NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
History and Nature of Business
Major League Football, Inc. (the “Company”) was originally incorporated as Universal Capital Management, Inc., a Delaware corporation, on August 16, 2004.
On June 5, 2014, we amended our certificate of incorporation to (i) effect a one-for-five (1:5) reverse split of our common stock; (ii) fix the number of authorized shares of common stock after the reverse split at one hundred and fifty million (150,000,000) shares of common stock; and (iii) authorize fifty million (50,000,000) shares of “blank check” preferred stock, $0.001 par value per share, to be issued in series, and all properties of the preferred stock to be determined by our board of directors. Accordingly, all share and per share amounts included in these financial statements have been retroactively adjusted to the beginning of the period to reflect the amendment to the certificate of incorporation for the reverse split.
Effective August 23, 2018, the Company filed a Certificate of Amendment to its Certificate of Incorporation. The prior authorized designated fifty million (50,000,000) shares of convertible preferred stock, par value $0.001 per share were re-designated to common stock. As a result, the Company has no authorized preferred stock.
Effective February 15, 2019, the Company amended its Articles of Incorporation to increase authorized shares of common stock from 200,000,000 to 300,000,000.
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.
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 several league consultants were retained by our Company.
Effective November 24, 2014, the Company amended its Certificate of Incorporation with the Secretary of State of the State of Delaware changing its name to Major League Football, Inc. from Universal Capital Management, Inc.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Major League Football, Inc. (the “Company”) is seeking to establish, develop and operate Major League Football (“MLFB”) as a professional spring/summer football league. 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, the proposed professional XFL League, 627 NCAA, 91 NAIA, 142 JUCO’s, 27 Canadian Universities, and thousands of high school and collegiate institution teams.
MLFB will serve as a pipeline to develop players on and off the field, coaches, officials, scouts, trainers and all other areas of the game that the National Football League (NFL) needs today. We will also give NFL representatives the opportunity to view our team practices, game footage, practice tapes and confer with league coaches, team officials and staff. We believe this will provide our league with recognition and demonstrate our economic model and the market’s desire for spring football.
Our official launch was with tryout camps held at four locations in March and April of 2019. The Company plans a full 6 team, 8 game regular season for 2020 beginning with a full training camp in April 2020 and games in May, June and July 2020. We anticipate holding one championship game following the 2020 regular season.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the accompanying financial statements, the Company had $2,100 of revenue, $353,608 of net cash used in operating activities and a net loss of $746,292 for the year ended April 30, 2019 and no revenue, $276 of net cash provided by operating activities and a net loss of $353,614 for the year ended April 30, 2018. At April 30, 2019, the Company has a working capital deficit of $3,550,138, an accumulated deficit of $27,297,245 and a stockholders' deficit of $3,388,638, which could have a material impact on the Company's financial condition and operations. At April 30, 2019, the Company does not have cash resources or current assets to pay its obligations.
In view of these matters, recoverability of asset amounts shown in the accompanying financial statements is dependent upon the Company’s ability to achieve profitability. These matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance date of this report. 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 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.
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 management’s 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 valuation of derivative liabilities, valuation of equity-based instruments issued for other than cash and valuation allowance on deferred tax assets.
Cash and Cash Equivalents
For 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 April 30, 2019 and 2018.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 April 30, 2019 and 2018, 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.
Concentration of Revenues
The Company had $2,100 and zero revenue for the years ended April 30, 2019 and 2018. respectively. The revenue for the year ended April 30, 2019 was entirely from league tryout football camps.
Property and Equipment
The Company has $125,000 and $0 of Football Equipment at April 30, 2019 and 2018, respectively. The Football Equipment is practice jerseys and shorts held in storage to be utilized in the planned league operations in 2020. For financial accounting purposes, depreciation for the football equipment is computed by the straight-line method over an estimated useful life of 5 to 7 years. There was no depreciation expense for the years ended April 30, 2019 and 2018 because the football equipment has not been put into use because no football games have been played using this equipment. Due to the settlement of a lawsuit on February 5, 2018 (See Note 8 – Commitments and Contingencies), the Company gave up all rights, title and interest to business equipment and office furniture in its previous Florida corporate office. Accordingly, during the year ended April 30, 2018, the Company wrote off the remaining net book value of $2,494.
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 instrument’s 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 to be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities with quoted prices in active markets for identical assets or liabilities.
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 Company’s financial instruments consist principally of cash, football equipment, 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
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Assets and liabilities measured at fair value on a recurring/non-recurring basis consist of the following at April 30, 2019:
|
|
Carrying Value
At
April 30,
|
|
|
Fair Value Measurements at
April 30, 2019
|
|
|
|
2019
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Conversion option liability
|
|
$
|
78,005
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
78,005
|
|
The following is a summary of activity of Level 3 assets and liabilities for the year ended April 30:
Embedded Conversion Option Liability
|
|
|
|
Balance – April 30, 2018
|
|
$
|
—
|
|
Initial value of conversion option liability
|
|
|
39,132
|
|
Initial value of debt discount of conversion option liability
|
|
|
75,000
|
|
Loss from change in the fair value of conversion option liability
|
|
|
(36,127
|
)
|
Balance – April 30, 2019
|
|
$
|
78,005
|
|
Changes in fair value of the conversion option liability are included as a separate Other Income (Expense) item in the accompanying Statement of Operations.
Revenue Recognition
League Tryout Camps
The Company recognizes league tryout camp revenue on the dates that the tryout camps were held. From March 1, 2019 through March 30, 2019, the Company held four tryout camps resulting in $2,100 of revenue recorded for the year ended April 30, 2019. There were no tryout camps during the year ended April 30, 2018.
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. The Company football operations had not commenced as of April 30, 2019, there was no revenue from football league operations during the years ended April 30, 2019 and 2018, respectively.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. At April 30, 2019 and 2018, 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 Company’s diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. At April 30, 2019, there were options to purchase 1,200,000 shares of the Company’s common stock, 2,450,000 warrants to purchase shares of the Company’s common stock, 166,667 shares of the Company’s common stock reserved for issuance related to convertible unsecured notes payable and 16,445,540 shares of the Company’s common stock reserved for issuance related to convertible secured notes payable which may dilute future earnings per share.
Related Parties
Parties are 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.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. ASU 2016-02 is effective for the Company on April 30, 2019. The Company does not expect that the adoption of ASU 2016-02 will have a material impact on the Company’s financial statements.
In June 2018, the FASB issued Accounting Standards Update 2018-07, Compensation - Stock Compensation, which aligns the accounting for share-based payments to non-employees with the accounting for share based payments to employees. The new standard will apply for annual periods beginning after December 15, 2018, including interim periods therein, and requires modified retrospective application. Early adoption is permitted. The Company early adopted this update and it did not cause a material change to the Company’s 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, 2019 are not expected to have a significant effect on the Company’s financial position or results of operations.
NOTE 2 – ACCRUED EXPENSES
The Company has recorded accrued expenses that consisted of the following:
|
|
April 30,
2019
|
|
|
April 30,
2018
|
|
Penalties and interest - unpaid state income tax
|
|
$
|
219,209
|
|
|
$
|
200,077
|
|
Unpaid federal income tax
|
|
|
1,764
|
|
|
|
1,764
|
|
Legal settlement
|
|
|
70,000
|
|
|
|
70,000
|
|
Late charges on unpaid promissory note
|
|
|
5,400
|
|
|
|
-
|
|
Total Accrued Expenses
|
|
$
|
296,373
|
|
|
$
|
271,841
|
|
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 3 – DEBT
|
|
April 30,
2019
|
|
|
April 30,
2018
|
|
Notes Payable:
|
|
|
|
|
|
|
Note payable – Nov 18, 2015. Interest at 8% and principal payable on demand. In Default at April 30, 2019
|
|
|
100,000
|
|
|
$
|
100,000
|
|
Note payable – Jun 6, 2016. Interest at 4% and principal payable on demand.
|
|
|
10,000
|
|
|
|
10,000
|
|
Note payable – Aug. 4, 2016. Interest at 8% and principal payable on demand.
|
|
|
35,000
|
|
|
|
35,000
|
|
Note payable – Sept. 27, 2016. Interest at 4% and principal payable on demand.
|
|
|
30,000
|
|
|
|
30,000
|
|
Note payable – Sept. 29, 2016. Interest at 4% and principal payable on demand.
|
|
|
5,000
|
|
|
|
5,000
|
|
Note payable – Sept. 29, 2016. Interest at 4% and principal payable on demand.
|
|
|
30,000
|
|
|
|
30,000
|
|
Note payable – Oct. 3, 2016. Interest at 4% and principal payable on demand.
|
|
|
20,000
|
|
|
|
20,000
|
|
Total Notes payable
|
|
$
|
230,000
|
|
|
$
|
230,000
|
|
At April 30, 2019 and 2018, the Company has recorded $230,000 of Notes Payable from seven third parties and the principal and interest are payable on demand. The interest rate for the Notes Payable is from 4% to 8% annually and during the year ended April 30, 2019, the Company recorded $15,674 of interest expense in the accompanying Statement of Operations and at April 30, 2019, the Company has accrued $46,521 of interest related to the Notes Payable as accrued interest in the accompanying Balance Sheet. Additionally, included in the above is a $100,000 Note Payable dated November 18, 2015 that is in default and the Company has recorded a $5,400 late fee as accrued expense in the accompanying Balance Sheet at April 30, 2019.
|
|
April 30,
2019
|
|
|
April 30,
2018
|
|
Notes Payable, Related Party:
|
|
|
|
|
|
|
Notes payable, related party. No interest and principal payable on demand.
|
|
$
|
2,300
|
|
|
$
|
2,300
|
|
At April 30, 2019 and 2018, the Company has recorded $2,300 of Notes Payable, Related Party from a former officer of the Company. There is no formal agreement and no interest is being accrued by the Company with the principal due on demand. See Note 7 – Related Party Transactions.
|
|
April 30,
2019
|
|
|
April 30,
2018
|
|
Convertible Unsecured Notes 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
|
|
At April 30, 2019 and 2018, the Company has recorded $50,000 of convertible unsecured notes payable. The terms include interest accrued at 5% annually and the principal and interest was payable in one year on April 14, 2017. The unsecured convertible promissory note is in default at April 30, 2019 and the note holder has several remedies including calling the principal amount and accrued interest due and payable immediately.
The note holder at its sole discretion, has the right to convert the principal amount, along with all accrued interest, into shares of the Company’s common stock at the conversion price of $0.30 per share. For the year ended April 30, 2019, the Company recorded $2,500 of interest expense in the accompanying Statement of Operations and at April 30, 2019, the Company has accrued $7,616 of interest related to the convertible unsecured note payable Notes Payable as accrued interest in the accompanying Balance Sheets.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 3 – DEBT (CONTINUED)
|
|
April 30,
2019
|
|
|
April 30,
2018
|
|
Convertible Secured Note Payable:
|
|
|
|
|
|
|
Secured convertible promissory note payable #1 – originally issued March 9, 2016 - Interest accrued at 22% default rate - principal and interest due June 9, 2017
|
|
$
|
85,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Secured convertible promissory note payable #2 – originally issued May 17, 2018 - Interest accrued at 8% - principal and interest due May 17, 2019
|
|
|
80,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Less: debt discount
|
|
|
(10,083
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Secured Notes Payable, net of debt discount
|
|
$
|
154,917
|
|
|
$
|
100,000
|
|
Convertible Secured Note Payable - #1
At April 30, 2018, the Company had a remaining balance of $100,000 from an original $550,000 face value convertible secured promissory note. From May 18, 2018 through January 10, 2019, the lender elected to convert $15,000 of the principal amount of the promissory note into 2,993,585 shares of common stock resulting in a note balance of $85,000 at April 30, 2019. See Note 5 – Stock.
The promissory note was due and payable on June 9, 2017 and as a result, is in default at April 30, 2019. However, the lender has not notified the Company of the default in writing but, the lender has several remedies including calling the principal amount and accrued interest due and payable immediately. The promissory note includes customary affirmative and negative covenants of the Company
The Company is accruing interest at the default rate of twenty-two percent (22%) per annum, or the highest rate permitted by law, from the due date thereof until the same is paid. During the year ended April 30, 2019, the Company recorded $19,935 of interest expense in the accompanying Statement of Operations and at April 30, 2019, $90,392 of accrued interest was recorded in the accompanying Balance Sheet. See Note 9 – Subsequent Events.
Convertible Secured Note Payable - #2
On May 17, 2018, the Company received $75,000 of net proceeds for working capital purposes from the issuance of a $80,000 face value convertible secured promissory note with debt issue costs paid to or on behalf of the lender of $5,000. The terms include interest accrued at 8% annually and the principal and interest payable are payable in one year on May 17, 2019. Any amount of the principal or interest which is not paid when due shall bear Interest at the rate of Eighteen Percent (18%), from the due date thereof until the same is paid.
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 Sixty Percent (60%) of the of the lowest trade of the Common Stock during the ten (10) trading Days immediately preceding a conversion date. The Conversion Price is subject to “full ratchet” and other customary anti-dilution protections.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 3 – DEBT (CONTINUED)
The promissory note includes customary affirmative and negative covenants of the Company.
The Company evaluated the secured convertible promissory note in accordance with ASC 815 “
Derivatives and Hedging
” and due to the price protection in the promissory note, determined that there was a conversion option feature that should be bifurcated and accounted for as a conversion option liability in the balance sheet at fair value. The initial valuation and recording of the conversion option liability was $114,132, using the Binomial Lattice Option Pricing Model with the following assumptions; stock price $0.02, conversion price $0.012, expected term of 1 year, expected volatility of 263% and discount rate of 0.82%. The initial $114,132 conversion option liability assumed that 6,666,667 shares would be issued upon conversion of the promissory note.
On the note issue date of May 17, 2018, the Company recorded the following debt discounts as offsets to the $80,000 promissory note and will be amortized over the one-year term of the promissory note: (1) debt issue costs of $5,000 and (2) debt discount from conversion option liability of $75,000. As a result, the Company recorded $39,132 for the initial fair value of the conversion option liability in Other Income (Expense) in the accompanying Statement of Operations.
From the note issue date of May 17, 2018 to April 30, 2019, the Company recorded $69,917 for amortization of the debt discounts discussed above and recorded to interest expense in the accompanying Statement of Operations.
The Company performed a revaluation of the conversion option liability using the Binomial Lattice Pricing Model at April 30, 2019 that resulted in a value of $78,005. As a result, the Company recorded $36,127 of a gain from the change in the fair value of conversion option liability, recorded in Other Income (Expense) in in the accompanying Statement of Operations for the year ended April 30, 2019.
The revaluation of the conversion option liability at April 30, 2019 was calculated using the Binomial Lattice option pricing model with the following assumptions; stock price $0.02, conversion price $0.009, expected term of 0.05 years, expected volatility of 349% and discount rate of 2.38%. The change in the conversion option liability assumed that 8,888,889 shares would be issued upon conversion of the promissory note at April 30, 2019.
NOTE 4 – INCOME TAXES
The Company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred tax assets at April 30, 2019 and 2018 consist of net operating loss carryforwards and differences in the book and tax basis assets.
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Act”), a tax reform bill which, among other items, reduces the current federal income tax rate to 21% from 34%. The rate reduction is effective January 1, 2018 and is permanent.
The Act has caused the Company’s deferred income taxes to be revalued. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through income tax expense. Pursuant to the guidance within SEC Staff Accounting Bulletin No. 118 (“SAB 118”), as of December 31, 2017, the Company recognized the provisional effects of the enactment of the Act for which measurement could be reasonably estimated. Since the Company has provided a full valuation allowance against its deferred tax assets, the revaluation of the deferred tax assets did not have a material impact on any period presented. The ultimate impact of the Act may differ from these estimates due to the Company’s continued analysis or further regulatory guidance that may be issued as a result of the Act.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 4 – INCOME TAXES (CONTINUED)
The items accounting for the difference between income taxes at the effective statutory rate and the provision for income taxes for the years ended April 30, 2019 and 2018 were as follows:
|
|
For the Year Ended
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Statutory federal rate
|
|
|
(21.00
|
)%
|
|
|
(30.40
|
)%
|
State tax rate, net of federal effect
|
|
|
(5.75
|
)%
|
|
|
(5.75
|
)%
|
Change in federal tax rates
|
|
|
0
|
%
|
|
|
9.40
|
%
|
Change in valuation allowance
|
|
|
26.75
|
%
|
|
|
26.75
|
%
|
Total provision for income taxes
|
|
|
0
|
%
|
|
|
0
|
%
|
The Company’s income tax benefit differs from the “expected” income tax benefit for federal income tax purposes as follows:
|
|
For the Year Ended
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Income tax benefit at U.S. Federal Income Tax rate
|
|
$
|
(152,000
|
)
|
|
$
|
(1,609,000
|
)
|
State income taxes, net of federal benefit
|
|
|
(41,000
|
)
|
|
|
(467,000
|
)
|
Effect of change in federal statutory rate
|
|
|
-
|
|
|
|
1,378,000
|
|
Change in valuation allowance
|
|
|
193,000
|
|
|
|
698,000
|
|
|
|
|
|
|
|
|
|
|
Net Income tax benefit
|
|
$
|
—
|
|
|
$
|
—
|
|
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 4 – INCOME TAXES (CONTINUED)
The Company’s approximate net deferred tax assets are as follows:
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
$
|
4,738,000
|
|
|
$
|
4,545,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
4,738,000
|
|
|
$
|
4,545,000
|
|
Less: deferred tax asset valuation allowance
|
|
|
(4,738,000
|
)
|
|
|
(4,545,000
|
)
|
Total Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The net operating loss carryforward was approximately $17,711,000 and $16,989,000 at April 30, 2019 and 2018, respectively. The Company provided a valuation allowance equal to the deferred income tax assets for the years ended April 30, 2019 and 2018 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward and other deferred tax assets. The increase in the valuation allowance was $193,000 in 2019.
The potential tax benefit arising from the net operating loss carryforward of $16,656,000 from the period prior to Act’s effective date will expire in 2038. The potential tax benefit arising from the net operating loss carryforward of $1,055,000 from the period following to the Act’s effective date can be carried forward indefinitely within the annual usage limitations.
Additionally, the future utilization of the net operating loss carryforward to offset future taxable income is subject to an annual limitation as a result of ownership or business changes that may occur in the future. The Company has not conducted a study to determine the limitations on the utilization of these net operating loss carryforwards. If necessary, the deferred tax assets will be reduced by any carryforward that may not be utilized or expires prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.
The Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s Corporate Income tax returns for tax years from 2005 (initial tax year) through 2018 remain subject to Internal Revenue Service examination because the Company has not filed tax returns for these years.
At April 30, 2019 and 2018, 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 the accompanying Balance Sheets. Additionally, the Company owes the State of Delaware for assessed penalties and interest from the tax year ending April 30, 2007 of $219,209 and $200,077, which is included as accrued expenses in the accompanying Balance Sheets at April 30, 2019 and 2018, respectively. 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.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 5 – STOCK
Common Stock
The Company is authorized to issue up to 300,000,000 shares of common stock at $0.001 par value per share. Effective February 15, 2019, the Company amended its Articles of Incorporation to increase authorized shares of common stock from 200,000,000 to 300,000,000. Effective August 23, 2018, the Company amended its Articles of Incorporation such that all 200,000,000 shares shall be designated as common stock and the prior authorized 50,000,000 shares of convertible preferred stock, par value $0.001 per share were re-designated to common stock. As a result, the Company has no authorized preferred stock. At April 30, 2019, 94,493,073 shares were issued and 92,993,073 shares outstanding. There are 1,500,000 shares of stock issued to former officers that were terminated prior to the vesting period of four years through July 14, 2018 and excluded from the shares outstanding at April 30, 2019. In accordance with their employment agreements, if the Employee’s employment is terminated by Employee or the Company, any shares not yet released to Employee upon the termination date shall be returned to the treasury of the Company, and Employee shall be entitled to no compensation for such shares. The Company plans to pursue the return of the 1,500,000 unvested shares held by two former employees.
Common Stock Issued
On July 18, 2018, the lender of a convertible secured promissory, elected to exercise their right to convert $10,000 of the remaining $100,000 convertible secured promissory note at April 30, 2018 (See Note 3 – Debt). 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 70% of the average of the lowest three VWAPs of the Common Stock during the twenty (20) Trading Days immediately preceding a Conversion Date. Based upon a Conversion Price of $0.02 per share on the conversion date, the Company issued 819,672 shares of common stock to the lender.
On June 8, 2018, the Company received $10,000 of proceeds from a private placement offering, representing 1,000,000 shares of stock at a sales price of $0.01 per share from a related party investor. See Note 7 - Related Party Transactions.
On October 5, 2018, the Company received $50,000 of proceeds from a private placement offering, representing 5,000,000 shares of stock at a sales price of $0.01 per share.
On December 7, 2018, the Company received $50,000 of proceeds from a private placement offering, representing 5,000,000 shares of stock at a sales price of $0.01 per share from a related party investor. See Note 7 – Related Party Transactions.
On January 11, 2019, the lender of a convertible secured promissory, elected to exercise their right to convert $5,000 of the remaining $90,000 convertible secured promissory note (See Note 3 – Debt). 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 70% of the average of the lowest three VWAPs of the Common Stock during the twenty (20) Trading Days immediately preceding a Conversion Date. Based upon a Conversion Price of $0.002 per share on the conversion date, the Company issued 2,173,913 shares of common stock to the lender.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 5 – STOCK (Continued)
On January 30, 2019, the Company and an investor executed a subscription agreement from a private placement offering for the sale of 16,000,000 shares of stock at a purchase price of $0.0125 per share or a total of $200,000. On January 30, 2019, the Company received $30,000 of proceeds from the offering representing 2,400,000 shares of stock. The remaining $170,000 of proceeds were received by the Company on February 6, 2019. See Note 7 – Related Party Transactions.
On March 5, 2019, the Company and an investor executed a subscription agreement from a private placement offering for the sale of 5,000,000 shares of stock at a purchase price of $0.02 per share or a total of $100,000. See Note 7 – Related Party Transactions.
NOTE 6 – STOCK BASED COMPENSATION
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. At April 30, 2019, only 1,200,000 of these options were outstanding and were held by the Senior Executive Vice President of the Company as the other stock options were either forfeited or terminated since being granted. For the 1,200,000 stock options held by the Senior Vice President of the Company, 450,000 vested on the grant date of July 14, 2014 and the remaining 750,000 had a four (4) year vesting period through July 14, 2018.
The 750,000 unvested stock options held by the Senior Executive Vice President of the Company were re-measured for the final time at July 14, 2018 (fully vested) and the Company recorded $3,865 as a credit to consulting expense during the year ended April 30, 2019 in the accompanying Statement of Operations.
In February 2019, 40,000 options expired as they were not exercised before the end of the exercise period.
The Company used the following assumptions in estimating fair value:
Stock Price (re-measurement date of July 14, 2018)
|
|
$
|
0.02
|
|
Exercise Price
|
|
$
|
0.05
|
|
Expected Remaining Term
|
|
|
5.95 years
|
|
Volatility
|
|
|
82
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
1.94
|
%
|
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 6 – STOCK BASED COMPENSATION (Continued)
The following table summarizes stock option activity for the year ended April 30, 2019:
|
|
Stock Options Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
Outstanding, April 30, 2018
|
|
|
1,240,000
|
|
|
$
|
0.08
|
|
|
|
6.04
|
|
|
$
|
—
|
|
Expired, February, 2019
|
|
|
(40,000
|
)
|
|
$
|
1.00
|
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding, April 30, 2019
|
|
|
1,200,000
|
|
|
$
|
0.05
|
|
|
|
5.21
|
|
|
$
|
—
|
|
Exercisable, April 30, 2019
|
|
|
1,200,000
|
|
|
$
|
0.05
|
|
|
|
5.21
|
|
|
$
|
—
|
|
In August 2018, January 2019 and from February through April 2019, 1,800,000, 370,000 and 1,212,500 warrants, respectively, expired as they were not exercised before the end of the exercise period.
The Company determined that a stock warrant issued April 26, 2015 to purchase 300,000 shares of common stock to a consultant for services provided had not been recorded. The stock warrant vested 50% or 150,000 shares on April 26, 2016 and the remaining 50% or 150,000 shares on April 26, 2017. 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. The fair value for the stock warrant was $239,979, which was recorded to consulting expense for the year ended April 30, 2019.
The Company used the following assumptions in estimating fair value:
Stock Price
|
|
$
|
0.80
|
|
Exercise Price
|
|
$
|
0.30
|
|
Expected Remaining Term
|
|
5 years
|
|
Volatility
|
|
|
340
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
2
|
%
|
The following table summarizes stock warrant activity for the year ended April 30, 2019:
|
|
Stock Warrants Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
Outstanding, April 30, 2018
|
|
|
5,532,500
|
|
|
$
|
0.25
|
|
|
|
0.70
|
|
|
$
|
116,000
|
|
Correction of prior year issuance
|
|
|
300,000
|
|
|
$
|
0.30
|
|
|
|
1.49
|
|
|
$
|
—
|
|
Expired August 2018
|
|
|
(1,800,000
|
)
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Expired January 2019
|
|
|
(370,000
|
)
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Expired February-April 2019
|
|
|
(1,212,500
|
)
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding, April 30, 2019
|
|
|
2,450,000
|
|
|
$
|
0.05
|
|
|
|
0.50
|
|
|
$
|
14,513
|
|
Exercisable, April 30, 2019
|
|
|
2,450,000
|
|
|
$
|
0.05
|
|
|
|
0.50
|
|
|
$
|
14,513
|
|
NOTE 7 – RELATED PARTY TRANSACTIONS
The Company has previously accrued $740,000 for unpaid former officer compensation and accrued $37,111 for the employers share of payroll taxes related to the unpaid former officer compensation in the accompanying Balance Sheets. The accrued compensation is related to two former officers and the Company believes that because of the termination of all officers, there is no employment agreement or compensation due to the former officers.
At April 30, 2019, the Company has a $2,300 remaining unpaid balance on a promissory note due to a former officer that originally was $15,300 for working capital requirements. There is no formal agreement and no interest is being accrued by the Company with the principal due on demand. The Company classified the promissory note as Notes Payable – Related Parties in the accompanying Balance Sheets. See Note 3 – Debt.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 7 – RELATED PARTY TRANSACTIONS (Continued)
At April 30, 2019, the Company has recorded $46,464 of accounts payable – related parties for Company related expenses. This includes $29,756 paid by the Senior Executive Vice President on behalf of the Company, which includes $12,179 of expenses related to an office in home.. Also, $14,768 paid by the Director of Services and Procurement on behalf of the Company, $1,815 paid by the Company’s former authorized house counsel on behalf of the Company and $125 paid by a former officer of the Company on behalf of the Company. The $29,756 owed to the Senior Vice President of the Company includes a reduction of $10,000 on December 10, 2017 from the exercise of 1,000,000 stock warrants at an exercise price of $0.01 per share. The $10,000 exercise price was paid by electing to reduce the balance due under expenses owed by the Company. See Note 5 - Stock
Between June 8, 2018 and March 6, 2019, an investor purchased 26,000,000 shares of the Company’s $0.001 par value common stock at a purchase price of between $0.01 and $0.02 per share – See Note 5 - Stock. At April 30, 2019, the 26,000,000 shares represented approximately 28% of the Company’s issued shares of common stock and as a result, is deemed to be a related party. See Note 9 – Subsequent Events.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Office Lease
On August 28, 2017, the Company was served with a Motion for Final Judgment related to a lease agreement for its corporate headquarters and training facility in Lakewood Ranch, Manatee County, Florida. The Landlord filed a Motion for Summary Judgment for back rent, attorney’s fees and foreclosure of a Landlord’s Lien. The Company responded, and the court granted the Motion as to liability for back rent without assessing an amount and denied the remainder of the Motion. As second Motion for Summary Judgment was filed as to the remaining issues. While pending, the parties reached a settlement on February 5, 2018. The terms of the settlement agreement included:
1.
|
The Company immediately gives up all right, title and interest to business equipment and office furniture in the premises;
|
2.
|
The Company immediately gives up all right, title and interest to its deposit in the sum of $11,918;
|
3.
|
The landlord will continue to store the Company’s football equipment until June 7, 2018;
|
4.
|
The Company will pay the landlord $40,000 on June 1, 2018 by TCA $40,000;
|
5.
|
If the Company makes the required $40,000 payment, then it will be entitled to possession of all its football equipment free of any landlord encumbrance and;
|
6.
|
If the Company fails to make the $40,000 payment, it shall relinquish all right, title and interest in the football equipment to the landlord.
|
From May 31, 2018 through May 1, 2019, the landlord and the Company executed eleven amendments to the February 5, 2018 settlement discussed above which specified:
|
a.
|
In lieu of making the payment of $40,000 on June 1, 2018, the Company has paid the landlord $32,500 of the $40,000 payment; and
|
|
b.
|
The Company has paid the landlord $6,036 as reimbursement for an additional months of storage space rental; and
|
|
c.
|
The Company will pay the landlord the remaining $7,500 balance on or before May 31, 2019.
|
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 8 – COMMITMENTS AND CONTINGENCIES (Continued)
On May 29, 2019, the Company paid the remaining balance of $7,500 in the TCA12, LLC, a Florida limited liability company v. Major League Football Settlement Agreement. With this final payment, the parties executed release agreements and the Company has right, title and interest to the remaining football equipment has executed a lease agreement for the storage of the football equipment. See Note 9 – Subsequent Events.
Lawsuit for Legal Fees
On May 9, 2009, Stradley Ronon Stevens & Young, LLP, 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. The Company negotiated with Stradley and in July 2014, issued 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 towards a resolution. On April 2, 2009, 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 in the accompanying Balance Sheets at April 30, 2019 and 2018. The Company is still in discussions with the law firm related to this Judgment and anticipates a resolution in the future.
Attorney Lien
On August 2, 2017, David Bovi, the Company’s former legal counsel, submitted correspondence reflecting a “charging lien” for non-payment related to $243,034 of legal services provided to the Company, which included $19,453 of interest on unpaid invoices. The retainer agreement with Mr. Bovi specified that interest will be charged at 1% per month for unpaid amounts and through April 30, 2019, the Company has recorded $71,243 of interest expense related to the unpaid invoices resulting in a total amount owed of $292,401, classified as accounts payable in the accompanying Balance Sheet. The “charging lien” states that Mr. Bovi will retain all Company documents in his possession unless paid the amount outstanding as described above.
Herm Edwards:
The Company retained Herm Edwards, a former NFL player and coach, as a consultant to promote the new football league. On September 19, 2017, Mr. Edwards agent contacted the Company and indicated that under the contract, Mr. Edwards was still owed the sum of $216,667, which the Company has recorded as accounts payable to Mr. Edwards in the accompanying Balance Sheets at April 30, 2019 and 2018.
BodyHype:
In 2016, the Company entered into an agreement with BodyHype of Canada to be the Company’s official uniform supplier and paid a $125,000 deposit related to football equipment including practice uniforms, jerseys and shorts. Because of uncertainty in 2017 related to the Company being able to successfully launch a professional football league, the entire $125,000 was expensed recorded as Football Equipment Expense for the year ended April 30, 2017. BodyHype has made a claim with the Company for an additional $140,000 payment for which the Company disputes. Based upon the claim, the Company recorded an additional $140,000 as accounts payable to BodyHype at April 30, 2019 and as a result of the Company’s planned 2020 football season, the offset was $125,000 of football equipment recorded as a fixed asset and classified as Football Equipment in the accompanying Balance Sheet at April 30, 2019. The difference of $15,000 was recorded as Football Equipment Expense in the accompanying Statement of Operations for the year ended April 30, 2019.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTs
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 8 – COMMITMENTS AND CONTINGENCIES (Continued
Vendor Lawsuits
H&J Ventures, LLC
H&J Ventures, LLC (“H&J”) is a debtor in a chapter 7 bankruptcy proceeding. On October 4, 2016, the chapter 7 trustee (the “Trustee”) of the bankruptcy estate of H&J sent a letter to the Company claiming that the Company owed $7,800,000 to H&J relating to an October 1, 2014 agreement between the Company and H&J, and that the Trustee would accept a settlement payment of $6,630,000 to resolve the matter. The Company disputes this claim in its entirety. On December 9, 2016, the Trustee served the Company with a subpoena relating to this matter. The Company has retained counsel with respect to this matter and will respond to the subpoena as it is lawfully required to do; however, the Company considers this claim to be without merit.
On August 24, 2017, the Company and H&J agreed to a $50,000 settlement payment by the Company to the bankruptcy trustee to resolve the matter. The settlement required the Company to make the payment by September 7, 2017 and failure to pay as per the terms of the settlement would probably result in sanctions of some type, and result in the settlement being set aside, to allow the trustee to pursue the full range of damages. It was represented at the mediation that an expert for the Trustee would opine that services rendered by H&J under the contract had a current value of the approximate sum of $2,000,000.
The former CEO of the Company at that time, submitted the required $50,000 payment in a timely fashion to the trustee. However, on September 15, 2017, the trustee notified the Company that the payment made was returned for insufficient funds. The former CEO was given an opportunity by the trustee to rectify the issue with a valid payment on or before September 18, 2017, which payment did not occur. The trustee was willing to accept a $50,000 payment by the Company to settle the matter but is under no obligation to accept such payment and the trustee may pursue the full range of damages against Company.
On May 16, 2018, the Court conducted a scheduling conference in which the Court granted leave to the Trustee to amend the pleadings to assert the bad check claims in the first lawsuit. The Court also gave the parties 90 days to conduct discovery. As of the date of this report, the Trustee has yet to file an amended pleading. A trial date was set for October 3, 2018.
On August 13, 2018, the Company and the Trustee executed a Stipulation and Consent Order specifying that the Company would pay the Trustee $50,000 by August 31, 2018. If payment was not made timely by the Company and was not cured within three (3) days of the August 31, 2018 date, a consent judgment in the amount of $70,000 would be entered against the Company. The Company did not make the required payment within the timeframe and as a result, a judgment in the amount of $70,000 was entered against the Company. The Company has recorded accrued expenses of $70,000 for the potential settlement in the accompanying Balance Sheets at April 30, 2019 and 2018.
Interactive Liquid LLC:
On August 4, 2017, Interactive Liquid LLC (Interactive”), a vendor of the Company, filed a lawsuit in the amount of $153,016 related to unpaid invoices for logo design and website development services provided. On December 18, 2017, MLFB received a settlement demand for payment of consideration with a total value of $153,016, consisting of stock valued at $26,016 and periodic cash payments to be completed on or before June 1, 2018 totaling $127,000. Further negotiations ensued and ultimately the case was settled on or about March 5, 2018.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 8 – COMMITMENTS AND CONTINGENCIES (Continued)
The settlement called for MLFB to make payment to Interactive in the sum of $10,000 immediately upon receipt of an initial tranche of funding. MLFB was then required to make an additional payment of $30,000 on or before June 1, 2018. MLFB’s failure to make the payments as outlined would result in the entry of a judgment in favor of Interactive against MLFB in the sum of $153,016, said sum representing the full amount of Interactive’s claimed damages. The Company has recorded accounts payable to Interactive of $153,016 in the accompanying Balance Sheet at April 30, 2019. The Company failed to make the required payment due to lack of funding and as such, on June 4, 2018, Interactive filed the stipulated judgment. The judgment remains unpaid.
Lamnia International:
The Company previously entered into a contract with Lamnia International (“Lamnia”) for investor relations services. On December 7, 2017, the Company received a demand for payment in the sum of $153,000. Per the demand letter, the sum was to be paid on or before December 15, 2017 and if not paid, collections and or legal actions could be instituted. The Company has recorded accounts payable to Lamnia of $124,968 in the accompanying Balance Sheets at April 30, 2019 and 2018. The difference in amounts is because the Company terminated the agreement in writing to the vendor whereas the vendor continued to charge for services after the date of termination for which the Company disagrees.
Unpaid Taxes and Penalties
At April 30, 2019, 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 Balance Sheet at April 30, 2019. Additionally, the Company owes the State of Delaware for penalties and interest from the tax year ending April 30, 2007 of $219,209, which is included as accrued expenses in the accompanying Balance Sheet at April 30, 2019. 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 (“OIC”) 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. The Company made all required payments in accordance with the settlement except for the final payment of $2,205.
The Company received correspondence from the IRS that because of an application fee note being paid with the original OIC, the Company was required to submit a new OIC and the required application fee. In October 2016, the Company had a telephone call with an IRS representative and were informed to offer the last payment that was due on the original OIC of $2,205 as discussed above and pay 20% of that balance. On October 5, 2016, the Company sent to the IRS by certified mail two checks in the amount of $186 (application fee for the new OIC) and $449 (20% or $441 of the $2,205 remaining original OIC payment and an $8 processing fee). The Company applied $441 against the remaining payment owed and the balance of $1,764 is included in accrued expenses in the accompanying Balance Sheet at April 30, 2019. As of the date of these financial statements, the Company has not received any further correspondence form the IRS and the Company is considered in default of the settlement agreement and the IRS could void or restructure the agreement.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENT
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 8 – COMMITMENTS AND CONTINGENCIES (Continued)
Stock Delisting
On September 14, 2017, the OTC Markets Group notified the Company of its delisting from the OTCQB due to its delinquency in filings, specifically with the SEC.
SEC Correspondence
On April 19, 2018, the Company received correspondence from the SEC Division of Corporate Finance related to non-compliance with the reporting requirements under Section 13(a) of the Securities Act of 1934. The Company responded to the SEC on April 30, 2018 providing information that its past due April 30, 2017 Form 10-K was filed on April 25, 2018 and that it was actively preparing past due 10-Q filings for the periods ended July 31, 2017, October 31, 2017 and January 31, 2018. The Company requested a sixty (60) day extension to file the past due 10-Q reports. The Company filed the past due 10-Q reports with the SEC on June 11, 2018.
The Company filed its Form 10-K and the financial statements for the year ended April 30, 2018 on November 19, 2018 but, were not timely filed. As the Company had not timely filed its Form 10-K for the year ended April 30, 2018, the Company may be subject, without further notice, to an administrative proceeding to revoke its registration under the Securities Act of 1934. Additionally, the Company had not timely filed its Form 10-Q for the three months ended July 31, 2018 and October 31, 2018. As of the date of these financial statements, the Company has received no further correspondence from the SEC and are current with all required SEC filings.
Master Business Agreement
Effective November 16, 2018, the Company entered into a Master Business Agreement (“Master Agreement”) with a third-party consulting firm to provide the following services related to the Company’s planned 2019 football season: (1) marketing and communications, (2) sponsorship development and sales, (3) distribution and broadcasts and (4) production and show creation. The Master Agreement has a term of one year through November 16, 2019 and provides for both cash and common stock payments for each of the above four service areas. The services to be provided are contingent on the Company obtaining a minimum $3,000,000 of investor funding by March 1, 2019 (See Note 9 – Subsequent Events.) On January 30, 2019 and February 7, 2019, the Company paid the consultant $20,000 and $30,000 for a total of $50,000 as a good faith payment and the Company has recorded the payment as prepaid consulting in the accompanying Balance Sheet at April 30, 2019.
Master Services Agreement
Effective February 5, 2019, the Company entered into a Master Services Agreement (“Master Services”) with a third-party consulting firm to provide social and digital consulting for the Company. The Master Services included an initial Statement of Work (“SOW”) in the amount of $167,500 for services through October 31, 2019. The SOW provided for an initial signing payment of $25,000 upon the execution of the SOW and $15,000 payments to be made through October 31, 2019. The Company made the $25,000 signing payment on February 21, 2019 and recorded as consulting expense in the accompanying Statement of Operations.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENT
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 8 – COMMITMENTS AND CONTINGENCIES (Continued)
Lease Agreements and Use Permit
Effective February 21, 2019, the Company entered into a lease agreement to lease the Virginia Beach Sportsplex in Princess Anne Commons, Virginia Beach, Virginia for up to five football plus one playoff game for the 2019 football season. The payment for each event is $7,500 per event. Additionally, the Company paid a $30,000 deposit with the execution of the lease agreement and recorded as a current asset in the accompanying Balance Sheet at April 30, 2019. The Company believes that the deposit will be transferred successfully to the 2020 football season.
Additionally, and also effective February 21, 2019, the Company entered into a Use Permit Agreement for locker room rental and turf rental for ten weeks of practice time at a weekly rate of $1,200 or $12,000 in total.
Effective March 12, 2019, the Company entered into a lease agreement to lease the War Memorial Stadium in Little Rock, Arkansas for a minimum of four and a maximum of five football games for the 2019 football season. The payment for each event is $10,000 plus additional expenses including security and expenses for a total of $14,225 per event. Additionally, the Company paid a $5,000 non-refundable deposit with the execution of the lease agreement and recorded as a current asset in the accompanying Balance Sheet at April 30, 2019. The Company believes that the deposit will be transferred successfully to the 2020 football season.
Cancellation of Accounts Payable
The Company had previously recorded $90,796 of accounts payable for alleged expenses incurred by Jerry Craig, the former CEO of the Company. The Company requested and never received supporting documentation from Mr. Craig and received correspondence that Mr. Craig would not pursue a reimbursement of the incurred expenses. Additionally, the Company requested and received a legal opinion that Mr. Craig has abandoned his claim and as a result, the Company cancelled the $90,796 of accounts payable and is included as a separate line item in the accompanying Statement of Operations for the year ended April 30, 2019. Because Mr. Craig was a former officer of the Company, the $90,796 was classified as a non-cash transaction in the accompanying Statement of Cash Flows for the year ended April 30, 2019.
NOTE 9 – SUBSEQUENT EVENTS
Convertible Promissory Note – May 2, 2019
On May 2, 2019, the Company signed a Securities Purchase Agreement (“SPA”) with an investor that provides for the issuance of two 10% convertible promissory notes in the aggregate principal amount of $200,000, comprised of a First Note of $100,000 and a Back-End Note of $100,000, convertible into shares of common stock of the Company. The First Note shall be paid for by the Company as detailed below. The Back-End Note shall be paid for by the issuance of an offsetting secured promissory note issued by the investor to the Company (“Buyer Note”), provided that prior to conversion of the Back-End Note, the Investor must have paid of the Buyer Note in cash such that the Back-End Note may not be converted until it has been paid for in cash by the Investor.
The Company may reject the funding of the Back-End Note by giving thirty (30) day prior written notice. Such notice must be given 30 days prior to the six (6) month anniversary of the Back-End Note. The cash funding of the Back-End Note shall be contingent on the Company maintaining a closing bid price in excess of $0.008 per share at all times.
On May 2, 2019 (the Original Issue Date (OID), the Company received $85,450 of net proceeds for working capital purposes from the issuance of a $100,000 face value convertible redeemable promissory note (First Note”) with debt issue costs paid to or on behalf of the lender of $12,400 and an OID of $2,150. The terms include interest accrued at 10% annually and the principal and interest payable is payable in one year on May 2, 2020. All interest will be paid in common stock of the Company. Any amount of the principal or interest on this First Note which is not paid when due shall bear Interest at the rate of the lower of Twenty-four Percent (24%) per annum, or the highest rate permitted by law, from the due date thereof until the same is paid.
The First Note is exchangeable for an equal aggregate principal amount of notes of different denominations, as requested by the lender surrounding the same.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENT
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 9 – SUBSEQUENT EVENTS (Continued)
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 Sixty Percent (60%) of the of the average of the two lowest trades of the Common Stock during the fifteen (15) trading Days immediately preceding a conversion date. The Conversion Price is subject to “full ratchet” and other customary anti-dilution protections.
The principal amount of the First Note, initially $100,000, 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
|
|
Payment Amount
|
|
|
|
0 to 60 days after the OID
|
|
112% of principal amount plus accrued interest
|
61 to 120 days after the OID
|
|
124% of principal amount plus accrued interest
|
121 to 180 days after the OID
|
|
136% of principal amount plus accrued interest
|
Subsequent to 180 days after the Issue Date, the Company has no right or option to prepay the principal amount.
The Company evaluated the First Note in accordance with ASC 815 “
Derivatives and Hedging
” and due to the price protection in the First Note, determined that there was a conversion option feature that should be bifurcated and accounted for as a conversion option liability in the balance sheet at fair value. The initial valuation and recording of the conversion option liability was $206,398, using the Binomial Lattice Option Pricing Model with the following assumptions; stock price $0.02, conversion price $0.009, expected term of 1 year, expected volatility of 375% and discount rate of 2.41%. The initial $206,398 conversion option liability assumed that 10,752,688 shares would be issued upon conversion of the promissory note.
On the note issue date of May 2, 2019, the Company recorded the following debt discounts as offsets to the $100,000 First Note and will be amortized over the one-year term: (1) OID of $2,150, (2) debt issue costs of $12,400 and (3) conversion option liability of $85,450. As a result, the Company recorded $120,948 of expense for the initial fair value of the conversion option liability in Other Income (Expense).
Convertible Promissory Note – May 8, 2019
On May 8, 2019, the Company signed a SPA with an Investor that provides for the issuance of a 12% convertible promissory note in the principal amount of $150,000. In connection with the issuance of the promissory note, the Company will issue a common stock purchase warrant to the Investor to purchase 1,500,000 shares of the Company common stock as a commitment fee.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENT
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 9 – SUBSEQUENT EVENTS (Continued)
On May 8, 2019, the Company received $121,750 of net proceeds for working capital purposes from the issuance of a $150,000 face value convertible promissory note with debt issue costs paid to or on behalf of the lender of $28,250. The terms include interest accrued at 12% annually and the principal and any amount of the principal or interest on the promissory note which is not paid when due shall bear interest at the rate of the lower of Twenty-four Percent (24%) per annum, or the highest rate permitted by law, from the due date thereof until the same is paid.
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 the lower of (1) the lowest trade during the previous twenty-five (25) trading days or (2) Sixty-One Percent (61%) of the of the lowest trade during the twenty-five (25) trading days immediately preceding a conversion date. The Conversion Price is subject to “full ratchet” and other customary anti-dilution protections. The promissory note contains customary affirmative and negative covenants of the Company.
In relation to the promissory note, the Company issued the lender a common stock purchase warrant with a three (3) year term to acquire 1,500,000 shares of common stock of the Company at an exercise price of $0.10 per share.
The principal amount of the promissory note, initially $150,000, 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
|
|
Payment Amount
|
|
|
|
0 to 90 days after the Issue Date
|
|
125% of principal amount plus accrued interest
|
91 to 180 days after the Issue Date
|
|
135% of principal amount plus accrued interest
|
Subsequent to 180 days after the Issue Date, the Company has no right or option to prepay the principal amount.
The Company evaluated the promissory note in accordance with ASC 815 “
Derivatives and Hedging
” and due to the price protection in the promissory note, determined that there was a conversion option feature that should be bifurcated and accounted for as a conversion option liability in the balance sheet at fair value. The initial valuation and recording of the conversion option liability was $423,065, using the Binomial Lattice Option Pricing Model with the following assumptions; stock price $0.02, conversion price $0.007, expected term of .75 years, expected volatility of 383% and discount rate of 2.38%. The initial $423,065 conversion option liability assumed that 22,354,694 shares would be issued upon conversion of the promissory note.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENT
YEARS ENDED APRIL 30, 2019 AND 2018
NOTE 9 – SUBSEQUENT EVENTS (Continued)
The Company evaluated the warrant and determined that there was no embedded conversion feature as the warrant contained a set exercise price with an adjustment only based upon customary items including stock dividends and splits, subsequent rights offerings and pro-rata distributions. The Company calculated the relative fair value between the note and the warrant on the issue date utilizing the Black Scholes Pricing Model for the warrant. As a result, the Company allocated $24,960 to the warrant and recorded as debt discount with an offset to additional paid in capital. The warrant calculation used the following assumptions; stock price $0.02, warrant exercise price $0.10, expected term of 3 years, expected volatility of 383% and discount rate of 2.38%.
On the note issue date of May 8, 2019, the Company recorded the following debt discounts as offsets to the $150,000 promissory note and will be amortized over the nine-month term of the note: (1) debt issue costs of $28,250, (2) warrant fair value of $24,960 and (3) conversion option liability of $96,790. As a result, the Company recorded a $326,275 expense for the initial fair value of the conversion option liability, recorded as a separate item in Other Income (Expense).
On May 29, 2019, the Company paid the remaining balance of $7,500 for the Office Lease settlement – see Note 8 – Commitments and Contingencies. The Company has right, title and interest to the remaining unused football equipment that was under the control of the landlord prior to the final payment. The Company had previously written off the $135,323 value of the unused football equipment at April 30, 2017 and as a result of the Company regaining control of the football equipment, will record the $135,323 as a Fixed Asset with an offset to Other Income in the Statement of Operations.
On May 31, 2019, the Company signed an addendum to the Master Agreement (See Note 8 – Commitments and Contingencies) that extended the date that the Company obtained $3,000,000 of funding from March 1, 2019 to June 30, 2019. See additional extension to July 31, 2019 discussed below.
On June 18, 2019, the lender of an original $550,000 face value convertible secured promissory note, elected to convert $10,000 of the principal amount of the promissory note into 900,901 shares of common stock resulting in a note balance of $75,000 after the conversion. See Note 3 – Debt.
On July 1, 2019, the Company signed an addendum to the Master Agreement (See Note 8 – Commitments and Contingencies) that extended the date that the Company obtained $3,000,000 of funding from June 30, 2019 to July 31, 2019.
On July 15, 2019, the Company received $50,000 of proceeds from a private placement offering representing 2,500,000 shares of stock from a related party at a purchase price of $0.02 per share. As a result of the purchase, the related party investor owns 28,500,000 shares of the Company’s common stock representing a 29.1% ownership in the Company. See Note 7 – Related Party Transactions.
On July 18, 2019, the Company completed an agreement to purchase the bulk of the football equipment, helmets, pads, electronics, office equipment and supplies of the bankrupt Alliance of American Football Spring League. This agreement is through the bankruptcy court with a third party for $400,000 that was scheduled on the bankruptcy petition with a valuation in excess of $3,000,000. The Company funded an initial deposit of $25,000 on July 22, 2019 and the remaining balance of $375,000 is due by July 31, 2019. Additionally, the Company agreed to share equally the storage warehouse rent for August 2019 of $10,000 and is the warehouse currently holding the approximately 32,000 football related items covered by the agreement.