Max Sound Corp - FORM 10-Q - November 14, 2014

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - Max Sound Corp	Financial_Report.xls
EX-4 - SECURITIES PURCHASE AGREEMENT - Max Sound Corp	f10q0914ex10ii_maxsound.htm
EX-8 - CONVERTIBLE REDEEMABLE NOTE - Max Sound Corp	f10q0914ex10v_maxsound.htm
EX-31.1 - CERTIFICATION - Max Sound Corp	f10q1114ex31i_blaisure.htm
EX-7 - SECURITIES PURCHASE AGREEMENT - Max Sound Corp	f10q0914ex10iv_maxsound.htm
EX-2 - SECURITIES PURCHASE AGREEMENT - Max Sound Corp	f10q0914ex10_maxsound.htm
EX-5 - CONVERTIBLE REDEEMABLE NOTE - Max Sound Corp	f10q0914ex10iii_maxsound.htm
EX-9 - SECURITIES PURCHASE AGREEMENT - Max Sound Corp	f10q0914ex10vi_maxsound.htm
EX-31.2 - CERTIFICATION - Max Sound Corp	f10q1114ex31ii_halpern.htm
EX-11 - ADVISORY BOARD AGREEMENT - Max Sound Corp	f10q0914ex10viii_maxsound.htm
EX-3 - CONVERTIBLE REDEEMABLE NOTE - Max Sound Corp	f10q0914ex10i_maxsound.htm
EX-32.1 - CERTIFICATION - Max Sound Corp	f10q1114ex32i_maxsound.htm
EX-1 - AMENDMENT - Max Sound Corp	f10q0914ex_maxsound.htm
EX-12 - BOD TRANSFER AGENT AGREEMENT - Max Sound Corp	f10q0914ex10ix_maxsound.htm
EX-10 - CONVERTIBLE REDEEMABLE NOTE - Max Sound Corp	f10q0914ex10vii_maxsound.htm
EX-13 - ADVISORY BOARD AGREEMENT - Max Sound Corp	f10q0914ex10x_maxsound.htm
EX-14 - INVESTOR RELATIONS AGREEMENT - Max Sound Corp	f10q0914ex10xi_maxsound.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________

FORM 10-Q

_______________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to______.

MAX SOUND CORPORATION

(Exact name of registrant as specified in charter)

DELAWARE

000-51886

26-3534190

(State or other jurisdiction of

incorporation or organization)

(Commission File Number)

(I.R.S Employer

Identification No.)

2902A Colorado Avenue

Santa Monica, CA 90404

(Address of principal executive offices)

_______________

310-264-0230

(Registrant’s telephone number, including area code)

_______________

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 ☒ No 

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 ☒ No 

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock. As of November 11, 2014, there were 363,904,570 shares, par value $0.0001 per share, of common stock issued and outstanding.

MAX SOUND CORPORATION

FORM 10-Q

for the period ended September 30, 2014

INDEX

PART I-- FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39

PART II-- OTHER INFORMATION

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44

SIGNATURES		45

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be

achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

CERTAIN TERMS USED IN THIS REPORT

When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to Max Sound Corporation, and “SEC” refers to the Securities and Exchange Commission.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MAX SOUND CORPORATION

CONTENTS

PAGE	1	CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 2014 (UNAUDITED) AND AS OF DECEMBER 31, 2012 (AUDITED).

PAGE	2	CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED)

PAGE	3	CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEAR ENDED DECEMBER 31, 2013 (AUDITED) AND THE NINE MONTHS ENDED SEPTEMBER 30, 2014 (UNAUDITED).

PAGE	4	CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED).

PAGES	5 - 27	NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED).

Max Sound Corporation
Condensed Balance Sheets

ASSETS

	September 30, 2014			December 31, 2013
	(UNAUDITED)

Current Assets
Cash	$	125,720		$	166,778
Inventory		38,071			38,071
Prepaid expenses		66,360			65,069
Debt offering costs - net		25,156			58,009
Total Current Assets		255,307			327,927

Property and equipment, net		208,829			255,317

Other Assets
Security deposit		413			413
Intangible assets		18,143,785			16,803,954
Total Other Assets		18,144,198			16,804,367


Total Assets	$	18,608,334		$	17,387,611



LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable	$	552,315		$	206,458
Accrued expenses		115,406			94,973
Line of credit - related party		301,091			140,000
Derivative liabilities		2,321,785			1,885,769
Convertible note payable, net of debt discount of $1,795,883 and $1,562,390, respectively		1,163,427			956,357
Total Current Liabilities		4,454,024			3,283,557

Commitments and Contingencies

Stockholders' Equity
Preferred stock, $0.0001 par value; 10,000,000 shares authorized,
No shares issued and outstanding		—			—
Common stock, $0.0001 par value; 450,000,000 shares authorized,
359,564,272 and 309,543,698 shares issued and outstanding, respectively		36,257			31,255
Additional paid-in capital		49,042,757			41,915,852
Deferred compensation		—			(50,000	)
Treasury stock		(519,575	)		(520,000	)
Accumulated deficit		(34,405,129	)		(27,273,053	)
Total Stockholders' Equity		14,154,310			14,104,054

Total Liabilities and Stockholders' Equity	$	18,608,334		$	17,387,611

See accompanying notes to condensed unaudited financial statements.

Max Sound Corporation
Condensed Statements of Operations
(UNAUDITED)


	For the Three Months Ended,						For the Nine Months Ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013


Revenue	$	1,103		$	487		$	2,491		$	2,207


Operating Expenses
General and administrative		818,155			788,055			2,498,762			2,228,751
Endorsement fees		—			—			—			480,000
Consulting		131,885			151,150			406,590			421,437
Professional fees		253,015			182,196			659,347			785,584
Compensation		250,800			279,700			754,000			961,399
Total Operating Expenses		1,453,855			1,401,101			4,318,699			4,877,171

Loss from Operations		(1,452,752	)		(1,400,614	)		(4,316,208	)		(4,874,964	)

Other Income / (Expense)
Other income		—			—			37,500			—
Gain (Loss) on extinguishment of debt		—			—			(18,596	)		—
Interest expense		(71,782	)		(82,638	)		(268,978	)		(144,747	)
Derivative Expense		(163,219	)		(100,590	)		(210,725	)		(196,467	)
Amortization of debt offering costs		(36,317	)		(127,051	)		(133,353	)		(248,706	)
Loss on conversions		(60,874	)		—			(151,357	)		(46,093	)
Amortization of debt discount		(749,672	)		(794,785	)		(2,307,966	)		(1,876,882	)
Change in fair value of embedded derivative liability		(452,716	)		214,213			237,607			450,239
Total Other Income / (Expense)		(1,534,580	)		(890,851	)		(2,815,868	)		(2,062,656	)

Provision for Income Taxes		—			—			—			—

Net Income (Loss)	$	(2,987,332	)	$	(2,291,465	)	$	(7,132,076	)	$	(6,937,620	)

Net Loss Per Share - Basic and Diluted	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.02	)

Weighted average number of shares outstanding
during the year Basic and Diluted		354,723,016			304,789,731			333,948,163			296,835,083

See accompanying notes to condensed unaudited financial statements.

Max Sound Corporation
Condensed Statement of Changes in Stockholders' Equity
Year ended December 31, 2013 and Nine Months ended September 30, 2014


	Preferred stock		Common stock	Additional													Total
										paid-in		Accumulated			Subscription		Deferred			Treasury			Stockholder's
	Shares		Amount	Shares			Amount			capital		Deficit			Receivable		Compensation			Stock			Equity

Balance, December 31, 2012	—	$	—	287,366,648		$	28,737		$	35,243,005	$	(18,468,166	)	$	—	$	(605,000	)	$	—		$	16,198,576

Convertible debt and accrued interest conversion into common stock				19,146,156			1,915			2,734,461		—			—		—			—			2,736,376

Shares issued as a finders fee	—		—	94,964			9			20,545		—			—		—			—			20,554

Exercise of stock warrants	—		—	540,901			54			43,026		—			—		—			—			43,080

Common stock issued for services ($0.19 - $0.37/sh)				6,145,029			615			1,512,698		—			—		(60,000	)		—			1,453,313

Return of shares	—		—	(750,000	)		(75	)		75		—			—		—			—			—

Reclassification of derivative liability associated with convertible debt	—		—	—			—			2,162,726		—			—		—			—			2,162,726

Warrants issued for services	—		—	—			—			84,028		—			—		—			—			84,028

Stock opitons issued for services	—		—	—			—			115,288		—			—		—			—			115,288

Defered compensation realized	—		—	—			—			—		—			—		615,000			—			615,000

Repurchased shares	—		—	(3,000,000	)		—			—		—			—		—			(520,000	)		(520,000	)

Net loss for the year ended December 31, 2013	—		—	—			—			—		(8,804,887	)		—		—			—			(8,804,887	)

Balance December 31, 2013	—		—	309,543,698			31,255			41,915,852		(27,273,053	)		—		(50,000	)		(520,000	)		14,104,054

Convertible debt, accrued interest and penalty conversion into common stock	—		—	36,120,574			3,612			2,753,240		—			—		—			—			2,756,852

Common stock issued for services ($0.09 - $0.26/sh)	—		—	3,150,000			315			677,715		—			—		—			—			678,030

Return of shares	—		—	(4,250,000	)		(425	)				—			—		—			425			—

Reclassification of derivative liability associated with convertible debt	—		—	—			—			1,974,198		—			—		—			—			1,974,198

Defered compensation realized	—		—	—			—			—		—			—		50,000			—			50,000

Stock opitons issued for services	—		—	—			—			190,656		—			—		—						190,656

Loss on debt extinguishment	—		—	—			—			18,596		—			—		—			—			18,596

Common stock issued in exchange for assets ($0.10 - $0.12/sh)	—		—	15,000,000			1,500			1,512,500		—			—		—			—			1,514,000

Net loss for the nine months ended September 30, 2014	—		—	—			—			—		(7,132,076	)		—		—			—			(7,132,076	)

Balance, September 30, 2014 (UNAUDITED)	—	$	—	359,564,272		$	36,257		$	49,042,757	$	(34,405,129	)	$	—	$	—		$	(519,575	)	$	14,154,310

See accompanying notes to condensed unaudited financial statements.

Max Sound Corporation
Condensed Statements of Cash Flows
(UNAUDITED)

	For the Nine Months Ended
	September 30, 2014			September 30, 2013
Cash Flows From Operating Activities:
Net Loss	$	(7,132,076	)	$	(6,937,620	)
Adjustments to reconcile net loss to net cash used in operations
Depreciation/Amortization		63,490			57,626
Stock and stock options issued for services		868,686			1,493,663
Warrants issued for services		—			84,028
Loss on debt conversion settled through the issuance of stock		151,357			46,093
Trademark Impairment		—			275
Amortization of intangible		724,169			—
Amortization of stock based compensation		50,000			536,250
Amortization of original issue discount		146,568			91,089
Amortization of debt offering costs		133,353			157,616
Amortization of debt discount		2,161,398			1,876,881
Change in fair value of derivative liability		(237,639	)		(450,240	)
Loss on debt extinguishment		18,596			—
Derivative Expense		210,725			196,467
Warrants issued for services treated as derivative liabilities		—			43,809
Changes in operating assets and liabilities:
(Increase)/Decrease in prepaid expenses		(1,291	)		(17,860	)
Increase/(Decrease) in inventory		—			(30,245	)
Increase/(Decrease) accounts payable		389,397			140,102
Increase/(Decrease) in accrued expenses		264,551			100,748
Net Cash Used In Operating Activities		(2,188,716	)		(2,611,318	)

Cash Flows From Investing Activities:
Cash received in connection with shares issed for assets and intellectual property		—			7,736
Cash paid in connection with acquisition of assets and intellectual property		(550,000	)		—
Purchase of property equipment		(17,002	)		(19,779	)
Net Cash Used In Investing Activities		(567,002	)		(12,043	)

Cash Flows From Financing Activities:
Increase in cash overdraft		—			37,484
Proceeds from stockholder loans / lines of credit		153,000			178,000
Repayment of convertible note		(28,340	)
Repayment of stockholder loans / lines of credit		—			(28,000	)
Proceeds from issuance of convertible note, less offering costs and OID costs paid		2,590,000			2,257,499
Proceeds from warrants exercised		—			43,080
Net Cash Provided by Financing Activities		2,714,660			2,488,063

Net Decrease in Cash		(41,058	)		(135,298	)

Cash at Beginning of Period		166,778			135,298

Cash at End of Period	$	125,720		$	—

Supplemental disclosure of cash flow information:

Cash paid for interest	$	—		$	—
Cash paid for taxes	$	—		$	—

Supplemental disclosure of non-cash investing and financing activities:
Shares issued in connection with assets and intellectual property	$	1,514,000		$	—
Shares issued in conversion of convertible debt and accrued interest	$	2,604,476		$	2,013,906
Shares issued for accrued interest	$	1,020		$	3,648
Reclassification of derivative liability to additional paid in capital	$	1,974,198		$	1,706,329
Reclassification of accounts payable to convertible note	$	43,540		$	—
Shares issued for direct offering costs	$	—		$	20,554
Accrued interest reclassified to principal	$	235,008		$	84,353
Return of shares related to cancelled contract	$	425		$	—
Debt discount recorded on convertible and unsecured debt accounted for as a derivative liability	$	2,437,128		$	2,250,967

See accompanying notes to condensed unaudited financial statements.

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.

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in The United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.

It is management's opinion, however, that all material adjustments (consisting of normal and recurring adjustments) have been made which are necessary for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.

(B) Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.

(C) Cash and Cash Equivalents

For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. As of September 30, 2014 and December 31, 2013, 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. Costs incurred in the planning stage of a website are expensed as research and development while costs incurred in the development stage are capitalized and amortized over the life of the asset, estimated to be three years. Expenses subsequent to the launch have been expensed as website development expenses.

(F) Concentration of Credit Risk

The Company at times has cash in banks in excess of FDIC insurance limits. The Company had $0 in excess of FDIC insurance limits as of September 30, 2014 and December 31, 2013.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

(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. We had revenues of $1,103 and $2,491 for the three and nine months ended September 30, 2014 and revenues of $487 and $2,207 for the three and nine months ended September 30, 2013, respectively.

(H) Advertising Costs

Advertising costs are expensed as incurred and include the costs of public relations activities. These costs are included in consulting and general and administrative expenses and totaled $2,630 and $4,630 for the three and nine months ended September 30, 2014 and advertising costs of $31,002 and $51,799 for the three and nine months ended September 30, 2013, respectively.

(I) Identifiable Intangible Assets

As of September 30, 2014 and December 31, 2013, $7,500,275 of costs related to registering a trademark and acquiring technology rights have been capitalized. It has been determined that the trademark and technology rights have an indefinite useful life and are not subject to amortization. However, the trademark and technology rights will be reviewed for impairment annually or more frequently if impairment indicators arise.

On November 15, 2012, the Company acquired the rights to assets and audio technology known as Liquid Spins, Inc. through a share exchange, whereby the Company issued 24,752,475 shares of common stock for their rights in Liquid Spins technology (See Note 8 (H)). As of September 30, 2014 and December 31, 2013, $8,579,510 and $9,303,679, respectively, of costs related to this intangible remain capitalized. The technology was placed in service on August 23, 2013 with a useful life of 10 years. However, the technology will be reviewed for impairment annually or more frequently if impairment indicators arise.

On May 19, 2014, the Company entered into an agreement 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 September 30, 2014, $1,620,000 of costs related to the “ODT” intangible asset remains capitalized. The technology will be reviewed for impairment annually or more frequently if impairment indicators arise. In connection with this agreement, the Company is obligated to make an additional five (5) payments totaling $1,000,000 to be made every 30 days, with the thirty (30) day periods to be waived if fund raising occurs on an anticipated faster time line. The payments of additional cash are contingent on the following funding criteria:

	●	The Company shall pay set increments of cash based on a percentage of gross funds received through funds raised.
	●	The Company shall pay 20% of such monies as soon as they are received.

In connection with funds raised through September 30, 2014, the Company recorded a liability and expensed $189,456 as royalty cost, related to the 20% fee, as of September 30, 2014, $30,000 has been paid . The remaining liability as of September 30, 2014, is $159,456 and is included in accounts payable.

The Company shall act as the exclusive agent to facilitate and negotiate any opportunities on behalf of ODT to Companies, Organizations and other qualified entities. Upon any closing, ODT shall receive 50% of gross dollars and the Company shall receive the other 50% at the time of a completion of any transaction opportunity, including legal settlements after subtracting applicable contingent legal fees. The term of the agreement is for the life of the acquired intellectual property.

On 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 September 30, 2014, $444,000 of costs related to this intangible remains capitalized. The technology will be reviewed for impairment annually or more frequently if impairment indicators arise. In connection with this agreement, the Company is obligated to make an additional five (5) payments totaling $500,000 to be made every 30 days, with the thirty (30) day periods to be waived if fund raising occurs on an anticipated faster time line. The payments of additional cash are contingent on the following funding criteria:

	●	The Company shall pay set increments of cash based on a percentage of gross funds received through funds raised.
	●	The Company shall pay 10% of such monies as soon as they are received.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

In connection with funds raised through September 30, 2014, the Company recorded a liability and expensed $94,728 as royalty cost, related to the 10% fee, as of September 30, 2014, $25,000 has been paid . The remaining liability as of September 30, 2014, is $69,728 and is included in accounts payable.

The Company shall act as the exclusive agent to facilitate and negotiate any opportunities on behalf of EA Technology to Companies, Organizations and other qualified entities. Upon any closing, EA shall receive 50% of gross dollars and the Company shall receive the

other 50% at the time of a completion of any transaction opportunity, including legal settlements after subtracting applicable contingent legal fees. In the event the Company sublicenses EA to other entities, profits shall be split 50/50.

On August 11, 2014, the Company and VSL simultaneously filed trade secret and patent infringement actions against Google, Inc. and its subsidiaries, YouTube, LLC and On2 Technologies, Inc., relating to proprietary and patented technology owned by Vedanti Systems Limited, a subsidiary of VSL. The patent infringement complaint was brought in U.S. District Court for the District of Delaware and the trade secret suit was filed in Superior Court of California, County of Santa Clara. The lawsuits contend that, in 2010, while Google was in discussions with Vedanti about the possibility of acquiring Vedanti's patented digital video streaming techniques and other proprietary methods, Google gained access to and received technical guidance regarding Vedanti’s proprietary codec, a computer program capable of encoding and decoding a digital data stream or signal. The complaints allege that soon after the two companies initiated negotiations, Google began implementing Vedanti's technology into its own WebM/VP8 video codec without informing Vedanti, and without compensating Vedanti for its use. Plaintiffs are seeking a permanent injunction against Google, compensatory damages, as well as treble damages. As exclusive agent to VSL to enforce all rights with respect to the subject technology, the Company has hired Grant & Eisenhofer, PA to represent the Company and VSL in the suits. These cases will be vigorously prosecuted and the Company believes it has a good likelihood of success.

(J) Impairment of Long-Lived Assets

The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets, such as technology rights, be reviewed for impairment annually, or whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. No impairments were recorded for the nine months ended September 30, 2014 and 2013, respectively.

(K) Loss Per Share

In accordance with accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share,” Basic earnings per share (“EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive. Because of the Company’s net losses, the effects of stock warrants and stock options would be anti-dilutive and accordingly, is excluded from the computation of earnings per share.

The computation of basic and diluted loss per share for the nine months ended September 30, 2014 and 2013, excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:

	September 30, 2014		September 30, 2013

Stock Warrants (Exercise price - $0.25 - $.50/share)		3,550,000		3,335,000
Stock Options (Exercise price - $0.10 - $.50/share)		15,566,652		12,700,000
Convertible Debt (Exercise price - $0.07 - $.0817/share)		37,761,355		17,074,937

Total		56,878,007		33,109,937

(L) 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.

(M) Business Segments

The Company operates in one segment and therefore segment information is not presented.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

(N) Recent Accounting Pronouncements

On June 10, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation ("ASUE 2014-10"). The guidance is intended to reduce the overall cost and complexity associated with financial reporting for development stage entities without reducing the availability of relevant information. The Board also believes the changes will simplify the consolidation accounting guidance by removing the differential accounting requirements for development stage entities. As a result of these changes, there no longer will be any accounting or reporting differences in GAAP between development stage entities and other operating entities. For organizations defined as public business entities the presentation and disclosure requirements in Topic 915 will no longer be required starting with the first annual period beginning after December 15, 2014, including interim periods therein. Early application is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued (public business entities) or made available for issuance (other entities). The Company has elected to adopt this guidance as of September 30, 2014.

In June 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-12, “Compensation – Stock Compensation (Topic 718 ); Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. The amendments in this ASU apply to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. For all entities, the amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this ASU either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

In August 2014, the FASB issued Accounting Standards Update “ASU” 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this Update provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.

(O) Fair Value of Financial Instruments

The carrying amounts on the Company’s financial instruments including prepaid expenses, accounts payable, accrued expenses, derivative liability, convertible note payable, and loan payable-related party, approximate fair value due to the relatively short period to maturity for these instruments.

(P) 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.

(Q) 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.

(R) Derivative Financial Instruments

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.

(S) Original Issue Discount

For certain convertible debt issued, the Company provides the debt holder with an original issue discount. The original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.

(T) Debt Issue Costs and Debt Discount

The Company may pay debt issue costs, and record debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

(U) Licensing & Distribution

On May 28, 2014, the Company entered into a license agreement with Akyumen Technologies Corp. (“Akyumen”), an original equipment manufacturer of mobile devices, for the non-exclusive, non-transferable, indivisible worldwide license rights to the use of Company’s API technology in Akyumen’s mobile devices. The license is for five years and is renewable, with the Company’s approval, at Akyumen’s request.

As consideration for the above-referenced license rights, Akyumen agreed to pay the Company royalties of $2.50 per Akyumen device that utilizes the API technology, to be payable on a monthly basis within 15 days after the close of the calendar month. Akyumen also agreed to pay, within three months of first sale, 50% of non-recurring engineering costs to port the Technology onto the operating systems of the Akyumen devices, inclusive of any local fees, taxes, or other charges.

On June 16, 2014, MAXD entered into a license and revenue share agreement with LOOKHU, an online subscription service that delivers movies, music, television shows, apps and games. The agreement grants LOOKHU non-exclusive, non-transferable, indivisible worldwide license rights to the distribution and use of the Company’s Application Programming Interface (“API”) audio processor technology. The license is for five years and is renewable, with the Company’s approval, at LOOKHU’s request.

As consideration for the above-referenced license rights, LOOKHU agreed to pay the Company royalties of $0.25 per month per paid subscription to the technology, to be payable on a monthly basis. Additionally, LOOKHU agreed to pay the Company 4% of the net advertising revenue derived from advertising that utilizes the technology, to be payable on a quarterly basis.

Additionally, for the term of the agreement, the parties agreed to split, on a 50/50 basis, net revenue derived from sales of digital music or songs played from a LOOKHU software player, to be payable on a monthly basis.

NOTE 2 GOING CONCERN

As reflected in the accompanying unaudited interim financial statements, the Company had a net loss of $7,132,076 for the nine months ended September 30, 2014, a working capital deficit of $4,198,717, and has negative cash flow from operations of $2,188,716 as of September 30, 2014.

The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations through additional private or public debt or equity offerings. Based on the Company’s operating plan, existing working capital at September 30, 2014 was not sufficient to meet the cash requirements to fund planned operations through December 31, 2014 without additional sources of cash. This raises substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

NOTE 3 DEBT

Debt consists of the following:

Debt Summary
	As of			As of
	September 30, 2014			December 31, 2013

Line of credit - related party	$	301,091		$	140,000

Convertible debt		2,959,310			2,518,746
Less: debt discount		(1,795,883	)		(1,562,390	)
Convertible debt - net		1,163,427			956,356

Total current debt	$	1,464,518		$	1,096,356

(A)

Line of credit – related party

Line of credit with the principal stockholder consisted of the following activity and terms:

Line of credit - related party
	Principal			Interest Rate			Maturity

Balance - December 31, 2012	$	—
Borrowings during the year ended December 31, 2013		318,000			4	%		September 26, 2015
Repayments		(178,000	)
Balance - December 31, 2013		140,000
Borrowings during the nine months ended September 30, 2014		153,000			4	%		September 26, 2015
Interest accrual		8,091
Repayments		—
Balance - September 30, 2014	$	301,091

MAX SOUND CORPORATION

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

(B)

Convertible Debt

During the nine months ended September 30, 2014 and the year ended December 31, 2013, the Company issued convertible notes totaling $2,794,834 and $3,843,221, respectively. The Convertible notes issued in the nine months ended September 30, 2014 and the year-ended December 31, 2013, consist of the following terms:

			Nine months ended		Year ended
			September 30, 2014		December 31, 2013
			Amount of		Amount of
			Principal Raised		Principal Raised
Interest Rate			2.5% - 10%		4% - 10%
Default interest rate			14% - 22%		14% - 22%
Maturity			September 11, 2014 - May 22, 2016		October 24, 2013 - December 29, 2014

Conversion terms 1	65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the fifteen (15) trading day period prior to the conversion.	$	—	$	100,000
Conversion terms 2	65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion.		435,500		501,500
Conversion terms 3	65% of the “Market Price”, which is the lowest trading prices for the common stock during the ten (10) trading day period prior to the conversion.		321,000		—
Conversion terms 4	70% of the “Market Price”, which is lower of the average closing bid price for the common stock during the ten (10) trading day period		—		183,333
Conversion terms 5	70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the fifteen (15) trading day period prior to the conversion.		—		50,000
Conversion terms 6	70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion.		250,000		498,500
Conversion terms 7	70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the twenty (20) trading day period prior to the conversion.		125,000		125,000
Conversion terms 8	70% of the lower of the average of the three (3) lowest trading prices for the fifteen (15) day trading period 1 day prior to conversion.		50,000		150,000
Conversion terms 9	75% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion.		848,334		2,234,889
Conversion terms 10	Convertible into $0.07/share. After six month from the date of this note, conversion price shall equal the lower of $0.07/share or the variable conversion price - 75% of the average three (3) lowest closing priceds during the ten (10) trading day period.		765,000		—

		$	2,794,834	$	3,843,222

The debt holders are entitled, at their option, to convert all or part of the principal and accrued interest into shares of the Company’s common stock at conversion prices and terms discussed above. The Company classifies embedded conversion features in these notes as a derivative liability due to management’s assessment that the Company may not have sufficient authorized number of shares of common stock required to net-share settle or due to the existence of a ratchet due to an anti-dilution provision. See Note 4 regarding accounting for derivative liabilities.

During the nine months ended September 30, 2014, the Company converted debt and accrued interest, totaling $2,756,852 into 36,120,574 shares of common stock. Conversions of debt to equity occurring after the maturity date and penalties incurred resulted in a loss on settlement of $151,357.

During the year ended December 31, 2013, the Company converted debt and accrued interest, totaling $ 2,736,376 into 19,146,156 shares of common stock.

Convertible debt consisted of the following activity and terms:

			Interest Rate	Maturity
Convertible Debt Balance as of December 31, 2012	1,247,052		0% - 10%

Borrowings during the year ended December 31, 2013	3,843,221		2.5% - 10%		October 24, 2013 - December 29, 2014

Non-Cash Reclassification of accrued interest converted	113,386

Conversion of debt to into 19,146,156 shares of common stock with a valuation of $2,736,376 ($0.09 - $0.27/share) including the accrued interest of $118,754	(2,684,915	)

Convertible Debt Balance as of December 31, 2013	2,518,744		2.5% - 10%		February 2, 2014 - December 29, 2014

Borrowings during the nine months ended September 30, 2014	2,794,834		2.5% - 10%		September 11, 2014 - May 22, 2016

Non-Cash Reclassification of accounts payable to debt and addition of penalties	43,540

Non-Cash Reclassification of accrued interest converted	235,008

Repayments	(28,340	)

Conversion of debt to into 36,112,574 shares of common stock with a valuation of $2,755,872 ($0.09 - $0.27/share) including the accrued interest of $235,008 and penalties/loss on conversions of $151,357	(2,604,476	)

Convertible Debt Balance as of September 30, 2014	2,959,310		4% - 10%		October 1, 2014 - February 21, 2016

On December 11, 2012, the Company entered into an agreement whereby the Company will issue up to $120,000 in a convertible note. The note matured on December 11, 2013 and bears an interest rate of 8%. As of December 31, 2013 and 2012, the Company balance of the convertible note and accrued interest is $128,810 and 120,526, respectively. The holder of the note has a right to convert all or any part of the outstanding an unpaid principal amount into shares of common stock after six months. The conversion price equals to $0.50 per share. For the year ended December 31, 2013, the Company issued 24,000 shares of common stock for accrued interest having a fair value of $5,368 ($0.21 - $0.25/share).

As of December 31, 2013, the note was outstanding and was in default.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

During the three months ended March 31, 2014, the Company negotiated modifications to the December 11, 2012 convertible debt. For the modification, the Company compared the value of both the old and new convertible debt. The Company determined that the present value of the cash flows associated with the new convertible debt exceeded the present value of the old convertible debt by more than 10%, which resulted in the application of extinguishment accounting.

The modification of the note included extension of terms through July 31, 2014, decrease in the conversion price to $0.10 per share and an increase in the interest rate to 10%. The Company also negotiated to convert $30,000 in accounts payable owed to the debt holder to be included in the convertible debt increasing the principal balance to $150,000. In accordance with ASC 470-20-25-13, the convertible debt instrument was issued at a substantial premium which represented additional paid in capital. In connection with the extinguishment, the Company recorded a loss on extinguishment of $18,596 with the offset recorded to additional paid in capital.

During the three months ended June 30, 2014, the Company negotiated a further extension of the note through December 31, 2014. During the nine months ended September 30, 2014, the Company repaid $28,340 and reclassified $13,540 of accounts payable owed to the note holder to be included in the principal balance of the note. As of September 30, 2014, the principal balance of the note including accrued interest totaled $145,149 of which the principal balance of $135,200 is included as a component of convertible debt.

(C)

Debt Issue Costs

During the nine months ended September 30, 2014, the Company paid debt issue costs totaling $100,500.

During the nine months ended September 30, 2013, the Company paid debt issue costs totaling $149,388.

The following is a summary of the Company’s debt issue costs:

	Nine Months Ended			Nine Months Ended
	September 30, 2014			September 30, 2013

Debt issue costs	$	238,057		$	149,388
Accumulated amortization of debt issue costs		(212,901	)		(69,738	)

Debt issue costs - net	$	25,156		$	79,650

During the nine months ended September 30, 2014 and 2013, the Company amortized $133,353 and $157,616 of debt issue costs, respectively.

(D)

Debt Discount & Original Issue Discount

During the nine months ended September 30, 2014 and 2013, the Company recorded debt discounts totaling $2,437,128 and $2,250,967, respectively.

The debt discount recorded in 2014 and 2013 pertains to convertible debt that contains embedded conversion options that are required to bifurcated and reported at fair value and original issue discounts.

The Company amortized $2,307,966 and $1,876,881 during the nine months ended September 30, 2014 and 2013, respectively, to amortization of debt discount expense.

	Nine Months Ended			Nine Months Ended
	September 30, 2014			September 30, 2013

Debt discount	$	5,178,593		$	3,471,143
Accumulated amortization of debt discount		(3,382,710	)		(2,366,000	)

Debt discount - Net	$	1,795,883		$	1,105,143

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

NOTE 4 DERIVATIVE LIABILITIES

The Company identified conversion features embedded within convertible debt issued in 2014 and 2013 and warrants issued in 2014 and 2013. The Company has determined that the features associated with the embedded conversion option should be accounted for at fair value as a derivative liability.

As a result of the application of ASC No. 815, the fair value of the conversion feature is summarized as follow:

Derivative Liability - December 31, 2012		1,166,286

Fair value at the commitment date for convertible instruments		3,839,539
Fair value at the commitment date for warrants issued		43,808
Change in fair value of embedded derivative liability for warrants issued		(4,384	)
Change in fair value of embedded derivative liability for convertible instruments		(996,754	)
Reclassification to additional paid in capital for financial instruments that ceased to be a derivative liability		(2,162,726	)
Derivative Liability - December 31, 2013		1,885,769

Fair value at the commitment date for convertible instruments		2,647,853
Change in fair value of embedded derivative liability for warrants issued		(29,301	)
Change in fair value of embedded derivative liability for convertible instruments		(208,338	)
Reclassification to additional paid in capital for financial instruments that ceased to be a derivative liability		(1,974,198	)
Derivative Liability - September 30, 2014	$	2,321,785

The Company recorded the debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining value of the derivative as it exceeded the gross proceeds of the note. The Company also recorded the value of the warrants issued for services as derivative expense for the nine months ended September 30, 2014. The Company recorded a derivative expense for the nine months ended September 30, 2014 and 2013 of $210,725 and $196,467, respectively.

The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of September 30, 2014:

	Commitment Date			Re-measurement Date

Expected dividends:		0	%		0	%
Expected volatility:		109% - 304%			120% - 131%
Expected term:		0.76 - 3 Years			0.003 - 2.87 Years
Risk free interest rate:		0.08% - 0.91%			0.11% - 1.06%

The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2013:

	Commitment Date			Re-measurement Date

Expected dividends:		0	%		0	%
Expected volatility:		118.99% - 303.64%			120.24% - 299.6%
Expected term:		0.75 - 3 Years			0.002 - 2.82 Years
Risk free interest rate:		0.15% - 0.17%			0.11% - 0.17%

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

NOTE 5 PROPERTY AND EQUIPMENT

At September 30, 2014, and December 31, 2013, respectively, property and equipment is as follows:

	September 30, 2014			December 31, 2013

Website Development	$	294,795		$	294,795
Furniture and Equipment		99,881			99,881
Leasehold Improvements		6,573			6,573
Software		53,897			53,897
Music Equipment		2,247			—
Office Equipment		71,652			56,897
Domain Name		1,500			1,500
Sign		628			628
Total		531,173			514,171
Less: accumulated depreciation and amortization		(322,344	)		(258,854	)
Property & Equipment, Net	$	208,829		$	255,317

Depreciation/amortization expense for the three and nine months ended September 30, 2014 totaled $10,041 and $63,490, respectively.

Depreciation/amortization expense for the three and nine months ended September 30, 2013 totaled $16,870 and $57,626, respectively.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

NOTE 6 STOCKHOLDERS’ EQUITY

(A) Common Stock

During the nine months ended September 30, 2014, the Company issued the following common stock:

Transaction Type	Quantity			Valuation		Range of Value per share

Conversion of convertible debt and accrued interest¹		36,120,574		$	2,756,852		$0.02715 - $0.14175
Services - rendered²		3,150,000			678,030		$0.093 - $0.365
Acquisition of intangbiles³		15,000,000			1,514,000		$0.0985 - $0.12
Return of shares⁴		(4,250,000	)		—		$0.00 - $0.00

Total shares issued		50,020,574		$	4,948,882

The following is a detailed description of transactions noted above:

1. Conversion of convertible debt and accrued interest

2. Services Rendered

During the nine months ended September 30, 2014, the Company issued 1,250,000 shares of common stock valued at $386,250 in connection with employment agreements entered into (See Note 9 (A).

On January 15, 2013, the Company entered into an agreement for legal services, pursuant to which the Company will pay $2,000 and issue 50,000 shares of fully vested common stock for the preparation, filing costs and fees of each provisional and regular patent application. Through September 30, 2014, a total of 44 applications have been filed. In connection with this agreement:

During the nine months ended September 30, 2014, the Company issued 800,000 shares of fully vested common stock for services having a fair value of $131,500 ($0.11 - $0.168/share).

On March 17, 2014, the Company entered into an advisory board agreement for a period of three years. In consideration for these services, during the nine months ended September 30, 2014, the Consultant was granted 100,000 shares of fully vested common stock valued at $9,300 ($0.09/share). (See note 7(B)).

On April 4, 2014, the Company entered into consulting services agreement. In consideration for these services, during the nine months ended September 30, 2014, the Consultant was granted 200,000 shares of fully vested common stock valued at $21,980 ($0.11/share). (See note 7(B)).

During the nine months ended September 30, 2014, the Company entered into a consulting services agreement related to marketing and the creation of Company awareness. In connection with this agreement, the consultant shall be paid $20,000 and was issued 200,000 fully vested shares of common stock valued at $31,000 ($0.16/share). (See note 7(B)).

On August 6, 2014, the Company entered into an advisory board agreement for a period of three years. In consideration for these services, during the nine months ended September 30, 2014, the Consultant was granted 100,000 fully vested shares of common stock valued at $16,500 ($0.17/share). (See note 7(B)).

On September 23, 2014, the Company entered into service agreement for a period of two years with the Company’s transfer agent. In consideration for these services, during the nine months ended September 30, 2014, 300,000 shares of fully vested common stock valued at $49,500 ($0.17/share) were granted and expensed.

On September 10, 2014, the Company entered into an advisory board agreement. In consideration for these services, during the nine months ended September 30, 2014, the Consultant was granted 100,000 shares of fully vested common stock valued at $16,000 ($0.16/share). (See note 7(B)).

On July 29, 2014, the Company entered into an investor relations agreement. In connection with this agreement, the Company is to issue 100,000 shares of common stock monthly and $5,500 in monthly fees. As of September 30, 2014, the agreement was terminated. In total, the consultant was issued 100,000 shares of fully vested common stock valued at $16,000 ($0.16/share) and was paid $5,500. (See note 7(B)).

3. Acquisition of intangibles

During the nine months ended September 30, 2014, the Company issued 15,000,000 common shares in connection with license agreements entered into and intangibles acquired. See Note 1(I)

4. Return of Shares

On August 3, 2012, the Company entered into an endorsement agreement with an unrelated third party for a period from August 3, 2012 through August 3, 2015. In exchange for the services provided, the Company issued 3,000,000 shares of common stock having a fair value of $960,000 ($0.30/share) based upon fair value on the date of grant. As of January 2014, the August 3, 2012 agreement has been terminated and 3,000,000 shares have been returned to the Company (See note 7(B)).

In July of 2013, the Company entered into a financial advisor agreement for a period of six months with the advisor providing various assistance including introductions to potential investors. The Agreement calls for a fee of $25,000 with an additional $7,500 due and payable on the 1st day of the subsequent five months. On July 8, 2013, the Company issued 1,500,000 common shares as consideration for these services valued at $315,000. On April 15, 2014, the parties entered into a mutual termination agreement, as a result, 1,250,000 shares were returned to the Company.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

During the year ended December 31, 2013, the Company issued the following common stock:

Transaction Type	Quantity			Valuation		Range of Value per share

Conversion of convertible debt and accrued interest ¹		19,146,156		$	2,736,376		$0.1215 - $0.1783
Services - rendered ²		6,145,029			1,453,313		$0.19 - $0.438
Cash and warrants ³		540,901			43,080		$0 - $0.10
Return of shares ⁴		(750,000	)		—		0
Shares issued as finders fees ⁵		94,964			20,554		$0.19 - $0.23
Repurchased shares ⁶		(3,000,000	)		520,000	$	0.17

Total shares issued		22,177,050		$	4,773,323

The following is a more detailed description of select transactions noted above:

1. Conversion of convertible debt and accrued interest

During the year ended December 31, 2013, the Company converted debt and accrued interest, totaling $ 2,736,376 into 19,146,156 shares of common stock.

2. Services Rendered

During the year ended December 31, 2013, the Company issued 2,350,000 shares of common stock valued at $623,500 in connection with employment agreements entered into (See Note 7 (A).

On February 1, 2013, the Company entered into a professional services agreement related to research and outreach media. In connection with this agreement, the Company issued 500,000 shares of common stock valued at $120,000 during the year ended December 31, 2013.

On January 15, 2013, the Company entered into an agreement for legal services, pursuant to which the Company will pay $2,000 and issue 50,000 shares of common stock for the preparation, filing costs and fees of each provisional and regular patent application. Through September 30, 2014, a total of 44 applications have been filed. In connection with this agreement:

During the year ended December 31, 2013, the Company issued 1,400,000 shares of common stock for legal services having a fair value of $355,600 ($0.25 - $0.26/share).

On January 21, 2013, the Company entered into a professional services agreement related conference presentations. In connection with this agreement, the Company issued 120,000 shares of common stock valued at $32,400 during the year ended December 31, 2013.

During the year ended December 31, 2013, the Company entered into a professional services agreements. In connection with these agreements, the Company issued 275,029 shares of common stock valued at $66,813 during the year ended December 31, 2013.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

3. Cash and warrants

On January 31, 2013 an individual exercised 430,800 of stock warrants at an exercise price of $0.10 per share for proceeds of $43,080.

On December 26, 2013, the Company issued 110,101 shares of common stock in connection with a cashless exercise of warrants. The number of warrants received was based on 190,000 warrants exercised using an average of five previous closing prices.

4. Return of shares

On February 6, 2012, the Company filed a suit for declaratory judgment and rescission of contract associated with a former consultant for failure to perform contractual requirements. It seeks clarification that the former consultant is not owed 750,000 shares of restricted common stock. The defendants have been served. This case will be vigorously prosecuted and has a good likelihood of a favorable outcome. The case seeks in excess of the jurisdictional amount, which is $50,000 dollars. On March 5, 2013, the suit was settled in favor of Max Sound Corporation and 750,000 shares issued to the former consultant were returned to the treasury.

5. Finders Fees

During the year ended December 31, 2013, in connection with debt raised of $833,333, the Company issued 94,964 common shares of the Company’s common stock valued at $20,555 issued to the finder.

6. Repurchased shares

During the year ended December 31, 2013, the Company entered into a settlement agreement with the seller of the software to reverse the original transaction which included the issuance of 3,000,000 shares of common stock in exchange for the software. The Company received back 3,000,000 shares of common stock which was recorded as treasury stock in exchange of returning the software to the seller. Upon the return of the shares, the Company recognized a gain of $220,000 based on the quoted trading price of the Company’s common stock, which was the best evidence of fair value.

(B) Stock Warrants

On January 1, 2013, the Company issued 500,000 warrants under consulting agreements. The Company recognized an expense of $84,028 for the year ended December 31, 2013. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2013, dividend yield of zero, expected volatility of 140.30%; risk-free interest rates of 0.37%, expected life of three years. The warrants vested immediately. The warrants expire in three years from the date of issuance and have an exercise price of $0.45 per share (See Note 7(B)).

On August 7, 2013, the Company issued 100,000 warrants for services rendered. The Company recognized compensation expense of $43,809 on the date of issuance with the offset being recorded to derivative liabilities since the Company applied the provisions of ASC No. 815, pertaining to the potential settlement in a variable amount of shares given the company’s shares are tainted. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions, dividend yield of zero, expected volatility of 297%; risk-free interest rates of 0.61%, expected life of three years. The warrants vested immediately. The warrants expire in three years from the date of issuance and have an exercise price of $0.40 per share (See Note 9(B)).

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

During the year ended December 31, 2013, the Company issued 2,000,000 warrants in connection with the entry into certain convertible debenture agreements. Each warrant vests immediately and expire April 26, 2016 – December 29, 2016 with an exercise price of $0.40.

During the nine months ended September 30, 2014, the Company issued 750,000 warrants in connection with the entry into certain convertible debenture agreements. Each warrant vests immediately and expire February 26, 2017 – August 12, 2017 with an exercise price of $0.40.

The following tables summarize all warrant grants as of September 30, 2014, and the related changes during these periods are presented below:

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)

Balance, December 31, 2012		2,415,800			0.28		0.8
Granted		2,600,000		$	0.41
Exercised		(620,800	)	$	0.07
Cancelled/Forfeited		(1,260,000	)	$	0.50
Balance, December 31, 2013		3,135,000		$	0.40		2.2
Granted		750,000		$	0.40
Exercised		—		$	—
Cancelled/Forfeited		(335,000	)	$	0.10
Balance, September 30, 2014		3,550,000		$	0.40		1.9

A summary of all outstanding and exercisable warrants as of September 30, 2014 is as follows:

						Weighted Average
Exercise		Warrants		Warrants		Remaining
Price		Outstanding		Exercisable		Contractual Life


$	0.25		200,000		200,000		0.70
$	0.40		2,850,000		2,850,000		1.99
$	0.45		500,000		500,000		1.25

			3,550,000		3,550,000		1.9 years

(C) Stock Options

On January 1, 2013, the Company issued 700,000 options to buy common shares of the Company's stock at $0.50 per share, good for three years, to the Chief Technical Officer pursuant to an amended employment agreement dated December 31, 2012. The Company recognized an expense of $115,288 for the year ended December 31, 2013. The Company recorded the fair value of the options based on the fair value of each option grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2013:

Expected dividends	0	%
Expected volatility	140.30	%
Exptected term	3 Years
Risk free interest rate	0.37	%

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

On July 7, 2014, as a benefit for the unsecured loans granted to the Company by the Company's Chief Financial Officer ("CFO"), the Company issued 2,866,520 options to buy common shares of the Company's stock at $0.10 per share, good for three years to the CFO. The Company recognized an expense of $190,656 for the nine months ended September 30, 2014. The Company recorded the fair value of the options based on the fair value of each option grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

Expected dividends	0	%
Expected volatility	137.82	%
Exptected term	3 Years
Risk free interest rate	1	%

The following tables summarize all option grants as of September 30, 2014, and the related changes during these periods are presented below:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)
Outstanding - December 31, 2012		12,000,000		0.12		1.04
Granted		700,000	$	0.500		3.00
Exercised		—		—		—
Forfeited or Canceled		—		—		—
Outstanding - December 31, 2013		12,700,000		0		2
Granted		2,866,652	$	0.100		3.00
Exercised		—		—		—
Forfeited or Canceled		—		—		—
Outstanding - September 30, 2014		15,566,652		0.13		1.57
Exercisable - September 30, 2014		15,566,652

(D) Share Exchange

On May 11, 2010, the Company acquired the rights to an audio technology known as Max Audio Technology (Max) through a share exchange, whereby the Company issued 30,000,000 shares of common stock to two individuals in exchange for their rights in Max having a value of $7,500,000 based upon recent market value ($0.25/share) (See Note 8(B)).

On January 17, 2011, the Company acquired the rights to software technology known as Blog Software, Social Media Vault, Social Media Bar and Trending Topix (BSST) through a share exchange, whereby the Company issued 3,000,000 shares of common stock to two individuals in exchange for their rights to BSST having a value of $300,000 based upon recent market value ($0.10/share).

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

On November 15, 2012, the Company acquired the rights to an 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 and other assets having a value of $10,000,000 based upon recent market value ($0.404/share). The following assets were acquired in the transaction:

	Nine Months Ended			Year Ended
	September 30, 2014			December 31, 2013

Goodwill at fair value, Opening Balance	$	9,303,679		$	9,655,588

Consideration transferred at fair value:
Common stock - 24,752,475 Shares		—			—

Net assets acquired:
Current assets		—			—
Cash		—			8,011
Total net assets acquired		—			8,011

Amortization		(724,169	)		(343,898	)

Goodwill at fair value, Ending Balance	$	8,579,510		$	9,303,679

During the year ended December 31, 2013, the Company received an additional $8,011 related to the acquisition which reduced the carrying value of the goodwill as of December 31, 2013. For the year ended December 31, 2013, the Company recorded $343,898 of amortization expense.

For the nine months ended September 30, 2014 and 2013, the Company recorded $724,169 and $0, respectively, of amortization

expense.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

NOTE 7 COMMITMENTS

(A) Employment Agreement

On January 17, 2011, the Company executed an employment agreement with an executive to be the President and CEO for five years. As compensation for services, the executive will receive a monthly compensation of $8,000 beginning after the completion of at least one million dollars of new funding to the Corporation or can be paid as commissions from sales brought to the Company, whichever comes first. In addition to the base salary, the employee is entitled to receive a 20% commission of all sales the executive is directly responsible for bringing to the Company. The agreement also calls for the executive to receive, upon execution of the agreement, three million shares of Rule 144 common stock and twelve million options, which are good for three years, to buy shares of Rule 144 common stock at $0.12/share. As a supplement to the agreement, on February 4, 2011, the executive received an additional twenty million common shares directly from the Chairman of the Company. On August 25, 2011, the agreement was updated to increase the monthly compensation to $12,000 per month beginning September 1, 2011, terminate the initial 20% commission on sales and to add a commission on sales equal to 10% of gross quarterly profits. On December 31, 2012, the agreement was updated to eliminate his previous annual bonus entitlement, which was previously 10% of revenues. In exchange for this consideration, the Company agreed that his bonus will be decreased to 7% of net profits which may be received in cash or Rule 144 stock or any combination. The agreement also called for the employee to receive health benefits. In May of 2013, the Company amended the agreement for the President and CEO to receive monthly compensation of $18,000 beginning May 1, 2013.

On October 1, 2011, the Company executed an employment agreement with its Chief Technical Officer (“CTO”). The term of the agreement is for five years. As compensation for services, the CTO will receive a monthly compensation of $10,000, monthly commission equal to 5% of all profits derived from the sales of all products and services related to Max Sound, and an annual bonus of 5% of all profits derived from the sales of all products and services related to Max Sound that is over one million dollars. In addition to the base salary, the employee is entitled to receive health benefits. Effective January 1, 2012, the Company increased the monthly compensation to $12,000. On December 31, 2012 the Company amended the agreement that effective January 1, 2013 the CTO will receive 300,000 shares of common stock and 700,000 three year options at 50 cents per share. On December 31, 2012, the agreement was also updated to eliminate his previous commission and annual bonus entitlement. Executive shall now be entitled to a commission on all sales of the Company equal to 6% of net profits. For the year ended December 31, 2013, the Company issued 300,000 common shares valued at $90,000.

On January 9, 2013, the Company executed an employment agreement with its Director of New Business Development. The term of the agreement is for three years. As compensation for services, the Director will receive a monthly compensation of $10,000. Upon the first million dollars in gross sales the salary will increase to $12,000 per month. In addition, the Director will receive up to 1,000,000 shares of common stock payable in lots of 125,000 per quarter beginning on January 1, 2013. Also, employee for the first eight quarters of employment has a right to earn 125,000 additional 3 year stock options with a strike price of $0.50 per share as follows:

For each million of new gross sales - 125,000 additional 3-year stock options with a strike price of $.50 per share.

For the nine months ended September 30, 2014 and year ended December 31, 2013, the employee received 375,000 and 500,000 shares with a fair value of $95,625 and $127,500, respectively.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

On October 1, 2013, the Company executed an employment agreement with its Senior Audio Engineer. The term of the agreement is for three years. As compensation for services, the Engineer will receive a monthly compensation of $6,000 beginning October 1, 2013. In addition to the base salary, the employee is entitled to receive health benefits, and the employee received 50,000 shares of common stock during the year ended December 31, 2013 valued at $13,500 ($0.27/share).

On November 26, 2012, the Company executed an employment agreement with its VP of Music Entertainment. The term of the agreement is for two years. As compensation for services, the VP will receive a monthly compensation of $8,000. In addition, the employee will receive up to 1,000,000 shares of common stock payable in lots of 125,000 per quarter beginning on December 1, 2012. In addition, the employee is entitled to a monthly commission equal to 5% of all profits from any sales of music from Liquid Spins that employee is directly responsible for bringing to the Company. For the three months ended March 31, 2014 and year ended December 31, 2013, the employee received 125,000 and 500,000 shares with a fair value of $45,625 and $133,750, respectively. As of February 3, 2014, the employee was terminated with no additional compensation owed.

On November 26, 2012, the Company executed an employment agreement with its VP of Music Distribution. The term of the agreement is for two years. As compensation for services, the VP will receive a monthly compensation of $7,000. In addition, the employee will

receive up to 1,000,000 shares of common stock payable in lots of 125,000 per quarter beginning on December 1, 2012. In addition, the employee is entitled to a monthly commission equal to 5% of all profits from any sales of music from Liquid Spins that employee is directly responsible for bringing to the Company. For the nine months ended September 30, 2014 and year ended December 31, 2013, the employee received 500,000 and 500,000 shares with a fair value of $182,500 and $133,750, respectively.

On June 11, 2012, the Company executed an employment agreement with its Senior Audio Engineer. The term of the agreement is for five years. As compensation for services, the Engineer will receive a monthly compensation of $6,000 beginning July 1, 2012. In addition to the base salary, the employee is entitled to receive health benefits, and the employee will receive 1,000,000 shares of common stock payable in 125,000 increments per quarter beginning on July 1, 2012. For the nine months ended September 30, 2014 and year ended December 31, 2013, the employee received 250,000 and 500,000 shares with a fair value of $62,500 and $125,000, respectively.

On May 17, 2011, the Company executed an employment agreement with its Chief Internet Officer (“CIO”). The term of the agreement is for five years. As compensation for services, the CIO will receive a monthly compensation of $9,000 beginning at the completion of at least one million dollars of new funding. In addition to the base salary, the employee is entitled to receive health benefits. The agreement also calls for the CIO to receive two million shares of Rule 144 common stock upon the execution of the agreement. On August 25, 2011, the agreement was updated to increase the monthly compensation to $12,000 per month beginning October 1, 2011.

(B) Consulting Agreement

On June 10, 2011, the Company entered into a five year advisory board consulting agreement with three persons to provide for consulting and business services. In exchange for the services provided, the consultants received 100,000 shares of common stock each.

In September 2011, the Company entered into a five year advisory board consulting agreement with three persons to provide for consulting and business services. In exchange for the services provided, the consultants received 100,000 shares of Company stock at $0.23 - 0.39 per share. The terms of the agreements are for five years..

During the three months ended December 31, 2011, the Company entered into a five year advisory board consulting agreement with five persons to provide for consulting and business services. In exchange for the services provided, the consultants received 100,000 shares of Company stock at $0.47 - 0.88 per share. The terms of the agreements are for five years.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

On August 3, 2012, the Company entered into an endorsement agreement with an unrelated third party for a period from August 3, 2012 through August 3, 2015. In exchange for the services provided, the Company issued 3,000,000 shares of common stock having a fair value of $960,000 ($0.30/share) based upon fair value on the date of grant (See Note 8(B)). The delivery of the shares will be made in four 750,000 tranches to coincide with each of the four points listed below:

●

Record two (2) one-minute video endorsements (English and Spanish)

●

Release of Mobile Application

●

Use of MAX-D HD technology in the next two major music projects.

●

Any additional projects that effectively promote the use of MAXD technology.

As December 31, 2012, the first two of the four points listed above have been completed and the Company recorded $480,000 as deferred compensation and $480,000 in endorsement expense. As of March 31, 2013, the second two of the four points listed above have been completed and the Company recognized $480,000 in endorsement expense (See Note 8(B)). The Company and the third party have completed the video endorsement and the mobile application and launched both in August 2013. In September 2013, the parties decided that they would not be effective working together due to a change in marketing goals. The parties reached an agreement whereby the Company will not promote the endorsement or the mobile application and the third party will return all shares received to the Company who in turn will return them to the Company treasury. As of January 2014, the August 3, 2012 agreement has been terminated and 3,000,000 shares have been returned to the Company.

On August 22, 2012, the Company entered into a consulting agreement with an unrelated third party for a period from September 1, 2012 through August 31, 2013. In exchange for the services provided, the Company issued 500,000 shares of common stock having a fair value of $150,000 ($0.30/share) based upon fair value on the date of grant.

On September 14, 2012, the Company entered into a licensing agreement with an unrelated third party for a period from September 14, 2012 through September 14, 2013. The agreement will automatically extend on a year to year basis unless terminated by either party. Upon the execution of the agreement, the Company paid a non-refundable $15,000 upfront fee for the use of the license. Any additional technical support will be provided on as needed basis at an hourly rate of $250/hour.

On December 1, 2012, the Company entered into a consulting agreement with an unrelated third party for a period from December 1, 2012 through November 30, 2013. In exchange for the services provided, the Company will pay a monthly consulting fee of $10,000. A bonus may be provided for $26,000 after one year of service in the sole discretion of the Company. In addition, the Company will grant 500,000 three year warrants with an exercise price of $0.45 per share. Within 10 days of executing the consulting agreement the consultant will loan the Company $120,000 in convertible note converted at 50 cents per share.

In July 2013, the Company entered into a financial advisor agreement for a period of six months with the advisor providing various assistance including introductions to potential investors. The Agreement calls for a fee of $25,000 with an additional $7,500 due and payable on the 1st day of the subsequent five months. On July 8, 2013, the Company issued 1,500,000 common shares as consideration for these services valued at $315,000.

In July 2013, the Company entered into a digital content distribution agreement for a period of 1 year. The agreement calls for an advance of $25,000, the fees are recorded as prepaid expenses, earned based on downloaded content for a minimum of $120,000 per year. The agreement also calls for a onetime fee of $50,000 for synchronization services of which $25,000 has been paid and has been recorded as a prepaid expense. As of December 31, 2013, the Company paid a total of $50,000 in connection with this agreement which has been recorded as prepaid expenses.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

On April 24, 2014, the Company entered into consulting services agreement. In consideration for these services, during the nine months ended September 30, 2014, the Consultant was granted 200,000 shares of fully vested common stock valued at $21,980 ($0.11/share).

During the nine months ended September 30, 2014, the Company entered into a consulting services agreement related to marketing and the creation of Company awareness. In connection with this agreement, the consultant shall be paid $20,000 and was issued 200,000 shares of fully vested common stock valued at $31,000 ($0.16/share).

On August 6, 2014, the Company entered into an advisory board agreement for a period of three years. In consideration for these services, during the nine months ended September 30, 2014, the Consultant was granted 100,000 shares of fully vested common stock valued at $16,500 ($0.17/share).

On July 29, 2014, the Company entered into an investor relations agreement. In connection with this agreement, the Company is to issue 100,000 shares of fully vested common stock monthly and $5,500 in monthly fees. As of September 30, 2014, the agreement was terminated. The consultant was issued 100,000 shares of common stock valued at $16,000 ($0.16/share) and was paid $5,500.

(C) Operating Lease Agreements

On September 20, 2012, the Company took over a month to month operating lease upon completing the asset purchase agreement with Liquid Spins. The lease began on October 1, 2012 at a monthly rate of $1,585. The Company gave notice to end this month to month lease, with a final end date of February 28, 2014.

On September 1, 2010, the Company executed a three-year non-cancelable operating lease for its new corporate office space. The lease began on October 1, 2010 and expires on September 30, 2013. Total base rent due during the term of the lease is $134,880. At the current time the Company is continuing on with the existing office space on a month to month basis based on the previous terms and conditions of the recently expired lease.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

NOTE 8 LITIGATION

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business.

On February 21, 2012, the Company filed a suit for breach of contract, intentional misrepresentation, negligent misrepresentation, fraud, false advertising, and unfair competition with a former consultant. It seeks damages due to their alleged failure to meet the contractual requirements regarding promotions. The defendant has been served. In September of 2014, the Company received a Default Judgment against the Defendant. The Company is vigorously pursuing collection on this judgment.

On August 14, 2012, the Company, along with two shareholders of the Company, were named as a defendant in an action filed in the Superior Court for the State of California and the County of San Diego. The plaintiff alleges he was terminated by his former employer “Acoustics Control Sciences, LLC” (which is a company that is not affiliated with Max Sound Corporation) in August 2008 without receiving wages and other compensation allegedly due him. The plaintiff further claims that two of the members or “shareholders” of Acoustics Control Sciences, LLC, wrongfully transferred a patent owned by his former employer and this transfer prevented his former employer from paying the wages alleged due. According to the plaintiff, when the assets of his former employer were sold to the Company, Max Sound Corporation became a successor-in-interest to the plaintiff’s former employer. Plaintiff thus seeks unpaid wages and other compensation from each alleged successor-in-interest named in his complaint. This case will be vigorously prosecuted and has a good likelihood of success.

On August 23, 2012, Koss Corporation filed a lawsuit against the Company in the United States District Court for the Eastern District of Wisconsin alleging trademark infringement. Based upon its federally registered trademark “Hearing is Believing” for stereo headphones, Koss Corporation contends that the Company’s use of “Hearing in Believing” in advertisements for mobile phone software and the Company’s related trademark application for mobile phone software constitutes trademark infringement and unfair competition. The Company denies these allegations, and contends that the goods and services of the two companies are not related and are, in fact, sold or distributed in different channels. On October 26, 2012, the Company filed a motion to dismiss the lawsuit pending in the Eastern District of Wisconsin, and the lawsuit was dismissed for lack of personal jurisdiction. On June 7, 2013, Koss Corp. re-filed its lawsuit in the U.S. District Court for the Central District of California. About the same time, the U.S. Patent and Trademark Office published in the Official Gazette “Hearing is Believing” as a trademark for the Company. Koss Corp. responded by filing an opposition to registration of that mark by Max Sound Corporation. Koss opposition to registration, pending before the Trademark Trial and Appeal Board (“TTAB”), repeats the same allegations that appear in Koss’ federal complaint. Max Sound Corporation denied the allegations of the TTAB opposition and the federal complaint. The parties are in the final stage of settlement at this time. Due to a lack of interest to use the trademark by the Company and its partners, the Company abandoned the mark and entered into a final settlement with the plaintiff in December 2013.

No assurance can be given as to the ultimate outcome of these actions or its effect on the Company.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

NOTE 9 INTANGIBLE ASSETS

As of September 30, 2014 and December 31, 2013, the Company owns certain trademarks and technology rights. See Note 1 (I).

Intangible assets were comprised of the following at September 30, 2014 and December 31, 2013:

	Useful Life	September 30, 2014			December 31, 2013

Distribution rights	10 Years	$	9,647,577	(2)	$	9,647,577
Trademarks	Indefinite		7,500,000			7,500,000
Software	3 Years		—			—	(1)
Other	Indefinite		275			275
Intellectual property	5 Years		444,000			—
Intellectual property	Indefinite		1,620,000			—
Accumulated amortization			(1,068,067	)		(343,898	)

Net carrying value		$	18,143,785		$	16,803,954

During the year ended December 31, 2013, the Company received $8,011 as a refund in cash from the seller of the distribution rights. The refund reduced the carrying value of the purchased intangible.

For the nine months ended September 30, 2014 and 2013, amortization expense related to the intangibles with finite lives totaled $724,169 and $0, respectively, and was included in general and administrative expenses in the statement of operations.

At September 30, 2014, future amortization of intangible assets is as follows:

Year ending December 31:
2014	$	241,389
2015		965,559
2016		968,204
2017		965,559
2018		965,559
Thereafter		4,473,240
	$	8,579,510

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

NOTE 10 SUBSEQUENT EVENTS

For the period from October 1, 2014 through November 11, 2014, the Company converted a total of $296,025 in convertible debt comprised of principal and accrued interest into 4,340,298 common shares.

On November 10, 2014, the Company with the consent of the Majority Shareholder and Unanimous Written Consent of the Board of Directors filed with the State of Delaware an Amended Certificate of Incorporation increasing the authorized shares of common stock by 50,000,000 shares of common stock, with a par value of $.0001 per share

Item 2. Management’s Discussion and Analysis of Financial Condition and Results 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.

Corporate History and Structure

Max Sound Corporation (the “Company”) was 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 represented 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 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 worldwide 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 marketing of 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.

On December 3, 2012, the Company completed the purchase of the assets of Liquid Spins, Inc., a Colorado corporation (“LSI”) (the “Asset Purchase Agreement”). Pursuant to the Asset Purchase Agreement, the assets of LSI were exchanged for 24,752,475 shares of common stock of the Company (the “Shares”), equal to $10,000,000 and a purchase price of $0.404 per share. The assets of LSI purchased included: record label distribution agreements; Liquid Spins technology inventory; independent arts programs; retail contracts for music distribution; physical inventory and office equipment; design and retail ready concepts; brand value; records; publishing catalog; and web assets.

The Company’s music business partners have not fulfilled the opportunities they had committed to deliver to the Company, however other opportunities have recently developed. For example, Akyumen Technologies Corp. and LOOKHU are contracting with the Company to white label its music business in their mobile devices and social media platform respectively. The Company is also in negotiations with additional OEMs to expand this segment of the business. Additionally, the Company has taken recent steps to decrease its cash requirements to operate this segment of its business while negotiating better terms for its music distribution platform.

In May 2014 the Company expanded its business, future offerings and logo to include additional technologies.

Effective May 29, 2014, the Company entered into a license agreement with VSL Communications (“VSL”), pursuant to which the Company received the worldwide right to use certain optimized data transmission

technology owned by VSL. The agreement also entitles the Company to act as VSL’s exclusive agent to negotiate potential opportunities concerning the technology, and to sue certain pre-approved violators of VSL’s intellectual property rights relating to the technology. Proceeds of any such opportunities, including settlement of legal disputes, will be split equally between VSL and the Company after paying any contingent legal fees.

As consideration for the above-referenced representation and license rights, the Company agreed to pay VSL (i) an aggregate of $1,500,000 in cash, with a $500,000 down payment, and the balance to be paid in monthly installments from a percentage of proceeds of future funding’s received by the Company subject to the terms and conditions of the agreement; and (ii) 10,000,000 restricted shares of Company common stock, to be paid within two weeks of closing.

VSL's technology process can reduce the size of multi-media content and data files. This technology is currently being used in the delivery of streaming audio, video, and digital data transmission.

Licensing and Distribution Developments

On May 28, 2014, the Company entered into a license agreement with Akyumen Technologies Corp. (“Akyumen”), an original equipment manufacturer of mobile devices, for the non-exclusive, non-transferable, indivisible worldwide license rights to the use of Company’s Application Programming Interface (“API”) technology in Akyumen’s mobile devices. The license is for five years and is renewable, with the Company’s approval, at Akyumen’s request.

LOOKHU can be used on any Android device, Akuymen device, Xbox®, Apple TV®, Nintendo Wii® or Sony Playstation®. LOOKHU is different from other content providers because of its exclusive content, and available HD audio platform, built and powered by MAXD.

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

Videos and news relating to the Company is available on the company website at http://www.maxsound.com. The

MAX-D Technology Highlights Video summarizes the HD Audio™ process and shows the need for high definition (HD) Audio in several key vertical markets. The video explains MAX-D as what we believe to be the only dynamic HD Audio™ that is being offered to various markets. Video Link of CES 2014 booth: http://vimeo.com/77764981  Snapdragon Interview Link with MAXD CEO John Blaisure: http://youtube/hMOiieiIYIw

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 and through 2013, we have conducted financings to raise initial start-up money for the building of our internet search engine and social networking website and to start our operations. In 2011, the Company shifted the focus of its business operations from their social networking website to the marketing of the Max Sound HD Audio Technology.

The Company believes that Max Sound HD Audio Technology is a game changer for several vertical markets whose demand will create revenue opportunities in 2014.

We expect our financial requirements to increase with the additional expenses needed to market and promote the MAX-D Audio technology. We plan to fund these additional expenses through financings and through loans from our stockholders and/or officers 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.

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 Three Months Ended,						For the nine months ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013


Revenue	$	1,103		$	487		$	2,491		$	2,207


Operating Expenses
General and administrative		818,155			788,055			2,498,762			2,228,751
Endorsement fees		—			—			—			480,000
Consulting		131,885			151,150			406,590			421,437
Professional fees		253,015			182,196			659,347			785,584
Compensation		250,800			279,700			754,000			961,399
Total Operating Expenses		1,453,855			1,401,101			4,318,699			4,877,171

Loss from Operations		(1,452,752	)		(1,400,614	)		(4,316,208	)		(4,874,964	)

Other Income / (Expense)
Other income		—			—			37,500			—
Gain (Loss) on extinguishment of debt		—			—			(18,596	)		—
Interest expense		(71,782	)		(82,638	)		(268,978	)		(144,747	)
Derivative Expense		(163,219	)		(100,590	)		(210,725	)		(196,467	)
Amortization of debt offering costs		(36,317	)		(127,051	)		(133,353	)		(248,706	)
Loss on conversions		(60,874	)		—			(151,357	)		(46,093	)
Amortization of debt discount		(749,672	)		(794,785	)		(2,307,966	)		(1,876,882	)
Change in fair value of embedded derivative liability		(452,716	)		214,213			237,607			450,239
Total Other Income / (Expense)		(1,534,580	)		(890,828	)		(2,815,868	)		(2,062,656	)

Provision for Income Taxes		—			—			—			—

Net Loss	$	(2,987,332	)	$	(2,291,442	)	$	(7,132,076	)	$	(6,937,620	)

Net Loss Per Share - Basic and Diluted	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.02	)

Weighted average number of shares outstanding
during the year Basic and Diluted		354,723,016			304,789,731			333,948,163			296,835,083

For the three months ended September 30, 2014 and 2013

Revenue. Revenues for the three months ended September 30, 2014 and 2013 were $1,103 and $487, respectively.

General and Administrative Expenses: Our general and administrative expenses were $818,155 for the three months ended September 30, 2014 and $788,055 for the three months ended September 30, 2013, representing an increase of $30,100, or approximately 4%, as a result of an increase in the amortization of intangibles and the increase in the general operation of the Company. Our expenses on the general operation of the Company included the ancillary expenses for added personnel, product development and increased royalty costs.

Consulting Fees: Our consulting fees were $131,885 for the three months ended September 30, 2014 and $151,150 for the three months ended September 30, 2013, representing a decrease of $19,265 or approximately 13% as a result of consulting agreements previously entered into concluding.

Professional Fees: Our professional fees were $253,015 for the three months ended September 30, 2014 and $182,196 for the three months ended September 30, 2013, representing an increase of $70,819, or approximately 39%, as a result of increased legal fees related to our product development and increased accounting fees associated with the preparation of our financial statements and regulatory requirements required for publicly traded companies.

Compensation: Our compensation expenses were $250,800 for the three months ended September 30, 2014 and $279,700 for the three months ended September 30, 2013, representing a decrease of $28,900, or approximately 10%.

Net Loss: Our net income (loss) for the three months ended September 30, 2014 and 2013, was $(2,987,332), compared to $(2,291,465) for the three months ended September 30, 2013, representing an increased net loss of $695,867 or 30%. The overall amount of our net loss substantially increased as a result of increased professional fees, increased amortization of intangible expense and a negative change in fair value of the embedded derivative liabilities.

For the nine months ended September 30, 2014 and 2013

Revenue. Revenues for the nine months ended September 30, 2014 and 2013 were $2,491 and $2,207, respectively.

General and Administrative Expenses: Our general and administrative expenses were $2,498,762 for the nine months ended September 30, 2014 and $2,228,751 for the nine months ended September 30, 2013, representing an increase of $270,011, or approximately 12%, as a result of increased amortization of intangibles, decreased stock based compensation, increased royalty costs and the increase in the general operation of the business.

Endorsement Fees: Our endorsement fees were $0 for the nine months ended September 30, 2014 and $480,000 for the nine months ended September 30, 2013, representing a decrease of $480,000, or approximately 100%, as a result of an endorsement agreement with Pitbull signed in 2013.

Consulting Fees: Our consulting fees were $406,590 for the nine months ended September 30, 2014 and $421,437 for the nine months ended September 30, 2013, representing a decrease of $14,847, or approximately 4%. The expense has remained relatively consistent.

Professional Fees: Our professional fees were $659,347 for the nine months ended September 30, 2014 and $785,584 for the nine months ended September 30, 2013, representing a decrease of $126,237, or approximately 16%, as a result of reduced legal fees and increased accounting fees.

Compensation: Our compensation expenses were $754,000 for the nine months ended September 30, 2014 and $961,399 for the nine months ended September 30, 2013, representing a decrease of $207,399, or approximately 22%, as a result of decreased stock based compensation.

Net Loss: Our net loss for the nine months ended September 30, 2014 and 2013, was $7,132,076, compared to $6,937,620 for the nine months ended September 30, 2013. The overall amount of our net loss increased as a result of a decrease in professional fees, positive change in the fair value of embedded derivative liability associated with the convertible debt, reduced compensation, and an increase in the amortization of debt discount.

Liquidity and Capital Resources

We have an accumulated deficit of $34,405,129 as of September 30, 2014, and have negative cash flow from operations of $2,188,716 for the nine months ended September 30, 2014.

As the Company continues to incur losses, transition to profitability is dependent upon the successful commercialization of its products and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations through additional private or public debt or equity offerings. Based on the Company’s operating plan, existing working capital at September 30, 2014 was not sufficient to meet the cash requirements to fund planned operations through December 31, 2014 without additional sources of cash. This raises substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty.

From our inception through September 30, 2014, our primary source of funds has been the proceeds of private offerings of our common stock, private financing, 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.

Private Financings

Below is a summary of our capital-raising activities for the three months ended September 30, 2014 and underlying terms:

On July 25, 2014, the Company amended the terms of its February 6, 2013 convertible note with Vista Capital Investments, LLC, pursuant to which the total principal amount of the note was increased from up to $333,000 to up to $444,000. All other terms of and conditions of the note remain in full force and effect. As of June 30, 2014, the convertible note balance and accrued interest is $90,000 and $22,100, respectively. On July 28, 2014, the Company received $50,000 in proceeds, increasing the current principal amount under the note to $140,000 and leaving available $304,000 to be drawn down under the note.

On August 1, 2014, the Company entered into an agreement with KBM Worldwide, Inc. to issue up to $253,500 in a convertible note. The note matures on May 5, 2015 and bears an interest charge of 8%. The conversion price equals the “Variable Conversion Price”, which is 65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $250,000 proceeds on August 4, 2014.

On August 13, 2014, the Company entered into an agreement with Iliad Research and Trading, LP to issue up to $282,778 in a convertible note. The note matures on August 13, 2015 and bears an interest charge of 4%. The conversion price equals the “Variable Conversion Price”, which is 75% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $250,000 proceeds on August 14, 2014.

On August 21, 2014, the Company entered into an agreement with Horberg Enterprises LP to issue up to

$250,000 in a convertible note. The note matures on August 21, 2015 and bears an interest charge of 8%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $250,000 proceeds on August 26, 2014.

On August 21, 2014, the Company entered into an agreement with JDF Capital Inc. to issue up to $111,000 in a convertible note. The note matures on February 21, 2016 and bears an interest charge of 8%. The conversion price equals the “Variable Conversion Price”, which is 65% of the “Market Price”, which is lowest price for the common stock during the ten (10) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $100,000 proceeds on August 25, 2014.

During the nine months ended September 30, 2014 and the year ended December 31, 2013, the Company issued convertible notes totaling $2,794,834 and $3,843,221, respectively. See Note 3 to the financial statements regarding terms.

During the year ended December 31, 2013, the Company received $290,000 from the principal stockholder under the terms of a two-year line of credit agreement dated September 26, 2013. The Company repaid $150,213 in principal and accrued interest in the month of October 2013 to the principal stockholder under the term of this line of credit. Pursuant to the terms of the loan, the loan is bearing an annual interest rate of 4% and is due on or before September 26, 2015. During the nine months ended September 30, 2014, the principal stockholder loaned an additional $153,000. As of September 30, 2014, the line of credit balance including accrued interest totaled $301,091 (See Note 3 to the financial statements).

In the event that we are unable to obtain additional financing and/or funding or our principal stockholder either fails to extend us more financing, declines to loan additional cash, declines to fund the line of credit, or declines to defer his salary payments, 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.

Recent Accounting Pronouncements

In June 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-12, “Compensation – Stock Compensation ( Topic 718 ); Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. The amendments in this ASU apply to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. For all entities, the amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this ASU either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

The Company’s management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted would have a material impact on the accompanying financial statements.

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:

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 $2,491 and $2,207 in revenue for the nine months ended September 30, 2014 and 2013, respectively.

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

Impairment of Long-Lived Assets

The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, Accounting for the Impairment or Disposal of Long-Lived Assets." ASC Topic 360-10-05 requires that long-lived assets, such as technology rights, be reviewed for impairment annually, or whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including the eventual disposition. If the future net cash flows are less than the carrying value of an asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value or disposable value. For the year ended December 31, 2013, the Company completed an impairment analysis on its' long-lived assets, their technology rights, and determined that no impairment was necessary.

The Company believes that the accounting estimate related to asset impairment is a "critical accounting estimate" because the impairment methodology is highly susceptible to change from period to period, because it requires management to make assumptions about future cash flows, and because the impact of recognizing impairment could have a significant effect on operations. Management's assumptions about future cash flows require significant judgment because actual business operations of marketing the technology rights is in its infancy stages and managements expects that their future operating levels to fluctuate. The analysis included assumptions that are based on annual business plans and other forecasted results which are used to reflect market-based estimates of the risks associated with the projected cash flows, based on the best information available as of the date of the impairment test. There can be no assurance that the estimates and assumptions used in the impairment tests will prove to be accurate predictions of the future. If the future adversely differs from management's best estimate of key economic assumptions, and if associated future cash flows materially decrease, the Company may be required to record impairment charges related to its indefinite life intangible asset.

Prior to February of 2011, the Company's business operations were related to the development and launching of a social networking website. However, since February of 2011, our business focus has been on the marketing of our Max Sound HD Audio Technology. Since 2011 was our initial year of marketing our technology, management considers past operational levels to be inconsistent with future operations mainly due to the shift in business focus. In our impairment testing, the Company made assumptions towards the income and expenses expected in the future including, but not limited to, determining the actual expenses incurred in the current year that were attributable to the new business focus in order to develop an annual cost benchmark, trends in the marketplace, feedback from current and past marketing activities, and assessments upon the useful life of the technology rights.

The Company's primary focus over the next three to five years will be centered around the marketing and implementation of their technology in order to take advantage of the current trends in the marketplace for users of

their technology. In particular, the Company expects that expenses will increase significantly from year to year over the next five years, at which time in year six and beyond the year to year change will be a minimal increase.

As part of the impairment test, the Company reviewed its initial useful life analysis, in reference to their technology, and updated this analysis with factors that existed at the time of the impairment testing and determined that nothing had occurred in the marketplace that would change their initial determination of the useful life of their technology. The analysis included researching known technological advances in the marketplace and determining if those advances which are similar to the Company's products would limit the useful life of the asset. The Company believes that the technological advances in the marketplace are geared to developing different playback devices and the implementation of technology that is similar to the Company's technology. Thus, the Company concluded that its technology rights continue to have an indefinite useful life. However, it is understood that technological advancements could happen in the future that would limit the useful life of its technology. If a technology was created in the future that would limit the useful life of the technology, the Company would be required to update its impairment testing to include a useful life determination of the technology and may be required to record impairment charges at some time in the future.

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”.

Subsequent Events

For the period from October 1, 2014 through November 11, 2014, the Company converted a total of $296,025 in convertible debt comprised of principal and accrued interest into 4,340,298 common shares.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Disclosure controls and procedures. Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

To the best of our knowledge, there are no known or pending litigation proceedings against us, except as follows:

On February 21, 2012, the Company filed a suit for breach of contract, intentional misrepresentation, negligent misrepresentation, fraud, false advertising, and unfair competition with a former consultant. It sought damages due to their alleged failure to meet the contractual requirements regarding promotions. The defendant has been served. In September of 2014, the Company received a default judgment against the defendant in the amount of $81,928.

On August 14, 2012, the Company, along with two shareholders of the Company, was named as a defendant in an action filed in the Superior Court for the State of California and the County of San Diego. The plaintiff alleges he was terminated by his former employer “Acoustics Control Sciences, LLC” (which is a company that is not affiliated with Max Sound Corporation) in August, 2008 without receiving wages and other compensation allegedly due him. The plaintiff further claims that two of the members or “shareholders” of Acoustics Control Sciences, LLC, wrongfully transferred a patent owned by his former employer and this transfer prevented his former employer from paying the wages alleged due. According to the plaintiff, when the assets of his former employer were sold to the Company, Max Sound Corporation became a successor-in-interest to the plaintiff’s former employer. Plaintiff thus seeks unpaid wages and other compensation from each alleged successor-in-interest named in his complaint. This case will be vigorously defended by the Company and the Company’s counsel believes the Company has a high likelihood of success; plaintiff has initiated settlement discussions with the defendants.

In August 2014, the Company retained the prestigious law firms of ARNOLD RUESS and Wittmann Hernandez, both specializing in International Intellectual Property Rights to represent its interests in VSL against Google in Germany. In September 2014, the Company was granted multiple preliminary injunctions from the District Court Berlin against OEM's (Original Equipment Manufacturers) to stop the sale of certain Google Android devices in the Federal Republic of Germany at the Premier show IFA in Berlin (Internationale Funkausstellung, http://www.ifa-berlin.de/en), the world's leading fair for Consumer Electronics and Home Appliances).

Max Sound, under agreement with VSL Communications, is enforcing intellectual property rights on VSL's behalf and has obtained preliminary injunctions against Shenzhen KTC Technology Co. Ltd and Pact Informatique S.A., France. German Customs authorities further inspected several other exhibitors of smartphones and tablet PC's with Android operating system. Shenzhen KTC Technology Co. Ltd. is one of the largest Chinese electronics groups operating worldwide, and Pact Informatique is a French electronics company operating in

many European countries under the brand Storex. Max Sound's actions were based on infringement of VSL's European Patent EP 2 026 277 concerning an Optimized Data Transmission System Method. The Infringement was found on the basis that Google's Android OS implements the H.264-Standard for video encoding, which is protected by VSL's patent. A bailiff seized all smartphones and tablets of KTC and Pact at the trade fair IFA in Berlin on September 10, 2014. The injunctions have no automatic time limit, and opponents can file an opposition.

Item 1A.

Risk Factors.

Not required for smaller reporting companies.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Private Financings

Below is a summary of our capital-raising activities for the three months ended September 30, 2014 and underlying terms:

On August 13, 2014, the Company entered into an agreement with Iliad Research and Trading to issue up to $282,778 in a convertible note. The note matures on August 13, 2015 and bears an interest charge of 4%. The conversion price equals the “Variable Conversion Price”, which is 75% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $250,000 proceeds on August 14, 2014.

On August 21, 2014, the Company entered into an agreement with Horberg Enterprises LP to issue up to $250,000 in a convertible note. The note matures on August 21, 2015 and bears an interest charge of 8%. The conversion price equals the “Variable Conversion Price”, which is 70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $250,000 proceeds on August 26, 2014.

On August 21, 2014, the Company entered into an agreement with JDF Capital Inc. to issue up to $111,000 in a convertible note. The note matures on February 21, 2016 and bears an interest charge of 8%. The conversion price equals the “Variable Conversion Price”, which is 65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion. The holder of the note has a right to convert all or any part of the outstanding unpaid principal amount into shares of common stock after six months. The Company received $100,000 proceeds on August 25, 2014.

Compensation-based Issuances

During the three months ended September 30, 2014, the Company issued 250,000 shares of common stock valued at $77,500 in connection with employment agreements entered into.

100,000 fully vested shares of common stock valued at $16,500 ($0.17/share). (See note 7(B)).

On July 29, 2014, the Company entered into an investor relations agreement. In connection with this agreement, the Company is to issue 100,000 shares of common stock monthly and $5,500 in monthly fees. As of September 30, 2014, the agreement was terminated. The consultant was issued 100,000 shares of fully vested common stock valued at $16,000 ($0.16/share) and was paid $5,500. (See note 7(B)).

Note Conversions

On July 14, 2014, the Company entered into a conversion agreement with Tonaquint, Inc. relating to a convertible promissory note dated October 7, 2013 with the original principal amount of $282,778 for 1,105,481 shares based on a conversion price of $0.054275 per share.

On July 16, 2014, the Company entered into a conversion agreement with Tonaquint, Inc. relating to a convertible promissory note dated October 7, 2013 with the original principal amount of $282,778 for 1,092,399 shares based on a conversion price of $0.054925 per share.

On July 1, 2014, the Company entered into a conversion agreement with Tonaquint, Inc. relating to a convertible promissory note dated October 7, 2013 with the original principal amount of $282,778 for 549,451 shares based on a conversion price of $0.0546 per share.

On August 1, 2014, the Company entered into a conversion agreement with Tonaquint, Inc. relating to a convertible promissory note dated October 7, 2013 with the original principal amount of $282,778 for 673,446 shares based on a conversion price of $0.089094 per share.

On August 4, 2014, the Company entered into a conversion agreement with Tonaquint, Inc. relating to a convertible promissory note dated October 7, 2013 with the original principal amount of $282,778 for 881,419 shares based on a conversion price of $0.089094 per share.

On July 3, 2014, the Company entered into a conversion agreement with JMJ Financial relating to a convertible promissory note dated December 9, 2013 with the original principal amount of $100,000 for 600,000 shares based on a conversion price of $0.058823 per share.

On July 22, 2014, the Company entered into a conversion agreement with JMJ Financial relating to a convertible promissory note dated December 9, 2013 with the original principal amount of $100,000 for 953,405 shares based on a conversion price of $0.057983 per share.

On July 11, 2014, the Company entered into a conversion agreement with Vista Capital Investments, LLC relating to a convertible promissory note dated December 6, 2013 with the original principal amount of $25,000 for 169,463 shares based on a conversion price of $0.0590 per share.

On July 15, 2014, the Company entered into a conversion agreement with Vista Capital Investments, LLC relating to a convertible promissory note dated December 6, 2013 with the original principal amount of $25,000 for

178,360 shares based on a conversion price of $0.0590 per share.

On August 5, 2014, the Company entered into a conversion agreement with Iliad Research and Trading, LP relating to a convertible promissory note dated December 30, 2013 with the original principal amount of $282,778 for 1,399,619 shares based on a conversion price of $0.08931 per share.

On September 12, 2014, the Company entered into a conversion agreement with Iliad Research and Trading, LP relating to a convertible promissory note dated December 30, 2013 with the original principal amount of $282,778 for 307,692 shares based on a conversion price of $0.0975 per share.

On September 23, 2014, the Company entered into a conversion agreement with Iliad Research and Trading, LP relating to a convertible promissory note dated December 30, 2013 with the original principal amount of $282,778 for 357,782 shares based on a conversion price of $0.08385 per share.

On August 25, 2014, the Company entered into a conversion agreement with JMJ Financial relating to a convertible promissory note dated February 20, 2014 with the original principal amount of $50,000 for 350,000 shares based on a conversion price of $0.102550 per share.

On September 9, 2014, the Company entered into a conversion agreement with JMJ Financial relating to a convertible promissory note dated February 20, 2014 with the original principal amount of $50,000 for 260,744 shares based on a conversion price of $0.102083 per share.

On July 30, 2014, the Company entered into a conversion agreement with Vista Capital Investments, LLC relating to a convertible promissory note dated January 28, 2014 with the original principal amount of $25,000 for 505,297 shares based on a conversion price of $0.0604 per share.

On September 15, 2014, the Company entered into a conversion agreement with Asher Enterprises, Inc. relating to a convertible promissory note dated March 7, 2014 with the original principal amount of $103,500 for 307,692 shares based on a conversion price of $0.0975 per share.

On September 16, 2014, the Company entered into a conversion agreement with Asher Enterprises, Inc. relating to a convertible promissory note dated March 7, 2014 with the original principal amount of $103,500 for 344,296 shares based on a conversion price of $0.0973 per share.

On September 22, 2014, the Company entered into a conversion agreement with Asher Enterprises, Inc. relating to a convertible promissory note dated March 7, 2014 with the original principal amount of $103,500 for 526,103 shares based on a conversion price of $0.0839 per share.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

None.

Item 6.

Exhibits

	Exhibit Number			Description
	10.1			Amended Terms, dated July 25, 2014, with Vista Capital Investments, LLC.
	10.2			Securities Purchase Agreement, dated August 1, 2014, with KBM Worldwide, Inc.
	10.3			8% Convertible Redeemable Note due May 5, 2015, issued to KBM Worldwide, Inc.
	10.4			Securities Purchase Agreement, dated August 13, 2014, with Iliad Research and Trading
	10.5			4% Convertible Redeemable Note due August 13, 2015, issued to Iliad Research and Trading
	10.6			Securities Purchase Agreement, dated August 21, 2014, with Horberg Enterprises LP
	10.7			4% Convertible Redeemable Note due August 21, 2015, issued to Horberg Enterprises LP
	10.8			Securities Purchase Agreement, dated August 21, 2014, with JDF Capital Inc.
	10.9			4% Convertible Redeemable Note due February 21, 2016, issued to JDF Capital Inc.
	10.1			Advisory Board Agreement, dated August 6, 2014, with David H. Pohl
	10.11			Board Minutes Extending Transfer Agent Agreement, dated August 6, 2014, with Globex Transfer, LLC
	10.12			Advisory Board Agreement, dated September 10, 2014, with Peter Tsolinas
	10.13			Investor Relations Agreement, dated July 29, 2014 with Riverview Capital Enterprises
	31.1			Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer
	31.2			Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer
	32			Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101.INS.			XBRL Instance Document
	101.SCH			XBRL Taxonomy Extension Schema
	101.CAL			XBRL Taxonomy Extension Calculation Linkbase
	101.DEF			XBRL Taxonomy Extension Definition Linkbase
	101.LAB			XBRL Taxonomy Extension Label Linkbase
	101.PRE			XBRL Taxonomy Extension Presentation Linkbase

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MAX SOUND CORPORATION
	(Registrant)

Date: November 14, 2014	By:	/s/ John Blaisure
		John Blaisure
		Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Greg Halpern
		Greg Halpern
		Chief Financial Officer (Principal Financial and Accounting Officer)

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