NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
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.
On 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.
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.
The Company is seeking to establish, develop and operate MLFB as a professional spring/summer football league. Our anticipated launch is a full season with training camp in March of 2019 with a regular eight team season commencing in late April of 2019 with playoffs and a championship game in July of 2019. In conjunction with the 2019 season, we intend to establish franchises in cities overlooked by existing professional sports leagues and provide fans with professional football in the NFL off-seasons, which will enable us 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 football, including the 32 NFL, 9 Canadian Football League, 627 NCAA, 91 NAIA, 142 JUCO’s, 27 Canadian Universities, and thousands of high school and collegiate institution teams.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 no revenues and a net loss of $353,614 and $5,075,507 for the years ended April 30, 2018 and 2017, respectively. Additionally, at April 30, 2018, the Company has a working capital deficit of $3,303,460, an accumulated deficit of $26,550,953 and a stockholders' deficit of $3,303,460, which could have a material impact on the Company's financial condition and operations.
The above items could have a material impact on the Company’s financial condition and operations and the Company does not have sufficient cash resources or current assets to pay its obligations.
In view of these matters, recoverability of any asset amounts shown in the accompanying financial statements is dependent upon the Company’s ability to achieve a level of 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 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.
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 collateral on certain receivables, 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 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, 2018 and 2017.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
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, 2018 and 2017, 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 no revenue for the years ended April 30, 2018 and 2017.
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
|
Due to the settlement of a lawsuit on February 5, 2018 (See Note 7 – Commitments and Contingencies), the Company immediately 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 for the furniture, fixtures and equipment. For the years ended April 30, 2018 and 2017, the Company recorded $0 and $464 of depreciation expense, respectively.
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 for which there are 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.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company’s financial instruments consist principally of cash, accounts payable, unsecured convertible notes payable, secured convertible notes payable, notes payable and notes payable – related party. 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.
The Company had no assets or liabilities to be measured at fair value on a recurring and non-recurring basis at April 30, 2018 and 2017, respectively.
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 years ended April 30, 2018 and 2017, respectively.
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, there was no revenue from football league operations during the years ended April 30, 2018 and 2017, respectively.
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.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 2018 and 2017, 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, 2018, there were options to purchase 1,090,000 shares of the Company’s common stock, 5,532,500 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 5,375,754 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.
New Accounting Pronouncements
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 for all entities by one year. This update is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Earlier application was permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. ASU 2014-09 was to become effective for us beginning January 2017; however, ASU 2015-14 deferred our effective date until January 2018, which is when we plan to adopt this standard. The ASU permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The ASU also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required for customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. We have completed the process of evaluating the effect of the adoption and determined that our contracts for which customers purchase both surveillance products and installation services from us may result in a change to our reported revenues as a result of the adoption. Based on our evaluation process and review of our contracts with customers, the timing and amount of revenue recognized based on ASU 2015-14 will be recognized when our performance obligations are satisfied for both product sales and installation services. This differs from previous guidance in which we recognized the sale of the products and installation services at the same time. We have determined the adoption of ASU 2015-14 will not have a material impact on our results of operations, cash flows, or financial position due to the short-term nature of our contracts.
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 January 1, 2019. The Company is currently evaluating the effect of the adoption of ASU 2016-02 on the Company’s financial statements.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In March 2017, the FASB issued ASU 2017-07, “Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU 2017-07 changes how employers that sponsor defined benefit pension plans and other postretirement plans present the net periodic benefit cost in the income statement. ASU 2017-07 requires that the service cost component of net periodic benefit cost be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. ASU 2017-07 also allows only the service cost component to be eligible for capitalization, when applicable. This guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted. ASU 2017-07 is to be applied retrospectively for the income statement presentation requirements and prospectively for the capitalization requirements of the service cost component. The Company does not expect that the adoption of ASU 2017-17 will have a material impact on the Company’s financial statements.
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU No. 2018-02 provides companies with an option to reclassify stranded tax effects within accumulated other comprehensive income (“AOCI”) to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. ASU No. 2018-02 also requires disclosure of a description of the accounting policy for releasing income tax effects from AOCI and whether an election was made to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act. ASU No. 2018-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Companies can adopt the provisions of ASU 2018-02 in either the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company does not expect that the adoption of ASU 2018-02 will have a material impact on the Company’s financial statements.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 implementation of this update is not expected to 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, 2018 are not expected to have a significant effect on the Company’s financial position or results of operations.
NOTE 2 – DEBT
Notes Payable:
|
|
April 30,
2018
|
|
|
April 30,
2017
|
|
|
|
|
|
|
|
|
Note payable – January 6, 2016. Interest at 8% and principal payable on demand.
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Note payable – June 6, 2016. Interest at 4% and principal payable on demand.
|
|
|
10,000
|
|
|
|
10,000
|
|
Note payable – August 4, 2016. Interest at 8% and principal payable on demand.
|
|
|
35,000
|
|
|
|
35,000
|
|
Note payable – September 27, 2016. Interest at 4% and principal payable on demand.
|
|
|
30,000
|
|
|
|
30,000
|
|
Note payable – September 29, 2016. Interest at 4% and principal payable on demand.
|
|
|
5,000
|
|
|
|
5,000
|
|
Note payable – September 29, 2016. Interest at 4% and principal payable on demand.
|
|
|
30,000
|
|
|
|
30,000
|
|
Note payable – October 3, 2016. Interest at 4% and principal payable on demand.
|
|
|
20,000
|
|
|
|
20,000
|
|
Total Notes payable
|
|
$
|
230,000
|
|
|
$
|
230,000
|
|
On January 6, 2016, the Company received $100,000 of proceeds from the issuance of a promissory note and recorded as Note Payable at April 30, 2018 and 2017. The terms of the promissory note include interest accrued at 8% annually and the principal and interest payable on demand. Through April 30, 2018, the Company has accrued $16,660 of interest related to the promissory note and included in accrued interest in the accompanying Balance Sheet.
On June 6, 2016, the Company received $10,000 of proceeds from the issuance of a promissory note and recorded as Note Payable. The terms of the promissory note include interest accrued at 4% annually and the principal and interest payable on demand. Through April 30, 2018, the Company has accrued $761 of interest related to the promissory note and included in accrued interest in the accompanying Balance Sheet.
On August 4, 2016, the Company received $130,000 of proceeds from the issuance of a promissory note and recorded as Note Payable. The terms of the promissory note include interest accrued at 8% annually and the principal and interest payable on demand. On (1) January 26, 2017, (2) February 16, 2017, (3) March 2, 2017 and (4) March 6, 2017, the Company repaid (1) $25,000, (2) $25,000, (3) $20,000 and (4) $25,000 of principal and the outstanding balance of the promissory note is $35,000 at April 30, 2018 and 2017, respectively. Through April 30, 2018, the Company has accrued $8,035 of interest related to the promissory note and included in accrued interest in the accompanying Balance Sheet.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 2 – DEBT (CONTINUED)
On September 27, 2016, the Company received $30,000 of proceeds from the issuance of a promissory note and recorded as Note Payable. The terms of the promissory note include interest accrued at 4% annually and the principal and interest payable on demand. Through April 30, 2018, the Company has accrued $1,910 of interest related to the promissory note and included in accrued interest in the accompanying Balance Sheet.
On September 29, 2016, the Company received $5,000 of proceeds from the issuance of a promissory note and recorded as Note Payable. The terms of the promissory note include interest accrued at 4% annually and the principal and interest payable on demand. Through April 30, 2018, the Company has accrued $317 of interest related to the promissory note and included in accrued interest in the accompanying Balance Sheet.
On September 29, 2016, the Company received $30,000 of proceeds from the issuance of a promissory note and recorded as Note Payable. The terms of the promissory note include interest accrued at 4% annually and the principal and interest payable on demand. Through April 30, 2018, the Company has accrued $1,904 of interest related to the promissory note and included in accrued interest in the accompanying Balance Sheet.
On October 3, 2016, the Company received $20,000 of proceeds from the issuance of a promissory note and recorded as Note Payable. The terms of the promissory note include interest accrued at 4% annually and the principal and interest payable on demand. Through April 30, 2018, the Company has accrued $1,260 of interest related to the promissory note and included in accrued interest in the accompanying Balance Sheet.
|
|
April 30,
2018
|
|
|
April 30,
2017
|
|
Notes Payable, Related Party:
|
|
|
|
|
|
|
Notes payable, related party. No interest and principal payable on demand.
|
|
$
|
2,300
|
|
|
$
|
2,300
|
|
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 was $20,300 at April 30, 2016. On (1) January 17, 2017, (2) February 1, 2017 and (3) February 2, 2017, the Company repaid (1) $5,000, (2) $2,000 and (3) $11,000 of principal and the outstanding balance of the note payable is $2,300 at April 30, 2017 and 2018, respectively, recorded as Notes Payable – Related Parties in the accompanying Balance Sheet. See Note 6 – Related Party Transactions.
|
|
April 30,
2018
|
|
|
April 30,
2017
|
|
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
|
|
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 Company’s common stock at the conversion price of $0.30 per share. At April 30, 2018, the Company has accrued $5,116 of interest related to the unsecured convertible promissory note and included in accrued interest in the accompanying Balance Sheet. The unsecured convertible promissory note is in default at April 30, 2018 and the note holder has several remedies including calling the principal amount and accrued interest due and payable immediately.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 2 – DEBT (CONTINUED)
|
|
April 30,
2018
|
|
|
April 30,
2017
|
|
Convertible Secured Note Payable:
|
|
|
|
|
|
|
Secured convertible promissory note payable – originally issued March 9, 2016 - Interest accrued at 22% default rate - principal and interest due June 9, 2017
|
|
$
|
100,000
|
|
|
$
|
170,000
|
|
|
|
|
|
|
|
|
|
|
Less: debt discount
|
|
|
-
|
|
|
|
(24,213
|
)
|
|
|
|
|
|
|
|
|
|
Total Convertible Secured Notes Payable, net of debt discount
|
|
$
|
100,000
|
|
|
$
|
145,787
|
|
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 are payable in one year on March 9, 2017. Any amount of the principal or interest 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. At April 30, 2018, $70,457 of accrued interest was recorded in the accompanying Balance Sheet.
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.
As collateral security, the promissory note is secured by all collateral granted by a former 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 former 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 a conversion option feature that should be bifurcated and accounted for as a derivative liability in the balance sheet at fair value. The initial valuation 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%. 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 rata 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 fair value 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%.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 2 – DEBT (CONTINUED)
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 were 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) conversion option liability of $205,931.
On (1) September 13, 2016, (2) September 30, 2016 and (3) October 26, 2016, the lender elected to exercise their right to convert $15,000 on each of the above dates or a total conversion amount of $45,000 of the principal balance and the note payable balance was $505,000 at October 31, 2016 (See Note 4 – Stock).
On (1) February 1, 2017, (2) February 6, 2017, (3) February 8, 2017, (4) February 14, 2017, (5) February 21, 2017, (6) March 7, 2017, (7) March 9, 2017, (8) March 13, 2017, (9) March 15, 2017, (10) March 28, 2017 and (11) April 12, 2017, the lender elected to exercise their right to convert on each of the above dates for an aggregate total conversion amount of $185,000 of the principal balance and the note payable balance was $170,000 at April 30, 2017.
On (1) November 2, 2016, (2) November 15, 2016, (3) December 13, 2016, (4) December 16, 2016, (5) December 23, 2016, (6) December 29, 2016, (7) January 6, 2017, (8) January 12, 2017, (9) January 23, 2017 and (10) January 24, 2017, the lender elected to exercise their right to convert on each of the above dates for an aggregate total conversion amount of $150,000 of the principal balance and the note payable principal balance (See Note 4 – Stock).
The one-year term of the note matured on March 9, 2017 and the original debt discounts recorded as offsets to the note were amortized in full including: (1) OID of $50,000, (2) debt issue costs of $55,000, (3) warrant fair value of $239,069 and (4) conversion option liability of $205,931.
The Company evaluated the conversion option liability at April 30, 2017 and determined that the embedded feature qualifies for the exception from derivative accounting pursuant to ASC 815-10-15-74(a) because the Company has subsequently increased its number of authorized and unissued shares sufficient to cover the settlement of the embedded feature.
For the year ended April 30, 2017, the Company recorded $471,643 for amortization of the four debt discounts discussed above to interest expense in the accompanying Statement of Operations.
On March 9, 2017, the Company and the Lender of the above convertible secured promissory note with a remaining principal balance of $215,000 on that date, executed a forbearance agreement extending the note expiration date from March 9, 2017 to June 9, 2017. The terms of the forbearance agreement included that the Company (1) will have paid all remaining principal and accrued interest by June 9, 2017, (2) will issue 500,000 shares of common stock to the lender, (3) will pay the lender’s legal fees estimated to be approximately $2,000 before April 30, 2017, (4) will issue the lender 500,000 warrants to purchase common stock at $0.10 per share with a three-year term and (5) the outstanding principal balance of the note will bear interest at the “Default Interest” rate of twenty-two percent (22%), as defined in the note agreement.
The Company evaluated the forbearance agreement as to whether it was an extinguishment or modification of debt. In concluding on the accounting, the Company evaluated ASC 470-50, Debtor’s Accounting for a Modification or Exchange of Debt Instruments. The Company determined that the forbearance agreement was not an extinguishment of debt or a material modification. The Company will adjust the carrying amount of the debt for any premium or discount, including stock and warrant issuances, and will amortized over the modification period of three months through June 9, 2017.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 2 – DEBT (CONTINUED)
The Company evaluated the warrant and determined that there was no derivative treatment required as the warrant contained a fixed 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 outstanding principal of the note ($215,000) and the warrant on March 9, 2017 utilizing the Black Scholes Pricing Model for the warrant. The Company allocated $28,015 to the warrant which was recorded as a debt discount with an offset to additional paid in capital in the accompanying Balance Sheet.
The Company valued the 500,000 shares of common stock issued to the lender based upon the quoted market price of $0.08 on March 9, 2017, the date of grant, or $40,000, recorded as a debt discount with an offset to additional paid in capital.
In total on the forbearance date of March 9, 2017, the Company recorded the following debt discounts as offsets to the note which were amortized over the 90-day term of the forbearance agreement through June 9, 2017: (1) warrant relative fair value of $28,015 and (2) common stock relative fair value effective March 9, 2017. From March 9, 2017 through April 30, 2017, the Company recorded amortization of the debt discount to interest expense in the amounts of (1) $16,187 against the warrant relative fair value of $28,015 and (2) $16,947 against the common stock relative fair value. At April 30, 2017, the remaining combined warrant and stock unamortized debt discount was $24,213 and classified as an offset to the $170,000 note balance.
From May 1, 2017 through April 30, 2018, the Company recorded amortization of the remaining debt discount of $24,213 to interest expense in the accompanying Statement of Operations in amounts of (1) $11,829 against the warrant relative fair value $12,384 against the common stock relative fair value. As a result, the debt discount has been amortized in full at April 30, 2018.
From March 9, 2016 through April 30, 2017, the lender elected to convert $380,000 of the principal amount of the note into 5,409,226 shares of common stock resulting in a note balance of $170,000 at April 30, 2017. From May 1, 2017 through October 31, 2017, the lender elected to convert $70,000 of the principal amount of the note into 2,168,193 shares of common stock resulting in a note balance of $100,000 at April 30, 2018. See Note 8 – Subsequent Events.
NOTE 3 – INCOME TAXES
In December 2017, the Tax Cuts and Jobs Act of 2017 was signed into law. Substantially all of the provisions of the new law are effective for taxable years beginning after December 31, 2017. The new law includes significant changes for the Company, including reductions in the corporate federal statutory income tax rate to 21 percent from 34 percent, the general allowance for the continued deductibility of interest expense and a limit on the utilization of net operating losses arising after December 31, 2017, to 80 percent of taxable income with an indefinite carryforward.
The staff of the SEC has recognized the complexity of reflecting the impacts of the Tax Cuts and Jobs Act of 2017 and issued guidance in Staff Accounting Bulletin 118 (“SAB 118”) which clarifies accounting for income taxes under ASC 740 if information is not yet available or complete and provides for up to a one-year period in which to complete the required analyses and accounting. We have completed or made a reasonable estimate for the measurement and accounting of the effects of the Tax Cuts and Jobs Act of 2017, which have been reflected in our April 30, 2018, financial statements. We are still analyzing certain aspects of the Tax Cuts and Jobs Act of 2017, refining our calculations and expect additional guidance from the U.S. Department of the Treasury and the Internal Revenue Service. Any additional issued guidance or future actions of our regulators could potentially affect the final determination of the accounting effects arising from the implementation of the Tax Cuts and Jobs Act of 2017.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 3 – INCOME TAXES (CONTINUED)
The Company utilizes the assets and liability method of accounting for income taxes in accordance with ASC 740-10 and ASC 740-30,
Accounting for Income Taxes
.
Under the provisions of ASC 740-10,
Accounting for Income Taxes
, the unrecognized tax provisions consisting of interest and penalties at April 30, 2017 was $0. There was no change in unrecognized tax provisions during the year ending April 30, 2018 and the accrual at April 30, 2018 amounted to $0. The Company recognizes interest and penalties related to unrecognized tax benefits in interest expense. Tax years from 2005 (initial tax year) through 2017 remain subject to examination by major tax jurisdictions.
The table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate as follows:
|
|
For the Year Ended
April 30,
|
|
|
|
2018
|
|
|
2017
|
|
Statutory federal rate
|
|
|
(30.40
|
)%
|
|
|
(34.00
|
)%
|
State tax rate, net of federal effect
|
|
|
(5.75
|
)%
|
|
|
(5.75
|
)%
|
Change in valuation allowance
|
|
|
36.15
|
%
|
|
|
39.75
|
%
|
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,
|
|
|
|
2018
|
|
|
2017
|
|
Income tax benefit (provision) at U.S. Federal Income Tax rate
|
|
$
|
(2,381,000
|
)
|
|
$
|
1,725,000
|
|
State income taxes, net of federal benefit (provision)
|
|
|
(691,000
|
)
|
|
|
287,000
|
|
Change in federal tax rate
|
|
|
2,039,000
|
|
|
|
—
|
|
Change in valuation allowance
|
|
|
1,033,000
|
|
|
|
(2,012,000
|
)
|
|
|
|
|
|
|
|
|
|
Net Income tax benefit (provision)
|
|
$
|
—
|
|
|
$
|
—
|
|
The components of deferred tax assets (liabilities) are as follows:
|
|
April 30,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
$
|
4,196,000
|
|
|
$
|
6,090,000
|
|
Capital loss carry forward
|
|
|
535,000
|
|
|
|
797,000
|
|
Stock-based compensation
|
|
|
1,128,000
|
|
|
|
1,676,000
|
|
Change in fair value of conversion option liability
|
|
|
-
|
|
|
|
(172,000
|
)
|
Bad debt
|
|
|
194,000
|
|
|
|
288,000
|
|
Other
|
|
|
7,000
|
|
|
|
543,000
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
$
|
6,060,000
|
|
|
$
|
9,222,000
|
|
Less: deferred tax asset valuation allowance
|
|
|
(5,873,500
|
)
|
|
|
(8,945,500
|
)
|
Total net deferred tax assets
|
|
|
186,500
|
|
|
|
276,500
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Future exercise of warrants
|
|
$
|
(186,000
|
)
|
|
$
|
(276,000
|
)
|
Other
|
|
|
(500
|
)
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax liabilities
|
|
$
|
(186,500
|
)
|
|
$
|
(276,500
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 3 – INCOME TAXES (CONTINUED)
In assessing the recoverability of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will be realized. The valuation allowance has been decreased by $3,072,000 and increased by $2,012,000 for the years ended April 30, 2018 and 2017, respectively. Net operating loss carry-forwards aggregate approximately $15,685,000 and capital loss carry-forwards aggregate approximately $1,999,000 and expire in years through 2038. The Company’s net operating loss carry forwards may be subject to annual limitations, which could eliminate, reduce or defer the utilization of the losses because of an ownership change as defined in Section 382 of the Internal Revenue Code. The Company’s federal tax returns remain subject to examination by the IRS because the Company has not filed tax returns for several years.
At April 30, 2018 and 2017, respectively, 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 financial statements. Additionally, the Company owes the State of Delaware for penalties and interest of $200,077 and $182,056, which is included as accrued expenses in the accompanying Balance Sheet at April 30, 2018 and 2017, respectively. The Company has an agreement with the State of Delaware to pay a minimum of $500 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.
NOTE 4 – STOCK
Common Stock:
On 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.
The Company is authorized to issue up to 200,000,000 shares of common stock at $0.001 par value per share. At April 30, 2018, 57,999,488 shares were issued and outstanding. Additionally, 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. 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 1,500,000 unvested shares were valued at $0.05 per share or $75,000 and were being amortized to compensation expense over the vesting period with an unamortized balance of $44,896 at April 30, 2017. Because of the termination discussion above, the Company recorded no compensation expense for the year ended April 30, 2018 and will no longer record any further compensation expense related to the unvested shares and will pursue the return of the 1,500,000 unvested shares held by the employees that should be returned to treasury.
Common Stock Issued
From May 3, 2016 to June 10, 2016, the Company issued 160,132 shares of common stock to employees. The shares were issued per the Company’s 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 in the accompanying Statement of Operations for the year ended April 30, 2017.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 4 – 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. For the year ended April 30, 2017, the Company recorded $41,337 of consulting expense related to the issuance of common stock.
From September 13, 2016 through April 12, 2017, the lender of a convertible secured promissory, elected to exercise their right to convert on several dates during the above period, an aggregate amount of $380,000 of the original $550,000 convertible secured promissory note (See Note 2 – 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 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. Based upon the calculated Conversion Prices ranging from $0.05 to $0.18 per share on the respective conversion dates, the Company issued 5,409,226 shares of common stock to the lender.
Effective August 4, 2016, two of the Company’s 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 to decrease the balance due under their respecting consulting invoices.
On October 26, 2016, the Company issued 27,000 shares of common stock to employees. The shares were issued per the Company’s 2014 Employee Stock Plan. The Company valued the stock based upon the quoted market price of $0.22 per share on the date of grant, or $5,940 and was classified as stock compensation expense for the year ended April 30, 2017 in the accompanying financial statements.
From January 12, 2017 through April 17, 2017, the Company received $216,500 of proceeds from a private placement offering representing 2,165,000 shares of stock and 1,082,500 warrants. See Note 5 – Stock Based Compensation.
The $216,500 of proceeds from the issuance of the units was allocated between the shares of common stock and the warrants based on their relative fair values on the date of issuance. The fair value for the warrants was determined utilizing the Black Scholes Pricing Model based upon the various issuance dates of the warrants during the period.
The Company allocated $173,889 to the shares of stock and $42,611 to the warrants. The value allocated to the warrants was classified as additional paid in capital in the accompanying financial statements.
In April 2017, a consultant exercised 400,000 warrants at an exercise price of $0.01 or $4,000. The consultant paid for the exercise price of $4,000 by electing the reduce the balance from consulting fees owed. However, the underlying common stock was not issued by the transfer agent until June 2017 and at April 30, 2017, the Company recorded the 400,000 shares issued to the Consultant as Common Stock Issuable in the accompanying financial statements.
On May 8, 2017, the Company issued 15,000 shares of common stock to employees. The shares were issued per the Company’s 2014 Employee Stock Plan. The Company valued the stock based upon the quoted market price of $0.06 per share on the date of grant, or $900 and was classified as stock compensation expense for the year ended April 30, 2018 in the accompanying Statement of Operations.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 4 – STOCK (CONTINUED)
From May 1, 2017 through August 1, 2017, the lender of a convertible secured promissory note, elected to exercise their right to convert on several dates during the above period, an aggregate amount of $70,000 of the remaining $170,000 convertible secured promissory note at April 30, 2017, resulting in a note balance of $100,000 at April 30, 2018 (See Note 2 – 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 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. Based upon the calculated Conversion Prices ranging from $0.03 to $0.04 per share on the respective conversion dates, the Company issued 2,168,193 shares of common stock to the lender.
On December 10, 2017, the Senior Vice President of the Company, exercised 1,000,000 stock warrants at an exercise price of $0.01 per share or $10,000. The Senior Executive Vice President paid for the exercise price of $10,000 by reducing the balance due him for unreimbursed business expenses. See Note 6 – Related Party Transactions.
Securities Purchase Agreement
On June 22, 2017, the Board of Directors elected President Jerry C. Craig, as an additional Director and as Chief Executive Officer. On June 23, 2017, Michael D. Queen resigned from the Board of Directors.
On June 22, 2017, the Board of Directors approved an offer for sale, and to sell, up to 43,000,000 shares of convertible preferred stock to be designated Series A Convertible Preferred Stock, par value $.001 per share, in an offering intended to be exempt from registration under the Securities Act of 1933, pursuant to Regulation D of the Securities Act of 1933.
On September 5, 2017, Compass Creek Capital, Inc. (“CCC”), controlled by Jerry C. Craig, the Company’s CEO, supplied documents to the Company which it represented demonstrated a deposit of $3 million into the Company’s bank account pursuant to a Purchase Agreement executed on or about June 22, 2017. Per the terms of the agreement, the Company was to grant CCC 42,857,143 shares of the Company’s Series A convertible preferred stock at $0.001 par value. This stock has the same powers, preferences and rights and the qualifications, limitations or restrictions as the common stock. The Company issued the convertible preferred stock in a nonpublic offering pursuant to Regulation D. With the shares owned by CCC, it would hold a significant ownership of the total outstanding stock. In addition to the Convertible Preferred Shares directly owned by CCC, the Company granted to CCC, an option to purchase 171,428,571 shares of the Company’s Series A convertible preferred stock at $.07 per share.
On October 4, 2017, the Company, through Mr. Craig, purported to terminate Frank Murtha, Senior Executive Vice President from all positions with MLFB. The departure of Mr. Murtha left Jerry C. Craig as the sole director and officer of the Company.
On October 13, 2017, the acting General Counsel resigned from the Company. On this same day, the Company notified its sole Director and Officer, Jerry C. Craig, that he was in breach of the Securities Purchase Agreement dated June 20, 2017 due to his failure to provide valid documentation of his compliance with the Securities Purchase Agreement. Mr. Craig, the President, CEO and sole Director, had provided a bank document reflecting a deposit of $3 million into a Company account on September 5, 2017. CCC, with Jerry C. Craig as its beneficial owner, was the mandated purchaser of the shares in the Purchase Agreement. On that basis, the Company filed a Form 3 reflecting ownership of the forty-two (42) million preferred shares. Subsequently, that bank account was closed. On September 29, 2017, Mr. Craig submitted new documents reflecting a $3 million transfer to a different Company account. Despite these documents, there was never any evidence provided that these funds had ever been made available for payment of outstanding and current liabilities of the Company or that these funds would remain in a Company Account.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 4 – STOCK (CONTINUED)
On October 13, 2017, Jerry C. Craig, sole Director and Officer, stated his belief that the Securities Purchase Agreement was null and void, based upon CCC’s inability to complete the necessary due diligence. Jerry C. Craig believes this negated his obligation to pay the required funds called for by the Securities Purchase Agreement. His failure to pay the funds terminated his purported election to the Board and appointment as CEO. Kris Craig, an officer of the Company and spouse of Jerry C. Craig, submitted her resignation on Saturday, October 14, 2017. With the termination of Mr. Craig’s position and Kris Craig’s resignation, there were no Officers or Directors remaining with the Company. The securities agreed to be purchased by CCC, as set forth in the Securities Purchase Agreement, will now revert to the Company. Under Delaware law, if there are no Directors of a Company, any officer or shareholder can call a special meeting to elect board members.
On November 1, 2017, following termination of Mr. Craig’s positions within the Company, it was determined that Mr. Craig’s attempted termination of Frank Murtha was void, and he returned to MLFB in his prior position as Senior Executive Vice President. Pursuant to the Company’s Bylaws, in the absence of the President, Frank Murtha, as the Senior Executive Vice President, is authorized to perform the duties of the President. Mr. Murtha intends to call a shareholder’s meeting to elect directors soon.
NOTE 5 – 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 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 April 30, 2018 and 2017, respectively.
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 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). There are 1,200,000 options outstanding under this plan at April 30, 2018 and 2017, respectively.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 5 – STOCK BASED COMPENSATION (CONTINUED)
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 stock options vested 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. In January 2015, 300,000 of the vested stock options were exercised leaving a balance of 800,000 unexercised vested stock options. 350,000 of the vested stock options were forfeited during the three months ended July 31, 2017 because they had not been exercised during the three-month timeframe after these consulting agreements were terminated. The remaining 450,000 vested stock options are held by the Senior Executive Vice President of the Company.
The remaining 3,050,000 unvested stock options were being re-measured by the Company each reporting period and the resulting fair value 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 resulting in a balance of 2,000,000 stock options outstanding at April 30, 2017.
All employees and consultants holding a stock option to purchase common stock of the Company were terminated during the three months ended July 31, 2017 except for the Senior Executive Vice President of the Company. Both stock option plans state that when 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. Because the three-month timeframe occurred, and no employee exercised their related stock options, the Company has calculated that 1,250,000 of the 2,000,000 remaining stock options from above have been forfeited. The remaining 750,000 stock options are held by the Senior Executive Vice President of the Company and re-measured these at April 30, 2018 and recorded $7,657 of consulting expense during the year ended April 30, 2018 in the accompanying Statement of Operations.
The Company used the following assumptions in estimating fair value:
Stock Price (re-measurement date of April 30, 2018)
|
|
$
|
0.04
|
|
Exercise Price
|
|
$
|
0.05
|
|
Expected Remaining Term
|
|
|
6.20 years
|
|
Volatility
|
|
|
82
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
1.84
|
%
|
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 5 – STOCK BASED COMPENSATION (CONTINUED
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 5,900,000 shares of common stock at an exercise price of $0.30 per share. The options vested over various periods from quarterly to 4 years, with 830,000 options vesting immediately. These options expire on February 23, 2025.
On December 10, 2015, 1,718,750 of the unvested options were forfeited and on March 10, 2016, 1,281,250 of the unvested options expired. As a result, 2,070,000 unvested options were outstanding at April 30, 2017.
As discussed above, all employees holding a stock option to purchase common stock of the Company were terminated during the three months ended January 31, 2017, except for the Senior Executive Vice President of the Company. After the three-month timeframe passed, and no employee exercised their related stock options, all 2,070,000 of the remaining unvested stock options have been forfeited and no further compensation expense was recorded during the year ended April 30, 2018.
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 were vested in various stages over a three-year period.
As discussed above, all employees holding a stock option to purchase common stock of the Company were terminated during the three months ended July 31, 2017, except for the Senior Executive Vice President of the Company. After the three-month timeframe passed, and no employee exercised their related stock options, all 1,807,500 of the remaining unvested stock options have been forfeited and no further compensation expense was recorded during the year ended April 30, 2018.
Additionally, all 102,500 vested stock options were forfeited because they were not exercised during this three-month timeframe.
The following table summarizes employee and consultant stock option activity of the Company for the year ended April 30, 2018:
|
|
Stock Options Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2017
|
|
|
7,690,000
|
|
|
$
|
0.22
|
|
|
|
7.90
|
|
|
$
|
19,600
|
|
Forfeited resulting from termination
|
|
|
(6,450,000
|
)
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding, April 30, 2018
|
|
|
1,240,000
|
|
|
$
|
0.08
|
|
|
|
6.04
|
|
|
$
|
—
|
|
Exercisable, April 30, 2018
|
|
|
1,090,000
|
|
|
$
|
0.08
|
|
|
|
6.01
|
|
|
$
|
—
|
|
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 5 – STOCK BASED COMPENSATION (Continued)
Stock Warrants
On December 10, 2017, the Senior Executive Vice President of the Company, exercised 1,000,000 stock warrants at an exercise price of $0.01 per share or $10,000. Mr. Murtha paid for the exercise price of $10,000 by electing to decrease the balance due under outstanding expenses owed by the Company. See Note 4 – Stock and Note 6 – Related Party Transactions.
The following table reflects stock warrants at April 30, 2018:
|
|
Stock Warrants Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2017
|
|
|
6,532,500
|
|
|
$
|
0.25
|
|
|
|
1.79
|
|
|
$
|
177,850
|
|
Exercised
|
|
|
(1,000,000
|
)
|
|
$
|
0.01
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding, April 30, 2018
|
|
|
5,532,500
|
|
|
$
|
0.25
|
|
|
|
0.79
|
|
|
$
|
116,000
|
|
Exercisable, April 30, 2018
|
|
|
5,532,500
|
|
|
$
|
0.25
|
|
|
|
0.79
|
|
|
$
|
116,000
|
|
NOTE 6 – RELATED PARTY TRANSACTIONS
Effective December 4, 2017, the former Chief Operating Officer of the Company executed an agreement waiving his right to $560,000 of compensation that had been accrued by the Company. Additionally, the waiver stated that no further compensation was due to the former officer.
Effective December 4, 2017, the former President of the Company executed an agreement waiving his right to $560,000 of compensation that has been accrued by the Company. Additionally, the waiver stated that no further compensation was due to the former officer.
Due to the above waivers, the Company reduced accrued officer compensation by $1,120,000 and reduced the related accrued payroll taxes by $56,168, effective as of December 4, 2017. The total reduction of $1,176,168 was recorded to additional paid in capital at April 30, 2018 in the accompanying Balance Sheet.
At April 30, 2018, the Company has accrued $740,000 for unpaid officer compensation and accrued $37,111 for the employers share of payroll taxes related to the unpaid officer compensation in the accompanying Balance Sheet. 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. However, the two former officers did not sign a waiver of accrued compensation like the other two discussed above and the Company has continued to accrue for the two former officers’ compensation at April 30, 2018.
At April 30, 2018, the Company has a $2,300 remaining unpaid balance on a promissory note due to a former officer that originally $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. The Company is classified the promissory note as Notes Payable – Related Parties in the accompanying Balance Sheet. See Note 2 – Debt.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 6 – RELATED PARTY TRANSACTIONS (Continued)
At April 30, 2018, the Company has recorded $60,596 of accounts payable – related parties for Company related expenses. This includes $58,657 paid by the Senior Executive Vice President on behalf of the Company, $1,814 paid by the Company’s authorized house counsel on behalf of the Company and $125 paid by a former officer of the 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 Senior Executive Vice President paid for the exercise price of $10,000 by electing to reduce the balance due under outstanding expenses owed by the Company. See Note 4 - Stock
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Office Lease
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 was originally recorded as a deposit by the Company.
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.
On August 5, 2016, the Company paid $100,000 for the settlement of the lawsuit filed by the landlord and discussed above. The $100,000 payment was for outstanding rent of $98,173, which included $3,699 in attorney’s fees and the August 1, 2016 rent.
On August 28, 2017, the Company was served with a Motion for Final Judgment. 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.
|
Effective May 31, 2018, the landlord and the Company executed a first amendment to the February 5, 2018 settlement discussed above which specified:
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 7 – COMMITMENTS AND CONTINGENCIES (Continued)
|
a.
|
In lieu of making the payment of $40,000 on June 1, 2018, the Company will pay the landlord a $5,000 installment of the $40,000 payment on June 4, 2018;
|
|
|
|
|
b.
|
The Company will pay the landlord $503 on June 4, 2018, as reimbursement for an additional month of storage space rental; and
|
|
|
|
|
c.
|
The Company will pay the landlord the $35,000 balance of the original $40,000 payment on or before June 30, 2018.
|
If the Company fails timely to make any payment specified above, the Company unconditionally and irrevocably transfers all right, title and interest in and to the football equipment in landlord’s possession and landlord may immediately dispose of same as it chooses.
On June 4, 2018, the Company made the required $5,000 installment of the $40,000 payment and the $503 reimbursement for an additional month of storage space rental.
Effective June 28, 2018, the landlord and the Company executed a second amendment to the February 5, 2018 settlement discussed above which specified:
|
d.
|
In lieu of making the payment of $35,000 on June 30, 2018, the Company paid the landlord a $5,000 installment of the $35,000 payment on June 29, 2018;
|
|
|
|
|
e.
|
The Company paid the landlord $503 on June 29, 2018, as reimbursement for an additional month of storage space rental; and
|
The Company will pay the landlord the $30,000 balance of the original $40,000 payment on or before July 31, 2018.
Effective July 31, 2018, the landlord and the Company executed a third amendment to the February 5, 2018 settlement discussed above, which specified:
|
f.
|
In lieu of making the payment of $30,000 on July 31, 2018, the Company paid the landlord a $1,000 installment of the $30,000 payment on July 31, 2018;
|
|
|
|
|
g.
|
The Company paid the landlord $503 on July 31, 2018, as reimbursement for an additional month of storage space rental; and
|
|
|
|
|
h.
|
The Company will pay the landlord the $29,000 balance of the original $40,000 payment on or before August 15, 2018.
|
Effective September 21, 2018, the landlord and the Company executed a fourth amendment to the February 5, 2018 settlement discussed above, which specified:
|
a.
|
In lieu of making the remaining balance payment of $29,000 on August 15, 2018, the Company paid the landlord a $1,000 installment of the $29,000 payment on September 21, 2018;
|
|
|
|
|
b.
|
The Company paid the landlord $503 on September 21, 2018, as reimbursement for an additional month of storage space rental; and
|
|
|
|
|
c.
|
The Company will pay the landlord the $28,000 balance of the original $40,000 payment on or before October 31, 2018.
|
|
|
|
|
d.
|
If the Company fails to make any payment specified in the fourth amendment, the Company unconditionally and irrevocable transfers all right, title and interest in and to Football Equipment that it is holding in storage and may immediately dispose of same as it chooses.
|
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 7 – COMMITMENTS AND CONTINGENCIES (Continued)
Effective October 31, 2018, the landlord and the Company executed a fifth amendment to the February 5, 2018 settlement discussed above, which specified:
|
e.
|
In lieu of making the remaining balance payment of $28,000 on October 31, 2018, the Company paid the landlord a $1,000 installment of the $28,000 payment on November 5, 2018;
|
|
|
|
|
f.
|
The Company paid the landlord $1,006 on November 5, 2018, as reimbursement for two months of storage space rental; and
|
|
|
|
|
g.
|
The Company will pay the landlord the $27,000 balance of the original $40,000 payment on or before November 30, 2018.
|
|
|
|
|
h.
|
If the Company fails to make any payment specified in the fourth amendment, the Company unconditionally and irrevocable transfers all right, title and interest in and to Football Equipment that it is holding in storage and may immediately dispose of same as it chooses.
|
The Company had previously recorded $57,385 of accounts payable to the landlord and based upon the August 28, 2017 Motion for Final Adjustment and Summary Judgment, the Company recorded a $17,385 gain on settlement of accounts payable and recorded as a component of other income in the accompanying Statement of Operations for the year ended April 30, 2018.
The Company is currently in discussions for new corporate headquarters.
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. 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 Sheet at April 30, 2018. 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. The Company is still in discussions with the law firm related to this Judgment and anticipates a resolution in the future.
Vendor Lawsuits
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. The Company engaged a law firm to assist in the matter and on January 23, 2017, paid a $7,500 retainer, which continues to be classified as prepaid legal fees in the accompanying Balance Sheet at April 30, 2018.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 7 – COMMITMENTS AND CONTINGENCIES (Contingencies)
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 December 29, 2017, the trustee for H&J filed a second lawsuit against the Company and the former CEO, individually. The lawsuit requests damages for not consummating the settlement described above and for submission of an invalid $50,000 payment which was returned for insufficient funds. The Company has properly responded to the lawsuit in a timely manner. However, the former CEO did not respond in a timely manner and the Trustee moved for a Default Judgment against the former CEO only. On May 9, 2018, the Court denied the Trustee’s Motion and dismissed the second lawsuit against both the former CEO and the Company. As to the former CEO, the Court found that since he signed the check in a clearly designated representative capacity for the Company, he had no personal liability. As to the Company, the Court found that the first lawsuit was still ongoing and that any claims for the bad check should be brought by amending the first lawsuit to make the claims rather than in a second lawsuit.
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 Sheet at April 30, 2018.
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. 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, 2018. 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.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 7 – COMMITMENTS AND CONTINGENCIES (Continued)
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 Sheet at April 30, 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.
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 $216,668. The Company has recorded accounts payable to Mr. Edwards of $191,667 in the accompanying Balance Sheet at April 30, 2018. The amount recorded by the Company is $25,000 less than the claim because services were terminated by both parties prior to amounts invoiced which the Company disputes.
Unpaid Taxes and Penalties
At April 30, 2018 and 2017, respectively, 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, 2018. Additionally, the Company owes the State of Delaware for penalties and interest from the tax year ending April 30, 2007 of $200,077, which is included as accrued expenses in the accompanying Balance Sheet at April 30, 2018. 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 has 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, 2018. 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 STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 7 – COMMITMENTS AND CONTINGENCIES (Continued)
Attorney Lien
On August 2, 2017, David Bovi, the Company’s former legal counsel, submitted correspondence reflecting a “charging lien” for non-payment relate to $243,034 of legal services provided to the Company. The amount included interest on unpaid invoices. The “retaining lien” states that Mr. Bovi will retain all documents in his possession unless paid the amount outstanding as described above.
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.
As of the date of these financial statements for the year ended April 30, 2018, the Company had not timely filed its Form 10-K for the year ended April 30, 2018 and its Form 10-Q for the three months ended July 31, 2018. As a result, the Company may be subject, without further notice, to an administrative proceeding to revoke its registration under the Securities Act of 1934. As of the date of these financial statements for the year ended April 30, 2018, the Company has received no further correspondence from the SEC.
NOTE 8 – SUBSEQUENT EVENTS
Convertible Promissory Note
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 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.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2018 AND 2017
NOTE 8 – SUBSEQUENT EVENTS
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 derivative liability in the balance sheet at fair value. The initial valuation and recording of this derivative 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) conversion option liability of $75,000. As a result, the Company recorded a $39,132 of expense for the initial fair value of conversion option liability and recorded as a separate item in other income (expense).
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.
On July 18, 2018, the lender of a convertible secured promissory note, elected to exercise their right to convert $10,000 of the remaining $100,000 convertible secured promissory note at April 30, 2018, resulting in a note balance of $90,000 at July 18, 2018 (See Note 2 – Debt). 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. Based upon the calculated Conversion Price of $0.0122 per share the Company issued 819,672 shares of common stock to the lender.
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.