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.
(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, 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 December 31, 2018 and December 31, 2017.
(G)
Revenue Recognition
Effective
January 1, 2018, the Company recognizes revenue in accordance with Accounting Standards Codification 2014-09, Revenue from
Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition,
and most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification.
The updated guidance states that an entity should recognize revenue to depict the transfer of promised 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.
The guidance also provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers.
The standard will be effective for the first interim period within annual reporting periods beginning after December 15,
2017, and the Company adopted the standard using the modified retrospective approach effective January 1, 2018.
(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 years ended December 31, 2018 and 2017 excludes the common stock equivalents
of the following potentially dilutive securities because their inclusion would be anti-dilutive:
|
|
December
31, 2018
|
|
December
31, 2017
|
|
|
|
|
|
Stock
Warrants (Exercise price - $0.25 - $.52/share)
|
|
|
11,620,690
|
|
|
|
19,220,690
|
|
Stock
Options (Exercise price - $0.00250/share)
|
|
|
95,332,500
|
|
|
|
95,332,500
|
|
Convertible
Debt (Exercise price - $0.0001 - $.000150/share)
|
|
|
85,342,765,754
|
|
|
|
8,399,417,649
|
|
Series
A Convertible Preferred Shares ($0.01/share)
|
|
|
250,000,000
|
|
|
|
250,000,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
85,699,718,944
|
|
|
|
8,763,970,809
|
|
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 82,273,571,767 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.
On
December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law and the new legislation contains several
key tax provisions that affected us, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction
of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the
tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and
liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. In December 2017, the SEC
staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB
118), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment
date. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are
expected over the next 12 months, we consider the accounting of the transition tax, deferred tax re-measurements, and other items
to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions. We expect
to complete our analysis within the measurement period in accordance with SAB 118.
The
net deferred tax liability in the accompanying balance sheets includes the following amounts of deferred tax assets and liabilities:
|
|
2018
|
|
2017
|
|
|
|
|
|
Deferred
tax liability:
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
tax asset
|
|
|
|
|
|
|
|
|
Temporary
differences
|
|
|
|
|
|
|
|
|
Net
Operating Loss Carryforward
|
|
|
9,973,745
|
|
|
|
9,307,403
|
|
Valuation
allowance
|
|
|
(9,973,745)
|
|
|
|
(9,307,403)
|
|
Net
deferred tax asset
|
|
|
—
|
|
|
|
—
|
|
Net
deferred tax liability
|
|
$
|
—
|
|
|
$
|
—
|
|
The
provision for income taxes has been computed as follows:
|
|
2018
|
|
2017
|
Expected
income tax recovery (expense) at the statuary rate of 27.64%
|
|
$
|
(3,358,672)
|
|
|
$
|
(1,923,505)
|
|
Tax
effect of expenses that are not deductible for income tax purposes (net of other amounts deductible for tax purposes)
|
|
|
106,748
|
|
|
|
181,294
|
|
Tax
effect of differences in the timing of deductibility of items for income tax purposes:
|
|
|
(2,585,582)
|
|
|
|
141,066
|
|
Utilization
of non-capital tax losses to offset current taxable income
|
|
|
—
|
|
|
|
—
|
|
Change
in valuation allowance
|
|
|
666,342
|
|
|
|
1,601,145
|
|
|
|
|
|
|
|
|
|
|
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 2037.
The
net change in the valuation allowance for the year ended December 31, 2018 and 2017 was an increased/ (decreased) of $666,342
and $1,601,145, respectively.
The
components of income tax expense related to continuing operations are as follows:
|
|
|
2018
|
|
|
|
2017
|
|
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.
(J)
Business Segments
The
Company operates in one segment and therefore segment information is not presented.
(K)
Recent Accounting Pronouncements
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations
by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.
Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this Update supersedes
Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from
leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability)
and a right-of-use asset representing its right to use the underlying asset for the lease term. For public companies, the amendments
in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years. We are currently evaluating the impact of adopting ASU No. 2016-02 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 evaluated the impact of adopting the new standard and concluded that there was no material impact on
the Company’s revenue recognition policy.
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 adoption of this guidance
did not have a material impact on our financial statements.
In
October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers Other
than Inventory (ASU 2016-16), which requires companies to recognize the income-tax consequences of an intra-entity transfer of
an asset other than inventory when the transfer occurs, rather than when the asset has been sold to an outside party. We adopted
the new standard effective January 1, 2018, using the modified retrospective transition approach. The adoption of this guidance
did not have a material impact on our financial statements.
In
November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU
2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in
cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash
flows. We adopted the new standard effective October 1, 2018, using the retrospective transition approach for all periods presented.
The adoption of this guidance did not have a material impact on our financial statements.
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. We adopted the new standard effective October 1, 2018 on a prospective basis.
The adoption of this guidance did not have a material impact on our 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 commencing on January
1, 2020 on a prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our
financial statements.
All
other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
(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 December 31, 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):
|
|
December
31 , 2018
|
|
December
31, 2017
|
|
|
|
Fair Value Measurement
Using
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
Using
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
|
|
Total
|
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liabilities
|
|
|
—
|
|
|
|
13,849,591
|
|
|
|
—
|
|
|
|
13,849,591
|
|
|
|
—
|
|
|
|
5,909,121
|
|
|
|
—
|
|
|
|
5,909,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
NOTE
2 GOING CONCERN
As
reflected in the accompanying financial statements, the Company had a net loss of $12,153,248for the year ended December 31, 2018,
has an accumulated deficit of $93,595,670 as of December 31, 2018, and has negative cash flow from operations of $1,100,221 for
the year ended December 31, 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, 2018 was not sufficient to meet the cash requirements to fund planned
operations through December 31, 2019 without additional sources of cash. The Company continues to explore various financing alternatives,
including debt and equity financings and strategic partnerships, as well as trying to generate revenue. However, at this time,
the Company has no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable
terms or at all. If the Company is unable to obtain additional funding and improve its operations, the Company’s financial
condition and results of operations may be materially adversely affected and the Company may not be able to continue operations.
This raises substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial
statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might
result from the outcome of this uncertainty.
NOTE
3 DEBT AND ACCOUNTS PAYABLE
Debt
consists of the following:
|
|
AS
of December 31, 2018
|
|
As
of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Line
of credit– related party
|
|
$
|
306,575
|
|
|
$
|
34,156
|
|
Accrued interest
– related party
|
|
|
233,484
|
|
|
|
-
|
|
Accrued expenses
– related party
|
|
|
170,945
|
|
|
|
43,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
debt
|
|
$
|
6,160,429
|
|
|
|
6,112,938
|
|
Less:
debt discount
|
|
|
(169,377
|
)
|
|
|
(610,686
|
)
|
Less:
debt issue costs
|
|
|
(3,525
|
)
|
|
|
(27,436
|
)
|
Convertible
debt - net
|
|
|
5,987,527
|
|
|
|
5,474,816
|
|
|
|
|
|
|
|
|
|
|
Total
current debt
|
|
|
6,698,531
|
|
|
$
|
5,551,972
|
|
(A)
Line of credit – related party
Line
of credit with the principal stockholder consisted of the following activity and terms:
|
|
Principal
|
|
Interest
Rate
|
|
|
|
|
|
Balance – December 31, 2016
|
|
$-
|
|
|
Borrowings during the year ended December 31,
2017
|
|
48,850
|
|
|
Interest accrual
|
|
306
|
|
|
Repayments
|
|
($15,000)
|
|
|
Balance
- December 31, 2017
|
|
$
|
34,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings during
the years ended December 31, 2018
|
|
|
557,299
|
|
|
|
4
|
%
|
Interest accrual
|
|
|
3,792
|
|
|
|
|
|
Repayments
|
|
|
(284,957
|
)
|
|
|
|
|
Balance - December
31, 2018
|
|
$
|
310,290
|
|
|
|
|
|
Accounts
payable consists of the following:
|
|
As
of December 31, 2018
|
|
As
of December 31, 2017
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
675,295
|
|
|
$
|
399,761
|
|
Total
accounts payable
|
|
$
|
675,295
|
|
|
$
|
399,761
|
|
(B)
Convertible Debt
During
the year ended December 31, 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 years December 31, 2018 and 31, 2017, consist of the following terms:
|
|
|
|
Year ended December 31,
2018 Amount of Principal Raised
|
|
Year ended December 31, 2017
Amount of Principal Raised
|
Interest
Rate
|
|
|
|
|
0% - 12%
|
|
|
|
0% - 12%
|
|
Default
interest rate
|
|
|
|
|
14% - 22%
|
|
|
|
14% - 22%
|
|
Maturity
|
|
|
|
|
November 4, 2015 –May
22, 2019
|
|
|
|
November 4, 2015 –December
7, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
terms 1
|
|
65%
of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during
the ten (10) trading day period prior to the conversion.
|
|
|
3,691,578
|
|
|
|
3,495,100
|
|
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
|
|
|
|
|
(169,377
|
)
|
|
|
(610,686
|
)
|
Less:
Debt Issue Costs
|
|
|
|
|
(3,525
|
)
|
|
|
(27,436
|
)
|
Convertible
Debt - net
|
|
|
|
|
5,987,527
|
|
|
|
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 year ended December 31, 2018, the Company converted debt and accrued interest, totaling $878,214 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, 2016
|
|
|
5,597,598
|
|
|
|
4% - 10%
|
|
|
|
November
4, 2015 –March 10, 2018
|
|
Borrowings during
the year ended December 31, 2017
|
|
|
1,972,868
|
|
|
|
8
|
%
|
|
|
|
|
Non-Cash Reclassification
of accrued interest converted
|
|
|
85,459
|
|
|
|
|
|
|
|
|
|
Conversion of
debt to into 1,229,440,607 shares of common stock with a valuation of 1,309,243 ($0.00045 - $0.00731/share) including the
accrued interest of $85,459
|
|
|
(824,381
|
)
|
|
|
|
|
|
|
|
|
Convertible Debt
Balance as of December 31, 2017
|
|
|
6,112,938
|
|
|
|
4% - 10%
|
|
|
|
November 4, 2015 –December
7, 2018
|
|
Borrowings during
the year ended December 31, 2018
|
|
|
869,579
|
|
|
|
8
|
%
|
|
|
|
|
Non-Cash Reclassification
of accrued interest converted
|
|
|
56,126
|
|
|
|
|
|
|
|
|
|
Conversion of
debt to into 4,373,012,563 shares of common stock with a valuation of 878,214 ($0.0006 - $0.00065/share) including the accrued
interest of $56,126
|
|
|
(878,214
|
)
|
|
|
|
|
|
|
|
|
Convertible Debt
Balance as of December 31, 2018
|
|
|
6,160,429
|
|
|
|
4% - 12%
|
|
|
|
November 4, 2015 –May
22, 2019
|
|
During
the years ended December 31, 2018, the Company paid debt issue costs totaling $20,500
During
the year ended December 31, 2017, the Company paid debt issue costs totaling $77,525.
The
following is a summary of the Company’s debt issue costs:
|
|
Year ended December 31
, 2018
|
|
Year Ended December 31,
2017
|
|
|
|
|
|
Debt
issue costs
|
|
$
|
362,423
|
|
|
|
343,898
|
|
Accumulated
amortization of debt issue costs
|
|
|
(358,898
|
)
|
|
|
(316,462
|
)
|
|
|
|
|
|
|
|
|
|
Debt
issue costs – net
|
|
$
|
3,525
|
|
|
|
27,436
|
|
During
the years ended December 31, 2018 and 2017 the Company amortized $44,426 and $96,338, of debt issue costs, respectively.
(C)
Debt Discount & Original Issue Discount
During
the years ended December 31, 2018 and 2017, the Company recorded debt discounts totaling $813,386 and $2,647,357, 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 $1,276,576 and $2,647,357 during the years ended December 31, 2018 and 2017, respectively, to amortization of
debt discount expense.
|
|
Years
the ended December 31, 2018
|
|
Year
Ended December 31, 2017
|
|
|
|
|
|
Debt
discount
|
|
$
|
13,221,839
|
|
|
|
12,386,574
|
|
Accumulated
amortization of debt discount
|
|
|
(13,052,462
|
)
|
|
|
(11,775,888
|
)
|
|
|
|
|
|
|
|
|
|
Debt
discount - Net
|
|
$
|
169,377
|
|
|
|
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 year ended December 31, 2018, the principal stockholder has
advanced $557,299 accrued $3,792 in interest and was repaid $284,957 under the terms of this line of credit. The line of credit
balance and accrued interest as of December 31, 2018 is $310,290.
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, 2016
|
|
$
|
5,906,940
|
|
Fair value at the
commitment date for convertible instruments
|
|
|
2,577,074
|
|
Change in fair value
of embedded derivative liability for warrants issued
|
|
|
(200,480)
|
|
Change in fair value
of embedded derivative liability for convertible instruments
|
|
|
(668,281)
|
|
Reclassification
to additional paid in capital for financial instruments that ceased to be a derivative liability
|
|
|
(1,319,638
|
)
|
Change from repayments
|
|
|
(386,494)
|
|
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
|
|
|
17,993
|
|
Change in fair value
of embedded derivative liability for convertible instruments
|
|
|
8,062,258
|
|
Reclassification
to additional paid in capital for financial instruments that ceased to be a derivative liability
|
|
|
(1,328,469
|
)
|
Derivative
Liability –December 31, 2018
|
|
$
|
13,849,591
|
|
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 years ended
December 31, 2018 and 2017 of $375,302 and $639,224 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, 2018:
|
|
|
Commitment Date
|
|
|
|
Re-measurement
Date
|
|
|
|
|
|
|
|
|
|
|
Expected
dividends:
|
|
|
—
|
|
|
|
—
|
|
Expected
volatility:
|
|
|
133% - 262%
|
|
|
|
296.54%-579.57%
|
|
Expected
term:
|
|
|
0.08 - 3 Years
|
|
|
|
0.11–1.01 Years
|
|
Risk
free interest rate:
|
|
|
0.06% - 2.31%
|
|
|
|
2.23% - 2.63%
|
|
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
December 31, 2018 and 2017, respectively, property and equipment is as follows:
|
|
December
31, 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:
impairment of assets
|
|
|
(28,211)
|
|
|
|
-
|
|
Less:
accumulated depreciation and amortization
|
|
|
(556,377
|
)
|
|
|
(540,525
|
)
|
Property
and Equipment, Net
|
|
$
|
-
|
|
|
$
|
44,063
|
|
Depreciation
expense for the years ended December 31, 2018 and 2017 totaled $15,852 and $42,459, respectively.
During
the year ended December 31, 2018, the Company recorded an asset impairment of $28,211 consisting of office furniture and equipment.
The assets are fully impaired and the remaining carrying value is $0 for the year ended December 31, 2018.
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 years ended December 31, 2018, the Company issued the following common stock:
Transaction
Type
|
|
Quantity
|
|
Valuation
|
|
Range
of Value per share
|
|
|
|
|
|
|
|
Conversion
of convertible debt and accrued interest
|
|
|
4,373,012,563
|
|
|
$
|
878,214
|
|
|
|
$0.0006
to- $0.00065
|
|
Services
- rendered
|
|
|
32,678,571
|
|
|
|
46,200
|
|
|
$
|
0.0026
|
|
Shares
issued in exchange for warrant forgiveness
|
|
|
9,200,000
|
|
|
|
2,760
|
|
|
$
|
0.0003
|
|
Total
shares issued
|
|
|
4,414,891,134
|
|
|
$
|
927,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 years ended
December 31, 2018 and 2017, respectively, the Company has not declared dividends.
(B)
Stock Warrants
The
following tables summarize all warrant grants as of December 31, 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
|
|
|
|
(7,600,000
|
)
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2018
|
|
|
|
11,620,690
|
|
|
$
|
0.01
|
|
|
|
0.2
|
|
On
May 7, 2018, the Company issued 9,200,000 shares of Company’s common stock to consultant in exchange for forgiveness of
Warrant Agreement with the Company with a fair value of $2,760 ($0.0003/Share).
A
summary of all outstanding and exercisable warrants as of December 31, 2018 is as follows:
|
|
|
|
|
|
Weighted
Average
|
|
Aggregate
Intrinsic
|
Exercise
|
|
Warrants
|
|
Warrants
|
|
Remaining
|
|
Value
|
Price
|
|
Outstanding
|
|
Exercisable
|
|
Contractual
Life
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
0.16
|
|
|
$
|
—
|
|
$
|
0.005
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
0.40
|
|
|
$
|
—
|
|
$
|
0.0029
|
|
|
|
8,620,690
|
|
|
|
8,620,690
|
|
|
|
0.25
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,620,690
|
|
|
|
13,620,690
|
|
|
|
0.25
|
|
|
$
|
—
|
|
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
year ended December 31, 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 December 31, 2018, and the related changes during these periods are presented
below:
|
|
Number
of Options
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Remaining Contractual Life
(in Years)
|
Outstanding
– December 31, 2016
|
|
|
2,866,652
|
|
|
|
|
|
|
$
|
0.13
|
|
|
|
1.02
|
|
Granted
|
|
|
95,332,500
|
|
|
|
|
|
|
$
|
0.0025
|
|
|
|
2
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
$
|
—
|
|
|
|
—
|
|
Forfeited
or Canceled
|
|
|
(2,866,652
|
)
|
|
|
|
|
|
$
|
—
|
|
|
|
—
|
|
Outstanding
– December 31, 2017
|
|
|
95,332,500
|
|
|
|
|
|
|
$
|
0.13
|
|
|
|
1.02
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
$
|
—
|
|
|
|
—
|
|
Forfeited
or Canceled
|
|
|
-
|
)
|
|
|
|
|
|
$
|
—
|
|
|
|
—
|
|
Outstanding
– December 31, 2018
|
|
|
95,332,500
|
|
|
|
$
|
|
|
|
0.0025-
|
|
|
|
1.51-
|
|
Exercisable
– December 31, 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 December
31, 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 f air 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 $45,000 ($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 was informed by counsel
that the Order for fees was without merit and appealed but was told at the hearing that Google would lose the appeal if the Company
had not committed Waiver. After an excessively long delay by the Federal Appeals Court to hear the case so it could be combined
with another case (Vedanti Licensing Limited vs Google) using the same Tribunal with the sole intention to harm the Company, and
continue to allow Google to steal and destroy the ODT Patent while profiting from it as a key component of its business, the Appeal
was finally heard and the Company lost with no reasonable explanation with the corrupt Tribunal simply rubber stamping both cases
Affirmed See Fed Rule 36, which means “we won’t
even
look at the facts because then we would have no choice but to reverse the case.” The Company is exploring additional rights
it may have in both cases with its ongoing battle against Judicial Corruption. The Company is taking recourse by planning to file
a petition for rehearing en banc, where all judges of the appellate court will hear the case. This petition is based on a precedent
case similar to Max Sound’s case with the same defense lawyer for the opposing side, the same judges who heard the case
and a similar chain of events. Max Sound has until April 11, 2019 to file the petition. For the twelve months ended December 31,
2018, the Company recorded the judgment payable on the balance sheet.
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 had set a status hearing for January 19, 2018.On June
1, 2018, Adli filed a motion for summary judgment on numerous issues. One issue raised by Adli (at the very end of their motion
and in only a single paragraph)
was
that Max Sound was a forfeited corporation and thus, “is foreclosed from prosecuting any action in California courts.”
Adli did not raise this issue before filing its papers. Max Sound’s counsel, SML Avvocati, P.C. had since learned that the
California Franchise Tax Board contended that Max Sound owed back taxes, hence the forfeiture. Max Sound hired a CPA tax specialist
to assist with paying its outstanding taxes and to obtain a revivor to cure its forfeited status and thus be able to regain its
ability to both defend itself in this action and prosecute its counterclaims. However, despite working diligently with the hope
of resolving this issue before the summary judgment motion hearing set for September 6, 2018, Max Sound had not resolve its issues
with the state of California and had not yet obtained a revivor. As a result, Max Sound respectfully requested that the court
grant a stay in the proceedings until Max Sound was able to obtain a revivor or, in the alternative, a continuance of all proceedings.
A stay or continuance was necessary because Max Sound’s counsel would not be able to respond to the pending summary judgment
motion (or any other substantive proceeding), and Max Sound would be unable to defend itself against this action or prosecute
its cross-complaint until Max Sound’s forfeited status was cured. The court provided a summary default judgment in favor
of Adli. After entry of the adverse judgment subject to appeal, Appellant Max Sound requested that the SML Avvocati, P.C. firm
file a notice of appeal on its behalf. The SML Avvocati, P.C. firm agreed to file the notice of appeal and to represent Appellant,
Max Sound, in connection with the appeal. On November 21, 2018, the SML Avvocati, P.C. firm filed a notice of appeal on Appellant’s
behalf before the Superior Court, which was followed on December 4, 2018, by a notice designating record on appeal. On December
17, 2018, the SML Avvocati, P.C. firm filed a Civil Case Information Statement before the Court on Appellant’s behalf. SML
Avvocati, P.C. was scheduled to file an opening brief on February 12, 2019. In the week of March 18, 2019, the SML Avvocati, P.C.
firm informed Appellant for the first time that it would not file any brief on Appellant’s behalf or take any further action
in the appeal unless Appellant immediately paid them an exorbitant sum of allegedly unpaid attorney’s fees. SML Avvocati,
P.C. did not file a motion to withdraw as counsel with the Court, nor did SML Avvocati, P.C. take any steps before the Court to
protect Appellant’s interest, such as filing a request for an extension of time to file Appellant’s Opening Brief
so that Appellant could locate new counsel. Instead, the SML Avvocati, P.C. firm improperly sought to use the imminent deadline
for filing the Appellant’s Opening Brief to extort the unwarranted payment from Appellant of disputed attorney’s fees.
Appellant refused to give in to thSML Avvocati, P.C.’s improper attempt at extortion. A notice of default was issued by
the Court on March 8, 2019, such that the 15-day default period expired on March 25, 2019. Despite substantial efforts, however,
Appellant was unable to locate new appellate counsel until March 26, 2019. Max Sound’s new counsel, Klapach &Klapach,
P.C. filed an application for a 30-day extension to file the opening brief. The extension was granted and the opening brief is
now due April 26, 2019.
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 December 31, 2018, principal shareholder paid an aggregate $56,351 in expenses on Company’s behalf as an advance under
the terms of the line of credit agreement (See Note 3 (D)).