Max Sound Corp (OTCBB:MAXD) Drops Down A Notch

Company credibility is important. Having Pitbull as an endorser for your product and rock legend Mick Fleetwood on the advisory board like Max Sound Corp (OTCBB:MAXD) do, certainly helps. Yet, despite generating a volume of over 588 thousand shares in just three and a half hours of trading on Wednesday, all they managed to do is close the short session around 6% below their July 2 value. We decided to see what caused it.

Nothing immediately apparent. Unlike Medient Studios Inc (OTCMKTS:MDNT) and American Graphite Technologies Inc (OTCBB:AGIN) who also registered red sessions on Wednesday, MAXD‘s shares aren’t being artificially pumped by paid newsletters. In addition to this, a new press release came out on Tuesday and while it didn’t give shareholders and potential investors any new information, it spoke about the virtues of their Android app calling it “the ultimate high-defintion enhancement”, which definitely gave the ticker a push and it registered single-day gains of around 23% on volume exceeding 1 million shares.

We decided to check out the software and learn a bit more about it. The technology was featured on CNBC where even Mick Fleetwood talked about the advantages of the audio enhancement tool for smartphones. The three applications are already available on Google Play and, after an initial free trial period, you can buy an upgraded version. This is where MAXD get their revenues from. We checked out the reviews as well and, as with every new piece of software, there are opinions ranging from “the best app in the store” to “unable to even start the program”.

Despite vigorous criticism displayed by some of the users in the comments, MAXD have managed to generate some revenues out of the apps during the first quarter of 2013. Here are all the important figures as found in the latest 10-Q:

• cash: $0
• current assets: $166 thousand
• current liabilities: $2 million
• revenue: $988
• quarterly net loss: $2.7 million
• accumulated deficit: $21 million

As you can see, they are having some financial troubles and they have issued countless convertible notes in order to raise capital for their operations. The thing that does worries a little bit is the conversion option since we see some pretty tasty discounts. The holders of the May 23 convertible debentures, for example, have the option of exchanging them for some shares valued at 75% of the lowest three bids from the last ten sessions.

And this brings us neatly to MAXD‘s stock performance. You can see pretty clearly that they have been showing some progress over the last months. Less than $1,000 in revenues for a full quarter is pretty discouraging, but when you have in mind that during 2012 they managed to sell no more than $5 worth of apps, the growth is apparent. In addition to this, they started a heavy advertisement campaign for the software and it’s already been featured on the pages Grammy Magazine which means that its popularity should grow. Despite all this, the ticker remains reluctant to display a more consistent performance.

The reason for this could be some decisions made by the management team. Apparently, they wanted to raise some awareness around the stock and back in February they transferred 250 thousand restricted shares to Mr. Tobin Smith and his NBT Equities Research in exchange for some coverage. Mr. Smith, in turn, put a rather ambitious $2.50 price target for 2014 and we’re not sure if this had such a great effect on the stock. While the price rose all the way up to $0.36 on the day the report was issued, it soon began to fall down and the overall performance since then has been somewhat fidgety.

We can’t say that we’re surprised by all this, not least because we saw what happened when the scandal around Tobin Smith and NBT brought Petrosonic Energy Inc (OTCMKTS:PSON) to its knees. Such a dramatic drop for MAXD seems unlikely for now since they do appear to be a more solid venture, but the volatility of the ticker means that a short trade still hides its risks. The future will show if a long term investment will turn out to be a good decision, but we reckon that thinking through all your options is a must with any penny stock ticker.