NOTE
1 SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Organization and Basis of Presentation
Max Sound Corporation (the "Company")
was incorporated in Delaware on December 9, 2005, under the name 43010, Inc. The Company’s business operations are focused
primarily on developing and launching audio technology software.
Effective March 1, 2011, the Company filed
with the State of Delaware a Certificate of Amendment of Certificate of Incorporation changing our name from So Act Network, Inc.
to Max Sound Corporation.
On August 9, 2016, the Company moved a level
down from OTCQB to OTC Pink Current Information where it is within the continued standards and pricing requirements as found in
Section 2 of the OTCQB Eligibility Standards. The Company’s services may re-apply at any time after a price increase to meet
all the OTCQB Eligibility Standards to be moved back to the higher OTCQB marketplace.
It is management's opinion, however,
that all material adjustments (consisting of normal and recurring adjustments) have been made which are necessary for a fair financial
statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the
year.
(B) Risks and Uncertainties
In December 2019, a novel strain of coronavirus
(COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant
disruptions to its economy, it has now spread to several other countries and infections have been reported globally.
Because COVID-19 infections have been reported
throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations
and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may
be issued in the future. As a result, all of our office locations have been closed effective April 1, 2020.
The ultimate impact of the COVID-19 pandemic
on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted
with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the
COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may
result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial
impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial
condition and results of operations.
The measures taken to date will impact the Company’s
business for the fiscal fourth quarter and potentially beyond. Management expects that all of its business segments, across all
of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s
business and the duration for which it may have an impact cannot be determined at this time.
(C) Use of Estimates
In preparing financial statements in conformity
with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reported period. Actual results could differ from those estimates.
(D) Cash and Cash Equivalents
For purposes of the cash flow statements,
the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to
be cash equivalents. As of December 31, 2019 and December 31, 2018, the Company had no cash equivalents.
(E) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is provided using the straight-line method over the estimated
useful life of three to five years.
(F) Research and Development
The Company has adopted the provisions of
FASB Accounting Standards Codification No. 350, Intangibles - Goodwill & Other (“ASC Topic 350”).
Costs incurred in the planning stage of a website are expensed as research and development while costs incurred in the development
stage are capitalized and amortized over the life of the asset, estimated to be three years. Expenses subsequent to the launch
have been expensed as website development expenses.
(G) Concentration of Credit Risk
The Company at times has had cash in banks
in excess of FDIC insurance limits. The Company had $0 in excess of FDIC insurance limits as of December 31, 2019 and December
31, 2018.
(H) Revenue Recognition
Effective January 1, 2018, the Company adopted
ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales
of products, licensing agreements and contracts by applying the following steps: (1) identify the contract with a customer; (2)
identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to
each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative
periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue
is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service
has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable;
and (4) the collectability of the fee is reasonably assured.
(I) Loss Per Share
In accordance with accounting guidance now
codified as FASB ASC Topic 260, “Earnings per Share,” Basic earnings (loss) per share (“EPS”) is
computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during
the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of
shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using
the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options
or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Diluted EPS excludes all dilutive
potential of shares of common stock if their effect is anti-dilutive. Because of the Company’s net losses, the effects of
stock warrants and stock options would be anti-dilutive and, accordingly, is excluded from the computation of earnings per share.
The computation of basic and diluted
loss per share for the years ended December 31, 2019 and 2018, excludes the common stock equivalents of the following potentially
dilutive securities because their inclusion would be anti-dilutive:
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Stock Warrants (Exercise price - $0.25 - $.52/share)
|
|
|
—
|
|
|
|
11,620,960
|
|
Stock Options (Exercise price - $0.00250/share)
|
|
|
95,332,500
|
|
|
|
95,332,500
|
|
Convertible Debt (Exercise price - $0.0001 - $.000061/share)
|
|
|
117,980,324,264
|
|
|
|
85,342,765,754
|
|
Series A Convertible Preferred Shares ($0.01/share)
|
|
|
250,000,000
|
|
|
|
250,000,000
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
118,325,656,764
|
|
|
|
85,699,718,944
|
|
The Company’s obligations to issue
shares upon conversion of its outstanding convertible notes, the exercise of stock options and warrants and conversion of its preferred
stock (the “Convertible Instruments”) at current market prices for its common stock exceeds by the 114,909,509,587
authorized but unissued shares of Common Stock as of the date of this report (the “Potentially Issuable Shares”). While
it is uncertain whether the Company would receive requests to issue all of the Potentially Issuable Shares and the number of such
shares fluctuates based on the market price of the Company’s common stock, the Company may increase the number of its authorized
shares of common stock or effectuate a recapitalization, or a combination of both, in order to make available additional shares
of its Common Stock for the Potentially Issuable Shares. Such action would require shareholder approval. Until such time as the
Company has a sufficient number of shares of its Common Stock for issuance to cover the Potentially Issuable Shares, the Company
could be subject to penalties and damages to the holders of the Convertible Instruments in the event it does not deliver the Potentially
Issuable Shares upon request by a holder of the Convertible Instruments. Furthermore, the lack of available shares of common stock
may be deemed a default under one or more of the Convertible Instruments.
(J) Income Taxes
The Company accounts for income taxes
under FASB Codification Topic 740-10-25 (“ASC 740-10-25”) Income Taxes. Under ASC 740-10-25, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
|
|
2019
|
|
2018
|
|
|
|
|
|
Deferred tax liability:
|
|
$—
|
|
$—
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
Temporary differences
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
|
10,401,306
|
|
|
|
9,973,745
|
|
Valuation allowance
|
|
|
(10,401,306
|
)
|
|
|
(9,973,745
|
)
|
Net deferred tax asset
|
|
|
—
|
|
|
|
—
|
|
Net deferred tax liability
|
|
$
|
—
|
|
|
$
|
—
|
|
The provision for income taxes has been computed
as follows:
|
|
2019
|
|
2018
|
Expected income tax recovery (expense) at the statuary rate of 27.64%
|
|
$
|
3,349,764
|
|
|
$
|
(3,358,672
|
)
|
Tax effect of expenses that are not deductible for income tax purposes (net of other amounts deductible for tax purposes)
|
|
|
22
|
|
|
|
106,748
|
|
Tax effect of differences in the timing of deductibility of items for income tax purposes:
|
|
|
(3,777,347
|
)
|
|
|
2,585,582
|
|
Utilization of non-capital tax losses to offset current taxable income
|
|
|
—
|
|
|
|
—
|
|
Change in valuation allowance
|
|
|
427,561
|
|
|
|
666,342
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
The valuation allowance was established to
reduce the deferred tax asset to the amount that will more likely than not be realized. This is necessary due to the Company’s
continued operating losses and the uncertainty of the Company’s ability to offset future taxable income through 2038.
The net change in the valuation allowance for
the year ended December 31, 2019 and 2018 was an increased/ (decreased) of $427,561 and $666,342, respectively.
The components of income tax expense related
to continuing operations are as follows:
|
|
|
2019
|
|
|
|
2018
|
|
Federal
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State and Local
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The company’s federal income tax
returns for the years 2016-2019 remain subject to examination by the Internal Revenue Service through 2023.
(K) Business Segments
The Company operates in one segment and therefore no segment information
is not presented.
(L) Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No.
2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease
liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters
into a lease, with some specified scope exemptions. The guidance in this Update supersedes Topic 840, Leases. The core principle
of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in
the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing
its right to use the underlying asset for the lease term. For public companies, the amendments in this Update are effective for
fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We adopted the new standard
effective January 1, 2019. The adoption of this guidance did not have a material impact on our financial statements.
All other newly issued accounting pronouncements but not yet effective
have been deemed either immaterial or not applicable.
(M) Fair Value of Financial Instruments
The carrying amounts on the Company’s
financial instruments including accounts payable, derivative liability, convertible note payable, and note payable, approximate
fair value due to the relatively short period to maturity for these instruments.
We adopted accounting guidance for financial
and non-financial assets and liabilities (ASC 820). The adoption did not have a material impact on our results of operations, financial
position or liquidity. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures.
This standard does not require any new fair
value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This
guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as
the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost
approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description
of those three levels:
Level 1: Observable inputs such as quoted prices (unadjusted) in active
markets for identical assets or liabilities.
Level
2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar
assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not
active.
Level 3:
Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by
us, which reflect those that a market participant would use.
The following are the major categories of
liabilities measured at fair value on a recurring basis: as of December 31, 2019 and December 31, 2018, using quoted prices in
active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable
inputs (Level 3):
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
Fair Value Measurement Using
|
|
Fair Value Measurement Using
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,849,591
|
|
|
|
—
|
|
|
|
13,849,591
|
|
On December 20, 2019, the Company removed the
variable component and penalties related to its convertible debt and made it a fixed price. Therefore, as of December 31, 2019
there is no longer an existing derivative liability.
(N) Stock-Based Compensation
In December 2004, the FASB issued FASB Accounting
Standards Codification No. 718, Compensation - Stock Compensation. Under FASB Accounting Standards Codification No. 718, companies
are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and
recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based
compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and
employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation
amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.
Equity instruments (“instruments”)
issued to other than employees are recorded based on the fair value of the instruments, as required by FASB Accounting Standards
Codification No. 718. FASB Accounting Standards Codification No. 505, Equity Based Payments to Non-Employees defines the measurement
date and recognition period for such instruments. In general, the measurement date is when either a (a) performance commitment,
as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The
measured value related to the instruments is recognized over a period based on the facts and circumstances of each grant as defined
in the FASB Accounting Standards Codification.
(O) Reclassification
Certain amounts from prior periods have
been reclassified to conform to the current period presentation. These reclassifications had no impact on the Company's net loss
or cash flows.
(P) Derivative Financial Instruments
Fair value accounting requires bifurcation
of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their
fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing
model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional
convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered
conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.
Once determined, derivative liabilities
are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded
in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative
instruments such as warrants, are also valued using the Black-Scholes option-pricing model.
(Q) Original Issue Discount
For certain convertible debt issued, the
Company provides the debt holder with an original issue discount. The original issue discount is recorded to debt discount, reducing
the face amount of the note and is amortized to interest expense over the life of the debt.
(R) Debt Issue Costs and Debt Discount
The Company may pay debt issue costs, and
record debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized to interest
expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts
is immediately expensed.
NOTE 2 GOING CONCERN
As reflected in the accompanying financial
statements, the Company has an accumulated deficit of $81,474,653, stockholders’ deficit of $11,155,177 and working capital
deficit of $11,155,177. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital
and implement its business plan.
As the Company continues to incur losses,
transition to profitability is dependent upon the successful commercialization of its products and achieving a level of revenues
adequate to support the Company’s cost structure.
The Company may never achieve profitability,
and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations
through additional private or public debt or equity offerings. Based on the Company’s operating plan, existing working capital
at December 31, 2018 was not sufficient to meet the cash requirements to fund planned operations through December 31, 2019 without
additional sources of cash. The Company continues to explore various financing alternatives, including debt and equity financings
and strategic partnerships, as well as trying to generate revenue. However, at this time, the Company has no commitments to obtain
any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If the Company
is unable to obtain additional funding and improve its operations, the Company’s financial condition and results of operations
may be materially adversely affected, and the Company may not be able to continue operations. This raises substantial doubt about
the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty.
NOTE 3 DEBT AND ACCOUNTS PAYABLE
Debt consists of the following:
|
|
As of December
|
|
As of December
|
|
|
31, 2019
|
|
31, 2018
|
Line of credit– related party
|
|
$
|
384,000
|
|
|
$
|
306,575
|
|
Accrued interest – related party
|
|
|
709,039
|
|
|
|
233,484
|
|
Accrued expenses – related party
|
|
|
620,945
|
|
|
|
170,945
|
|
Convertible debt
|
|
$
|
6,160,429
|
|
|
$
|
6,160,429
|
|
Less: debt discount
|
|
|
—
|
|
|
|
(169,377
|
)
|
Less: debt issue costs
|
|
|
—
|
|
|
|
(3,525
|
)
|
Convertible debt - net
|
|
|
6,160,429
|
|
|
|
5,987,527
|
|
Total current debt
|
|
$
|
7,874,413
|
|
|
$
|
6,698,531
|
|
|
•
|
Line of credit – related party
|
Line of credit with the principal stockholder consisted of the following
activity and terms:
|
|
Principal
|
|
Interest Rate
|
Balance - December 31, 2018
|
|
$
|
310,290
|
|
|
|
—
|
|
Borrowings during the year ended December 31, 2019
|
|
|
80,647
|
|
|
|
—
|
|
Interest accrual
|
|
|
14,755
|
|
|
|
—
|
|
Repayments
|
|
|
(3,220
|
)
|
|
|
—
|
|
Balance – December 31, 2019
|
|
$
|
402,472
|
|
|
|
|
|
Accounts payable consists of the following:
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
|
|
|
|
|
Accounts Payable
|
|
$
|
735,845
|
|
|
$
|
675,295
|
|
|
|
|
|
|
|
|
|
|
Total accounts payable
|
|
$
|
735,845
|
|
|
$
|
675,295
|
|
(A) Convertible Debt
During the year ended December 31, 2018, the Company issued convertible
notes for net proceeds and $827,200, respectively.
The convertible notes issued for year ended December 31, 2019 and
year ended December 31, 2018, consist of the following terms:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019 Amount of Principal Raised
|
|
Year ended December 31, 2018 Amount of Principal Raised
|
Interest Rate
|
|
|
|
|
0% - 12%
|
|
|
|
0% - 12%
|
|
Default interest rate
|
|
|
|
|
14% - 22%
|
|
|
|
14% - 22%
|
|
Maturity
|
|
|
|
|
November 4, 2015 –May 22, 2019
|
|
|
|
November 4, 2015 – December 7, 2018
|
|
Conversion terms 1
|
|
65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during
the ten (10) trading day period prior to the conversion.
|
|
|
3,691,578
|
|
|
|
3,691,578
|
|
Conversion terms 2
|
|
65% of the “Market Price”, which is the one lowest trading prices for the common stock during the ten (10) trading
day period prior to the conversion.
|
|
|
1,131,560
|
|
|
|
1,131,560
|
|
Conversion terms 3
|
|
70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during
the fifteen (15) trading day period prior to the conversion.
|
|
|
paid
on conversion
|
|
|
|
paid
on conversion
|
|
Conversion terms 4
|
|
75% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during
the ten (10) trading day period prior to the conversion.
|
|
|
765,000
|
|
|
|
765,000
|
|
Conversion terms 5
|
|
60% of the “Market Price”, which is the lowest trading prices for the common stock during the fifteen (15) trading
day period prior to the conversion.
|
|
|
paid on conversion
|
|
|
|
paid on conversion
|
|
Conversion terms 6
|
|
Conversion at $0.10 per
share
|
|
|
Paid
on conversion
|
|
|
|
Paid
on conversion
|
|
Conversion terms 7
|
|
60% of the “Market Price”, which is the lowest trading prices for the common stock during the ten (10) trading
day period prior to the conversion.
|
|
|
50,000
|
|
|
|
50,000
|
|
Conversion terms 8
|
|
65% of the “Market Price”, which is the two lowest trading prices for the common stock during the ten (10) trading
day period prior to the conversion.
|
|
|
265,050
|
|
|
|
265,050
|
|
Conversion terms 9
|
|
65% of the “Market Price”, which is the two lowest trading prices for the common stock during the fifteen (15)
trading day period prior to the conversion.
|
|
|
204,579
|
|
|
|
204,579
|
|
Conversion terms 10
|
|
65% of the “Market Price”, which is the one lowest trading prices for the common stock during the fifteen (15)
trading day period prior to the conversion.
|
|
|
paid
on conversion
|
|
|
|
paid
on conversion
|
|
Conversion terms 11
|
|
60% of the “Market Price”, which is the two lowest trading prices for the common stock during the twelve (12)
trading day period prior to the conversion.
|
|
|
paid
on conversion
|
|
|
|
paid
on conversion
|
|
Conversion terms 12
|
|
61% of the “Market Price”, which is the average of the three lowest trading prices for the common stock during
the ten (10) trading day period prior to the conversion.
|
|
|
52,662
|
|
|
|
52,662
|
|
Convertible Debt Less: Debt
|
|
|
|
|
6,160,429
|
|
|
|
6,160,429
|
|
Discount Less: Debt
|
|
|
|
|
—
|
|
|
|
(169,377
|
)
|
Issue Costs
|
|
|
|
|
—
|
|
|
|
(3,525
|
)
|
Convertible Debt - net
|
|
|
|
|
6,160,429
|
|
|
|
5,987,527
|
|
The debt holders are entitled, at
their option, to convert all or part of the principal and accrued interest into shares of the Company’s common stock at conversion
prices and terms discussed above. The Company classifies embedded conversion features in these notes and warrants as a derivative
liability due to management’s assessment that the Company may not have sufficient authorized number of shares of common stock
required to net-share settle or due to the existence of a ratchet due to an anti-dilution provision. See Note 4 regarding accounting
for derivative liabilities.
During the year ended December 31, 2018, the Company converted debt
and accrued interest, totaling $878,214 into 4,289,679,230 shares of common stock.
Convertible debt consisted of the following activity and terms:
|
|
|
|
|
Convertible Debt Balance as of December 31, 2018
|
|
|
6,160,429
|
|
|
4% - 12%
|
Borrowings
|
|
|
—
|
|
|
|
Conversions
|
|
|
—
|
|
|
|
Convertible Debt Balance as of December 31, 2019
|
|
|
6,160,429
|
|
|
|
(B)
Debt Issue Costs
During the year ended December 31, 2018, the Company paid debt issue costs totaling $20,500
The following is a summary of the Company’s debt issue costs:
|
|
Year ended
|
|
Year Ended
|
|
|
December 31, 2019
|
|
December 31, 2018
|
Debt issue costs
|
|
$
|
362,423
|
|
|
|
362,423
|
|
Accumulated amortization of debt issue costs
|
|
|
(362,423
|
)
|
|
|
(358,898
|
)
|
Debt issue costs – net
|
|
$
|
—
|
|
|
|
3,525
|
|
During the year ended December 31, 2019 and 2018 the Company amortized
$3,525 and $44,426 of debt issue costs, respectively.
(C) Debt Discount & Original Issue Discount
During the year ended December 31, 2019
and year ended December 31, 2018, the Company recorded debt discounts totaling $0 and $813,386, respectively.
The debt discount and the original issue
discount recorded in 2019 and 2018 pertains to convertible debt that contains embedded conversion options that are required to
be bifurcated and reported at fair value and original issue discounts.
The Company amortized $169,379 and $1,276,576
during the years ended December 31, 2019 and 2018, respectively, to amortization of debt discount expense.
|
|
Year ended
|
|
Year Ended
|
|
|
December 31, 2019
|
|
December 31, 2018
|
Debt discount
|
|
$
|
13,221,839
|
|
|
|
13,221,839
|
|
Accumulated amortization of debt discount
|
|
|
(13,221,839
|
)
|
|
|
(13,052,462
|
)
|
Debt discount - Net
|
|
$
|
—
|
|
|
|
169,377
|
|
(D) Line of Credit – Related Party
During the year ended December 31, 2019,
the principal stockholder has advanced $80,647 and accrued $14,755 in interest and was repaid $3,220. During the year ended December
31, 2018, the principal stockholder has advanced $557,299 accrued $3,792 in interest and was repaid $284,957 under the terms of
the line of credit. The line of credit balance and accrued interest as of December 31, 2019 is $381,546.
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, 2018
|
|
$
|
13,849,591
|
|
|
Change in fair value of embedded derivative liability for warrants issued
|
|
|
(893
|
)
|
|
Change in fair value of embedded derivative liability for convertible instruments
|
|
|
(13,848,698
|
)
|
|
Derivative Liability –December 31, 2019
|
|
$
|
—
|
|
|
The Company recorded the debt discount to the extent of the gross
proceeds raised and expensed immediately the remaining value of the derivative as it exceeded the gross proceeds of the note. The
Company recorded a derivative expense for year ended December 31, 2019 and 2018 of $0 and $375,302 respectively.
The fair value at the commitment and remeasurement
dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2019:
|
|
Commitment
|
|
Remeasurement
|
|
|
Date
|
|
Date
|
Expected dividends:
|
|
|
—
|
|
|
|
—
|
|
Expected volatility:
|
|
|
—
|
|
|
|
515.83%-792.59%
|
|
Expected term:
|
|
|
—
|
|
|
|
0.01–1.00 Years
|
|
Risk free interest rate:
|
|
|
—
|
|
|
|
1.59
|
%
|
The fair value at the commitment and remeasurement
dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2018:
|
|
|
Commitment
|
|
|
|
Remeasurement
|
|
|
|
|
Date
|
|
|
|
Date
|
|
Expected dividends:
|
|
|
—
|
|
|
|
—
|
|
Expected volatility:
|
|
|
133% - 262%
|
|
|
|
296.54%-579.57%
|
|
Expected term:
|
|
|
0.08 - 3 Years
|
|
|
|
0.11–1.01 Years
|
|
Risk free interest rate:
|
|
|
0.06% - 2.31%
|
|
|
|
2.23% - 2.63%
|
|
NOTE 5 PROPERTY AND EQUIPMENT
At December 31, 2019 and December 31, 2018, respectively, property and equipment are as follows:
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
Website Development
|
|
$
|
—
|
|
|
$
|
294,795
|
|
Furniture and Equipment
|
|
|
—
|
|
|
|
143,071
|
|
Leasehold Improvements
|
|
|
—
|
|
|
|
6,708
|
|
Software
|
|
|
—
|
|
|
|
54,598
|
|
Music Equipment
|
|
|
—
|
|
|
|
2,578
|
|
Office Equipment
|
|
|
—
|
|
|
|
80,710
|
|
Domain Name
|
|
|
—
|
|
|
|
1,500
|
|
Sign
|
|
|
—
|
|
|
|
628
|
|
Total
|
|
|
—
|
|
|
|
584,588
|
|
Less: impairment of assets
|
|
|
—
|
|
|
|
(28,211
|
)
|
Less: accumulated depreciation and amortization
|
|
|
—
|
|
|
|
(556,377
|
)
|
Property and Equipment, Net
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the year ended December 31, 2019 and 2018
totaled $0 and $12,233, respectively.
During the year ended December 31, 2018,
the Company recorded an asset impairment of $28,211 consisting of office furniture and equipment. The assets are fully impaired,
and the remaining carrying value is $0 for the year ended December 31, 2018.
NOTE
6 STOCKHOLDERS’
DEFICIT
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 year ended December 31, 2019, the Company issued the following
common stock:
Transaction Type
|
|
Quantity
|
|
Valuation
|
|
Range of Value per share
|
Services - rendered
|
|
|
10,000,000
|
|
|
$
|
12,000
|
|
|
$
|
0.0002
|
|
Total shares issued
|
|
|
10,000,000
|
|
|
$
|
12,000
|
|
|
|
|
|
During the year ended December 31, 2018, the Company issued the following
common stock:
Transaction Type
|
|
Quantity
|
|
Valuation
|
|
Range of Value per share
|
Conversion of convertible debt and accrued interest
|
|
|
4,373,012,563
|
|
|
$
|
878,214
|
|
|
|
$0.0006 to - $0.00065
|
|
Services - rendered
|
|
|
32,678,571
|
|
|
|
46,200
|
|
|
$
|
0.0026
|
|
Shares issued in exchange for warrant forgiveness
|
|
|
9,200,000
|
|
|
|
2,760
|
|
|
$
|
0.0003
|
|
Total shares issued
|
|
|
4,414,891,134
|
|
|
$
|
927,474
|
|
|
|
|
|
The Company maintains on its books and within
the above financials, debt to Venture Champion Asia Limited and ICG USA LLC or its designee(s) which is currently in default and
has not been converted due to ICG’s settled administrative proceeding with the SEC, where the Company awaits any rightful
exemption or regulatory no-action that would render any forward moving action compliant by all the parties.
The Company announced that it entered
into an Agreement with Vedanti Systems Limited and Vedanti Licensing Limited (VLL) that resolves their dispute over the international
Optimized Data Transmission (ODT) patent portfolio previously owned by Vedanti. The Agreement further provides that VLL and the
Company will become co-owners of the pioneering portfolio. In consideration of the patent portfolio purchase, the Company issued
80,000,000 shares of its common stock to VLL. This patent portfolio consists of patents in the following countries: The United
States, Australia, Austria, Cyprus, Denmark, Spain, Finland, France, Ireland, Italy, Luxembourg, Monaco, Portugal, Sweden, Turkey,
Belgium, Switzerland/ Liechtenstein, United Kingdom, Greece, Netherlands and Germany. The Company continues to pursue its litigations
against Google.
Return of Shares and Issuance of Preferred shares
On October 2, 2017, the Company, in exchange
for Greg Halpern's consideration issuing the Company a line of credit of $100,000 on July 6, 2017 and another line of credit of
$200,000 on October 2, 2017 and for Mr. Halpern's forgiveness of $960,000 of interest owed to Mr. Halpern for his Preferred Shares
accrued dividend rate of 8% per annum of his already owned 5 million Series A Convertible Preferred Shares, the Board deemed it
proper to grant Mr. Halpern an additional 800,000,000 shares of the Company's common stock, which at Mr. Halpern's election he
may convert into 5,000,000 additional Series A Convertible Preferred Shares with the same voting rights and percentages as his
previously granted and owned 5,000,000 Series A Convertible Preferred Shares.
On November 8, 2017, the Company, at Greg
Halpern's election, converted 800,000,000 shares of Common Stock into 5,000,000 Series A Convertible Preferred Shares representing
33.4% of the Company’s voting rights and control adding to Halpern’s existing 33.4% holdings, equaling 66.8% of the
Company’s total voting rights and control.
On March 4, 2015 the Company filed a form
8K with the SEC associated with the Company entering into a Securities Exchange Agreement and the Company filing with the Secretary
of State Delaware a Certificate of Designations, Preferences and Rights whereby, among other things, the Company for good and valuable
consideration, agreed that in consideration of a large shareholder exchanging 120,000,000 shares of common stock back to the Company,
the shareholder would receive 5,000,000 shares of Series A Convertible Preferred Stock of the Company at a Stated Value of $0.96
per share and a Conversion Price of $0.04 per share. These 5,000,000 Series A Convertible Preferred Shares represent 33.4% of the
Company’s voting rights and control and accrue dividends at a rate of 8% per annum Stated Value, payable in cash or in kind
at the election of the Board of Directors. For the year ended December 31, 2019 and 2018, respectively, the Company has not declared
dividends.
(B) Stock Warrants
The following tables summarize all warrant grants as of December
31, 2019, and the related changes during these periods are presented below:
|
|
Number of Warrants
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life (in years)
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
11,620,690
|
|
|
$
|
0.01
|
|
|
|
1.2
|
|
Granted
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited
|
|
|
(11,620,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
—
|
|
|
|
|
|
|
$
|
—
|
|
On May 7, 2018, the Company issued 9,200,000 shares of Company’s
common stock to consultant in exchange for forgiveness of Warrant Agreement with the Company with a fair value of $2,760 ($0.0003/Share).
A summary of all outstanding and exercisable warrants as
of December 31, 2018 is as follows:
|
|
|
|
|
|
Weighted Average
|
|
Aggregate Intrinsic
|
Exercise
|
|
Warrants
|
|
Warrants
|
|
Remaining
|
|
Value
|
Price
|
|
Outstanding
|
|
Exercisable
|
|
Contractual Life
|
|
|
$
|
0.01
|
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
0.16
|
|
|
$
|
—
|
|
$
|
0.005
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
0.40
|
|
|
$
|
—
|
|
$
|
0.0029
|
|
|
|
8,620,690
|
|
|
|
8,620,690
|
|
|
|
0.25
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,620,690
|
|
|
|
11,620,690
|
|
|
|
0.25
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C) Stock Options
The following tables summarize all option grants as of December 31,
2018, and the related changes during these periods are presented below:
|
|
Number of Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life
(In Years)
|
Outstanding – December 31, 2018
|
|
|
95,332,500
|
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited or Canceled
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Outstanding – December 31, 2019
|
|
|
95,332,500
|
|
|
|
0.0025
|
|
|
|
0.55
|
|
Exercisable – December 31, 2019
|
|
|
95,332,500
|
|
|
|
|
|
|
|
|
|
NOTE
7 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. Even though the Company was never served with the Complaint, default was entered against the Company. The Default
has been set aside and the Company has responded to the Complaint with an Answer and Cross-Complaint for Breach of Contract, Professional
Negligence, Breach of Fiduciary Duty, Conversion, and Fraud, due to the fact, that among other things, Adli Law reassigned the
Company's primary patent to itself. The parties had begun the discovery phase of the litigation and the Judge had set a status
hearing for January 19, 2018. On June 1, 2018, Adli filed a motion for summary judgment on numerous issues.
One issue raised by Adli (at the very end of
their motion and in only a single paragraph) was that Max Sound was a forfeited corporation and thus, “is foreclosed from
prosecuting any action in California courts.” Adli did not raise this issue before filing its papers. Max Sound’s counsel,
SML Avvocati, P.C. had since learned that the California Franchise Tax Board contended that Max Sound owed back taxes, hence the
forfeiture. Max Sound hired a CPA tax specialist to assist with paying its outstanding taxes which the state finally agreed were
approximately $8,000 instead of the $340,000 the state had arbitrarily wrongly calculated and the Company sought to obtain a revivor
to cure its forfeited status and thus be able to regain its ability to both defend itself in this action and prosecute its counterclaims.
However, despite working diligently with the hope of resolving this
issue before the summary judgment motion hearing set for September 6, 2018, Max Sound had not resolved its issues with the state
of California and had not yet obtained a revivor. As a result of this issue and glaring mistakes by the Company’s Counsel
SML Avvocati, Max Sound had to respectfully request that the court grant a stay in the proceedings until Max Sound was able to
obtain a revivor or, in the alternative, a continuance of all proceedings. A stay or continuance was necessary because Max Sound’s
counsel would not be able to respond to the pending summary judgment motion (or any other substantive proceeding), and Max Sound
would be unable to defend itself against this action or prosecute its cross-complaint until Max Sound’s forfeited status
was cured. The court provided a summary default judgment in favor of Adli one day before Max Sound obtained a revivor.
In response, the Company hired Klapach &
Klapach, P.C. who filed an application for an extension to file an opening brief. The extension was granted, and the opening brief
was filed April 26, 2019. Adli responded with a Respondent Brief, Appendix and Motion to Augment. Max Sound’s counsel filed
a reply brief.
In the conclusion of the brief, Max Sound’s counsel Mr. Klapach
stated:
“The trial court committed error in granting
summary judgment in the Adli Firm’s favor. Based on the Adli Firm’s own evidence, there were triable issues of fact
regarding the Adli Firm’s claims for unpaid fees. With respect to the Steele Litigation, nearly all of the unpaid invoices
that the Adli Firm sought to recover were for legal services that were separately billed to Mr. Trammell for Mr. Trammell, Mr.
Wolff, and Audio Genesis’s defense. The record also reflects that Dr. Adli orally agreed to look solely to Mr. Trammell
and Mr. Wolff for payment of the Adli Firm’s fees. With respect to the patent prosecution representation, triable issues
of fact existed as to whether the Adli Firm’s admitted error in identifying itself – instead of Max Sound –
as the assignee of the MAXD patent was a material breach that excused Max Sound’s performance and/or entitled Max Sound
to set off. With respect to the Cross-Complaint, the trial court erred in concluding that Max Sound lacked the capacity to sue
when Max Sound had presented the court with a Certificate of Revivor prior to the summary judgment hearing. The trial court also
erred in refusing to grant Max Sound a short continuance so that it could pay its outstanding taxes and obtain a Certificate of
Revivor.”
No assurance can be given as to the
ultimate outcome of these actions or their effect on the Company however the Company is confident it will receive a reversal in
of the Summary Judgment and ultimately succeed in its cross complaint against the Adli Firm.
NOTE
8 SUBSEQUENT
EVENT
Subsequent to December 31, 2019, the principal stockholder has advanced
$26,100 and was repaid $14,700 on under the terms of the line of credit.