the creator of the original RICO statute and the co-author of the Attia’s initial RICO suit against Google and the founders, Larry Page and Sergey Brin as well as Google X CEO Astro Teller, Sebastian Thrun, and Flux Factory with its falsely claimed co-inventors Nicholas Chim, Jennifer Carlile, Michelle Kaufmann, Augusto Roman and Astro Teller.
In the appealed RICO opening brief, Mr. Floyd makes the following points as part of his argument, “The district court erred in finding that “Plaintiffs’ continued use theory fails as a matter of law.” Plaintiffs have statutory standing to assert their DTSA (Defend Trade Secrets Act) claim based on Google and Flux’s unauthorized use of Plaintiffs’ trade secret information after May 11, 2016, notwithstanding Google’s wrongful publication of Plaintiffs’ trade secrets in 2012.
“Plaintiffs have statutory standing to assert their RICO claims based on those allegations, notwithstanding Google’s publication of Plaintiffs’ trade secrets in 2012. *Defendants Are Estopped From Invoking Google’s Wrongful Publication of Plaintiffs’ Trade Secrets as a Defense to Plaintiffs’ DTSA and RICO Claims.”
“The district court misapplied the law in each of its rulings. The court’s statutory standing finding was premised on an unduly restrictive reading of the DTSA and 18 U.S.C. § 1832 that actually protects—indeed, rewards—the most egregious trade secret mis-appropriators — those who, like Google, steal and then extinguish trade secrets altogether by wrongfully publishing them. Neither the DTSA nor § 1832, however, can be construed in such a self-defeating manner. And in any event, Google and Flux are equitably estopped from invoking Google’s wrongful publication of Plaintiffs’ trade secrets to evade liability under either the DTSA or RICO.”
“The Predicate Acts Alleged in the Fifth Amended Complaint Are Sufficiently Related. Most critically, during each of these predicate offenses, all of the individual Defendants knew that the information being possessed and communicated was derived from Plaintiffs’ trade secrets, as explained above. Thus, the Fifth Amended Complaint offers enough facts to at least plausibly suggest that the individual Defendants knowingly participated in all of those predicate offenses. As a result, Plaintiffs sufficiently alleged a RICO conspiracy claim against all of the Defendants.”
In February of 2020, Max Sound’s founder, Chairman and CFO Greg Halpern personally filed a 25 million dollar cause of action against Google, Charles Graves and Constance Nash for Defamation, Fraud, Intentional Infliction of Emotional Distress, Slander of Title and Intentional Interference with Contract after among other things learning that Graves and his associate lied many times in a public filing in the Attia Matter. In July 2019 of the Attia v. Google matter, within the Joint Case Management Statement (“JCMS”) filed with the court, Defendant Graves intentionally made malicious statements, publishing them online to a general audience, when Graves knew beyond any doubt that they were based on a lie he created and that he knew, or should have known, would result in severe injury to Plaintiff. In doing so, Graves defamed Halpern and Halpern’s personal financial interest in assets upon which Graves knew or should have known Halpern’s livelihood depends. Defendant Google allowed Defendant Graves to publish that statement, among 11 other proven (not alleged) lies, in the aforementioned Attia v. Google matter saying: “The little that is left of this lawsuit appears to have nothing to do with Mr. Attia himself, whom Google suspects has no real involvement in the case. Instead, this lawsuit was filed by, and controlled by, an essentially defunct litigation entity called Max Sound Corporation. In 2014, Max Sound filed this case as one of four meritless lawsuits it filed against Google, all based on claims it obtained from third parties such as Mr. Attia. Since then, Max Sound has lost voluntarily dismissed the other three. Graves filed improper liens on patent applications belonging to Max Sound Corporation, in which Halpern is a shareholder. Graves knew or should have known that these publicly available liens would then easily find their way to chat board posters who then predictably had a feeding frenzy falsely claiming that Google owned Max Sound’s Patents and that Halpern was certainly going to jail. Then, Defendants attempted to foreclose on the improper liens.
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In October 2019, the Federal Circuit ruled that the Inter Partes Review (IPR) Judges at the Patent Trademark and Appeals Board (PTAB) were not qualified under the United States Constitution, so therefore Googles impairment of the ‘339 ODT Patent was illegal in the process Max Sound’s Chairman Halpern has been calling “criminal theft of legitimate American Small Business Inventors under the license for big Corporations to steal known as America Invents Act.” In January 2020, Halpern has secured the rights to litigate and settle the 339 ODT Patent matter and Google’s multi-billion dollar infringement of the technology leaving the door open for new litigation with the 339 patent now restored to its original unimpaired status so it can be delivered as a brand new case in 2020 along with far greater accumulated value.
On March 16, 2020, in the Attia v. Google matter, Attia won all but two of its nine motions to compel Google for lack of production of Programs, Source Code, Metadata and other unproduced documentation. Helix, formerly Flux, won a motion to seal one item from Attia’s Valuation Expert which the Company feels is not major at all, and Google X CEO Astro Teller was ruled complete on his 7-hour deposition instead of Attia being granted unlimited time to depose Teller additionally. The Company feels confident that Teller and the other Defendants did quite poorly in their depositions and no more time is needed. Finally, the Court fully Denied Google’s Motion to Show Cause about Max Sound’s involvement in the case, and the Judge stated on the record that it was clear the Company had rights and warned that if Max Sound is prevented from appearing for any reason at the Mandatory Settlement Conference in Summer of 2020, there would be the real risk of him handing out contempt proceedings to any responsible parties.
To further clarify MAXD’s current role in the Attia and ODT legal matters described above, the Company is not a party to any of these legal cases that it has an interest in and the potential to profit from in the future. The Company has brought together IP rights holders since 2014 with both Contingency Law Firms and Litigation Financed Law Firms to create the enforcement of Intellectual Property rights holders with cases currently addressing Patent Infringement, Trade Secret Theft, Breach of Contract and Racketeering (“RICO”). MAXD has secured the potential to profit therefrom, as the power of attorney, to negotiate and approve a final financial deal with Google on behalf of the rights holders as either settlements or licensing arrangements both of which have been in and out of negotiations for the past five years. This does not include our Founder (Greg Halpern’s) personal case against Google and its lead attorney (Charles Graves) for Libel against Halpern personally in statements Graves made publicly in Google’s 2019 Case Management Conference filing and the harm thereto of the value of Halpern’s personal holdings in MAXD. For the past 2 years, our founder has acted as the Company's own pro se counsel in all certain legal matters and has not used any law firms to represent the company in these situations.
Description of Our Business
Max Sound (MAX-D) is engaged in activities to sell and license products and services based on its patent-pending MAX-D HD Audio Technology for sound recording and playback that dramatically improves the listener’s experience. The MAX-D HD Audio Technology delivers high definition audio without increasing file size.
The Company is marketing MAX-D on the basis that it is to audio what HD is to video. MAX-D 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-D 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-D will hear the other person's voice as if they are speaking directly in front of them. The Company believes that the MAX-D HD is better for a consumer’s hearing than today’s highly compressed audio and anticipate that continued research and development will support the Company’s position. In numerous consumer audio tests, MAX-D HD sounded better to consumers than high-resolution WAV files. Importantly, MAX-D HD remains one tenth the size of a WAV file, and in the Company’s opinion offers more clarity, dimension, articulation and impact in every range of the audio spectrum to the listener. 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, automobile infotainment systems and consumer electronics.
Qualcomm
The Company is currently working under its existing license with Qualcomm to implement onto the 600 and 700 series Snap Dragon chip series and is completing an application that improves voice transmission on mobile devices and has great potential as a revenue share arrangement with many Qualcomm OEM’s by providing a better experience to consumers and a competitive marketing advantage globally. The license agreement is automatically renewable for one-year periods unless terminated by either party with 30 days prior written notice. The Company believes MAXD Voice will be ready for product demonstration in Q3.
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Optimized Data Transmission (ODT)
In November 2016, MAXD announced that it entered into an agreement with Vedanti Licensing Limited (VLL), which provides that VLL and MAXD will become co-owners of the pioneering ODT portfolio.
Becoming co-owners of this portfolio was a major milestone for the Company, as it carries numerous positive implications for the Company going forward. First, it solidifies our highly positive relationship with Vedanti and ends our legal standing issues. Second, we were able to drop our litigations and arbitrations against each other saving both companies potentially hundreds of thousands of dollars. Finally, as co-owners we're able to work together on existing business opportunities and jointly implement strategies for monetizing the ODT patents here in the United States and around the world.
About MAX-D HD Audio:
The MAX-D software improves the sound heard from any device. Consumers have unknowingly sacrificed better audio quality for portable convenience and MAX-D rectifies this problem by: analyzing what content is missing from the compressed audio signal; dynamically resynthesizing lost harmonics and natural sound fields in real time; maximizing the output potential of any device without increasing original file size; and without requiring consumers or OEM’s to change equipment or infrastructure.
MAX-D 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; and More realistic “live performance” quality of all recordings with optimal dynamic range, bass response and overall clarity.
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MAX-D Audio Market:
MAX-D is targeting primarily Mobile Communication - Voice, Multi-media & Entertainment
MAX-D is fully compatible with existing playback technology. We believe that no current competitor can provide the level of sound quality and end user experience that MAX-D delivers.
MAX-D App:
In 2018, the Company’s Mobile App user base (with no dedicated marketing budget being employed) had over 750,000 subscribers on the free version of our HD Audio App for MP3’s on Android and Apple.
MAX-D Revenue Model:
The Company expects to derive its long-term revenue through the licensing of its MAX-D technology with two strategic players onto hardware and software across the primary vertical markets in Mobile Communications technology.
MAX-D Embedded Chip Solution:
The MAX-D 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-D Dynamic Software Module: Max Sound has delivered and is working to implement an application programming interface (“API”) for all Internet applications to process all audio/video content streamed or downloaded by consumers. Viable target candidates within the next 24 months include streaming movie and music services. 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. In addition, no specialized decoder is necessary on any audio system.
MAX-D Technology
MAX-D is a unique approach to processing sound, based on the physics of acoustics rather than electronics. Remarkably simple to deploy, MAX-D is a technology that dramatically raises the standard for sound quality, with no corresponding increase in file size or transmission channel bandwidth. 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-D restores the original recorded acoustical space in any listening environment. MAX-D is the only technology that both aligns phase and corrects phase distortion in a completed recording. MAX-D supplies missing audio content by adding acoustics and frequency response lost in the original recording or in the compression and transmission processes. MAX-D corrects and optimizes harmonic content and low frequency responses, greatly enhancing acoustic accuracy and we believe reduces ear fatigue.
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MAX-D integrates time, phase, harmonics, dynamics, and sub-harmonic region optimizations in a fully dynamic fashion. MAX-D is a lossless dynamic process, requiring no destructive encoding/decoding process, or any specialized decoder at all. MAX-D needs no additional hardware or critical monitoring stage after processing. The end result is that every aspect of audio processed with MAX-D - voice, instrument, or special effects - sounds refreshingly clear, realistic, and natural. The MAX-D HD Audio 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.
MAX-D HD Audio Technology requires no equipment changeover and can be embedded into any product (e.g. speakers, headphones, mobile devices), or online content delivery systems (e.g. streaming, cable, video games) to provide better sounding audio.
Market
MAX-D products and services are designed and intended to add high-definition quality and cost-savings to audio components and delivery of several separate industries, including consumer electronics, motion picture, broadcasting, video game, recording, mobile phone, internet, and VOIP applications.
Competition
The Company’s management believes there are no current direct competitors capable of delivering as high quality of audio technology as its MAXD HD Audio. Although other companies, like DTS or Dolby, have technologies that enhance sound; we do not believe these technologies negatively affect the Company because the MAX-D process can enhance the other audio company’s technology.
We believe we will be considered friendly competition in the future for three reasons; (1) we believe that MAX-D technology delivers the best sound quality available today, (2) MAX-D does not require any additional equipment; and (3) MAX-D makes any competition’s audio processes sound better.
Intellectual Property
Max-D and HD Audio technologies and designs are Patented, Patents Pending and Trademarked. The Company currently owns Patent No. 9300262, Audio Processing Application for Windows, which was published on November 12, 2015 and then unlawfully assigned to Adli Law Group. Adli Law Group states that the patent has been reassigned to the Company, notwithstanding, the Company is pursuing damages against Adli Law Group. On February 8, 2011, the words “Max Sound” were issued to the Company by the U.S. Patent and Trademark office under Serial Number 85050705.
On June 13, 2017, the U.S. Patent and Trademark office Company was granted a “Biometric audio security” patent to the Company under Serial Number 9,679,427.
On June 2, 2015, the words “HD Audio” were issued to the Company by the U.S. Patent and Trademark office under Serial Number 86395458 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.
Research and Development
The MAX-D API can be deployed across all streaming platforms along with most audio/video web-based services including mobile audio hardware such as speakers and audio receivers including car smart head units. After nearly a decade of time, and innovation and several million dollars of expenditures, the Company believes in 2020, that it will
| 9 |
finally license the MAX-D HD Audio on a major scale working with two strategic partners who have global reach and can help to solve a few specific problems for each other by pushing the MAXD HD Audio forward in their technology eco-system.
Employees
As of December 31, 2019, we had 2 employees, of which all were full-time. Since that time, the Company had reduced its overhead and staff by 1 employee.
Anticipated 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-D HD 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 on achieving and implementing the following:
| • | MAX-D is available to Qualcomm OEM’s on the 600 Series Snap Dragon and soon the 700 Series |
| • | Settle our litigations. Coordinate licensing among two of the largest strategic partners leading to several years of substantial revenue growth |
Long-Term Goals
| • | Increase Max Sound’s customer base producing scalable consumer adoption and branding differentiated as a deliverer of game-changing audio technology. |
| • | Make a financial return on the investments of the last three years with new sales and reduction of indirect costs, to become cash flow positive and then profitable in 2020. |
| 10 |
Not applicable for smaller reporting companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable for smaller reporting companies.
Office Arrangements and Operational Activities
In November 2010, we leased our MAX-D post-production facility at 2902A Colorado Ave., Santa Monica, CA, 90404. The lease was for two years with one-year renewable options. On February 5, 2016, the Company closed the Santa Monica office space located at 2902A Colorado AvenueSanta Monica, CA 90404 centralizing its new address of record at 3525 Del Mar Heights Road, #802, San Diego, CA 92130
See NOTE 8 titled LITIGATION for information on Legal Proceedings.
No assurance can be given as to the ultimate outcome of these actions or its effect on the Company.
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.” The following table sets forth, for the period indicated, the high and low bid quotations for the Company’s common stock. These quotations represent inter-dealer quotations, without adjustment for retail markup, markdown or commission, and may not represent actual transactions.
| Price | High | Low | ||||||
| 2019 | ||||||||
| First quarter | $ | .0003 | $ | .0001 | ||||
| Second quarter | $ | .0002 | $ | .0001 | ||||
| Third quarter | $ | .0002 | $ | .0001 | ||||
| Fourth quarter | $ | .0002 | $ | .0001 | ||||
| 2018 | ||||||||
| First quarter | $ | .0015 | $ | .0002 | ||||
| Second quarter | $ | .0006 | $ | .0002 | ||||
| Third quarter | $ | .0004 | $ | .0002 | ||||
| Fourth quarter | $ | .0005 | $ | .0001 | ||||
Holders
As of December 31, 2019, in accordance with our transfer agent records, we had 2612 record holders of our Common Stock. This number excludes individual stockholders holding stock under nominee security position listings.
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
See NOTE 6 - STOCKHOLDERS’ EQUITY, Section 2(c)
Recent Sales of Unregistered Securities
NONE
See NOTE 3 - DEBT
| 11 |
Compensation-based Issuances
See NOTE 7 - COMMITMENTS
The Company determined that the securities described above were issued in transactions that were exempt from the registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) thereunder. This determination was based on the non-public manner in which we offered the securities and on the representations of the recipients of the securities, which included, in pertinent part, that they were “accredited investors” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, that they were acquiring such securities for investment purposes for their own account and not with a view toward resale or distribution, and that they understood such securities may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption therefrom.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 2012, 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 (“Liquid Spins”). Pursuant to the Asset Purchase Agreement, the assets of Liquid Spins 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 assets of Liquid Spins purchased included: record label distribution agreements; Liquid Spins technology inventory; independent arts programs; retail contracts for music distribution; physical inventory and office equipment; design and retail ready concepts; brand value; records; publishing catalog; and web assets. During 2016, the Company reviewed the intangible asset for impairment and determined that certain items had been impaired due to obsolescence. As a result of this review, the Company recorded an impairment loss of $ 15,703,617 that is recorded as impairment loss on intangible asset.
No later than June 20, 2014, MAXD entered into a representation agreement with VSL Communications, Inc., making MAXD the exclusive agent to VSL to enforce all rights with respect to patented technology owned and controlled by VSL. In particular, the Company announced that it had acquired a worldwide license and representation rights to a patented video and data technology “Optimized Data Transmission System and Method” which enables end-user licensees to transport 100% of data bandwidth content in only 3% of the bandwidth with the identical lossless quality. Significantly, this represents thirty-three times reduction associated with transport cost and the time it takes for the video or digital content to be viewed by an end-user. As described more fully in the Legal Proceedings Section, The Company has since filed suit against Google, Inc., YouTube, LLC, and On2 Technologies, Inc., alleging willful infringement of the patent.
On May 22, 2014, MAXD entered into a representation agreement with architect Eli Attia giving MAXD the exclusive rights to sue violators of Eli Attia’s intellectual property rights. While Eli Attia was teaching his invention at Google [x], the project was internally valued by Google at $120 Billion USD a year. Since then, Flux has since been spun-out of Google [x], funded and has quickly growing, upon information and belief, to over 800 employees according to one of its founders. MAXD, on behalf of Attia’s, have since filed suit against Google, Inc., Flux Factory, and various executives of these companies for misappropriation of trade secrets. Since this time, the Company has advanced the case(s) and has signed additional agreements with the inventor as late as February 21st, 2017 and with additional counsel in June 2018 to support the RICO claim.
On November 29, 2016, MAXD entered into an agreement with Vedanti Systems Limited and Vedanti Licensing Limited (VLL) that resolves their dispute over the international Optimized Data Transmission (ODT) patent portfolio previously owned by Vedanti. The agreement further provides that VLL and MAXD will become co-owners of the pioneering portfolio.
Videos and news relating to the Company is available on the company website at www.maxd.audio. The MAX-D Technology Highlights Video summarizes the HD Audio™ process and shows the need for high definition (HD) Audio in several key vertical markets. The video explains MAX-D as what we believe to be the only dynamic HD Audio™ that is being offered to various markets.
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, we have conducted financings 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
| 12 |
Sound HD Audio Technology and in 2014 the Company began litigations against Google and others for infringement of its technologies and associated legal rights to the various proprietary technologies.
The Company believes that Max Sound HD Audio Technology is a game changer for several vertical markets whose demand will create revenue opportunities in 2020.
We expect our financial requirements to increase with the additional expenses needed to market and promote the MAX-D HD Audio Technology. We plan to fund these additional expenses through financings and through loans from our stockholders and/or officers 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.
Results of Operations
For the year ended December 31, 2019 and December 31, 2018:
General and Administrative Expenses: Our general and administrative expenses were $56,547 for the year ended December 31, 2019 and $357,225 for the year ended December 30, 2018, representing a decrease of 300,678, or approximately 84%,as a result of decrease in the general operation of the Company included decreasing personnel, product development and marketing of our Max Sound Technology.
Consulting Fees: Our consulting fees were $20,800 for the year ended December 31, 2019 and $294,034 for the year ended December 31, 2018, representing an increase of $ 273,234, or approximately 93%. The Company has increased the use of consultants to assist the Company.
Professional Fees: Our professional fees were $32,754 for the year ended December 31, 2019 and $221,244 for the year ended December 31, 2018, representing decrease of $188,490 or approximately 85%, as a result of ongoing litigation.
Compensation: Our compensation expenses were $450,000 for the year ended December 31, 2019 and $600,000 for the twelve months ended December 31, 2018, representing a decrease of $150,000, or approximately 25% as a result of decrease in our expensing of monthly compensation to our management and employees and options granted to the Company’s CFO.
Judgment: Our Judgment expense was $0 for the year ended December 31, 2019 and $0 for the year ended December 31, 2018 as a result of the court issued order on September 25, 2018.
Net Income: Our net income for the twelve months ended December 31, 2019 was $12,121,017. While the operational expenses in marketing our Max Sound technology decreased from the same period of last year, the overall amount of our net loss substantially decreased as a result of an increase in the change in the fair value of embedded derivative liability associated with the convertible debt.
Liquidity and Capital Resources
Revenues for the twelve months ended December 31, 2019 and 2018, were $0 and $0, respectively. We have an accumulated deficit of $81,474,653 for the period from December 9, 2005 (inception) to December 31, 2019 and have negative cash flow from operations of $77,841 for the twelve months ended December 31, 2019.
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, 2019, our primary source of funds has been the proceeds of private offerings of our common stock, private financing, and loans from stockholders. For the past 16 months we have not conducted any capital raising activities.
| 13 |
In the year ended December 31, 2019 the Company issued no convertible notes and agreed with its only two debt holders to eliminate all of the moving conversion rights until the S.E.C rightfully enforces Regulation Sho to restore the Company’s equity stolen by Knight Securities and other bad market actors who continue unimpeded in their daily illegal naked short selling of the Company’s shares and in absolute and direct violation of the existing law.
Loans and Advances
On July 6, 2017, the Company entered into a two-year line of credit agreement with the principal stockholder in the amount of $100,000. Subsequently, on October 2, 2017, the Company entered into a two-year line of credit agreement with the principal stockholder in the amount of $200,000. The line of credit carries an interest rate of 4%.
On October 2, 2017, the Company, in exchange for Greg Halpern's consideration issuing the Company a line of credit of $100,000 on July 6, 2017 and another line of credit of $200,000 on October 2, 2017 and for Mr. Halpern's forgiveness of $960,000 of interest owed to Mr. Halpern for his Preferred Shares accrued dividend rate of 8% per annum of his already owned 5 million Series A Convertible Preferred Shares, the Board deemed it proper to grant Mr. Halpern an additional 800,000,000 shares of the Company's common stock, which at Mr. Halpern's election he may convert into 5,000,000 additional Series A Convertible Preferred Shares with the same voting rights and percentages as his previously granted and owned 5,000,000 Series A Convertible Preferred Shares.
During the year ended December 31, 2018, the principal stockholder has advanced $557,299 accrued $3,792 in interest and was repaid $284,957 under the terms of this line of credit. The line of credit balance and accrued interest as of December 31, 2018 is $310,290.During the year ended December 31, 2019, line of credit increased by $77,426.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this Update supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For public companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We adopted the new standard effective January 1, 2019. The adoption of this guidance did not have a material impact on our financial statements.
All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
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 $0 and $0 in revenue for the ended December 31, 2019 and 2018, 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
| 14 |
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.
During the year ended December 31, 2018, the Company recorded an asset impairment of $28,211 consisting of office furniture and equipment. The assets are fully impaired and the remaining carrying value is $0 for the year ended December 31, 2018.
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”.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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.
| 15 |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MAX SOUND CORPORATION
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Max Sound Corporation.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Max Sound Corporation (the Company) as of December 31, 2019 and the related statements of operations, stockholders’ deficit and cash flows for the year then ended and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
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 has an accumulated deficit of $81,474,653, stockholders’ deficit of $11,155,177 and working capital deficit of $11,155,177. These factors create an uncertainty as to the Company’s ability to continue as a going concern. Management’s plans in regard to 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.
Emphasis of Matters-Risks and Uncertainties
The Company is not able to predict the ultimate impact that COVID -19 will have on its business; however, if the current economic conditions continue, the Company will be forced to significantly scale back its business operations and its growth plans, and could ultimately have a significant negative impact on the Company.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, 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.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/AJ Robbins CPA LLC
We have served as the Company’s auditor since 2019.
Denver, Colorado
April 14, 2020
| F-2 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Max Sound Corporation
Our original Report of Independent Registered Public Accounting Firm was issued in the Company’s 10-K filing filed on March 29, 2019. However, the original report was completed on February 22, 2019, and included the subsequent events up to that date. Therefore, the report is being reissued to reflect the February 22, 2019 completion date.
Opinion on the Financial Statements
We have audited the accompanying statement of financial position of Max Sound Corporation (the “Company”) as of December 31, 2018 and 2017, the related statements of loss, stockholders’ deficit and cash flows for each of the two year period ended December 31, 2018, and the related notes (collectively, the “financial statements”).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s consolidated financial statements. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. 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.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.
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, these conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
| /s/ Anton & Chia | |
|
Newport Beach, California
February 22, 2019 | |
| F-3 |
Max Sound Corporation
| December 31, 2019 | December 31, 2018 | |||||||
| Current Assets | ||||||||
| Cash | $ | 34 | $ | 449 | ||||
| Total Assets | $ | 34 | $ | 449 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 735,845 | $ | 675,295 | ||||
| Accrued expenses | 1,725,327 | 1,245,600 | ||||||
| Accrued expenses - related party | 1,329,984 | 404,429 | ||||||
| Judgement payable | 819,626 | 819,626 | ||||||
| Line of credit - related party | 384,000 | 306,575 | ||||||
| Derivative liability | — | 13,849,591 | ||||||
| Convertible note payable, net of debt discount of $0 and $169,377, and related debt issue costs of $0 and $3,525, respectively | 6,160,429 | 5,987,527 | ||||||
| Total Current Liabilities | 11,155,211 | 23,288,643 | ||||||
| Commitments and Contingencies | — | — | ||||||
| Stockholders' Deficit | ||||||||
| Preferred stock, $0.0001 par value; 10,000,000 shares authorized, | ||||||||
| No shares issued and outstanding | — | — | ||||||
| Series, A Convertible Preferred stock, $0.00001 par value; 10,000,000 shares authorized, | ||||||||
| 10,000, 000 and 10,000,000 shares issued and outstanding, respectively | 100 | 100 | ||||||
| Common stock, $0.00001 par value; 10,000,000,000 shares authorized, | ||||||||
| 6,583,852,824 and 6,573,852,824 shares issued and outstanding, respectively | 65,967 | 65,867 | ||||||
| Additional paid-in capital | 70,787,984 | 70,776,084 | ||||||
| Treasury stock | (534,575 | ) | (534,575 | ) | ||||
| Accumulated deficit | (81,474,653 | ) | (93,595,670 | ) | ||||
| Total Stockholders' Deficit | (11,155,177 | ) | (23,288,194 | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | 34 | $ | 449 | ||||
| F-4 |
See accompanying notes to the financial statements.
Max Sound Corporation
| For the Years Ended, | ||||||||
| December 31, 2019 | December 31, 2018 | |||||||
| Revenue | $ | — | $ | — | ||||
| Operating Expenses | ||||||||
| General and administrative | 110,547 | 357,225 | ||||||
| Consulting | 20,800 | 294,034 | ||||||
| Professional fees | 32,754 | 221,244 | ||||||
| Website development | 8,250 | 4,000 | ||||||
| Compensation | 450,000 | 600,000 | ||||||
| Judgement expense | — | — | ||||||
| Total Operating Expenses | 622,351 | 1,476,503 | ||||||
| Loss from Operations | (622,351 | ) | (1,476,503 | ) | ||||
| Other Income / (Expense) | ||||||||
| Interest expense | (457,763 | ) | (453,469 | ) | ||||
| Interest expense - related party | (475,555 | ) | (418,510 | ) | ||||
| Derivative Expense | — | (375,302 | ) | |||||
| Amortization of debt offering costs | (3,525 | ) | (44,426 | ) | ||||
| Loss on debt settlement | — | — | ||||||
| Amortization of debt discount | (169,379 | ) | (1,276,576 | ) | ||||
| Change in fair value of embedded derivative liability | 13,849,590 | (8,080,251 | ) | |||||
| Loss on impairment | — | (28,211 | ) | |||||
| Total Other Income / (Expense) | 12,743,368 | (10,676,745 | ) | |||||
| Provision for Income Taxes | — | — | ||||||
| Net Income (Loss) | $ | 12,121,017 | $ | (12,153,248 | ) | |||
| Net Loss Per Share - Basic and Diluted | $ | 0.00 | $ | (0.00 | ) | |||
| Weighted average number of shares outstanding | ||||||||
| during the year Basic and Diluted | 6,577,551,453 | 5,280,292,846 | ||||||
| See accompanying notes to the financial statements. | ||||
| F-5 |
Max Sound Corporation
Statement of Changes in Stockholders' Deficit
For the years ended December 31, 2019 and 2018
| Series A | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred stock | Common stock | Additional | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| paid-in | Accumulated | Subscription | Deferred | Treasury | Dividend | Stockholder's | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | capital | Deficit | Receivable | Compensation | Stock | Payable | Equity(Deficit) | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2017 | 10,000,000 | $ | 100 | — | $ | — | 2,158,961,690 | $ | 21,718 | $ | 68,564,307 | $ | (81,442,422 | ) | $ | — | $ | — | $ | (534,575 | ) | $ | — | $ | (13,390,872 | ) | ||||||||||||||||||||||||||
| Convertible debt, accrued interest and penalty conversion into common stock | — | — | — | — | 4,373,012,563 | 43,730 | 834,484 | — | — | — | 878,214 | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services ($0.0008/sh) | — | — | — | — | 32,678,571 | 327 | 46,173 | — | — | — | 46,500 | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued in exchange for warrant forgiveness ($0.0003/Sh) | — | — | — | — | 9,200,000 | 92 | 2,668 | 2,760 | ||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liability associated with convertible debt | — | — | — | — | — | — | 1,328,452 | — | — | — | 1,328,452 | |||||||||||||||||||||||||||||||||||||||||
| Net loss for the year ended December 31, 2018 | — | — | — | — | — | — | — | (12,153,248 | ) | — | — | (12,153,248 | ) | |||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2018 | 10,000,000 | 100 | — | — | 6,573,852,824 | 65,867 | 70,776,084 | (93,595,670 | ) | — | — | (534,575 | ) | — | (23,288,194 | ) | ||||||||||||||||||||||||||||||||||||
| Common stock issued for services ($0.0002/sh) | — | — | — | — | 10,000,000 | 100 | 11,900 | — | — | 12,000 | ||||||||||||||||||||||||||||||||||||||||||
| Net income for the year ended December 31, 2019 | — | — | — | — | — | — | — | 12,121,017 | — | — | 12,121,017 | |||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | 10,000,000 | $ | 100 | — | $ | — | 6,583,852,824 | $ | 65,967 | $ | 70,787,984 | $ | (81,474,653 | ) | — | — | $ | (534,575 | ) | — | $ | (11,155,177 | ) | |||||||||||||||||||||||||||||
See accompanying notes to the financial statements.
| F-6 |
Max Sound Corporation
| For the Years Ended, | ||||||||
| December 31, 2019 | December 31, 2018 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net Loss | $ | 12,121,017 | $ | (12,153,248 | ) | |||
| Adjustments to reconcile net loss to net cash used in operations | ||||||||
| Depreciation/Amortization | — | 15,852 | ||||||
| Stock and stock options issued for services | 12,000 | 46,500 | ||||||
| Stock issued in exchange of warrant forgiveness | — | 2,760 | ||||||
| Amortization of debt offering costs | 3,525 | 44,426 | ||||||
| Amortization of debt discount | 169,379 | 1,276,575 | ||||||
| Change in fair value of derivative liability | (13,849,590 | ) | 8,080,251 | |||||
| Loss on impairment of fixed assets | — | 28,211 | ||||||
| Derivative Expense | — | 375,302 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease in prepaid expenses | — | 59,730 | ||||||
| Increase in accounts payable | 60,546 | 276,349 | ||||||
| Increase in accrued expenses | 479,727 | 485,642 | ||||||
| Increase in accrued expenses - related party | 925,555 | 361,429 | ||||||
| Net Cash Used In Operating Activities | (77,841 | ) | (1,100,221 | ) | ||||
| Net Cash Used In Investing Activities | — | — | ||||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from stockholder loans / lines of credit | 80,646 | 557,679 | ||||||
| Repayment from stockholder loans / lines of credit | (3,220 | ) | (284,954 | ) | ||||
| Proceeds from issuance of convertible note, less offering costs and OID costs paid | — | 827,200 | ||||||
| Net Cash Provided by Financing Activities | 77,426 | 1,099,925 | ||||||
| Net Decrease in Cash | (415 | ) | (296 | ) | ||||
| Cash at Beginning of Year | 449 | 745 | ||||||
| Cash at End of Year | $ | 34 | $ | 449 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | — | $ | — | ||||
| Cash paid for taxes | $ | — | $ | 8,709 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Shares issued in conversion of convertible debt and accrued interest | $ | — | $ | 878,214 | ||||
| Reclassification to additional paid in capital for financial instruments that ceased to be a derivative liability | $ | — | $ | 1,328,452 | ||||
| See accompanying notes to financial statements. | ||||||||
| F-7 |
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Organization and Basis of Presentation
Max Sound Corporation (the "Company") was incorporated in Delaware on December 9, 2005, under the name 43010, Inc. The Company’s business operations are focused primarily on developing and launching audio technology software.
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.
On August 9, 2016, the Company moved a level down from OTCQB to OTC Pink Current Information where it is within the continued standards and pricing requirements as found in Section 2 of the OTCQB Eligibility Standards. The Company’s services may re-apply at any time after a price increase to meet all the OTCQB Eligibility Standards to be moved back to the higher OTCQB marketplace.
It is management's opinion, however, that all material adjustments (consisting of normal and recurring adjustments) have been made which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.
(B) Risks and Uncertainties
In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally.
Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future. As a result, all of our office locations have been closed effective April 1, 2020.
The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and results of operations.
The measures taken to date will impact the Company’s business for the fiscal fourth quarter and potentially beyond. Management expects that all of its business segments, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.
(C) 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.
(D) 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, 2019 and December 31, 2018, the Company had no cash equivalents.
(E) 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.
(F) Research and Development
The Company has adopted the provisions of FASB Accounting Standards Codification No. 350, Intangibles - Goodwill & Other (“ASC Topic 350”). 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 have been expensed as website development expenses.
| F-8 |
(G) Concentration of Credit Risk
The Company at times has had cash in banks in excess of FDIC insurance limits. The Company had $0 in excess of FDIC insurance limits as of December 31, 2019 and December 31, 2018.
(H) Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.
(I) Loss Per Share
In accordance with accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share,” Basic earnings (loss) 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 computation of basic and diluted loss per share for the years ended December 31, 2019 and 2018, excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:
| December 31, 2019 | December 31, 2018 | ||||||||||
| Stock Warrants (Exercise price - $0.25 - $.52/share) | — | 11,620,960 | |||||||||
| Stock Options (Exercise price - $0.00250/share) | 95,332,500 | 95,332,500 | |||||||||
| Convertible Debt (Exercise price - $0.0001 - $.000061/share) | 117,980,324,264 | 85,342,765,754 | |||||||||
| Series A Convertible Preferred Shares ($0.01/share) | 250,000,000 | 250,000,000 | |||||||||
| Total | |||||||||||
| 118,325,656,764 | 85,699,718,944 | ||||||||||
The Company’s obligations to issue shares upon conversion of its outstanding convertible notes, the exercise of stock options and warrants and conversion of its preferred stock (the “Convertible Instruments”) at current market prices for its common stock exceeds by the 114,909,509,587 authorized but unissued shares of Common Stock as of the date of this report (the “Potentially Issuable Shares”). While it is uncertain whether the Company would receive requests to issue all of the Potentially Issuable Shares and the number of such shares fluctuates based on the market price of the Company’s common stock, the Company may increase the number of its authorized shares of common stock or effectuate a recapitalization, or a combination of both, in order to make available additional shares of its Common Stock for the Potentially Issuable Shares. Such action would require shareholder approval. Until such time as the Company has a sufficient number of shares of its Common Stock for issuance to cover the Potentially Issuable Shares, the Company could be subject to penalties and damages to the holders of the Convertible Instruments in the event it does not deliver the Potentially Issuable Shares upon request by a holder of the Convertible Instruments. Furthermore, the lack of available shares of common stock may be deemed a default under one or more of the Convertible Instruments.
(J) 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.
| 2019 | 2018 | |||||||
| Deferred tax liability: | $— | $— | ||||||
| Deferred tax asset | ||||||||
| Temporary differences | ||||||||
| Net operating loss carryforward | 10,401,306 | 9,973,745 | ||||||
| Valuation allowance | (10,401,306 | ) | (9,973,745 | ) | ||||
| Net deferred tax asset | — | — | ||||||
| Net deferred tax liability | $ | — | $ | — | ||||
| F-9 |
The provision for income taxes has been computed as follows:
| 2019 | 2018 | |||||||
| Expected income tax recovery (expense) at the statuary rate of 27.64% | $ | 3,349,764 | $ | (3,358,672 | ) | |||
| Tax effect of expenses that are not deductible for income tax purposes (net of other amounts deductible for tax purposes) | 22 | 106,748 | ||||||
| Tax effect of differences in the timing of deductibility of items for income tax purposes: | (3,777,347 | ) | 2,585,582 | |||||
| Utilization of non-capital tax losses to offset current taxable income | — | — | ||||||
| Change in valuation allowance | 427,561 | 666,342 | ||||||
| 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 2038.
The net change in the valuation allowance for the year ended December 31, 2019 and 2018 was an increased/ (decreased) of $427,561 and $666,342, respectively.
The components of income tax expense related to continuing operations are as follows:
| 2019 | 2018 | |||||||
| Federal | ||||||||
| Current | $ | — | $ | — | ||||
| Deferred | — | — | ||||||
| $ | — | $ | — | |||||
| State and Local | ||||||||
| Current | $ | — | $ | — | ||||
| Deferred | — | — | ||||||
| $ | — | $ | — |
The company’s federal income tax returns for the years 2016-2019 remain subject to examination by the Internal Revenue Service through 2023.
(K) Business Segments
The Company operates in one segment and therefore no segment information is not presented.
| F-10 |
(L) Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this Update supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For public companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We adopted the new standard effective January 1, 2019. The adoption of this guidance did not have a material impact on our financial statements.
All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
(M) Fair Value of Financial Instruments
The carrying amounts on the Company’s financial instruments including accounts payable, derivative liability, convertible note payable, and note payable, approximate fair value due to the relatively short period to maturity for these instruments.
We adopted accounting guidance for financial and non-financial assets and liabilities (ASC 820). The adoption did not have a material impact on our results of operations, financial position or liquidity. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures.
This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.
The following are the major categories of liabilities measured at fair value on a recurring basis: as of December 31, 2019 and December 31, 2018, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):
| December 31, 2019 | December 31, 2018 | |||||||||||||||||||||||||||||||
| Fair Value Measurement Using | Fair Value Measurement Using | |||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Derivative Liabilities | — | — | — | — | — | 13,849,591 | — | 13,849,591 | ||||||||||||||||||||||||
On December 20, 2019, the Company removed the variable component and penalties related to its convertible debt and made it a fixed price. Therefore, as of December 31, 2019 there is no longer an existing derivative liability.
(N) 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 based on 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 grant as defined in the FASB Accounting Standards Codification.
| F-11 |
(O) 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.
(P) 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 |
(Q) Original Issue Discount
For certain convertible debt issued, the Company provides the debt holder with an original issue discount. The original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.
(R) Debt Issue Costs and Debt Discount
The Company may pay debt issue costs, and record debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
As reflected in the accompanying financial statements, the Company has an accumulated deficit of $81,474,653, stockholders’ deficit of $11,155,177 and working capital deficit of $11,155,177. These matters raise substantial doubt about the Company’s 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.
As the Company continues to incur losses, transition to profitability is dependent upon the successful commercialization of its products and achieving a level of revenues adequate to support the Company’s cost structure.
The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations through additional private or public debt or equity offerings. Based on the Company’s operating plan, existing working capital at December 31, 2018 was not sufficient to meet the cash requirements to fund planned operations through December 31, 2019 without additional sources of cash. The Company continues to explore various financing alternatives, including debt and equity financings and strategic partnerships, as well as trying to generate revenue. However, at this time, the Company has no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If the Company is unable to obtain additional funding and improve its operations, the Company’s financial condition and results of operations may be materially adversely affected, and the Company may not be able to continue operations. This raises substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty.
NOTE 3 DEBT AND ACCOUNTS PAYABLE
Debt consists of the following:
| As of December | As of December | |||||||
| 31, 2019 | 31, 2018 | |||||||
| Line of credit– related party | $ | 384,000 | $ | 306,575 | ||||
| Accrued interest – related party | 709,039 | 233,484 | ||||||
| Accrued expenses – related party | 620,945 | 170,945 | ||||||
| Convertible debt | $ | 6,160,429 | $ | 6,160,429 | ||||
| Less: debt discount | — | (169,377 | ) | |||||
| Less: debt issue costs | — | (3,525 | ) | |||||
| Convertible debt - net | 6,160,429 | 5,987,527 | ||||||
| Total current debt | $ | 7,874,413 | $ | 6,698,531 | ||||
| • | Line of credit – related party |
Line of credit with the principal stockholder consisted of the following activity and terms:
| Principal | Interest Rate | |||||||
| Balance - December 31, 2018 | $ | 310,290 | — | |||||
| Borrowings during the year ended December 31, 2019 | 80,647 | — | ||||||
| Interest accrual | 14,755 | — | ||||||
| Repayments | (3,220 | ) | — | |||||
| Balance – December 31, 2019 | $ | 402,472 | ||||||
| F-13 |
Accounts payable consists of the following:
| As of December 31, 2019 | As of December 31, 2018 | |||||||
| Accounts Payable | $ | 735,845 | $ | 675,295 | ||||
| Total accounts payable | $ | 735,845 | $ | 675,295 | ||||
(A) Convertible Debt
During the year ended December 31, 2018, the Company issued convertible notes for net proceeds and $827,200, respectively.
The convertible notes issued for year ended December 31, 2019 and year ended December 31, 2018, consist of the following terms:
| Year ended December 31, 2019 Amount of Principal Raised | Year ended December 31, 2018 Amount of Principal Raised | |||||||||
| Interest Rate | 0% - 12% | 0% - 12% | ||||||||
| Default interest rate | 14% - 22% | 14% - 22% | ||||||||
| Maturity | November 4, 2015 –May 22, 2019 | November 4, 2015 – December 7, 2018 | ||||||||
| Conversion terms 1 | 65% 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. | 3,691,578 | 3,691,578 | |||||||
| Conversion terms 2 | 65% of the “Market Price”, which is the one lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion. | 1,131,560 | 1,131,560 | |||||||
| Conversion terms 3 | 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. | paid on conversion | paid on conversion | |||||||
| Conversion terms 4 | 75% 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. | 765,000 | 765,000 | |||||||
| Conversion terms 5 | 60% of the “Market Price”, which is the lowest trading prices for the common stock during the fifteen (15) trading day period prior to the conversion. | paid on conversion | paid on conversion | |||||||
| Conversion terms 6 | Conversion at $0.10 per share | Paid on conversion | Paid on conversion | |||||||
| Conversion terms 7 | 60% of the “Market Price”, which is the lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion. | 50,000 | 50,000 | |||||||
| Conversion terms 8 | 65% of the “Market Price”, which is the two lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion. | 265,050 | 265,050 | |||||||
| Conversion terms 9 | 65% of the “Market Price”, which is the two lowest trading prices for the common stock during the fifteen (15) trading day period prior to the conversion. | 204,579 | 204,579 | |||||||
| Conversion terms 10 | 65% of the “Market Price”, which is the one lowest trading prices for the common stock during the fifteen (15) trading day period prior to the conversion. | paid on conversion | paid on conversion | |||||||
| Conversion terms 11 | 60% of the “Market Price”, which is the two lowest trading prices for the common stock during the twelve (12) trading day period prior to the conversion. | paid on conversion | paid on conversion | |||||||
| Conversion terms 12 | 61% of the “Market Price”, which is the average of the three lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion. | 52,662 | 52,662 | |||||||
| Convertible Debt Less: Debt | 6,160,429 | 6,160,429 | ||||||||
| Discount Less: Debt | — | (169,377 | ) | |||||||
| Issue Costs | — | (3,525 | ) | |||||||
| Convertible Debt - net | 6,160,429 | 5,987,527 | ||||||||
| F-14 |
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 and warrants 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 4 regarding accounting for derivative liabilities.
During the year ended December 31, 2018, the Company converted debt and accrued interest, totaling $878,214 into 4,289,679,230 shares of common stock.
| Convertible debt consisted of the following activity and terms: | ||||||
| Convertible Debt Balance as of December 31, 2018 | 6,160,429 | 4% - 12% | ||||
| Borrowings | — | |||||
| Conversions | — | |||||
| Convertible Debt Balance as of December 31, 2019 | 6,160,429 | |||||
(B) Debt Issue Costs
During the year ended December 31, 2018, the Company paid debt issue costs totaling $20,500
The following is a summary of the Company’s debt issue costs:
| Year ended | Year Ended | |||||||
| December 31, 2019 | December 31, 2018 | |||||||
| Debt issue costs | $ | 362,423 | 362,423 | |||||
| Accumulated amortization of debt issue costs | (362,423 | ) | (358,898 | ) | ||||
| Debt issue costs – net | $ | — | 3,525 | |||||
During the year ended December 31, 2019 and 2018 the Company amortized $3,525 and $44,426 of debt issue costs, respectively.
(C) Debt Discount & Original Issue Discount
During the year ended December 31, 2019 and year ended December 31, 2018, the Company recorded debt discounts totaling $0 and $813,386, respectively.
The debt discount and the original issue discount recorded in 2019 and 2018 pertains to convertible debt that contains embedded conversion options that are required to be bifurcated and reported at fair value and original issue discounts.
The Company amortized $169,379 and $1,276,576 during the years ended December 31, 2019 and 2018, respectively, to amortization of debt discount expense.
| Year ended | Year Ended | |||||||
| December 31, 2019 | December 31, 2018 | |||||||
| Debt discount | $ | 13,221,839 | 13,221,839 | |||||
| Accumulated amortization of debt discount | (13,221,839 | ) | (13,052,462 | ) | ||||
| Debt discount - Net | $ | — | 169,377 | |||||
(D) Line of Credit – Related Party
During the year ended December 31, 2019, the principal stockholder has advanced $80,647 and accrued $14,755 in interest and was repaid $3,220. During the year ended December 31, 2018, the principal stockholder has advanced $557,299 accrued $3,792 in interest and was repaid $284,957 under the terms of the line of credit. The line of credit balance and accrued interest as of December 31, 2019 is $381,546.
The Company identified conversion features embedded within convertible debt issued in 2018 and 2017. 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 a result of the application of ASC No. 815, the fair value of the conversion feature is summarized as follow: | |||||
| Derivative Liability –December 31, 2018 | $ | 13,849,591 | |||
| Change in fair value of embedded derivative liability for warrants issued | (893 | ) | |||
| Change in fair value of embedded derivative liability for convertible instruments | (13,848,698 | ) | |||
| Derivative Liability –December 31, 2019 | $ | — | |||
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 for year ended December 31, 2019 and 2018 of $0 and $375,302 respectively.
| F-15 |
The fair value at the commitment and remeasurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2019:
| Commitment | Remeasurement | |||||||
| Date | Date | |||||||
| Expected dividends: | — | — | ||||||
| Expected volatility: | — | 515.83%-792.59% | ||||||
| Expected term: | — | 0.01–1.00 Years | ||||||
| Risk free interest rate: | — | 1.59 | % | |||||
The fair value at the commitment and remeasurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2018:
| Commitment | Remeasurement | |||||||
| Date | Date | |||||||
| Expected dividends: | — | — | ||||||
| Expected volatility: | 133% - 262% | 296.54%-579.57% | ||||||
| Expected term: | 0.08 - 3 Years | 0.11–1.01 Years | ||||||
| Risk free interest rate: | 0.06% - 2.31% | 2.23% - 2.63% |
At December 31, 2019 and December 31, 2018, respectively, property and equipment are as follows:
| December 31, 2019 | December 31, 2018 | |||||||
| Website Development | $ | — | $ | 294,795 | ||||
| Furniture and Equipment | — | 143,071 | ||||||
| Leasehold Improvements | — | 6,708 | ||||||
| Software | — | 54,598 | ||||||
| Music Equipment | — | 2,578 | ||||||
| Office Equipment | — | 80,710 | ||||||
| Domain Name | — | 1,500 | ||||||
| Sign | — | 628 | ||||||
| Total | — | 584,588 | ||||||
| Less: impairment of assets | — | (28,211 | ) | |||||
| Less: accumulated depreciation and amortization | — | (556,377 | ) | |||||
| Property and Equipment, Net | $ | — | $ | — | ||||
Depreciation expense for the year ended December 31, 2019 and 2018 totaled $0 and $12,233, respectively.
During the year ended December 31, 2018, the Company recorded an asset impairment of $28,211 consisting of office furniture and equipment. The assets are fully impaired, and the remaining carrying value is $0 for the year ended December 31, 2018.
On February 1, 2018, the Company with the consent of the Majority Shareholder and Unanimous Written Consent of the Board of Directors filed with the Securities and Exchange Commission a Schedule 14C and with the State of Delaware an Amended Certificate of Incorporation increasing the authorized shares of common stock by 5,750,000,000 shares of common stock from 4,250,000,000 shares of common stock to 10,000,000,000 shares of common stock.
| 1. | Common Stock |
During the year ended December 31, 2019, the Company issued the following common stock:
| Transaction Type | Quantity | Valuation | Range of Value per share | |||||||||
| Services - rendered | 10,000,000 | $ | 12,000 | $ | 0.0002 | |||||||
| Total shares issued | 10,000,000 | $ | 12,000 | |||||||||
During the year ended December 31, 2018, the Company issued the following common stock:
| F-16 |
| Transaction Type | Quantity | Valuation | Range of Value per share | |||||||||
| Conversion of convertible debt and accrued interest | 4,373,012,563 | $ | 878,214 | $0.0006 to - $0.00065 | ||||||||
| Services - rendered | 32,678,571 | 46,200 | $ | 0.0026 | ||||||||
| Shares issued in exchange for warrant forgiveness | 9,200,000 | 2,760 | $ | 0.0003 | ||||||||
| Total shares issued | 4,414,891,134 | $ | 927,474 | |||||||||
The Company maintains on its books and within the above financials, debt to Venture Champion Asia Limited and ICG USA LLC or its designee(s) which is currently in default and has not been converted due to ICG’s settled administrative proceeding with the SEC, where the Company awaits any rightful exemption or regulatory no-action that would render any forward moving action compliant by all the parties.
The Company announced that it entered into an Agreement with Vedanti Systems Limited and Vedanti Licensing Limited (VLL) that resolves their dispute over the international Optimized Data Transmission (ODT) patent portfolio previously owned by Vedanti. The Agreement further provides that VLL and the Company will become co-owners of the pioneering portfolio. In consideration of the patent portfolio purchase, the Company issued 80,000,000 shares of its common stock to VLL. This patent portfolio consists of patents in the following countries: The United States, Australia, Austria, Cyprus, Denmark, Spain, Finland, France, Ireland, Italy, Luxembourg, Monaco, Portugal, Sweden, Turkey, Belgium, Switzerland/ Liechtenstein, United Kingdom, Greece, Netherlands and Germany. The Company continues to pursue its litigations against Google.
Return of Shares and Issuance of Preferred shares
On October 2, 2017, the Company, in exchange for Greg Halpern's consideration issuing the Company a line of credit of $100,000 on July 6, 2017 and another line of credit of $200,000 on October 2, 2017 and for Mr. Halpern's forgiveness of $960,000 of interest owed to Mr. Halpern for his Preferred Shares accrued dividend rate of 8% per annum of his already owned 5 million Series A Convertible Preferred Shares, the Board deemed it proper to grant Mr. Halpern an additional 800,000,000 shares of the Company's common stock, which at Mr. Halpern's election he may convert into 5,000,000 additional Series A Convertible Preferred Shares with the same voting rights and percentages as his previously granted and owned 5,000,000 Series A Convertible Preferred Shares.
On November 8, 2017, the Company, at Greg Halpern's election, converted 800,000,000 shares of Common Stock into 5,000,000 Series A Convertible Preferred Shares representing 33.4% of the Company’s voting rights and control adding to Halpern’s existing 33.4% holdings, equaling 66.8% of the Company’s total voting rights and control.
On March 4, 2015 the Company filed a form 8K with the SEC associated with the Company entering into a Securities Exchange Agreement and the Company filing with the Secretary of State Delaware a Certificate of Designations, Preferences and Rights whereby, among other things, the Company for good and valuable consideration, agreed that in consideration of a large shareholder exchanging 120,000,000 shares of common stock back to the Company, the shareholder would receive 5,000,000 shares of Series A Convertible Preferred Stock of the Company at a Stated Value of $0.96 per share and a Conversion Price of $0.04 per share. These 5,000,000 Series A Convertible Preferred Shares represent 33.4% of the Company’s voting rights and control and accrue dividends at a rate of 8% per annum Stated Value, payable in cash or in kind at the election of the Board of Directors. For the year ended December 31, 2019 and 2018, respectively, the Company has not declared dividends.
(B) Stock Warrants
The following tables summarize all warrant grants as of December 31, 2019, and the related changes during these periods are presented below:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | ||||||||||
| Balance, December 31, 2018 | 11,620,690 | $ | 0.01 | 1.2 | ||||||||
| Granted | — | |||||||||||
| Exercised | — | |||||||||||
| Cancelled/Forfeited | (11,620,690 | ) | ||||||||||
| Balance, December 31, 2019 | — | $ | — | |||||||||
On May 7, 2018, the Company issued 9,200,000 shares of Company’s common stock to consultant in exchange for forgiveness of Warrant Agreement with the Company with a fair value of $2,760 ($0.0003/Share).
A summary of all outstanding and exercisable warrants as of December 31, 2018 is as follows:
| Weighted Average | Aggregate Intrinsic | |||||||||||||||||
| Exercise | Warrants | Warrants | Remaining | Value | ||||||||||||||
| Price | Outstanding | Exercisable | Contractual Life | |||||||||||||||
| $ | 0.01 | 2,000,000 | 2,000,000 | 0.16 | $ | — | ||||||||||||
| $ | 0.005 | 1,000,000 | 1,000,000 | 0.40 | $ | — | ||||||||||||
| $ | 0.0029 | 8,620,690 | 8,620,690 | 0.25 | $ | — | ||||||||||||
| 11,620,690 | 11,620,690 | 0.25 | $ | — | ||||||||||||||
| F-17 |
(C) Stock Options
The following tables summarize all option grants as of December 31, 2018, and the related changes during these periods are presented below:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (In Years) | ||||||||||
| Outstanding – December 31, 2018 | 95,332,500 | — | ||||||||||
| Exercised | — | — | — | |||||||||
| Forfeited or Canceled | — | — | ||||||||||
| Outstanding – December 31, 2019 | 95,332,500 | 0.0025 | 0.55 | |||||||||
| Exercisable – December 31, 2019 | 95,332,500 | |||||||||||
On June 1, 2016, the Company was named as a defendant in an action filed in the Superior Court of the State of California, County of Los Angeles – Central District, captioned Adli Law Group, PC v. Max Sound Corporation (Case No. BC621886). Plaintiff alleges two causes of action for Breach of Contract and a cause of action for Common Counts, all arising out of the Company’s alleged failure to pay for Plaintiff’s legal services. Even though the Company was never served with the Complaint, default was entered against the Company. The Default has been set aside and the Company has responded to the Complaint with an Answer and Cross-Complaint for Breach of Contract, Professional Negligence, Breach of Fiduciary Duty, Conversion, and Fraud, due to the fact, that among other things, Adli Law reassigned the Company's primary patent to itself. The parties had begun the discovery phase of the litigation and the Judge had set a status hearing for January 19, 2018. On June 1, 2018, Adli filed a motion for summary judgment on numerous issues.
One issue raised by Adli (at the very end of their motion and in only a single paragraph) was that Max Sound was a forfeited corporation and thus, “is foreclosed from prosecuting any action in California courts.” Adli did not raise this issue before filing its papers. Max Sound’s counsel, SML Avvocati, P.C. had since learned that the California Franchise Tax Board contended that Max Sound owed back taxes, hence the forfeiture. Max Sound hired a CPA tax specialist to assist with paying its outstanding taxes which the state finally agreed were approximately $8,000 instead of the $340,000 the state had arbitrarily wrongly calculated and the Company sought to obtain a revivor to cure its forfeited status and thus be able to regain its ability to both defend itself in this action and prosecute its counterclaims.
However, despite working diligently with the hope of resolving this issue before the summary judgment motion hearing set for September 6, 2018, Max Sound had not resolved its issues with the state of California and had not yet obtained a revivor. As a result of this issue and glaring mistakes by the Company’s Counsel SML Avvocati, Max Sound had to respectfully request that the court grant a stay in the proceedings until Max Sound was able to obtain a revivor or, in the alternative, a continuance of all proceedings. A stay or continuance was necessary because Max Sound’s counsel would not be able to respond to the pending summary judgment motion (or any other substantive proceeding), and Max Sound would be unable to defend itself against this action or prosecute its cross-complaint until Max Sound’s forfeited status was cured. The court provided a summary default judgment in favor of Adli one day before Max Sound obtained a revivor.
In response, the Company hired Klapach & Klapach, P.C. who filed an application for an extension to file an opening brief. The extension was granted, and the opening brief was filed April 26, 2019. Adli responded with a Respondent Brief, Appendix and Motion to Augment. Max Sound’s counsel filed a reply brief.
In the conclusion of the brief, Max Sound’s counsel Mr. Klapach stated:
“The trial court committed error in granting summary judgment in the Adli Firm’s favor. Based on the Adli Firm’s own evidence, there were triable issues of fact regarding the Adli Firm’s claims for unpaid fees. With respect to the Steele Litigation, nearly all of the unpaid invoices that the Adli Firm sought to recover were for legal services that were separately billed to Mr. Trammell for Mr. Trammell, Mr. Wolff, and Audio Genesis’s defense. The record also reflects that Dr. Adli orally agreed to look solely to Mr. Trammell and Mr. Wolff for payment of the Adli Firm’s fees. With respect to the patent prosecution representation, triable issues of fact existed as to whether the Adli Firm’s admitted error in identifying itself – instead of Max Sound – as the assignee of the MAXD patent was a material breach that excused Max Sound’s performance and/or entitled Max Sound to set off. With respect to the Cross-Complaint, the trial court erred in concluding that Max Sound lacked the capacity to sue when Max Sound had presented the court with a Certificate of Revivor prior to the summary judgment hearing. The trial court also erred in refusing to grant Max Sound a short continuance so that it could pay its outstanding taxes and obtain a Certificate of Revivor.”
No assurance can be given as to the ultimate outcome of these actions or their effect on the Company however the Company is confident it will receive a reversal in of the Summary Judgment and ultimately succeed in its cross complaint against the Adli Firm.
| F-18 |
Subsequent to December 31, 2019, the principal stockholder has advanced $26,100 and was repaid $14,700 on under the terms of the line of credit.
Item 9. Changes in and disagreements with Accounting and Financial Disclosure
N/A
Item 9A. Controls and Procedures
| (a) | Evaluation of Disclosure Controls and Procedures The company’s management has evaluated, with the participation of the Chief Executive Officer and the Chief Financial Officer, the effectiveness of the company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report. Based on this evaluation, management concluded that the company’s disclosure controls and procedures were effective as of December 31, 2018. |
| (b) | Management’s Report on Internal Control Over Financial Reporting The company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f). The company’s management, including the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of the company’s internal control over financial reporting based on the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the results of this evaluation, the Company’s management concluded that internal control over financial reporting was effective as of December 31, 2019. |
The Company is not required to file an ICFR with an independent registered public accounting firm.
| (c) | Changes in Internal Control Over Financial Reporting During the quarter ended December 31, 2019, there were no changes in the company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting. |
Item 9B. Other Information
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
On March 25, 2020, John Blaisure was terminated. Greg Halpern took on the duties of President and Chief Executive Officer.
Our executive officers and directors and their respective ages are as follows:
| NAME | AGE | POSITION | ||||
| Greg Halpern | 61 | Chairman, President, Chief Executive Officer & Chief Financial 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-D. Over the course of his tenure, Mr. Halpern has made loans, lines of credit and done equity conversions with the Company in excess of $2,500,000.
| 16 |
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, President, Chief Executive Officer and Chief Financial Officer of Max Sound Corporation, and devotes approximately 50 hours each week to the management and operations of 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, 2018.
Code of Ethics
The Company has adopted a Code of Ethics applicable to its Chief Executive Officer and Chief Financial Officer.
ITEM 11. EXECUTIVE COMPENSATION
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, 2019, and 2018 in all capacities for the
| 17 |
accounts of our executive, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO):
SUMMARY COMPENSATION TABLE
| Name and | Stock | Option | All Other | |||||||||||||||||||||||
| Principal | Salary | Bonus | Awards | Awards | Compensation | Total | ||||||||||||||||||||
| Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||
| Greg Halpern,CFO | 2019 | 288,000 | 0 | 0 | 0 | 0 | 288,000 | |||||||||||||||||||
| 2018 | 288,000 | 0 | 0 | 0 | 0 | 288,000 | ||||||||||||||||||||
| 2017 | 192,000 | 0 | 0 | 0 | 0 | 192,000 | ||||||||||||||||||||
| John Blaisure, CEO | 2019 | 162,000 | 0 | 0 | 0 | 0 | 162,000 | |||||||||||||||||||
| 2018 | 164,000 | 0 | 0 | 0 | 44,252 | 208,252 | ||||||||||||||||||||
| 2017 | 144,000 | 0 | 0 | 0 | 0 | 144,000 | ||||||||||||||||||||
Outstanding Equity Interests
The following table sets forth information concerning outstanding stock options for each named executive officer as of December 31, 2019.
Outstanding Option Awards at Fiscal Year-End
Number of Securities Underlying Unexercised Options | ||||||||||||||
| Option | ||||||||||||||
| Weighted | ||||||||||||||
| Average | Option | |||||||||||||
| Exercisable | Unexercisable | Exercise | Expiration | |||||||||||
| Name | Options | Options | Price | Date | ||||||||||
| Greg Halpern | 95,332,500 | — | $ | 0.0025 | July 5, 2020 | |||||||||
Other than as disclosed above, there were no stock options issued or exercised during the fiscal year ended December 31, 2018 by a named executive officer, and no awards were made to a named executive officer in the last completed fiscal year under any long-term incentive plan.
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 $18,000 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. On May 1, 2013, the Company amended its employment agreement with Greg Halpern to increase his salary to $24,000 per month.
| 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 agreed to pay Mr. Blaisure $8,000 per month as compensation for his services rendered as provided in the employment agreement. On August 25, 2012, the agreement was updated to increase the monthly compensation to $12,000 per month beginning September 1, 2012. On May 1, 2013, the Company further amended the agreement to increase Mr. Blaisure’s salary to $18,000 per month. 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 June 14, 2013, such expiration date was extended for two more years. On January 8, 2016, the company renewed Mr. Blaisure’s employment agreement for 5 years additional at the same terms; Mr. Blaisure agreed to forgo his options and the Company granted 12,000,000 rule 144 common shares to John Blaisure.
On December 31, 2012, 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 Executive Blaisure will each be decreased as his new bonuses to 6% of net profits, and Executive Halpern will each be decreased as his new bonus to 7% of net profits. Both 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 22, 2018 and by the officers and directors, individually and as a group. Except as otherwise indicated, all shares are owned directly.
On March 26, 2018, there were 3,715,287,050 issued and outstanding shares of common stock. Unless otherwise noted, each person identified below possesses sole voting and investment power with respect to the shares listed.
The information contained in this table is based upon information received from or on behalf of the named individuals or from publicly available information and filings by or on behalf of those persons with the SEC.
| Title of Class | Name and Address of Beneficial Owner(1) | Amount and Nature of Beneficial Owner | Percent of Class (2) | |||||||
| Preferred Stock | Greg Halpern | 10,000,000 | (2) | 66.8 | % | |||||
| Common Stock | Greg Halpern | 2,510,933 | 0.07 | % | ||||||
| Common Stock | John Blaisure | 28,300,960 | (3) | 0.8 | % | |||||
| Common Stock | Total Shares owned by Directors and officers | 40,811,893 | 67.67 | % | ||||||
| (1) | Unless otherwise indicated, the address for each stockholder listed in the above table is c/o Max Sound Corporation, 3525 Del Mar Heights Road, #802, San Diego, California, 92130. |
| (2) | Reference Event of Stock conversion from Common to Preferred Shares. |
| 19 |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION, AND DIRECTOR INDEPENDENCE
On October 2, 2017, the Company, in exchange for Greg Halpern's consideration issuing the Company a line of credit of $100,000 on July 6, 2017 and another line of credit of $200,000 on October 2, 2017
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
For the Company’s fiscal years ended December 31, 2019 and 2018, we were billed approximately $28,000, and $34,600, 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, 2019 and 2018.
Tax Fees
For the Company’s fiscal years ended December 31, 2019 and 2018, we were billed approximately $4,590, and $11,090, 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, 2019 and 2018.
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.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
All Exhibits in calendar year 2019 associated with all prior Form 10 filings are incorporated herein by reference.
3. Exhibits
| Exhibit Number | Description | |||||||
| 31.1 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | - Chief Executive Officer and Chief Financial Officer | ||||||
| 32.1 | Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: April 17, 2020
MAX SOUND CORPORATION
(Registrant)
By:
/s/ Greg Halpern
Greg Halpern
Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer)
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