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MAXD > SEC Filings for MAXD > Form 10-K on 31-Mar-2014All Recent SEC Filings

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Form 10-K for MAX SOUND CORP


31-Mar-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

Overview

We were incorporated in the State of Delaware as of December 9, 2005 as 43010, Inc. to engage in any lawful corporate undertaking, including, but not limited to, locating and negotiating with a business entity for combination in the form of a merger, stock-for-stock 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 2012, after several successful demonstrations to multi-media industry company executives, we decided to shift the focus of the Company to the marketing of the Max Sound HD Audio Technology and commenced the name change from So Act Network, Inc. to Max Sound Corporation and the symbol from SOAN to MAXD.


On December 3, 2012, the Company completed the purchase of the assets of Liquid Spins, Inc., a Colorado corporation ("Liquid Spins"). Pursuant to the Asset Purchase Agreement, the assets of Liquid Spins were exchanged for 24,752,475 shares of common stock of the Company (the "Shares"), equal to $10,000,000 and a purchase price of $.404 per share. The assets of Liquid Spins purchased included: record label distribution agreements; Liquid Spins technology inventory; independent arts programs; retail contracts for music distribution; physical inventory and office equipment; design and retail ready concepts; brand value; records; publishing catalog; and web assets.

The Company is in negotiations with several multi-media companies that will utilize our HD Audio solution in the future.

Videos and news relating to the Company is available on the company website at http://www.maxsound.com. The MAX-D Technology Highlights Video summarizes the HD Audio™ process and shows the need for high definition (HD) Audio in several key vertical markets. The video explains MAX-D as what we believe to be the only dynamic HD Audio™ that is being offered to various markets.

Plan of Operation

We began our operations on October 8, 2008, when we purchased the Form 10 company from the previous owners. Since that date and through 2013, we have conducted financings to raise initial start-up money for the building of our internet search engine and social networking website and to start our operations. In 2011, the Company shifted the focus of its business operations from their social networking website to the marketing of the Max Sound HD Audio Technology.

The Company believes that Max Sound HD Audio Technology is a game changer for several vertical markets whose demand will create revenue opportunities in 2014.

We expect our financial requirements to increase with the additional expenses needed to market and promote the MAX-D Audio technology. We plan to fund these additional expenses through financings and through loans from our stockholders and/or officers based on existing lines of credit and we are also considering various private funding opportunities until such time that our revenue stream is adequate enough to provide the necessary funds.


Results of Operations

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 Years Ended
                                                                        December 31,
                                                                   2013              2012

Revenue                                                        $       2,498     $           5

Operating Expenses
General and Administrative                                         3,215,834           905,540
Endorsement Fees                                                     480,000           480,000
Consulting                                                           636,718           614,298
Professional Fees                                                    916,873           164,059
Compensation                                                       1,116,300           704,223
Total Operating Expenses                                           6,365,725         2,868,120

Loss from Operations                                              (6,363,227 )      (2,868,115 )

Other Income / (Expense)
Interest Income                                                            -               177
Other Income                                                           6,905                 -
Gain on sale of intellectual property                                220,000                 -
Interest expense                                                    (147,500 )         (41,371 )
Derivative Expense                                                  (442,412 )        (201,395 )
Amortization of debt offering costs                                 (395,194 )        (126,854 )
Loss on conversions                                                  (46,093 )               -
Amortization of Debt Discount                                     (2,638,504 )        (825,819 )
Change in fair value of embedded derivative liability              1,001,138           (44,805 )
Total Other Income / (Expense)                                    (2,441,660 )      (1,240,067 )

Provision for Income Taxes                                                 -                 -

Net Loss                                                       $  (8,804,887 )   $  (4,108,182 )

Net Loss Per Share - Basic and Diluted                         $       (0.03 )   $       (0.02 )

Weighted average number of shares outstanding during the
year Basic and Diluted                                           314,486,670       260,207,229


For the Fiscal Year Ended December 31, 2013 and for the Fiscal Year Ended December 31, 2012

General and Administrative Expenses: Our general and administrative expenses for the years ended December 31, 2013 and 2012, were $3,215,834 and $905,540, respectively. The increase of $2,310,294 or approximately 255%, was a result of our increased advertising and promotional expenses, which include the cost of public relations and product promotion activities, amortization of the intangible asset which was put in service in 2013.

Consulting Fees: Our consulting fees for the years ended December 31, 2013 and 2012, were $636,718 and $614,298, respectively. The increase of $22,420 or approximately (4%) was a result of a decrease in expenses associated with the additional consulting, promotional and marketing services related to our social networking website, and an increase in expenses associated with the further development of our MAX-D HD Audio Technology.

Professional Fees: Our professional fees for the years ended December 31, 2013 and 2012, were $916,873 and $164,059, respectively. The increase of $752,814, or approximately 459%, was a result of an increase in the expenses associated with the preparation of our financial statements and regulatory filings required for publicly traded companies.

Compensation: Our compensation expenses for the years ended December 31, 2013 and 2012, were $1,116,300 and $704,223, respectively. The increase of $412,077, or approximately 59%, was a result of our increased stock based compensation and additional employee salaries during 2013.

Net Loss: Our net loss for the year ended December 31, 2013, was $8,804,887, compared to $4,108,182 for the year ended December 31, 2012. The increase in net loss was the result of the expensing in stock based compensation, an increase in expenses associated with the promotion and marketing of the Max Sound HD Audio Technology, increased professional fees and salaries.

Liquidity and Capital Resources

Revenues for the fiscal years ended December 31, 2013, and 2012, were $2,498 and $5, respectively. We have an accumulated deficit of $27,273,053 for the period from December 9, 2005 (inception) to December 31, 2013, and have negative cash flow from operations of $7,244,801 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.

From our inception through December 31, 2013, our primary source of funds has been the proceeds of private offerings of our common stock, private financing, and loans from stockholders. Our need to obtain capital from outside investors is expected to continue until we are able to achieve profitable operations, if ever. There is no assurance that management will be successful in fulfilling all or any elements of its plans.

Below is a summary of our capital-raising activities in the fiscal years ended December 31, 2013 and 2012.

Private Financings

On December 11, 2012, the Company entered into an agreement to issue to an investor a convertible note with principal amount of $120,000. The note matures on December 11, 2013 and bears an interest rate of 8%. As of December 31, 2013 and 2012, the Company balance of the convertible note and accrued interest is $128,810 and $120,526, respectively. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. The conversion price equals to $0.50 per share. For the year ended December 31, 2013, the Company issued 24,000 shares of common stock for accrued interest having a fair value of $5,368 ($0.21
- $0.25/share).

As of December 31, 2013, the note remains outstanding and is currently in default. On February 1, 2014, the Company reissued the note for $150,000 to the investor to cover the $120,000 outstanding on the note, plus $30,000 for services rendered by the holder. The new note becomes due on July 31, 2014.


During the years ended December 31, 2013 and 2012, the Company issued convertible notes totaling $3,843,221 and $1,924,333 respectively. These notes consist of the following terms:

                                                                      Year ended      Year ended
                                                                                       December
                                                                     December 31,        31,
                                                                         2013            2012
                                                                      Amount of       Amount of
                                                                      Principal       Principal
                                                                        Raised          Raised
Interest Rate                                                             4% - 10 %      0% - 10 %
                                                                            14% -
Default interest rate                                                          22 %      0% - 22 %
                                                                     October 24,       December
                                                                        2013-         19, 2012-
                                                                     December 29,      November
Maturity                                                                 2014          19, 2013

                      70% of the "Market Price", which is the
                      average of the lowest ten (10) trading
                      prices for the common stock during the ten
Conversion terms 1    trading day period prior to the conversion.    $          -     $  166,667
                      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 terms 2    conversion                                                -        102,500
                      70% 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 terms 3    conversion                                                -        166,000
                      70% of the "Market Price", which is the
                      average trading prices for the common stock
                      during the ten (10) trading day period prior
Conversion terms 4    to the conversion.                                        -        166,667
                      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 terms 5    conversion.                                               -        111,000
                      65% of the "Market Price", which is the
                      average of the lowest three (3) trading
                      prices for the common stock during the ten
Conversion terms 6    trading day period prior to the conversion.               -         62,500
                      70% of the "Market Price", which is the low
                      traded price of the common stock during the
                      twenty (20) trading day period prior to the
Conversion terms 7    conversion                                                -         58,333
                      70% 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 terms 8    conversion.                                               -        111,000
                      70% of the "Market Price", which is lower of
                      the average closing bid price for the common
Conversion terms 9    stock during the ten (10) trading day period              -         83,333
                      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 terms 10   conversion.                                               -         55,000
                      70% of the "Market Price", which is lower of
                      the average closing bid price for the common
Conversion terms 11   stock during the ten trading day period.                  -         83,333
                      70% 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 terms 12   conversion                                                -        166,000
                       65% of the "Market Price", which is the
                      average of the lowest three (3) trading
                      prices for the common stock during the ten
Conversion terms 13   trading day period prior to the conversion                -         62,500
                      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 terms 14   conversion.                                               -        165,000
                      70% 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 terms 15   conversion                                                -        166,000
                      70% of the "Market Price", which is the
                      average of the lowest three (3) trading
                      prices for the common stock during the
                      twenty (20) trading day period prior to the
Conversion terms 16   conversion                                                -              -
                      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 terms 17   conversion.                                               -         78,500
Conversion terms 18   Conversion price of $0.50 per share                       -        120,000
                      70% of the "Market Price", which is lower of
                      the average closing bid price for the common
Conversion terms 19   stock during the ten (10) trading day period        100,000              -
                      70% of the "Market Price", which is lower of
                      the average closing bid price for the common
Conversion terms 20   stock during the ten (10) trading day period         83,333              -
                      70% 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 terms 21   conversion.                                         166,000              -


                    70% of the "Market Price", which is the
                    average of the lowest three (3) trading
                    prices for the common stock during the
                    twenty (20) trading day period prior to the
Conversion terms 22 conversion.                                    $    25,000     $         -
                    70% 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 terms 23 conversion.                                        111,000               -
                    70% 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 terms 24 conversion.                                         55,500               -
                    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 terms 25 conversion.                                         62,500               -
                    65% 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 terms 26 conversion.                                        100,000               -
                    75% of the three (3) lowest closing prices
                    of the common stock during the ten (10) day
Conversion terms 27 trading period prior to the conversion date.       277,777               -
                    70% of the lower of the average of the three
                    (3) lowest trading prices for the ten (10)
Conversion terms 28 day trading period prior to conversion.            166,000               -
                    65% of the lower of the average of the three
                    (3) lowest trading prices for the ten (10)
Conversion terms 29 day trading period prior to conversion.            103,500               -
                    75% of the three (3) lowest closing prices
                    of the common stock during the ten day
Conversion terms 30 trading period prior to the conversion date.       833,333               -
                    70% of the lower of the average of the three
                    (3) lowest trading prices for the twenty
                    (20) day trading period 1 day prior to
Conversion terms 31 conversion.                                         25,000               -
                    70% of the lower of the average of the three
                    (3) lowest trading prices for the fifteen
                    (15) day trading period 1 day prior to
Conversion terms 32 conversion.                                         50,000               -
                    75% of the three (3) lowest closing prices
                    of the common stock during the ten day
Conversion terms 33 trading period prior to the conversion date.       227,222               -
                    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 terms 34 conversion.                                         50,000               -
                    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 terms 35 conversion.                                        103,500               -
                    70% of the lower of the average of the three
                    (3) lowest trading prices for the twenty
                    (20) day trading period 1 day prior to
Conversion terms 36 conversion.                                         25,000               -
                    75% of the three (3) lowest closing prices
                    of the common stock during the ten (10) day
Conversion terms 37 trading period prior to the conversion date.       110,000               -
                    75% of the three (3) lowest closing prices
                    of the common stock during the ten (10) day
Conversion terms 38 trading period prior to the conversion date.       282,778               -
                    70% of the lower of the average of the three
                    (3) lowest trading prices for the twenty
                    (20) day trading period 1 day prior to
Conversion terms 39 conversion.                                         25,000               -
                    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 terms 40 conversion.                                         78,500               -
                    70% of the lower of the average of the three
                    (3) lowest trading prices for the fifteen
                    (15) day trading period 1 day prior to
Conversion terms 41 conversion.                                        100,000               -
                    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 terms 42 conversion.                                        153,500               -
                    70% of the lower of the average of the three
                    (3) lowest trading prices for the twenty
                    (20) day trading period 1 day prior to
Conversion terms 43 conversion.                                         25,000               -
                    75% of the three (3) lowest closing prices
                    of the common stock during the ten (10) day
Conversion terms 44 trading period prior to the conversion date.       282,778               -
                    75% of the three (3) lowest closing prices
                    of the common stock during the ten (10) day
Conversion terms 45 trading period prior to the conversion date.       221,000               -
                                                                   $ 3,843,221     $ 1,924,333


On May 23, 2013, the Company entered into a Securities Purchase Agreement (the "Aggregate SPA") with three institutional investors. The Aggregate SPA provides for the sale by the Company to the investors of an aggregate principal amount of $2,222,222 of 4% Convertible Debentures, with 10% original issue discount that is due twelve months from their date of issuance (the "Debentures"). The subscription amount shall be funded in the amount of $277,777.77 (net amount of $250,000 less debt offering costs to the Company after the original issue discount) on the initial closing date of May 23, 2013 and thereafter, seven (7) additional installments in the amount of $277,777.77 (net amount of $250,000 less debt offering costs to the Company after the original issue discount) shall each be funded on or about the first day of each successive calendar month commencing on June 1, 2013.

In addition, the Company issued debt offering costs (placement agent fees) equal to 7% of the aggregate purchase price paid by each purchase and equity equaling 2% of the gross proceeds received by the Company valued at the investors' conversion price.

The Debentures have an interest rate of 4% and shall have an original issue discount of 10% from the stated principal amount. The Debentures may be prepaid . . .

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