NOTE 1 SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Organization and Basis of Presentation
Max Sound Corporation (the "Company")
was incorporated in Delaware on December 9, 2005, under the name 43010, Inc. The Company business operations are focused primarily
on developing and launching audio technology software.
Effective March 1, 2011, the Company filed
with the State of Delaware a Certificate of Amendment of Certificate of Incorporation changing our name from So Act Network, Inc.
to Max Sound Corporation.
On August 9, 2016 the Company moved a level
down from OTCQB to OTC Pink Current Information where it is within the continued standards and pricing requirements as found in
Section 2 of the OTCQB Eligibility Standards
.
The Company’s services, may re-apply at any time after a price
increase to meet all of the OTCQB Eligibility Standards to be moved back to the higher OTCQB marketplace.
It is management's opinion, however, that all
material adjustments (consisting of normal and recurring adjustments) have been made which are necessary for a fair financial statements
presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.
(B) Use of Estimates
In preparing financial statements in conformity
with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reported period. Actual results could differ from those estimates.
(C) Cash and Cash Equivalents
For purposes of the cash flow statements, the
Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be
cash equivalents. As of December 31, 2018 and December 31, 2017, the Company had no cash equivalents.
(D) Property and Equipment
Property and equipment are stated at cost,
less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is provided
using the straight-line method over the estimated useful life of three to five years.
(E) Research and Development
The Company has adopted the provisions of FASB
Accounting Standards Codification No. 350,
Intangibles - Goodwill & Other
(“ASC Topic 350”)
.
Costs
incurred in the planning stage of a website are expensed as research and development while costs incurred in the development stage
are capitalized and amortized over the life of the asset, estimated to be three years. Expenses subsequent to the launch have been
expensed as website development expenses.
(F) Concentration of Credit Risk
The Company at times has cash in banks in excess
of FDIC insurance limits. The Company had $0 in excess of FDIC insurance limits as of December 31, 2018 and December 31, 2017.
(G) Revenue Recognition
Effective January 1, 2018, the Company recognizes
revenue in accordance with Accounting Standards Codification 2014-09, Revenue from Contracts with Customers (Topic 606), which
supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition
guidance throughout the Industry Topics of the Accounting Standards Codification. The updated guidance states that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. The guidance also provides for additional disclosures
with respect to revenues and cash flows arising from contracts with customers. The standard will be effective for the first interim
period within annual reporting periods beginning after December 15, 2017, and the Company adopted the standard using the modified
retrospective approach effective January 1, 2018.
(H) Loss Per Share
In accordance with accounting guidance now
codified as FASB ASC Topic 260,
“Earnings per Share,”
Basic earnings (loss) per share (“EPS”)
is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during
the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of
shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using
the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options
or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Diluted EPS excludes all dilutive
potential of shares of common stock if their effect is anti-dilutive. Because of the Company’s net losses, the effects of
stock warrants and stock options would be anti-dilutive and accordingly, is excluded from the computation of earnings per share.
The computation of basic and diluted loss per
share for the years ended December 31, 2018 and 2017 excludes the common stock equivalents of the following potentially dilutive
securities because their inclusion would be anti-dilutive:
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
|
|
|
|
|
|
Stock Warrants (Exercise price - $0.25 - $.52/share)
|
|
|
11,620,690
|
|
|
|
19,220,690
|
|
|
Stock Options (Exercise price - $0.00250/share)
|
|
|
95,332,500
|
|
|
|
95,332,500
|
|
|
Convertible Debt (Exercise price - $0.0001 - $.000150/share)
|
|
|
85,342,765,754
|
|
|
|
8,399,417,649
|
|
|
Series A Convertible Preferred Shares ($0.01/share)
|
|
|
250,000,000
|
|
|
|
250,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
85,699,718,944
|
|
|
|
8,763,970,809
|
|
The Company’s obligations to issue shares
upon conversion of its outstanding convertible notes, the exercise of stock options and warrants and conversion of its preferred
stock (the “Convertible Instruments”) at current market prices for its common stock exceeds by the 82,273,571,767 authorized
but unissued shares of Common Stock as of the date of this report (the “Potentially Issuable Shares”). While it is
uncertain whether the Company would receive requests to issue all of the Potentially Issuable Shares and the number of such shares
fluctuates based on the market price of the Company’s common stock, the Company may increase the number of its authorized
shares of common stock or effectuate a
recapitalization, or a combination of both,
in order to make available additional shares of its Common Stock for the Potentially Issuable Shares. Such action would require
shareholder approval. Until such time as the Company has a sufficient number of shares of its Common Stock for issuance to cover
the Potentially Issuable Shares, the Company could be subject to penalties and damages to the holders of the Convertible Instruments
in the event it does not deliver the Potentially Issuable Shares upon request by a holder of the Convertible Instruments. Furthermore,
the lack of available shares of common stock may be deemed a default under one or more of the Convertible Instruments.
(I) Income Taxes
The Company accounts for income taxes under
FASB Codification Topic 740-10-25 (“ASC 740-10-25”) Income Taxes. Under ASC 740-10-25, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
On December 22, 2017, the 2017 Tax Cuts and
Jobs Act (the Tax Act) was enacted into law and the new legislation contains several key tax provisions that affected us, including
a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective
January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such
as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability
of our deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income
Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a
measurement period not to extend beyond one year of the enactment date. Since the Tax Act was passed late in the fourth quarter
of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, we consider the accounting of
the transition tax, deferred tax re-measurements, and other items to be incomplete due to the forthcoming guidance and our ongoing
analysis of final year-end data and tax positions. We expect to complete our analysis within the measurement period in accordance
with SAB 118.
The net deferred tax liability in the accompanying
balance sheets includes the following amounts of deferred tax assets and liabilities:
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Deferred tax liability:
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
|
Temporary differences
|
|
|
|
|
|
|
|
|
|
Net Operating Loss Carryforward
|
|
|
9,973,745
|
|
|
|
9,307,403
|
|
|
Valuation allowance
|
|
|
(9,973,745)
|
|
|
|
(9,307,403)
|
|
|
Net deferred tax asset
|
|
|
—
|
|
|
|
—
|
|
|
Net deferred tax liability
|
|
$
|
—
|
|
|
$
|
—
|
|
The provision for income taxes has been computed
as follows:
|
|
|
2018
|
|
2017
|
|
Expected income tax recovery (expense) at the statuary rate of 27.64%
|
|
$
|
(3,358,672)
|
|
|
$
|
(1,923,505)
|
|
|
Tax effect of expenses that are not deductible for income tax purposes (net of other amounts deductible for tax purposes)
|
|
|
106,748
|
|
|
|
181,294
|
|
|
Tax effect of differences in the timing of deductibility of items for income tax purposes:
|
|
|
(2,585,582)
|
|
|
|
141,066
|
|
|
Utilization of non-capital tax losses to offset current taxable income
|
|
|
—
|
|
|
|
—
|
|
|
Change in valuation allowance
|
|
|
666,342
|
|
|
|
1,601,145
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
The valuation allowance was established to
reduce the deferred tax asset to the amount that will more likely than not be realized. This is necessary due to the Company’s
continued operating losses and the uncertainty of the Company’s ability to offset future taxable income through 2037.
The net change in the valuation allowance for
the year ended December 31, 2018 and 2017 was an increased/ (decreased) of $666,342 and $1,601,145, respectively.
The components of income tax expense related
to continuing operations are as follows:
|
|
|
|
2018
|
|
|
|
2017
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
State and Local
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company's federal income tax returns are
no longer subject to examination by the IRS for the years prior to 2012, and the related state income tax returns are no longer
subject to examination by state authorities for the years prior to 2011.
(J) Business Segments
The Company operates in one segment and therefore
segment information is not presented.
(K) Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities
on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a
lease, with some specified scope exemptions. The guidance in this Update supersedes Topic 840, Leases. The core principle of Topic
842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement
of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right
to use the underlying asset for the lease term. For public companies, the amendments in this Update are effective for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact
of adopting ASU No. 2016-02 on our financial statements.
In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides further guidance
on identifying performance obligations and improves the operability and understandability of licensing implementation guidance.
The effective date for ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting
periods beginning after December 15, 2017, including interim periods within those years. In May 2016, the FASB issued ASU 2016-12
“Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients,” which amends
the guidance on transition, collectability, non-cash consideration, and the presentation of sales and other similar taxes. ASU
2016-12 clarifies that, for a contract to be considered completed at transition, all (or
substantially all) of the revenue must have
been recognized under legacy GAAP. In addition, ASU 2016-12 clarifies how an entity should evaluate the collectability threshold
and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s
contract criteria. The standard allows for both retrospective and modified retrospective methods of adoption. The Company evaluated
the impact of adopting the new standard and concluded that there was no material impact on the Company’s revenue recognition
policy.
In August 2016, the FASB issued ASU 2016-15,
“Classification of Certain Cash Receipts and Cash Payments,” which aims to eliminate diversity in practice in how certain
cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash
Flows, and other Topics. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December
15, 2017 (fiscal year 2019 for the Company). The adoption of this guidance did not have a material impact on our financial statements.
In October 2016, the FASB issued Accounting
Standards Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers Other than Inventory (ASU 2016-16), which requires
companies to recognize the income-tax consequences of an intra-entity transfer of an asset other than inventory when the transfer
occurs, rather than when the asset has been sold to an outside party. We adopted the new standard effective January 1, 2018, using
the modified retrospective transition approach. The adoption of this guidance did not have a material impact on our financial statements.
In November 2016, the FASB issued Accounting
Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include
amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period
and end-of-period total amounts shown on the statement of cash flows. We adopted the new standard effective October 1, 2018, using
the retrospective transition approach for all periods presented. The adoption of this guidance did not have a material impact on
our financial statements.
In January 2017, the FASB issued Accounting
Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which revises
the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business.
We adopted the new standard effective October 1, 2018 on a prospective basis. The adoption of this guidance did not have a material
impact on our financial statements.
In January 2017, the FASB issued Accounting
Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04),
which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge
for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to
that reporting unit. This guidance will be effective for us commencing on January 1, 2020 on a prospective basis, and early adoption
is permitted. We do not expect the standard to have a material impact on our financial statements.
All other newly issued accounting pronouncements
but not yet effective have been deemed either immaterial or not applicable.
(L) Fair Value of Financial Instruments
The carrying amounts on the Company’s
financial instruments including accounts payable, derivative liability, convertible note payable, and note payable, approximate
fair value due to the relatively short period to maturity for these instruments.
We adopted accounting guidance for financial
and non-financial assets and liabilities (ASC 820). The adoption did not have a material impact on our results of operations, financial
position or liquidity. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures.
This standard does not require any new fair
value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This
guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as
the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost
approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description
of those three levels:
Level 1: Observable
inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs
other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable
inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect
those that a market participant would use.
The following are the major categories of liabilities
measured at fair value on a recurring basis: as of December 31, 2018 and December 31, 2017, using quoted prices in active markets
for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level
3):
|
|
|
December 31 , 2018
|
|
December 31, 2017
|
|
|
|
|
Fair Value Measurement Using
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
—
|
|
|
|
13,849,591
|
|
|
|
—
|
|
|
|
13,849,591
|
|
|
|
—
|
|
|
|
5,909,121
|
|
|
|
—
|
|
|
|
5,909,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(M) Stock-Based Compensation
In December 2004, the FASB issued FASB Accounting
Standards Codification No. 718, Compensation - Stock Compensation. Under FASB Accounting Standards Codification No. 718, companies
are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and
recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based
compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and
employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation
amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.
Equity instruments (“instruments”)
issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting Standards
Codification No. 718. FASB Accounting Standards Codification No. 505, Equity Based Payments to Non-Employees defines the measurement
date and recognition period for such instruments. In general, the measurement date is when either a (a) performance commitment,
as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The
measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant
as defined in the FASB Accounting Standards Codification.
(N) Reclassification
Certain amounts from prior periods have been
reclassified to conform to the current period presentation. These reclassifications had no impact on the Company's net loss or
cash flows.
(O) Derivative Financial Instruments
Fair value accounting requires bifurcation
of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their
fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing
model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional
convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered
conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.
Once determined, derivative liabilities are
adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in
results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments
such as warrants, are also valued using the Black-Scholes option-pricing model.
(P) Original Issue Discount
For certain convertible debt issued, the Company
provides the debt holder with an original issue discount. The original issue discount is recorded to debt discount, reducing the
face amount of the note and is amortized to interest expense over the life of the debt.
(Q) Debt Issue Costs and Debt Discount
The Company may pay debt issue costs, and record
debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized to interest
expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts
is immediately expensed.
NOTE 2 GOING
CONCERN
As reflected in the accompanying financial
statements, the Company had a net loss of $12,153,248for the year ended December 31, 2018, has an accumulated deficit of $93,595,670
as of December 31, 2018, and has negative cash flow from operations of $1,100,221 for the year ended December 31, 2018.
As the Company continues to incur losses, transition
to profitability is dependent upon the successful commercialization of its products and achieving a level of revenues adequate
to support the Company’s cost structure.
The Company may never achieve profitability,
and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations
through additional private or public debt or equity offerings. Based on the Company’s operating plan, existing working capital
at December 31, 2018 was not sufficient to meet the cash requirements to fund planned operations through December 31, 2019 without
additional sources of cash. The Company continues to explore various financing alternatives, including debt and equity financings
and strategic partnerships, as well as trying to generate revenue. However, at this time, the Company has no commitments to obtain
any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If the Company
is unable to obtain additional funding and improve its operations, the Company’s financial condition and results of operations
may be materially adversely affected and the Company may not be able to continue operations. This raises substantial doubt about
the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of
this uncertainty.
NOTE 3 DEBT
AND ACCOUNTS PAYABLE
Debt consists of the following:
|
|
|
AS of December 31, 2018
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit– related party
|
|
$
|
306,575
|
|
|
$
|
34,156
|
|
|
Accrued interest – related party
|
|
|
233,484
|
|
|
|
-
|
|
|
Accrued expenses – related party
|
|
|
170,945
|
|
|
|
43,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debt
|
|
$
|
6,160,429
|
|
|
|
6,112,938
|
|
|
Less: debt discount
|
|
|
(169,377
|
)
|
|
|
(610,686
|
)
|
|
Less: debt issue costs
|
|
|
(3,525
|
)
|
|
|
(27,436
|
)
|
|
Convertible debt - net
|
|
|
5,987,527
|
|
|
|
5,474,816
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current debt
|
|
|
6,698,531
|
|
|
$
|
5,551,972
|
|
(A) Line of credit – related party
Line of credit with the principal stockholder
consisted of the following activity and terms:
|
|
|
Principal
|
|
Interest Rate
|
|
|
|
|
|
|
|
Balance – December 31, 2016
|
|
$-
|
|
|
|
Borrowings during the year ended December 31, 2017
|
|
48,850
|
|
|
|
Interest accrual
|
|
306
|
|
|
|
Repayments
|
|
($15,000
)
|
|
|
|
Balance - December 31, 2017
|
|
$
|
34,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings during the years ended December 31, 2018
|
|
|
557,299
|
|
|
|
4
|
%
|
|
Interest accrual
|
|
|
3,792
|
|
|
|
|
|
|
Repayments
|
|
|
(284,957
|
)
|
|
|
|
|
|
Balance - December 31, 2018
|
|
$
|
310,290
|
|
|
|
|
|
Accounts payable consists of the following
:
|
|
|
As of December 31, 2018
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
675,295
|
|
|
$
|
399,761
|
|
|
Total accounts payable
|
|
$
|
675,295
|
|
|
$
|
399,761
|
|
(B) Convertible Debt
During the year ended December 31, 2018 and
year ended December 31, 2017, the Company issued convertible notes totaling $869,579, less the original issue discount and debt
issue costs of $42,379, for net proceeds of $827,200 and $1,753,411, respectively.
The convertible notes issued for years December
31, 2018 and 31, 2017, consist of the following terms:
|
|
|
|
|
Year ended December 31, 2018 Amount of Principal Raised
|
|
Year ended December 31, 2017 Amount of Principal Raised
|
|
Interest Rate
|
|
|
|
|
0% - 12%
|
|
|
|
0% - 12%
|
|
|
Default interest rate
|
|
|
|
|
14% - 22%
|
|
|
|
14% - 22%
|
|
|
Maturity
|
|
|
|
|
November 4, 2015 –May 22, 2019
|
|
|
|
November 4, 2015 –December 7, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion terms 1
|
|
65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion.
|
|
|
3,691,578
|
|
|
|
3,495,100
|
|
|
Conversion terms 2
|
|
65% of the “Market Price”, which is the one lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion.
|
|
|
1,131,560
|
|
|
|
1,164,777
|
|
|
Conversion terms 3
|
|
70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the fifteen (15) trading day period prior to the conversion.
|
|
|
paid on conversion
|
|
|
|
paid on conversion
|
|
|
Conversion terms 4
|
|
75% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion.
|
|
|
765,000
|
|
|
|
765,000
|
|
|
Conversion terms 5
|
|
60% of the “Market Price”, which is the lowest trading prices for the common stock during the fifteen (15) trading day period prior to the conversion.
|
|
|
paid on conversion
|
|
|
|
paid on conversion
|
|
|
Conversion terms 6
|
|
Conversion at $0.10 per share
|
|
|
Paid on conversion
|
|
|
|
Paid on conversion
|
|
|
Conversion terms 7
|
|
60% of the “Market Price”, which is the lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion.
|
|
|
50,000
|
|
|
|
Paid on conversion
|
|
|
Conversion terms 8
|
|
65% of the “Market Price”, which is the two lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion.
|
|
|
265,050
|
|
|
|
487,061
|
|
|
Conversion terms 9
|
|
65% of the “Market Price”, which is the two lowest trading prices for the common stock during the fifteen (15) trading day period prior to the conversion.
|
|
|
204,579
|
|
|
|
Paid on conversion
|
|
|
Conversion terms 10
|
|
65% of the “Market Price”, which is the one lowest trading prices for the common stock during the fifteen (15) trading day period prior to the conversion.
|
|
|
paid on conversion
|
|
|
|
paid on conversion
|
|
|
Conversion terms 11
|
|
60% of the “Market Price”, which is the two lowest trading prices for the common stock during the twelve (12) trading day period prior to the conversion.
|
|
|
paid on conversion
|
|
|
|
Paid on conversion
|
|
|
Conversion terms 12
|
|
61% of the “Market Price”, which is the average of the three lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion.
|
|
|
52,662
|
|
|
|
201,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Debt
|
|
|
|
|
6,160,429
|
|
|
|
6,112,938
|
|
|
Less: Debt Discount
|
|
|
|
|
(169,377
|
)
|
|
|
(610,686
|
)
|
|
Less: Debt Issue Costs
|
|
|
|
|
(3,525
|
)
|
|
|
(27,436
|
)
|
|
Convertible Debt - net
|
|
|
|
|
5,987,527
|
|
|
|
5,474,816
|
|
The debt holders are entitled, at their option,
to convert all or part of the principal and accrued interest into shares of the Company’s common stock at conversion prices
and terms discussed above. The Company classifies embedded conversion features in these notes and warrants
as a derivative liability due to management’s assessment that the Company may not have sufficient authorized number of shares
of common stock required to net-share settle or due to the existence of a ratchet due to an anti-dilution provision. See Note 4
regarding accounting for derivative liabilities.
During the year ended December 31, 2018, the
Company converted debt and accrued interest, totaling $878,214 into 4,289,679,230 shares of common stock
During the year ended December 31, 2017, the
Company converted debt and accrued interest, totaling $1,309,243 into 1,229,440,607 shares of common stock
Convertible debt consisted of the following
activity and terms:
|
Convertible Debt Balance as of December 31, 2016
|
|
|
5,597,598
|
|
|
|
4% - 10%
|
|
|
|
November 4, 2015 –March 10, 2018
|
|
|
Borrowings during the year ended December 31, 2017
|
|
|
1,972,868
|
|
|
|
8
|
%
|
|
|
|
|
|
Non-Cash Reclassification of accrued interest converted
|
|
|
85,459
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt to into 1,229,440,607 shares of common stock with a valuation of 1,309,243 ($0.00045 - $0.00731/share) including the accrued interest of $85,459
|
|
|
(824,381
|
)
|
|
|
|
|
|
|
|
|
|
Convertible Debt Balance as of December 31, 2017
|
|
|
6,112,938
|
|
|
|
4% - 10%
|
|
|
|
November 4, 2015 –December 7, 2018
|
|
|
Borrowings during the year ended December 31, 2018
|
|
|
869,579
|
|
|
|
8
|
%
|
|
|
|
|
|
Non-Cash Reclassification of accrued interest converted
|
|
|
56,126
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt to into 4,373,012,563 shares of common stock with a valuation of 878,214 ($0.0006 - $0.00065/share) including the accrued interest of $56,126
|
|
|
(878,214
|
)
|
|
|
|
|
|
|
|
|
|
Convertible Debt Balance as of December 31, 2018
|
|
|
6,160,429
|
|
|
|
4% - 12%
|
|
|
|
November 4, 2015 –May 22, 2019
|
|
During the years ended December 31, 2018, the
Company paid debt issue costs totaling $20,500
During the year ended December 31, 2017, the
Company paid debt issue costs totaling $77,525.
The following is a summary of the Company’s
debt issue costs:
|
|
|
Year ended December 31 , 2018
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
Debt issue costs
|
|
$
|
362,423
|
|
|
|
343,898
|
|
|
Accumulated amortization of debt issue costs
|
|
|
(358,898
|
)
|
|
|
(316,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Debt issue costs – net
|
|
$
|
3,525
|
|
|
|
27,436
|
|
During the years ended December 31, 2018 and
2017 the Company amortized $44,426 and $96,338, of debt issue costs, respectively.
(C) Debt Discount & Original Issue Discount
During the years ended December 31, 2018 and
2017, the Company recorded debt discounts totaling $813,386 and $2,647,357, respectively.
The debt discount and the original issue discount
recorded in 2018 and 2017 pertains to convertible debt that contains embedded conversion options that are required to be bifurcated
and reported at fair value and original issue discounts.
The Company amortized $1,276,576 and $2,647,357
during the years ended December 31, 2018 and 2017, respectively, to amortization of debt discount expense.
|
|
|
Years the ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
Debt discount
|
|
$
|
13,221,839
|
|
|
|
12,386,574
|
|
|
Accumulated amortization of debt discount
|
|
|
(13,052,462
|
)
|
|
|
(11,775,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Debt discount - Net
|
|
$
|
169,377
|
|
|
|
610,686
|
|
|
|
|
|
|
|
|
|
|
|
(D) Line of Credit – Related Party
On July 6, 2017, the Company entered into a
two-year line of credit agreement with the principal stockholder in the amount of $100,000. Subsequently, on October 2, 2017, the
Company entered into a two year line of credit agreement with the principal stockholder in the amount of $200,000. The
line of credit carries an interest rate of 4%.
As of December 31, 2017, the principal stockholder
has advanced $47,450 to the Company and was repaid $15,000 under the terms of this line of credit agreement. As of December 31,
2017 $34,156 is owed under
the line of credit including the accrued interest
of $306. During the year ended December 31, 2018, the principal stockholder has advanced $557,299accrued $3,792 in interest and
was repaid $284,957 under the terms of this line of credit. The line of credit balance and accrued interest as of December 31,
2018 is $310,290.
NOTE 4 DERIVATIVE
LIABILITIES
The Company identified conversion features
embedded within convertible debt issued in 2018 and 2017. The Company has determined that the features associated with the embedded
conversion option should be accounted for at fair value as a derivative liability.
As a result of the application of ASC No. 815,
the fair value of the conversion feature is summarized as follow:
|
Derivative Liability -December 31, 2016
|
|
$
|
5,906,940
|
|
|
Fair value at the commitment date for convertible instruments
|
|
|
2,577,074
|
|
|
Change in fair value of embedded derivative liability for warrants issued
|
|
|
(200,480)
|
|
|
Change in fair value of embedded derivative liability for convertible instruments
|
|
|
(668,281)
|
|
|
Reclassification to additional paid in capital for financial instruments that ceased to be a derivative liability
|
|
|
(1,319,638
|
)
|
|
Change from repayments
|
|
|
(386,494
)
|
|
|
Derivative Liability -December 31, 2017
|
|
$
|
5,909,121
|
|
|
Fair value at the commitment date for convertible instruments
|
|
|
1,188,688
|
|
|
Change in fair value of embedded derivative liability for warrants issued
|
|
|
17,993
|
|
|
Change in fair value of embedded derivative liability for convertible instruments
|
|
|
8,062,258
|
|
|
Reclassification to additional paid in capital for financial instruments that ceased to be a derivative liability
|
|
|
(1,328,469
|
)
|
|
Derivative Liability –December 31, 2018
|
|
$
|
13,849,591
|
|
The Company recorded the debt discount to the
extent of the gross proceeds raised, and expensed immediately the remaining value of the derivative as it exceeded the gross proceeds
of the note. The Company recorded a derivative expense for the years ended December 31, 2018 and 2017 of $375,302 and $639,224
respectively.
The fair value at the commitment and re-measurement
dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2018:
|
|
|
|
Commitment Date
|
|
|
|
Re-measurement Date
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected dividends:
|
|
|
—
|
|
|
|
—
|
|
|
Expected volatility:
|
|
|
133% - 262%
|
|
|
|
296.54%-579.57%
|
|
|
Expected term:
|
|
|
0.08 - 3 Years
|
|
|
|
0.11–1.01 Years
|
|
|
Risk free interest rate:
|
|
|
0.06% - 2.31%
|
|
|
|
2.23% - 2.63%
|
|
The fair value at the commitment and re-measurement
dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2017:
|
|
|
|
Commitment Date
|
|
|
|
Re-measurement Date
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected dividends:
|
|
|
—
|
|
|
|
—
|
|
|
Expected volatility:
|
|
|
133% - 262%
|
|
|
|
90.12% -297%
|
|
|
Expected term:
|
|
|
0.08 - 3 Years
|
|
|
|
0.01–1.40 Years
|
|
|
Risk free interest rate:
|
|
|
0.06% - 1.60%
|
|
|
|
0.01% - .1.83%
|
|
NOTE 5 PROPERTY
AND EQUIPMENT
At December 31, 2018 and 2017, respectively,
property and equipment is as follows:
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
|
|
|
|
|
|
Website Development
|
|
$
|
294,795
|
|
|
$
|
294,795
|
|
|
Furniture and Equipment
|
|
|
143,071
|
|
|
|
143,071
|
|
|
Leasehold Improvements
|
|
|
6,708
|
|
|
|
6,708
|
|
|
Software
|
|
|
54,598
|
|
|
|
54,598
|
|
|
Music Equipment
|
|
|
2,578
|
|
|
|
2,578
|
|
|
Office Equipment
|
|
|
80,710
|
|
|
|
80,710
|
|
|
Domain Name
|
|
|
1,500
|
|
|
|
1,500
|
|
|
Sign
|
|
|
628
|
|
|
|
628
|
|
|
Total
|
|
|
584,588
|
|
|
|
584,588
|
|
|
Less: impairment of assets
|
|
|
(28,211)
|
|
|
|
-
|
|
|
Less: accumulated depreciation and amortization
|
|
|
(556,377
|
)
|
|
|
(540,525
|
)
|
|
Property and Equipment, Net
|
|
$
|
-
|
|
|
$
|
44,063
|
|
Depreciation expense for the years ended December
31, 2018 and 2017 totaled $15,852 and $42,459, respectively.
During the year ended December 31, 2018, the
Company recorded an asset impairment of $28,211 consisting of office furniture and equipment. The assets are fully impaired and
the remaining carrying value is $0 for the year ended December 31, 2018.
NOTE 6 STOCKHOLDERS’
DEFICIT
On April 4, 2017, the Company with the consent
of the Majority Shareholder and Unanimous Written Consent of the Board of Directors filed with the Securities and Exchange Commission
a Schedule 14C and with the State of Delaware an Amended Certificate of Incorporation increasing the authorized shares of common
stock by 600,000,000 shares of common stock from 1,650,000,000 shares of common stock to 2,250,000,000 shares of common stock.
On April 23, 2017, the Company with the consent
of the Majority Shareholder and Unanimous Written Consent of the Board of Directors filed with the Securities and Exchange Commission
a Schedule 14C and with the State of Delaware an Amended Certificate of Incorporation increasing the authorized shares of common
stock by 1,000,000,000 shares of common stock from 2,250,000,000 shares of common stock to 3,250,000,000 shares of common stock.
On October 4, 2017, the Company with the consent
of the Majority Shareholder and Unanimous Written Consent of the Board of Directors filed with the Securities and Exchange Commission
a Schedule 14C and with the State of Delaware an Amended Certificate of Incorporation increasing the authorized shares of common
stock by 1,000,000,000 shares of common stock from 3,250,000,000 shares of common stock to 4,250,000,000 shares of common stock.
On February 1, 2018, the Company with the consent
of the Majority Shareholder and Unanimous Written Consent of the Board of Directors filed with the Securities and Exchange Commission
a Schedule 14C and with the State of Delaware an Amended Certificate of Incorporation increasing the authorized shares of common
stock by 5,750,000,000 shares of common stock from 4,250,000,000 shares of common stock to 10,000,000,000 shares of common stock.
During the years ended December 31, 2018, the
Company issued the following common stock:
|
Transaction Type
|
|
Quantity
|
|
Valuation
|
|
Range of Value per share
|
|
|
|
|
|
|
|
|
|
Conversion of convertible debt and accrued interest
|
|
|
4,373,012,563
|
|
|
$
|
878,214
|
|
|
|
$0.0006 to- $0.00065
|
|
|
Services - rendered
|
|
|
32,678,571
|
|
|
|
46,200
|
|
|
$
|
0.0026
|
|
|
Shares issued in exchange for warrant forgiveness
|
|
|
9,200,000
|
|
|
|
2,760
|
|
|
$
|
0.0003
|
|
|
Total shares issued
|
|
|
4,414,891,134
|
|
|
$
|
927,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2017, the
Company issued the following common stock:
|
Transaction Type
|
|
Quantity
|
|
Valuation
|
|
Range of Value per share
|
|
|
|
|
|
|
|
|
|
Conversion of convertible debt and accrued interest
|
|
|
1,229,440,607
|
|
|
$
|
1,309,243
|
|
|
|
$0.00045 to- $0.00731
|
|
|
Services - rendered
|
|
|
6,000,000
|
|
|
|
54,600
|
|
|
|
$0.0011 - $0.0107
|
|
|
Shares issued in exchange of interest – related party
|
|
|
800,000,000
|
|
|
|
960,000
|
|
|
$
|
0.00001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares repurchased
|
|
|
(13,000,000
|
)
|
|
|
(15,000
|
)
|
|
$
|
.0014
|
|
|
Total shares issued
|
|
|
1,222,440,607
|
|
|
$
|
2,308,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company maintains on its books and within
the above financials, debt to Venture Champion Asia Limited and ICG USA LLC or its designee(s) which is currently in default and
has not been converted due to ICG’s settled administrative proceeding with the SEC, where the Company awaits any rightful
exemption or regulatory no-action that would render any forward moving action compliant by all the parties.
The Company
announced that it entered into an Agreement with Vedanti Systems Limited and Vedanti Licensing Limited (VLL) that resolves their
dispute over the international Optimized Data Transmission (ODT) patent portfolio previously owned by Vedanti. The Agreement
further provides that VLL and the Company will become co-owners of the pioneering portfolio. In consideration of the patent
portfolio purchase, the Company issued 80,000,000 shares of its common stock to VLL. This patent portfolio consists of patents
in the following countries: The United States, Australia, Austria, Cyprus, Denmark, Spain, Finland, France, Ireland, Italy, Luxembourg,
Monaco, Portugal, Sweden, Turkey, Belgium, Switzerland/ Liechtenstein, United Kingdom, Greece, Netherlands and Germany. The Company
continues to pursue its litigations against Google.
Return of Shares and Issuance of Preferred
shares
On October 2, 2017, the Company, in exchange
for Greg Halpern's consideration issuing the Company a line of credit of $100,000 on July 6, 2017 and another line of credit of
$200,000 on October 2, 2017 and for Mr. Halpern's forgiveness of $960,000 of interest owed to Mr. Halpern for his Preferred Shares
accrued dividend rate of 8% per annum of his already owned 5 million Series A Convertible Preferred Shares, the Board deemed it
proper to grant Mr. Halpern an additional 800,000,000 shares of the Company's common stock, which at Mr. Halpern's election he
may convert into 5,000,000 additional Series A Convertible Preferred Shares with the same voting rights and percentages as his
previously granted and owned 5,000,000 Series A Convertible Preferred Shares.
On November 8, 2017, the Company, at Greg Halpern's
election, converted 800,000,000 shares of Common Stock into 5,000,000 Series A Convertible Preferred Shares representing 33.4%
of the Company’s voting rights and control adding to Halpern’s existing 33.4% holdings, equaling 66.8% of the Company’s
total voting rights and control.
On March 4, 2015 the Company filed a form 8K
with the SEC associated with the Company entering into a Securities Exchange Agreement and the Company filing with the Secretary
of State Delaware a Certificate of Designations, Preferences and Rights whereby, among other things, the Company for good and valuable
consideration, agreed that in consideration of a large shareholder exchanging 120,000,000 shares of common stock back to the Company,
the shareholder would receive 5,000,000 shares of Series A Convertible Preferred Stock of the Company at a Stated Value of $0.96
per share and a Conversion Price of $0.04 per share. These 5,000,000 Series A Convertible Preferred Shares represent 33.4% of the
Company’s voting rights and control and accrue dividends at a rate of 8% per annum Stated Value, payable in cash or in kind
at the election of the Board of Directors. For the years ended December 31, 2018 and 2017, respectively, the Company has not declared
dividends.
(B) Stock Warrants
The following tables summarize all warrant
grants as of December 31, 2018, and the related changes during these periods are presented below:
|
|
|
Number of Warrants
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life (in Years)
|
|
|
Balance, December 31, 2017
|
|
|
|
19,220,690
|
|
|
$
|
0.01
|
|
|
|
1.2
|
|
|
|
Granted
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited
|
|
|
|
(7,600,000
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
|
11,620,690
|
|
|
$
|
0.01
|
|
|
|
0.2
|
|
On May 7, 2018, the Company issued 9,200,000
shares of Company’s common stock to consultant in exchange for forgiveness of Warrant Agreement with the Company with a fair
value of $2,760 ($0.0003/Share).
A summary of all outstanding
and exercisable warrants as of December 31, 2018 is as follows:
|
|
|
|
|
|
|
Weighted Average
|
|
Aggregate Intrinsic
|
|
Exercise
|
|
Warrants
|
|
Warrants
|
|
Remaining
|
|
Value
|
|
Price
|
|
Outstanding
|
|
Exercisable
|
|
Contractual Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
0.16
|
|
|
$
|
—
|
|
|
$
|
0.005
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
0.40
|
|
|
$
|
—
|
|
|
$
|
0.0029
|
|
|
|
8,620,690
|
|
|
|
8,620,690
|
|
|
|
0.25
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,620,690
|
|
|
|
13,620,690
|
|
|
|
0.25
|
|
|
$
|
—
|
|
A summary of all outstanding
and exercisable warrants as of December 31, 2017 is as follows:
|
|
|
|
|
|
|
Weighted Average
|
|
Aggregate Intrinsic
|
|
Exercise
|
|
Warrants
|
|
Warrants
|
|
Remaining
|
|
Value
|
|
Price
|
|
Outstanding
|
|
Exercisable
|
|
Contractual Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
1.16
|
|
|
$
|
—
|
|
|
$
|
0.005
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1.40
|
|
|
$
|
—
|
|
|
$
|
0.0029
|
|
|
|
8,620,690
|
|
|
|
8,620,690
|
|
|
|
1.25
|
|
|
$
|
—
|
|
|
$
|
0.006
|
|
|
|
5,600,000
|
|
|
|
5,600,000
|
|
|
|
1.39
|
|
|
|
|
|
|
$
|
0.12
|
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
0.77
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,220,690
|
|
|
|
19,220,690
|
|
|
|
1.2
|
|
|
$
|
—
|
|
(C) Stock Options
On July 6, 2017, Company's Chief Financial
Officer ("CFO"), the Company issued 95,332,500 options to buy common shares of the Company's stock at $0.00253 per share,
good for three years to the CFO. The Company recognized an expense of $191,361 for year ended December 31, 2018. The Company recorded
the fair value of the options based on the fair value of each option grant estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions:
Expected dividends 0%
Expected volatility 178.27%
Expected term 3 Years
Risk free interest rate 0.69%
The following tables summarize all option grants
as of December 31, 2018, and the related changes during these periods are presented below:
|
|
|
Number of Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life
(in Years)
|
|
Outstanding – December 31, 2016
|
|
|
2,866,652
|
|
|
|
|
|
|
$
|
0.13
|
|
|
|
1.02
|
|
|
Granted
|
|
|
95,332,500
|
|
|
|
|
|
|
$
|
0.0025
|
|
|
|
2
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
$
|
—
|
|
|
|
—
|
|
|
Forfeited or Canceled
|
|
|
(2,866,652
|
)
|
|
|
|
|
|
$
|
—
|
|
|
|
—
|
|
|
Outstanding – December 31, 2017
|
|
|
95,332,500
|
|
|
|
|
|
|
$
|
0.13
|
|
|
|
1.02
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
$
|
—
|
|
|
|
—
|
|
|
Forfeited or Canceled
|
|
|
-
|
)
|
|
|
|
|
|
$
|
—
|
|
|
|
—
|
|
|
Outstanding – December 31, 2018
|
|
|
95,332,500
|
|
|
|
$
|
|
|
|
0.0025-
|
|
|
|
1.51-
|
|
|
Exercisable – December 31, 2018
|
|
|
95,332,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7 COMMITMENTS
(A) Consulting Agreement
On July 1, 2018 the Company entered into a
new engagement with a consultant for a period of one year. Either Consultant or the Company may terminate the agreement at any
time and for any reason by giving the other party 5 day notice. In connection with this agreement, the consultant will receive
a compensation equal to $120,000 on or before June 30, 2019. No payments have been made as of December 31, 2018 and the amount
was accrued.
On March 5, 2018 the Company entered into a
consulting services agreement with a consultant. The agreement will continue until March 5, 2019. During the last nine months of
the agreement, either Consultant or the Company may terminate the agreement at any time and for any reason by giving the other
party 5 day notice. In connection with this agreement, the consultant received shares of common stock and hourly compensation.
On April 4, 2018 the Company issued 2,678,571 shares of Company’s common stock in connection
with March 5, 2018 consulting agreement with a f air value of
$1,500 ($$0.00055/share).
On January 29, 2018 the Company entered into
a consulting services agreement with a consultant. The agreement will continue until January 29, 2019. During the last nine months
of the agreement, either Consultant or the Company may terminate the agreement at any time and for any reason by giving the other
party 30 day notice. In connection with this agreement, the consultant received 30,000,000 shares of common stock each upon the
executing of the agreement with a fair value of $45,000 ($0.0015/share).
On October 12, 2017 the Company entered into
a new engagement with its corporate counsel McMenamin Law Group, for corporate legal services to be provided from January 1, 2018
through December 31, 2018. Specifically the Company agreed to pay a flat fee totaling $32,500 in the following installment, (i)
$10,000 on January 2, 2018, (ii) $7,500 on March 31, 2018, (iii) $7,500 on September 30, 2018, and (iv) $7,500 on October 31, 2018.
(B) Other Agreements
On February
21, 2017 the Company entered into an Agreement with architect Eli Attia. This Agreement terminated and replaced the previous Representation Agreement
and allows the Company to continue to pursue litigations against Google and Flux.
NOTE 8 LITIGATION
From time to time, the Company
has become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm
its business.
On January 21, 2015, the Company
filed a patent infringement action against Netflix Inc., Netflix Luxembourg S.a.r.l. and Netflix International B.V. with the District
Court of Mannheim, Germany. The
asserted patent is the same
patent as in the German proceedings against Google Inc. and its subsidiaries. The Complaint alleges that Netflix Inc. and its subsidiaries
are offering and transmitting video streams to German customers as part of their video-on-demand business model; the videos being
encoded and transmitted in a manner claimed and protected by the patent. The Company primarily seeks a permanent injunction against
the Defendants, plus damages and information regarding past infringements. The Company, on or about December 2015 upon advice of
counsel, decided withdraw the litigation prior to oral argument, which withdrawal is without prejudice to re-file the lawsuit in
the future.
The Company intends to vigorously
prosecute these various patent infringement litigations. The Company believes it has a good likelihood of success associated with
these patent infringement lawsuits. However, no assurance can be given by the Company as to the ultimate outcome of these actions
or its effect on the Company. The law firm is prosecuting this action on a contingency fee basis.
On January 26, 2015, the Company
was named as a defendant in an action filed in the Superior Court for the State of California and the County of Los Angeles captioned
Bibicoff Family Trust v. Max Sound Corporation (Case No. SC123679). The parties participated in mediation and arrived successfully
at a settlement and resolution of the matter. In March 2017 the Company successfully completed paying the agreed upon settlement
amount.
On August 11, 2014, the Company and VSL simultaneously
filed trade secret and patent infringement actions against Google, Inc., and its subsidiaries YouTube, LLC, and On2 Technologies,
Inc., relating to proprietary and patented technology owned by Vedanti Systems Limited (“Vedanti”), a subsidiary of
VSL. The patent infringement complaint was originally filed in the U.S. District Court for the District of Delaware; the
trade secret suit was filed in Superior Court of California, County of Santa Clara. On September 30, 2014, the Company filed
notices of voluntary dismissal without prejudice as to both lawsuits. On October 1, 2014, the Company amended the patent complaint
and filed it in the U.S. District Court for the Northern District of California. In this patent lawsuit, the Company contends that,
in 2010, while Google was in discussions with Vedanti about the possibility of acquiring Vedanti's patented digital video streaming
techniques and other proprietary methods, Google gained access to and received technical guidance regarding Vedanti’s proprietary
codec, a computer program capable of encoding and decoding a digital data stream or signal. The lawsuit further alleges that
soon after Google and Vedanti initiated negotiations, Google willfully infringed Vedanti's patent by incorporating Vedanti's patented
technology into Google's own VP8, VP9, WebM, YouTube, Google Adsense, Google Play, Google TV, Chromebook, Google Drive, Google
Chromecast, Google Play-per-view, Google Glasses, Google+, Google’s Simplify, Google Maps, and Google Earth, without compensating
Vedanti for such use. On May 13, 2015 Google's “motion to dismiss” was denied by the Northern District of
California court in a seven page order, stating that Max Sound had sufficiently alleged the existence and validity of the '339
Patent. However, on November 24, 2015, the court granted a second motion to dismiss for lack of subject matter jurisdiction
based on the defendants’ argument that the agreements between the Company and VSL/Vedanti did not clearly give the Company
standing to enforce the patent rights. The Company appealed that decision on February 22, 2016. One January 18, 2017
the Company received a notice from the Federal Circuit Court of Appeals that affirmed the order of the District Court dismissing
MAXD's patent infringement lawsuit against Google for lack of standing. The Court did not issue a written decision explaining its
reasoning or that the Company's arguments were not correct; however, the Company believes that their decision was predicated on
the fact that as now co-owners of the patents with Vedanti, the Company can simply re-file together against Google. The Court also
issued an order denying Google's motion arguing that the Company's appeal should be dismissed as moot. On September 25, 2017,
the Court issued an order that the Company should reimburse defendants for its attorneys’ fees in the amount of $820,321.41 The
Company was informed by counsel that the Order for fees was without merit and appealed but was told at the hearing that Google
would lose the appeal if the Company had not committed Waiver. After an excessively long delay by the Federal Appeals Court to
hear the case so it could be combined with another case (Vedanti Licensing Limited vs Google) using the same Tribunal with the
sole intention to harm the Company, and continue to allow Google to steal and destroy the ODT Patent while profiting from it as
a key component of its business, the Appeal was finally heard and the Company lost with no reasonable explanation with the corrupt
Tribunal simply rubber stamping both cases Affirmed See Fed Rule 36, which means “we won’t
even look at the facts because then we would
have no choice but to reverse the case.” The Company is exploring additional rights it may have in both cases with its ongoing
battle against Judicial Corruption. The Company is taking recourse by planning to file a petition for rehearing en banc, where
all judges of the appellate court will hear the case. This petition is based on a precedent case similar to Max Sound’s case
with the same defense lawyer for the opposing side, the same judges who heard the case and a similar chain of events. Max Sound
has until April 11, 2019 to file the petition. For the twelve months ended December 31, 2018, the Company recorded the judgement
payable on the balance sheet.
In connection with the dismissal
of the aforementioned litigation, the Company initiated an arbitration against VSL Communications, Ltd., Vedanti Systems,
Ltd., Constance Nash, Robert Newell and eTech Investments as respondents before the American Arbitration Association for breach
of contract, fraud, and other causes of action. Subsequently, the Company is pursuing in arbitration claims against VSL to enforce
the agreement and to compel VSL to comply with the agreement’s terms and conditions that inter alia VSL must fully cooperate
with the Company to cure any issues the Court raised with standing to pursue the claims. On January 17, 2017 the AAA notified the
Company’s counsel that the respondent’s counterclaim was withdrawn this arbitration claim was formally concluded.
On December 5, 2014, the Company,
along with renowned architect Eli Attia, filed a lawsuit in the Superior Court of California, County of Santa Clara, against Google,
its co-founders Sergey Brin and Larry Page, Google’s spinoff company Flux Factory, and senior executives of Flux. Plaintiffs’
allege misappropriation of trade secrets, breach of contract and other contract-related claims, breach of confidence, slander of
title, violation of California’s Unfair Competition Law (California Business and Professionals Code §§ 17200 et
seq.), and fraud, and also a claim for declaratory relief. The lawsuit contends that Google and the other Defendants stole Mr.
Attia’s trade secrets, proprietary information, and know-how regarding a revolutionary architecture design and building process
that he alone had invented, known as Engineered Architecture. Defendants are alleged to have engaged Mr. Attia in 2010 and 2011
to translate his architectural technology into software for a proof of concept, with the goal of determining at that point whether
to continue with full-scale development with Mr. Attia. Instead, the lawsuit claims that once Mr. Attia had disclosed the trade
secrets and proprietary information Defendants needed to bring the technology to market, they severed ties with Mr. Attia, and
continued to use his technology without a license and without compensation, in order to bring the technology to market themselves.
Plaintiffs seek a permanent injunction against Google, damages (including punitive damages), and restitution. As exclusive agent
to Eli Attia to enforce all rights with respect to the subject technology, the Company has retained Buether Joe & Carpenter
LLC to represent the Company in the suit, on a contingency fee basis. The case will be vigorously prosecuted, and the Company believes
it has a good likelihood of success. Defendants have filed multiple demurrers to the complaint,
and the Court has issued orders allowing the case to proceed. Defendants filed another demurrer on March 17, 2016, which
was denied by the Court on August 12, 2016. On October 4, 2017, the Court granted Mr. Attia leave to amend the complaint
to add causes of action against defendants for civil violations of the federal Racketeer Influenced and Corrupt Organizations Act
(commonly known as RICO). Subsequently, on October 23, 2017, the defendants removed the lawsuit from California state
court to the federal district court in the Northern District of California, San Jose Division. The parties continue to file motions
and are expected to begin the discovery phase of the litigation.
On June 1, 2016, the Company
was named as a defendant in an action filed in the Superior Court of the State of California, County of Los Angeles – Central
District, captioned Adli Law Group, PC v. Max Sound Corporation (Case No. BC621886). Plaintiff alleges two causes of action for
Breach of Contract and a cause of action for Common Counts, all arising out of the Company’s alleged failure to pay for Plaintiff’s
legal services. Despite the fact that the Company was never served with the Complaint, default was entered against the Company.
The Default has been set aside and the Company has responded to the Complaint with an Answer and Cross-Complaint
for Breach of Contract, Professional Negligence, Breach of Fiduciary Duty, Conversion, and Fraud, due to the fact, that among other
things, Adli Law reassigned the Company's primary patent to itself. The parties have begun the discovery phase of
the litigation and the Judge had set a status hearing for January 19, 2018.On June 1, 2018, Adli filed a motion for summary
judgment on numerous issues. One issue raised by Adli (at the very end of their motion and in only a single paragraph)
was that Max Sound was a forfeited
corporation and thus, “is foreclosed from prosecuting any action in California courts.” Adli did not raise this issue
before filing its papers. Max Sound’s counsel, SML Avvocati, P.C. had since learned that the California Franchise Tax Board
contended that Max Sound owed back taxes, hence the forfeiture. Max Sound hired a CPA tax specialist to assist with paying its
outstanding taxes and to obtain a revivor to cure its forfeited status and thus be able to regain its ability to both defend itself
in this action and prosecute its counterclaims. However, despite working diligently with the hope of resolving this issue before
the summary judgment motion hearing set for September 6, 2018, Max Sound had not resolve its issues with the state of California
and had not yet obtained a revivor. As a result, Max Sound respectfully requested that the court grant a stay in the proceedings
until Max Sound was able to obtain a revivor or, in the alternative, a continuance of all proceedings. A stay or continuance was
necessary because Max Sound’s counsel would not be able to respond to the pending summary judgment motion (or any other substantive
proceeding), and Max Sound would be unable to defend itself against this action or prosecute its cross-complaint until Max Sound’s
forfeited status was cured. The court provided a summary default judgment in favor of Adli. After entry of the adverse judgment
subject to appeal, Appellant Max Sound requested that the SML Avvocati, P.C. firm file a notice of appeal on its behalf. The SML
Avvocati, P.C. firm agreed to file the notice of appeal and to represent Appellant, Max Sound, in connection with the appeal. On
November 21, 2018, the SML Avvocati, P.C. firm filed a notice of appeal on Appellant’s behalf before the Superior Court,
which was followed on December 4, 2018, by a notice designating record on appeal. On December 17, 2018, the SML Avvocati, P.C.
firm filed a Civil Case Information Statement before the Court on Appellant’s behalf. SML Avvocati, P.C. was scheduled to
file an opening brief on February 12, 2019. In the week of March 18, 2019, the SML Avvocati, P.C. firm informed Appellant for the
first time that it would not file any brief on Appellant’s behalf or take any further action in the appeal unless Appellant
immediately paid them an exorbitant sum of allegedly unpaid attorney’s fees. SML Avvocati, P.C. did not file a motion to
withdraw as counsel with the Court, nor did SML Avvocati, P.C. take any steps before the Court to protect Appellant’s interest,
such as filing a request for an extension of time to file Appellant’s Opening Brief so that Appellant could locate new counsel.
Instead, the SML Avvocati, P.C. firm improperly sought to use the imminent deadline for filing the Appellant’s Opening Brief
to extort the unwarranted payment from Appellant of disputed attorney’s fees. Appellant refused to give in to thSML Avvocati,
P.C.’s improper attempt at extortion. A notice of default was issued by the Court on March 8, 2019, such that the 15-day
default period expired on March 25, 2019. Despite substantial efforts, however, Appellant was unable to locate new appellate counsel
until March 26, 2019. Max Sound’s new counsel, Klapach &Klapach, P.C. filed an application for a 30-day extension to
file the opening brief. The extension was granted and the opening brief is now due April 26, 2019.
On September 22, 2016, the
Company filed an action in the Superior Court of the State of California, County of San Diego – North County Regional Center,
captioned Max Sound Corporation v. Globex Transfer, LLC (Case No. 37-2016-0003037-CU-MC-NC). The Company requests injunctive relief
and declaratory relief regarding the release of 13 million restricted shares of Company stock. On September 26, 2016, the Court
granted the Company a preliminary injunction, enjoining Defendant from releasing any restriction of the subject shares without
first obtaining the Company’s consent, pending the outcome of the litigation.”
In November 2016, the Company
entered into an agreement with Vedanti Licensing Limited ("VLL") and Vedanti Systems Limited ("Vedanti") under
(the "VLL/Max Sound Agreement") granting the Company co-ownership of U.S. Patent No. 7,974,339 (the "`339 Patent")
along with the other patents owned by Vedanti Systems Limited. Thus, the Company is now a co-owner with VLL of the `339 Patent
and ODT Patent portfolio, pursuant to the VLL/Max Sound Agreement, the Company and VLL intend to file new lawsuit against Google
and others for infringement as co-owners.
On December 20, 2016 Companies
House, the United Kingdom's registrar of companies, notified the Company that VSL Communications Limited was dissolved,
thereafter voiding any remaining agreement with VSL Communications or its previous Officers, Directors or Management.
No assurance can be given as
to the ultimate outcome of these actions or their effect on the Company.
NOTE 9 SUBSEQUENT EVENTS
Subsequent to December 31,
2018, principal shareholder paid an aggregate $56,351 in expenses on Company’s behalf as an advance under the terms of the
line of credit agreement (See Note 3 (D)).