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EX-32.1 - CERTIFICATION - Max Sound Corpf10k2010ex32i_maxsound.htm
EX-31.1 - CERTIFICATION - Max Sound Corpf10k2010ex31i_maxsound.htm
EX-14.1 - CODE OF ETHICS - Max Sound Corpf10k2010ex14i_maxsound.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________

FORM 10-K
                                   
(Mark One)
 x
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For The Fiscal Year Ended December 31, 2010
 
 o
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File No.  000-51886

MAX SOUND CORPORATION
(Exact name of issuer as specified in its charter)
   
Delaware
26-3534190
(State or other jurisdiction of incorporation or organization)
(I.R.S.  Employer Identification No.)
   
10685-B Hazelhurst Drive #6572
Houston, TX
 
77043
(Address of principal executive offices)
(Zip Code)
   
Registrant’s telephone number, including area code: 210-401-7667
 
Securities registered under Section 12(b) of the Exchange Act:
None.
   
Securities registered under Section 12(g) of the Exchange Act:
Common stock, par value $0.0001 per share.
 
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.        Yes o    No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes o     No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o   No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference Part III of this Form 10-K or any amendment to this Form 10-K.   x
 
 
 

 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
 
Accelerated filer
o
         
Non-accelerated filer
(Do not check if a smaller reporting company)
o
 
Smaller reporting company
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o  No x

As of the last business day of the registrant’s most recently completed second fiscal quarter, there was no public trading market for our common stock.

As of March 31, 2011, the registrant had 230,731,371 shares issued and outstanding, respectively.

Documents Incorporated by Reference:
None.
 
 
 

 

 
TABLE OF CONTENTS
 
PART I
   
 ITEM 1.
BUSINESS
  1
 ITEM 1A.
RISK FACTORS 
  8
 ITEM 1B.
UNRESOLVED STAFF COMMENTS 
  8
 ITEM 2.
DESCRIPTION OF PROPERTIES
  8
 ITEM 3.
LEGAL PROCEEDINGS
  8
 ITEM 4.
REMOVED AND RESERVED
  8
     
PART II
   
 ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
  8
 ITEM 6.
SELECTED FINANCIAL DATA
  9
 ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
  9
 ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  14
 ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  F-
 ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  15
 ITEM 9A.
CONTROLS AND PROCEDURES
  15
     
PART III
   
 ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  16
 ITEM 11.
EXECUTIVE COMPENSATION
  17
 ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  19
 ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  19
 ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
  20
     
PART IV
   
 ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
  21
     
SIGNATURES
 
  22
 
 
 

 
 
PART I
 
ITEM 1.          BUSINESS
 
Description of Our Business

Overview

We were incorporated in the State of Delaware as of December 9, 2005 as 43010, Inc. to engage in any lawful corporate undertaking, including, but not limited to, locating and negotiating with a business entity for combination in the form of a merger, stock-for-stock exchange or stock-for-assets exchange. On October 7, 2008, pursuant to the terms of a stock purchase agreement, Mr. Greg Halpern purchased a total of 100,000 shares of our common stock from Michael Raleigh for an aggregate of $30,000 in cash. The total of 100,000 shares represents 100% of our issued and outstanding common stock at the time of the transfer. As a result, Mr. Halpern became our sole shareholder. As part of the acquisition, and pursuant to the Stock Purchase Agreement, Michael Raleigh, our then President, CEO, CFO, and Chairman resigned from all the positions he held in the company, and Mr. Halpern was appointed as our President, CEO CFO and Chairman. The original business model was developed by Mr. Halpern in September of 2008 and began when he joined the company on October 7, 2008. In October 2008, we became a development stage company focused on creating an Internet search engine and networking web site. 

From October 2008 until January 17, 2011, Mr. Halpern was our CEO, and during that time the Company was focused on developing their Internet search engine and networking web site. In January of 2010, the Company launched their Internet search engine and networking website (www.soact.net).  On May 11, 2010, the Company acquired the worldwide rights, title, and interest to all fields of use for Max Sound®.

On January 17, 2011, Mr. Halpern resigned as the Company’s CEO and John Blaisure was appointed as CEO.  In February of 2011, the Company elected to change its business operations and focus primarily on developing and launching the Max Sound® technology.  Our current website (www.maxsound.com) is used to showcase the Max Sound® technology.  On March 8, 2011, the Company changed its name to Max Sound Corporation, and its trading symbol on the OTC Bulletin Board to MAXD.
 
 
Max Sound® Corporation owns the worldwide rights to all fields of use to Max Sound® HD Audio which was invented by Lloyd Trammell, the top sound designer and audio engineer who developed and sold the first working Surround Sound System to Hughes Aircraft.  Mr. Trammell, who is now the CTO of Max Sound® also developed MIDI for Korg and owns five patents in dimensional sound processing.  Max Sound® is to Audio what High Definition is to video.  Max Sound® works by converting all audio files to their highest possible acoustically perfect equivalent without increasing files size or bandwidth usage.

Max Sound® is pursuing 12 vertical markets with interest from the dominant players who the Company believes presently have no other viable, equivalent solution for their audio technology needs. The Company believes that each of these markets present significant opportunities for developing revenue from licensing fees and recurring revenue streams. Max Sound® has opened its office and post-production studio in Santa Monica, California in the heart of the entertainment industry where a majority of multi-media trends are developed and popularized prior to proliferating into the consumer mainstream.
 
 
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The Company plans to expand its' infrastructure quickly and use what we believe is a first mover advantage to allow us to capture partnerships and alliances with established companies in the audio technology industry. These companies dominate the multi-media and electronics technology arena providing audio delivery across all channels of the growing Video-Over-Internet phenomenon.

We began our operations on October 8, 2008 when we purchased the Form 10 Company from the previous owners.  Since that date, we have completed financing to raise initial start-up money for the building of our Internet search engine and social networking and to start our operations.  

We have also received three loans from Mr. Greg Halpern, in the amount of $9,500, $15,000 or $16,700 on May 11, May 22, and May 26, 2009, respectively. Each of the loans bears an  interest rate equal to the primate rate as of the date of issuance. We have also entered into three Credit Line Agreements with Greg Halpern. The first two have been used by the Company for $100,000 each and they will mature and expire in 2011. The third Credit Line Agreement issued by Mr. Halpern in March 2010 is for an additional $500,000 and will mature in 2012. All three Credit Line Agreements accrue interest at the prime rate as of the date of issuance. The prime rate of interest is the rate of interest that major banks charge their most creditworthy customers. For the purposes of these agreements, we shall determine the prime rate by using the prime rate reported by the Wall Street Journal on the date funds are extended to the Company. Based on the prime rate as of the date of issuance, the prime rate shall be 3.25%. Although, we believe that the $200,000 already used and the $500,000 subsequently issued will be sufficient to cover the additional expense arising from maintenance of our regulatory filings with the SEC, and the development of our technology products and services, the Company anticipates pursuing additional financing in 2011 to continue building Max Sound HD Audio Technology and aggressively marketing it to Multi-Media Industry Users of Audio and Audio with Video products.
  
Max Sound® (MAX) is engaged in activities to sell and license  products and services based on its patent-pending Max Sound® technology for sound recording and playback that dramatically improves the listener’s experience.  The Company is marketing Max Sound® on the basis that it is to audio what HD is to video.  Max Sound® technology improves all types of audio; moreover, it is intended to be particularly valuable in improving the ever-growing use of compressed audio and video as used in mp3 files, iPods, internet, and satellite/terrestrial broadcasting.  For example, a listener using a portable mp3 player with Max Sound® will experience sound quality that is comparable to the original CD before it was converted into an mp3 file.  In another example, cell phone users using a cell phone equipped with Max Sound® will hear the other person's voice as if they are speaking directly in front of them.  The Company’s current business model is to license the technology to content creators, manufacturers, and network broadcasters.  The Company’s patent-pending technology stands customer ready today.  The Company’s market pursuits include motion picture, music recording, video game, broadcasting, Internet Video and Audio, and consumer electronics.

Max Sound® Benefits:
· Increases dynamic range, eliminates destructive effects of audio compression with no increase in file size or transmission bandwidth
· High resolution audio reproduction with an omni-directional sound field using only two speakers
· “Real” three dimensional sound field, versus artificial sound field created by competing technologies
· More realistic “live performance” quality of all recordings with optimal dynamic range, bass response, and overall clarity

Max Sound® Markets:
· Licensing the technology to creators of film, music, broadcast, and gaming content and selling them the service of applying the Max Sound® technology to their end product. Max Sound® is fully compatible with existing playback technology. No current competitor can provide the level of sound quality and end user experience that Max Sound® delivers. Max Sound® technology is ready for these markets now.

· Licensing the technology to manufacturers of consumer electronics products such as portable mp3 players.
 
 
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Max Sound® Revenue Model:

·  
MAX anticipates revenue growth driven by the rapid expansion of the demand for compressed audio and video. Additionally, Max Sound® has a business model similar to Dolby Laboratories, Inc. and DTS, Inc. capable of delivering gross margins between 70% and 80%.

·  
MAX designs, manufactures and sells products and services applicable to the motion picture, broadcast, music, and video game industries to improve audio fidelity.

Max Sound® Dynamic Software Module: Max Sound has delivered and is  working to implement a Codec for all Internet applications to process all audio/video content streamed or downloaded by consumers. One of the viable target candidates is YouTube, which delivers more than 40% of the video viewed on the global Internet today. Companies selling downloaded MP3’s are also expected to find immense value in our technology due to their dominance in web-based audio and video. This Module is a lossless dynamic process requiring no destructive encoding or decoding and needs no additional hardware or critical monitoring stage after processing. Finally, no specialized decoder is necessary on any audio system!

Max Sound® Processing Services: The Max Sound® Process Server is a rack-mountable hardware product that is used by MAX engineers to “polish” motion picture audio to deliver the highest fidelity. For creators and producers of new content, the Processing Service maximizes sound quality within the least possible bandwidth. This improves the overall quality of the listeners  experience when going to the theatre. MAX engineers perform the service of polishing audio using our own Max Sound® Processing Computer.

Max Sound® Embedded Chip Solution: The Max Sound® Embedded Chip technology is being designed to restore the natural sound field, causing compressed audio to sound like the original audio at playback time in any device. The audio does not have to be pre-processed or encoded. The Chip is being designed to be imbedded into TV Receivers, Digital Projection TVs, LCD TVs, Plasma TVs, Component DVD Players/Recorders, DVD Recorders, Set-Top Boxes, Personal Video Recorders (PVRs), Direct Broadcast Satellite (DBS) Receivers, Personal Computers, Satellite Radio Receivers, Mobile Video Devices, Domestic Factory Installed Auto Sound, Camcorders, MP3 Players, Electronic Gaming Hardware, Wireless Telephones, Cell Phones, and Personal Digital Assistants (PDAs).

Technology
Max Sound® is a unique approach to processing sound, based on the physics of acoustics rather than electronics. Remarkably simple to deploy, Max Sound® is a new technology that dramatically raises the standard for sound quality, with no increase in file size or transmission channel bandwidth! In fact, audio processed with Max Sound can be lowered in size. This is accomplished by processing audio with our proprietary, patent-pending process. This embedded and duplicating format either remains the same, or can be converted to whatever format the user desires, while retaining unparalleled fidelity and dynamic range.

Max Sound® restores the original recorded acoustical space in any listening environment. Max Sound® is the only technology that both aligns phase and corrects phase distortion in a completed recording. Max Sound® supplies missing audio content by adding acoustics and frequency response lost in the original recording or in the compression and transmission processes. Max Sound® corrects and optimizes harmonic content and low frequency responses, greatly enhancing acoustic accuracy and reducing ear fatigue.

Max Sound® integrates time, phase, harmonics, dynamics, and sub-harmonic region optimizations in a fully dynamic fashion. Max Sound® is a lossless dynamic process, requiring no destructive encoding/decoding process. Max Sound® needs no additional hardware or critical monitoring stage after processing. Finally, no specialized decoder is necessary for playback on any audio system! The end result is that every aspect of audio processed with Max Sound®  - voice, instrument, or special effects -sounds refreshingly clear, realistic, and natural. Max Sound® technology creates an optimum sound field throughout every listening environment – from the corners of a theater; on your living room couch; to the back seat of your car.
 
 
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Market
Max Sound® products and services  are designed and intended to solve problems and add value to audio components of several separate industries, including consumer electronics, motion picture, broadcasting, video game, recording, cell phone, internet, and VOIP applications.
 
 
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·  
The “Consumer Electronics Association Sales and Forecast January 2008” states that total factory sales of Consumer Electronics was $161B in 2007 and is forecasted to grow to $171B in 2008.
·  
According to the Motion Picture Association of America, total worldwide box office sales in 2006 were approximately $25 billion.
·  
According to Mindbranch, the value of worldwide shipments of electronic gaming equipment reached $12.6 billion in 2005 and is forecast to reach $22.1 billion by 2011.
·  
According to Mindbranch, the value of handheld consoles reached $4.2 billion in 2005 and is projected to grow to $7.2 billion by 2011.
·  
According to Mindbranch, the value of games and software for computer platforms amounted to $3.4 billion in 2005 and is projected to grow to $7.5 billion by 2011.
·  
According to The Recording Industry Association of America, total U.S. music industry revenues in 2006 were approximately $11.5 billion. According to EMI Group LLC Chairman Eric Nicoli, the size of the global recorded music market is $34 billion.

These target markets total over $200B in annual revenue.

Competition
Max Sound Management believes there are no current competitors capable of delivering the high quality of audio products and services produced by the company. There are three companies we consider direct competitors that offer similar, but we believe inferior, products to our target market: Dolby Laboratories, Inc., DTS, Inc and SRS Labs, Inc. In addition, there are several companies that we believe have the skills and resources to possibly offer the same or similar products or services at some point in the future. In addition to our direct competitors, potential competitors are Creative Technology, Ltd., Bose Corporation and Cirrus Logic Inc. Of our potential customer base, Sony might develop competitive products or services in the future.

Max Sound may compete directly with Dolby Industries, Inc. and DTS, Inc. Dolby Laboratories, Inc. in the development and delivery of products and technologies for the entertainment industry worldwide primarily with regard to consumer retail movies and CDs.

DTS, Inc. engages in the development, marketing, and licensing of digital audio technologies, products, and services to consumer electronics, and professional audio and related industries worldwide.

We believe we will eventually succeed over our competition for three reasons; (1) Max Sound® technology delivers the best sound quality available today, (2) Max Sound® does not require any additional equipment in theatres, CD or DVD players, and (3) Max Sound® can lower file size to save on bandwidth  while producing audio that is far superior to our competitors.

Intellectual Property

Max Sound and HD Audio technologies and designs are Patent Pending and Trademarked. On February 8, 2011 the words Max Sound was issued to the Company by the U.S. Patent and Trademark office under Serial Number 85050705 and the words HD Audio are pending under serial number 85232456 for the following applications - Computer application software for mobile phones, namely, software for HD audio; Computer hardware and software systems for delivery of improved HD audio; Computer hardware for communicating audio, video and data between computers via a global computer network, wide-area computer networks, and peer-to-peer computer networks; Computer software for manipulating digital audio information for use in audio media applications; Computer software to control and improve computer and audio equipment sound quality; Digital materials, namely, CD's, DVD's, MP3's, streaming media, movies, videos, music, concerts, news, pre-recorded video, downloadable audio and video and high definition audio and video featuring improved HD audio; Digital media, namely, pre-recorded DVDs, downloadable audio and video recordings, and CDs featuring and promoting improved HD audio; Digital media, namely, pre-recorded video cassettes, digital video discs, digital versatile discs, downloadable audio and video recordings, DVDs, and high definition digital discs featuring improved HD audio.; Digital media, namely, CD's, DVD's, MP3's, movies, videos, music, concerts, news, pre-recorded video, downloadable and streaming audio and video and high definition audio and video featuring improved HD audio.; Downloadable MP3 files, MP3 recordings, on-line discussion boards, webcasts, webinars and podcasts featuring music, audio books in the field of entertainment and general subjects, and news broadcasts; Software to control and improve audio equipment sound quality; Sound recordings featuring improved HD audio.
 
 
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Research and Development

Throughout 2010, in addition to acquiring and building out Max Sound, which is now our primary focus, the Company  continued to build out and acquire other holdings, which are now a critical part of our research and development for our Max Sound marketing efforts. They consist of -

TRENDINGTOPIX.COM
Competing with major websites for top 10 rankings in Google has become near impossible. Our software monitors the top Google Trends, finds related videos on YouTube, and automatically embeds these videos as content on our websites. Then it adds our proprietary algorithm giving us top 10 rankings for long-tail keywords phrases related to the most popular trending searches on Google resulting in large numbers of visitors per month that we potentially can convert into customers of our products and services
 
SELFBRANDEDBLOGS.COM
Creating a website for your business can be a complicated and a confusing process. The average website can cost well over $2,500 and will often take weeks to complete. Our proprietary software will build fully customized, SEO optimized, premium websites in less than a minute for free. When launched, the Company  intends to charge and receive a $125 hosting fee for every customer that uses this service.
 
SOCIALMEDIABAR.COM
People have too many social media profiles to promote, and it's getting overwhelming. Our technology combines them into ONE profile that promotes ALL your social media accounts, websites, and lead-capture pages. We attach our own marketing information to this tool creating wide spread advertising at virtually no cost.
 
PRIVATELABELNETWORKS.COM
Companies are struggling to prevent their employees from spending time on social networks during the workday. And they are limited with options to securely pass large files and share private information internally in their company. Private Label Networks offers companies their own internal social network with - Secure data storage and transfers with instant downloading for a fraction of current market prices, Online Collaboration between work groups and divisions, exclusive company branding with zero ads, zero spam, and zero sharing of personal information to third party companies.

Employees

Greg Halpern, Chairman, CFO & Founder

Greg Halpern is the founder and visionary of Max Sound®, Mr. Halpern has invested nearly $760,000 into the Company in cash, notes, accrued salary, office space, and debt conversions.

Greg Halpern is the founder of Max Sound Corporation.  From 1997 to 2001, Mr. Halpern was the CEO of Circle Group Internet, Inc. (CRGQ: OTCBB). From 2002 to 2005, Mr. Halpern was the Chief Executive Officer of Circle Group Holdings Inc. (AMEX: CXN, formerly CRGQ.OB) and continued to be the CEO after it changed its name to Z-Trim Holdings Inc. (AMEX: ZTM) from 2006 - 2007. Circle Group was a venture capital firm for emerging technology companies which provided small business infrastructure, funding and intellectual capital to bring timely life-changing technologies to market through all early phases of the commercialization process. Mr. Halpern’s efforts there were focused on acquiring life improving technologies and bringing these products to the marketplace. In 2003, Mr. Halpern and his wife founded an unincorporated non-profit organization “People for Ultimate Kindness Toward All Living Creatures on Earth” whose purpose is and has been to identify problems on earth and those who are working to solve them. The Ultimate Kindness is a non-profit organization independent from the So Act Network. The Ultimate Kindness and the So Act Network share no financial interest or otherwise. In 2007, Mr. Halpern resigned from his position at Z-Trim Holdings and took a one (1) year sabbatical from business touring the Continental United States in his RV with his family.  Currently, Mr. Halpern serves as the Chairman and Chief Financial Officer of Max Sound Corporation, and devotes approximately 50 hours each week to the management and operations of Max Sound Corporation.
 
 
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John Blaisure, President & Chief Executive Officer.
 
John Blaisure is the President and Chief Executive officer of Max Sound Corporation.  Prior to Mr. Blaisure joining Max Sound Corporation, he was the Founder, President, and CEO of Effective Network Systems (ENS) from 1996 to 2010.  Effective Network Systems is a telephony software company that was debuted at the Intel Technology Summit in 1999 as one of the top 40 telephony software companies in the world.  Prior to his work at ENS, he was the Founder, President, and CEO of Fonz By The Day Stores from 1990 to 1996.  Fonz By The Day Stores is a cellular communication reseller and retailer in Dallas Texas. Fonz By The Day Stores achieved success as a market leader in the Dallas Fort Worth area in retail sales. The company also achieved success as a national leader in cellular rentals. Mr. Blaisure brings over 20 years of experience in managing and marketing of communication technology companies from the ground up.

Lloyd Trammell, Chief Technical Officer
 
Lloyd Trammell is the Chief Technical officer of Max Sound®.  Mr. Trammell has more than 30 years experience designing high-end professional audio and musical equipment and sound design for industry leaders, such as Yamaha, Korg, Roland, Atlas Sound, Crest, Peavey Electronics, Alesis, Kawai and Ensoniq.  In the early eighties, Mr. Trammell was instrumental in creating MIDI, the Musical Instrument Digital Interface.  Because of his standing, Mr. Trammell aided in achieving standardized specifications and approval from electronic keyboard manufacturers for MIDI.  In the mid-eighties, he designed one of the first working surround sound processors, selling it to Hughes Audio, which later spun off to become SRS (NASDAQ:SRSL).  Today’s SRS technology is still based on this design.  Mr. Trammell holds several patents, including patent # 7,136,493 for “Sub-harmonic generator and stereo expansion processor.”  He holds numerous patents for Dimensional Sound Processing and ACM (Analog Acoustic Modeling).  He was Senior Product Development Manager at Atlas Sound, developing new digital and analog products for the high-end audio contractor market.  At Peavey, he invented the Kosmos audio processor, winning the “Rack Processor of the Year Award” at the 2002 National Association of Music Merchants (NAMM).  While at Peavey, Mr. Trammell managed the prestigious MediaMatrix product line of high-end professional digital audio systems used by Disney, U.S. Congress, Sydney Opera House and the Olympics. In his roles as Product Manager, he has overseen all aspects of product development from initial design and manufacturing to marketing.  Mr. Trammell also designs custom sounds for many of the world’s top musicians and performing artists: U2, Pink Floyd, Robert Plant, Yes, Heart, Boston, Madonna, Genesis, Prince, Cher, Bonnie Raitt, Hank Williams, Jr., Rippingtons, Emerson Lake and Palmer, Journey and Def Leppard.
 
Chris Record, Chief Internet Officer

Chris Record is the Chief Internet Officer of Max Sound Corporation.  Mr. Record has 12 years sales and marketing experience and a 10-year background in web design and search engine optimization combined with a 7-year background in direct sales managing 2,500 sales reps nationwide.  Mr. Record brings with him 100,000+ loyal followers from combined social media networks along with several existing multi-million dollar business clients to Max Sound Corporation
 
We are a publicly reporting company under the Exchange Act and are required to file periodic reports with the Securities and Exchange Commission.  The public may read and copy any materials we file with the Commission at the SEC's Public Reference Room at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m.  The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.  The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission and state the address of that site (http://www.sec.gov).  In addition, you can obtain all of the current filings at our Internet website at www.maxsound.com.
  
Milestones for the Next Twelve Months

For the next twelve months, our most important goal is to become cash flow positive by growing Max Sound HD Audio sales through licensing and recurring revenue streams. Our goal is to have this growth improve our stock value and investor liquidity. We expect our financial requirements to increase with the additional expenses needed to promote the Max Sound® Audio technology. We plan to fund these additional expenses by loans from Mr. Halpern based on existing lines of credit and we are also considering various private funding opportunities until such time that our revenue stream is adequate enough to provide the necessary funds.
 
 
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In the event that we are unable to obtain additional funding or Mr. Halpern either fails to extend us more financing, declines to loan additional cash, declines to fund the line of credit, declines to defer his salary payments, or seeks repayment of his existing loans, we will no longer be able to continue to operate and will have to cease operations unless we begin to generate sufficient revenue to cover our costs.

Over the next twelve months, our focus will be in the achieving and implementing the following:

Key Outcomes
1. Increase Max Sound’s customer base substantially.
2. Make a financial return on the investments of the last year, with increased sales and reduction of indirect costs, to become cash flow positive and then profitable next year.
3. Become recognized by industry leaders and differentiated as a deliverer of game-changing audio technology.

Core Strategy - Implement a three-year strategy rotation:
Year 1 – Create massive awareness of our technologies through our partners and the audiences they serve. Create ongoing opportunities for our partners and what they offer, for easy sustainability and focus on profit generation.
Year 2 – Initiate a re-investment program with our recurring revenue in the business to support the expanding infrastructure: people, procedures, technology, and cash.
Year 3 – Reap the solid profit return from year one, and soft return from the year two investment program. Continue to build a bigger and better team to support and underpin the new business requirements and increase in new projects.

ITEM 1A.      RISK FACTORS

Not applicable for smaller reporting companies.

ITEM 1B.      UNRESOLVED STAFF COMMENTS

Not applicable for smaller reporting companies.

ITEM 2.         DESCRIPTION OF PROPERTY.

Office Arrangements and Operational Activities
 
We are renting our Texas location, located at 10685-B Hazelhurst Drive, #6572, Houston, TX 77043 from a business service corporation on a month-to-month basis. The office provides us with general office services such as mail, phone, fax, shipping and receiving capabilities. We do not have a lease with the business service corporation.

In November 2010, we leased our new Max Sound® post production facility at 2902A Colorado Ave., Santa Monica, CA, 90404. The lease is for two years with one year renewable options.

ITEM 3.         LEGAL PROCEEDINGS.
 
To the best of our knowledge, there are no known or pending litigation proceedings against us.

ITEM 4.         REMOVED AND RESERVED
 
 
 
 
PART II
 
ITEM 5.         MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information

Our shares of common stock are traded on the OTC Bulletin Board under the symbol MAXD.
 
 
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Holders

As of March 31, 2011, in accordance with our transfer agent records, we had 116 record holders of our Common Stock.
 
Dividends

To date, we have not declared or paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock, when issued pursuant to this offering. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future.
 
Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.
 
Stock Option Grants
 
On January 17, 2011, we entered into an employment agreement with our CEO, John Blaisure. Pursuant to the employment agreement with Mr. Blaisure, we issued to Mr. Blaisure 12,000,000 options to buy common stock of the Company at $.12 per share for a period not to exceed three years from the date of the employment agreement.
 
ITEM 6.         SELECTED FINANCIAL DATA.

Not applicable.

ITEM 7.         MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.
 
Overview
 
We were incorporated in the State of Delaware as of December 9, 2005 as 43010, Inc. to engage in any lawful corporate undertaking, including, but not limited to, locating and negotiating with a business entity for combination in the form of a merger, stock-for-stock exchange or stock-for-assets exchange. On October 7, 2008, pursuant to the terms of a stock purchase agreement, Mr. Greg Halpern purchased a total of 100,000 shares of our common stock from Michael Raleigh for an aggregate of $30,000 in cash. The total of 100,000 shares represents 100% of our issued and outstanding common stock at the time of the transfer. As a result, Mr. Halpern became our sole shareholder. As part of the acquisition, and pursuant to the Stock Purchase Agreement, Michael Raleigh, our then President, CEO, CFO, and Chairman resigned from all the positions he held in the company, and Mr. Halpern was appointed as our President, CEO CFO and Chairman. The current business model was developed by Mr. Halpern in September of 2008 and began when he joined the company on October 7, 2008. In October 2008, we became a development stage company focused on creating an Internet search engine and networking web site. 

In May of 2010, we acquired the world wide rights to all fields of use for Max Sound HD Audio technology. In November of 2010, we opened our post-production facility for Max Sound HD Audio in Santa Monica California. In February of 2011 after several successful demonstrations to multi-media industry company executives, we decided to shift the focus of the Company to the Max Sound HD Audio technology and commenced the name change from So Act Network, Inc. to Max Sound Corporation and the symbol from SOAN to MAXD.

The Company is in negotiations with several multi-media companies that will utilize our HD Audio solution in the future.
 
 
9

 
 
A new video is currently available on the company website at http://www.maxsound.com. The amazing Max Sound® Technology Highlights Video is 10 minutes long and summarizes the HD Audio™ process including meeting the inventor of the technology and showing the need for high definition audio in several key vertical markets. The video explains Max Sound® as currently the only Company offering dynamic HD Audio™ to various markets and how the technology reduces the audio file size during the conversion process to help reduce bandwidth issues companies are currently facing and how it also decreases compressed square waves which can damage listeners hearing.
 
Plan of Operation
 
We began our operations on October 8, 2008 when we purchased the Form 10 Company from the previous owners.  Since that date, we have completed financing to raise initial start-up money for the building of our internet search engine and social networking and to start our operations.  

We have also received three loans from Mr. Greg Halpern, in the amount of $9,500, $15,000 or $16,700 on May 11, May 22, and May 26, 2009, respectively.  Each of the loans bears an interest rate equal to the primate rate as of the date of issuance.  We have entered into three Credit Line Agreements with Greg Halpern.  The first two have been used by the Company for $100,000 each and they will mature and expire in 2011.  The third Credit Line Agreement issued by Mr. Halpern in March 2010 is for an additional $500,000 and will mature in 2012.  All three agreements accrue interest at the prime rate as of the date of issuance.  The prime rate of interest is the rate of interest that major banks charge their most creditworthy customers.  For the purposes of these agreements, we shall determine the prime rate by using the prime rate reported by the Wall Street Journal on the date funds are extended to the Company.  Based on the prime rate as of the date of issuance, the prime rate shall be 3.25%. Although, we believe that the $200,000 already used and the $500,000 subsequently issued will be sufficient to cover the additional expense arising from maintenance of our regulatory filings with the SEC, and the development of our technology, the Company anticipates pursuing additional financing in 2011 to continue building Max Sound HD Audio Technology and aggressively marketing it to Multi-Media Industry Users of Audio and Audio with Video products.

In 2011, the Company has received from Mr. Halpern additional net advances on the established lines of credit in the amount of $88,000 and forgiveness of $244,000 through conversion of debt notes and accrued salary into shares at 11 cents per share.  This further demonstrates our Chairman’s three-year long and ongoing commitment thus far to continue financing the Company’s needs.  While the Company expects to have ongoing needs for additional financing, the amount of those needs are not clearly established as the Company moves forward.

The Company believes that Max Sound HD Audio is a game changer for several vertical markets whose demand will create revenue opportunities in 2011 that will meet the Company’s needs to eliminate its going concern status in 2012.

We expect our financial requirements to increase with the additional expenses needed to promote the Max Sound® Audio technology.  We plan to fund these additional expenses by loans from Mr. Halpern based on existing lines of credit and we are also considering various private funding opportunities until such time that our revenue stream is adequate enough to provide the necessary funds.

In the event that we are unable to obtain additional funding or Mr. Halpern either fails to extend us more financing, declines to loan additional cash, declines to fund the line of credit, declines to defer his salary payments, or seeks repayment of his existing loans, we will no longer be able to continue to operate and will have to cease operations unless we begin to generate sufficient revenue to cover our costs.
 
 
10

 

Results of Operations
  
The following tables set forth key components of our results of operations for the periods indicated, in dollars, and key components of our revenue for the period indicated, in dollars.
 
   
For the Years Ended December 31,
 
   
2010
   
2009
 
             
             
Revenue
  $ 10,826     $ -  
                 
Operating Expenses
               
General and Administrative
    261,377       85,842  
Endorsement Fees
    1,834,122       1,534,882  
Consulting Fees *
    3,715,182       287,111  
Professional Fees *
    120,185       87,866  
Website Development
    159,409       91,854  
Compensation
    216,000       216,000  
Total Operating Expenses
    6,306,275       2,303,555  
                 
Loss from Operations
    (6,295,449 )     (2,303,555 )
                 
Other Income
               
Gain on extinguishment of debt
    -       6,643  
Total Other Income
    -       6,643  
                 
Other Expense
               
Interest Expense
    (9,390 )     (1,640 )
Amortization of Debt Discount
    (10,273 )     -  
Change in fair value of embedded derivative liability
    2,147       -  
Total Other Expense
    (17,516 )     (1,640 )
                 
Provision for Income  Taxes
    -       -  
                 
Net Loss
  $ (6,312,965 )   $ (2,298,552 )
                 
Net Loss Per Share  - Basic and Diluted
  $ (0.03 )   $ (0.01 )
                 
Weighted average number of shares outstanding
               
  during the year Basic and Diluted
    209,007,324       183,097,488  
 
* The line items Endorsement Fees and Consulting Fees represent mainly non-recurring compensation in the form of stock at the then current market value at time of services
 
For the Fiscal Year Ended December 31, 2010 and for the Fiscal Year Ended December 31, 2009

General and Administrative Expenses: Our general and administrative expenses were $261,377 for the fiscal year of 2010 and $85,842 for the fiscal year of 2009, representing an increase of $175,535 or approximately 204%, as a result of our expenses on advertising which include the cost of public relations activities, and other expenses associated with the operation of the company.
 
Endorsement Fees:  Our endorsement fees were $1,834,122 for the fiscal year of 2010 and $1,534,882 for fiscal year 2009, representing an increase of $299,240 or approximately 19.50% as a result of the expenses associated with having high profile individuals promote and market our social networking website.

Consulting Fees:  Our consulting fees were $3,715,182 for the fiscal year of 2010 and $287,111 for fiscal year 2009, representing an increase of $3,428,071 or approximately 1,194% as a result of the expenses associated with the additional consulting, promotional and marketing services related to our social networking website and the further development of our Max Sound® technology.
 
 
11

 
 
Professional Fees: Our professional fees were $120,185 for the fiscal year of 2010 and $87,866 for fiscal year 2009, representing an increase of $32,319, or approximately 36.78% as a result of the expenses associated with the preparation of our financial statements and regulatory filings required for publicly traded companies.

Website Development: Our website development expenses were $159,409 for the fiscal year of 2010 and $91,854  for fiscal year 2009, representing an increase of $67,555 or approximately 73.55% as a result of expenses associated with continuous improvements and enhancements made to our website throughout the fiscal year.

Compensation: Our compensation expenses were $216,000 for the fiscal year of 2010 and $216,000 for the fiscal year 2009, representing an increase of $0 as a result of our expensing of monthly compensation to Mr. Greg Halpern, our President and CFO, pursuant to an employment agreement which we entered into with Mr. Greg Halpern on October 13, 2008. A copy of the employment agreement was attached as Exhibit 10.1 to the Form 8-K filed on October 17, 2008.
 
Net Loss: Our net loss for the fiscal year of 2010 was $6,312,965, compared to $2,298,552 for fiscal year of 2009. The increase in net loss was the result of the substantial increase in our operating and marketing expenses.
 
Liquidity and Capital Resources
 
Revenue for the fiscal year 2010 was $10,186 and $0 for the year end 2009. We have an accumulated deficit of $8,868,337 for the period from December 9, 2005 (inception) to December 31, 2010, and have negative cash flow from operations of $602,251 from inception.  

Our financial statements have been presented on the basis that it is a going concern, which contemplates the realization of revenues from our subscriber base and the satisfaction of liabilities in the normal course of business. We have incurred losses from inception. These factors raise substantial doubt about our ability to continue as a going concern.

From our inception through December 31, 2010, our primary source of funds has been the proceeds of private offerings of our common stock and loans from stockholders.  Our need to obtain capital from outside investors is expected to continue until we are able to achieve profitable operations, if ever. There is no assurance that management will be successful in fulfilling all or any elements of its plans.  
 
We have received three loans from Mr. Greg Halpern, in the amount of $9,500, $15,000 or $16,700 on May 11, May 22, and May 26, 2009, respectively. During the year ended December 31, 2010, the Company repaid $21,700 in principal to the principal stockholder. Each of these loans is due upon demand and accrue interest at the prime rate as of the date of issuance. The prime rate of interest is the rate of interest that major banks charge their most creditworthy customers. For the purposes of this agreement, we shall determine the prime rate by using the prime rate reported by the Wall Street Journal on the date funds are extended to the Company. Based on the prime rate as of the date of issuance, we have determined that the prime rate shall be 3.25%. As of December 31, 2010, we owed $18,000 in principal and $1,635 in accrued interest.
 
For the fiscal year ended December 31, 2009, we received $119,500 from Mr. Greg Halpern, our principal shareholder, by way of two lines of credits. For the fiscal year ended December 31, 2010, we received a net $101,980 from Mr. Greg Halpern, our principal shareholder, by way of the established lines of credit.  Pursuant to the lines of credit agreements, the lines of credits bear an annual interest rate of 3.25% and are due on May 29, 2011, November 11, 2011, and March 25, 2012.  As of December 31, 2010, we still owe $221,480 in principal and accrued interest of $7,441.

On October 13, 2008, the Company entered into an employment agreement with the principal stockholder whereby the principal stockholder would be paid $18,000 per month for a term of ten (10) years for services rendered as the Chief Executive Officer of the Company. As of January 31, 2011, the Company had accrued $144,000 in unpaid wages payable to the principal stockholder.
 
 
12

 
 
On February 18, 2011 the Company’s Board authorized the issuance and conversion of 2,218,182 shares of par value $.0001 common stock at $.11 per share as payment to the principal stockholder for conversion of $100,000 of the debt outstanding and the full $144,000 in accrued wages payable. Pursuant to the Board’s authorization and resulting issuance of shares, the principal shareholder has entered into an agreement (the “Conversion Agreement”) with the Company relinquishing the Company from any further obligation to the principal shareholder with respect to $100,000 of the note payable outstanding and all amounts due and payable as wages as of January 31, 2011.
 
However, additional expenses may arise from the maintenance of our regulatory filings and responsibilities which include legal, accounting and electronic filing services. It is anticipated that the cost to maintain these activities will be no less than $76,000 and no more than $108,000. We have entered into two Credit Line Agreements and Line of Credit Note with Greg Halpern who has agreed to establish a revolving line of credit for us with a maximum amount of $500,000 that will mature and expire on March 25, 2012. The Credit Line Agreements and Line of Credit Note shall accrue interest at the prime rate as of the date of issuance. The prime rate of interest is the rate of interest that major banks charge their most creditworthy customers. For the purposes of this agreement, we shall determine the prime rate by using the prime rate reported by the Wall Street Journal on the date funds are extended to the Company. Based on the prime rate as of the date of issuance, the prime rate shall be 3.25%.
 
Recent Accounting Pronouncements
 
In October 2009, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) No. 2009-13, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined unit and modifies the manner in which the transaction consideration is allocated across the separately identified deliverables. The ASU significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. The ASU will be effective for the first annual reporting period beginning on or after June 15, 2010, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. Early adoption is permitted, provided that the guidance is retroactively applied to the beginning of the year of adoption.  The Company does not expect the adoption of ASU No. 2009-13 to have any effect on its financial statements upon its required adoption on January 1, 2011. 

Critical Accounting Policies and Estimates

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to
 
GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

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.

Revenue Recognition:  Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is assured.  We had no revenue for the twelve months ended December 31, 2010 and 2008, respectively.
 
 
13

 
 
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.

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.  
 
Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
 
ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are subject to certain market risks, including changes in interest rates and currency exchange rates.  We have not undertaken any specific actions to limit those exposures.
 
 
14

 
 
MAX SOUND CORPORATION
(f/k/a SO ACT NETWORK, INC.)
(A DEVELOPMENT STAGE COMPANY)


CONTENTS

     
PAGE
F-1
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
     
PAGE
F-2
BALANCE SHEETS AS OF DECEMBER 31, 2010 AND AS OF DECEMBER 31, 2009.
     
PAGE
F-3
STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECMEBER 31, 2010 AND 2009 AND FOR THE PERIOD DECEMBER 9, 2005 (INCEPTION) TO DECEMBER 31, 2010.
     
PAGE
F-4/F-5
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY/DEFICIENCY FOR THE PERIOD FROM DECEMBER 9, 2005 (INCEPTION) TO DECEMBER 31, 2010.
     
PAGE
F-6
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND FOR THE PERIOD DECEMBER 9, 2005 (INCEPTION) TO DECEMBER 31, 2010.
     
PAGES
F-7 - F-32
NOTES TO FINANCIAL STATEMENTS.
     
 
 
i

 
 
ALAN R. SWIFT, CPA, P.A.

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
To the Board of Directors of:
Max Sound Corporation (f/k/a So Act Network, Inc.)
(A Development Stage Company)
 
We have audited the accompanying balance sheets of Max Sound Corporation (f/k/a So Act Network, Inc.) (A Development Stage Company) as of December 31, 2010 and 2009 and the related statements of operations, changes in stockholders’ equity/deficiency and cash flows for each of the years in the two-year period ended December 31, 2010 and 2009 and for the period from December 9, 2005(inception) to December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as wellas evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of Max Sound Corporation (f/k/a So Act Network, Inc.) (A Development Stage Company) as of December 31, 2010 and 2009 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2010 and 2009 and for the period December 9, 2005 (inception) through to December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is in the development stage with no operations, has an accumulated deficit of $8,868,337 for the period from December 9, 2005 (Inception) to December 31, 2010, and has a negative cash flow from operations of $602,251 from inception. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
 
/s/ Alan R. Swift, CPA, P.A.
Alan R. Swift, CPA, P.A.
Certified Public Accountant and Consultant
 
Palm Beach Gardens, Florida
March 17, 2011
 
 
 
800 VILLAGE SQUARE CROSSING, SUITE 118, PALM BEACH GARDENS, FL 33410
PHONE (561) 656-0818  FAX (561) 658-0245
www.aswiftcpa.com
 
 
F-1

 
 
Max Sound Corporation
 
f/k/a So Act Network, Inc.
 
(A Development Stage Company)
 
Balance Sheets
 
             
             
ASSETS
 
             
             
   
December 31, 2010
   
December 31, 2009
 
             
Current Assets
           
Cash
  $ 297     $ 5,390  
Prepaid expenses
    5,799       6,714  
     Total  Current Assets
    6,096       12,104  
                 
Property and equipment, net
    65,370       101,072  
                 
Other Assets
               
Security deposit
    3,710       -  
Intangible assets
    7,500,275       275  
     Total  Other Assets
    7,503,985       275  
                 
                 
Total  Assets
  $ 7,575,451     $ 113,451  
                 
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY / (DEFICIENCY)
 
                 
Current Liabilities
               
Accounts payable
  $ 159,527     $ 70,449  
Accrued expenses
    258,152       221,431  
Derivative liability
    13,262       -  
Convertible note payable - net of debt discount
    44,864       -  
Loan payable - related party
    239,480       159,200  
Total Current Liabilities
    715,285       451,080  
                 
Commitments and Contingencies
               
                 
Stockholders' Equity / (Deficiency)
               
Preferred stock,  $0.0001 par value; 10,000,000 shares authorized,
               
No shares issued and outstanding
    -       -  
Common stock,  $0.0001 par value; 400,000,000 shares authorized,
               
221,055,221 and 188,159,714 shares issued and outstanding, respectively
    22,106       18,816  
Deferred compensation
    (1,803,285 )     (7,587,284 )
Additional paid-in capital
    17,509,682       9,786,211  
Subscription receivable
    -       -  
Deficit accumulated during the development stage
    (8,868,337 )     (2,555,372 )
Total Stockholders' Equity / (Deficiency)
    6,860,166       (337,629 )
                 
Total Liabilities and Stockholders' Equity / (Deficiency)
  $ 7,575,451     $ 113,451  
 
See accompanying notes to financial statements
 
 
F-2

 
 
Max Sound Corporation
f/k/a So Act Network, Inc.
(A Development Stage Company)
Statements of Operations
   
                   
                   
                   
                   
   
For the Year Ended,
   
For the Period From
 
   
December 31, 2010
   
December 31, 2009
   
December 9, 2005
(Inception) to
December 31, 2010
 
                   
                   
Revenue
  $ 10,826     $ -     $ 10,826  
                         
                         
Operating Expenses
                       
General and administrative
    261,377       85,842       367,779  
Endorsement fees
    1,834,122       1,534,882       3,369,004  
Consulting
    3,715,182       287,111       4,047,193  
Professional fees
    120,185       87,866       219,376  
Website development
    159,409       91,854       251,263  
Compensation
    216,000       216,000       475,549  
Total Operating Expenses
    6,306,275       2,303,555       8,730,164  
                         
Loss from Operations
    (6,295,449 )     (2,303,555 )     (8,719,338 )
                         
Other Income
                       
Gain on extinguishment of debt
    -       6,643       6,643  
Total Other Income
    -       6,643       6,643  
                         
Other Expense
                       
Interest expense
    (9,390 )     (1,640 )     (11,061 )
Amortization of Debt Discount
    (10,273 )     -       (10,273 )
Change in fair value of embedded derivative liability
    2,147       -       2,147  
Total Other Expense
    (17,516 )     (1,640 )     (19,187 )
                         
Provision for Income  Taxes
    -       -       -  
                         
Net Loss
  $ (6,312,965 )   $ (2,298,552 )   $ (8,731,882 )
                         
Net Loss Per Share  - Basic and Diluted
  $ (0.03 )   $ (0.01 )        
                         
Weighted average number of shares outstanding
                       
  during the year Basic and Diluted
    209,007,324       183,097,488          
 
See accompanying notes to financial statements
 
 
F-3

 
 
Max Sound Corporation
 
f/k/a So Act Network, Inc.
 
(A Development Stage Company)
 
Statement of Changes in Stockholders' Equity / (Deficiency)
 
For the Period from December 9, 2005 (Inception) to December 31, 2010
 
   
                                       
Total
 
   
Preferred stock
 
Common stock
 
Additional
                 
Stockholder's
 
                   
paid-in
 
Accumulated
   
Subscription
   
Deferred
 
Equity
 
   
Shares
 
Amount
 
Shares
 
Amount
 
capital
 
Deficit
   
Receivable
   
Compensation
 
(Deficiency)
 
                                           
                                           
Balance, December 9, 2005 (Inception)
    -   $ -     -   $ -   $ -   $ -     $ -     $ -   $ -  
                                                             
Stock issued on acceptance of incorporation expenses
    -     -     100,000     10     90     -       -       -     100  
                                                             
Net loss for the period December 9, 2005 (Inception) to December 31, 2005
    -     -     -     -     -     (400 )     -       -     (400 )
                                                             
Balance, December 31, 2005
    -     -     100,000     10     90     (400 )     -       -     (300 )
                                                             
Net loss for the year ended December 31, 2006
    -     -     -     -     -     (1,450 )     -       -     (1,450 )
                                                             
Balance, December 31, 2006
    -     -     100,000     10     90     (1,850 )     -       -     (1,750 )
                                                             
Net loss for the year ended December 31, 2007
    -     -     -     -     -     (1,400 )     -             (1,400 )
                                                             
Balance, December 31, 2007
    -     -     100,000     10     90     (3,250 )     -       -     (3,150 )
                                                             
Common stock issued for services to founder ($0.001/sh)
    -     -     44,900,000     4,490     40,410     -       -       -     44,900  
                                                             
Common stock issued for cash ($0.25/sh)
    -     -     473,000     47     118,203     -       (67,750 )     -     50,500  
                                                             
Common stock issued for services ($0.25/sh)
    -     -     12,000     1     2,999     -       -       -     3,000  
                                                             
Shares issued in connection with stock dividend
    -     -     136,455,000     13,646     122,809     (136,455 )     -       -     -  
                                                             
In kind contribution of rent - related party
    -     -     -     -     2,913     -       -       -     2,913  
                                                             
Accrued expenses payment made by a former shareholder
    -     -     -     -     4,400     -       -       -     4,400  
                                                             
Net loss for the year ended December 31, 2008
    -     -     -     -     -     (117,115 )     -       -     (117,115 )
                                                             
Balance, December 31, 2008
    -     -     181,940,000     18,194     291,824     (256,820 )     (67,750 )     -     (14,552 )
                                                             
Common stock issued for cash ($0.25/sh)
    -     -     62,000     6     15,494     -       -       -     15,500  
                                                             
Common stock issued for services ($0.25/sh)
    -     -     24,000     2     5,998     -       -       -     6,000  
                                                             
Common stock issued for services ($0.35/sh)
    -     -     1,700,000     170     594,830     -       -       (499,333 )   95,667  
                                                             
Common stock issued for services ($0.0625/sh)
    -     -     935,714     94     58,388     -       -       -     58,482  
                                                             
Warrants issued for services
    -     -     -     -     823,077     -       -       -     823,077  
                                                             
Common stock issued for services ($1.50/sh)
    -     -     30,000     3     44,997     -       -       (39,699 )   5,301  
                                                             
Common stock issued for services ($1.77/sh)
    -     -     30,000     3     53,097     -       -       (53,100 )   -  
                                                             
Common stock issued for services ($1.78/sh)
    -     -     100,000     10     177,990     -       -       (166,052 )   11,948  
                                                             
Common stock issued for services ($1.80/sh)
    -     -     100,000     10     179,990     -       -       (168,904 )   11,096  
                                                             
Common stock issued for services ($1.93/sh)
    -     -     2,830,000     283     5,461,617     -       -       (5,459,098 )   2,802  
 
 
F-4

 
 
                                                             
Common stock issued for services ($1.94/sh)
    -     -     30,000     3     58,197     -       -       (58,200 )   -  
                                                             
Common stock issued for services ($1.95/sh)
    -     -     920,000     92     1,793,908     -       -       (1,135,808 )   658,192  
                                                             
Common stock issued for services ($2.00/sh)
    -     -     300,000     30     599,970     -       -       (506,423 )   93,577  
                                                             
Return of common stock issued for services ($0.35/sh)
    -     -     (1,100,000 )   (110 )   (384,890 )   -       -       385,000     -  
                                                             
Shares issued in connection with stock dividend
    -     -     258,000     26     (26 )   -       -       -     -  
                                                             
Stock offering costs
    -     -     -     -     (850 )   -       -       -     (850 )
                                                             
Collection of subscription receivable
    -     -     -     -     -     -       67,750       -     67,750  
                                                             
In kind contribution of rent - related party
    -     -     -     -     12,600     -       -       -     12,600  
                                                             
Deferred compensation realized
    -     -     -     -     -     -       -       114,333     114,333  
                                                             
Net loss for the year ended December 31, 2009
    -     -     -     -     -     (2,298,552 )     -       -     (2,298,552 )
                                                             
Balance, December 31, 2009
    -     -     188,159,714     18,816     9,786,211     (2,555,372 )     -       (7,587,284 )   (337,629 )
                                                             
Common stock issued for cash ($0.25/sh)
    -     -     1,200,000     120     299,880                           300,000  
                                                             
Accrued salary conversion into common stock ($0.30/sh)
    -     -     945,507     95     283,557     -       -       -     283,652  
                                                             
Common stock issued for services ($0.15/sh)
    -     -     250,000     25     37,475                           37,500  
                                                             
Common stock issued for services ($0.18/sh)
    -     -     100,000     10     17,990     -       -       -     18,000  
                                                             
Common stock issued for services ($0.19/sh)
    -     -     100,000     10     18,990                           19,000  
                                                             
Common stock issued for services ($0.20/sh)
    -     -     210,000     21     41,979                           42,000  
                                                             
Common stock issued for services ($0.25/sh)
    -     -     140,000     14     34,986     -       -       -     35,000  
                                                             
Common stock issued in exchange for technology rights ($0.25/sh)
    -     -     30,000,000     3,000     7,497,000     -       -       -     7,500,000  
                                                             
Return of common stock issued for services ($1.05/sh)
    -     -     (150,000 )   (15 )   15     -       -       -     -  
                                                             
Common stock issued for services ($1.24/Sh)
    -     -     1,000,000     100     1,239,900     -       -       (1,097,315 )   142,685  
                                                             
Common stock issued for services ($1.70/sh)
    -     -     100,000     10     169,990     -       -       (152,534 )   17,466  
                                                             
Cancellation of shares held in escrow ($1.93/sh)
    -     -     (1,000,000 )   (100 )   (1,929,900 )   -       -       487,802     (1,442,198 )
                                                             
Warrants issued for services
    -     -     -     -     10,559     -       -       -     10,559  
                                                             
Blue sky fees
    -     -     -     -     (400 )   -       -       -     (400 )
                                                             
Stock and financing offering costs
    -     -     -     -     (8,000 )                         (8,000 )
                                                             
In kind contribution of rent - related party
    -     -     -     -     9,450     -       -       -     9,450  
            -                                                
Deferred compensation realized
    -     -     -     -     -     -       -       6,546,046     6,546,046  
            -                                                
Net loss for the year ended December 31, 2010
    -     -     -     -     -     (6,312,965 )     -       -     (6,312,965 )
                                                             
Balance, December 31, 2010
    -   $ -     221,055,221   $ 22,106   $ 17,509,682   $ (8,868,337 )   $ -     $ (1,803,285 ) $ 6,860,166  
 
See accompanying notes to financial statements
 
 
F-5

 
 
Max Sound Corporation
f/k/a So Act Network, Inc.
(A Development Stage Company)
Statements of Cash Flows
   
                   
                   
                   
                   
   
For the Year Ended
   
For the Period From
 
   
December 31, 2010
   
December 31, 2009
   
December 9, 2005
(Inception) to
December 31, 2010
 
                   
Cash Flows From Operating Activities:
                 
Net Loss
  $ (6,312,965 )   $ (2,298,552 )   $ (8,731,882 )
  Adjustments to reconcile net loss to net cash used in operations
                       
   Depreciation/Amortization
    38,252       13,058       51,437  
   In kind contribution of rent - related party
    9,450       12,600       24,963  
   Stock issued for services
    311,651       943,065       1,302,716  
   Warrants issued for services
    10,559       823,077       833,636  
   Bluesky Fees
    (400 )     (850 )     (1,250 )
   Amortization of stock based compensation
    5,103,848       114,333       5,218,181  
   Security deposit
    (3,710 )     -       (3,710 )
   Amortization of debt discount
    10,273       -       10,273  
   Change in fair value of derivative liability
    (2,147 )     -       (2,147 )
  Changes in operating assets and liabilities:
                       
      (Increase)/Decrease in prepaid expenses
    915       (6,355 )     (5,799 )
      Increase/(Decrease) accounts payable
    89,078       69,589       159,527  
      Increase/(Decrease) in accrued expenses
    320,373       174,521       541,804  
Net Cash Used In Operating Activities
    (424,823 )     (155,514 )     (602,251 )
                         
Cash Flows From Investing Activities:
                       
  Register of trademark
    -       -       (275 )
  Purchase of property equipment
    (2,550 )     (111,693 )     (116,807 )
Net Cash Used In Investing Activities
    (2,550 )     (111,693 )     (117,082 )
                         
Cash Flows From Financing Activities:
                       
  Proceeds from stockholder loans
    302,080       165,700       486,283  
  Repayment of stockholder loans
    (221,800 )     (10,303 )     (246,803 )
  Accrued expenses payment made by a former shareholder
    -       -       4,400  
  Proceeds from issuance of convertible note, net of offering costs
    47,000       -