| Summary of Significant Accounting Policies and Organization | MAX
SOUND CORPORATION NOTES
TO FINANCIAL STATEMENTS AS
OF March 31, 2017 (UNAUDITED) 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 has 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 . 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. These
unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and
related notes included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 31,
2017. (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 March 31, 2017 and December 31, 2016, 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 March 31, 2017 and December 31, 2016. (G)
Revenue Recognition The
Company recognized revenue on arrangements in accordance with FASB Codification Topic 605, “Revenue Recognition” (“ASC
Topic 605”). Under ASC Topic 605, revenue is recognized only when the price is fixed and determinable, persuasive evidence
of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. The Company
has not yet commenced revenue generating activities. (H)
Identifiable Intangible Assets ASC
350 prescribes a two-step process for impairment testing of goodwill and intangibles with indefinite lives, which is performed
annually, as well as when an event triggering impairment may have occurred. ASC 350 also allows preparers to qualitatively assess
goodwill impairment through a screening process, which would permit companies to forgo Step 1 of their annual goodwill impairment
process. This qualitative screening process will hereinafter be referred to as "Step 0". Goodwill and intangible assets
deemed to have an indefinite life are tested for impairment on an annual basis, or earlier when events or changes in circumstances
suggest the carrying amount may not be fully recoverable. The Company has elected to perform its annual assessment on it’s
of intangible assets. For the year ended December 31, 2016 the balance of the intangible assets is $0. For the year ended December
31, 2016 and 2015, $1,008,035 and $15,703,616, respectively, impairment loss has been recorded due to a change in business model,
this being significantly impacted by the impairment of Liquid Spins assets, as digital music sales are no longer relevant in today’s
market. As
of December 31, 2016 and December 31, 2015, $0 and $869,581, respectively, 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. As a result of this
review, the Company recorded an impairment loss of $804,363 and $6,630,419 that is recorded as impairment loss on intangible asset
for the year ended December 31, 2016 and 2015, respectively. 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. As of December
31, 2016 and December 31, 2015, $0 and $0, 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. During 2015, the Company reviewed the intangible asset
for impairment and determined that certain items had been impaired due to obsolescence. During 2015 fiscal year, a $7,372,562
impairment loss was recorded against certain Distribution Rights acquired during 2012 fiscal year. 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 December 31, 2016 and December 31, 2015, $0 and $187,830, respectively,
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. As a result of this review, the Company recorded an impairment loss
of $173,412 for the year ended December 31, 2016 and $1,432,170 that is recorded as impairment loss on intangible asset for the
year ended December 31, 2015 for total impairment loss of $1,620,000. 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 the acquisition agreements entered on May 19, 2014 to acquire “Optimized Data Transmission System and Method”
(“ODT”), we recorded a liability and expensed $1,096,501 royalty cost for funds raised through December 31, 2016 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. As a result of this review, the Company
recorded an impairment loss of $6,630,419 on intangible asset during the year ended December 31, 2015 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. On November 24, 2015
the District Court entered an order granting the Google defendants’ motion to dismiss. The Company timely filed its notice
of appeal with the appeals court on February 22, 2016. The two issues on appeal are, (i) whether the district court erred by granting
the Google defendants’ motion to dismiss the Company’s lawsuit on the ground that the Company lacked standing to sue
the Google defendants for infringement of the 339 patent, and (ii) whether the district court erred by denying the Company’s
motion for leave to amend the complaint and add as a party VSL, a former licensee of the 339 patent to cure any defect in prudential
standing to the extent VSL is a necessary party. 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 December 31, 2016 and December 31, 2015,
$0 and $29,901, respectively of costs related to this intangible remains capitalized. The technology will be reviewed for impairment
annually or more frequently if impairment indicators arise. As a result of this review, the Company recorded an impairment loss
of $$29,901 and $268,223 on intangible asset for the year ended December 31, 2016 and 2015, respectively. 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 December 31, 2016, the Company recorded a liability and expensed $548,255 as royalty cost,
related to the 10% fee, as of December 31, 2016, $40,000 has been paid. The remaining liability as of December 31, 2016, is $528,423
and is included in accounts payable. During the year ended December 31, 2016 the Company write off $1,615,081 of accounts payable
related to royalty payable as other income. As
of March 31, 2017, the value of the intangible assets is valued at $0. What
the Company had been accruing for VSL and Attia litigation's has been released as the Attia's terminated their agreement and have
since signed a new agreement which eliminates all past amounts due, and the VSL agreement automatically terminated on 12.20.16
when VSL was dissolved by its owner therefore releasing any past amounts due. 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%. (I)
Impairment of Long-Lived Assets and Intangible Assets with Definite Life 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. The Company recorded $1,008,035and $15,703,617 in impairment of the intangible asset for the year ended December
31, 2016 and the year ended December 31, 2015, respectively. As of December 31, 2016 the intangible assets were fully impaired. (J)
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 three months ended March 31, 2017 and 2016 excludes the common stock equivalents
of the following potentially dilutive securities because their inclusion would be anti-dilutive:
March
31, 2017 March
31, 2016
Stock
Warrants (Exercise price - $0.25 - $.52/share) 19,720,690 18,270,690
Stock
Options (Exercise price - $0.10 - $.50/share) 2,866,652 2,866,652
Convertible
Debt (Exercise price - $0.0017 - $.0126/share) 1,182,210,964 2,791,745,292
Series
A Convertible Preferred Shares ($0.0/share) 125,000,000 125,000,000
Total 1,329,798,306 2,937,882,634 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 56,199,829 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. (K)
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 2012, and the related
state income tax returns are no longer subject to examination by state authorities for the years prior to 2011. (L)
Business Segments The
Company operates in one segment and therefore segment information is not presented. (M)
Recent Accounting Pronouncements In
January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01,
which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current
guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation
and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance
assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new
standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should
apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period
in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for
financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income.
The Company is currently evaluating the impact of adopting this guidance. 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
March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
(Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is
a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or
services before they are transferred to the customer and provides additional guidance about how to apply the control principle
when services are provided and when goods or services are combined with other goods or services. The effective date for ASU 2016-08
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. The Company has not yet determined the impact of ASU 2016-08 on its financial
statements. In
March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, or ASU No. 2016-09. The areas for simplification
in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities,
the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those
annual periods. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim
period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity
that elects early adoption must adopt all of the amendments in the same period. Amendments related to the timing of when excess
tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using
a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period
in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows
when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments
requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating
expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess
tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method.
We are currently evaluating the impact of adopting ASU No. 2016-09 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 has not yet determined the impact of ASU 2016-10 on its financial statements. In
June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Statements," which requires companies
to measure credit losses utilizing a methodology that reflects expected credit losses and requires consideration of a broader
range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for annual reporting
periods, and interim periods therein, beginning after December 15, 2019 (fiscal year 2021 for the Company). The Company has not
yet determined the potential effects of the adoption of ASU 2016-13 on its Financial Statements. 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 Company has not yet determined
the potential effects of the adoption of ASU 2016-15 on its Financial Statements. In
April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2015-03, Interest–Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”), which changes the presentation
of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a
direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported
as interest expense. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted.
The new guidance will be applied retrospectively to each prior period presented. The Company is currently in the process of evaluating
the impact of adoption of ASU 2015-03 on its balance sheets. All
other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable. (N)
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 March 31, 2017 and December
31, 2016, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level
2); and significant unobservable inputs (Level 3):
March
31, 2017 December
31, 2016
Fair
Value Measurement Using Fair
Value Measurement Using
Level
1 Level
2 Level
3 Total Level
1 Level
2 Level
3 Total
Derivative
Liabilities — 4,770,939 — 4,770,939 — 5,906,940 — 5,906,940 (O)
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. (P)
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. (Q)
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. (R)
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. (S)
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. (T)
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 |
