UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K/A

(Amendment No. 1) 

 

(Mark One)

 

x  ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2016

 

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.)
     

8837 Villa La Jolla Drive, Unit 12109

La Jolla, California

 

 

92039

(Address of principal executive offices)   (Zip Code)
     
Registrant’s telephone number, including area code : 800-327-(MAXD)

 

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  x No  o

 

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  x No  o

 

 
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x   No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, ifany, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x   No  o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

 

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 o   Accelerated filer o
         

Non-accelerated filer

(Do not check if a smaller reporting company)

o   Smaller reporting company x

 

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

 

The Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of March 22, 2017 was approximately $8,191,900.

 

As of March 30, 2017, the registrant had 973,446,575 shares issued and outstanding.

 

Documents Incorporated by Reference :

None.

 

EXPLANATORY NOTE

 

Max Sound Corporation is filing this amendment (the Form 10-K/A) to our Annual Report on Form 10-K for the year ended December 31, 2016 (the Form 10-K), filed with the U.S. Securities and Exchange Commission on March 31, 2017, solely to include the internal control over financial reporting (ICFR) statement, which was inadvertently omitted during the filing process.

        

This Form 10-K/A does not reflect events occurring after the filing of the Form 10-K or modify or update any related or other disclosures.

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 
 

Dated:  April 16, 2017

 

By /s/ John Blaisure  

John Blaisure,

President and Chief Executive Officer

(Duly Authorized Officer and Principal Executive Officer)

 

By /s/ Greg Halpern  

Greg Halpern,

Chief Financial Officer

(Duly Authorized Officer and Principal Financial Officer)

 

Pursuant to the requirements of the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ John Blaisure   President, Chief Executive Officer and Director   April 16, 2017
John Blaisure   (Principal Executive Officer)    
         
/s/ Greg Halpern   Chief Financial Officer and Director   April 16, 2017
Greg Halpern   (Principal Financial Officer)    

 


 

 

TABLE OF CONTENTS

 

PART I    
ITEM 1. BUSINESS 1
ITEM 1A. RISK FACTORS  9
ITEM 1B. UNRESOLVED STAFF COMMENTS  9
ITEM 2. PROPERTIES 9
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. MINE SAFETY DISCLOSURES 11

 

PART II    
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 12
ITEM 6. SELECTED FINANCIAL DATA 22
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 18
ITEM 9A. CONTROLS AND PROCEDURES 18
     
PART III    
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 63
ITEM 11. EXECUTIVE COMPENSATION 65
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 67
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 67
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 68
     
PART IV    
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 68
     
SIGNATURES 69

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

 

This Annual Report on Form 10-Q (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

 

ITEM 1.          BUSINESS

 

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 represents 100% of our issued and outstanding common stock at the time of the transfer. As a result, Mr. Halpern became our sole shareholder. As part of the acquisition, and pursuant to the Stock Purchase Agreement, Michael Raleigh, our then President, CEO, CFO, and Chairman resigned from all the positions he held in the company, and Mr. Halpern was appointed as our President, CEO CFO and Chairman. The original business model was developed by Mr. Halpern in September of 2008 and began when he joined the Company on October 7, 2008. In October 2008, we became a development stage company focused on creating an Internet search engine and networking web site. 

 

From October 2008 until January 17, 2011, Mr. Halpern was our CEO, and during that time the Company was focused on developing their Internet search engine and networking web site. In January of 2010, the Company launched their Internet search engine and networking website.  In 2011, the Company decided to abandon its social networking website.  On May 11, 2010, the Company acquired the worldwide rights, title, and interest to all fields of use for MAX-D.

 

On January 17, 2011, Mr. Halpern resigned as the Company’s CEO and John Blaisure was appointed as CEO.  In February of 2011, the Company elected to change its business operations and focus primarily on developing and launching the MAX-D technology.  Our current website (www.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 owns the worldwide rights to all fields of use to MAX-D HD Audio, which was invented by Lloyd Trammell, a top sound designer and audio engineer who helped develop and sell the first working Surround Sound System to Hughes Aircraft.  Mr. Trammell, also developed MIDI for Korg.  We believe that MAX-D is to Audio what High Definition is to Video.  MAX-D works by converting all audio files to their highest possible acoustically perfect equivalent without increasing files size or bandwidth usage.

 

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 21 st , 2017. 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 continues.

  

On June 20, 2015, the Company entered into a license agreement with Santok LTD of United Kingdom (“Santok). The term of the agreement is three years. Santok agreed to pay the Company a royalty fee of $1.50 for each licensed product it integrates into its line of electronics. Santok has guaranteed to the Company a mi nimum total of 150,000 cumulative licensed product installation with a minimum total guaranteed value of $225,000 over the three years of the agreement. If the total royalty paid is less than the guaranteed value, Santok will pay the difference.

 

On July 13, 2016, the Company entered into a license agreement with Luna Mobile, Inc. of United States (“Luna). The term of the agreement is three years. Luna has agreed to pay the Company a royalty fee of $1.50 for each licensed product manufactured and sold.

 

On November 29, 2015, MAXD 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 MAXD will become co-owners of the pioneering portfolio. 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

 

 

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 MAXD-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 consumers 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, MAXD-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. 

 

The Company has a small and efficient staff of 5, including employees and sub-contractors, which has established business relationships with the leading companies in the Smartphone, Tablet, Chip, Music and Consumer Retail business. The Company is executing its “Go To Market” strategy and sales programs to solve the degraded compressed audio issues plaguing the audio currently being consumed. These companies dominate the multi-media and electronics technology arena providing audio delivery across all channels of the exploding smartphone tablet device phenomenon.

 

Qualcomm

 

The Company is currently working under its existing license with Qualcomm to develop a new chip 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 four-year-old license agreement is automatically renewable for one-year periods unless terminated by either party with 30 days prior written notice. The Company believes this feature will be ready for product demonstration in Q3.

 

Optimized Data Transmission (ODT)

 

In November 2016 MAXD announced that it entered into an agreement with Vedanti Systems Limited and Vedanti Licensing Limited (VLL), which provides that VLL and MAXD will become co-owners of the pioneering ODT portfolio. 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.

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:

 

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.

 

 

 

MAX-D Audio Markets:

 

MAX-D can be used in a variety of venues and applications that provide audio capability, as categorized below:

 

· MOBILE - Communication | Voice – Data | Entertainment
· ENTERTAINMENT - Music | Movies | Audiobooks | Streaming Content | Live Events
· MULTI-MEDIA - Computing | Gaming
· CONSUMER - Home Theater | Portable Audio Players | Live Concert Sound | Automotive

 

We intend to license the MAX-D technology to creators of film, music, broadcast, and gaming content and selling them the service of applying the MAX-D technology to their end product. 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 technology is ready for these markets now.  We also intend to license the technology to manufacturers of consumer electronics products such as portable mp3 players, TV’s, Set Top Boxes, Car Stereo, Home Theatre, Smartphones and Tablets.

 

MAX-D App:

   

In 2016, the Company continued to grow its Mobile App user base (with no dedicated marketing budget being employed). We currently have over 400,000 subscribers on the free version of our HD Audio App for MP3’s on Android andApple, which supports iPhones and iPads.

 

  

MAX-D Revenue Model:

 

The Company expects to derive its revenue through the licensing of its MAX-D technology.  The Company is negotiating the licensing of its HD Audio Technology onto hardware and software across the primary vertical markets in Entertainment, Multi-media and Mobile Communications technology. 

 

The Company is pursuing the following expansion strategies:

 

· Re-launch MAX-D audio on the Qualcomm Snapdragon DSP, which stands to make MAX-D audio available on potentially hundreds of millions of devices that can be licensed OEMs around the world.
· Grow the MAX-D HD Audio Apps user base and sell a paid version of the App.
· Deploy MAX-D APIs for use in streaming online Video/Audio and stand-alone Audio services.

 

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.

 

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 new 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.

 

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.

 

MAXD-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 solve problems and add value to audio components of several separate industries, including consumer electronics, motion picture, broadcasting, video game, recording, cell phone, internet, and VOIP applications.

   

Competition

 

The Company’s management believes there are no current competitors capable of delivering the high quality of audio products and services produced by the company. 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, and the words “HD Audio” are pending under Serial Number 85232456 for the following applications: Computer application software for mobile phones, namely, software for HD audio; Computer hardware and software systems for delivery of improved HD audio; Computer hardware for communicating audio, video and data between computers via a global computer network, wide-area computer networks, and peer-to-peer computer networks; Computer software for manipulating digital audio information for use in audio media applications; Computer software to control and improve computer and audio equipment sound quality; Digital materials, namely, CD's, DVD's, MP3's, streaming media, movies, videos, music, concerts, news, pre-recorded video, downloadable audio and video and high definition audio and video featuring improved HD audio; Digital media, namely, pre-recorded DVDs, downloadable audio and video recordings, and CDs featuring and promoting improved HD audio; Digital media, namely, pre-recorded video cassettes, digital video discs, digital versatile discs, downloadable audio and video recordings, DVDs, and high definition digital discs featuring improved HD audio; Digital media, namely, CD's, DVD's, MP3's, movies, videos, music, concerts, news, pre-recorded video, downloadable and streaming audio and video and high definition audio and video featuring improved HD audio; Downloadable MP3 files, MP3 recordings, on-line discussion boards, webcasts, webinars and podcasts featuring music, audio books in the field of entertainment and general subjects, and news broadcasts; Software to control and improve audio equipment sound quality; Sound recordings featuring improved HD audio.

 

The Company has a total of 32 patents issued or pending for its technologies, with 18 patents issued and 14 patents pending.

   

Research and Development

 

The Company is entering into the licensing phase of the MAX-D HD Audio Technologies. The Company is working with strategic partners who are now integrating or assisting with the development of the Company’s application on their respective platforms. The Company’s development team is concentrating on enhancing the existing MAX-D HD, and is also developing additional API interfaces to include 32 and 64 bit options. The MAX-D API can be deployed across all streaming platforms along with most audio/video web-based services including audio hardware such as speakers and audio receivers including car smart head units. In 2014, the Company completed testing for industry the MAX-D HD Audio boxes and the MAXD –D Accurate Voice. Significantly, in 2015 the Company achieved breakthroughs in the software development of MAX-D HD for Android OS, Windows OS, Apple OS, a universal MAX-D APIand development activities relating to the build-out for the Company’s App for Windows Linux and IOS, as well as the MAX-D’s 300 KB API.

 

Employees

 

As of December 31, 2016, we had 5 employees, of which all were full-time. Since that time, the Company had reduced its overhead and staff by 5 employees.

 

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:

 

· The marketing of the MAX-D Android and Windows APP for tablets and smartphones in addition to an APP that runs on the Apple OS into the direct consumer market. This includes the ability to upgrade to a paid version and stream content through the MAX-D Apps.
· MAX-D is aviable to Qualcomm OEM’s through the Hexagon program. We will seek adoption of the MAX-D HD Audio Technology by Qualcomm’s OEMs focusing on improving the Cellular voice call on mobile devices.
· Settle one or more of our ongoing litigations.

 

Long-Term Goals

 

· Increase Max Sound’s customer base substantially producing large consumer adoption and branding.
· Make a financial return on the investments of the last year, with increased sales and reduction of indirect costs, to become cash flow positive and then profitable in 2017.
· Increased adoption by industry leaders and differentiated as a deliverer of game-changing audio technology.
· Begin licensing our co-owned ODT Technology to the 1,200 largest current infringers of the technology.

 

Where You Can Find More Information

  

We are a publicly reporting company under the Exchange Act and are required to file periodic reports with the Securities and Exchange Commission.  The public may read and copy any materials we file with the Commission at the SEC's Public Reference Room at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m.  The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.  The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission and state the address of that site (http://www.sec.gov).  In addition, you can obtain all of the current filings at our Internet website at www.maxd.audio.

 

 

ITEM 1A.      RISK FACTORS

 

Not applicable for smaller reporting companies.

 

ITEM 1B.      UNRESOLVED STAFF COMMENTS

 

Not applicable for smaller reporting companies.

 

ITEM 2.         PROPERTIES.

 

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 is 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 8837 Villa La Jolla Drive, Unit 12109, La Jolla, California, 92039.

 

ITEM 3.         LEGAL PROCEEDINGS.

 

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.

 

ITEM 4.         MINE SAFETY DISCLOSURES.

 

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
2016                
First quarter   $ .05     $ .0026  
Second quarter   $ .01     $ .0032  
Third quarter   $ .03     $ .0030  
Fourth quarter   $ .03     $ .0104  
                 
2015                
First quarter   $ .07     $ .02  
Second quarter   $ .10     $ .03  
Third quarter   $ .04     $ .02  
Fourth quarter   $ .05     $ .01  

 

Holders

        

As of December 31, 2016, in accordance with our transfer agent records, we had 2492 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

 

Note Conversions

 

See NOTE 3 - DEBT

 

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 exc hange 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 21 st , 2017.

  

On June 20, 2015, the Company entered into a license agreement with Santok LTD of United Kingdom (“Santok). The term of the agreement is three years. Santok agreed to pay the Company a royalty fee of $1.50 for each licensed product it integrates into its line of electronics. Santok has guaranteed to the Company a minimum total of 150,000 cumulative licensed product installations with a minimum total guaranteed value of $225,000 over the three years of the agreement. If the total royalty paid is less than the guaranteed value, Santok will pay the difference.

 

On July 13, 2015, the Company entered into a license agreement with Luna Mobile, Inc. of United States (“Luna). The term of the agreement is three years. Luna has agreed to pay the Company a royalty fee of $1.50 for each licensed product manufactured and sold.

 

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. 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.

 

The Company has entered into agreements with a few technology companies’ to use our HD Audio solution, and is in negotiations with several other multi-media companies that we believe will utilize our HD Audio solution in the future.

 

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 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 2017.

 

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, 2016 and for the year ended December 31, 2015.

 

General and Administrative Expenses: Our general and administrative expenses were $2,570,816 for the year ended December 31, 2016 and $3,014,325 for the year ended December 31, 2015, representing a decrease of 443,509, or approximately 15%, as a result of decrease in the general operation of the Company included added personnel, product development and marketing of our Max Sound Technology.

 

Consulting Fees:  Our consulting fees were $191,332 for the year ended December 31, 2016 and $437,113 for the year ended December 31, 2015, representing a decrease of $245,781, or approximately 56%. The Company has decreased the use of consultants to assist the Company.

 

Professional Fees: Our professional fees were $410,621 for the year ended December 31, 2016 and $1,091,709 for the year ended December 31, 2015, representing a decrease of $681,088 or approximately 62%, as a result of ongoing litigation. This decrease is in part due to the use of United States’ based contingent attorneys vs the non-contingent attorneys we were using overseas prior.

 

Compensation: Our compensation expenses were $782,000 for the year ended December 31, 2016 and $946,596 for the year ended December 31, 2015, representing a decrease of $164,596, or approximately 17%, as a result of our expensing of monthly compensation to our management and employees.

 

Net Loss: Our net loss for the year ended December 31, 2016 was $11,187,248, compared to net loss of $26,158,686 for the year ended December 31, 2015. 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 a decrease in the change in the fair value of embedded derivative liability associated with the convertible debt and the impairment of the intangible asset.

 

 

Liquidity and Capital Resources

 

Revenues for the year ended December 31, 2016 and 2015, were $0 and 0, respectively. We have an accumulated deficit of $74,482,280 for the period from December 9, 2005 (inception) to December 31, 2016, and have negative cash flow from operations of $1,838,251 for the year ended December 31, 2016.  

 

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, 2015, our primary source of funds has been the proceeds of private offerings of our common stock, private financing, and loans from stockholders.  Our need to obtain capital from outside investors is expected to continue until we are able to achieve profitable operations, if ever. There is no assurance that management will be successful in fulfilling all or any elements of its plans.  

 

Below is a summary of our capital-raising activities for the quarter ended December 31, 2016:

 

On October 3, 2016, the Company entered into a convertible note up to$171,665. The note matures on October 3, 2017 and bears an interest charge of 8%. The conversion price equals the “Variable Conversion Price”, which is 65% of the two lowest trading prices for the common stock during the trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $150,000 of proceeds on October 4, 2016.

 

On October 10, 2016, the Company entered into a convertible note up to $77,000. The note matures on July 10, 2017 and bears an interest charge of 8%. The conversion price equals the “Variable Conversion Price”, which is 40% of the lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $75,000 on October11, 2016.

 

On October 13, 2016, the Company entered into an agreement whereby the Company will issue up to $120,000. The note matures on October 13, 2017 and bears an interest charge of 8%. The conversion price equals the “Variable Conversion Price”, which is 65% of the lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $105,400 of proceeds on October 17, 2016.

 

On November 22, 2016, the Company entered into an agreement whereby the Company will issue up to $120,000. The note matures on November 22, 2017 and bears an interest charge of 8%. The conversion price equals the “Variable Conversion Price”, which is 65% of the lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $105,400 of proceeds on November 29, 2016.

 

On December 2, 2016, the Company entered into an agreement whereby the Company will issue up to $147,000. The note matures on December 2, 2017 and bears an interest charge of 8%. The conversion price equals the “Variable Conversion Price”, which is 65% of the lowest trading prices for the common stock during the ten trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $126,000 of proceeds on December 6, 2016.

 

On December 5, 2016, the Company entered into a convertible note up to $250,000. The Company received $75,000 of proceeds. The note matures on December 5, 2017 and bears an interest charge of 8%. The conversion price equals the “Variable Conversion Price”, which is 65% of the lowest trading prices for the common stock during the ten (10) trading day period including the day the conversion notice is received. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $75,000 of proceeds on December 9, 2016.

 

During the years ended December 31, 2016 and December 31, 2015, the Company issued convertible notes totaling $3,392,813 and $5,390,789, respectively.

 

The Convertible notes issued for year ended December 31, 2016 and year ended December 31, 2015 consist of the following terms:

 

        Year ended   Year ended
        December 31, 2016   December 31, 2015
        Amount of   Amount of
          Principal Raised       Principal Raised  
Interest Rate         0% - 10%       0% - 10%  
Default interest rate         14% - 22%       14% - 22%  
Maturity         November 4, 2015 - March 10, 2018       February 26, 2015 - November 23, 2017  
                     
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.     3,412,400       2,104,000  
Conversion terms 2   65% 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.     624,087       420,410  
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.     —         111,111  
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       787,778  
Conversion terms 5   60% of the “Market Price”, which is the lowest trading prices for the common stock during the fiften  (15) trading day period prior to the conversion.     —         35,000  
Conversion terms 6   Conversion at $0.10 per share     —         135,200  
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.     127,000       282,000  
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.     536,669       390,778  
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.     79,810       150,250  
Conversion terms 10   65% 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.     —         218,325  
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.     52,632       —    
                     
    Convertible Debt     5,597,598       4,634,852  
    Less: Debt Discount     (1,227,865 )     (2,658,213 )
    Convertible Debt - net   $ 4,369,733     $ 1,976,639  

 

 

Unregistered Sales of Equity Securities and Use of Proceeds.

 

Below is a summary of our capital-raising activities for the three months ended December 31, 2015 and underlying terms:

 

On November 2, 2016, the Company entered into a conversion agreement with Iliad Research and Trading, LP relating to a convertible promissory note dated April 6, 2016 with the original principal amount of $171,665 for 2,675,585 shares based on a conversion price of $0.007 per share (See Note 6).

 

On November 21, 2016, the Company entered into a conversion agreement with Iliad Research and Trading, LP relating to a convertible promissory note dated April 6, 2016 with the original principal amount of $171,665 for 2,862,049 shares based on a conversion price of $0.007 per share (See Note 6).

 

On December 15, 2016, the Company entered into a conversion agreement with Iliad Research and Trading, LP relating to a convertible promissory note dated April 6, 2016 with the original principal amount of $171,665 for 1,965,988 shares based on a conversion price of $0.01 per share (See Note 6).

 

All 10 Form exhibits previously exhibited associated with all Company 10 Form filings are incorporated herein.

 

Loans and Advances

 

We have entered into three Credit Line Agreements with Greg Halpern.  The first two were for $100,000 each and matured and expired in 2011.  The third Credit Line Agreement issued by Mr. Halpern in March 2010 is for an additional $500,000 and matured and expired in 2012.  All three agreements accrue interest at the prime rate as of the date of issuance.  The prime rate of interest is the rate of interest that major banks charge their most creditworthy customers.  For the purposes of these agreements, we shall determine the prime rate by using the prime rate reported by the Wall Street Journal on the date funds are extended to the Company.  Based on the prime rate as of the date of issuance, the prime rate shall be 3.25%. On September 26, 2013, we entered into a Credit Line Agreement with Mr. Halpern for $1,000,000 that will mature and expire on or before the second anniversary of September 26, 2015.  Interest will accrue on each advance at an annual rate of 4%. As of December 31, 2013, the Company owed $0 in principal and $0 in accrued interest related to these loans and lines of credit.  We believe that the $1,000,000 line of credit issued will not be sufficient to cover the additional expense arising from maintenance of our regulatory filings with the SEC, and the marketing of our technology over the next twelve months, thus the Company will continue to pursue additional financing and/or additional funding in 2016 to continue marketing the Max Sound HD Audio Technology aggressively to Multi-Media Industry Users of Audio and Audio with Video products. 

 

In 2015, the Company has received from Mr. Halpern additional net advances on the established lines of credit in the amount of $264,000 of which it has repaid $536,000.  As of December 31, 2015, the balance including accrued interest on the line of credit is $473. During the year ended December 31, 2016 the line of credit balance of $473 was repaid and the remaining balance is $0.  This further demonstrates our Chairman’s ongoing commitment to continue financing the Company’s needs.  While the Company expects to have ongoing needs for additional financing, the amount of those needs are not clearly established as the Company moves forward.

 

During the year ended December 31, 2015, the principal stockholder was repaid $536,000.  As of December 31, 2015, the line of credit balance including accrued interest totaled $473.

 

On September 17, 2015, the Company received $170,000 from a related party. Pursuant to the terms of the note, the note is bearing an original issuance discount in the amount of $10,000 and is due on or before October 31, 2015. As of December 31, 2015, the balance of the note is $0, and was fully repaid.

 

In the event that we are unable to obtain additional financing and/or funding or Mr. Halpern either fails to extend us more financing, declines to loan additional cash, declines to fund the line of credit, or declines to defer his salary payments, we will no longer be able to continue to operate and will have to cease operations unless we begin to generate sufficient revenue to cover our costs.

 

Recent Accounting Pronouncements

  

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 years months ended December 31, 2016and 2015, respectively.

 

Stock-Based Compensation:

In December 2004, the FASB issued FASB Accounting Standards Codification No. 718, Compensation – Stock Compensation .  Under FASB Accounting Standards Codification No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans.  As such, compensation cost is measured on the date of grant at their fair value.  Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.  The Company applies this statement prospectively.

 

Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting Standards Codification No. 718.  FASB Accounting Standards Codification No. 505,   Equity Based Payments to Non-Employees  defines the measurement date and recognition period for such instruments.  In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification.

 

Derivative Financial Instruments

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model.  In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement.  If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

 

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.  In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.  

 

Impairment of Long-Lived Assets

The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, Accounting for the Impairment or Disposal of Long-Lived Assets."  ASC Topic 360-10-05 requires that long-lived assets, such as technology rights, be reviewed for impairment annually, or whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate.  The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including the eventual disposition.  If the future net cash flows are less than the carrying value of an asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value or disposable value.  For the year ended December 31, 2015, the Company completed an impairment analysis on its' long-lived assets, their technology rights, and determined that no impairment was necessary.

 

ASC 350 prescribes a two-step process for impairment testing of goodwill and intangibles with indefinite lives, which is performed annually, as well as when an event triggering impairment may have occurred. ASC 350 also allows preparers to qualitatively assess goodwill impairment through a screening process which would permit companies to forgo Step 1 of their annual goodwill impairment process. This qualitative screening process will hereinafter be referred to as "Step 0". Goodwill and intangible assets deemed to have an indefinite life are tested for impairment on an annual basis, or earlier when events or changes in circumstances suggest the carrying amount may not be fully recoverable. The Company has elected to perform its annual assessment on $16,796,237 of intangible assets. For the year ended December 31, 2016 and December 31, 2015, $1,008,036 and $15,703,616, respectively impairment loss has been recorded due to a change in business model, this being significantly impacted by the impairment of Liquid Spins assets, as digital music sales are no longer relevant in today’s market. For the year ended December 31, 2016, the intangible asset is fully impaired and the remaining balance is $0.

 

The Company believes that the accounting estimate related to asset impairment is a "critical accounting estimate" because the impairment methodology is highly susceptible to change from period to period, because it requires management to make assumptions about future cash flows, and because the impact of recognizing impairment could have a significant effect on operations. Management's assumptions about future cash flows require significant judgment because actual business operations of marketing the technology rights is in its infancy stages and managements expects that their future operating levels to fluctuate. The analysis included assumptions that are based on annual business plans and other forecasted results which are used to reflect market-based estimates of the risks associated with the projected cash flows, based on the best information available as of the date of the impairment test. There can be no assurance that the estimates and assumptions used in the impairment tests will prove to be accurate predictions of the future.  If the future adversely differs from management's best estimate of key economic assumptions, and if associated future cash flows materially decrease, the Company may be required to record impairment charges related to its indefinite life intangible asset. 

 

Prior to February 2011, the Company's business operations were related to the development and launching of a social networking website.  However, since February 2011, our business focus has been on the marketing of our Max Sound HD Audio Technology.  Since 2011, was our initial year of marketing our technology, management considers past operational levels to be inconsistent with future operations mainly due to the shift in business focus.  In our impairment testing, the Company made assumptions towards the income and expenses expected in the future including, but not limited to, determining the actual expenses incurred in the current year that were attributable to the new business focus in order to develop an annual cost benchmark, trends in the marketplace, feedback from current and past marketing activities, and assessments upon the useful life of the technology rights.

 

The Company's primary focus over the next three to five years will be centered on the marketing and implementation of their technology in order to take advantage of the current trends in the marketplace for users of their technology.  In particular, the Company expects that expenses will increase significantly from year to year over the next five years, at which time in year six and beyond the year-to-year change will be a minimal increase.  In addition, the Company expects minimal revenue over the next two years, while in year three to six the Company expects to realize significant year to year increases in revenue, at which time in year seven and beyond the year to year change will be a minimal increase.

 

As part of the impairment test, the Company reviewed its' initial useful life analysis, in reference to their technology, and updated this analysis with factors that existed at the time of the impairment testing and determined that nothing had occurred in the marketplace that would change their initial determination of the useful life of their technology. The analysis included researching known technological advances in the marketplace and determining if those advances which are similar to the Company's products would limit the useful life of the asset. The Company believes that the technological advances in the marketplace are geared to developing different playback devices and the implementation of technology that is similar to the Company's technology. Thus, the Company concluded that their technology rights continue to have an indefinite useful life. However, it is understood that technological advancements could happen in the future that would limit the useful life of their technology.  If a technology was created in the future that would limit the useful life of the technology, the Company would be required to update their impairment testing to include a useful life determination of the technology and may be required to record impairment charges at some time in the future.

 

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities”.

  

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. 

 

ITEM 8.                      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  

MAX SOUND CORPORATION

 

PAGE F - 2 REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
     
PAGE F - 3 BALANCE SHEETS AS OF DECEMBER 31, 2016and 2015.
     
PAGE F - 4 STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
     
PAGE F - 5 STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015.
     
PAGE F - 6 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015.
     
PAGES  F - 7 NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Stockholders

 

Max Sound Corporation

 

We have audited the accompanying balance sheet of Max Sound Corporation (the "Company”) as of December 31, 2016 and 2015 and the related statements of operations, changes in stockholders’ deficit and cash flows for the years ended December 31, 2016 and 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company was not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2015, and the results of its operations, changes in stockholders’ deficit and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, 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, LLP
   

Newport Beach, California

 

March 31, 2017

 

 

 
 

 

Max Sound Corporation

Balance Sheet

 

ASSETS    
         
      December 31, 2016       December 31, 2015  
                 
Current Assets                
Cash   $ 185,026     $ 211,064  
Prepaid expenses     62,230       82,681  
Debt offering costs - net     42,499       36,699  
     Total  Current Assets     289,755       330,444  
                 
Property and equipment, net     61,423       130,961  
                 
Other Assets                
Security deposit     413       413  
Intangible assets     —         1,092,621  
     Total  Other Assets     413       1,093,034  
                 
                 
Total  Assets   $ 351,591     $ 1,554,439  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
                 
Current Liabilities                
Accounts payable   $ 238,594     $ 338,978  
Royalty payable     —         1,054,096  
Accrued expenses     453,387       257,457  
Accrued expenses - related party     —         473  
Demand Note     20,000       —    
Derivative liability     5,906,940       3,684,184  
Convertible note payable, net of debt discount of $1,227,865  and $2,658,213 respectively     4,369,733       1,976,639  
Total Current Liabilities     10,988,654       7,311,827  
                 
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,                
5,000,000 and 0 shares issued and outstanding, respectively     50       50  
Common stock,  $0.00001 par value; 1,650,000,000 shares authorized,                
935,642,114 and 422,310,693 shares issued and outstanding, respectively     9,355       4,222  
Additional paid-in capital     64,355,387       58,052,946  
Treasury stock     (519,575 )     (519,575 )
Accumulated deficit     (74,482,280 )     (63,295,031 )
Total Stockholders' Deficit     (10,637,063 )     (5,757,388 )
                 
Total Liabilities and Stockholders' Deficit   $ 351,591     $ 1,554,439  

 

See Accompanying notes to financial Statements

 

 
 

 

Max Sound Corporation

Statement of Operations

 

    For the Years Ended,
    December 31, 2016   December 31, 2015
         
Revenue   $ —       $ —    
                 
                 
Operating Expenses                
General and administrative     2,570,816       3,014,325  
Consulting     191,332       437,113  
Professional fees     410,621       1,091,709  
Website development     30,400       52,000  
Compensation     782,000       946,596  
Total Operating Expenses     3,985,169       5,541,743  
                 
Loss from Operations     (3,985,169 )     (5,541,743 )
                 
Other Income / (Expense)                
Other income     35,220       177,011  
Loss on inventory write off     —         (38,071 )
Impairment of intangible asset     (1,008,036 )     (15,703,617 )
Interest expense     (350,507 )     (515,803 )
Derivative Expense     (3,833,224 )     (2,665,988 )
Amortization of debt offering costs     (93,449 )     (111,794 )
Gain/(Loss) on debt settlement     1,298,811       (309,422 )
Amortization of debt discount     (4,743,820 )     (4,384,709 )
Change in fair value of embedded derivative liability     1,492,926       2,935,450  
Total Other Income / (Expense)     (7,202,079 )     (20,616,943 )
                 
Provision for Income  Taxes     —         —    
                 
Net Loss   $ (11,187,248 )   $ (26,158,686 )
                 
Net Loss Per Share  - Basic and Diluted   $ (0.01 )   $ (0.08 )
                 
Weighted average number of shares outstanding                
  during the year Basic and Diluted     784,804,815       346,934,763  

 

See Accompanying notes to financial Statements

 

 
 

 

Max Sound Corporation

Statement of Changes in Stockholder’s Equity

Years Ended December 31, 2016 and 2015

 

    Series A                                
    Preferred Stock   Preferred stock   Common stock   Additional           Total
                            paid-in   Accumulated   Treasury   Stockholder's
    Shares   Amount   Shares   Amount   Shares   Amount   capital   Deficit   Stock   Equity(Deficit)
                                         
                                         
Balance, December 31, 2014     —         —         —         —         373,442,040       3,733       50,209,989       (37,136,345 )     (519,575 )     12,557,802  
                                                                                 
Convertible debt, accrued interest and penalty conversion into common stock     —         —         —         —         154,673,471       1,547       2,917,087       —         —         2,918,634  
                                                                                 
Common stock issued for services ($0.012 - $0.07/sh)     —         —         —         —         9,195,182       92       294,456       —         —         294,548  
                                                                                 
Return of common shares     —         —         —         —         (120,000,000 )     (1,200 )     —         —         —         (1,200 )
                                                                                 
Preferred stock issued in exchange of common stock     5,000,000       50       —         —         —         —         1,150       —         —         1,200  
                                                                                 
Reclassification of derivative liability associated with convertible debt     —         —         —         —         —         —         4,453,863       —         —         4,453,863  
                                                                                 
Exchange of line of credit into common stock     —         —         —         —         5,000,000       50       149,950       —         —         150,000  
                                                                                 
Forgiveness of debt     —         —         —         —         —         —         26,451       —         —         26,451  
                                                                                 
Net loss for the year ended December 31, 2015     —         —         —         —         —         —         —         (26,158,687 )     —         (26,158,687 )
                                                                                 
Balance, December 31, 2015     5,000,000     $ 50       —       $ —         422,310,693     $ 4,222     $ 58,052,946     $ (63,295,032 )   $ (519,575 )   $ (5,757,389 )
                                                                                 
Convertible debt, accrued interest and penalty conversion into common stock     —         —         —         —         420,556,227       4,206       1,185,826       —         —         1,190,032  
                                                                                 
Common stock issued for services ($0.009/sh) - related party     —         —         —         —         12,000,000       120       105,480       —         —         105,600  
                                                                                 
Common stock issued in exchange for accounts payable ($0.01/sh)     —         —         —         —         775,195       8       9,992       —         —         10,000  
                                                                                 
Common stock issued in exchange for settlement ($0.02/sh)     —         —         —         —         80,000,000       800       1,599,200       —         —         1,600,000  
                                                                                 
Reclassification of derivative liability associated with convertible debt     —         —         —         —         —         —         3,401,943       —         —         3,401,943  
                                                                                 
Net loss for the year ended December 31, 2016     —         —         —         —         —         —         —         (11,187,248 )     —         (11,187,248 )
                                                                                 
Balance,  December 31, 2016     5,000,000     $ 50       —       $ —         935,642,115     $ 9,355     $ 64,355,387     $ (74,482,280 )   $ (519,575 )   $ (10,637,063 )

 

See Accompanying notes to financial Statements

 

 
 

 

Max Sound Corporation

Statement of Cash Flows

 

    For the Years Ended,
    December 31, 2016   December 31, 2015
Cash Flows From Operating Activities:                
Net Loss   $ (11,187,248 )   $ (26,158,686 )
  Adjustments to reconcile net loss to net cash used in operations                
   Depreciation/Amortization     76,726       79,064  
   Stock and stock options issued for services     105,600       343,862  
   Stock issued in exchange of a patent     1,600,000          
   Warrants issued for services     91,531       —    
   Loss on debt conversion settled through the issuance of stock     —         (75,755 )
   Amortization of intangible assets     84,585       1,054,360  
   Amortization of debt offering costs     93,449       113,632  
   Amortization of debt discount     4,743,820       4,394,709  
   Impairment of intangible asset     1,008,036       15,703,617  
   Change in fair value of derivative liability     (1,492,926 )     (2,935,450 )
   Loss on debt extinguishment     (1,648,966 )     (101,201 )
   Derivative Expense     3,833,224       2,665,988  
  Changes in operating assets and liabilities:                
      (Increase)/Decrease in inventory     —         38,071  
      (Increase)/Decrease in prepaid expenses     20,451       (14,474 )
      Increase/(Decrease) accounts payable     455,289       944,240  
      Increase/(Decrease) in accrued expenses     378,178       265,565  
Net Cash Used In Operating Activities     (1,838,251 )     (3,682,458 )
                 
Cash Flows From Investing Activities:                
  Purchase of property equipment     (7,186 )     (21,130 )
Net Cash Used In Investing Activities     (7,186 )     (21,130 )
                 
Cash Flows From Financing Activities:                
  Proceeds from stockholder loans / lines of credit     —         268,245  
  Repayment from stockholder loans / lines of credit     (473 )     (536,000 )
  Repayment of convertible note     (1,287,276 )     (968,315 )
  Proceeds from issuance of convertible note, less offering costs and OID costs paid     3,187,148       5,114,975  
  Proceeds from note payable     —         170,000  
  Repayment of note payable     (80,000 )     (170,000 )
Net Cash Provided by Financing Activities     1,819,399       3,878,905  
                 
Net Decrease in Cash     (26,038 )     175,317  
                 
Cash at Beginning of Year     211,064       35,747  
                 
Cash at End of Year   $ 185,026     $ 211,064  
                 
Supplemental disclosure of cash flow information:                
                 
Cash paid for interest   $ —       $ —    
Cash paid for taxes   $ —       $ —    
                 
Supplemental disclosure of non-cash investing and financing activities:                
Shares issued in conversion of convertible debt and accrued interest   $ 1,190,029     $ 2,918,633  
Conversion of common to preferred stock   $ —       $ 1,200  
Original debt discounts against derivative liabilities   $ —       $ 1,782,232  
Original issuance discounts   $ —       $ 115,326  
Settlement of accounts payable through issuance of common stock   $ 10,000     $ —    
Reclass of convertible debt to demand note   $ 100,000     $ —    

 

See Accompanying notes to financial Statements

 

 
 

 

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 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 has 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, which remain active and are paid current with OTC Markets through the end of 2016, may re-apply at any time after a price increase to meet all of the OTCQB Eligibility Standards to be moved back to the higher OTCQB marketplace. 

 

(B) Use of Estimates

 

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.

 

(C) Cash and Cash Equivalents

 

For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. As of December 31, 2016 and December 31, 2015, the Company had no cash equivalents.

 

(D) Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is provided using the straight-line method over the estimated useful life of three to five years.

 

(E) Research and Development

 

The Company has adopted the provisions of FASB Accounting Standards Codification No. 350,  Intangibles - Goodwill & Other  (“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) Concentration of Credit Risk

 

The Company at times has cash in banks in excess of FDIC insurance limits. The Company had $0 in excess of FDIC insurance limits as of December 31, 2016 and 2015.

  

(G) Revenue Recognition

 

The Company recognized revenue on arrangements in accordance with FASB Codification Topic 605, “Revenue Recognition” (“ASC Topic 605”). Under ASC Topic 605, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. The Company has not yet commenced revenue generating activities.

  

  (H) Identifiable Intangible Assets

 

ASC 350 prescribes a two-step process for impairment testing of goodwill and intangibles with indefinite lives, which is performed annually, as well as when an event triggering impairment may have occurred. ASC 350 also allows preparers to qualitatively assess goodwill impairment through a screening process, which would permit companies to forgo Step 1 of their annual goodwill impairment process. This qualitative screening process will hereinafter be referred to as "Step 0". Goodwill and intangible assets deemed to have an indefinite life are tested for impairment on an annual basis, or earlier when events or changes in circumstances suggest the carrying amount may not be fully recoverable. The Company has elected to perform its annual assessment on  it’s of intangible assets. For the year ended December 31, 2016 the balance of the intangible assets is $0. For the year ended December 31, 2016 and 2015, $1,008,035 and $15,703,616, respectively, impairment loss has been recorded due to a change in business model, this being significantly impacted by the impairment of Liquid Spins assets, as digital music sales are no longer relevant in today’s market for the following assets:

 

 
 

 

    Cost, net   Impairment Loss   Amortization for year ended December 31, 2016   Balance as of December 31, 2016
Trademarks   $ 7,500,000     $ (7,434,782 )     (65,219 )     —    
Distribution rights     7,372,561       (7,372,561 )     —         —    
Licensing Rights     1,923,401       (1,904,037 )     (19,364 )     —    
Other     275       (272 )     (2 )     —    
    $ 16,796,237       (16,711,652 )     (84,585 )     —    

  

As of December 31, 2016 and December 31, 2015, $0 and $869,581, respectively, of costs related to registering a trademark and acquiring technology rights [audio technology known as Max Audio Technology (MAXD)] have been capitalized. It has been determined that the trademark and technology rights have an indefinite useful life and are not subject to amortization. However, the trademark and technology rights will be reviewed for impairment annually or more frequently if impairment indicators arise. As a result of this review, the Company recorded an impairment loss of $804,363 and $6,630,419 that is recorded as impairment loss on intangible asset for the year ended December 31, 2016 and 2015, respectively.

 

On November 15, 2012, the Company acquired the rights to assets and audio technology known as Liquid Spins, Inc. through a share exchange, whereby the Company issued 24,752,475 shares of common stock for their rights in Liquid Spins technology. As of December 31, 2016 and December 31, 2015, $0 and $0, respectively, of costs related to this intangible remain capitalized. The technology was placed in service on August 23, 2013 with a useful life of 10 years. During 2015, the Company reviewed the intangible asset for impairment and determined that certain items had been impaired due to obsolescence. During 2015 fiscal year, a $7,372,562 impairment loss was recorded against certain Distribution Rights acquired during 2012 fiscal year.

  

On May 19, 2014, the Company entered into an agreement with VSL Communications to acquire the rights to intellectual property titled “Optimized Data Transmission System and Method” (“ODT”) through a cash payment of $500,000 in addition to a share issuance, whereby the Company issued 10,000,000 shares of common stock, valued at $1,000,000 ($0.10/share). In exchange, the Company received a perpetual, exclusive, worldwide license to the ODT technology for all fields of use. In addition, the Company issued 1,000,000 shares of common stock, valued at $120,000 ($0.12/share), as compensation for the introduction and identification of a seller based on the agreement dated April 10, 2014. As of December 31, 2016 and December 31, 2015, $0 and $187,830, respectively, of costs related to the “ODT” intangible asset remains capitalized. The technology will be reviewed for impairment annually or more frequently if impairment indicators arise. As a result of this review, the Company recorded an impairment loss of $173,412 for the year ended December 31, 2016 and $1,432,170 that is recorded as impairment loss on intangible asset for the year ended December 31, 2015 for total impairment loss of $1,620,000. In connection with this agreement, the Company is obligated to make an additional five (5) payments totaling $1,000,000 to be made every 30 days, with the thirty (30) day periods to be waived if fund raising occurs on an anticipated faster time line. The payments of additional cash are contingent on the following funding criteria:

 

  The Company shall pay set increments of cash based on a percentage of gross funds received through funds raised.
  The Company shall pay 20% of such monies as soon as they are received.

 

In connection with the acquisition agreements entered on May 19, 2014 to acquire “Optimized Data Transmission System and Method” (“ODT”), we recorded a liability and expensed $1,096,501 royalty cost for funds raised through December 31, 2016  

 

The Company shall act as the exclusive agent to facilitate and negotiate any opportunities on behalf of ODT to Companies, Organizations and other qualified entities. Upon any closing, ODT shall receive 50% of gross dollars and the Company shall receive the other 50% at the time of a completion of any transaction opportunity, including legal settlements after subtracting applicable contingent legal fees. The term of the agreement is for the life of the acquired intellectual property. As a result of this review, the Company recorded an impairment loss of $6,630,419 on intangible asset during the year ended December 31, 2015

 

On August 11, 2014, the Company and VSL simultaneously filed trade secret and patent infringement actions against Google, Inc. and its subsidiaries, YouTube, LLC and On2 Technologies, Inc., relating to proprietary and patented technology owned by Vedanti Systems Limited, a subsidiary of VSL.  The patent infringement complaint was brought in U.S. District Court for the District of Delaware and the trade secret suit was filed in Superior Court of California, County of Santa Clara.  The lawsuits contend that, in 2010, while Google was in discussions with Vedanti about the possibility of acquiring Vedanti's patented digital video streaming techniques and other proprietary methods, Google gained access to and received technical guidance regarding Vedanti’s proprietary codec, a computer program capable of encoding and decoding a digital data stream or signal.  The complaints allege that soon after the two companies initiated negotiations, Google began implementing Vedanti's technology into its own WebM/VP8 video codec without informing Vedanti, and without compensating Vedanti for its use.  Plaintiffs are seeking a permanent injunction against Google, compensatory damages, as well as treble damages. As exclusive agent to VSL to enforce all rights with respect to the subject technology, the Company has hired Grant &Eisenhofer, PA to represent the Company and VSL in the suits. On November 24, 2015 the District Court entered an order granting the Google defendants’ motion to dismiss. The Company timely filed its notice of appeal with the appeals court on February 22, 2016. The two issues on appeal are, (i) whether the district court erred by granting the Google defendants’ motion to dismiss the Company’s lawsuit on the ground that the Company lacked standing to sue the Google defendants for infringement of the 339 patent, and (ii) whether the district court erred by denying the Company’s motion for leave to amend the complaint and add as a party VSL, a former licensee of the 339 patent to cure any defect in prudential standing to the extent VSL is a necessary party. These cases will be vigorously prosecuted and the Company believes it has a good likelihood of success. 

 

 
 

 

On May 22, 2014, the Company entered into a five (5) year agreement to acquire the rights to intellectual property titled “Engineered Architecture” (“EA Technology”) through a cash payment of $50,000 in addition to a share issuance, whereby the Company issued 4,000,000 shares of common stock, valued at $394,000 ($0.0985/share). In exchange, the Company received for the term of the agreement, the exclusive worldwide right to use the EA Technology. As of December 31, 2016 and December 31, 2015, $0 and $29,901, respectively of costs related to this intangible remains capitalized. The technology will be reviewed for impairment annually or more frequently if impairment indicators arise. As a result of this review, the Company recorded an impairment loss of $$29,901 and $268,223 on intangible asset for the year ended December 31, 2016 and 2015, respectively.

 

In connection with this agreement, the Company is obligated to make an additional five (5) payments totaling $500,000 to be made every 30 days, with the thirty (30) day periods to be waived if fund raising occurs on an anticipated faster time line. The payments of additional cash are contingent on the following funding criteria:

 

  The Company shall pay set increments of cash based on a percentage of gross funds received through funds raised.
  The Company shall pay 10% of such monies as soon as they are received.

 

In connection with funds raised through December 31, 2016, the Company recorded a liability and expensed $548,255 as royalty cost, related to the 10% fee, as of December 31, 2016, $40,000 has been paid. The remaining liability as of December 31, 2016, is $528,423 and is included in accounts payable. During the year ended December 31, 2016 the Company write off $1,615,081 of accounts payable related to royalty payable as other income.

 

What the Company had been accruing for VSL and Attia litigation's has been released as the Attia's terminated their agreement and have since signed a new agreement which eliminates all past amounts due, and the VSL agreement automatically terminated on 12.20.16 when VSL was dissolved by its owner therefore releasing any past amounts due.

 

The Company shall act as the exclusive agent to facilitate and negotiate any opportunities on behalf of EA Technology to Companies, Organizations and other qualified entities. Upon any closing, EA shall receive 50% of gross dollars and the Company shall receive the other 50% at the time of a completion of any transaction opportunity, including legal settlements after subtracting applicable contingent legal fees. In the event the Company sublicenses EA to other entities, profits shall be split evenly 50%/50%.

  

(I) Impairment of Long-Lived Assets and Intangible Assets with Definite Life

 

The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets, such as technology rights, be reviewed for impairment annually, or whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. The Company recorded $1,008,035and $15,703,617 in impairment of the intangible asset for the year ended December 31, 2016 and the year ended December 31, 2015, respectively.

 

(J) 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, 2016 and 2015 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:

 

    December 31, 2016   December 31, 2015
         
Stock Warrants (Exercise price - $0.25 - $.40/share)     19,970,690       —    
Stock Options (Exercise price - $0.10 - $.50/share)     2,866,652       —    
Convertible Debt (Exercise price - $0.0017 - $.0126/share)     785,426,924       488,982,700  
Series A Convertible Preferred Shares ($0.0/share)     125,000,000       125,000,000  
                 
Total     933,264,266       613,982,700  

 

 

 
 

  

(K) Income Taxes

 

The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”) Income Taxes. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

The net deferred tax liability in the accompanying balance sheets includes the following amounts of deferred tax assets and liabilities:

 

    2016   2015
         
Deferred tax liability:   $ —       $ —    
Deferred tax asset                
     Temporary differences             (3,255,400 )
     Net Operating Loss Carryforward     13,279,653       8,159,704  
     Valuation allowance     (13,279,653 )     (4,904,304 )
     Net deferred tax asset     —         —    
     Net deferred tax liability   $ —       $ —    

 

The provision for income taxes has been computed as follows:

    2016   2015
Expected income tax recovery (expense) at the statuary rate of 34%   $ 3,803,664     $ 8,893,954  
Tax effect of expenses that are not deductible for income tax purposes (net of other amounts deductible for tax purposes)     760,099       (6,033 )
Tax effect of differences in the timing of deductibility of items for income tax purposes:     (5,331,784 )     (9,890,372 )
Utilization of non-capital tax losses to offset current taxable income     —         —    
Change in valuation allowance     8,375,349       (1,002,451 )
                 
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 2036.

 

The net change in the valuation allowance for the year ended December 31, 2016 and 2015 was an increased/ (decreased) of $8,375,349 and $(1,002,451), respectively.

 

The components of income tax expense related to continuing operations are as follows:

 

      2016       2015  
Federal                
     Current   $ —       $ —    
     Deferred     —         —    
    $ —       $ —    
State and Local                
     Current   $ —       $ —    
     Deferred     —         —    
    $ —       $ —    

 

The Company's federal income tax returns are no longer subject to examination by the IRS for the years prior to 2012, and the related state income tax returns are no longer subject to examination by state authorities for the years prior to 2011.

 

(L) Business Segments

 

The Company operates in one segment and therefore segment information is not presented.

 

 

(M) Recent Accounting Pronouncements

 

 In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.

 

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 are currently evaluating the impact of adopting ASU No. 2016-02 on our financial statements.

 

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services. The effective date for ASU 2016-08 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-08 on its financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, or ASU No. 2016-09. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. We are currently evaluating the impact of adopting ASU No. 2016-09 on our financial statements.

 

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides further guidance on identifying performance obligations and improves the operability and understandability of licensing implementation guidance. The effective date for ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years.  In May 2016, the FASB issued ASU 2016-12 “Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients,” which amends the guidance on transition, collectability, non-cash consideration, and the presentation of sales and other similar taxes. ASU 2016-12 clarifies that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. In addition, ASU 2016-12 clarifies how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. The standard allows for both retrospective and modified retrospective methods of adoption. The Company has not yet determined the impact of ASU 2016-10 on its financial statements.

 

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Statements," which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019 (fiscal year 2021 for the Company). The Company has not yet determined the potential effects of the adoption of ASU 2016-13 on its Financial Statements.

 

In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments," which aims to eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017 (fiscal year 2019 for the Company). The Company has not yet determined the potential effects of the adoption of ASU 2016-15 on its Financial Statements.

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest–Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”), which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company is currently in the process of evaluating the impact of adoption of ASU 2015-03 on its balance sheets.

 

All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.

 

 

(N) 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, 2016 and December 31, 2015, 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, 2016   December 31, 2015
    Fair Value Measurement Using   Fair Value Measurement Using
                                 
      Level 1       Level 2       Level 3       Total       Level 1       Level 2       Level 3       Total  
                                                                 
Derivative Liabilities     —         5,906,940       —         5,906,940       —         3,684,184       —         3,684,184  

 

(O) Stock-Based Compensation

 

In December 2004, the FASB issued FASB Accounting Standards Codification No. 718, Compensation - Stock Compensation. Under FASB Accounting Standards Codification No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the

date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.

 

Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting Standards Codification No. 718. FASB Accounting Standards Codification No. 505, Equity Based Payments to Non-Employees defines the measurement date and recognition period for such instruments. In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification.

 

(P) 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.

 

(Q) 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. 

 

(R) 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.

 

(S) 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.

   

(T) Licensing & Distribution

 

On June 20, 2015, the Company entered into a license agreement with Santok LTD of United Kingdom (“Santok). The term of the agreement is three years. Santok will pay the Company a royalty fee of $1.50 for each licensed product. Santok guarantees to the Company a minimum total of 150,000 cumulative licensed product installation with a minimum total guaranteed value of $225,000 over the three years of the agreement. If the total royalty paid is less than the guaranteed value, Santok will pay the difference.

 

On July 13, 2015, the Company entered into a license agreement with Luna Mobile, Inc. of United States (“Luna). The term of the agreement is three years. Luna will pay the Company a royalty fee of $1.50 for each licensed product manufactured and sold. As of December 31, 2016 Luna Mobile continues to seek to distribute its products.

 

 

NOTE 2           GOING CONCERN 

 

As reflected in the accompanying financial statements, the Company had a net loss of $11,187,248 for the year ended December 31, 2016, has an accumulated deficit of $74,482,280 as of December 31, 2016, and has negative cash flow from operations of $1,838,251 for the year ended December 31, 2016.

 

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, 2015 was not sufficient to meet the cash requirements to fund planned operations through December 31, 2016 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   As of
    December 31, 2016   December 31, 2015
         
Line of credit - related party   $     $ 473  
                 
Convertible debt     5,597,598       4,634,852  
Less: debt discount     (1,227,865 )     (2,658,213 )
Convertible debt - net     4,369,733       1,976,639  
 Demand note     20,000          
Total current debt     4,389,733     $ 1,977,112  

   

(A)     – Line of credit – related party

 

Line of credit with the principal stockholder consisted of the following activity and terms:

 

    Principal   Interest Rate   Maturity
Balance - December 31, 2014   $ 268,227                  
Borrowings during the year ended December 31, 2015   $ 264,000                September 29, 2016  
Interest accrual   $ 4,246                  
Repayments   $ (536,000 )                
Balance - December 31, 2015   $ 473                  
Borrowings during the year ended December 31, 2016     —         4 %     26-Sep-16  
Interest accrual     —                    
Repayments     473                  
Balance - December 31, 2016   $ —                    

 

Accounts payable consists of the following :

   

    As of December 31, 2016   As of December 31, 2015
         
Accounts Payable   $ 238,594     $ 338,978  
 Royalty Payable     —         1,054,096  
Total accounts payable and royalty payable   $ 238,594     $ 1,393,074  

 

Accounts payable for the year ended December 31, 2015, included royalty payments due to VSL agreement entered into on August 11, 2014 in the amount of $873,621 and EA Technology agreement entered into on May 22, 2014 in the amount of $ 421,811 for a total payable of $1,295,432.During the year ended December 31, 2016, the company recorded a net $1,613,766 gain on extinguishment of debt related to royalty payable (See Note 1 (H)).  

 

(B) Loan Payable – Related Party  

 

On September 17, 2015, the Company received $170,000 from a related party. Pursuant to the terms of the note, the note is bearing an original issuance discount in the amount of $10,000 and is due on or before October 31, 2015. As of December 31, 2015, the balance of the note was repaid and remaining balance is $0.

 

(C) Convertible Debt

 

During the years ended December 31, 2016 and 2015, the Company issued convertible notes totaling $3,392,813, less the original issue discount and debt issue costs of $205,665, for net proceeds of $3,187,148 and $5,390,789, respectively.

 

On October 7, 2015, the Company issued 1,000,000 warrants in connection with the entry into certain convertible debenture agreements. Warrant vests immediately and expire on October 7, 2018 with an exercise price of $0.12.

 

On October 26, 2015, the Company issued 1,000,000 warrants in connection with the entry into certain convertible debenture agreements. Warrant vests immediately and expire on October 26, 2018 with an exercise price of $0.12.

 

The convertible notes issued for year ended December 31, 2016 and year ended December 31, 2015, consist of the following terms:

 

        Year ended   Year ended
        December 31, 2016   December 31, 2015
        Amount of   Amount of
          Principal Raised       Principal Raised  
Interest Rate         0% - 10%       0% - 10%  
Default interest rate         14% - 22%       14% - 22%  
Maturity         November 4, 2015 –March 10, 2018       February 26, 2015 - November 23, 2017  
                     
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.     3,412,400       2,104,000  
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.     624,087       420,410  
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         111,111  
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       787,778  
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         35,000  
Conversion terms 6   Conversion at $0.10 per share     Paid on conversion         135,200  
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.     127,000       282,000  
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.     536,669       390,778  
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.     79,810       150,250  
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         218,325  
                     
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.     52,632       —    
    Convertible Debt     5,597,598       4,634,852  
    Less: Debt Discount     (1,227,865 )     (2,658,213 )
    Convertible Debt - net   $ 4,369,733     $ 1,976,639  

 

 
 

  

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, 2016, the Company converted debt and accrued interest, totaling $1,189,849 into 420,556,227 shares of common stock

 

During the year ended December 31, 2015, the Company converted debt and accrued interest, totaling $2,918,633 into 154,673,471 shares of common stock.    

 

Convertible debt consisted of the following activity and terms:

  

Convertible Debt Balance as of December 31, 2014     3,028,418       4% - 10%       February 26, 2015 – June 18, 2016  
Borrowings during the year ended December 31, 2015     5,390,789       8% - 10%          
Non-Cash Reclassification of accrued interest converted     131,640                  
Repayments     (968,315 )                
Conversion of debt to into 154,673,471 shares of common stock with a valuation of $2,918,633 ($0.017 - $0.042/share) including the accrued interest of $131,640     (2,918,612 )                
Forgiveness of Debt     (29,068 )                
Convertible Debt Balance as of December 31, 2015     4,634,852       4% - 10%       February 26, 2015 - November 23, 2017  
Borrowings during the year ended December 31, 2016     3,392,813       8% - 10%          
Non-Cash Reclassification of accrued interest converted     55,163                  
Repayments     (1,295,381 )                
Conversion of debt to into 420,556,227 shares of common stock with a valuation of $1,189,849 ($0.00143 - $0.01056/share) including the accrued interest of $55,163     (1,189,849 )                
Reclassification into a demand note     —                    
Convertible Debt Balance as of  December 31, 2016     5,597,598       4% - 10%       November 4, 2015 - March 10, 2018  

 

  (D) Debt Issue Costs

 

During the year ended December 31, 2016, the Company paid debt issue costs totaling $76,202.

 

The following is a summary of the Company’s debt issue costs:

 

    As of   As of
    December 31, 2016   December 31, 2015
         
Debt issue costs   $ 262,623       163,375  
Accumulated amortization of debt issue costs     (220,124 )     (126,676 )
                 
Debt issue costs - net   $ 42,499       36,699  

 

During the year ended December 31, 2016 and 2015 the Company amortized $93,449 and $111,794 of debt issue costs, respectively.

 

(E) Debt Discount & Original Issue Discount

 

During the year ended December 31, 2016 and December 31, 2015, the Company recorded debt discounts totaling $3,313,472 and $5,323,857, respectively.

 

The debt discount and the original issue discount recorded in 2016 and 2015 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 $4,743,820 and $2,819,974 during the year ended December 31, 2016 and 2015, respectively, to amortization of debt discount expense.

 

    As of   As of
    December 31, 2016   December 31, 2015
         
Debt discount   $ 10,356,394       7,042,922  
Accumulated amortization of debt discount     (9,128,529 )     (4,384,709 )
                 
Debt discount - Net   $ 1,227,865       2,658,213  
                 

 

 
 

 

 

NOTE 4           DERIVATIVE LIABILITIES

 

The Company identified conversion features embedded within convertible debt issued in 2016 and 2015 and warrants issued in 2016 and 2015. 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, 2014   $ 3,234,792  
         
Fair value at the commitment date for convertible instruments     7,865,156  
Fair value at the commitment date for warrants issued     —    
Change in fair value of embedded derivative liability for warrants issued     (16,874 )
Change in fair value of embedded derivative liability for convertible instruments     (2,918,576 )
Reclassification to additional paid in capital for financial instruments that ceased to be a derivative liability     (4,453,863 )
Change from extinguishment of debt     (26,451 )
Derivative Liability -December 31, 2015   $ 3,684,184  
         
         
Fair value at the commitment date for convertible instruments     7,026,286  
Fair value at the commitment date for warrants issued     91,556  
Change in fair value of embedded derivative liability for warrants issued     121,308  
Change in fair value of embedded derivative liability for convertible instruments     (1,614,234 )
Reclassification to additional paid in capital for financial instruments that ceased to be a derivative liability     (1,371,516 )
Change from repayments     (2,030,644 )
Derivative Liability -December 31, 2016   $ 5,906,940  

    

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 the year ended December 31, 2016 and 2015 of $3,833,224 and $2,665,988, respectively.

 

The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2016:

 

      Commitment Date       Re-measurement Date  
                 
Expected dividends:     —         —    
Expected volatility:     133% - 262%       157% -216%  
Expected term:     0.08 - 3 Years       0.01–2.40 Years  
Risk free interest rate:     0.06% - 1.60%       0.12% - .1.47%  

 

 

The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2015:

 

      Commitment Date       Re-measurement Date  
                 
Expected dividends:     —         —    
Expected volatility:     133% - 221%       177% -238.77%  
Expected term:     0.41 - 3 Years       0.12–2.9 Years  
Risk free interest rate:     0.06% - 1.31%       0.12% - .1.31%  

 

 

NOTE 5           PROPERTY AND EQUIPMENT

 

At December 31, 2016 and December 31, 2015, respectively, property and equipment is as follows:

 

    December 31, 2016   December 31, 2015
         
Website Development   $ 294,795     $ 294,795  
Furniture and Equipment     117,971       112,220  
Leasehold Improvements     6,708       6,573  
Software     54,598       53,897  
Music Equipment     2,578       2,578  
Office Equipment     80,710       80,110  
Domain Name     1,500       1,500  
Sign     628       628  
Total     559,488       552,301  
Less: accumulated depreciation and amortization     (498,065 )     (421,340 )
Property and Equipment, Net   $ 61,423     $ 130,961  

 

Depreciation/amortization expense year ended December 31, 2016 and 2015 totaled $76,725 and $79,064, respectively.

 

NOTE 6          STOCKHOLDERS’ DEFICIT

 

On March 4, 2015, the Company with the consent of the Majority Shareholder and Unanimous Written Consent of the Board of Directors created and authorized the issuance of Series A Convertible Preferred stock, with a par value of $0.00001 per share. The face amount of state value of each Preferred Share of stock is $0.96 and the conversion price of $0.04 per share.

 

On June 24, 2015, the Company with the consent of the Majority Shareholder and Unanimous Written Consent of the Board of Directors filed with the State of Delaware an Amended Certificate of Incorporation increasing the authorized shares of common stock by 120,000,000 shares of common stock from 450,000,000 million shares of common stock to 570,000,000 shares of common stock.

 

On September 24, 2015, the Company with the consent of the Majority Shareholder and Unanimous Written Consent of the Board of Directors filed with the State of Delaware an Amended Certificate of Incorporation increasing the authorized shares of common stock by 120,000,000 shares of common stock from 450,000,000 million shares of common stock to 570,000,000 shares of common stock.

 

On August 19, 2015, the Company with the consent of the Majority Shareholder and Unanimous Written Consent of the Board of Directors filed with the State of Delaware an Amended Certificate of Incorporation increasing the authorized shares of common stock by 280,000,000 shares of common stock from 570,000,000 million shares of common stock to 850,000,000 shares of common stock.

 

On January 13, 2016, 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 800,000,000 shares of common stock from 850,000,000 million shares of common stock to 1,650,000,000 shares of common stock.

 

  (A) Common Stock  

 

During the year ended December 31, 2016, the Company issued the following common stock:

 

Transaction Type   Quantity   Valuation   Range of Value per share
             
Conversion of convertible debt and accrued interest     420,556,227     $ 1,189,849       $0.00143 to- $0.01056  
Services - rendered     12,775,195       115,600       $0.09-$0.013  
Patents     80,000,000       1,600,000     $ 0.02  
Total shares issued     513,331,422     $ 2,905,449          
                         

 

During the year ended December 31, 2015, the Company issued the following common stock:

 

Transaction Type   Quantity   Valuation   Range of Value per share
             
Conversion of convertible debt and accrued interest     154,673,471     $ 2,918,633       $0.009 - $0.042  
Services - rendered     9,195,182       294,548       $0.12-$0.07  
Return of shares     (120,000,000 )     (1,200 )   $ 0.000010  
Conversion of line of credit in common stock     5,000,000       150,000     $ 0.03  
Total shares issued     48,868,653     $ 3,361,981          
                         

 

 
 

  

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 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. The Series A Convertible Preferred Stock carries certain voting preferences and will 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, 2016 and for the year ended December 31, 2015, the Company has not declared dividends.

 

 (B) Stock Warrants

    

On May 27, 2016, the Company has agreed to issue 1,000,000 three-year warrants at an exercise price of $0.005/share of the common stock of the Company to a consultant for consulting services. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the black – Scholes option pricing

 

On March 6, 2016, the Company entered into a revised engagement with its corporate counsel, McMenamin Law Group, for corporate legal services to be provided by legal counsel beginning July 28, 2015 through December 31, 2016, pursuant to which the Company has agreed to issue a five (5) year warrant at an exercise price totaling $25,000 at a strike price of ($0.0029/share) per share of common stock of the Company, which share price was the closing price of the Company’s stock on March 3, 2016. In addition the Company has agreed to pay McMenamin Law Group cash consideration totaling $15,000 on or before March 31, 2016, or a funding of the Company, whichever occurs first. As of December 31, 2016, the payment was not made. This new engagement shall replace and supersede any previous engagements or other agreements between the Company and McMenamin Law Group.

 

On October 14, 2016 the Company entered into a new engagement with its corporate counsel McMenamin Law Group, for corporate legal services to be provided from January 1, 2017 through December 31, 2017. Specifically the Company agreed to pay a flat fee totaling $32,500 in the following installment, (i) $10,000 on October 17, 2016, (ii) $7,500 on January 3, 2017, (iii) $7,500 on March 31, 2017, and (iv) $7,500 on June 30, 2017.

 

On February 29, 2016, the Company has agreed to issue 2,000,000 three-year warrants at an exercise price of $0.01/share of the common stock of the Company to a consultant for consulting services.

 

On January 5, 2016, the Company increased the warrant issuance to a consultant from November 25, 2014, from 200,000 warrants to 2,800,000 warrants. The warrants vested immediately. The 2,000,000 have an exercise price of $0.02 per share. The 800,000 have an exercise price of $0.06 per share and contingent on the Common Stock on market price per share at $0.05 per share or higher for 30 or more consecutive days at the time of purchase. The Company will record the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the black – Scholes option pricing model. Subsequently, on May 24, 2016 the Company into a revised agreement, pursuant to which to Company cancelled the 3,000,000 issues previously issued and the Company has agreed to issue 5,600,000 a three (3) year warrant at a strike price of ($0.006/share) per share of common stock of the Company, which share price was the closing price of the Company’s stock on May 24, 2016. 

 

The following tables summarize all warrant grants as of December 31, 2016, 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, 2014       3,750,000               1.7  
  Granted       2,000,000                  
  Exercised       —                    
  Cancelled/Forfeited       (200,000 )                
  Balance, December 31, 2015       5,550,000     $ 0.25       1.5  
                             
  Granted       20,020,690     $ 0.02          
  Exercised       —                    
  Cancelled/Forfeited       (5,600,000 )                
  Balance, December 31, 2016       19,970,690     $ 0.01       2.2  

  

During the year ended December 31, 2016 the Company cancelled 3,000,000 warrants in connection with the re issuance of 5,600,000 warrants as per the warrant issuance as described in note 6(B). In addition, during the year ended December 31, 2016 the Company cancelled 2,600,000 fully expired warrants.

 

 A summary of all outstanding and exercisable warrants as of December 31, 2016 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       2.16     $ —    
$ 0.005       1,000,000       1,000,000       2.40     $ —    
$ 0.0029       8,620,690       8,620,690       2.25     $ —    
$ 0.006       5,600,000       5,600,000       2.39          
$ 0.12       2,000,000       2,000,000       1.76     $ —    
$ 0.40       750,000       750,000       0.40     $ —    
                                     
          19,970,690       19,970,690       2.2     $ —    

  

A summary of all outstanding and exercisable warrants as of December 31, 2015 is as follows:

 

            Weighted Average    
Exercise   Warrants   Warrants   Remaining   Aggregate
Price   Outstanding   Exercisable   Contractual Life   Intrinsic Value
                 
$ 0.10       200,000       200,000       1.90     $ —    
$ 0.12       2,000,000       2,000,000       2.77     $ —    
                                     
$ 0.40       2,850,000       2,850,000       0.73     $ —    
$ 0.45       500,000       500,000       —       $ —    
                                     
          5,550,000       5,550,000       1.5 years     $ —    

  

(C) Stock Options

 

The following tables summarize all option grants as of December 31, 2016, 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, 2014     15,566,652     $ 0.13       1.32  
Granted     —       $ —         —    
Exercised     —       $ —         —    
Outstanding - December 31, 2015     15,566,652     $ 0.13       0.32  
Granted     —       $ —         —    
Exercised     —       $ —         —    
Forfeited or Canceled     (12,700,000 )   $ —         —    
Outstanding – December 31, 2016     2,866,652     $ 0.13       1.02  
Exercisable - December 31, 2016     2,866,652                  

 

 
 

  

NOTE 7         COMMITMENTS

 

(A) Employment Agreement

 

On January 31, 2016 Mr. Lloyd Trammell submitted a notice of resignation ending employment on March 1, 2016.

 

On January 8, 2016, the Company extended the employment agreement with its CEO, John Blaisure for an additional five years. The Company issued 12,000,000 shares of Company’s common stock as part of the compensation with a fair value of $105,600 ($0.0088) based on the stock trading price.

 

(B) Consulting Agreement

 

On April 14, 2016, the Company entered into an agreement, for consulting services, for which the Company issued 1,000,000 warrants at a strike price of ($0.005/share) per share.

  

On June 11, 2015, the Company entered into a consulting services agreement with two consultants. The agreement will continue until September 10, 2015. In connection with this agreement, the consultant shall be paid $6,000 per month and receive up to 100,000 shares of common stock each upon completion, submission and approval of the first stage of working APP. An additional 100,000 shares will be issued upon the completion, submission and approval of the second stage working APP. As of December 31, 2015, the Company recorded $2,000 in stock based compensation for 100,000 shares of common stock at ($0.02/share) based on the trading price. No additional shares will be issued to the consultant’s due to the non-performance of services.

 

On May 4, 2015, the Company entered into a consulting services agreement. The agreement will remain in effect for three years. In connection with this agreement, the consultant shall be paid $7,500 per month and receive 200,000 shares of common stock upon the execution of the agreement. An additional 200,000 shares of common still will be grated within 10 days of achieving each of the following milestones, whichever comes first, up to one million shares of stock based on marketing goals. On July 2, 2015, the Company issued 200,000 shares of common stock having a fair value of $ 10,700 ($0.0535/sh) in exchange for consulting services agreement dated May 4, 2015.

 

On January 21, 2015, the Company entered into a consulting services agreement. In connection with this agreement, the consultant shall be paid $4,000 per month and receive up to 150,000 shares of common stock payable in lots of 50,000 per month and will be issued 90 days after the date of the signing of the agreement. For year ended December 31, 2015, the Company recorded $4,455 in stock based compensation.

 

On January 21, 2015, the Company entered into a consulting services agreement. In connection with this agreement, the consultant shall be paid $4,000 per month and receive up to 150,000 shares of common stock payable in lots of 50,000 per month and will be issued 90 days after the date of the signing of the agreement. For the year ended December 31, 2015, the Company recorded $4,455 in stock based compensation.

 

On March 17, 2015, the Company entered into a services agreement. In connection with this agreement, the consultant will receive 300,000 shares of fully vested common stock, payable in lots of 100,000 shares of common stock per month and 5,000 per month. The agreement will continue until June 17, 2015. For year ended December 31, 2015, the Company recorded $8,910 in stock based compensation.

 

On February 18, 2015, the Company entered into service agreement for a period of two years with the Company’s transfer agent for a period from September 23, 2014 to September 23, 2016. In consideration for these services, during the year ended December 31, 2015, 700,000 shares of fully vested common stock valued at $22,400 ($0.03/share) were granted.

 

 

NOTE 8       LITIGATION

 

From time to time, the Company has become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business.

 

On January 21, 2015, the Company filed a patent infringement action against Netflix Inc., Netflix Luxembourg S.a.r.l. and Netflix International B.V. with the District Court of Mannheim, Germany. The asserted patent is the same patent as in the German proceedings against Google Inc. and its subsidiaries. The Complaint alleges that Netflix Inc. and its subsidiaries are offering and transmitting video streams to German customers as part of their video-on-demand business model; the videos being encoded and transmitted in a manner claimed and protected by the patent. The Company primarily seeks a permanent injunction against the Defendants, plus damages and information regarding past infringements. The Company, on or about December 2015 upon advice of counsel, decided withdraw the litigation prior to oral argument, which withdrawal is without prejudice to re-file the lawsuit in the future.

 

The Company intends to vigorously prosecute these various patent infringement litigations. The Company believes it has a good likelihood of success associated with these patent infringement lawsuits. However, no assurance can be given by the Company as to the ultimate outcome of these actions or its effect on the Company. The law firm is prosecuting this action on a contingency fee basis.

 

On January 26, 2015, the Company was named as a defendant in an action filed in the Superior Court for the State of California and the County of Los Angeles captioned Bibicoff Family Trust v. Max Sound Corporation (Case No. SC123679). The parties participated in mediation and arrived successfully at a settlement and resolution of the matter. In March 2017 the Company successfully completed paying the agreed upon settlement amount.

 

On August 11, 2014, the Company and VSL simultaneously filed trade secret and patent infringement actions against Google, Inc., and its subsidiaries YouTube, LLC, and On2 Technologies, Inc., relating to proprietary and patented technology owned by Vedanti Systems Limited (“Vedanti”), a subsidiary of VSL.  The patent infringement complaint was originally filed in the U.S. District Court for the District of Delaware; the trade secret suit was filed in Superior Court of California, County of Santa Clara.  On September 30, 2014, the Company filed notices of voluntary dismissal without prejudice as to both lawsuits. On October 1, 2014, the Company amended the patent complaint and filed it in the U.S. District Court for the Northern District of California. In this patent lawsuit, the Company contends that, in 2010, while Google was in discussions with Vedanti about the possibility of acquiring Vedanti's patented digital video streaming techniques and other proprietary methods, Google gained access to and received technical guidance regarding Vedanti’s proprietary codec, a computer program capable of encoding and decoding a digital data stream or signal.  The lawsuit further alleges that soon after Google and Vedanti initiated negotiations, Google willfully infringed Vedanti's patent by incorporating Vedanti's patented technology 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 Vedanti 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.  However, on November 24, 2015, the court granted a second motion to dismiss for lack of subject matter jurisdiction based on the defendants’ argument that the agreements between the Company and VSL/Vedanti 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, The Company believes that their decision was predicated on the fact that as now co-owners of the patents with Vedanti, the Company can simply re-file together against Google. The Court also issued an order denying Google's motion arguing that the Company's appeal should be dismissed as moot.

 

In connection with the dismissal of the aforementioned litigation, the Company initiated an arbitration against VSL Communications, Ltd., Vedanti Systems, Ltd., Constance Nash, Robert Newell and eTech Investments as respondents before the American Arbitration Association for breach of contract, fraud, and other causes of action. Subsequently, the Company is pursuing in arbitration claims against VSL to enforce the agreement and to compel VSL to comply with the agreement’s terms and conditions that inter alia VSL must fully cooperate with the Company to cure any issues the Court raised with standing to pursue the claims. On January 17, 2017 the AAA notified the Company’s counsel that the respondent’s counterclaim was withdrawn this arbitration claim was formally concluded.

 

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’ allege 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 contends 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 has retained Buether Joe & Carpenter LLC to represent the Company in the suit, on a contingency fee basis. The case will be vigorously

prosecuted, and the Company believes it has a good likelihood of success.  Defendants have filed multiple demurrers to the complaint, and the Court has 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.  The parties continue to file motions and are expected to begin the discovery phase of the litigation.

 

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. Despite the fact that 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. 

 

On September 22, 2016, the Company filed an action in the Superior Court of the State of California, County of San Diego – North County Regional Center, captioned Max Sound Corporation v. Globex Transfer, LLC (Case No. 37-2016-0003037-CU-MC-NC). The Company requests injunctive relief and declaratory relief regarding the release of 13 million restricted shares of Company stock. On September 26, 2016, the Court granted the Company a preliminary injunction, enjoining Defendant from releasing any restriction of the subject shares without first obtaining the Company’s consent, pending the outcome of the litigation.”

 

In November 2016, the Company entered into an agreement with Vedanti Licensing Limited ("VLL") and Vedanti Systems Limited ("Vedanti") under (the "VLL/Max Sound Agreement") granting the Company co-ownership of U.S. Patent No. 7,974,339 (the "`339 Patent") along with the other patents owned by Vedanti Systems Limited. Thus, the Company is now a co-owner with VLL of the `339 Patent and ODT Patent portfolio, pursuant to the VLL/Max Sound Agreement, the Company and VLL intend to file new lawsuit against Google and others for infringement as co-owners. 

 

On December 20, 2016 Companies House, the United Kingdom's registrar of companies, notified the Company that VSL Communications Limited was dissolved, thereafter voiding any remaining agreement with VSL Communications or its previous Officers, Directors or Management.

 

No assurance can be given as to the ultimate outcome of these actions or their effect on the Company.  

   

 

NOTE 9        INTANGIBLE ASSETS

 

As of December 31, 2016 and December 31, 2015 the Company owns certain trademarks and technology rights.    See Note 1 (I).

 

    Useful Life   As of December 31, 2016   December 31, 2015
             
Distribution rights   10 Years   $ 9,647,577     $ 9,647,577  
Trademarks   Indefinite     7,500,000       7,500,000  
Licensing Rights   Indefinite     2,064,000       2,064,000  
Other   Indefinite     275       275  
Accumulated amortization         (2,500,200 )     (2,415,615 )
  Impairment of the distributions rights         (16,711,652 )     (15,703,616 )
                     
Net carrying value       $ —       $ 1,092,621  
                     

  

For the year ended December 31, 2016 and 2015, amortization expense related to the intangibles with finite lives totaled $ 84,585 and $1,054,360, respectively, and was included in general and administrative expenses in the statement of operations.  The Company also recorded an impairment expense of $1,008,036 and $15,703,617 during the years ended December 31, 2016 and December 31, 2015, respectively. The intangible assets are fully impaired and the remaining carrying value is $0 for the year ended December 31, 2016.

 

NOTE 10       SUBSEQUENT EVENTS

  

January 3, 2017, the Company converted a total of $20,000 in convertible debt comprised of principal and accrued interest into 2,849,003 common shares.

 

On January 5, 2017 the Company entered into an agreement with Eagle Equities, LLC. to issue up to $147,000 in a convertible note. The note matures on January 5, 2018 and bears an interest charge of 8%. The conversion price equals the “Variable Conversion Price”, which is 65% 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. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $126,000 proceeds on January 6, 2017.

 

On January 6, 2017 the Company repaid $82,830 in convertible note to Crossover Capital Fund I, LLC note. The note was dated July 7, 2016 with a principal balance of $52,632.

 

On January 13, 2017, the Company converted a total of $25,347 in convertible debt comprised of principal and accrued interest into 3,466,054 common shares.

 

On January 17, 2017, the Company converted a total of $52,038 in convertible debt comprised of principal and accrued interest into 8,503,000 common shares.

 

On January 23, 2017, the Company issued 5,000,000 shares of common stock having a fair value of $53,500 ($0.0107/share), based upon the fair value on the date of grant, in exchange for professional services.

 

On January 26, 2017, the Company converted a total of $20,000 in convertible debt comprised of principal and accrued interest into 3,556,820 common shares. 

 

On February 8, 2017, the Company entered into an agreement with Iliad Research and Trading to issue up to $171,665 in a convertible note. The note matures on February 8, 2018 and bears an interest charge of 8%. The conversion price equals the “Variable Conversion Price”, which is 65% of the “Market Price”, which is the average of the lowest two (2) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $150,000 proceeds on February 8, 2017.

 

On February 10, 2017, the Company entered into an agreement with Power Up Lending Group, LTD to issue up to $103,500 in a convertible note. The note matures on November 20, 2017 and bears an interest charge of 8%. The conversion price equals the “Variable Conversion Price”, which is 65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $100,000 proceeds on February 14, 2017.

 

On February 13, 2017, the Company converted a total of $20,000 in convertible debt comprised of principal and accrued interest into 4,243,582 common shares.

 

On February 21, 2017 the Company entered into an Agreement with architect Eli Attia. This Agreement terminated and replaced the previous Representation Agreement and allows the Company to continue to pursue litigations against Google and Flux.    

 

On February 27, 2017, the Company converted a total of $20,000 in convertible debt comprised of principal and accrued interest into 3,707,136 common shares.

 

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 continues.

 

On March 1, 2017, the Company entered into an agreement with Crown Bridge partners, LLC to issue up to $64,600 in a convertible note as a second tranche under the agreement dated September 8, 2016. The note matures on September 1, 2017 and bears an interest charge of 6%. The conversion price equals the “Variable Conversion Price”, which is 65% of the “Market Price”, which the average of the lowest one (1) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $62,400 proceeds on March 7, 2017.

 

On March 16, 2017, the Company converted a total of $10,046 in convertible debt comprised of principal and accrued interest into 1,610,000 common shares.

 

On March 23, 2017, the Company converted a total of $25,997 in convertible debt comprised of principal and accrued interest into 4,347,367 common shares .

 

Item 9.  Changes in and disagreements with Accounting and Financial Disclosure

 

N/A

 

Item 9A.  Controls and Procedures

 

Disclosure controls and procedures. Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an eva luation, with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the quarters covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

 

As of the Company’s fiscal year-end, the Company and its Management's conclusion to its assessment  on the effectiveness of a company’s  internal control over financial reporting ("ICFR") finds the effectiveness, as of the end of the fiscal year, of the issuer’s internal control over financial reporting to  meet and satisfy the requirements  set forth by the SEC and PCAOB.

 

ITEM 10.       DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Our executive officers and directors and their respective ages are as follows:

 

NAME   AGE   POSITION
         
Greg Halpern   58   Chairman, Chief Financial Officer
John Blaisure   58   President & Chief Executive 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.

 

Greg Halpern is the founder of Max Sound Corporation From 1997 to 2001 Mr. Halpern was the CEO of Circle Group Internet, Inc. (CRGQ: OTCBB). From 2002 to 2005, Mr. Halpern was the Chief Executive Officer of Circle Group Holdings Inc. (AMEX: CXN, formerly CRGQ.OB) and continued to be the CEO after it changed its name to Z-Trim Holdings Inc. (AMEX: ZTM) from 2006 - 2007. Circle Group was a venture capital firm for emerging technology companies which provided small business infrastructure, funding and intellectual capital to bring timely life-changing technologies to market through all early phases of the commercialization process. Mr. Halpern’s efforts there were focused on acquiring life improving technologies and bringing these products to the marketplace. In 2003, Mr. Halpern and his wife founded an unincorporated non-profit organization “People for Ultimate Kindness Toward All Living Creatures on Earth” whose purpose is and has been to identify problems on earth and those who are working to solve them. The Ultimate Kindness is a non-profit organization independent from the So Act Network. The Ultimate Kindness and the So Act Network share no financial interest or otherwise. In 2007, Mr. Halpern resigned from his position at Z-Trim Holdings and took a one (1) year sabbatical from business touring the Continental United States in his RV with his family. Currently, Mr. Halpern serves as the Chairman and Chief Financial Officer of Max Sound Corporation, and devotes approximately 50 hours each week to the management and operations of Max Sound Corporation.

 

John Blaisure, President &   Chief Executive Officer.

 

John Blaisure is the President and Chief Executive officer of Max Sound Corporation.  Prior to Mr. Blaisure joining Max Sound Corporation, he was the Founder, President, and CEO of Effective Network Systems (ENS) from 1996 to 2010.  Effective Network Systems is a telephony software company that was debuted at the Intel Technology Summit in 1999 as one of the top 40 telephony software companies in the world.  Prior to his work at ENS, he was the Founder, President, and CEO of Fonz By The Day Stores from 1990 to 1996.  Fonz By The Day Stores is a cellular communication reseller and retailer in Dallas Texas. Fonz By The Day Stores achieved success as a market leader in the Dallas Fort Worth area in retail sales. The company also achieved success as a national leader in cellular rentals. Mr. Blaisure brings over 20 years of experience in managing and marketing of communication technology companies from the ground up.

 

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, 2016.

 

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, 2016, and 2015 in all capacities for the accounts of our executive, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO):

 

SUMMARY COMPENSATION TABLE 

 

Name and Principal Position   Year   Salary
($)
  Bonus
 ($)
  Stock
 Awards
($)
  Option Awards
($)
  All Other Compensation
($)
  Total
($)
Greg Halpern, CFO     2016       288,000               0       0       0       0     288,000
      2015       288,000               0       0       0       0     288,000
                                                         
John Blaisure, CEO     2016               216,000       0       105,600       0       0     321,600
      2015               216,000       0       0       0       0     216,000

 

 

Outstanding Equity Interests

 

The following table sets forth information concerning outstanding stock options for each named executive officer as of December 31, 2016.

 

Outstanding Option Awards at Fiscal Year-End 

 

Number of Securities

Underlying Unexercised Options

Name  

Exercisable

Options

 

Unexercisable

Options

 

Option

Weighted

Average

Exercise

Price

 

Option

Expiration

Date

Greg Halpern   2,866,652       $ 0.17   July 6, 2017
                       

  

Other than as disclosed above, there were no stock options issued or exercised during the fiscal year ended December 31, 2016 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.  

 

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 ExecutiveBlaisure 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, 2017 and by the officers and directors, individually and as a group. Except as otherwise indicated, all shares are owned directly.

 

On March 22, 2017, there were 967,489,208issued 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     5,000,000 (2)     33.4 %
                     
Common Stock   Greg Halpern     2,510,933       0.26 %
                     
Common Stock   John Blaisure     28,300,960 (3)     2.92 %
                     
 Common Stock   Total Shares owned by Directors and officers     35,811,893       36,58 %

 

(1)        Unless otherwise indicated, the address for each stockholder listed in the above table is c/o Max Sound Corporation, 8837 Villa La Jolla Drive, Unit 12109, LA JOLLA, California, 92039.

(2)        Reference Event of Stock conversion from Common to Preferred Shares.

(3)        Pursuant to an employment agreement dated January 17, 2011, the Company issued options to purchase 12,000,000 shares of our common stock at $0.12 per share to John Blaisure.  On June 14, 2013, the Company amended the terms of the options to extend the expiration date by two 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.

 

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTION, AND DIRECTOR INDEPENDENCE

  

During the year ended December 31, 2016, there were no transactions by the Company’s Directors.

  

ITEM 14.         PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Audit Fees

 

For the Company’s fiscal years ended December 31, 2016 and 2015, we were billed approximately $52,500, and $48,625, 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, 2016 and 2015.

 

Tax Fees

 

For the Company’s fiscal years ended December 31, 2016 and 2015, we were billed approximately $0, and $0, 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, 2016 and 2015.

 

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. 

 

PART IV

 

ITEM 15.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

All Exhibits in calendar year 2016 associated with all prior Form10 filings are incorporated herein by reference. 

 

3. Exhibits

 

Exhibit Number   Description
  10.1     Convertible Redeemable Note, Dated 10.13.16 issued to Bay Private Equity, Inc.
  10.2     Convertible Redeemable Note, Dated 10.10.16 issued to JSJ INVESTMENTS, INC.
  10.3     Convertible Redeemable Note, Dated 10.3.16 issued to ILIAD RESEARCH AND TRADING, L.P.
  10.4     Convertible Redeemable Note, Dated 11.22.16 issued to BELLRIDGE CAPITAL, L.P.
  10.5     Convertible Redeemable Note, Dated 12.2.16 issued to EAGLE EQUITIES, LLC
  10.6     Convertible Redeemable Note, Dated 12.2.16  issued to LUCAS HOPPEL
  31.1     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer
  31.2     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer
  32     Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  99     Management Internal Control Over Financial Reporting (ICFR) Statement

 

 

SIGNATURES

 

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: March 31, 2017

 

MAX SOUND CORPORATION

(Registrant)

 

 

By: /s/ John Blaisure
  John Blaisure
  Chief Executive Officer
(Principal Executive Officer)
   
By: /s/ Greg Halpern
  Greg Halpern
  Chief Financial Officer

 

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