CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 1- NATURE OF OPERATIONS, BASIS OF PRESENTATION, GOING CONCERN, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Major League Football, Inc. (the Company, we, our or us) is seeking to establish, develop and operate Major League Football ("MLFB") as a professional spring football league. We have launched a Development Season for 2016 and our inaugural year of professional, spring-league football is anticipated to commence in March of 2017. The Company is using the Development Season to further develop players, plan for staffing in cities and provide ample time for ticketing agencies and potential broadcasting partners to advertise and market the formal kick-off in 2017. We intend to fill a void by establishing franchises in cities overlooked by existing professional sports leagues and provide fans with professional football in the NFL off-seasons, which will enable it to take a totally non-adversarial approach towards the National Football League ("NFL"). Our spring and early summer schedule ensures no direct competition with autumn/winter sports, including the 32 NFL, 9 Canadian Football League, 627 NCAA, 91 NAIA, 142 JUCO's, 27 Canadian Universities, and thousands of high schools and other collegiate institutions.
On July 14, 2014 our Company entered into and closed a definitive Asset Purchase Agreement with Major League Football, LLC, a company formed in 2009, to establish, develop and operate a professional spring/summer football league to be known as Major League Football (MLFB). Pursuant to the terms of the Asset Purchase Agreement, we issued Major League Football, LLC 8,000,000 shares of our common stock in exchange for assets of Major League Football, LLC primarily comprised of business plans and related proprietary documents, trademarks and other related intellectual property related to the development of the league. Also, our Board of Directors was expanded, a new management team was appointed, and a number of league consultants were retained by our Company. On November 24, 2014, we changed our name to Major League Football, Inc. from Universal Capital Management, Inc.
Prior to July 13, 2014, our primary business was to identify and advise in development and market consumer products. Our strategy employed three primary channels: Direct Response Television (Infomercials), Television Shopping Networks and Retail Outlets. We sought to assist and enable entrepreneurs to introduce products to the consumer market. Entrepreneurs could leverage our experience and valuable business contacts in functions such as product selection, marketing development, media buying and direct response television production. Inventors and entrepreneurs submitted products or business concepts for our input and advice. We generated revenues from two primary sources (i) management of the entire business cycle of the consumer product and (ii) sales of consumer products, for which we received a share of net profits of consumer products sold.
Unless the context otherwise requires, all references to the Company, we, our or us and other similar terms collectively means Major League Football, Inc., a Delaware corporation. Our principal offices are presently located at 6230 University Parkway, Suite 301, Lakewood Ranch, Florida, 34240. Our telephone number is (774) 213-1995. Our Internet website is located at:
www.mlfb.com
.
Going Concern
The accompanying unaudited financial statements have been prepared assuming the Company will continue as a going concern. As reflected in the accompanying unaudited financial statements, the Company had no revenues, and a net loss and net cash used in operating activities of $1,783,635 and $14,584 respectively, for the three months ended July 31, 2016. Additionally, at July 31, 2016, the Company has a working capital deficit of $2,747,757, an accumulated deficiency of $22,905,467 and a stockholders' deficiency of $2,732,997, which could have a material impact on the Company's financial condition and operations.
F-6
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 1- NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In view of these matters, recoverability of any asset amounts shown in the accompanying unaudited financial statements is dependent upon the Companys ability to achieve a level of profitability. These matters raise substantial doubt about the Companys ability to continue as a going concern. Since inception, the Company has financed its activities from the sale of equity securities and from loans. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities and convertible debt securities, until such time that funds provided by operations, if ever, are sufficient to fund working capital requirements. The financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should the Company be unable to continue as a going concern.
Basis of Presentation
The accompanying unaudited interim period financial statements of the Company are unaudited pursuant to certain rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair statement of the results of the periods indicated. Such results, however, are not necessarily indicative of results that may be expected for the full year. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The accompanying unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2016, as filed with the Securities and Exchange Commission on July 29, 2016. The interim operating results for the three months ending July 31, 2016 are not necessarily indicative of operating results expected for the full year.
SIGNIFICANT ACCOUNTING POLICIES
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on managements best knowledge of current events and actions the Company may undertake in the future, actual results could differ from the estimates.
Significant estimates in the accompanying financial statements include the allowance for doubtful receivables, valuation of collateral on certain receivables, valuation of derivative liabilities, valuation of beneficial conversion features in convertible debt, valuation of equity based instruments issued for other than cash, valuation allowance on deferred tax assets, depreciable lives and estimated residual value of furniture, fixtures and equipment.
Cash and Cash Equivalents
For the purpose of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents at July 31, 2016 and 2015.
Concentrations
Concentration of Credit Risk
Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of cash. At July 31, 2016 and 2015 the Company did not have deposits with a financial institution that exceeded the FDIC deposit insurance coverage and determined that it had no cash equivalents.
F-7
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost, net of accumulated depreciation. For financial accounting purposes, depreciation is generally computed by the straight-line method over the following useful lives:
|
|
|
Furniture and fixtures
|
|
5 to 7 years
|
Computer and office equipment
|
|
3 to 7 years
|
For the three months ended July 31, 2016, the Company recorded $116 of depreciation expense and at July 31, 2016, the accumulated depreciation balance was $413.
Provision for Loan Receivable and Collateral Deposit
In March 2016, the Company loaned $125,000 to a third party for the purpose of the third party making an investment that was expected to provide an additional return to the Company. Due to significant uncertainties regarding the collectability of the original principal amount and/or any additional return, the Company recorded an allowance for the full amount of the Loan Receivable and classified as Provision for Loan Receivable in the accompanying unaudited financial statements.
In April 2016, the Company disbursed $50,000 of cash related to a collateral deposit with a third party that required additional deposits before a proposed transaction could be consummated. At April 30, 2016, no further deposits had been made and as a result, the Company recorded an allowance for the full amount of the Collateral Deposit and classified as Provision for Collateral Deposit in the accompanying unaudited financial statements.
Convertible Promissory Notes and Related Embedded Derivatives
We account for the embedded conversion option contained in convertible instruments under the provisions of FASB ASC Topic No. 815-40, Derivatives and Hedging Contracts in an Entitys Own Stock. The embedded conversion option contained in the convertible instruments were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion option derivatives was determined using the Binomial Option Pricing model. On the initial measurement date, the fair value of the embedded conversion option derivative was recorded as a derivative liability and was allocated as debt discount up to the proceeds of the notes with the remainder charged to current period operations as initial derivative expense. Any gains and losses recorded from changes in the fair value of the liability for derivative contract was recorded as a component of other income (expense) in the accompanying statements of operations.
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements and Disclosures, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
F-8
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Companys financial instruments consist principally of cash, amounts receivable, accounts payable, unsecured convertible notes payable, secured convertible notes payable, notes payable, notes payable related party and an embedded conversion option liability. Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, the Company believes that the recorded values of the other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Assets and liabilities measured at fair value on a recurring and non-recurring basis consist of the following at April 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
|
Fair Value Measurements at
|
|
|
|
At
|
|
|
July 31, 2016
|
|
|
|
July 31, 2016
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Embedded conversion option derivative liability
|
|
$
|
245,787
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
245,787
|
|
The following is a summary of activity of Level 3 assets and liabilities for the three months ended July 31, 2016:
|
|
|
|
|
Embedded Conversion Option Liability
|
|
|
|
Balance April 30, 2016
|
|
$
|
462,531
|
|
Gain from change in the fair value of derivative liabilities
|
|
|
(216,744
|
)
|
Balance April 30, 2016
|
|
$
|
245,787
|
|
Changes in fair value of the embedded conversion option liability are included in other income (expense) in the accompanying unaudited financial statements.
Revenue Recognition
League Tryout Camps
The Company recognizes league tryout camp revenue on the dates that the tryout camps were held. There were no tryout camps held by the Company during the three months ended July 31, 2016.
Football League Operations
The Company will recognize revenue from future football league operations including gate, parking and concessions, stadium advertising and merchandising, licensing fees, sponsorships, naming rights, broadcast and cable, franchise fees, social media and on-line digital media including merchandising, advertising and subscriptions. Since the football operations have not commenced and will not until March 2017, there was no revenue from football league operations during the three months ended July 31, 2016.
F-9
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock Based Compensation
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the measurement date. The expense is recognized over the service period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.
Income Taxes
Deferred income tax assets and liabilities arise from temporary differences associated with differences between the financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities are classified as current or non-current, depending upon the classification of the asset or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or noncurrent depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce the deferred tax assets to the amount expected to be realized.
The Company follows the provisions of FASB ASC 740-10 Uncertainty in Income Taxes (ASC 740-10). Certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a more-likely-than-not threshold. As of July 31, 2016 and 2015, the Company does not believe it has any uncertain tax positions that would require either recognition or disclosure in the accompanying financial statements.
Net Loss per Share of Common Stock
The Company computes net earnings (loss) per share in accordance with ASC 260-10, Earnings per Share. ASC 260-10 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period. The Companys diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. At July 31, 2016, there were options to purchase 7,640,000 shares of the Companys common stock, 9,593,746 warrants to purchase shares of the Company's common stock, 166,667 shares of the Companys common stock reserved for issuance related to convertible unsecured notes payable and 2,986,817 shares of the Companys common stock reserved for issuance related to convertible secured notes payable which may dilute future earnings per share.
F-10
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.
New Accounting Pronouncements
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern (ASU 2014-15). The guidance in ASU 2014-15 sets forth management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern as well as required disclosures. ASU 2014-15 indicates that, when preparing financial statements for interim and annual financial statements, management should evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity's ability to continue as a going concern for one year from the date the financial statements are issued or are available to be issued. This evaluation should include consideration of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether it is probable that management's plans to address the substantial doubt will be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods and annual periods thereafter. Early application is permitted. The adoption of this guidance is not expected to have a material impact on the Company's unaudited financial statements.
The Company has evaluated other recent accounting pronouncements and their adoption, and has not had, and is not expected to have, a material impact on the Company's financial position or results of operations. Other new pronouncements issued but not yet effective until after April 30, 2016 are not expected to have a significant effect on the Company's financial position or results of operations.
NOTE 2 DEBT
|
|
|
|
|
|
|
|
|
|
|
July 31,
2016
|
|
|
April 30,
2016
|
|
Notes Payable:
|
|
|
|
|
|
|
|
|
Notes payable January 6, 2016. Interest at 8% and principal payable on demand.
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Notes payable June 6, 2016. Interest at 8% and principal payable on demand.
|
|
|
10,000
|
|
|
|
|
|
Total Notes payable
|
|
$
|
110,000
|
|
|
$
|
100,000
|
|
On January 6, 2016, the Company received $100,000 of proceeds from the issuance of a promissory note and recorded as Note Payable at July 31, 2016. The terms of the promissory note include interest accrued at 8% annually and the principal and interest payable on demand. Through July 31, 2016, the Company has accrued $2,676 of interest related to the promissory note and included in accrued interest in the accompanying unaudited financial statements.
F-11
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 2 DEBT (CONTINUED)
On June 6, 2016, the Company received $10,000 of proceeds from the issuance of a promissory note and recorded as Note Payable at July 31, 2016. The terms of the promissory note include interest accrued at 4% annually and the principal and interest payable on demand. Through July 31, 2016, the Company has accrued $61 of interest related to the promissory note and included in accrued interest in the accompanying unaudited financial statements.
|
|
|
|
|
|
|
|
|
|
|
July 31,
2016
|
|
|
April 30,
2016
|
|
Notes Payable, Related Party:
|
|
|
|
|
|
|
|
|
Notes payable, related party. Seven (7) separate loans beginning on February 11, 2015 with last loan on August 28, 2015. No interest and principal payable on demand.
|
|
$
|
20,300
|
|
|
$
|
20,300
|
|
|
|
|
|
|
|
|
|
|
Total Notes payable, related party
|
|
$
|
20,300
|
|
|
$
|
20,300
|
|
From February to July 2015, an officer of the Company provided $15,300 of funds for working capital requirements. There is no formal agreement and no interest is being accrued by the Company with the principal due on demand. During the three months ending October 31, 2015, the Company repaid $15,000 of these funds leaving a balance outstanding of $300. Additionally, on August 28, 2015, the officer personally repaid $20,000 of notes payable (see below). As a result, the outstanding balance owed to the officer is $20,300 at July 31, 2016, recorded as Notes Payable Related Parties in the accompanying unaudited financial statements. See Note 5 Related Party Transactions.
On July 31, 2015, an existing investor of the Company provided $20,000 of funds for working capital requirements structured as an unsecured promissory note. The terms of the promissory note required a $25,000 balloon repayment including principal and interest on August 31, 2015. The Company recorded the Note Payable at the gross amount of $25,000 less $5,000 of original issue discount to be amortized to interest expense upon repayment. On October 28, 2015, an officer of the Company personally repaid the note holder $20,000, representing the principal amount of the note payable (see above). In September 2015, the Company repaid the note holder $5,000 representing the interest component of the note and recorded the payment as interest expense against the original issue discount. As a result of the above repayments, the note payable has been paid in full.
|
|
|
|
|
|
|
|
|
|
|
July 31,
2016
|
|
|
April 30,
2016
|
|
Convertible Unsecured Note Payable:
|
|
|
|
|
|
|
|
|
Unsecured convertible promissory note payable Interest accrued at 5% and principal and interest due 12 months from the issuance date.
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Less: Debt discount
|
|
|
(23,378
|
)
|
|
|
(31,780)
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Unsecured Note Payable, net of debt discount
|
|
$
|
26,622
|
|
|
$
|
18,220
|
|
On April 14, 2016, the Company received $50,000 of proceeds from the issuance of an unsecured convertible promissory note for working capital purposes. The terms include interest accrued at 5% annually and the principal and interest payable in one year on April 14, 2017. The note holder at its sole discretion, has the right to convert the principal amount, along with all accrued interest, into shares of the Companys common stock at the conversion price of $0.30 per share. Through July 31, 2016, the Company accrued $746 of interest related to the unsecured convertible promissory note and included in accrued interest in the accompanying financial statements.
F-12
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 2 DEBT (CONTINUED)
In accordance with ASC 470-20, the Company determined that a beneficial conversion feature (BCF) existed and utilizing the Black-Scholes Pricing Model, determined that the BCF fair value was $33,333 and recorded the $33,333 BCF as a debt discount with an offset to additional paid in capital. The initial $33,333 BCF assumed that 166,667 shares would be issued upon conversion of the promissory note. The debt discount is being amortized as additional interest expense ratably over the one-year term of the note and during the three months ended July 31, 2016, the Company recorded $8,402 of interest expense with a corresponding reduction to the debt discount. As a result, the debt discount has a balance of $23,378 at July 31, 2016.
The Company used the following assumptions in the calculation:
|
|
|
|
|
Stock Price (issue date)
|
|
$
|
0.50
|
|
Conversion Price
|
|
$
|
0.30
|
|
Expected Remaining Term
|
|
1 year
|
|
Volatility
|
|
|
247
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
2016
|
|
|
|
April 30, 2016
|
|
Convertible Secured Note Payable:
|
|
|
|
|
|
|
|
|
Secured convertible promissory note payable issued March 9, 2016 - Interest accrued at 10% and principal and interest due one year from the issuance date.
|
|
$
|
550,000
|
|
|
$
|
550,000
|
|
|
|
|
|
|
|
|
|
|
Less: debt discount
|
|
|
(333,013
|
)
|
|
|
(471,644)
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Secured Note Payable, net of debt discount
|
|
$
|
216,987
|
|
|
$
|
78,356
|
|
On March 9, 2016 (the Original Issue Date (OID), the Company received $445,000 of net proceeds for working capital purposes from the issuance of a $550,000 face value convertible secured promissory note with debt issue costs paid to or on behalf of the lender of $55,000. The terms include interest accrued at 10% annually and the principal and interest payable is payable in one year on March 9, 2017. Any amount of the principal or interest on this Note which is not paid when due shall bear Interest at the rate of the lower of Twenty-Two Percent (22%) per annum, or the highest rate permitted by law, from the due date thereof until the same is paid. Through July 31, 2016, $21,850 of accrued interest was recorded in the accompanying unaudited financial statements.
The lender has the right at any time after the effective date, at its election, to convert all or part of the outstanding and unpaid principal sum and accrued interest into shares of common stock of the Company, subject to certain conversion limitations set forth in the promissory note and certain price protection described below, as per the conversion formula: Number of shares receivable upon conversion equals the dollar conversion amount divided by the Conversion Price. The Conversion Price is equal to seventy percent (70%) of the average of the lowest three VWAPs of the Common Stock during the twenty (20) Trading Days immediately preceding a Conversion Date.
The promissory note contains customary affirmative and negative covenants of the Company. The Conversion Price is subject to full ratchet and other customary anti-dilution protections.
F-13
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 2 DEBT (CONTINUED)
In relation to the convertible secured promissory note, the Company issued the lender two warrants, a Series A warrant with a three (3) year term to acquire 250,000 shares of common stock of the Company at an exercise price of $1.02 per share and a Series B warrant with a three (3) year term to acquire 250,000 shares of common stock of the Company at an exercise price of $1.19 per share.
The principal amount of the promissory note, initially $550,000, may be prepaid in full solely during the dates set forth below, which shall be subject to the following upward adjustments, subject to the payment period upon which the date all amounts hereunder are paid in full by the Borrower occurs, as follows:
|
|
|
|
|
Date of Note Satisfaction
|
|
Principal Amount of this Note
|
|
|
|
|
|
0 to 30 days after the OID
|
|
$
|
605,000
|
|
31 to 60 days after the OID
|
|
$
|
632,500
|
|
61 to 90 days after the OID
|
|
$
|
660,000
|
|
91 - 120 days after the OID
|
|
$
|
687,500
|
|
Subsequent to 120 days after the Issue Date, the Company has no right or option to prepay the principal amount of the promissory note. As of July 9, 2016, the Company did not prepay the principal and this option is no longer available.
As collateral security, the promissory note is secured by all collateral granted by an officer of the Company to the Holder, including but not limited to two million (2,000,000) shares of Common Stock, in accordance with the terms and conditions of a Pledge Agreement by and between the officer and the lender, dated as of the OID.
The Company evaluated the secured convertible promissory note and the related warrants in accordance with ASC 815
Derivatives and Hedging
and due to the price protection in the promissory note, determined that there was an embedded conversion feature that should be bifurcated and accounted for as a derivative liability in the balance sheet at fair value. The initial valuation on March 9, 2016 and recording of this derivative liability was $929,577 using the Binomial Lattice Option Pricing Model with the following assumptions; stock price $0.93, conversion price $0.47, expected term of 1 year, expected volatility of 247% and discount rate of 0.30%, accordance with ASC 815
Derivatives and Hedging
. The initial $929,577 derivative liability assumed that 1,161,972 shares would be issued upon conversion of the promissory note.
The Company evaluated the warrants and determined that there was no embedded conversion feature as the warrants contained a set exercise price with an adjustment only based upon customary items including stock dividends and splits, subsequent rights offerings and pro rate distributions. The Company calculated the relative fair value between the note and the warrants on the issue date utilizing the Black Scholes Pricing Model for the warrants. As a result, the Company allocated $239,069 to the warrants and was recorded as a debt discount with an offset to additional paid in capital in the accompanying financial statements. The warrant calculation used the following assumptions; stock price $0.93, Class A warrant exercise price $1.02, Class B warrant exercise $1.19, expected term of 3 years, expected volatility of 287% and discount rate of 0.30%.
On the note issue date of March 9, 2016, the Company recorded the following debt discounts as offsets to the $550,000 note payable and will be amortized over the one-year term of the note: (1) OID of $50,000, (2) debt issue costs of $55,000, (3) warrant fair value of $239,069 and (4) embedded conversion option liability of $205,931. As a result, the Company recorded a $723,646 expense for the initial fair value of embedded conversion derivative, recorded as a separate item in other income (expense) in the accompanying financial statements. The Company performed a revaluation of the embedded conversion liability using the Binomial Lattice Pricing Model at April 30, 2016 that resulted in a calculated value of $462,531.
The Company performed a revaluation of the embedded conversion liability using the Binomial Lattice Pricing Model at July 31, 2016 that resulted in a calculated value of $216,987. As a result, the Company recorded $216,744 of income for the change in the fair value of compound embedded derivative, recorded as a separate item in other income (expense) in the accompanying unaudited financial statements.
F-14
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 2 DEBT (CONTINUED)
The revaluation of the embedded conversion liability at July 31, 2016 was calculated using the Binomial Lattice option pricing model with the following assumptions; stock price $0.29, conversion price $0.27, expected term of 0.61 years, expected volatility of 183% and discount rate of 0.28%. The change in the derivative liability assumed that 2,986,817shares would be issued upon conversion of the promissory note at July 31, 2016.
For the three months ended July 31, 2016, the Company recorded $138,631 for amortization of the four debt discounts discussed above to interest expense in the accompanying unaudited financial statements.
NOTE 3 STOCK BASED COMPENSATION
Stock Options
In May 8, 2006, the Company approved the 2006 Equity Incentive Plan ("2006 Plan") for the benefit of our directors, officers, employees and consultants, and which reserved 400,000 shares of our common stock for such persons pursuant to the 2006 Plan. The 2006 Plan has a term of 10 years and no option shall be exercisable more than 10 years after the date of grant, or such lesser period of time as is set forth in the award agreement. If for any reason other than death or disability, an Optionee of the 2006 Plan who at time of the grant of an Option under the 2006 Plan was an employee ceases to be an employee (such event being called a "Termination"), options held at the date of Termination (to the extent then exercisable) may be exercised in whole or in part at any time within three months of the date of such Termination; provided, however, that if such exercise of the option would result in liability for the optionee under Section 16(b) of the Securities Exchange Act of 1934, then such three-month period automatically shall be extended until the tenth day following the last date upon which optionee has any liability under Section 16(b) (but in no event after the expiration date of such Option). There are 40,000 options outstanding under this plan at July 31, 2016.
On July 14, 2014, the Company's board of directors approved the 2014 Employee Stock Plan ("2014 Plan") and authorized 10,000,000 shares of its common stock that shall be set aside and reserved for issuance pursuant to the 2014 Plan, subject to adjustments as may be required in accordance with the terms of the 2014 Plan. The 2014 Plan was subsequently approved by the Company's stockholders on November 11, 2014. The 2014 Plan has a term of 10 years and no option shall be exercisable more than 10 years after the date of grant, or such lesser period of time as is set forth in the award agreement. If for any reason other than death or disability, an optionee of the 2014 Plan who at time of the grant of an option under the 2014 Plan was an employee ceases to be an employee (such event being called a "Termination"), options held at the date of Termination (to the extent then exercisable) may be exercised in whole or in part at any time within three months of the date of such Termination; provided, however, that if such exercise of the option would result in liability for the optionee under Section 16(b) of the Securities Exchange Act of 1934, then such three-month period automatically shall be extended until the tenth day following the last date upon which optionee has any liability under Section 16(b) (but in no event after the expiration date of such option).
Stock Options to Consultants
Effective July 14, 2014, the Company granted 4,150,000 stock options to purchase common stock to consultants pursuant to the 2014 Plan and shall vest pursuant to the vesting provision contained in each of the stock option agreements. The exercise price of the stock options is $0.05 per share.
Of the 4,150,000 stock options, 1,100,000 vested immediately on the grant date of July 14, 2014 and the remaining 3,050,000 vest over a period of three to four years based upon the specific consulting agreements. The Company valued the stock options in accordance with ASC 505, Stock Compensation Non Employees, by using the Black Scholes Pricing Model.
The 1,100,000 stock options that vested immediately on the grant date of July 14, 2014 were valued at $55,000 and charged to consulting expense. In January 2015, 300,000 of the vested stock options were exercised leaving a balance of 800,000 unexercised vested stock options at July 31, 2015.
F-15
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 3 STOCK BASED COMPENSATION (CONTINUED)
The remaining 3,050,000 unvested stock options are being re-measured by the Company each reporting period and the resulting fair value is used to determine the new remaining consulting expense to be recorded over the vesting period of three to four years. Effective in December 2014, 1,050,000 of the unvested stock options were canceled due to the termination of the underlying consulting agreements. As a result, the consulting expense for the remaining 2,000,000 unvested stock options was reduced by $104,092 for the three months ended July 31, 2016.
The Company used the following assumptions in estimating fair value:
|
|
|
|
|
Stock Price (re-measurement date of July 31, 2016)
|
|
$
|
0.29
|
|
Exercise Price
|
|
$
|
0.05
|
|
Expected Remaining Term
|
|
8.25 years
|
|
Volatility
|
|
|
183
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.008
|
%
|
Stock Options to Employees
On February 24, 2015, pursuant to the terms of the 2014 Employee Stock Plan the Company issued to its employees, options to purchase up to 2,900,000 shares of common stock at an exercise price of $0.30 per share. The options vest over a period of 4 years, with 580,000 options vesting immediately. All of these options expire on February 23, 2025.
In addition, on February 24, 2015, the Company granted Jerome Vainisi, the Companys acting Chief Executive Officer, an option to purchase up to 3,000,000 shares of common stock at an exercise price of $0.30 per share. These vest over a two-year period, with 250,000 options vesting immediately and the remaining 2,750,000 options vesting in eight equal quarterly installments of 343,750 options. Effective December 11, 2015, Mr. Vainisi notified the Company that he would not finalize his employment agreement and is no longer the Companys Chief Executive Officer. As a result, he retained all vested options and the unvested options would be forfeited. At January 31, 2016, 1,281,250 (250,000 that vested immediately and 1,031,250 that vested as per above) of the options were vested and the remaining 1,718,750 were forfeited. In accordance with the Companys 2014 Employee Stock Plan, Mr. Vainisi has 90 days from the separation date of December 11, 2015, or March 10, 2016 to exercise the vested options or they expire. Mr. Vainisi did not exercise his 1,281,250 vested option on March 10, 2016 and they expired.
As a result, a total of 5,900,000 stock options were granted on February 24, 2015. Of the 5,900,000 stock options, 830,000 vested immediately on the grant date of February 24, 2015 and the remaining 5,070,000 would vest over a period of two to four years based upon the specific agreement. As discussed above, 1,718,750 of Mr. Vainisis unvested options were forfeited on December 11, 2015 and 1,281,250 of Mr. Vainisis vested options expired on March 10, 2016. As a result, 2,070,000 unvested options are outstanding at July 31, 2016.
The Company valued the 2,070,000 unvested stock options in accordance with ASC 718, Stock Compensation, using the Black Scholes Pricing Model to estimate fair value. The Company used the 'simplified method' for estimating the remaining expected contractual term' because it does not have sufficient information to make more accurate estimates of the remaining expected term or employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies).
The 830,000 stock options that vested immediately (including 250,000 for Mr. Vainisi) on the grant date were valued at $390,100 and recorded to stock based compensation expense. Effective September 30, 2015, 10,000 of the vested stock options were exercised at $0.30 per share resulting in $3,000 of proceeds to the Company.
F-16
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 3 STOCK BASED COMPENSATION (CONTINUED)
The remaining 2,070,000 unvested stock options had a fair value of $1,090,400 on the grant date and are being amortized ratably over the vesting periods. For the three months ended July 31, 2016, the Company recorded $57,101 in stock based compensation expense.
The Company used the following assumptions in estimating fair value:
|
|
|
|
|
Stock Price (grant date)
|
|
$
|
0.47
|
|
Exercise Price
|
|
$
|
0.30
|
|
Expected Remaining Term
|
|
5 years
|
|
Volatility
|
|
|
246
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.11
|
%
|
Effective June 10, 2016, the Company granted 1,910,000 options to purchase common stock to five employees. The exercise price is $0.31 per share and on the grant date, 102,500 of the options vested immediately and the remaining 1,807,500 options vest in various stages over a three-year period.
The Company valued the stock options in accordance with ASC 718, Stock Compensation, using the Black Scholes Pricing Model to estimate fair value. The Company used the 'simplified method' for estimating the remaining expected contractual term' because it does not have sufficient information to make more accurate estimates of the remaining expected term or employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies).
The 102,500 stock options that vested immediately on the grant date were valued at $32,717 and were recorded to stock based compensation expense. The remaining 1,807,500 unvested stock options had a fair value of $576,944 on the grant date and will be amortized ratably over the vesting periods. For the three months ended July 31, 2016, the Company recorded $4,661 of stock based compensation expense related to the 1,807,500 unvested stock options.
The Company used the following assumptions in estimating fair value:
|
|
|
|
|
Stock Price (grant date)
|
|
$
|
0.32
|
|
Exercise Price
|
|
$
|
0.31
|
|
Expected Remaining Term
|
|
10 years
|
|
Volatility
|
|
|
191
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.27
|
%
|
The following table summarizes employee and consultant stock option activity of the Company for the three months ended July 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee and Consultant Stock Options Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2016
|
|
|
5,730,000
|
|
|
$
|
0.18
|
|
|
|
8.23
|
|
|
$
|
669,200
|
|
Issued June 10, 2016
|
|
|
1,910,000
|
|
|
$
|
0.31
|
|
|
|
9.86
|
|
|
|
|
|
Outstanding, July 31, 2016
|
|
|
7,640,000
|
|
|
$
|
0.21
|
|
|
|
8.64
|
|
|
$
|
669,200
|
|
Exercisable, July 31, 2016
|
|
|
2,527,500
|
|
|
$
|
0.21
|
|
|
|
8.48
|
|
|
$
|
292,775
|
|
F-17
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 3 STOCK BASED COMPENSATION (CONTINUED)
Stock Warrants
Effective August 28, 2015, the Company granted 1,400,000 warrants to purchase common stock, exercisable at $0.35 per share, to a consultant for services to be provided over a one-year period. Additionally, the Company issued 400,000 shares of stock to the Consultant as compensation for the services. Of the 1,400,000 stock warrants, 700,000 vested immediately on the grant date of August 28, 2015 and the remaining 700,000 vest six (6) months from the grant date on February 28, 2016. The warrant has an exercise period of thirty (30) months through August 28, 2018. The Company valued the stock warrant in accordance with ASC 505-50, Equity Based Payments to Non-Employees, using the Black Scholes Pricing Model to determine the fair value.
According to ASC 505-50, a measurement date was reached at the date of grant, or August 28, 2015 for the 700,000 warrants which vested on the grant date. For the 700,000 warrants that vest in six (6) months, the fair value was re-valued at each reporting date until the vesting date of February 28, 2016.
The 700,000 stock warrants that vested immediately on the grant date were valued at $289,867, recorded to prepaid expense and will be amortized ratably to consulting expense over the twelve (12) month service period. The Company recorded $73,062 of consulting expense for the 700,000 vested stock warrants for the three months ended July 31, 2016. As a result, the prepaid balance is $21,443 at July 31, 2016.
The Company used the following assumptions in estimating fair value:
|
|
|
|
|
Stock Price (grant date)
|
|
$
|
0.42
|
|
Exercise Price
|
|
$
|
0.35
|
|
Expected Remaining Term
|
|
2.33 years
|
|
Volatility
|
|
|
317
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.30
|
%
|
The remaining 700,000 unvested stock warrants had a fair value of $289,867 on the grant date and will also be amortized ratably to consulting expense over the twelve (12) month service period, however these warrants were re-valued through the vesting date of February 28, 2016, and the adjusted valuation, less the amounts amortized through the vesting date, have been amortized over the remaining service period of six (6) months. As a result of the final re-measurement at February 28, 2016, the valuation was adjusted to $680,821 and as a result, the unamortized prepaid expense balance was $221,966 at April 30, 2016.
For the three months ended July 31, 2016, the Company recorded $171,604 of consulting expense and the unamortized amount of $50,362 is recorded as prepaid consulting at July 31, 2016.
The Company used the following assumptions in estimating fair value:
|
|
|
|
|
|
|
Stock Price (re-measurement date of February 28, 2016)
|
|
|
|
$
|
1.00
|
|
Exercise Price
|
|
|
|
$
|
0.35
|
|
Expected Remaining Term
|
|
|
|
1.83 years
|
|
Volatility
|
|
|
|
|
293
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
|
|
0.32
|
%
|
In relation to the 400,000 shares issued on the grant date, the Company valued the stock based upon the quoted market price of $0.42 on the date of grant, or $168,000. The $168,000 is being amortized to consulting expense over the one-month term of the consulting agreement and the unamortized prepaid consulting balance was $54,773 at April 30, 2016. During the three months ended July 31, 2016, the Company recorded $42,345 of consulting expense and the remaining unamortized amount of $12,428 is recorded as prepaid consulting at July 31, 2016.
F-18
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 3 STOCK BASED COMPENSATION (CONTINUED)
As discussed above in Note 2 Debt, in relation to a convertible secured promissory note, the Company issued the lender two warrants, a Series A warrant with a three (3) year term to acquire 250,000 shares of common stock of the Company at an exercise price of $1.02 per share and a Series B warrant with a three (3) year term to acquire 250,000 shares of common stock of the Company at an exercise price of $1.19 per share.
Effective June 10, 2016, the Company granted 2,400,000 warrants to purchase common stock, exercisable at $0.01 per share, to six (6) consultants for prior services provided. The warrants vested immediately and have an exercise period of three years. The Company valued the stock warrants in accordance with ASC 505-50, Equity Based Payments to Non-Employees, using the Black Scholes Pricing Model to determine the fair value. The fair value for these stock warrants was $758,808, which will be recorded to consulting expense immediately.
The Company used the following assumptions in estimating fair value:
|
|
|
|
|
Stock Price (grant date)
|
|
$
|
32
|
|
Exercise Price
|
|
$
|
0.01
|
|
Expected Remaining Term
|
|
3 years
|
|
Volatility
|
|
|
191
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.27
|
%
|
The following table summarizes stock warrant activity of the Company for the three months ended July 31 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consultant Stock Warrants Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2016
|
|
|
7,193,746
|
|
|
$
|
0.25
|
|
|
|
1.49
|
|
|
$
|
581,450
|
|
Issued June 10, 2016
|
|
|
2,400,000
|
|
|
$
|
0.01
|
|
|
|
2.86
|
|
|
|
669,600
|
|
Outstanding, April 30, 2016
|
|
|
9,593,746
|
|
|
$
|
0.19
|
|
|
|
1.83
|
|
|
$
|
1,251,050
|
|
Exercisable, July 31, 2016
|
|
|
9,593,746
|
|
|
$
|
0.19
|
|
|
|
1.83
|
|
|
$
|
1,251,050
|
|
NOTE 4 COMMON STOCK
Capital Structure
The Company is authorized to issue up to 150,000,000 shares of common stock at $0.001 par value per share. As of July 31, 2016, 43,015,069 shares were issued and outstanding. Additionally, there are 3,500,000 shares of unvested common stock to be issued to employees over the vesting period of four years through July 14, 2018. The 3,500,000 unvested shares of common stock are not included in the 43,014,069 shares reported but are considered legally issued and outstanding as they have all rights of ownership, other than the right to receive dividends, and in the case of 1,500,000 of the shares, the right to vote. See Note 7 Subsequent Events.
F-19
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 4 COMMON STOCK (CONTINUED)
Common Stock Issued
On July 14, 2014, the Company granted 19,000,000 shares of its common stock to the new MLFB management team. Of the 19,000,000 shares, 12,000,000 vested immediately and the remaining 7,000,000 vest in equal annual installments over a 4-year employment period commencing July 2015. During the three months ended July 31, 2015 and July 31, 2016, 3,500,000 of the 7,000,000 shares vested leaving a balance of 3,500,000 unvested shares at July 31, 2016. The Company recorded the issuance of the shares at its par value of $3,500 with an offset to additional paid in capital. The unvested shares were valued at $0.05 per share or $350,000 and are being amortized to compensation expense over the vesting period. During the three months ended July 31, 2016, the Company recorded $22,055 of compensation expense related to vesting of the shares. See Note 7 Subsequent Events.
Effective March 23, 2015, the Company engaged a consultant to provide services primarily related to strategic planning, business development and strategic advisory services. The term of the agreement is two (2) years and as compensation for the agreement, the Company issued the consultant 500,000 shares of common stock. The Company valued the stock based upon the quoted market price of $0.30 on the date of grant, or $150,000. The $150,000 is being amortized to consulting expense over the two-year term of the consulting agreement. During the three months ended July 31, 2016, the Company recorded $18,750 of consulting expense and the remaining unamortized amount of $48,236 is recorded as prepaid consulting at July 31, 2016.
Effective October 15, 2015, the Company engaged a consultant to provide services primarily related to media services. The term of the agreement is one (1) year and as compensation for the agreement, the Company issued the consultant 112,500 shares of common stock. The Company valued the stock based upon the quoted market price of $1.00 on the date of grant, or $112,500. The $112,500 is being amortized to consulting expense over the one-year term of the consulting agreement. During the three months ended July 31, 2016, the Company recorded $28,125 of consulting expense and the remaining unamortized amount of $22,986 is recorded as prepaid consulting at July 31, 2016.
Effective December 8, 2015, the Company engaged a consultant to provide services primarily related to public relations services. The term of the agreement is six (6) months and as compensation for the agreement, the Company issued the consultant 500,000 shares of common stock. The Company valued the stock based upon the quoted market price of $0.72 on the date of grant, or $275,000. The $275,000 is being amortized to consulting expense over the six-month term of the consulting agreement. During the three months ended July 31, 2016, the Company recorded $55,907 of consulting expense and the prepaid consulting amount has been fully amortized at July 31, 2016.
Effective January 1, 2016, the Company engaged three consultants to provide services primarily related to corporate strategies. The term for each of the three agreements is six (6) months and as compensation for the agreement, the Company issued the three consultants an aggregate 150,000 shares of common stock. The Company valued the stock based upon the quoted market price of $0.72 on the date of grant, or $108,000. The $108,000 is being amortized to consulting expense over the six-month term of the consulting agreement. During the three months ended July 31, 2016, the Company recorded $72,000 of consulting expense and the prepaid consulting amount has been fully amortized at July 31, 2016.
Effective January 14, 2016, the Company engaged a consultant to provide services primarily related to corporate strategies. The term of the agreement is six (6) months and as compensation for the agreement, the Company issued the consultant 100,000 shares of common stock. The Company valued the stock based upon the quoted market price of $0.80 on the date of grant, or $80,000. The $80,000 is being amortized to consulting expense over the six-month term of the consulting agreement. During the three months ended July 31, 2016, the Company recorded $32,527 of consulting expense and the prepaid consulting amount has been fully amortized at July 31, 2016.
From May 3, 2016 to June 10, 2016, the Company issued 160,132 shares of common stock to employees as a component of a Registration Statement on Form S-8 for an aggregate of 8,690,000 shares of the Companys common stock. The shares were issued per the Companys 2014 Employee Stock Plan. The Company valued the stock based upon the quoted market price at prices ranging from of $0.32 to $0.51 on the date of grant, or $66,062 and was classified as stock compensation expense for the three months ended July 31, 2016 in the accompanying unaudited financial statements
F-20
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 4 COMMON STOCK (CONTINUED)
Effective May 4, 2016, the Company issued 91,860 shares of common stock to a former consultant to settle a dispute related to the exercise price of a warrant previously provided with a cashless option. The Company valued to issuance of stock based upon the quoted market price of $0.45 on the date of issuance. During the three months ended July 31, 2016, the Company recorded $41,337 of consulting expense related to the issuance of common stock.
NOTE 5 RELATED PARTY TRANSACTIONS
During the three months ended July 31, 2016, the Company recorded $225,000 of compensation for its management in accordance with executed management service agreements. At July 31, 2016, a total of $1,185,000 was unpaid and is recorded as accrued officer compensation in the accompanying unaudited financial statements. Additionally, during the three months ended July 31, 2016, the Company recorded $17,212 of employers share of payroll taxes related to the unpaid officer compensation resulting in accrued officer payroll taxes of $68,053 at July 31, 2016.
From February to August 2015, an officer of the Company provided $15,300 of funds for working capital requirements. There is no formal agreement and no interest is being accrued by the Company with the principal due on demand. During the three months ending October 31, 2015, the Company repaid $15,000 of these funds, resulting in an outstanding balance of $300. Additionally, on August 28, 2015, the officer personally repaid $20,000 of notes payable. As a result, the outstanding balance owed to the officer is $20,300 at July 31, 2016, recorded as Notes Payable Related Parties in the accompanying unaudited financial statements at July 31, 2016. See Note 2 - Debt.
During the three months ended June 30, 2016, an officer of the Company and another individual closely affiliated with the Company, advanced $6,647 of funds to the Company for working capital purposes. The Company has recorded these advances as accounts payable related parties in the accompanying unaudited financial statements at July 31, 2016.
NOTE 6 COMMITMENTS AND CONTINGENCIES
On July 31, 2015, the Company executed a lease agreement for its new corporate headquarters and training facility in Lakewood Ranch, Manatee County, Florida. The term of the lease is two (2) years at a monthly rental rate of $11,918. At closing, the Company paid an $11,918 security deposit, which is recorded in other assets in the accompanying financial statements at April 30, 2016. The Company has an option to extend the terms and conditions of the lease for an additional three (3) years by giving notice at least six (6) months before the expiration of the term.
As of July 31, 2016, the Company had not paid the landlord for the Florida corporate offices approximately $58,000 of lease payments. As a result, the Company is in default of the lease agreement and subject to eviction, acceleration of the entire lease amount and other legal remedies that the landlord may pursue.
On June 2, 2016, the Company received a notice of default letter related to the corporate office lease in Florida. The letter demanded payment for the full amount outstanding within seven days or the Landlord may pursue all legal remedies including termination of the lease. On June 22, 2016, the Company received a complaint notice as the defendant in a lawsuit filed related to the corporate office lease in Florida. The lawsuit claims that the Company is indebted to the landlord in an amount in excess of $57,857 for unpaid rent plus an additional $224,596 for accelerated rent for a total of $282,453, but the landlord does not specifically seek the additional $224,596 for accelerated rent in its complaint, although the court may later determine that the landlord is entitled to the accelerated rent amount. See Note 7 Subsequent Events.
F-21
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 6 COMMITMENTS AND CONTINGENCIES (CONTINUED)
At July 31, 2016, subject to the outcome of the litigation noted in Note 7 Subsequent Events, the total future minimum lease payments under operating leases in respect of leased premises are payable as follows:
|
|
|
|
|
|
2017
|
|
|
$
|
107,262
|
|
2018
|
|
|
|
35,754
|
|
Total
|
|
|
$
|
143,016
|
|
Stradley Ronon Stevens & Young, LLP
On May 9, 2009, Stradley filed a lawsuit against the Company in the U.S. District Court for the District of Delaware for failure of the Company to pay legal fees owed in the amount of $166,129. On April 2, 2009, in order to avoid the cost of litigation, the Company agreed to a Consent of Judgment against it in the amount of $166,129 and the Company continues to carry this amount as accounts payable at April 30, 2016. The Company negotiated with Stradley and in July 2014, agreed to issue Stradley 100,000 shares of common stock valued at $0.05 per share, the quoted market price on the date of grant, as a sign of good faith in regards to a resolution. The Company is still in discussions with the law firm in regard to this Judgment and anticipates a resolution in the near future.
Unpaid Taxes and Penalties
At April 30, 2016, the Company owed the State of Delaware $110,154 for unpaid state income taxes from the tax year ended April 30, 2007. The unpaid state income taxes are included as state income taxes payable in accompanying unaudited financial statements. Additionally, the Company owes the State of Delaware for penalties and interest from the tax year ending April 30, 2007 of $169,231, which is included as accrued expenses in the accompanying unaudited financial statements at July 31, 2016. The Company has an agreement with the State of Delaware to pay a minimum per month. However, due to cash flow constraints, the Company has been unable to pay the minimum monthly amounts and is in default of the agreement that may cause additional interest and penalties and lead to other collection efforts by the State of Delaware.
In September 2015, the Company reached an offer in compromise settlement with the IRS for unpaid penalties and interest from the tax year ended April 30, 2007. The settlement was in the amount of $13,785 and was to be paid by the Company with a $1,000 payment upon the execution of settlement, then the balance of $1,757 paid in November 2015 and making up the 20% down payment of $2,757, a second installment payment of $2,208, and then four monthly payments of $2,205. Through July 31. 2016, the Company had made all required payments in accordance with the settlement except for the final payment of $2,205. As a result, the Company is in default of the settlement agreement and the IRS could void or restructure the agreement.
On February 5, 2016, the Company disclosed that the previously executed $20,000,000 sale and purchase of common stock with Clairemont Private Investment Group, LLC (Clairemont), scheduled to close on February 1, 2016 was in default. The Company disclosed that Clairemont breached the Amended Purchase Agreement by not providing to the Company the $20,000,000 purchase price for the common stock as required by the terms of the Amended Purchase Agreement. The Company intends to pursue legal remedies against Clairemont.
NOTE 7 SUBSEQUENT EVENTS
On August 4, 2016, pursuant to the terms of the 2014 Employee Stock Plan the Company issued to an employee, an option to purchase 50,000 shares of common stock at an exercise price of $0.30 per share. The options vest over a period of 3 years, with 20,000 vesting immediately. This option expires on August 3, 2026.
The Company will value the options in accordance with ASC 718, Stock Compensation, using the Black Scholes Pricing Model to estimate fair value. The Company used the 'simplified method' for estimating the remaining expected contractual term' because it does not have sufficient information to make more accurate estimates of the remaining expected term or employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies).
F-22
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 7 SUBSEQUENT EVENTS (CONTINUED)
The 20,000 stock options that vested immediately on the grant date were valued at $3,418 and will be recorded to stock based compensation expense.
The remaining 30,000 unvested stock options had a fair value of $5,233 on the grant date and are being amortized ratably over the vesting periods.
The Company used the following assumptions in estimating fair value:
|
|
|
|
|
Stock Price (grant date)
|
|
$
|
0.18
|
|
Exercise Price
|
|
$
|
0.30
|
|
Expected Remaining Term (Simplified Method)
|
|
5.99 years
|
|
Volatility
|
|
|
184
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.26
|
%
|
On August 4, 2016, the Company received $130,000 of proceeds from the issuance of a promissory note. The terms of the promissory note include interest accrued at 8% annually. A 1% loan origination fee and the principal and interest payable on demand.
Effective August 4, 2016, the Company granted 400,000 warrants to purchase common stock, exercisable at $0.01 per share, to a consultant for corporate strategy services. The warrants vested immediately and have an exercise period of two years. The Company valued the stock warrants in accordance with ASC 505-50, Equity Based Payments to Non-Employees, using the Black Scholes Pricing Model to determine the fair value. The fair value for these stock warrants was $69,741, which will be recorded to consulting expense immediately.
The Company used the following assumptions in estimating fair value:
|
|
|
|
|
Stock Price (grant date)
|
|
$
|
0.18
|
|
Exercise Price
|
|
$
|
0.01
|
|
Expected Remaining Term
|
|
2 years
|
|
Volatility
|
|
|
184
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.26
|
%
|
Effective August 4, 2016, two of the Companys consultants exercised a total of 1,300,000 warrants at an exercise price of $0.01 or $13,000 of consideration. The two consultants paid for the exercise price of $13,000 by electing the cashless exchange option included in the warrant to decrease the balance due under their respecting consulting invoices.
On August 5, 2016, the Company paid $100,000 for the settlement of a lawsuit filed by the landlord of the Companys office lease in Florida (See Note 6 Commitments and Contingencies) for non-payment of rent. The $100,000 payment was for an outstanding balance of $98,173, which included $3,699 in attorney's fees and the August 1, 2016 rent.
On August 31, 2016, 2015, the Companys board of directors (the Board) increased the number of directors on the Board from two directors to three directors, and elected Wesley S. Chandler, the Companys President, to the Board to fill the newly created directorship on the Board until the next annual meeting of the stockholders of the Company or until his earlier resignation or removal. Mr. Chandler will also continue to serve as President of the Company and he continues as an Executive Officer of the Company for Section 16 Purposes.
In connection with his new position, the remaining 2,000,000 shares of common stock held in escrow of Mr. Chandlers 6,000,000 shares of common stock that were granted to Mr. Chandler in connection with his employee agreement were released from escrow and fully vested to Mr. Chandler. All other aspects of Mr. Chandlers employee agreement remain the same. See Note 4 Common Stock).
F-23
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2016
NOTE 7 SUBSEQUENT EVENTS (CONTINUED)
On January 7, 2016, Major League Football entered into a two-year television contract with American Sports Network (ASN), a division of Sinclair Networks Group, which is owned by Sinclair Broadcast Group. The agreement included broadcasting for all regular season and post season MLFB games in both 2016 (season postponed) and 2017, along with promotional activity at the local level in each MLFBs franchise markets. Since MLFBs teams did not play any games in Spring 2016, on September 12, 2016, MLFB and ASN entered into a mutual termination agreement whereby the television contract was terminated and each party released the other party from liability relating to the television contract.
F-24