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MAXD > SEC Filings for MAXD > Form 10-Q on 14-Nov-2013All Recent SEC Filings

Show all filings for MAX SOUND CORP

Form 10-Q for MAX SOUND CORP


14-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Corporate History and Structure

Max Sound Corporation (the "Company") was incorporated in the State of Delaware as of December 9, 2005 as 43010, Inc. to engage in any lawful corporate undertaking, including, but not limited to, locating and negotiating with a business entity for combination in the form of a merger, stock-for-stock exchange or stock-for-assets exchange. On October 7, 2008, pursuant to the terms of a stock purchase agreement, Mr. Greg Halpern purchased a total of 100,000 shares of our common stock from Michael Raleigh for an aggregate of $30,000 in cash. The total of 100,000 shares represents 100% of our issued and outstanding common stock at the time of the transfer. As a result, Mr. Halpern became our sole shareholder. As part of the acquisition, and pursuant to the Stock Purchase Agreement, Michael Raleigh, our then President, CEO, CFO, and Chairman resigned from all the positions he held in the company, and Mr. Halpern was appointed as our President, CEO, CFO and Chairman. The current business model was developed by Mr. Halpern in September of 2008 and began when he joined the company on October 7, 2008. In October 2008, we became a development stage company focused on creating an Internet search engine and networking web site.

In May of 2010, we acquired the world-wide rights to all fields of use for Max Sound HD Audio technology. In November of 2010, we opened our post-production facility for Max Sound HD Audio in Santa Monica, California. In February of 2011, after several successful demonstrations to multi-media industry company executives, we decided to shift the focus of the Company to the marketing of the Max Sound HD Audio technology and commenced the name change from So Act Network, Inc. to Max Sound Corporation and the symbol from SOAN to MAXD.

In January of 2011, the Company hired its current President and CEO, and Mr. Halpern retained the title of Chairman and CFO.

On December 3, 2012, the Company completed the purchase of the assets of Liquid Spins, Inc., a Colorado corporation ("LSI") (the "Asset Purchase Agreement"). Pursuant to the Asset Purchase Agreement, the assets of LSI were exchanged for 24,752,475 shares of common stock of the Company (the "Shares"), equal to $10,000,000 and a purchase price of $0.404 per share. The assets of LSI purchased included: record label distribution agreements; Liquid Spins technology inventory; independent arts programs; retail contracts for music distribution; gift card retail contracts via incomm; physical inventory and office equipment; design and retail ready concepts; brand value; records; publishing catalog; and web assets.

In July 2013 the Company released an update to its flagship High Definition music app for Android; Spins HD featuring MAX-D's patent pending digital audio technology (Maximum Definition), providing the clearest and crispest sound standard for music playback on any Smartphone or portable media player.

The new Spins HD App gives users more control than ever in how they organize and playback their music in High Definition. The Spins HD App allows users to create a playlist from any artist, track, albums, genres, and queue. Users can also create, rename and delete playlists, or create and edit new ones from queued tracks. They can delete specific tracks from a queue or select to play at a specific point in the queue.

Going beyond EQ-based apps in Google Play, MAX-D's patent pending technology is unlike other high-definition portable audio solution on the market. MAX-D converts the original, compressed digital recording to a warm analog sounding sound wave. MAX-D has the ability to restore the full breadth of the original recording, even though it is still technically playing back the digital mp3 file. With the Spins HD App, users can adjust different parts of the sound wave
- customizing it to the low, mid or high range - or let the app itself do the work by setting musical genre defaults like pop, rock, jazz, classical, reggae, hip-hop and Latin.

The MAX-D technology is now integrated in the Spins HD App. The acquisition of Liquid Spins late last year allows users to download music and listen to it on the new Spins HD app, available at either Google Play or liquidspins.com.

In August 2013, InComm and Liquid Spins increased production of new Digital Music Gift cards; adding a fresh look and new locations to their current distribution network. The new Liquid Spins Gift cards will also direct consumers to download the SPINS HD Audio app, where consumers can listen to their music in HD. This first phase launch of Gift cards is strategically placed in approximately 4,050 convenience stores across the United States. InComm anticipates nearly half of the $15, $25 and $50 Gift cards will be placed into stores by October with the remaining balance placed by end of year 2013.

With the demand for digital music on the rise, Liquid Spins continues to expand the relationship with InComm, anticipating full distribution rollout throughout 2014 of Liquid Spins Gift cards into a majority of InComm's 400,000 retail locations with traffic of over one billion consumers per week.

InComm is a leading provider of cutting-edge prepaid products, services and transaction technologies to retailers, brands and consumers. InComm supports more than 400,000 points of distribution and helps retailers build prepaid card destinations, connects brands with new markets and gives consumers a simple, secure shopping experience. InComm stays ahead of emerging trends by analyzing market needs and leveraging its global, innovative commerce platform, go-to-market expertise and extensive partner relationships. With 123 global patents, InComm is headquartered in Atlanta and has offices in North and South America, Europe and the Asia-Pacific region.

Also in August 2013, the company unveiled its newly redesigned music store, Liquid Spins (https://liquidspins.com/). In addition to having a brand new look, and being easier to navigate, the Spins' site began adding more than 7.5 million songs from independent music distributor -- The Orchard (http://www.theorchard.com/). This additional music complements existing titles from all major record labels, including: Universal Music Group, Sony Music Group, Warner Brothers Music Group, Red Distribution and Curb Records.

Liquid Spins offers instant access to one of the most extensive collections of digital DRM free music on the web today. The new Spins' site also offers customers a free MAX-D™ powered HD mobile app, SPINS HD. This app dynamically plays customer's on-device music catalog in High Definition without altering the original file. The SPINS HD app has seen mass consumer adoption with over 10,000 downloads achieved within the first 72 hours of its release.

The Orchard has offices in New York City, Nashville, London, Barcelona, Berlin and Paris, along with other cities around the world. Along with acting as a distributor for independent artists and a diverse collection of labels such as Daptone Records, Cleopatra, Barsuk Records and Frenchkiss Records, it licenses music for use in television, film and advertising.


In September 2013, the Company's MAX-D HD Audio technology was spotlighted at Qualcomm's annual Uplinq Software Conference and subsequently on its Worldwide Developer Network.

By porting the MAX-D algorithm to the Qualcomm Hexagon™ DSP, and introduction at Uplinq, several business and technology opportunities have arisen.

https://developer.qualcomm.com/showcase/max-d-complex-hardware-upgrade-becomes-simple-software-upgrade
(Application Story Source: Qualcomm Developer Network)

Qualcomm is the industry leader in 3G and next-generation mobile technologies, producing close to half the chip-sets used in the global smart phone market, and powering some of the most well known brands such as Samsung, Sony, HTC, BlackBerry and LG.

MAX-D's low-level easy-integration is now able to take advantage of the Heterogeneous Computing on Hexagon's architecture, providing the most true-to-life and perfect audio experience not previously possible. http://www.qualcomm.com/media/videos/mobile-heterogeneous-computing-action-max-sound
(Video source: Qualcomm)

This development provides Depth, Detail and Dimension of the audio that can now come from a mobile device with the Company's patent-pending HD Audio Technology thus providing consumers with the best auditory-sensory-experience from their movies, music, games and voice transmissions.

MAX-D is not limited to mobile devices; it can run anywhere there is a Snapdragon processor, and RAM. MAX-D HD can perfect audio in automobiles, home entertainment systems, headphones or speakers. Anywhere audio can go, so can MAX-D.

The result of the yearlong development with Qualcomm onto Snapdragon, which was first announced in Q3 2012 is that many of their well known OEM brands are now pursuing opportunities to incorporate MAX-D HD Audio into their Smartphone device markets. The Company anticipates that it will see the realization of those developments in Q2 and Q3 2014.

Plan of Operation

We began our operations on October 8, 2008, when we purchased the Form 10 Company from the previous owners. Since that date and through 2011, we have completed financing to raise initial start-up money for the building of our internet search engine and social networking website and to start our operations. In 2011, the Company shifted the focus of its' business operations from their social networking website to the marketing of the Max Sound HD Audio Technology.

We have also received three loans from Mr. Greg Halpern, in the amount of $9,500, $15,000 or $16,700 on May 11, May 22, and May 26, 2009, respectively. Each of the loans bears an interest rate equal to the primate rate as of the date of issuance. These loans matured and expired in 2011. We also entered into three Credit Line Agreements with Greg Halpern. The first two were for $100,000 each and matured and expired in 2011. The third Credit Line Agreement issued by Mr. Halpern in March 2010 for an additional $500,000 and matured in 2012. On September 26, 2013, we entered into a Credit Line Agreement with Mr. Halpern for $1,000,000 that will mature and expire on or before the second anniversary of September 26, 2013. Interest will accrue on each advance at an annual rate of 4%. We believe that the $1,000,000 line of credit issued will not be sufficient to cover the additional expense arising from maintenance of our regulatory filings with the SEC and the marketing of our technology over the next twelve months, thus the Company will continue to pursue additional financing and/or additional funding in 2013 to continue marketing the Max Sound HD Audio Technology aggressively to Multi-Media Industry Users of Audio and Audio with Video products.

In 2011, the Company received from Mr. Halpern additional net advances on the established lines of credit in the amount of $134,000 and forgiveness of $244,000 through conversion of debt notes and accrued salary into shares at 11 cents per share. This further demonstrates our Chairman's ongoing commitment to continue financing the Company's needs. While the Company expects to have ongoing needs for additional financing, the amount of those needs are not clearly established as the Company moves forward.

The Company believes that Max Sound HD Audio Technology is a game changer for several vertical markets whose demand will create revenue opportunities in 2013 that will meet the Company's needs to eliminate its going concern status in 2014.

We expect our financial requirements to increase with the additional expenses needed to market and promote the Max Sound® Audio technology. We plan to fund these additional expenses by loans from Mr. Halpern based on existing lines of credit and we are also considering various private funding opportunities until such time that our revenue stream is adequate enough to provide the necessary funds.

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


Results of Operations

The following tables set forth key components of our results of operations for
the periods indicated, in dollars, and key components of our revenue for the
period indicated, in dollars.

                                                                     For the Three Months Ended,
                                                                                        September 30,
                                                                September 30, 2013           2012

Revenue                                                        $                487     $            -


Operating Expenses
General and administrative                                                  788,055            212,553
Consulting                                                                  151,150            228,217
Professional fees                                                           182,196             34,736
Compensation                                                                279,700            166,600
Total Operating Expenses                                                  1,401,101            642,106

Loss from Operations                                                     (1,400,614 )         (642,106 )

Other Income / (Expense)
Interest income                                                                   -                 23
Interest expense                                                            (82,638 )          (97,257 )
Derivative Expense                                                         (100,590 )                -
Amortization of debt offering costs                                        (127,051 )          (38,302 )
Amortization of debt discount                                              (794,785 )         (243,780 )
Change in fair value of embedded derivative liability                       214,213            195,038
Total Other Income / (Expense)                                             (890,851 )         (184,278 )

Provision for Income Taxes                                                        -                  -

Net Loss                                                       $         (2,291,465 )   $     (826,384 )

Net Loss Per Share - Basic and Diluted                         $                 (0 )   $           (0 )

Weighted average number of shares outstanding during the
year Basic and Diluted                                                  304,789,731        256,250,214

For the three months ended September 30, 2013 and for the three months ended September 30, 2012

Revenue: Our primary source of revenue at present is from music sales on our LiquidSpins.com store website and through the sale of digital music as the backend for Incomm through large and small retailers. Future revenue in 2014 is expected from licensing our MAX-D HD Audio solution to Qualcomm OEM's.

General and Administrative Expenses: Our general and administrative expenses were $788,055 for the three months ended September 30, 2013 and $212,553 for the three months ended September 30, 2012, representing an increase of $575,502 or approximately 271%, as a result of our expenses on the general operation of the Company including added personnel, product development and marketing of our Max Sound Technology.

Consulting Fees: Our consulting fees were $151,150 for the three months ended September 30, 2013 and $228,217 for the three months ended September 30, 2012, representing a decrease of $77,067. While the Company has decreased the use of consultants to assist the Company in raising capital, and the promotion of the Max Sound Technology, the overall substantial decrease was due primarily to the discontinued use of consultants needed for promotional and marketing services related to our social networking website, which was abandoned on August 16, 2011.


Professional Fees: Our professional fees were $182,196 for the three months ended September 30, 2013 and $34,736 for the three months ended September 30, 2012, representing an increase of $147,460, or approximately 425%, as result of legal fees in connection with patent work.

Compensation: Our compensation expenses were $279,700 for the three months ended September 30, 2013 and $166,600 for the three months ended September 30, 2012, representing an increase of $113,100, or approximately 68%, as a result of our expensing of monthly compensation to our CFO, CEO, and CIO and to our CTO pursuant to their employment agreements.

Net Loss: Our net loss for the three months ended September 30, 2013 and 2012, was $2,291,465, and $826,384, respectively, representing an increase of approximately 177%. While the operational expenses in marketing our Max Sound technology increased from the same period of last year, the overall amount of net loss substantially increased as a result of increase in general and administrative expenses, endorsement fees, legal fees and compensation expense.

                                                                  For the Nine Months Ended,
                                                               September 30,      September 30,
                                                                    2013               2012

Revenue                                                        $        2,207     $            -


Operating Expenses
General and administrative                                          2,228,751            550,885
Endorsement fees                                                      480,000                  -
Consulting                                                            421,437            487,828
Professional fees                                                     785,584            119,365
Compensation                                                          961,399            490,600
Total Operating Expenses                                            4,877,171          1,648,678

Loss from Operations                                               (4,874,964 )       (1,648,678 )

Other Income / (Expense)
Interest income                                                             -                152
Interest expense                                                     (144,747 )         (224,987 )
Derivative Expense                                                   (196,467 )                -
Amortization of debt offering costs                                  (248,706 )          (68,682 )
Loss on conversions                                                   (46,093 )                -
Amortization of debt discount                                      (1,876,882 )         (433,705 )
Change in fair value of embedded derivative liability                 450,239            115,249
Total Other Income / (Expense)                                     (2,062,656 )         (611,973 )

Provision for Income Taxes                                                  -                  -

Net Loss                                                       $   (6,937,620 )   $   (2,260,651 )

Net Loss Per Share - Basic and Diluted                         $           (0 )   $           (0 )

Weighted average number of shares outstanding during the
year Basic and Diluted                                            296,835,083        255,598,643

For the nine months ended September 30, 2013 and for the nine months ended September 30, 2012

Revenue: Our primary source of revenue at present is from music sales on our LiquidSpins.com store website and through the sale of digital music as the backend for Incomm through large and small retailers. Future revenue in 2014 is expected from licensing our MAX-D HD Audio solution to Qualcomm OEM's.

General and Administrative Expenses: Our general and administrative expenses were $2,228,751 for the nine months ended September 30, 2013 and $550,885 for the nine months ended September 30, 2012, representing an increase of $1,677,866 or approximately 304.58%, as a result of our expenses on the general operation of the Company including added personnel, product development and marketing of our Max Sound Technology.


Endorsement Fees: Our endorsement fees were $480,000, for the nine months ended September 30, 2013 and $0 for the nine months ended September 30, 2012, representing an increase of $480,000 or approximately 100%, as a result of endorsement agreement with a music entertainer to promote and market our Max Sound HD Audio Technology.

Consulting Fees: Our consulting fees were $421,437 for the nine months ended September 30, 2013 and $487,828 for the nine months ended September 30, 2012, representing a decrease of $66,391, or approximately 13.61%, as a result of our continued use of consultants to further develop our Max Sound HD Audio Technology.

Professional Fees: Our professional fees were $785,584 for the nine months ended September 30, 2013 and $119,365 for the nine months ended September 30, 2012, representing an increase of $666,219, or approximately 558.14%, as a result of legal fees in connection with patent work and an increase in the expenses associated with the preparation of our financial statements and other regulatory filings required for publicly traded companies.

Compensation: Our compensation expenses were $961,399 for the nine months ended September 30, 2013 and $490,600 for the nine months ended September 30, 2012, representing an increase of $470,799, or 95.96%, as a result of our expensing of monthly compensation to our CFO, CEO, and CIO and to our CTO pursuant to their employment agreements.

Net Loss: Our net loss for the nine months ended September 30, 2013 and 2012, were $6,937,620, and $2,260,651, respectively, representing an increase of approximately 207%. While the operational expenses in marketing our Max Sound technology increased from the same period of last year, the overall amount of net loss substantially increased as a result of increase in general and administrative expenses, endorsement fees, legal fees and compensation expense.

Liquidity and Capital Resources

As reflected in the accompanying financial statements, the Company is in the development stage with minimal operations. Revenue was $2,207 and $0 for the nine months ended September 30, 2013 and 2012, respectively. We have an accumulated deficit of $25,405,786 for the period from December 9, 2005 (inception) to September 30, 2013, and have negative cash flow from operations of $6,288,012 from inception.

Our financial statements have been presented on the basis that it is a going concern, which contemplates the realization of revenues from our subscriber base and the satisfaction of liabilities in the normal course of business. We have incurred losses from inception. These factors raise substantial doubt about our ability to continue as a going concern. 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. The financial statements do not include any adjustments that would be necessary if the Company is unable to continue as a going concern.

Management believes the actions presently being taken to obtain additional funding and implement its strategic plans provide for the Company to continue as a going concern.

From our inception through September 30, 2013, our primary source of funds has been the proceeds of private offerings of our common stock and loans from our principal stockholder and unrelated third parties. Our need to obtain capital from outside investors is expected to continue until we are able to achieve profitable operations, if ever. There is no assurance that management will be successful in fulfilling all or any elements of its plans.


Prior to September 30, 2013, we have entered into three lines of credit with our principal stockholder, Mr. Greg Halpern, in the amount of $100,000, $100,000, $500,000 and $150,000, respectively. Pursuant to the lines of credit agreements, the lines of credits bear an annual interest rate of 3.25% and were due on May 29, 2011, November 11, 2011, March 25, 2012 and September 2013. As of September 30, 2013, we owe $150,000 in principal and accrued interest of $213 related to these lines of credit. The Company repaid $150,213 in principal and accrued interest in the month of October 2013.

On September 26, 2013, we entered into a Credit Line Agreement with Mr. Halpern for $1,000,000 that will mature and expire on or before the second anniversary of September 26, 2013. Interest will accrue on each advance at an annual rate of 4%.

Other than the repayment of our lines of credit, our significant commitments in the near term consist primarily of obligations pursuant to outstanding employment, consulting and operating lease agreements (see Note 9).

Recent Accounting Pronouncements

The Company's management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted would have a material impact on the accompanying financial statements.

Critical Accounting Policies and Estimates

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("GAAP"). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

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

Revenue Recognition:
Revenue is recognized when persuasive evidence of an arrangement exists, . . .

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