| Summary of Significant Accounting Policies and Organization | 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. (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 June 30, 2015 and 2014, 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 . (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 June 30, 2015 and 2014. (G) Revenue Recognition The Company recognized revenue on arrangements
in accordance with FASB Codification Topic 605, “Revenue Recognition” (H) Advertising Costs Advertising costs are expensed as incurred
and include the costs of public relations activities. These costs are included in consulting and general and administrative expenses
and totaled $0 and $0 for the six months ended June 30, 2015 and 2014, respectively. (I) Inventories Inventory consists primarily of finished goods
and is valued at the lower of cost or market. Cost is determined using the weighted average method and average cost is recomputed
after each inventory purchase or sale. Inventory is periodically reviewed in order to identify obsolete or damaged inventory and
impaired values. Inventory is comprised of gift cards valued at $8,796 at June 30, 2015. (J) Identifiable Intangible Assets As of June 30, 2015 and December 31, 2014,
$7,500,275 of costs related to registering a trademark and acquiring technology rights (audio technology known as Max Audio Technology
(MAXD) have been capitalized. It has been determined that the trademark and technology rights have an indefinite useful life and
are not subject to amortization. However, the trademark and technology rights will be reviewed for impairment annually or more
frequently if impairment indicators arise. On November 15, 2012, the Company acquired
the rights to assets and audio technology known as Liquid Spins, Inc. through a share exchange, whereby the Company issued 24,752,475
shares of common stock for their rights in Liquid Spins technology (See Note 8 (H)). As of June 30, 2015 and December 31, 2014,
$7,885,341 and $8,338,121, respectively, of costs related to this intangible remain capitalized. The technology was placed in service
on August 23, 2013 with a useful life of 10 years. However, the technology will be reviewed for impairment annually or more frequently
if impairment indicators arise. On May 19, 2014, the Company entered into an
agreement with VSL Communications to acquire the rights to intellectual property titled “Optimized Data Transmission System
and Method” (“ODT”) through a cash payment of $500,000 in addition to a share issuance, whereby the Company issued
10,000,000 shares of common stock, valued at $1,000,000 ($0.10/share). In exchange, the Company received a perpetual, exclusive,
worldwide license to the ODT technology for all fields of use. In addition, the Company issued 1,000,000 shares of common stock,
valued at $120,000 ($0.12/share), as compensation for the introduction and identification of a seller based on the agreement dated
April 10, 2014. As of June 30, 2015 and December 31, 2014,
$1,620,000 of costs related to the “ODT” intangible asset remains capitalized. The technology will be reviewed for
impairment annually or more frequently if impairment indicators arise. In connection with this agreement, the Company is obligated
to make an additional five (5) payments totaling $1,000,000 to be made every 30 days, with the thirty (30) day periods to be waived
if fund raising occurs on an anticipated faster time line. The payments of additional cash are contingent on the following funding
criteria:
● The Company shall pay set increments of cash based on a percentage of gross funds received through funds raised.
● The Company shall pay 20% of such monies as soon as they are received. In connection with funds raised through June
30, 2015, the Company recorded a liability and expensed $695,076 as royalty cost, related to the 20% fee, as of June 30, 2015,
$30,000 has been paid . The remaining liability as of June 30, 2015, is $665,076 and is included in accounts payable. The Company shall act as the exclusive agent
to facilitate and negotiate any opportunities on behalf of ODT to Companies, Organizations and other qualified entities. Upon any
closing, ODT shall receive 50% of gross dollars and the Company shall receive the other 50% at the time of a completion of any
transaction opportunity, including legal settlements after subtracting applicable contingent legal fees. The term of the agreement
is for the life of the acquired intellectual property. 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, a subsidiary of VSL.
The patent infringement complaint was brought in U.S. District Court for the District of Delaware and the trade secret suit was
filed in Superior Court of California, County of Santa Clara. The lawsuits contend 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 complaints allege that soon after the two companies initiated
negotiations, Google began implementing Vedanti's technology into its own WebM/VP8 video codec without informing Vedanti, and without
compensating Vedanti for its use. Plaintiffs are seeking a permanent injunction against Google, compensatory damages, as
well as treble damages. As exclusive agent to VSL to enforce all rights with respect to the subject technology, the Company has
hired Grant & Eisenhofer, PA to represent the Company and VSL in the suits. These cases will be vigorously prosecuted and the
Company believes it has a good likelihood of success. On May 22, 2014, the Company entered into a
five (5) year agreement to acquire the rights to intellectual property titled “Engineered Architecture” (“EA
Technology”) through a cash payment of $50,000 in addition to a share issuance, whereby the Company issued 4,000,000 shares
of common stock, valued at $394,000 ($0.0985/share). In exchange, the Company received for the term of the agreement, the exclusive
worldwide right to use the EA Technology. As of June 30, 2015, $392,200 of costs related to this intangible remains capitalized.
The technology will be reviewed for impairment annually or more frequently if impairment indicators arise. In connection with this
agreement, the Company is obligated to make an additional five (5) payments totaling $500,000 to be made every 30 days, with the
thirty (30) day periods to be waived if fund raising occurs on an anticipated faster time line. The payments of additional cash
are contingent on the following funding criteria:
● The Company shall pay set increments of cash based on a percentage of gross funds received through funds raised.
● The Company shall pay 10% of such monies as soon as they are received. In connection with funds raised through June
30, 2015, the Company recorded a liability and expensed $347,538 as royalty cost, related to the 10% fee, as of June 30, 2015,
$40,000 has been paid . The remaining liability as of June 30, 2015, is $307,538 and is included in accounts payable. The Company shall act as the exclusive agent
to facilitate and negotiate any opportunities on behalf of EA Technology to Companies, Organizations and other qualified entities.
Upon any closing, EA shall receive 50% of gross dollars and the Company shall receive the other 50% at the time of a completion
of any transaction opportunity, including legal settlements after subtracting applicable contingent legal fees. In the event the
Company sublicenses EA to other entities, profits shall be split evenly 50%/50%. (k) Impairment of Long-Lived Assets The Company accounts for its long-lived assets
in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic
360-10-05 requires that long-lived assets, such as technology rights, be reviewed for impairment annually, or whenever events or
changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company
assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset,
including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss
is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. No impairments
were recorded for the six months ended June 30, 2015 and 2014, respectively. (l) Loss Per Share In accordance with accounting guidance now
codified as FASB ASC Topic 260, “Earnings per Share,” The computation of basic and diluted loss per
share for the six months ended June 30, 2015 and 2014, excludes the common stock equivalents of the following potentially dilutive
securities because their inclusion would be anti-dilutive:
June 30, 2015 June 30, 2014
Stock Warrants (Exercise price - $0.25 - $.40/share) 3,750,000 3,635,000
Stock Options (Exercise price - $0.10 - $.50/share) 15,566,652 12,700,000
Convertible Debt (Exercise price - $0.07 - $.0817/share) 134,002,173 39,755,250
Series A Convertible Preferred Shares ($0.04/share) 5,000,000 —
Total 278,318,825 56,090,250 (M) 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. The Company's federal income tax returns are
no longer subject to examination by the IRS for the years prior to 2011, and the related state income tax returns are no longer
subject to examination by state authorities for the years prior to 2010. (N) Business Segments The Company operates in one segment and therefore
segment information is not presented. (O) Recent Accounting Pronouncements All other newly issued accounting pronouncements
but not yet effective have been deemed either immaterial or not applicable. (P) Fair Value of Financial Instruments
and Fair Value Measurements The carrying amounts on the Company’s
financial instruments including prepaid expenses, accounts payable, accrued expenses, derivative liability, convertible note payable,
and loan payable-related party, 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 June 30, 2015 and December 31, 2014, using quoted prices in active markets for identical
liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):
Fair Value Measurement Using Fair Value Measurement Using
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Derivative Liabilities — 2,983,397 — 2,983,397 — 3,234,792 — 3,234,792 (Q) 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. (R) 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. (S) 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. (T) 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. (U) Licensing & Distribution On June 20, 2015, the Company entered into
a license agreement with Santok LTD of United Kingdom (“Santok). The term of the agreement is three years. Santok, will
pay the Company a royalty fee of $1.50 for each licensed product. Santok guarantees to the Company a minimum total of 150,000
cumulative licensed product installation with a minimum total guaranteed value of $225,000 over the five quarter of the agreement.
If the total royalty paid is less than the guaranteed value, Santok will pay the difference. |
