Max Sound Corp (OTCBB:MAXD) Closed Just Below $0.10

On March 18 the stock of Max Sound Corp (OTCBB:MAXD, MAXD message board) registered a new record low of just $0.023 per share. Since then however the ticker’s recovery has been nothing short of impressive. After adding another 22% to its value last Friday the stock is currently sitting at $0.096 and if the positive momentum survives the weekend the company could attempt to break the 10 cents per share mark. Is the upwards trend warranted though?

At the start of the month MAXD filed their annual report for 2014 and the numbers inside it were far from pretty. In fact the balance sheet of the company looks rather terrifying with:

• $36 thousand cash
• $131 thousand total current assets
• $5.6 million total current liabilities
• $2500 annual revenue
• $9.8 million annual net loss

Well, it should be obvious that MAXD is not a financially sound company. Their limited cash position, the massive working capital deficit, almost non-existent revenues and close to $10 million net loss for 2014 all demand the use of caution when approaching the stock.

An even bigger red flag though is the multitude of outstanding convertible notes. At the end of 2014 MAXD had over $1.3 million in convertible notes payable and the company has continued to sell more notes – during the first quarter of 2015 three convertible notes totaling $270 thousand were issued. The subsequent events section of the annual report states that "through the filing of these financial statements" around $821 thousand in convertible debt was turned into approximately 31.3 million common shares. This means that on average each share was priced at $0.026, or just above the 52-week low of the stocks.

Despite all the risks some investors are still willing to put their money in the company but a big part of the reason for it has nothing to do with MAXD’s operations. Back in December, last year, Max Sound filed a lawsuit against the technology giant Google, Inc (NASDAQ:GOOG) for patent infringement. In January, 2015, they filed another patent infringement lawsuit this time against the popular streaming media provider Netflix Inc. (NASDAQ:NFLX). Investors should keep in mind that the trials will most likely run for quite a lot of time and there is no guarantee that the outcome will be in MAXD’s favor.

In a letter to the shareholders issued back in January the CEO of the company outlined their plans for 2015 but so far the company hasn’t made any announcements about their progress. Since the start of the year MAXD has published only three PRs with the latest one now over a month and a half old. If the silence continues for much longer investors’ sentiment could once more change drastically and the stock may start falling down the chart. It is of vital importance to do your own due diligence before attempting any trades involving the ticker.