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 moved a level
down from OTCQB to OTC Pink Current Information where it is within the continued standards and pricing requirements as found in
Section 2 of the OTCQB Eligibility Standards
.
The Company’s services, may re-apply at any time after a price
increase to meet all of the OTCQB Eligibility Standards to be moved back to the higher OTCQB marketplace.
It is management's opinion, however, that all
material adjustments (consisting of normal and recurring adjustments) have been made which are necessary for a fair financial statements
presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.
These unaudited interim financial statements
should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form
10-K for the year ended December 31, 2017, filed with the SEC on March 31, 2018.
(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 September 30, 2018 and December 31, 2017, 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 September 30, 2018 and December 31, 2017.
(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) 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 nine months ended September 30 , 2018 and 2017 excludes the common stock equivalents of the following potentially
dilutive securities because their inclusion would be anti-dilutive:
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September 30, 2018
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December 31, 2017
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Stock Warrants (Exercise price - $0.25 - $.52/share)
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13,620,690
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|
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19,220,690
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Stock Options (Exercise price - $0.00250/share)
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95,332,500
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95,332,500
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Convertible Debt (Exercise price - $0.0001 - $.000150/share)
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57,808,682,949
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8,399,417,649
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Series A Convertible Preferred Shares ($0.01/share)
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250,000,000
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250,000,000
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Total
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58,167,636,139
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8,763,970,809
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The Company’s obligations to issue shares
upon conversion of its outstanding convertible notes, the exercise of stock options and warrants and conversion of its preferred
stock (the “Convertible Instruments”) at current market prices for its common stock exceeds by the 54,658,155,629 authorized
but unissued shares of Common Stock as of the date of this report (the “Potentially Issuable Shares”). While it is
uncertain whether the Company would receive requests to issue all of the Potentially Issuable Shares and the number of such shares
fluctuates based on the market price of the Company’s common stock, the Company may increase the number of its authorized
shares of common stock or effectuate a recapitalization, or a combination of both, in order to make available additional shares
of its Common Stock for the Potentially Issuable Shares. Such action would require shareholder approval. Until such time as the
Company has a sufficient number of shares of its Common Stock for issuance to cover the Potentially Issuable Shares, the Company
could be subject to penalties and damages to the holders of the Convertible Instruments in the event it does not deliver the Potentially
Issuable Shares upon request by a holder of the Convertible Instruments. Furthermore, the lack of available shares of common stock
may be deemed a default under one or more of the Convertible Instruments.
(I) 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 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.
(J) Business Segments
The Company operates in one segment and therefore
segment information is not presented.
(K) Recent Accounting Pronouncements
In January 2017, the FASB issued Accounting
Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01),
which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities
is a business. This guidance will be effective for us in the first quarter of 2018 on a prospective basis, and early adoption is
permitted. The Company has not yet determined the potential effects of the adoption of ASU 2016-15 on its Financial Statements.
In January 2017, the FASB issued Accounting
Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU
2017-04), which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment
charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated
to that reporting unit. This guidance will be effective for us in the first quarter of 2020 on a prospective basis, and early adoption
is permitted. The Company has not yet determined the potential effects of the adoption of ASU 2016-15 on its Financial Statements.
In September 2017, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update No. 2017-13 (ASU 2017-13) which addresses “Revenue Recognition” (Topic
605), "Revenue from Contracts with Customers" (Topic 606), and Leases (Topics 840 and 842). ASU 2017-13 requires entities
to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled to in exchange for those goods or services. As currently issued and amended, ASU 2017-13
is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that
reporting period, though early adoption
is permitted for annual reporting periods beginning after December 15, 2016. We have evaluated the impact of the adoption of ASU
2017-13 on our financial statements and determined that upon generating revenue, the Company will implement accounting system changes
and provide the additional disclosure requirements related to the adoption.
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 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.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition.
This guidance is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in
an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This
guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to
obtain or fulfill a contract. This guidance can be adopted either retrospectively to each prior reporting period presented, or
retrospectively with a cumulative-effect adjustment recognized as of the date of adoption. The original effective date of this
guidance for public entities was for annual reporting periods beginning after December 15, 2016. In August 2015, the FASB issued
ASU 2015-14, Revenue from Contracts with Customers (Topic 606), to defer the effective date of this guidance by one year, to the
annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.
All other newly issued accounting pronouncements
but not yet effective have been deemed either immaterial or not applicable.
(L) 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 September 30, 2018 and December 31, 2017, using quoted prices in active markets
for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level
3):
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September 30 , 2018
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December 31, 2017
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Fair Value Measurement Using
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Fair Value Measurement Using
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Level 1
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Level 2
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Level 3
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Total
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Level 1
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Level 2
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Level 3
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Total
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Derivative Liabilities
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—
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7,366,834
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—
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7,366,834
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—
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5,909,121
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—
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5,909,121
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(M) 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.
(N) 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.
(O) 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.
(P) 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.
(Q) 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.
(R) 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 September 30, 2018 Luna Mobile
continues to seek to distribute its products.
NOTE 2 GOING
CONCERN
As reflected in the accompanying condensed
unaudited financial statements, the Company had a net loss of $5,011,919 for the nine months ended September 30, 2018, has an accumulated
deficit of $86,454,341 as of September 30, 2018, and has negative cash flow from operations of $977,637 for the nine months ended
September 30, 2018.
As the Company continues to incur losses, transition
to profitability is dependent upon the successful commercialization of its products and achieving a level of revenues adequate
to support the Company’s cost structure.
The Company may never achieve profitability,
and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations
through additional private or public debt or equity offerings. Based on the Company’s operating plan, existing working capital
at December 31, 2017 was not sufficient to meet the cash requirements to fund planned operations through December 31, 2018 without
additional sources of
cash. The Company continues to explore various
financing alternatives, including debt and equity financings and strategic partnerships, as well as trying to generate revenue.
However, at this time, the Company has no commitments to obtain any additional funds, and there can be no assurance such funds
will be available on acceptable terms or at all. If the Company is unable to obtain additional funding and improve its operations,
the Company’s financial condition and results of operations may be materially adversely affected and the Company may not
be able to continue operations. This raises substantial doubt about the Company’s ability to continue as a going concern. The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include
adjustments that might result from the outcome of this uncertainty.
NOTE 3 DEBT
AND ACCOUNTS PAYABLE
Debt consists of the following:
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AS of September 30, 2018
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As of December 31, 2017
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Line of credit– related party
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$
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184,180
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$
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34,156
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Accrued interest – related party
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114,727
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-
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Convertible debt
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$
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6,160,429
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6,112,938
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Less: debt discount
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(327,474
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)
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(610,686
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Less: debt issue costs
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(7,737
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)
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(27,436
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)
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Convertible debt - net
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5,825,218
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5,474,816
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Total current debt
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6,124,425
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$
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5,508,972
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(A) Line of credit – related party
Line of credit with the principal stockholder
consisted of the following activity and terms:
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Principal
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Interest Rate
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Balance - December 31, 2017
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$
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34,156
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Borrowings during the nine months ended September 30, 2018
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434,904
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4
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%
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Interest accrual
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77
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Repayments
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(284,957
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)
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Balance - September 30, 2018
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$
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184,180
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Accounts payable consists of the following
:
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As of September 30, 2018
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As of December 31, 2017
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Accounts Payable
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$
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629,642
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$
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399,761
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Total accounts payable
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$
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629,642
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$
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399,761
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(B) Convertible Debt
During the nine months ended September 30,
2018 and year ended December 31, 2017, the Company issued convertible notes totaling $869,579, less the original issue discount
and debt issue costs of $42,379, for net proceeds of $827,200 and $1,753,411, respectively.
The convertible notes issued for nine months
ended September 30, 2018 and year ended December 31, 2017, consist of the following terms:
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Nine months ended September 30, 2018 Amount of Principal Raised
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Year ended December 31, 2017 Amount of Principal Raised
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Interest Rate
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|
|
|
0% - 12%
|
|
|
|
0% - 12%
|
|
Default interest rate
|
|
|
|
|
14% - 22%
|
|
|
|
14% - 22%
|
|
Maturity
|
|
|
|
|
November 4, 2015 –May 22, 2019
|
|
|
|
November 4, 2015 –December 7, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion terms 1
|
|
65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion.
|
|
|
3,691,578
|
|
|
|
3,495,100
|
|
Conversion terms 2
|
|
65% of the “Market Price”, which is the one lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion.
|
|
|
1,131,560
|
|
|
|
1,164,777
|
|
Conversion terms 3
|
|
70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the fifteen (15) trading day period prior to the conversion.
|
|
|
paid on conversion
|
|
|
|
paid on conversion
|
|
Conversion terms 4
|
|
75% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion.
|
|
|
765,000
|
|
|
|
765,000
|
|
Conversion terms 5
|
|
60% of the “Market Price”, which is the lowest trading prices for the common stock during the fifteen (15) trading day period prior to the conversion.
|
|
|
paid on conversion
|
|
|
|
paid on conversion
|
|
Conversion terms 6
|
|
Conversion at $0.10 per share
|
|
|
Paid on conversion
|
|
|
|
Paid on conversion
|
|
Conversion terms 7
|
|
60% of the “Market Price”, which is the lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion.
|
|
|
50,000
|
|
|
|
Paid on conversion
|
|
Conversion terms 8
|
|
65% of the “Market Price”, which is the two lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion.
|
|
|
265,050
|
|
|
|
487,061
|
|
Conversion terms 9
|
|
65% of the “Market Price”, which is the two lowest trading prices for the common stock during the fifteen (15) trading day period prior to the conversion.
|
|
|
204,579
|
|
|
|
Paid on conversion
|
|
Conversion terms 10
|
|
65% of the “Market Price”, which is the one lowest trading prices for the common stock during the fifteen (15) trading day period prior to the conversion.
|
|
|
paid on conversion
|
|
|
|
paid on conversion
|
|
Conversion terms 11
|
|
60% of the “Market Price”, which is the two lowest trading prices for the common stock during the twelve (12) trading day period prior to the conversion.
|
|
|
paid on conversion
|
|
|
|
Paid on conversion
|
|
Conversion terms 12
|
|
61% of the “Market Price”, which is the average of the three lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion.
|
|
|
52,662
|
|
|
|
201,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Debt
|
|
|
|
|
6,160,429
|
|
|
|
6,112,938
|
|
Less: Debt Discount
|
|
|
|
|
(327,474
|
)
|
|
|
(610,686
|
)
|
Less: Debt Issue Costs
|
|
|
|
|
(7,737
|
)
|
|
|
(27,436
|
)
|
Convertible Debt - net
|
|
|
|
|
5,825,218
|
|
|
|
5,474,816
|
|
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 nine months ended September 30,
2018, the Company converted debt and accrued interest, totaling $877,381 into 4,289,679,230 shares of common stock
During the year ended December 31, 2017, the
Company converted debt and accrued interest, totaling $1,309,243 into 1,229,440,607 shares of common stock
Convertible debt consisted of the following
activity and terms:
Convertible Debt Balance as of December 31, 2017
|
|
|
6,112,938
|
|
|
|
4% - 10%
|
|
|
|
November 4, 2015 –December 7, 2018
|
|
Borrowings during the nine months ended September 30, 2018
|
|
|
869,579
|
|
|
|
8
|
%
|
|
|
|
|
Non-Cash Reclassification of accrued interest converted
|
|
|
55,293
|
|
|
|
|
|
|
|
|
|
Conversion of debt to into 4,289,679,230 shares of common stock with a valuation of $824,379 ($0.0006 - $0.00065/share) including the accrued interest of $55,293
|
|
|
(824,381
|
)
|
|
|
|
|
|
|
|
|
Convertible Debt Balance as of September 30, 2018
|
|
|
6,160,429
|
|
|
|
4% - 12%
|
|
|
|
November 4, 2015 –May 22, 2019
|
|
During the nine months ended September 30,
2018, the Company paid debt issue costs totaling $20,500
During the nine months ended September 30,
2017, the Company paid debt issue costs totaling $71,275.
The following is a summary of the Company’s
debt issue costs:
|
|
Nine months ended September 30 , 2018
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
Debt issue costs
|
|
$
|
362,423
|
|
|
|
343,898
|
|
Accumulated amortization of debt issue costs
|
|
|
(354,686
|
)
|
|
|
(316,462
|
)
|
|
|
|
|
|
|
|
|
|
Debt issue costs – net
|
|
$
|
7,737
|
|
|
|
27,436
|
|
During the nine months ended September 30,
2018 and 2017 the Company amortized $40,214 and $81,743 of debt issue costs, respectively.
(C) Debt Discount & Original Issue Discount
During the nine months ended September 30,
2018 and year ended December 31, 2017, the Company recorded debt discounts totaling $813,386 and $2,030,179, respectively.
The debt discount and the original issue discount
recorded in 2018 and 2017 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 $1,118,479 and $2,200,803
during the nine months ended September 30, 2018 and 2017, respectively, to amortization of debt discount expense.
|
|
Nine months ended September 30, 2018
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
Debt discount
|
|
$
|
13,221,839
|
|
|
|
12,386,574
|
|
Accumulated amortization of debt discount
|
|
|
(12,894,365
|
)
|
|
|
(11,775,888
|
)
|
|
|
|
|
|
|
|
|
|
Debt discount - Net
|
|
$
|
327,474
|
|
|
|
610,686
|
|
|
|
|
|
|
|
|
|
|
(D) Line of Credit – Related Party
On July 6, 2017, the Company entered into a
two-year line of credit agreement with the principal stockholder in the amount of $100,000. Subsequently, on October 2, 2017, the
Company entered into a two year line of credit agreement with the principal stockholder in the amount of $200,000. The
line of credit carries an interest rate of 4%.
As of December 31, 2017, the principal stockholder
has advanced $47,450 to the Company and was repaid $15,000 under the terms of this line of credit agreement. As of December 31,
2017 $34,156 is owed under the line of credit including the accrued interest of $306. During the nine months ended September 30,
2018, the principal stockholder has advanced $434,904 and was repaid $284,957 under the terms of this line of credit. The line
of credit balance as of September 30, 2018 is $184,180.
NOTE 4 DERIVATIVE
LIABILITIES
The Company identified conversion features
embedded within convertible debt issued in 2018 and 2017. The Company has determined that the features associated with the embedded
conversion option should be accounted for at fair value as a derivative liability.
As a result of the application of ASC No. 815,
the fair value of the conversion feature is summarized as follow:
Derivative Liability -December 31, 2017
|
|
$
|
5,909,121
|
|
Fair value at the commitment date for convertible instruments
|
|
|
1,188,688
|
|
Change in fair value of embedded derivative liability for warrants issued
|
|
|
17,320
|
|
Change in fair value of embedded derivative liability for convertible instruments
|
|
|
1,580,174
|
|
Reclassification to additional paid in capital for financial instruments that ceased to be a derivative liability
|
|
|
(1,328,469
|
)
|
Derivative Liability –September 30, 2018
|
|
$
|
7,366,834
|
|
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 nine months ended September 30, 2018 and 2017 of $375,302 and
$573,751 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 September 30, 2018:
|
|
|
Commitment Date
|
|
|
|
Re-measurement Date
|
|
|
|
|
|
|
|
|
|
|
Expected dividends:
|
|
|
—
|
|
|
|
—
|
|
Expected volatility:
|
|
|
133% - 262%
|
|
|
|
266.81%-328.68%
|
|
Expected term:
|
|
|
0.08 - 3 Years
|
|
|
|
0.00–1.12 Years
|
|
Risk free interest rate:
|
|
|
0.06% - 2.31%
|
|
|
|
2.13% - 2.60%
|
|
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, 2017:
|
|
|
Commitment Date
|
|
|
|
Re-measurement Date
|
|
|
|
|
|
|
|
|
|
|
Expected dividends:
|
|
|
—
|
|
|
|
—
|
|
Expected volatility:
|
|
|
133% - 262%
|
|
|
|
90.12% -297%
|
|
Expected term:
|
|
|
0.08 - 3 Years
|
|
|
|
0.01–1.40 Years
|
|
Risk free interest rate:
|
|
|
0.06% - 1.60%
|
|
|
|
0.01% - .1.83%
|
|
NOTE 5 PROPERTY
AND EQUIPMENT
At September 30, 2018 and December 31, 2017,
respectively, property and equipment is as follows:
|
|
September 30, 2018
|
|
December 31, 2017
|
|
|
|
|
|
Website Development
|
|
$
|
294,795
|
|
|
$
|
294,795
|
|
Furniture and Equipment
|
|
|
143,071
|
|
|
|
143,071
|
|
Leasehold Improvements
|
|
|
6,708
|
|
|
|
6,708
|
|
Software
|
|
|
54,598
|
|
|
|
54,598
|
|
Music Equipment
|
|
|
2,578
|
|
|
|
2,578
|
|
Office Equipment
|
|
|
80,710
|
|
|
|
80,710
|
|
Domain Name
|
|
|
1,500
|
|
|
|
1,500
|
|
Sign
|
|
|
628
|
|
|
|
628
|
|
Total
|
|
|
584,588
|
|
|
|
584,588
|
|
Less: accumulated depreciation and amortization
|
|
|
(552,758
|
)
|
|
|
(540,525
|
)
|
Property and Equipment, Net
|
|
$
|
31,830
|
|
|
$
|
44,063
|
|
Depreciation/amortization expense for the nine
months ended September 30, 2018 and 2017 totaled $12,233 and $35,868, respectively.
NOTE 6 STOCKHOLDERS’
DEFICIT
On April 4, 2017, 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 600,000,000 shares of common stock from 1,650,000,000 shares of common stock to 2,250,000,000 shares of common stock.
On April 23, 2017, 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 1,000,000,000 shares of common stock from 2,250,000,000 shares of common stock to 3,250,000,000 shares of common stock.
On October 4, 2017, 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 1,000,000,000 shares of common stock from 3,250,000,000 shares of common stock to 4,250,000,000 shares of common stock.
On February 1, 2018, the Company with the consent
of the Majority Shareholder and Unanimous Written Consent of the Board of Directors filed with the Securities and Exchange Commission
a Schedule 14C and with the State of Delaware an Amended Certificate of Incorporation increasing the authorized shares of common
stock by 5,750,000,000 shares of common stock from 4,250,000,000 shares of common stock to 10,000,000,000 shares of common stock.
During the nine months ended September 30,
2018, the Company issued the following common stock:
Transaction Type
|
|
Quantity
|
|
Valuation
|
|
Range of Value per share
|
|
|
|
|
|
|
|
Conversion of convertible debt and accrued interest
|
|
|
4,289,679,230
|
|
|
$
|
877,381
|
|
|
|
$0.0006 to- $0.00065
|
|
Services - rendered
|
|
|
32,678,571
|
|
|
|
46,200
|
|
|
$
|
0.0026
|
|
Shares issued in exchange for warrant forgiveness
|
|
|
9,200,000
|
|
|
|
2,760
|
|
|
$
|
0.0003
|
|
Total shares issued
|
|
|
4,331,557,801
|
|
|
$
|
926,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2017, the
Company issued the following common stock:
Transaction Type
|
|
Quantity
|
|
Valuation
|
|
Range of Value per share
|
|
|
|
|
|
|
|
Conversion of convertible debt and accrued interest
|
|
|
1,229,440,607
|
|
|
$
|
1,309,243
|
|
|
|
$0.00045 to- $0.00731
|
|
Services - rendered
|
|
|
6,000,000
|
|
|
|
54,600
|
|
|
|
$0.0011 - $0.0107
|
|
Shares issued in exchange of interest – related party
|
|
|
800,000,000
|
|
|
|
960,000
|
|
|
$
|
0.00001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares repurchased
|
|
|
(13,000,000
|
)
|
|
|
(15,000
|
)
|
|
$
|
.0014
|
|
Total shares issued
|
|
|
1,222,440,607
|
|
|
$
|
2,308,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company maintains on its books and within
the above financials, debt to Venture Champion Asia Limited and ICG USA LLC or its designee(s) which is currently in default and
has not been converted due to ICG’s settled administrative proceeding with the SEC, where the Company awaits any rightful
exemption or regulatory no-action that would render any forward moving action compliant by all the parties.
The Company announced that it entered into
an Agreement with Vedanti Systems Limited and Vedanti Licensing Limited (VLL) that resolves their dispute over the international
Optimized Data Transmission (ODT) patent portfolio previously owned by Vedanti. The Agreement further provides that VLL and
the Company will become co-owners of the pioneering portfolio. In consideration of the patent portfolio purchase, the Company
issued 80,000,000 shares of its common stock to VLL. This patent portfolio consists of patents in the following countries:
The United States, Australia, Austria, Cyprus, Denmark, Spain, Finland, France, Ireland, Italy, Luxembourg, Monaco, Portugal, Sweden,
Turkey, Belgium, Switzerland/ Liechtenstein, United Kingdom, Greece, Netherlands and Germany. The Company continues to pursue its
litigations against Google.
Return of Shares and Issuance of Preferred
shares
On October 2, 2017, the Company, in exchange
for Greg Halpern's consideration issuing the Company a line of credit of $100,000 on July 6, 2017 and another line of credit of
$200,000 on October 2, 2017 and for Mr. Halpern's forgiveness of $960,000 of interest owed to Mr. Halpern for his Preferred Shares
accrued dividend rate of 8% per annum of his already owned 5 million Series A Convertible Preferred Shares, the Board deemed it
proper to grant Mr. Halpern an additional 800,000,000 shares of the Company's common stock, which at Mr. Halpern's election he
may convert into 5,000,000 additional Series A Convertible Preferred Shares with the same voting rights and percentages as his
previously granted and owned 5,000,000 Series A Convertible Preferred Shares.
On November 8, 2017, the Company, at Greg Halpern's
election, converted 800,000,000 shares of Common Stock into 5,000,000 Series A Convertible Preferred Shares representing 33.4%
of the Company’s voting rights and control adding to Halpern’s existing 33.4% holdings, equaling 66.8% of the Company’s
total voting rights and control.
On March 4, 2015 the Company filed a form 8K
with the SEC associated with the Company entering into a Securities Exchange Agreement and the Company filing with the Secretary
of State Delaware a Certificate of Designations, Preferences and Rights whereby, among other things, the Company for good and valuable
consideration, agreed that in consideration of a large shareholder exchanging 120,000,000 shares of common stock back to the Company,
the shareholder would receive 5,000,000 shares of Series A Convertible Preferred Stock of the Company at a Stated Value of $0.96
per share and a Conversion Price of $0.04 per share. These 5,000,000 Series A Convertible Preferred Shares represent 33.4% of the
Company’s voting rights and control and accrue dividends at a rate of 8% per annum Stated Value, payable in cash or in kind
at the election of the Board of Directors. For the nine months ended September 30, 2018 and for the twelve months ended December
31, 2017, the Company has not declared dividends.
(B) Stock Warrants
The following tables summarize all warrant
grants as of September 30, 2018, 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, 2017
|
|
|
|
19,220,690
|
|
|
$
|
0.01
|
|
|
|
1.2
|
|
|
Granted
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited
|
|
|
|
(5,600,000
|
)
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2018
|
|
|
|
13,620,690
|
|
|
$
|
0.01
|
|
|
|
0.7
|
|
On May 7, 2018, the Company issued 9,200,000
shares of Company’s common stock to consultant in exchange for forgiveness of Warrant Agreement with the Company with a fair
value of $2,760 ($0.0003/Share).
A summary of all outstanding
and exercisable warrants as of September 30, 2018 is as follows:
|
|
|
|
|
|
Weighted Average
|
|
Aggregate Intrinsic
|
Exercise
|
|
Warrants
|
|
Warrants
|
|
Remaining
|
|
Value
|
Price
|
|
Outstanding
|
|
Exercisable
|
|
Contractual Life
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
0.67
|
|
|
$
|
—
|
|
$
|
0.005
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
0.91
|
|
|
$
|
—
|
|
$
|
0.0029
|
|
|
|
8,620,690
|
|
|
|
8,620,690
|
|
|
|
0.75
|
|
|
$
|
—
|
|
$
|
0.12
|
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
0.0.27
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,620,690
|
|
|
|
19,220,690
|
|
|
|
0.70
|
|
|
$
|
—
|
|
A summary of all outstanding
and exercisable warrants as of December 31, 2017 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
|
|
|
|
1.16
|
|
|
$
|
—
|
|
$
|
0.005
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1.40
|
|
|
$
|
—
|
|
$
|
0.0029
|
|
|
|
8,620,690
|
|
|
|
8,620,690
|
|
|
|
1.25
|
|
|
$
|
—
|
|
$
|
0.006
|
|
|
|
5,600,000
|
|
|
|
5,600,000
|
|
|
|
1.39
|
|
|
|
|
|
$
|
0.12
|
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
0.77
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,220,690
|
|
|
|
19,220,690
|
|
|
|
1.2
|
|
|
$
|
—
|
|
(C) Stock Options
On July 6, 2017, Company's Chief Financial
Officer ("CFO"), the Company issued 95,332,500 options to buy common shares of the Company's stock at $0.00253 per share,
good for three years to the CFO. The Company recognized an expense of $191,361 for nine months ended September 30, 2018. The Company
recorded the fair value of the options based on the fair value of each option grant estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions:
Expected dividends 0%
Expected volatility 178.27%
Expected term 3 Years
Risk free interest rate 0.69%
The following tables summarize all option grants
as of September 30, 2018, and the related changes during these periods are presented below:
|
|
Number of Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life
(in Years)
|
Outstanding – December 31, 2017
|
|
|
2,866,652
|
|
|
|
|
|
|
$
|
0.13
|
|
|
|
1.02
|
|
Granted
|
|
|
95,332,500
|
|
|
|
|
|
|
$
|
0.0025
|
|
|
|
2
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
$
|
—
|
|
|
|
—
|
|
Forfeited or Canceled
|
|
|
(2,866,652
|
)
|
|
|
|
|
|
$
|
—
|
|
|
|
—
|
|
Outstanding – September 30, 2018
|
|
|
95,332,500
|
|
|
|
$
|
|
|
|
0.0025-
|
|
|
|
1.55-
|
|
Exercisable – September 30, 2018
|
|
|
95,332,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7 COMMITMENTS
(A) Consulting Agreement
On July 1, 2018 the Company entered into a
new engagement with a consultant for a period of one year. Either Consultant or the Company may terminate the agreement at any
time and for any reason by giving the other party 5 day notice. In connection with this agreement, the consultant will receive
a compensation equal to $120,000 on or before June 30, 2019. No payments have been made as of September 30, 2018 and the amount
was accrued.
On March 5, 2018 the Company entered into a
consulting services agreement with a consultant. The agreement will continue until March 5, 2019. During the last nine months of
the agreement, either Consultant or the Company may terminate the agreement at any time and for any reason by giving the other
party 5 day notice. In connection with this agreement, the consultant received shares of common stock and hourly compensation.
On April 4, 2018 the Company issued 2,678,571 shares of Company’s common stock in connection
with March 5, 2018 consulting agreement with a fair value of
$1,500 ($$0.00055/share).
On January 29, 2018 the Company entered into
a consulting services agreement with a consultant. The agreement will continue until January 29, 2019. During the last nine months
of the agreement, either Consultant or the Company may terminate the agreement at any time and for any reason by giving the other
party 30 day notice. In connection with this agreement, the consultant received 30,000,000 shares of common stock each upon the
executing of the agreement with a fair value of $44,700 ($0.0015/share).
On October 12, 2017 the Company entered into
a new engagement with its corporate counsel McMenamin Law Group, for corporate legal services to be provided from January 1, 2018
through December 31, 2018. Specifically the Company agreed to pay a flat fee totaling $32,500 in the following installment, (i)
$10,000 on January 2, 2018, (ii) $7,500 on March 31, 2018, (iii) $7,500 on September 30, 2018, and (iv) $7,500 on October 31, 2018.
(B) Other Agreements
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.
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. On September 25, 2017, the Court issued an order that the Company should reimburse defendants for its attorneys’
fees in the amount of $820,321.41. The Company believes that the Order for fees is without merit and has appealed. For
the nine months ended September 30 , 2018 and year ended December 31 2017, the Company recorded judgement payable on the balance
sheet for $819,626, respectively.
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. On October 4, 2017, the Court granted Mr. Attia leave to amend
the complaint to add causes of action against defendants for civil violations of the federal Racketeer Influenced and Corrupt Organizations
Act (commonly known as RICO). Subsequently, on October 23, 2017, the defendants removed the lawsuit from California
state court to the federal district court in the Northern District of California, San Jose Division. 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. The parties have begun the discovery phase of
the litigation and the Judge has set a status hearing for January 19, 2018.
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 SUBSEQUENT EVENTS
Subsequent to September 30,
2018, principal shareholder paid an aggregate $37,235 in expenses on Company’s behalf as an advance under the terms of the
line of credit agreement (See Note 3 (D)).