Debt

3 Months Ended

Mar. 31, 2015

Debt Disclosure [Abstract]

Debt

NOTE 3           DEBT

Debt consists of the following:

	As of			As of
	March 31, 2015			December 31, 2014
Line of credit - related party	$	220,478		$	268,227
Convertible debt		2,996,815			3,028,418
Less: debt discount		(1,578,944	)		(1,691,065	)
Convertible debt - net		1,417,871			1,337,353
Total current debt	$	1,638,349		$	1,605,580

(A) Line of credit – related party

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

		Principal		Interest Rate		Maturity
Balance - December 31, 2014	$	268,227
Borrowings during the three months ended March 31, 2015		25,000		4	%	September 26, 2015
Interest accrual		2,250
Repayments		(75,000	)
Balance - March 31, 2015	$	220,478		4	%	September 26, 2015

(B) Convertible Debt

During the three months ended March 31, 2015 and year ended December 31, 2014, the Company issued convertible notes totaling $792,500 and $3,475,334, respectively. The Convertible notes issued for three months ended March 31, 2015 and year ended December 31, 2014, consist of the following terms:

			Three Months Ended		Year ended
			March 31, 2015		December 31, 2014
			Amount of		Amount of
			Principal Raised		Principal Raised
Interest Rate			2.5% - 10%		2.5% - 10%
Default interest rate			14% - 22%		14% - 22%
Maturity			February 26, 2015 - June 18, 2016		February 26, 2015 - June 18, 2016
Conversion terms 1	65% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period prior to the conversion.		689,500		689,500
Conversion terms 2	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.		592,500		747,500
Conversion terms 3	70% of the “Market Price”, which is the average of the lowest three (3) trading prices for the common stock during the fifteen (15) trading day period prior to the conversion.		150,000		—
Conversion terms 4	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
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 twenty (20) trading day period prior to the conversion.		50,000		125,000
Conversion terms 6	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
Conversion terms 7	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
Conversion terms 8	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 prices during the ten (10) trading day period.		—		765,000
		$	792,500	$	3,475,334

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 three months ended March 31, 2015, the Company converted debt and accrued interest, totaling $791,444 into 29,796,782 shares of common stock.    

During the year ended December 31, 2014, the Company converted debt and accrued interest, totaling $3,421,019 into 48,998,342 shares of common stock.    Conversions of debt to equity occurring after the maturity date and penalties incurred resulted in a loss on settlement of $183,907.

MAX SOUND CORPORATION

NOTES TO FINANCIAL STATEMENTS

AS OF MARCH 31, 2015

(UNAUDITED)

Convertible debt consisted of the following activity and terms:

Convertible Debt Balance as of December 31, 2014	3,028,418		4% - 10%	February 26, 2015 - June 18, 2016
Borrowings during the three months ended March 31, 2015	792,500		8% - 10%
Non-Cash Reclassification of accrued interest converted	22,361
Repayments	(55,000	)
Conversion  of debt to into 29,796,782 shares of common stock with a valuation of $791,4448 ($0.02 - $0.039/share) including the accrued interest of $22,361	(791,444	)
Convertible Debt Balance as of March 31, 2015	2,996,815		4% - 10%	February 26, 2015 - June 18, 2016

(C) Debt Issue Costs

During the three months ended March 31, 2015, the Company paid debt issue costs totaling $26,938.

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

	Three Months Ended			Three Months Ended
	March 31, 2015			March 31, 2014
Debt issue costs	$	221,693		$	146,055
Accumulated amortization of debt issue costs		(184,960	)		(118,529	)
Debt issue costs - net	$	34,733		$	27,526

During the three months ended March 31, 2015 and 2014 the Company amortized $17,361 and $38,983 of debt issue costs, respectively.

(D) Debt Discount & Original Issue Discount

During the three months ended March 31, 2015 and December 31, 2014, the Company recorded debt discounts and original issue discounts totaling $841,373 and $3,199,391, respectively.

The debt discount recorded in 2015 and 2014 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 $953,494 and $728,736 during the three months ended March 31, 2015 and 2014, respectively, to amortization of debt discount expense.

		Three Months Ended			Three Months Ended
		March 31, 2015			March 31, 2014
Debt discount	$	2,532,438		$	2,923,369
Accumulated amortization of debt discount		(953,494	)		(1,712,320	)
Debt discount - Net	$	1,578,944		$	1,211,049