CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 1- NATURE OF OPERATIONS, BASIS OF PRESENTATION, GOING CONCERN, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Major League Football, Inc. (the “Company”) is seeking to establish, develop and operate MLFB as a professional spring/summer football league. Our anticipated launch is a 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.
Unless the context otherwise requires, all references to the “Company,” “we,” “our” or “us” and other similar terms collectively means Major League Football, Inc., a Delaware corporation. Our principal offices are presently located at 7319 Riviera Cove #7, Lakewood Ranch, Florida, 34202. Our telephone number is (847) 924-4332. Our Internet website, currently under construction, will be located at:
www.mlfb.com
.
Going Concern
The accompanying unaudited financial statements have been prepared assuming the Company will continue as a going concern. As reflected in the accompanying unaudited financial statements, the Company had no revenues and net cash used in operating activities of $83,930 for the three months ended July 31, 2018. Additionally, at July 31, 2018, the Company had a working capital deficit of $3,447,127, an accumulated deficit of $26,710,755 and a stockholders’ deficit of $3,447,127, which could have a material impact on the Company’s financial condition and operations.
In view of these matters, recoverability of any asset amounts shown in the accompanying unaudited 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 date of the filing of the Company’s Form 10-Q with the Securities and Exchange Commission (“SEC”). 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. We expect we will require additional short-term financing as well as $20 million of financing over the next 12 months to position our Company for its anticipated launch in March of 2019, to cover our operating expenses for our 2019 full training camp and playing season in our designated cities. The unaudited 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.
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basis of Presentation
The accompanying unaudited interim period financial statements of the Company are unaudited pursuant to certain rules and regulations of the SEC and include, in the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair statement of the results of the periods indicated. Such results, however, are not necessarily indicative of results that may be expected for the full year. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The accompanying unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2018, as filed with the SEC on November 19, 2018. The interim operating results for the three months ending July 31, 2018 are not necessarily indicative of operating results expected for the full year.
SIGNIFICANT ACCOUNTING POLICIES
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on 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 derivative liabilities, valuation of equity-based instruments issued for other than cash and valuation allowance on deferred tax assets.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents at July 31, 2018 and April 30, 2018.
Concentrations
Concentration of Credit Risk
Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of cash. At July 31, 2018 and April 30, 2018, the Company did not have deposits with a financial institution that exceeded the FDIC deposit insurance coverage and determined that it had no cash equivalents.
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Convertible Promissory Notes and Related Embedded Derivatives
We account for the embedded conversion option contained in convertible instruments under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”. The embedded conversion option contained in the convertible instruments were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion option derivatives was determined using the Binomial Option Pricing model. On the initial measurement date, the fair value of the embedded conversion option derivative was recorded as a derivative liability and was allocated as debt discount up to the proceeds of the notes with the remainder charged to current period operations as initial derivative expense. Any gains and losses recorded from changes in the fair value of the liability for derivative contract was recorded as a component of other income (expense) in the accompanying unaudited statements of operations.
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements and Disclosures requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial 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 that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, amounts receivable, accounts payable, unsecured convertible notes payable, secured convertible notes payable, notes payable, notes payable – related party and an embedded conversion option liability. Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, the Company believes that the recorded values of the other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Assets and liabilities measured at fair value on a recurring/non-recurring basis consist of the following at July 31, 2018:
|
|
Carrying Value
|
|
|
Fair Value Measurements at
|
|
|
|
At
|
|
|
July 31, 2018
|
|
|
|
July 31, 2018
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Conversion option liability
|
|
$
|
176,073
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
176,073
|
|
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following is a summary of activity of Level 3 assets and liabilities for the three months ended July 31, 2018:
Embedded Conversion Option Liability
|
|
|
|
Balance – April 30, 2018
|
|
$
|
—
|
|
Initial value of conversion option liability
|
|
|
114,132
|
|
Loss from change in the fair value of conversion option liability
|
|
|
61,941
|
|
Balance – July 31, 2018
|
|
$
|
176,073
|
|
Changes in fair value of the conversion option liability are included as a separate Other Income (Expense) item in the accompanying unaudited Statement of Operations.
Revenue Recognition
League Tryout Camps
The Company recognizes league tryout camp revenue on the dates that the tryout camps were held. There were no tryout camps held by the Company during the three months ended July 31, 2018 or 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 three months ended July 31, 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.
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 and the Company’s diluted EPS excludes all dilutive potential common shares because their effect is anti-dilutive. At July 31, 2018, there were options to purchase 1,240,000 shares of the Company’s common stock, 5,532,400 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 12,707,212 shares of the Company’s common stock reserved for issuance related to convertible secured notes payable which may dilute future earnings per share.
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.
NOTE 2 – DEBT
|
|
July 31,
2018
|
|
|
April 30,
2018
|
|
Notes Payable:
|
|
|
|
|
|
|
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. The terms of the promissory note include interest accrued at 8% annually and the principal and interest payable on demand. Through July 31, 2018, the Company has accrued $18,676 of interest related to the promissory note and included in accrued interest in the accompanying unaudited 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 July 31, 2018, the Company has accrued $862 of interest related to the promissory note and included in accrued interest in the accompanying unaudited 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 and (3) $20,000 and (4) $25,000 of principal and the outstanding balance of the promissory note is $35,000 at July 31, 2018. Through July 31,2018, the Company has accrued $8,741 of interest related to the promissory note and included in accrued interest in the accompanying unaudited Balance Sheet.
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 July 31, 2018, the Company has accrued $2,212 of interest related to the promissory note and included in accrued interest in the accompanying unaudited 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 July 31, 2018, the Company has accrued $367 of interest related to the promissory note and included in accrued interest in the accompanying unaudited Balance Sheet.
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 2 – DEBT (CONTINUED)
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 July 31, 2018, the Company has accrued $2,206 of interest related to the promissory note and included in accrued interest in the accompanying unaudited 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 July 31, 2018, the Company has accrued $1,462 of interest related to the promissory note and included in accrued interest in the accompanying unaudited Balance Sheet.
|
|
July 31,
2018
|
|
|
April 30,
2018
|
|
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 July 31, 2018, recorded as Notes Payable – Related Parties in the accompanying unaudited Balance Sheet. See Note 5 – Related Party Transactions.
|
|
July 31,
2018
|
|
|
April 30,
2018
|
|
Convertible Unsecured Notes Payable:
|
|
|
|
|
|
|
Unsecured convertible promissory note payable – Interest accrued at 5% and principal and interest due 12 months from the issuance date.
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
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. Through July 31, 2018, the Company has accrued $5,746 of interest related to the unsecured convertible promissory note and included in accrued interest in the accompanying unaudited Balance Sheet. The unsecured convertible promissory note is in default at July 31, 2018 and the note holder has several remedies including calling the principal amount and accrued interest due and payable immediately.
|
|
July 31,
2018
|
|
|
April 30,
2018
|
|
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
|
|
$
|
90,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Secured convertible promissory note payable – originally issued May 17, 2018 - Interest accrued at 8% - principal and interest due May 17, 2019
|
|
|
80,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Less: debt discount
|
|
|
(69,918
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Secured Notes Payable, net of debt discount
|
|
$
|
100,082
|
|
|
$
|
100,000
|
|
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 2 – DEBT (CONTINUED)
Convertible Secured Note Payable - #1
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 July 31, 2018, $75,917 of accrued interest was recorded in the accompanying unaudited 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%.
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.
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.
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 2 – DEBT (CONTINUED)
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.
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 unaudited 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 adjusted the carrying amount of the debt for discount, including stock and warrant issuances, and was amortized over the modification period of three months through June 9, 2017 as described below.
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 unaudited 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 unaudited 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 was amortized in full at April 30, 2018.
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 2 – DEBT (CONTINUED)
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 April 30, 2018, 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. On May 18, 2018, the lender elected to convert $10,000 of the principal amount of the note into 819,672 shares of common stock resulting in a note balance of $90,000 at July 31, 2018.
The promissory note was due and payable on June 9, 2017 and as a result, is in default at July 31, 2018. However, the lender has not notified the Company of the default in writing but, the lender has several remedies including calling the principal amount and accrued interest due and payable immediately.
The promissory note includes customary affirmative and negative covenants of the Company and at July 31, 2018, the Company is in default of a covenant to (1) be quoted or listed on at least one of the OTC Markets (OTCQX, OTCQB or OTC-Pink) or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq Small-Cap Market, the New York Stock Exchange, or the American Stock Exchange and (2) the Company shall be in compliance with (as “current”), or otherwise comply with the reporting requirements of the Exchange Act. On January 8, 2019, the Company received a waiver from the lender for these items through March 31, 2019 and is no longer in default of these specific items.
Convertible Secured Note Payable - #2
On May 17, 2018, the Company received $75,000 of net proceeds for working capital purposes from the issuance of a $80,000 face value convertible secured promissory note with debt issue costs paid to or on behalf of the lender of $5,000. The terms include interest accrued at 8% annually and the principal and interest payable are payable in one year on May 17, 2019. Any amount of the principal or interest which is not paid when due shall bear Interest at the rate of Eighteen Percent (18%), from the due date thereof until the same is paid.
The lender has the right at any time after the effective date, at its election, to convert all or part of the outstanding and unpaid principal sum and accrued interest into shares of common stock of the Company, subject to certain conversion limitations set forth in the promissory note and certain price protection described below, as per the conversion formula: Number of shares receivable upon conversion equals the dollar conversion amount divided by the Conversion Price. The Conversion Price is equal to Sixty Percent (60%) of the of the lowest trade of the Common Stock during the ten (10) trading Days immediately preceding a conversion date. The Conversion Price is subject to “full ratchet” and other customary anti-dilution protections.
The promissory note includes customary affirmative and negative covenants of the Company and at July 31, 2018, the Company is in default of a covenant to (1) be quoted on or before July 17, 2018 or listed on at least one of the OTC Markets (OTCQX, OTCQB or OTC-Pink) or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq Small-Cap Market, the New York Stock Exchange, or the American Stock Exchange and (2) after July 17, 2018, the Company shall be in compliance with (as “current”), or otherwise comply with the reporting requirements of the Exchange Act. On January 8, 2019, the Company received a waiver from the lender for these items through March 31, 2019 and is no longer in default.
The Company evaluated the secured convertible promissory note in accordance with ASC 815 “
Derivatives and Hedging
” and due to the price protection in the promissory note, determined that there was a conversion option feature that should be bifurcated and accounted for as a conversion option liability in the balance sheet at fair value. The initial valuation and recording of the conversion option liability was $114,132, using the Binomial Lattice Option Pricing Model with the following assumptions; stock price $0.02, conversion price $0.012, expected term of 1 year, expected volatility of 263% and discount rate of 0.82%. The initial $114,132 conversion option liability assumed that 6,666,667 shares would be issued upon conversion of the promissory note.
On the note issue date of May 17, 2018, the Company recorded the following debt discounts as offsets to the $80,000 promissory note and will be amortized over the one-year term of the promissory note: (1) debt issue costs of $5,000 and (2) debt discount from conversion option liability of $75,000. As a result, the Company recorded $39,132 for the initial fair value of the conversion option liability in Other Income (Expense) in the accompanying unaudited Statement of Operations.
The Company performed a revaluation of the conversion option liability using the Binomial Lattice Pricing Model at July 31, 2018 that resulted in a calculated value of $176,073. As a result, the Company recorded $61,941 of expense for the change in the fair value of conversion option liability and recorded in Other Income (Expense) in the accompanying unaudited Statement of Operations.
The revaluation of the conversion option liability at July 31, 2018 was calculated using the Binomial Lattice option pricing model with the following assumptions; stock price $0.03, conversion price $0.01, expected term of 0.75 years, expected volatility of 297% and discount rate of 1.99%. The change in the conversion option liability assumed that 6,666,667 shares would be issued upon conversion of the promissory note at July 31, 2018.
For the period from the note issue date of May 17, 2018 to July 31, 2018, the Company recorded $10,082 for amortization of the debt discounts discussed above and recorded to interest expense in the accompanying unaudited Statement of Operations.
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 3 – STOCK
Common Stock:
The Company is authorized to issue up to 200,000,000 shares of common stock at $0.001 par value per share. At July 31, 2018, 58,819,160 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 and excluded from the shares issued and outstanding at July 31, 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 Company plans to pursue the return of the 1,500,000 unvested shares held by the employees to be returned to treasury.
Common Stock Issued
On July 18, 2018, the lender of a convertible secured promissory, elected to exercise their right to convert $10,000 of the remaining $100,000 convertible secured promissory note at April 30, 2018 (See Note 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 Price of $0.02 per share on the conversion date, the Company issued 819,672 shares of common stock to the lender.
Common Stock Issuable
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. However, the underlying common stock had not been issued by the transfer agent and was recorded as Common Stock Issuable in the accompanying unaudited Balance Sheet at October 31, 2018. See Note 7 – Subsequent Events.
NOTE 4 – STOCK BASED COMPENSATION
Stock Options to Consultants
Effective July 14, 2014, the Company granted 4,150,000 stock options to purchase common stock to consultants pursuant to the 2014 Plan and shall vest pursuant to the vesting provision contained in each of the stock option agreements. The exercise price of the stock options is $0.05 per share. At April 30, 2018, only 1,200,000 of these options were outstanding and were held by the Senior Executive Vice President of the Company as the other stock options were either forfeited or terminated since being granted. For the 1,200,000 stock options held by the Senior Vice President of the Company, 450,000 vested on the grant date of July 14, 2014 and the remaining 750,000 had a four (4) year vesting period through July 14, 2018.
The 750,000 unvested stock options held by the Senior Executive Vice President of the Company were re-measured for the final time at July 14, 2018 (fully vested) and the Company recorded $3,865 as a credit to consulting expense during the three months ended July 31, 2018 in the accompanying unaudited Statement of Operations.
The Company used the following assumptions in estimating fair value:
Stock Price (re-measurement date of July 14, 2018)
|
|
$
|
0.02
|
|
Exercise Price
|
|
$
|
0.05
|
|
Expected Remaining Term
|
|
5.95 years
|
|
Volatility
|
|
|
82
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
1.94
|
%
|
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 4 – STOCK BASED COMPENSATION (Continued)
The following table summarizes employee and consultant stock option activity of the Company for the three months ended July 31, 2018:
|
|
Stock Options Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2018
|
|
|
1,240,000
|
|
|
$
|
0.08
|
|
|
|
6.04
|
|
|
$
|
—
|
|
No activity
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding, July 31, 2018
|
|
|
1,240,000
|
|
|
$
|
0.08
|
|
|
|
5.79
|
|
|
$
|
—
|
|
Exercisable, July 31, 2018
|
|
|
1,240,000
|
|
|
$
|
0.08
|
|
|
|
5.79
|
|
|
$
|
—
|
|
There was no change in stock warrants during the three months ended July 31, 2018 and the following table reflects stock warrants at July 31, 2018:
|
|
Stock Warrants Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2018
|
|
|
5,532,500
|
|
|
$
|
0.25
|
|
|
|
0.70
|
|
|
$
|
116,000
|
|
No activity
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding, July 31, 2018
|
|
|
5,532,500
|
|
|
$
|
0.29
|
|
|
|
0.61
|
|
|
$
|
58,500
|
|
Exercisable, July 31, 2018
|
|
|
5,532,500
|
|
|
$
|
0.29
|
|
|
|
0.61
|
|
|
$
|
58,500
|
|
NOTE 5 – RELATED PARTY TRANSACTIONS
At July 31, 2018, the Company has accrued $740,000 for unpaid former officer compensation and accrued $37,111 for the employers share of payroll taxes related to the unpaid former officer compensation in the accompanying unaudited 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.
At July 31, 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 classified the promissory note as Notes Payable – Related Parties in the accompanying unaudited Balance Sheet. See Note 2 – Debt.
At July 31, 2018, the Company has recorded $71,972 of accounts payable – related parties for Company related expenses. This includes $46,775 paid by the Senior Executive Vice President on behalf of the Company, $21,758 paid by the Director of Services and Procurement on behalf of the Company, $1,815 paid by the Company’s former house counsel on behalf of the Company and $125 paid by a former officer of the Company on behalf of the Company. The $46,775 owed to the Senior Vice President of the Company includes a reduction of $10,000 on December 10, 2017 from the exercise of 1,000,000 stock warrants at an exercise price of $0.01 per share. The 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
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 6 – 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:
|
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.
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 6 – COMMITMENTS AND CONTINGENCIES (Continued)
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
|
|
f.
|
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, as modified by the second amendment dated June 28, 2018, which specified:
|
g.
|
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 August 10, 2018;
|
|
h.
|
The Company paid the landlord $503 on August 10, 2018, as reimbursement for an additional month of storage space rental; and
|
|
i.
|
The Company will pay the landlord the $29,000 balance of the original $40,000 payment on or before August 15, 2018.
|
The Company has adjusted payments made against the balance which is $30,000 at July 31, 2018 in the accompanying unaudited Balance Sheet.
Effective September 21, 2018, the landlord and the Company executed a fourth amendment to the February 5, 2018 settlement discussed above, as modified by the second amendment dated June 28, 2018 and the third amendment dated July 31, 2018, which specified:
|
j.
|
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;
|
|
k.
|
The Company paid the landlord $503 on September 21, 2018, as reimbursement for an additional month of storage space rental; and
|
|
l.
|
The Company will pay the landlord the $28,000 balance of the original $40,000 payment on or before October 31, 2018.
|
|
m.
|
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.
|
Effective October 31, 2018, the landlord and the Company executed a fifth amendment to the February 5, 2018 settlement discussed above, which specified:
|
n.
|
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;
|
|
o.
|
The Company paid the landlord $1,006 on November 5, 2018, as reimbursement for two months of storage space rental; and
|
|
p.
|
The Company will pay the landlord the $27,000 balance of the original $40,000 payment on or before November 30, 2018.
|
|
q.
|
If the Company fails to make any payment specified in the fifth 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.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 6 – COMMITMENTS AND CONTINGENCIES (Continued)
Effective November 30, 2018, the landlord and the Company executed a sixth amendment to the February 5, 2018 settlement discussed above, which specified:
|
r.
|
In lieu of making the remaining balance payment of $27,000 on November 30, 2018, the Company paid the landlord a $1,000 installment of the $27,000 payment on November 30, 2018;
|
|
s.
|
The Company paid the landlord $503 on November 30, 2018, as reimbursement for one month of storage space rental; and
|
|
t.
|
The Company will pay the landlord the $26,000 balance of the original $40,000 payment on or before December 31, 2018.
|
|
u.
|
If the Company fails to make any payment specified in the sixth 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.
|
Effective December 20, 2018, the landlord and the Company executed a seventh amendment to the February 5, 2018 settlement discussed above, which specified:
|
v.
|
In lieu of making the remaining balance payment of $26,000 on December 31, 2018, the Company paid the landlord a $1,000 installment of the $26,000 payment on December 20, 2018;
|
|
w.
|
The Company paid the landlord $503 on December 20, 2018, as reimbursement for one month of storage space rental; and
|
|
x.
|
The Company will pay the landlord the $25,000 balance of the original $40,000 payment on or before January 31, 2019.
|
|
y.
|
If the Company fails to make any payment specified in the seventh 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 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 unaudited Balance Sheet at July 31, 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.
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 6 – COMMITMENTS AND CONTINGENCIES (Continued)
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 unaudited Balance Sheet at July 31, 2018.
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 unaudited Balance Sheet at July 31, 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 unaudited Balance Sheet at July 31, 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.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 6 – 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 unaudited Balance Sheet at July 31, 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 Unaudited Balance Sheet at July 31, 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 July 31, 2018, the Company owed the State of Delaware $110,154 for unpaid state income taxes from the tax year ended April 30, 2007. The unpaid state income taxes are included as state income taxes payable in accompanying unaudited Balance Sheet at July 31, 2018. Additionally, the Company owes the State of Delaware for penalties and interest from the tax year ending April 30, 2007 of $204,753, which is included as accrued expenses in the accompanying unaudited Balance Sheet at July 31, 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 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 unaudited Balance Sheet at July 31, 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.
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.
MAJOR LEAGUE FOOTBALL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2018
NOTE 6 – COMMITMENTS AND CONTINGENCIES (Continued)
SEC Correspondence
On April 19, 2018, the Company received correspondence from the SEC Division of Corporate Finance related to non-compliance with the reporting requirements under Section 13(a) of the Securities Act of 1934. The Company responded to the SEC on April 30, 2018 providing information that its past due April 30, 2017 Form 10-K was filed on April 25, 2018 and that it was actively preparing past due 10-Q filings for the periods ended July 31, 2017, October 31, 2017 and January 31, 2018. The Company requested a sixty (60) day extension to file the past due 10-Q reports. The Company filed the past due 10-Q reports with the SEC on June 11, 2018.
The Company filed its Form 10-K and the financial statements for the year ended April 30, 2018 on November 19, 2018 but, were not timely filed. As the Company had not timely filed its Form 10-K for the year ended April 30, 2018, the Company may be subject, without further notice, to an administrative proceeding to revoke its registration under the Securities Act of 1934. Additionally, the Company had not timely filed its Form 10-Q for the three months ended July 31, 2018. As of the date of these unaudited financial statements for the three months ended July 31, 2018, the Company has received no further correspondence from the SEC.
NOTE 7 – SUBSEQUENT EVENTS
On October 5, 2018, the Company received $50,000 of proceeds from a private placement offering, representing 5,000,000 shares of stock at a sales price of $0.01 per share.
On December 7, 2018, the Company received $50,000 of proceeds from a private placement offering, representing 5,000,000 shares of stock at a sales price of $0.01 per share.