The Company computed the fair value of the conversion feature at the commitment date, based on the following management assumptions:
|
Exercise price
|
$0.2170
|
|
Expected dividends
|
0%
|
|
Expected volatility
|
247.11%
|
|
Expected term: conversion feature
|
274 days
|
|
Risk free interest rate
|
0.18%
|
The fair value of the embedded conversion option on the commitment date was $130,309. The Company recorded a related debt discount of $111,000, which is amortized over the life of the debt. For the nine months ended September 30, 2012, the Company amortized $25,117 of debt discount.
At September 30, 2012, the Company remeasured the derivative liability and recorded a fair value of $110,969. As a result of the remeasurement, the Company recorded a change in fair value associated with this derivative liability as a gain totaling $19,339 for the nine months ended September 30, 2012. The following management assumptions were considered:
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
|
Exercise price
|
$0.3010
|
|
Expected dividends
|
0%
|
|
Expected volatility
|
251.60%
|
|
Risk fee interest rate
|
0.17%
|
|
Expected life of conversion feature in days
|
212
|
On August 3, 2012, the Company entered into an agreement whereby the Company will issue up to $82,500 in a convertible note. The note matures on August 3, 2013 and bears an interest rate of 4%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is lower of the average closing bid price for the common stock during the ten trading day period. As of September 30, 2012, the Company has $82,500 of convertible note as outstanding. 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 Company received $75,000 proceeds, less the $7,500 finder’s fee pursuant to the terms of this convertible note, on August 3, 2012.
The Company computed the fair value of the conversion feature at the commitment date, based on the following management assumptions:
|
Exercise price
|
$0.2170
|
|
Expected dividends
|
0%
|
|
Expected volatility
|
247.25%
|
|
Expected term: conversion feature
|
365 days
|
|
Risk free interest rate
|
0.16%
|
The fair value of the embedded conversion option on the commitment date was $100,160. The Company recorded a related debt discount of $82,500, which is amortized over the life of the debt. For the nine months ended September 30, 2012, the Company amortized $13,110 of debt discount.
At September 30, 2012, the Company remeasured the derivative liability and recorded a fair value of $84,500. As a result of the remeasurement, the Company recorded a change in fair value associated with this derivative liability as a gain totaling $15,660 for the nine months ended September 30, 2012. The following management assumptions were considered:
|
Exercise price
|
$0.3213
|
|
Expected dividends
|
0%
|
|
Expected volatility
|
251.60%
|
|
Risk fee interest rate
|
0.17%
|
|
Expected life of conversion feature in days
|
307
|
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On August 15, 2012, the Company will issue up to $50,000 in a convertible note subject to a $4,000 original issue discount (OID) related to the agreement entered into on May 8, 2012. The note matures on February 11, 2013, and bears an interest rate of 0% if note is repaid on or before 180 days from the effective date. If the note is not repaid within 90 days a one-time interest charge of 5% will be applied to the principal. As of September 30, 2012, the Company has $50,000 of convertible note as outstanding. 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 the “Variable Conversion Price”, which is 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. The Company received $50,000 proceeds, less the $4,000 finder’s fee pursuant to the terms of this convertible note, on August 15, 2012.
The Company computed the fair value of the conversion feature at the commitment date, based on the following management assumptions:
|
Exercise price
|
$0.2077
|
|
Expected dividends
|
0%
|
|
Expected volatility
|
248.02%
|
|
Expected term: conversion feature
|
180 days
|
|
Risk free interest rate
|
0.19%
|
The fair value of the embedded conversion option on the commitment date was $55,670. The Company recorded a related debt discount of $50,000, which is amortized over the life of the debt. For the nine months ended September 30, 2012, the Company amortized $15,556 of debt discount.
At September 30, 2012, the Company remeasured the derivative liability and recorded a fair value of $43,713. As a result of the remeasurement, the Company recorded a change in fair value associated with this derivative liability as a gain totaling $11,957 for the nine months ended September 30, 2012. The following management assumptions were considered:
|
Exercise price
|
$0.3010
|
|
Expected dividends
|
0%
|
|
Expected volatility
|
251.60%
|
|
Risk fee interest rate
|
0.17%
|
|
Expected life of conversion feature in days
|
134
|
On September 10, 2012, the Company entered into an agreement whereby the Company will issue up to $83,333 in a convertible note. The note matures on September 10, 2013 and bears an interest rate of 4%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is lower of the average closing bid price for the common stock during the ten trading day period. As of September 30, 2012, the Company has $83,333 of convertible note as outstanding. 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 Company received $75,000 proceeds, less the $8,333 finder’s fee pursuant to the terms of this convertible note, on September 10, 2012.
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
The Company computed the fair value of the conversion feature at the commitment date, based on the following management assumptions:
|
Exercise price
|
$0.3528
|
|
Expected dividends
|
0%
|
|
Expected volatility
|
248.02%
|
|
Expected term: conversion feature
|
365 days
|
|
Risk free interest rate
|
0.18%
|
The fair value of the embedded conversion option on the commitment date was $96,925. The Company recorded a related debt discount of $83,333, which is amortized over the life of the debt. For the nine months ended September 30, 2012, the Company amortized $4,566 of debt discount.
At September 30, 2012, the Company remeasured the derivative liability and recorded a fair value of $87,938. As a result of the remeasurement, the Company recorded a change in fair value associated with this derivative liability as a gain totaling $8,987 for the nine months ended September 30, 2012. The following management assumptions were considered:
|
Exercise price
|
$0.3213
|
|
Expected dividends
|
0%
|
|
Expected volatility
|
251.60%
|
|
Risk fee interest rate
|
0.17%
|
|
Expected life of conversion feature in days
|
345
|
On September 26, 2012, the Company entered into an agreement whereby the Company will issue up to $166,000 in a convertible note. The note matures on June 26, 2013 and bears an interest rate of 8%. The conversion price equals the “Variable Conversion Price”, which is 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. As of September 30, 2012, the Company has $166,000 of convertible note as outstanding. 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 Company received $150,000 proceeds, less the $16,000 finder’s fee pursuant to the terms of this convertible note, on September 10, 2012.
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
The Company computed the fair value of the conversion feature at the commitment date, based on the following management assumptions:
|
Exercise price
|
$0.3150
|
|
Expected dividends
|
0%
|
|
Expected volatility
|
251.93%
|
|
Expected term: conversion feature
|
273 days
|
|
Risk free interest rate
|
0.17%
|
The fair value of the embedded conversion option on the commitment date was $178,114. The Company recorded a related debt discount of $166,000, which is amortized over the life of the debt. For the nine months ended September 30, 2012, the Company amortized $2,432 of debt discount.
At September 30, 2012, the Company remeasured the derivative liability and recorded a fair value of $177,086. As a result of the remeasurement, the Company recorded a change in fair value associated with this derivative liability as a gain totaling $1,028 for the nine months ended September 30, 2012. The following management assumptions were considered:
|
Exercise price
|
$0.3010
|
|
Expected dividends
|
0%
|
|
Expected volatility
|
251.60%
|
|
Risk fee interest rate
|
0.17%
|
|
Expected life of conversion feature in days
|
269
|
|
NOTE 7
|
STOCKHOLDERS’ EQUITY
|
(A) Common Stock Issued for Cash
On December 31, 2005, the Company issued 100,000 shares of common stock for cash of $100 in exchange for acceptance of the incorporation expenses for the Company ($0.001/share). As a result of the forward split, the 100,000 shares were increased to 400,000 shares ($0.00025/share) (See Note 7(D)).
For the year ended December 31, 2008, the Company issued 473,000 shares of common stock for cash of $118,250 ($0.25/share), of which $67,750 was a subscription receivable. During the month of January 2009, $67,750 of stock subscription receivable was collected. As a result of the forward split, the 473,000 shares were increased to 1,892,000 shares ($0.0625/share). (See Note 7(D)).
On January 2, 2009, the Company entered into stock purchase agreements to issue 20,000 shares of common stock for cash of $5,000 ($0.25/share). As a result of the forward split, the 20,000 shares were increased to 80,000 shares ($0.0625/share) (See Note 7(D)).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On January 3, 2009, the Company entered into stock purchase agreements to issue 2,000 shares of common stock for cash of $500 ($0.25/share). As a result of the forward split, the 2,000 shares were increased to 8,000 shares ($0.0625/share) (See Note 7(D)).
On January 3, 2009, the Company entered into stock purchase agreements to issue 2,000 shares of common stock for cash of $500 ($0.25/share). As a result of the forward split, the 2,000 shares were increased to 8,000 shares ($0.0625/share) (See Note 7(D)).
On January 11, 2009, the Company entered into stock purchase agreements to issue 32,000 shares of common stock for cash of $8,000 ($0.25/share). As a result of the forward split, the 32,000 shares were increased to 128,000 shares ($0.0625/share) (See Note 7(D)).
On January 12, 2009, the Company entered into stock purchase agreements to issue 2,000 shares of common stock for cash of $500 ($0.25/share). As a result of the forward split, the 2,000 shares were increased to 8,000 shares ($0.0625/share) (See Note 7(D)).
On January 15, 2009, the Company entered into stock purchase agreements to issue 4,000 shares of common stock for cash of $1,000 ($0.25/share). As a result of the forward split, the 4,000 shares were increased to 16,000 shares ($0.0625/share) (See Note 7(D)).
In February of 2009, the Company paid direct offering costs of $850 related to the securities sold.
On May 27, 2010, the Company issued one unit; each unit consisted of 100,000 shares of common stock and 100,000 warrants to purchase common stock, for cash of $22,500 net of the $2,500 finder’s fee ($0.25/share). Each warrant is exercisable for a three year period and has an exercise price of $0.50 per share (See Note 7(C)).
On July 23, 2010, the Company issued one unit; each unit consisted of 100,000 shares of common stock and 100,000 warrants to purchase common stock, for cash of $25,000 ($0.25/share). Each warrant is exercisable for a three year period and has an exercise price of $0.50 per share (See Note 7(C).
On August 5, 2010, the Company issued 10 units; each unit consisted of 100,000 shares of common stock and 100,000 warrants to purchase common stock, for cash of $250,000 ($0.25/share). Each warrant is exercisable for a three year period and has an exercise price of $0.50 per share (See Note 7(C).
During the year ended December 31, 2010, the Company paid direct offering costs of $2,900 related to the securities sold.
On January 24, 2011, the Company issued 10,000 shares of common stock for cash of $1,000 ($0.10/share).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On February 23, 2011, the Company issued 300,000 shares of common stock for cash of $30,000 ($0.10/share).
On March 21, 2011, the Company issued 150,000 shares of common stock for cash of $15,000 ($0.10/share).
On May 2, 2011, the Company issued 2,000,000 shares of common stock for cash of $200,000 ($0.10/share).
During the month of June 2011, the Company issued 5,460,000 shares of common stock for cash of $546,000 ($0.10/share) of which $397,000 was a subscription receivable. The Company received the entire $397,000 of subscription receivable in July 2011.
During the months of July, August and September of 2011, the Company issued 10,937,000 shares of common stock for cash of $1,093,700 ($0.10/share).
During the year-ended December 31, 2011, the Company paid $76,780 in finder’s fees and issued 955,800 warrants (See Note 7(C)).
(B) Stock Issued for Services
On October 14, 2008, the Company issued 44,900,000 shares of common stock to its founder having a fair value of $44,900 ($0.001/share) in exchange for services provided. As a result of the forward split, the 44,900,000 shares were increased to 179,600,000 shares and its purchase price was similarly adjusted to $0.00025((See Note 7(D) and Note 9).
On November 24, 2008, the Company issued 4,000 shares of common stock having a fair value of $1,000 ($0.25/share) in exchange for consulting services. As a result of the forward split, the 4,000 shares were increased to 16,000 shares and its purchase price was similarly adjusted to $0.0625/share (See Note 7(D)).
On December 5, 2008, the Company issued 4,000 shares of common stock having a fair value of $1,000 ($0.25/share) in exchange for consulting services. As a result of the forward split, the 4,000 shares were increased to 16,000 shares and its purchase price was similarly adjusted to $0.0625/share (See Note 7(D)).
On December 20, 2008, the Company issued 4,000 shares of common stock having a fair value of $1,000 ($0.25/share) in exchange for consulting services. As a result of the forward split, the 4,000 shares were increased to 16,000 shares and its purchase price was similarly adjusted to $0.0625/share (See Note 7(D)).
On January 12, 2009, the Company issued 4,000 shares of common stock having a fair value of $1,000 ($0.25/share) in exchange for consulting services. As a result of the forward split, the 4,000 shares were increased to 16,000 shares and its purchase price was similarly adjusted to $0.0625/share (See Note 7(D)).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On January 14, 2009, the Company issued 20,000 shares of common stock having a fair value of $5,000 ($0.25/share) in exchange for services related to a development services agreement entered on January 19, 2009. As a result of the forward split, the 20,000 shares were increased to 80,000 shares and its purchase price was similarly adjusted to $0.0625/share (See Note 7(D) and Note 8(B)).
On August 25, 2009, the Company issued 50,000 shares of common stock having a fair value of $3,125 ($0.0625/share), based upon the fair value on the date of grant, in exchange for professional services.
On August 31, 2009, the Company issued 885,714 shares of common stock in exchange for services valued at $62,000 related to the development services agreement entered into on January 19, 2009. Based on the most recent fair market value at that time, the shares were valued at $55,357 ($0.0625/share), resulting in the recognition of a gain on the extinguishment of debt of $6,643 (See Note 8(B)).
On September 18, 2009, the Company issued 500,000 shares of common stock as compensation pursuant to the terms of a consulting agreement, having a fair value of $175,000 ($0.35/share) based upon fair value on the date of grant. On November 11, 2009, the Company cancelled the agreement and 300,000 shares of common stock were returned to the Company. As of December 31, 2009, $70,000 is recorded as consulting expense and $105,000 of deferred compensation was reclassified to $0 (See Note 8(B)).
On September 18, 2009, the Company issued 600,000 shares of common stock as compensation pursuant to the terms of a consulting agreement, having a fair value of $210,000 ($0.35/share) based upon fair value on the date of grant. On November 18, 2009, the Company cancelled the agreement and 400,000 shares of common stock were returned to the Company. As of December 31, 2009, $70,000 is recorded as consulting expense and $140,000 of deferred compensation was reclassified to $0 (See Note 8(B)).
On September 21, 2009, the Company issued 600,000 shares of common stock as compensation pursuant to the terms of a consulting agreement, having a fair value of $210,000 ($0.35/share) based upon fair value on the date of grant. On December 18, 2009, the Company terminated the consulting agreement and 400,000 shares were returned to the Company. As of December 31, 2009, $70,000 is recorded as consulting expense and $140,000 of deferred compensation was reclassified to $0 (See Note 8(B)).
On November 12, 2009, the Company issued 100,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $178,000 ($1.78/share) based upon fair value on the date of grant. During 2009 and 2010, $11,948 and $89,000 was recorded as consulting expense, respectively. For the year ended December 31, 2011, $77,052 is recorded as consulting expense and $0 is recorded as deferred compensation (See Note 8(B)).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On November 12, 2009, the Company issued 200,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $400,000 ($2.00/share) based upon fair value on the date of grant. During 2009 and 2010, $22,466 and $200,000 was recorded as consulting expense, respectively. For the year ended December 31, 2011, $177,534 is recorded as consulting expense and $0 is recorded as deferred compensation (See Note 8(B)).
On November 16, 2009, the Company issued 100,000 shares of common stock as compensation pursuant to the terms of the consulting agreements, having a fair value of $180,000 ($1.80/share) based upon fair value on the date of grant. During 2009 and 2010, $11,096 and $90,000 was recorded as consulting expense, respectively. For the year ended December 31, 2011, $78,904 is recorded as consulting expense and $0 is recorded as deferred compensation (See Note 8(B)).
On November 18, 2009, the Company issued 30,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $45,000 ($1.50/share) based upon fair value on the date of grant. During 2009, $5,301 was recorded as consulting expense. For the year ended December 31, 2010, $39,699 was recorded as consulting expense. (See Note 8(B)).
On November 21, 2009, the Company issued 30,000 shares of common stock as compensation pursuant to the terms of the marketing agreement, having a fair value of $53,100 ($1.77/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $53,100 was recorded as consulting expense (See Note 8(B)).
On December 3, 2009, the Company issued 240,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $468,000 ($1.95/share) based upon fair value on the date of grant. As of December 31, 2009, $468,000 was recorded as consulting expense (See Note 8(B)).
On December 3, 2009, the Company issued 35,000 shares of common stock as compensation pursuant to the terms of the commission agreement, having a fair value of $68,250 ($1.95/share) based upon fair value on the date of grant. As of December 31, 2009, $68,250 was recorded as consulting expense (See Note 8(B)).
On December 3, 2009, the Company issued 35,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $68,250 ($1.95/share) based upon fair value on the date of grant. As of December 31, 2009, $68,250 was recorded as consulting expense (Note 8(B)).
On December 3, 2009, the Company issued 10,000 shares of common stock as compensation pursuant to the terms of the commission agreement, having a fair value of $19,500 ($1.95/share) based upon fair value on the date of grant. As of December 31, 2009, $19,500 is recorded as consulting expense (See Note 8(B)).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On December 15, 2009, the Company issued 100,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $200,000 ($2.00/share) based upon fair value on the date of grant. During 2009, $71,111 was recorded as consulting expense. For the year ended December 31, 2010, $128,889 was recorded as consulting expense (See Note 8(B)).
On December 27, 2009, the Company issued 10,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $19,400 ($1.94/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $19,400 was recorded as consulting expense (See Note 8(B)).
On December 27, 2009, the Company issued 10,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $19,400 ($1.94/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $19,400 was recorded as consulting expense (See Note 8(B)).
On December 27, 2009, the Company issued 10,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $19,400 ($1.94/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $19,400 was recorded as consulting expense (See Note 8(B)).
On December 30, 2009, the Company issued 1,500,000 shares of common stock as compensation pursuant to the terms of the advertising agreement, having a fair value of $2,895,000 ($1.93/share) based upon fair value on the date of grant. In 2010, the Company cancelled a portion of the agreement and as a result, 1,000,000 shares of common stock were returned to the Company. For the year ended December 31, 2010, $965,000 was recorded as consulting expense (See Note 8(B)).
On December 31, 2009, the Company issued 75,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $144,750 ($1.93/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $116,374 was recorded as consulting expense. For the year ended December 31, 2011, $28,376 is recorded as consulting expense (See Note 8(B)).
On December 31, 2009, the Company issued 75,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $144,750 ($1.93/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $116,374 was recorded as consulting expense. For the year ended December 31, 2011, $28,376 is recorded as consulting expense (See Note 8(B)).
On December 31, 2009, the Company issued 500,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $965,000 ($1.93/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $965,000 was recorded as consulting expense (See Note 8(B)).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
During December of 2009, the Company issued 680,000 shares of common stock as compensation pursuant to the terms of the consulting agreements, having a fair value of $1,312,400 ($1.93/share) based upon fair value on the date of grant. During 2009 and 2010, $2,802 and $709,116 was recorded as consulting expense, respectively. For the year ended December 31, 2011, $600,482 is recorded as consulting expense and $0 is recorded as deferred compensation (See Note 8(B)).
During December of 2009, the Company issued 600,000 shares of common stock as compensation pursuant to the terms of the consulting agreements, having a fair value of $1,170,000 ($1.95/share) based upon fair value on the date of grant. During 2009 and 2010, $34,192 and $585,000 was recorded as consulting expense, respectively. For the year ended December 31, 2011, $550,808 is recorded as consulting expense and $0 is recorded as deferred compensation (See Note 8(B)).
On January 15, 2010, the Company issued 100,000 shares of common stock as compensation pursuant to the terms of the consulting agreement, having a fair value of $170,000 ($1.70/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $81,507 was recorded as consulting expense. For the year ended December 31, 2011, $88,493 is recorded as consulting expense and $0 is recorded as deferred compensation (See Note 8(B)).
On February 17, 2010, the Company entered into a twelve month consulting agreement with an unrelated third party effective February 17, 2010. In exchange for the services provided, the Company issued 1,000,000 shares of common stock having a fair value of $1,240,000 ($1.24/share) based upon fair value on the date of grant. For the year ended December 31, 2010, $1,066,740 was recorded as consulting expense. For the year ended December 31, 2011, $173,260 is recorded as consulting expense (See Note 8(B)).
On June 1, 2010, the Company entered into a twelve month consulting agreement for consulting and business services. As part of the agreement, the Company issued 40,000 shares as a nonrefundable retainer fee having a value of $10,000 ($0.25/share) based upon fair value on the date of the agreement. (See Note 8(B)).
On July 23, 2010, the Company issued 10,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $2,000 ($0.20/share) based upon fair value on the grant date (See Note 8(B)).
On August 1, 2010, the Company issued 200,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $40,000 ($0.20/share) based upon fair value on the grant date (See Note 8(B)).
On September 1, 2010, the Company issued 100,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $19,000 ($0.19/share) based upon fair value on the grant date (See Note 8(B)).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On October 1, 2010, the Company issued 100,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $18,000 ($0.18/share) based upon fair value on the grant date (See Note 8(B)).
On November 1, 2010, the Company issued 100,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $25,000 ($0.25/share) based upon fair value on the grant date (See Note 8(B)).
On December 14, 2010, the Company issued 250,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $37,500 ($0.15/share) based upon fair value on the grant date (See Note 8(B)).
On January 17, 2011, the Company issued 3,000,000 shares of common stock to its' new CEO pursuant to an employment agreement having a fair value of $300,000 ($0.10/share) based upon fair value on the grant date. (See Note 8(A)).
On February 17, 2011, the Company issued 500,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $55,000 ($0.11/share) based upon fair value on the grant date (See Note 8(B)).
On March 3, 2011, the Company issued 1,000,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $80,000 ($0.08/share) based upon fair value on the grant date (See Note 8(B)).
On May 17, 2011, the Company issued 2,000,000 shares of common stock pursuant to an employment agreement having a fair value of $140,000 ($0.07/share) based upon fair value on the grant date. (See Note 8(A)).
During June 2011, the Company issued 300,000 shares of common stock pursuant to consulting agreements for consulting services having a fair value of $75,000 ($0.25/share) based upon fair value on the grant date (See Note 8(B)).
On June 15, 2011, the Company issued 15,980 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $1,598 ($0.10/share) based upon the terms of the consulting agreement (See Note 8(B)).
On July 1, 2011, the Company issued 6,500 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $520 ($0.08/share) based upon the terms of the consulting agreement (See Note 8(B)).
On August 14, 2011, the Company issued 2,443 shares of common stock pursuant to two consulting agreements for consulting services having a fair value of $855 ($0.35/share) based upon the terms of the consulting agreements (See Note 8(B)).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On September 12, 2011, the Company issued 2,860 shares of common stock pursuant to two consulting agreements for consulting services having a fair value of $715 ($0.25/share) based upon the terms of the consulting agreements (See Note 8(B)).
On September 18, 2011, the Company issued 15,403 shares of common stock pursuant to two consulting agreements for consulting services having a fair value of $3,388 ($0.22/share) based upon the terms of the consulting agreements (See Note 8(B)).
On September 25, 2011, the Company issued 1,500 shares of common stock pursuant to two consulting agreements for consulting services having a fair value of $585 ($0.39/share) based upon the terms of the consulting agreements (See Note 8(B)).
During the three months ended September 30, 2011, the Company issued 50,482 shares of common stock pursuant to two consulting agreements for consulting services having a fair value of $5,048 ($0.10/share) based upon the terms of the consulting agreements (See Note 8(B)).
On September 19, 2011, the Company issued 100,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $23,000 ($0.23/share) based upon the terms of the consulting agreement (See Note 8(B)).
On September 21, 2011, the Company issued 400,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $100,000 ($0.25/share) based upon the terms of the consulting agreement (See Note 8(B)).
On September 24, 2011, the Company issued 100,000 shares of common stock pursuant to a consulting agreement for consulting services having a fair value of $33,000 ($0.33/share) based upon the terms of the consulting agreement (See Note 8(B)).
On September 27, 2011, the Company issued 100,000 shares of common stock pursuant to two consulting agreements for consulting services having a fair value of $39,000 ($0.22/share) based upon the terms of the consulting agreements (See Note 8(B)).
During October 2011, the Company issued 123,795 shares of common stock for services having a fair value of $58,184 ($0.47/share).
On October 28, 2011, the Company issued 100,000 shares of common stock for consulting services having a fair value of $88,000 ($0.88/share).
On November 18, 2011, the Company issued 100,000 shares of common stock for consulting services having a fair value of $70,000 ($0.70/share).
During December 2011, the Company issued 200,000 shares of common stock for services having a fair value of $108,000 ($0.54/share).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On December 18, 2011, the Company issued 100,000 shares of common stock for consulting services having a fair value of $50,000 ($0.50/share).
On January 25, 2012 the Company issued 733 shares of common stock pursuant to two consulting agreements for consulting services having a fair value of $455 ($0.62/share) based upon the terms of the consulting agreements (See Note 8(B)).
On March 14, 2012, the Company entered into a settlement agreement with a former employee with relation to the restriction on shares owned by the former employee. The settlement agreement will lift the restriction on his 6 million shares, and thus agreed to allow the former employee to sell 250,000 of the Company stock per quarter for two years. In addition, the Company settled a dispute over the termination of the employment agreement by agreeing to give the former employee an additional 150,000 shares to eliminate any dispute over anything owed under his old employment agreement. He is not an affiliate, not an insider and not a 5% or greater shareholder. For the nine months ended September 30, 2012, the Company issued 150,000 shares of common stock for consulting services having a fair value of $31,500 ($0.21/share), in relation to this settlement agreement.
On April 22, 2012, the Company issued 200,000 shares of common stock for services having a fair value of $60,000 ($0.30/share).
In July and August of 2012, the Company issued 125,000 shares of stock to an employee per an employment agreement dated June 11, 2012 having a fair value of $31,250 ($0.25/share) based upon the terms of the employment agreement (See Note 8(A)).
On August 3, 2012, the Company issued 3,000,000 shares of common stock at an offering price of $.32 per share in exchange for consulting services rendered having a fair value at the grant date of $960,000. The Company will recognize the value of the shares over the life of the agreement. As of September 30, 2012, the Company recognized $0 in expense and recorded deferred compensation of $960,000 (See Note 8(B)).
On August 17, 2012, the Company issued 150,000 shares of common stock for consulting services having a fair value of $45,000 ($0.30/share).
On August 22, 2012, the Company issued 500,000 shares of common stock at an offering price of $.30 per share in exchange for consulting services rendered having a fair value at the grant date of $150,000. The Company will recognize the value of the shares over the life of the agreement. As of September 30, 2012, the Company recognized $6,250 in expenses and recorded deferred compensation of $143,750 (See Note 8(B)).
(C) Common Stock Warrants
On December 30, 2009, the Company issued 500,000 warrants under a consulting agreement. The Company recognized an expense of $823,077 for the year ended December 31, 2009. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2009, dividend yield of zero, expected volatility of 112.80%; risk-free interest rates of 1.65%, expected life of three years. The warrants vested immediately. The warrants expire in three years from the date of issuance and have an exercise price of $0.52 per share.
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On May 27, 2010, the Company issued 10,000 warrants under a consulting agreement. The Company recognized an expense of $1,782 for the year ended December 31, 2010. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2010, dividend yield of zero, expected volatility of 152.80%; risk-free interest rates of 1.35%, expected life of three years. The warrants vested immediately. The warrants expire in three years from the date of issuance and have an exercise price of $0.50 per share (See Note 8(B)).
On June 1, 2010, the Company issued 40,000 warrants under a consulting agreement. The Company recognized an expense of $7,184 for the year ended December 31, 2010. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2010, dividend yield of zero, expected volatility of 145.70%; risk-free interest rates of 1.26%, expected life of three years. The warrants vested immediately. The warrants expire in three years from the date of issuance and have an exercise price of $0.50 per share (See Note 8(B)).
On July 23, 2010, the Company issued 10,000 warrants under a consulting agreement. The Company recognized an expense of $1,593 for the year ended December 31, 2010. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2010, dividend yield of zero, expected volatility of 172.90%; risk-free interest rates of 0.94%, expected life of three years. The warrants vested immediately. The warrants expire in three years from the date of issuance and have an exercise price of $0.50 per share (See Note 8(B)).
During the year ended December 31, 2010, the Company issued 1,200,000 warrants in conjunction with the sale of the Company stock (See Note 7(A)).
On September 2, 2011, the Company issued 955,800 warrants under consulting agreements. The Company recognized an expense of $248,498 for the year ended December 31, 2011. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2011, dividend yield of zero, expected volatility of 461.11%; risk-free interest rates of 0.33%, expected life of three years. The warrants vested immediately. The warrants expire in three years from the date of issuance and have an exercise price of $0.10 per share (See Note 8(B)).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On June 11, 2012, the Company issued 200,000 warrants under consulting agreements. The Company recognized an expense of $48,031 for the nine months ended September 30, 2012. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2012, dividend yield of zero, expected volatility of 237.76%; risk-free interest rates of 0.19%, expected life of three years. The warrants vested immediately. The warrants expire in three years from the date of issuance and have an exercise price of $0.25 per share (See Note 8(B)).
The following tables summarize all warrant grants as of September 30, 2012 and September 30, 2011, and the related changes during these periods are presented below:
| |
|
Number of Warrants
|
|
|
Weighted Average Exercise
Price
|
|
|
Stock Warrants
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
1,760,000 |
|
|
$ |
0.51 |
|
|
Granted
|
|
|
955,800 |
|
|
|
0.10 |
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
2,715,800 |
|
|
$ |
0.36 |
|
|
Granted
|
|
|
200,000 |
|
|
$ |
0.25 |
|
|
Exercised
|
|
|
- |
|
|
|
|
|
|
Forfeited
|
|
|
- |
|
|
|
|
|
|
Balance at September 30, 2012
|
|
|
2,915,800 |
|
|
|
|
|
|
Options Exercisable at September 30, 2012
|
|
|
2,915,800 |
|
|
$ |
0.36 |
|
|
Weighted Average Fair Value of Options Granted
|
|
|
|
|
|
$ |
0.36 |
|
| |
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
| |
Range of Exercise
Price
|
|
|
Number
Outstanding at
September 30,
2012
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted Average
Exercise Price
|
|
|
Number
Exercisable at
September 30,
2012
|
|
|
Weighted Average
Exercise Price
|
|
| $ |
0.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
Range of Exercise
Price
|
|
|
Number
Outstanding at
September 30,
2011
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted Average
Exercise Price
|
|
|
Number
Exercisable at
September 30,
2011
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the warrants issued for cash and services, the Company has an aggregate of 2,915,800 and 2,715,800 warrants outstanding as of September 30, 2012 and 2011, respectively. As of September 30, 2012, the Company has reserved 2,915,800 shares of common stock for the future exercise of the warrants.
(D) Stock Split Effected in the Form of a Stock Dividend
On January 16, 2009, the Company's Board of Directors declared a four-for-one stock split to be effected in the form of a stock dividend. The stock split was distributed on January 16, 2009 to shareholders of record. A total of 136,713,000 shares of common stock were issued. All basic and diluted loss per share and average shares outstanding information has been adjusted to reflect the aforementioned stock dividend.
(E) Amendment to Articles of Incorporation
On January 27, 2009, the Company amended its Articles of Incorporation to provide for an increase in its authorized share capital. The authorized capital stock increased to 250,000,000 common shares at a par value of $0.001 per share, and 10,000,000 preferred shares at a par value of $0.001 with class and series designations, voting rights, and relative rights and preferences to be determined by the Board of Directors of the Company from time to time.
On June 2, 2010, the Company amended its Articles of Incorporation to provide for an increase in its authorized share capital. The authorized capital stock increased to 295,000,000 common shares at a par value of $0.001 per share.
On September 20, 2010, the Company amended its Articles of Incorporation to provide for an increase in its authorized share capital and a change in the par value per share. The authorized capital stock increased to 400,000,000 common shares at a par value of $0.0001 per share.
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
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.
(F) In Kind Contribution
During the fourth quarter of 2008, a former stockholder of the Company paid $4,400 of operating expenses on behalf of the Company.
During the fourth quarter of 2008, the principal stockholder contributed office space with a fair market value of $2,913 (See Note 9).
For the year ended December 31, 2009, the principal stockholder contributed office space with a fair market value of $12,600 (See Note 9).
For the year ended December 31, 2010, the principal stockholder contributed office space with a fair value of $9,450 (See Note 9).
(G) Share Conversion
On June 2, 2010, a principal stockholder converted $283,652 of accrued compensation into 945,507 shares of common stock at $0.30 per share (See Note 9).
On February 17, 2011, a principal stockholder converted $144,000 of accrued compensation into 1,309,091 shares of common stock at $0.11 per share (See Note 9).
On February 17, 2011, a principal stockholder converted $100,000 of a line of credit owed into 909,091 shares of common stock at $.011 per share (See Note 4 and Note 9).
On January 18, 2011, the Company entered into a conversion agreement executed by a note holder for 109,375 shares based on a conversion price of $0.032 per share (See Note 6).
On February 9, 2011, the Company entered into a conversion agreement executed by a note holder for 271,186 shares based on a conversion price of $0.0295 per share (See Note 6).
On February 15, 2011, the Company entered into a conversion agreement executed by a note holder for 357,143 shares based on a conversion price of $0.0336 per share (See Note 6).
On February 23, 2011, the Company entered into a conversion agreement executed by a note holder for 220,264 shares based on a conversion price of $0.0454 per share (See Note 6).
On April 11, 2011, the Company entered into a conversion agreement executed by a note holder for 587,382 shares based on a conversion price of $0.0315 per share (See Note 6).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On August 25, 2011, the Company entered into a conversion agreement executed by a note holder for 77,220 shares based on a conversion price of $0.1554 per share (See Note 6).
On August 30, 2011, the Company entered into a conversion agreement executed by a note holder for 96,220 shares based on a conversion price of $0.1455 per share (See Note 6).
On September 12, 2011, the Company entered into a conversion agreement executed by a note holder for 116,505 shares based on a conversion price of $0.1339 per share (See Note 6).
On September 14, 2012, the Company entered into a conversion agreement executed by a note holder for 528,035 shares based on a conversion price of $0.322 per share (See Note 6).
On September 21, 2012, the Company entered into a conversion agreement executed by a note holder for 72,385 shares based on a conversion price of $0.2763 per share (See Note 6).
On September 27, 2012, the Company entered into a conversion agreement executed by a note holder for 91,208 shares based on a conversion price of $0.2741 per share (See Note 6).
(H) Share Exchange
On May 11, 2010, the Company acquired the rights to an audio technology known as Max Audio Technology (Max) through a share exchange, whereby the Company issued 30,000,000 shares of common stock to two individuals in exchange for their rights in Max having a value of $7,500,000 based upon recent market value ($0.25/share) (See Note 8(B)).
On January 17, 2011, the Company acquired the rights to software technology known as Blog Software, Social Media Vault, Social Media Bar and Trending Topix (BSST) through a share exchange, whereby the Company issued 3,000,000 shares of common stock to two individuals in exchange for their rights to BSST having a value of $300,000 based upon recent market value ($0.10/share).
(I) Stock Options
On January 17, 2011, the Company issued 12,000,000 options to buy common shares of the Company's stock at $0.12 per share, good for three years, to its' new CEO pursuant to an employment agreement. The Company recognized an expense of $1,199,794 for the year ended December 31, 2011. The Company recorded the fair value of the options based on the fair value of each option grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2010; dividend yield of zero, expected volatility of 436.04%, risk-free interest rates of 1.00%, expected life of three years. The options vest immediately (See Note 8 (A)).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
The following tables summarize all warrant grants as of September 30, 2012 and September 30, 2011, and the related changes during these periods are presented below:
| |
|
Number of Options
|
|
|
Weighted Average Exercise
Price
|
|
|
Stock Options
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
12,000,000 |
|
|
$ |
0.12 |
|
|
Granted
|
|
|
- |
|
|
$ |
- |
|
|
Exercised
|
|
|
- |
|
|
|
|
|
|
Forfeited
|
|
|
- |
|
|
|
|
|
|
Balance at September 30, 2012
|
|
|
|
|
|
|
|
|
| |
|
|
12,000,000 |
|
|
$ |
0.12 |
|
|
Options Exercisable at September 30, 2012
|
|
|
12,000,000 |
|
|
$ |
0.12 |
|
|
Weighted Average Fair Value of Options Granted
|
|
$ |
0.12 |
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
Range of
Exercise
Price
|
|
|
Number
Outstanding at
September 30,
2012
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
Exercisable at
September 30,
2012
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
Range of
Exercise
Price
|
|
|
Number
Outstanding at
September 30,
2011
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted Average
Exercise Price
|
|
|
Number
Exercisable at
September 30,
2011
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the options issued for cash and services, the Company has an aggregate of 12,000,000 and 12,000,000 options outstanding as of September 30, 2012 and 2011, respectively. As of September 30, 2012, the Company has reserved 12,000,000 shares of common stock for the future exercise of the options.
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
NOTE 8 COMMITMENTS
On October 13, 2008, the Company executed an employment agreement with its President and CEO. The term of the agreement is for ten years. As compensation for services, the President will receive a monthly compensation of $18,000 beginning October 13, 2008. In addition, to the base salary, the employee is entitled to receive a 10% commission of all sales of the Corporation. In September of 2012, the 10% commission on sales was changed to read 7% commission on the net profits of the Company. The agreement also calls for the employee to receive health benefits. For the nine months ended September 30, 2012, the Company has recorded $162,000 in compensation expense (See Note 9).
On January 17, 2011, the Company executed an employment agreement with an executive to be CEO for five years. As compensation for services, the executive will receive a monthly compensation of $8,000 beginning after the completion of at least one million dollars of new funding to the Corporation or can be paid as commissions from sales brought to the Company, whichever comes first. In addition to the base salary, the employee is entitled to receive a 20% commission of all sales the executive is directly responsible for bringing to the Company. The agreement also calls for the executive to receive, upon execution of the agreement, three million shares of Rule 144 common stock and twelve million options, which are good for three years, to buy shares of Rule 144 common stock at $0.12/share. As a supplement to the agreement, on February 4, 2011, the executive shall receive an additional twenty million common shares directly from the President of the Company. On August 25, 2011, the agreement was updated to increase the monthly compensation to $12,000 per month beginning September 1, 2011, terminate the initial 20% commission on sales and to add a commission on sales equal to 10% of gross quarterly profits. In September of 2012, the 10% commission on gross quarterly profits was changed to read 6% commission on the net profits of the Company. The agreement also calls for the employee to receive health benefits (See Note 7(B) and 7(I)).
On May 17, 2011, the Company executed an employment agreement with its Chief Internet Officer (“CIO”). The term of the agreement is for five years. As compensation for services, the CIO will receive a monthly compensation of $9,000 beginning at the completion of at least one million dollars of new funding. In addition to the base salary, the employee is entitled to receive health benefits. The agreement also calls for the CIO to receive two million shares of Rule 144 common stock upon the execution of the agreement. On August 25, 2011, the agreement was updated to increase the monthly compensation to $12,000 per month beginning October 1, 2011. (See Note 7(B)).
On October 1, 2011, the Company executed an employment agreement with its Chief Technical Officer (“CTO”). The term of the agreement is for five years. As compensation for services, the CTO will receive a monthly compensation of $10,000, monthly commission equal to 5% of all profits derived from the sales of all products and services related to Max Sound, and an annual bonus of 5% of all profits derived from the sales of all products and services related to Max Sound that is over one million dollars. In September of 2012, the annual bonus of 5% of all profits mentioned above was changed to read 6% commission on the net profits of the Company. In addition to the base salary, the employee is entitled to receive health benefits. Effective January 1, 2012, the Company increased the monthly compensation to $12,000.
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On June 11, 2012, the Company executed an employment agreement with its Senior Audio Engineer. The term of the agreement is for five years. As compensation for services, the Engineer will receive a monthly compensation of $6,000 beginning July 1, 2012. In addition to the base salary, the employee is entitled to receive health benefits, and the employee will receive 1,000,000 shares of common stock payable in 125,000 increments per quarter beginning on July 1, 2012. For the quarter ended September 30, 2012, the Company issued 125,000 shares with a fair value of $31,250 ($0.25/share) (See Note 7(B)).
On January 19, 2009, the Company entered into a development services agreement to construct social network software for a fee of $150 and $375 an hour. The contract will remain in place until either party desires to cancel. A retainer fee of $20,000 has been paid upon the execution of the agreement and will be used towards the services provided. In addition, on January 14, 2009 the Company issued 20,000 shares in exchange for services valued at $5,000 ($0.25/share). As a result of the forward split, the 20,000 shares were increased to 80,000 shares and its purchase price was similarly adjusted to $0.0625 (See Note 7(B) and Note 7(D)). On May 29, 2009, the Company amended the consulting agreement by reducing the hourly rate to $75 an hour and reducing the outstanding balance due by $17,163. On August 31, 2009, the Company issued 885,714 shares of common stock in exchange for services valued at $62,000 related to the development services agreement entered into on January 19, 2009. Based on the most recent fair market value at that time, the shares were valued at $55,357 ($0.0625/share), resulting in the recognition of a gain on the extinguishment of debt of $6,643 (See Note 7(B)).
On January 20, 2009, the Company entered into a service agreement with a transfer agent to become the Company's transfer agent for the purpose of maintaining stock ownership and transfer records for the Company.
On September 17, 2009, the Company entered into a six month consulting agreement with an unrelated third party to provide public relations services. In exchange for the services provided, on September 18, 2009 the Company issued 500,000 shares of common stock having a fair value of $175,000 ($0.35/share) based upon fair value on the date of grant. The Company has an option to cancel the contract during the first ninety days of the agreement and 200,000 shares will be returned back to the Company. On November 11, 2009, the Company cancelled the agreement and 300,000 shares of common stock were returned to the Company. As of December 31, 2009, $70,000 is recorded as consulting expense and $105,000 of deferred compensation was reclassified to $0 (See Note 7(B)).
On September 18, 2009, the Company entered into a six month consulting agreement with an unrelated third party to provide public relations services. In exchange for the services provided the Company issued 600,000 shares of common stock having a fair value of $210,000 ($0.35/share) based upon fair value on the date of grant. Shares will be issued on or before December 18, 2009 in six 100,000 increments. The Company has an option to cancel the contract at any time, in such event; the consultant will return a prorated amount of shares based on the months remaining in the consulting agreement. On November 18, 2009, the Company cancelled the agreement and 400,000 shares of common stock were returned to the Company. As of December 31, 2009, $70,000 is recorded as consulting expense and $140,000 of deferred compensation was reclassified to $0 (See Note 7(B)).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On September 21, 2009, the Company entered into an eight month consulting agreement with an unrelated third party to provide public relations services. In exchange for the services provided, the Company issued 600,000 shares of common stock having a fair value of $210,000 ($0.35/share) based upon fair value on the date of grant. Shares will be issued on or before September 18, 2009, December 18, 2009, and March 18, 2010, in 200,000 increments. The Company has an option to cancel the contract at any time and no additional stock issuances will be due. On December 18, 2009, the Company cancelled the agreement and 400,000 shares of common stock were returned to the Company. As of December 31, 2009, $70,000 is recorded as consulting expense and $140,000 of deferred compensation was reclassified to $0 (See Note 7(B)).
On October 20, 2009, the Company entered into a marketing agreement with an unrelated third party. In exchange for the services provided, on November 21, 2009, the Company issued 30,000 shares of common stock having a fair value $53,100 ($1.77/share) based upon fair value on the date of grant, and compensation of $5,000, of which $2,500 was paid in 2009 upon the execution of the agreement and the remaining $2,500 was paid in 2010 upon completion (See Note 7(B)).
During the months of November and December 2009, the Company entered into celebrity endorsement agreements for a period of one to two years of service. In total, 1,710,000 shares of common stock were issued having a fair value of $3,285,400 based upon fair value on the respective date of grant. During 2009 and 2010, $87,805 and $1,712,815 was recorded as consulting expense, respectively. For the year ended December 31, 2011, $1,484,780 is recorded as consulting expense, and $0 is recorded as deferred compensation (See Note 7(B)).
On December 3, 2009, the Company entered into a commission agreement with an unrelated third party. The company will pay a 10% commission in shares of common stock for every passive endorsement. In exchange for the services provided the Company issued 35,000 shares of common stock having a fair value $68,250 ($1.95/share) based upon fair value on the date of grant (See Note 7(B)).
On December 3, 2009, the Company entered into a commission agreement with an unrelated third party. The company will pay a 10% commission in shares of common stock for every passive endorsement. In exchange for the services provided the Company issued 240,000 shares of common stock having a fair value $468,000 ($1.95/share) based upon fair value on the date of grant (See Note 7(B)).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On December 3, 2009, the Company entered into a commission agreement with an unrelated third party. The company will pay a 10% commission in shares of common stock for every passive endorsement. In exchange for the services provided the Company issued 35,000 shares of common stock having a fair value $68,250 ($1.95/share) based upon fair value on the date of grant (See Note 7(B)).
On December 3, 2009, the Company entered into a commission agreement with an unrelated third party. The company will pay a 10% commission in shares of common stock for every passive endorsement. In exchange for the services provided the Company issued 10,000 shares of common stock having a fair value $19,500 ($1.95/share) based upon fair value on the date of grant (See Note 7(B)).
On December 15, 2009, the Company entered into a consulting agreement with an unrelated third party to provide investor services. The Company will receive a 10% of the gross receipts from the investor relations revenue for a two year period. In exchange for the satisfactory services provided, on December 15, 2009, the Company issued 100,000 shares of common stock having a fair value of $200,000 ($2/share) based upon fair value on the date of grant (See Note 7(B)).
On December 27, 2009, the Company entered into a consulting agreement with an unrelated third party to provide film work. In exchange for the services provided the Company issued 10,000 shares of common stock having a fair value $19,400 ($1.94/share) based upon fair value on the date of grant (See Note 7(B)).
On December 27, 2009, the Company entered into an endorsement agreement with an unrelated third party to provide film work. In exchange for the services provided the Company issued 10,000 shares of common stock having a fair value $19,400 ($1.94/share) based upon fair value on the date of grant (See Note 7(B)).
On December 27, 2009, the Company entered into a consulting agreement with an unrelated third party to provide film scripting, editing and production work. In exchange for the services provided the Company issued 10,000 shares of common stock having a fair value $19,400 ($1.94/share) based upon fair value on the date of grant (See Note 7(B)).
On December 30, 2009, the Company entered into a marketing agreement with an unrelated third party for a period from January 2010 to December 2010. In exchange for the services provided, the Company issued 500,000 shares of common stock having a fair value of $965,000 ($1.93/share) based upon fair value on the date of grant. An additional 1,000,000 shares of common stock having a fair value of $1,930,000 ($1.93/share) based upon fair value on the date of grant, were issued for an additional sponsorship commitment. The additional 1,000,000 shares were to be held in escrow until June 30, 2010, at which point the unrelated party would have 15 days to accept or decline the additional shares. As of December 31, 2010, the shares were returned back to the Company’s treasury due to non-performance of services and no additional shares will be issued (See Note 7(B)).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On December 31, 2009, the Company entered into a consulting agreement with an unrelated third party for a period from December 31, 2009 through March 30, 2011. In exchange for the services provided, the Company issued 75,000 shares of common stock having a fair value of $144,750 ($1.93/share) based upon fair value on the date of grant, and deliverable in three increments of 25,000 shares of common stock each. The first 25,000 shares will be delivered upon the execution of the agreement and the other two increments will be delivered in six and twelve months upon the successful fulfillment of the agreement (See Note 7(B)).
On December 31, 2009, the Company entered into a consulting agreement with an unrelated third party for a period from December 31, 2009 through March 30, 2011. In exchange for the services provided, the Company issued 75,000 shares of common stock having a fair value of $144,750 ($1.93/share) based upon fair value on the date of grant, and deliverable in three increments of 25,000 each. The first 25,000 shares will be delivered upon the execution of the agreement and the other two will be delivered in six and twelve months upon the successful fulfillment of the agreement (See Note 7(B)).
On December 31, 2009, the Company entered into a consulting agreement with an unrelated third party for a period from December 31, 2009 through December 31, 2010. In exchange for the services provided, the Company issued 500,000 shares of common stock having a fair value of $965,000 ($1.93/share) based upon fair value on the date of grant (See Note 7(B)).
On January 11, 2010, the Company entered into a twelve month agreement with an unrelated third party for investor relations press release service for an annual fee of $14,250 and an initial onetime fee of $250.
On January 15, 2010, the Company entered into a two year celebrity endorsement agreement. In total, 100,000 shares of common stock were issued having a fair value of $170,000($1.70/share) based upon fair value on the date of grant (See Note 7(B)).
On February 1, 2010, the Company entered into a twelve month consulting agreement effective February 5, 2010, with an unrelated third party to produce music compositions for a fee of $500. The agreement can be renewed for up to two additional years for a fee of $500 for the first renewal year and $750 for the second renewal year.
On February 17, 2010, the Company entered into a twelve month consulting agreement with an unrelated third party effective February 17, 2010. In exchange for the services provided, the Company issued 1,000,000 shares of common stock having a fair value of $1,240,000 ($1.24/share) based upon fair value on the date of grant (See Note 7(B)).
On June 1, 2010, the Company entered into a twelve month consulting agreement to provide for consulting and business services in raising capital. The Company agrees to pay a finder’s fee on all capital raised in stock and warrants. The Company paid an initial nonrefundable retainer fee by issuing 40,000 shares of stock having a value of $10,000 ($0.25/share) based upon fair value on the date of the agreement. In conjunction with the stock payment, the Company also issued one warrant attached to each share of stock exercisable at $0.50 per warrant. Based upon the number of shares (40,000 shares) of stock issued, the Company issued 40,000 warrants (See Note 7(B) and Note 7(C).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On May 11, 2010, the Company acquired the rights to an audio technology known as Max Audio Technology (Max) through a share exchange, whereby the Company issued 30,000,000 shares of common stock to two individuals in exchange for their rights in Max having a value of $7,500,000 based upon recent market value ($0.25/share). (See Note 7(H)).
In accordance with the share exchange, the former owners to the rights of Max became Executives of the Company. The two new executives individually entered into employment agreements with the Company on May 11, 2010. The term of the employment agreements are for ten years of service at a monthly compensation of $8,500 for each executive. In addition, the Executives are entitled to receive 5% of all revenues derived from the sale of all products and services related to the Max Audio Technology. On January 2, 2011, the agreement was cancelled.
On April 15, 2010, the Company entered into a finder’s fee agreement. For each qualified investor introduced to the Company by the consultant, the Company will pay a 10% fee in cash equal to 10% of the dollar amount of securities purchased, In addition, the Company will pay a 10% fee in warrants equal to 10% of the number of shares of stock purchased (See Note 7(C)).
On August 8, 2010, the Company entered into a consulting agreement with an unrelated third party to provide consulting services. Upon the execution of the agreement, the consultant received 100,000 shares of common stock. A monthly issuance of 100,000 shares of common stock will be issued as a compensation of services provided. The term of the agreement is for three months and will continue to renew for three month intervals unless cancelled by either party. The agreement was cancelled on November 1, 2010 (See Note 7(B)).
On August 17, 2010, the Company entered into a consulting agreement. The agreement shall remain in effect until terminated. In exchange for the services provided, the consultant will receive a $500 a month allowance for general expenses. In addition, for all the new business brought to the Company the consultant will receive a 10% compensation for each gross dollar received by the Company. On February 15, 2011, the Company terminated the agreement.
On December 14, 2010, the Company entered into to a consulting agreement for consulting and advertising services. Upon the execution of the agreement, the consultant received 250,000 shares with an additional 750,000 shares to be issued upon consultant obtaining sponsorship rights in the year 2011. The sponsorship rights were not obtained and the agreement was cancelled in 2011 and the additional 750,000 shares were never issued (See Note 7(B)).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On February 17, 2011, the Company entered into a consulting agreement for public relations and communications services. In exchange for the services provided, the consultant received 500,000 shares of common stock. The term of the agreement is for one year (See Note 7 (B)).
On March 3, 2011, the Company entered into a consulting agreement for public relations and communications services. In exchange for the services provided, the consultant received 1,000,000 shares of common stock. The term of the agreement is for one year (See Note 7 (B)).
On June 10, 2011, the Company entered into a five year advisory board consulting agreement with three persons to provide for consulting and business services. In exchange for the services provided, the consultants received 100,000 shares of common stock each. (See Note 7(B)).
On June 15, 2011, the Company entered into a consulting agreement with an unrelated third party for software and computer technology services. In exchange for the services provided, the consultant will be paid $70 per hour with $50 per hour paid in cash and $20 per hour paid in Company stock at $0.10 per share. The term of the agreement is for one year. (See Note 7(B)).
On July 1, 2011, the Company entered into a consulting agreement with an unrelated third party for trade show services. In exchange for the services provided, the consultant received 6,500 shares of common stock at $0.08/per share. The agreement was for one-time services. (See Note 7(B)).
During the year ended December 31, 2011, the Company entered into an agreement with an unrelated third party for software and computer technology services. In exchange for the services provided, the consultant received 76,483 shares of common stock at $0.10 – 0.39 per share. The term of the agreement is for one year. (See Note 7(B)).
In September 2011, the Company entered into a five year advisory board consulting agreement with three persons to provide for consulting and business services. In exchange for the services provided, the consultants received 100,000 shares of Company stock at $0.23 – 0.39 per share. The terms of the agreements are for five years. (See Note 7(B)).
On September 21, 2011, the Company entered into a consulting agreement with an unrelated third party for investor relation services. In exchange for the services provided, the consultant received 400,000 shares of Company stock at $0.25 per share. The term of the agreement is for six months. (See Note 7(B)).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
During the three months ended December 31, 2011, the Company entered into a five year advisory board consulting agreement with five persons to provide for consulting and business services. In exchange for the services provided, the consultants received 100,000 shares of Company stock at $0.47 – 0.88 per share. The terms of the agreements are for five years. (See Note 7(B)).
On August 3, 2012, the Company entered into an endorsement agreement with an unrelated third party for a period from August 3, 2012 through August 3, 2015. In exchange for the services provided, the Company issued 3,000,000 shares of common stock having a fair value of $960,000 ($0.32/share) based upon fair value on the date of grant (See Note 7(B)). The delivery of the shares will be made in four 750,000 tranches to coincide with each of the four points listed below:
● Record two (2) one-minute video endorsements (English and Spanish)
● Release of Mobile Application
● Use of MAXD HD technology in the next two major music projects.
● Any addition projects that effectively promote the use of MAXD technology.
As September 30, 2012, none of the four points listed above have been completed and the Company recorded $960,000 as deferred compensation.
On August 22, 2012, the Company entered into a consulting agreement with an unrelated third party for a period from September 1, 2012 through August 31, 2012. In exchange for the services provided, the Company issued 500,000 shares of common stock having a fair value of $150,000 ($0.30/share) based upon fair value on the date of grant (See Note 7(B)).
On September 14, 2012, the Company entered into a licensing agreement with an unrelated third party for a period from September 14, 2012 through September 14, 2013. The agreement will automatically extend on a year to year basis unless terminated by either party. Upon the execution of the agreement, the Company paid a non-refundable $15,000 upfront fee for the use of the license. Any additional technical support will be provided on as needed basis at an hourly rate of $250/hour.
(C) Operating Lease Agreements
On September 1, 2010, the Company executed a three-year non-cancelable operating lease for its new corporate office space. The lease began on October 1, 2010 and expires on September 30, 2013. Total base rent due during the term of the lease is $134,880.
NOTE 9 RELATED PARTY TRANSACTIONS
During the year ended December 31, 2008, the Company received $18,803 from the principal stockholder. Pursuant to the terms of the loan, the loan is bearing an annual interest rate of 3.25% and due on demand. In 2008, the Company repaid $15,000 in principal to the principal stockholder. In 2009, the Company repaid $3,803 in principal to the principal stockholder. As of December 31, 2010, the principal portion of this principal stockholder loan balance has been repaid (See Note 3).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On May 11, 2009, the Company received $9,500 from a principal stockholder. During the year ended December 31, 2009, the Company repaid $1,500 in principal to the principal stockholder. Pursuant to the terms of the loan, the loan is bearing an annual interest rate of 3.25% and is due on demand (See Note 3).
On May 22, 2009, the Company received $15,000 from a principal stockholder. During the year ended December 31, 2010, the Company repaid $6,000 in principal to a principal stockholder under the terms of the loan. Pursuant to the terms of the loan, the loan is bearing an annual interest rate of 3.25% and is due on demand (See Note 3).
On May 26, 2009, the Company received $16,700 from a principal stockholder. During the year ended December 31, 2010, the Company repaid $15,700 in principal to the principal stockholder under the terms of this loan. Pursuant to the terms of the loan, the loan is bearing an annual interest rate of 3.25% and is due on demand (See Note 3).
During the year ended December 31, 2011, the Company repaid $18,000 in principal and $2,116 of accrued interest to the principal stockholder related to these principal loans (See Note 3).
On May 28, 2009, the Company entered into a two year line of credit agreement with a principal stockholder in the amount of $100,000. The line of credit carries an interest rate at 3.25%. As of December 31, 2011, the principal shareholder has advanced the Company $100,000 under the terms of this line of credit agreement (See Note 4).
On November 10, 2009, the Company entered into a two year line of credit agreement with a principal stockholder in the amount of $100,000. The line of credit carries an interest rate at 3.25%. As of December 31, 2011, the principal shareholder has advanced $100,000 to the Company under the terms of this line of credit agreement (See Note 4).
On March 25, 2010, the Company entered into a two year line of credit agreement with the principal stockholder in the amount of $500,000. The line of credit carries an interest rate of 3.25%. On February 17, 2011, the principal stockholder converted $100,000 of the line of credit owed into 909,091 shares of common stock at $0.11 per share. As of December 31, 2011, the principal stockholder has advanced $360,580 to the Company under this line of credit agreement (See Note 7(G) and Note 4).
As of December 31, 2011, the Company repaid $460,580 in principal and $11,283 of accrued interest to the principal stockholder related to these lines of credit (See Note 4).
On October 14, 2008, the Company issued 44,900,000 shares of common stock to its founder having a fair value of $44,900 ($0.001/share) in exchange for services provided. As a result of the forward split, the 44,900,000 shares were increased to 179,600,000 shares and its purchase price was similarly adjusted to $0.00025 (See Note 7(B) and Note 7(D)).
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
On October 13, 2008, the Company executed an employment agreement with its President and CEO. The term of the agreement is ten years. As compensation for services, the President will receive a monthly compensation of $18,000 beginning October 13, 2008. In addition, to the base salary, the employee is entitled to receive a 10% commission of all sales of the Corporation. In September of 2012, the 10% commission on sales was changed to read 7% commission on the net profits of the Company. The agreement also calls for the employee to receive health benefits (See Note 8(A)).
On June 2, 2010, a principal stockholder converted $283,652 of accrued compensation into 945,507 shares of common stock at $0.30 per share. (See Note 7(G)).
On February 17, 2011, a principal stockholder converted $144,000 of accrued compensation into 1,309,091 shares of common stock at $.0.11 per share. (See Note 7(G)).
During the fourth quarter of 2008, the principal stockholder contributed office space with a fair market value of $2,913 (See Note 7(F)).
For the year ended December 31, 2009, the principal stockholder contributed office space with a fair market value of $12,600 (See Note 7(F)).
For the year ended December 31, 2010, the principal stockholder contributed office space with a fair value of $9,450 (See Note 7(F)).
NOTE 10 LITIGATION
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business.
On February 6, 2012, the Company filed a suit for declaratory judgment and rescission of contract associated with a former consultant for failure to perform contractual requirements. It seeks clarification that the former consultant is not owed 750,000 shares of restricted common stock. The defendants have been served. This case will be vigorously prosecuted and has a good likelihood of a favorable outcome. The case seeks in excess of the jurisdictional amount, which is $50,000 dollars.
On February 21, 2012, the Company filed a suit for breach of contract, intentional misrepresentation, negligent misrepresentation, fraud, false advertising, and unfair competition with a former consultant. It seeks damages due to their alleged failure to meet the contractual requirements regarding promotions. The defendant has been served. This case will be vigorously prosecuted and has a good likelihood of success. The case seeks in excess of the jurisdictional amount which is $50,000 dollars.
On August 23, 2012, Koss Corporation filed a lawsuit against Max Sound Corporation in the United States District Court for the Eastern District of Wisconsin alleging trademark infringement. Max Sound denies these allegations. On October 26, 2012, Max Sound filed a motion to dismiss the lawsuit pending in the Eastern District of Wisconsin because the court lacks personal jurisdiction over Max Sound in that State. Alternatively, Max Sound requested that the lawsuit be transferred to the United States District Court for the Central District of California. Koss Corporation’s response to this motion is due on November 16, 2012. The district court has not ruled upon the motion and its outcome is presently unknown.
On August 14, 2012, Max Sound Corporation was named as a defendant in an action filed in the Superior Court for the State of California and the County of San Diego. The plaintiff seeks damages for unpaid wages and expenses, loss of ownership in a company, attorney’s fees and punitive damages. Max Sound denies these allegations, denies that Max Sound is a successor in interest to the company for which the plaintiff owned an interest, and denies that it is responsible for the plaintiff's employment contract or alleged damages. Max Sound’s response to the complaint is not yet due. Max Sound will ask the court to dismiss the claims for failure to state a cause of action against Max Sound. As Max Sound's motion has not yet been filed or heard by the court, the outcome of the motion is presently unknown.
No assurance can be given as to the ultimate outcome of these actions or its effect on the Company.
MAX SOUND CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
NOTE 11 SUBSEQUENT EVENTS
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure as follows:
On October 9, 2012, the Company entered into an agreement whereby the Company will issue up to $62,500 in a convertible note. The note matures on July 11, 2013 and bears an interest rate of 8%. 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 the “Variable Conversion Price”, which is 65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten trading day period prior to the conversion.
On October 2, 2012, the Company issued 79,586 shares in common stock for convertible debt.
On October 5, 2012, the Company issued 92,365 shares in common stock for convertible debt.
On October 9, 2012, the Company issued 48,454 shares in common stock for convertible debt.
On October 19, 2012, the Company issued 200,501 shares in common stock for convertible debt.
On November 5, 2012, the Company issued 917,031 shares in common stock for convertible debt.
On October 31, 2012, the Company exchanged an existing note of $333,000 with a current note holder into a new note in the amount of $833,000 resulting in an increase of $500,000. In conjunction with signing the note, the Company received $138,000 in net proceeds.