NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
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.
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.
On November 12, 2014, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware to change its name to Major League Football, Inc. from Universal Capital Management, Inc. The Certificate of Amendment became effective at 5:00 p.m. EST on November 24, 2014.
The Company is seeking to establish, develop and operate MLFB as a professional spring football league. We launched a “Development Season” for 2016 but as of the date of these financial statements, we still lack the adequate funding to launch a full season of professional, spring-league football during 2018; however, we intend to launch a “short” season that we believe will provide our league with recognition and demonstrate our economic model and the market’s desire for spring football. MLFB will serve as a pipeline to develop players on and off the field, coaches, officials, scouts, trainers and all other areas of the game that the National Football League (NFL) needs today. We will also give NFL representatives the opportunity to view our team practices, game footage, practice tapes and confer with league coaches, team officials and staff. We intend to fill a void by establishing franchises in cities overlooked by existing professional sports leagues and provide fans with professional football in the NFL off-seasons, which will enable it to take a totally non-adversarial approach towards the National Football League (“NFL”). Our spring and early summer schedule ensures no direct competition with autumn/winter sports, including the 32 NFL, 9 Canadian Football League, 627 NCAA, 91 NAIA, 142 JUCO’s, 27 Canadian Universities, and thousands of high schools and other collegiate institutions. However, See Note 8 – Subsequent Events for significant items and transactions that have occurred that may have a negative impact on our ability to launch MLFB as a professional football league
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
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 a net loss and net cash used in operations of $5,075,507 and $332,050 for the year ended April 30, 2017. Additionally, at April 30, 2017, the Company has minimal cash, a working capital deficit of $4,217,065, an accumulated deficit of $26,197,339 and had no revenue for the year ended April 30, 2017.
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 derivative liabilities, valuation of beneficial conversion features in convertible debt, valuation of equity-based instruments issued for other than cash, valuation allowance on deferred tax assets, depreciable lives and estimated residual value of furniture, fixtures and equipment.
Cash and Cash Equivalents
For the 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, 2017 and 2016.
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, 2017 and 2016 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 year ended April 30, 2017. All revenue for the year ended April 30, 2016 was from league tryout camps held between October and December 2015 under the Company’s new business plan.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost, net of accumulated depreciation. For financial accounting purposes, depreciation is generally computed by the straight-line method over the following useful lives:
Furniture and fixtures
|
|
5 to 7 years
|
Computer and office equipment
|
|
3 to 7 years
|
For the years ended April 30, 2017 and 2016, the Company recorded $464 and $297 of depreciation expense, respectively. At April 30, 2017, the accumulated depreciation balance was $761.
Provision for Loan Receivable and Collateral Deposit
In March 2016, the Company loaned $125,000 to a third party so that the third party could make an investment that was expected to provide an additional return to the Company. Due to significant uncertainties regarding the collectability of the original principal amount and/or any additional return, the Company recorded an allowance for the full amount of the Loan Receivable and classified as Provision for Loan Receivable in the accompanying Statement of Operations at April 30, 2016.
In April 2016, the Company disbursed $50,000 of cash related to a collateral deposit with a third party that required additional deposits before a proposed transaction could be consummated. At April 30, 2016, no further deposits had been made and as a result, the Company recorded an allowance for the full amount of the Collateral Deposit and classified as Provision for Collateral Deposit in the accompanying Statement of Operations at April 30, 2016.
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 were recorded as a component of other income (expense) in the accompanying Statements of Operations.
Equipment Deposit
In March 2016, the Company recorded $260,323 of deposits related to football equipment including practice uniforms and shoulder pads. Because of events that have occurred after the date of these financial statements, there is uncertainty related to the Company being able to successfully launch a professional football league – see Note 8 – Subsequent Events. The Company has expensed the $260,323 of equipment and is recorded as Football equipment 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, 2017 AND 2016
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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.
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 and non-recurring basis consist of the following at April 30, 2017 and 2016, respectively:
|
|
Carrying
|
|
|
Fair Value Measurements at
|
|
|
|
Value at
|
|
|
April 30, 2016
|
|
|
|
April 30, 2016
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Conversion option liability
|
|
$
|
462,531
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Carrying
|
|
|
Fair Value Measurements at
|
|
|
|
Value at
|
|
|
April 30, 2017
|
|
|
|
April 30, 2017
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Conversion option liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The following is a summary of activity of Level 3 assets and liabilities for the years ended April 30, 2017 and 2016:
Conversion Option Liability
|
|
|
|
Balance – April 30, 2015
|
|
$
|
-
|
|
Initial value attributable to conversion option feature
|
|
|
929,577
|
|
Gain from Change in fair value
|
|
|
(467,046
|
)
|
Balance – April 30, 2016
|
|
|
462,531
|
|
Reduction for partial conversions of convertible secured promissory note
|
|
|
(286,341
|
)
|
Gain from change in fair value
|
|
|
(176,190
|
)
|
Balance – April 30, 2017
|
|
$
|
—
|
|
Changes in fair value of the conversion option liability are included in other income (expense) in the accompanying Statement of Operations for the years ended April 30, 2017 and 2016, respectively.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
The Company recognizes league tryout camp revenue on the dates that the tryout camps were held.
Stock Based Compensation
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the service period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.
Income Taxes
Deferred income tax assets and liabilities arise from temporary differences associated with differences between the financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities are classified as current or non-current, depending upon the classification of the asset or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or noncurrent depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce the deferred tax assets to the amount expected to be realized.
The Company follows the provisions of FASB ASC 740-10 “Uncertainty in Income Taxes” (ASC 740-10). Certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not” threshold. At April 30, 2017 and 2016, 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, 2017, there were options to purchase 7,690,000 shares of the Company’s common stock, 6,532,500 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 4,857,143 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.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements- Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern (ASU 2014-15). The guidance in ASU 2014-15 sets forth management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern as well as required disclosures. ASU 2014-15 indicates that, when preparing financial statements for interim and annual financial statements, management should evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern for one year from the date the financial statements are issued or are available to be issued. This evaluation should include consideration of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether it is probable that management’s plans to address the substantial doubt will be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods and annual periods thereafter. Early application is permitted. The adoption of this guidance did not have a material impact on the Company’s financial statements.
In April 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which changes the presentation of debt issuance costs in financial statements. Under this guidance such costs would be presented as a direct deduction from the related debt liability rather than as an asset. This guidance is effective for interim and annual reporting periods beginning after December 15, 2015. This ASU did not have a material impact on its financial statements.
ln May 2015, the FASB issued ASU 2015-08, “Business Combinations (Topic 805) Pushdown Accounting,” which conforms the FASB’s guidance on pushdown accounting with the SEC’s guidance. ASU 2015-08 is effective for annual periods beginning after December 15, 2015. This ASU did not have a material impact on its financial statements.
In February 2016, the FASB issued ASU 2016-02, which requires a reporting entity to recognize right-of-use assets and lease liabilities on the balance sheet for operating leases to increase transparency and comparability. The new guidance is effective for annual and interim periods beginning after December 15, 2018, and early adoption is permitted. Upon adoption of this standard, the Company expects to recognize, on a discounted basis, its minimum commitments under non-cancelable operating leases on the balance sheet resulting in the recording of right of use assets and lease obligations. The Company is currently evaluating additional impacts the guidance will have on its financial statements.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 adopted the new standard effective January 1, 2018, using the modified retrospective approach, and will expand our consolidated financial statement disclosures in order to comply with the ASU. 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 November 2016, the FASB issued ASU 2016-18 which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. The new guidance is effective for the annual and interim periods beginning after December 15, 2017 and early adoption is permitted. The Company is currently evaluating the effect the guidance will have on its financial statements.
The Company has evaluated other recent accounting pronouncements and their adoption, and has not had, and is not expected to have, a material impact on the Company’s financial position or results of operations. Other new pronouncements issued but not yet effective until after April 30, 2016 are not expected to have a significant effect on the Company’s financial position or results of operations.
NOTE 2 – DEBT
|
|
April 30,
2017
|
|
|
April 30,
2016
|
|
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
|
|
|
|
—
|
|
Note payable – August 4, 2016. Interest at 8% and principal payable on demand.
|
|
|
35,000
|
|
|
|
—
|
|
Note payable – September 27, 2016. Interest at 4% and principal payable on demand.
|
|
|
30,000
|
|
|
|
—
|
|
Note payable – September 29, 2016. Interest at 4% and principal payable on demand.
|
|
|
5,000
|
|
|
|
—
|
|
Note payable – September 29, 2016. Interest at 4% and principal payable on demand.
|
|
|
30,000
|
|
|
|
—
|
|
Note payable – October 3, 2016. Interest at 4% and principal payable on demand.
|
|
|
20,000
|
|
|
|
—
|
|
Total Notes payable
|
|
$
|
230,000
|
|
|
$
|
100,000
|
|
On January 6, 2016, the Company received $100,000 of proceeds from the issuance of a promissory note and recorded as Note Payable at April 30, 2017 and 2016. The terms of the promissory note include interest accrued at 8% annually and the principal and interest payable on demand. Through April 30, 2017, the Company has accrued $8,660 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, 2017, the Company has accrued $361 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 and (3) $20,000 and (4) $25,000 of principal and the outstanding balance of the promissory note is $35,000 at April 30, 2017. Through April 30, 2017, the Company has accrued $5,235 of interest related to the promissory note and included in accrued interest in the accompanying 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 April 30, 2017, the Company has accrued $710 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, 2017, the Company has accrued $117 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, 2017 AND 2016
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 April 30, 2017, the Company has accrued $704 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, 2017, the Company has accrued $460 of interest related to the promissory note and included in accrued interest in the accompanying Balance Sheet.
|
|
April 30,
2017
|
|
|
April 30,
2016
|
|
Notes Payable, Related Party:
|
|
|
|
|
|
|
Notes payable, related party. Seven (7) separate loans beginning on February 11, 2015 with last loan on August 28, 2015. No interest and principal payable on demand.
|
|
$
|
2,300
|
|
|
$
|
20,300
|
|
|
|
|
|
|
|
|
|
|
Total Notes payable, related party
|
|
$
|
2,300
|
|
|
$
|
20,300
|
|
From February to July 2015, an officer of the Company provided $15,300 of funds for working capital requirements. There is no formal agreement and no interest is being accrued by the Company with the principal due on demand. During the three months ending October 31, 2015, the Company repaid $15,000 of these funds leaving a balance outstanding of $300. Additionally, on August 28, 2015, the officer personally repaid $20,000 of notes payable (see below). As a result, the outstanding balance owed to the officer 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, recorded as Notes Payable –
Related Parties in the accompanying Balance Sheet. See Note 6 – Related Party Transactions.
On July 31, 2015, an existing investor of the Company provided $20,000 of funds for working capital requirements structured as an unsecured promissory note. The terms of the promissory note required a $25,000 balloon repayment including principal and interest on August 31, 2015. The Company recorded the Note Payable at the gross amount of $25,000 less $5,000 of original issue discount to be amortized to interest expense upon repayment. On October 28, 2015, an officer of the Company personally repaid the note holder $20,000, representing the principal amount of the note payable (see above). In September 2015, the Company repaid the note holder $5,000 representing the interest component of the note and recorded the payment as interest expense against the original issue discount and the note payable has been paid in full.
|
|
April 30,
2017
|
|
|
April 30,
2016
|
|
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
|
|
|
|
|
|
|
|
|
|
|
Less: Debt discount
|
|
|
-
|
|
|
|
(31,780
|
)
|
|
|
|
|
|
|
|
|
|
Total Convertible Unsecured Notes Payable, net of debt discount
|
|
$
|
50,000
|
|
|
$
|
18,220
|
|
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 2 – DEBT (CONTINUED)
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 April 30, 2017, the Company has accrued $2,616 of interest related to the unsecured convertible promissory note and included in accrued interest in the accompanying financial statements. The unsecured convertible promissory note is in default at April 30, 2017 and the note holder has several remedies including calling the principal amount and accrued interest due and payable immediately.
In accordance with ASC 470-20, the Company determined that a beneficial conversion feature (BCF) existed and utilizing the Black-Scholes Pricing Model, determined that the BCF fair value was $33,333 and recorded the $33,333 BCF as a debt discount with an offset to additional paid in capital. The initial $33,333 BCF assumed that 166,667 shares would be issued upon conversion of the promissory note and the debt discount was accreted as additional interest expense ratably over the one-year term of the note. During the year ended April 30, 2017, $31,780 of interest expense with a corresponding reduction to the debt discount and the debt discount balance is zero at April 30, 2017.
The Company used the following assumptions in the calculation:
Stock Price (issue date)
|
|
$
|
0.50
|
|
Conversion Price
|
|
$
|
0.30
|
|
Expected Remaining Term
|
|
1 year
|
|
Volatility
|
|
|
247
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.22
|
%
|
In July 2014, the Company commenced a debt offering of up to $3,000,000 of convertible unsecured promissory notes to provide working capital for the Company. The terms include a four percent (4%) per annum interest rate, payable in full with interest nine (9) months from the issuance date, convertible into common stock of the Company at a 30% discounted rate to the offering price of an anticipated future private offering of common stock of the Company for 30 days after the Company delivers the offering documents to the lender and a one (1) year warrant to purchase up to 35% of the number of shares obtained upon conversion of the note as described above. Due to the contingency on the conversion, accounting for the beneficial conversion feature will not be recognized until the contingency is resolved.
Through October 31, 2015, the Company received $678,260 of gross proceeds from this debt offering. As of October 31, 2015, the Company had recorded $20,838 of accrued interest related to these convertible unsecured promissory notes.
Effective October 31, 2015, the Company and the note holders agreed to the modification of the conversion provisions in these convertible unsecured promissory notes. The modified conversion terms provide the (i) the right to convert the principal, along with all interest thereon, into shares of the Company’s common stock at the conversion price of $0.30 per share, and (ii) receive a one-year warrant to purchase up to 100% of the number of shares obtained upon conversion of the note at an exercise price of $0.30 per share.
These modifications are considered debt extinguishments for accounting purposes due to the increase in the fair value of the embedded conversion options. The old notes with accrued interest were removed and the new notes recorded at fair value. The Company determined that there was $699,098 of debt discount related to the beneficial conversion feature of these new notes.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 2 – DEBT (CONTINUED)
In accordance with the conversion provisions discussed above, the note-holders requested conversion effective on October 31, 2015. The Company issued 2,330,327 shares of its common stock and warrants for the conversion of the outstanding principal balances (which included accrued interest of $20,838) aggregating $699,098 at the conversion price of $0.30 per share. The $699,098 of debt discount related to the beneficial conversion feature of these notes was recorded to interest expense. The relative fair value of the warrants issued with the common stock during these conversions totaled $338,463 and was recorded as additional interest expense. This resulted in a $1,037,561 increase in additional paid in capital (APIC).
|
|
April 30,
2017
|
|
|
April 30,
2016
|
|
Convertible Secured Note Payable:
|
|
|
|
|
|
|
Secured convertible promissory note payable – issued March 9, 2016 - Interest accrued at 10% and principal and interest due one year from the issuance date.
|
|
$
|
170,000
|
|
|
$
|
550,000
|
|
|
|
|
|
|
|
|
|
|
Less: debt discount
|
|
|
(24,213
|
)
|
|
|
(471,644
|
)
|
|
|
|
|
|
|
|
|
|
Total Convertible Secured Notes Payable, net of debt discount
|
|
$
|
145,787
|
|
|
$
|
78,356
|
|
On March 9, 2016 (the Original Issue Date (OID), the Company received $445,000 of net proceeds for working capital purposes from the issuance of a $550,000 face value convertible secured promissory note with debt issue costs paid to or on behalf of the lender of $55,000. The terms include interest accrued at 10% annually and the principal and interest payable 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. Through April 30, 2017, $40,883 of accrued interest was recorded in the accompanying financial statements.
The lender has the right at any time after the effective date, at its election, to convert all or part of the outstanding and unpaid principal sum and accrued interest into shares of common stock of the Company, subject to certain conversion limitations set forth in the promissory note and certain price protection described below, as per the conversion formula: Number of shares receivable upon conversion equals the dollar conversion amount divided by the Conversion Price. The Conversion Price is equal to seventy percent (70%) of the average of the lowest three VWAPs of the Common Stock during the twenty (20) Trading Days immediately preceding a Conversion Date.
The promissory note contains customary affirmative and negative covenants of the Company. The Conversion Price is subject to “full ratchet” and other customary anti-dilution protections.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 2 – DEBT (CONTINUED)
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 will be amortized over the one-year term of the note: (1) OID of $50,000, (2) debt issue costs of $55,000, (3) warrant fair value of $239,069 and (4) conversion option liability of $205,931. As a result, the Company recorded a $723,646 expense for the initial fair value of conversion option liability and recorded this as a separate item in other income (expense) in the accompanying Statement of Operations at April 30, 2016.
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). The Company performed a revaluation of the embedded conversion liability using the Black Scholes Pricing Model on each of the three conversion dates that resulted in an estimated conversion option liability of (1) $544,400, (2) $410,038 and (3) $385,429, respectively. The Company recorded a total expense of $139,642 for the change in the fair value of conversion option liability, recorded to other income (expense) in the accompanying Statement of Operations at April 30, 2017. Additionally, the Company reclassified $38,540 of the conversion option liability to additional paid in capital for the change in the fair value of conversion option liability related to the conversions of principal amounts on the respective dates.
For the three conversion dates of 1) September 13, 2016, (2) September 30, 2016 and (3) October 26, 2017, the revaluation of the conversion option liability was estimated using the Black Scholes Pricing Model with the following assumptions; stock price (1) $0.29, (2) $0.24 and (3) $0.22, conversion price (1) $0.18, (2) 0.17 and (3) $0.15, expected term of (1) 0.48 years (2) 0.44 years and (3) 0.37 years, expected volatility of (1) 181%, (2) 175% and (3) 179% and discount rate of (1) 0.25%, (2) 0.20% and (3) 0.25%. The change in the conversion option liability assumed that (1) 3,142,857, (2) 3,240,318 and (3) 3,496,593 shares would be issued upon conversion of the promissory note.
The Company performed a revaluation of the conversion option liability using the Black Scholes Pricing Model at October 31, 2016 that resulted in an estimated value of $358,230. The Company recorded $27,299 of income between October 26, 2016 and October 31, 2016 for the in the fair value of conversion option liability, recorded as a separate item in other income (expense) in the accompanying Statement of Operations at April 30, 2017.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 2 –
DEBT (CONTINUED)
The revaluation of the conversion option liability at October 31, 2016 was calculated using the Black Scholes option pricing model with the following assumptions; stock price $0.20, conversion price $0.14, expected term of 0.35 years, expected volatility of 175% and discount rate of 0.20%. The change in the conversion option liability assumed that 3,567,177 shares would be issued upon conversion of the promissory note at October 31, 2016.
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 Company performed a revaluation of the conversion option liability using the Black Scholes Pricing Model on each of the ten conversion dates that resulted in a conversion option liability of (1) $380,511, (2) $328,745, (3) $297,684, (4) $431,000, (5) $295,424, (6) $260,433, (7) $251,876, (8) $242,909, (9) $$186,323 and (10) $497,281. The Company recorded a total expense of $139,051 for the change in the fair value of conversion option liability, recorded to other income (expense) in the accompanying financial statements. Additionally, the Company reclassified $112,824 of conversion option liability to additional paid in capital for the change in the fair value of conversion option liability related to the conversions of principal amounts on the respective dates.
For the ten conversion dates of (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 revaluation of the conversion option liability was estimated using the Black Scholes Pricing Model with the following assumptions; stock price (1) $0.21, (2) $0.17 (3) $0.14, (4) $0.17, (5) $0.13, (6) $0.12, (7) $0.10, (8) $0.10, (9) $0.08 and (10) $0.12, conversion price (1) $0.14, (2) $0.12, (3) $0.10, (4) $0.09, (5) $0.09, (6) $0.08, (7) $0.07, (8) $0.07, (9) $0.06 and (10) $0.05, expected term of (1) 0.35 years (2) 0.31 years, (3) 0.24 years, (4) 0.23 years, (5) 0.21 years, (6) 0.19 years, (7) 0.17 years, (8) 0.15 years, (9) 0.12 years and (10) 0.12 years, expected volatility of (1) 175%, (2) 177%, (3) 175%, (4) 175%, (5) 176%, (6) 176%, (7) 174%, (8) 173%, (9) 179% and (10) 179% and discount rate of (1) 0.36%, (2) 0.50%, (3) 0.54%, (4) 0.50%, (5) 0.51%, (6) 0.46%, (7) 0.52%, (8) 0.51%, (9)0.51% and (10) 0.50%. The change in the conversion option liability assumed that (1) 3,500,000, (2) 3,924,206 (3) 4,655,067, (4) 4,718,254, (5) 4,924,539, (6), 4,941,867, (7) 5,551,213, (8) 5,851,953, (9) 6,553,350 and (10) 7,108,836 shares would be issued upon conversion of the promissory note.
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 is $170,000 at April 30, 2017 (See Note 4 – Stock and Note 8 – Subsequent Events).
The Company performed a revaluation of the conversion option liability using the Black Scholes Pricing Model on the first seven conversion dates through March 9, 2017 which is the end of the one-year term date of the note. This resulted in an estimated conversion option liability of (1) $681,945, (2) $534,134, (3) $507,718, (4) $357,794, (5) $132,480, (6) $116,817 and (7) $0. During the three months ended April 30, 2017, the Company recorded total income of $176,190 for the change in the fair value of conversion option liability, recorded to other income (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, 2017 AND 2016
NOTE 2 – DEBT (CONTINUED)
For the seven conversion dates of (1) February 1, 2017 (2) February 6, 2017, (3) February 8, 2017, (4) February 14, 2017, (5) February 21, 2017, (6) March 7, 2017 and (7) March 9, 2017, the revaluation of the conversion option liability was calculated using the Black Scholes Pricing Model with the following assumptions; stock price (1) $0.17, (2) $0.15 (3) $0.14, (4) $0.13, (5) $0.11, (6) $0.09 and (7) $0.08, conversion price (1) $0.06, (2) $0.06, (3) $0.06, (4) $0.06, (5) $0.08, (6) $0.06 and (7) $0.06, expected term of (1) 0.10 years (2) 0.08 years, (3) 0.08 years, (4) 0.06 years, (5) 0.04 years, (6) 0.01 years and (7) 0.00 years, expected volatility of (1) 182%, (2) 182%, (3) 181%, (4) 178%, (5) 171%, (6) 174% and (7) 174% and discount rate of (1) 0.50%, (2) 0.53%, (3) 0.53%, (4) 0.54%, (5) 0.53%, (6) 0.75% and (7) 0.72%. The change in the conversion option liability assumed that (1) 6,171,538, (2) 5,899,265 (3) 5,626,991, (4) 5,082,443, (5) 3,376,623, (6), 4,024,398 and (7) 3,895,682 of shares would be issued upon conversion of the promissory note.
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.
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 (See Note 8 – Subsequent Events). 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. See Note 8 – Subsequent Events.
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.
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 financial statements. The warrant calculation used the following assumptions; stock price $0.08, warrant exercise price $0.10, expected term of 3 years, expected volatility of 173% and discount rate of 0.75%.
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.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 2 – DEBT (CONTINUED)
In total on the forbearance date of March 9, 2017, the Company recorded the following debt discounts as offsets to the note which will be 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 the 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 is $24,213 and classified as an offset to the $170,000 note balance.
NOTE 3 – INCOME TAXES
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, 2016 was $0. There was no change in unrecognized tax provisions during the year ending April 30, 2017 and the accrual at April 30, 2017 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 2016 remain subject to examination by major tax jurisdictions.
The income tax benefit for the years ending April 30, 2017 and 2016 have been included in the accompanying financial statements based on an estimated annual federal and state of Delaware effective rate of 34.0% and 5.75%, respectively, resulting in a blended effective rate of 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,
|
|
|
|
2017
|
|
|
2016
|
|
Income tax benefit at U.S. Federal Income Tax rate
|
|
$
|
1,725,000
|
|
|
$
|
2,254,000
|
|
State income taxes, net of federal benefit
|
|
|
287,000
|
|
|
|
375,000
|
|
Change in valuation allowance
|
|
|
(2,012,000
|
)
|
|
|
(2,629,000
|
)
|
|
|
|
|
|
|
|
|
|
Net Income tax (provision) benefit
|
|
$
|
—
|
|
|
$
|
—
|
|
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 3
– INCOME TAXES (CONTINUED)
The components of deferred tax assets (liabilities) are as follows:
|
|
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
$
|
6,090,000
|
|
|
$
|
3,996,000
|
|
Capital loss carry forward
|
|
|
797,000
|
|
|
|
785,000
|
|
Stock-based compensation
|
|
|
1,676,000
|
|
|
|
1,676,000
|
|
Change in fair value of conversion option liability
|
|
|
(172,000
|
)
|
|
|
102,000
|
|
Bad debt
|
|
|
288,000
|
|
|
|
288,000
|
|
Other
|
|
|
531,000
|
|
|
|
363,000
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
$
|
9,210,000
|
|
|
$
|
7,210,000
|
|
Less: deferred tax asset valuation allowance
|
|
|
(8,933,500
|
)
|
|
|
(6,933,500
|
)
|
Total net deferred tax assets
|
|
|
276,500
|
|
|
|
276,500
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Future exercise of warrants
|
|
$
|
(276,000
|
)
|
|
$
|
(276,000
|
)
|
Other
|
|
|
(500
|
)
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax liabilities
|
|
$
|
(276,500
|
)
|
|
$
|
(276,500
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
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 increased by $2,012,000 and $2,629,000 for the years ended April 30, 2017 and 2016, respectively. Net operating loss carry-forwards aggregate approximately $15,320,000 and capital loss carry-forwards aggregate approximately $2,005,000 and expire in years through 2037. 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, 2017, 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 from the tax year ending April 30, 2007 of $182,056 and $165,082, which is included as accrued expenses in the accompanying financial statements at April 30, 2017 and 2016, respectively. The Company has an agreement with the State of Delaware to pay a minimum per month. However, due to cash flow constraints, the Company has been unable to pay the minimum monthly amounts and is in default of the agreement that may cause additional interest and penalties and lead to other collection efforts by the State of Delaware.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 4 – STOCK
Preferred Stock:
The Company is authorized to issue up to 50,000,000 shares of preferred stock. Of this, 7,500,000 shares are designated as Series A and the remainder are undesignated preferred stock. The Series A preferred stock has a liquidation preference to the common stock and upon the Company’s liquidation, each share of Series A preferred stock is entitled to receive the greater of (a) one dollar ($1.00) per share plus any accrued and unpaid dividends or (b) an amount which the holders of Series A preferred stock would have received on an as-converted basis using the then applicable conversion price.
Each share of Series A preferred stock, plus accrued or accumulated and unpaid dividends thereon, is convertible into the aggregate number of shares of common stock as is determined by a specific formula. Each share of Series A preferred stock shall be entitled to receive cumulative dividends in preference to any dividend on the common stock at the rate of ten cents ($.10) per year, payable semi-annually on the following fixed record dates: April 30 and October 31. Such dividends are payable, at the option of the Company, in cash or newly issued shares of the Company’s common stock or any combination thereof. Each holder of shares of Series A preferred stock shall be entitled, voting together with the common stock as a single class, to vote on all matters submitted to stockholders of the Company.
Common Stock:
The Company is authorized to issue up to 150,000,000 shares of common stock at $0.001 par value per share. As of April 30, 2017, 54,416,295 shares were issued and outstanding. Additionally, there are 1,500,000 shares of unvested common stock to be issued to employees over the vesting period of four years through July 14, 2018. The 1,500,000 unvested shares of common stock are not included in the 54,416,295 shares reported but are considered legally issued and outstanding as they have all rights of ownership, other than the right to receive dividends, and the right to vote.
Common Stock Issued
On July 14, 2014, the Company granted 19,000,000 shares of its common stock to the new MLFB management team. Of the 19,000,000 shares, 12,000,000 vested immediately and the remaining 7,000,000 vested in equal annual installments over a 4-year employment period commencing July 2015. During the three months ended July 31, 2015 and July 31, 2016, 3,500,000 of the 7,000,000 shares vested leaving a balance of 3,500,000 unvested shares at July 31, 2016. Effective August 31, 2016, 2,000,000 of the unvested shares were vested leaving a balance of 1,500,000 unvested shares at April 30, 2017. The Company recorded the issuance of the 5,500,000 vested shares at its par value of $5,500 with an offset to additional paid in capital. The original 7,000,000 unvested shares were valued at $0.05 per share or $350,000 and are being amortized to compensation expense over the vesting period. During the year ended April 30, 2017, the Company recorded $147,843 of compensation expense related to vesting of the shares – See Note 8 – Subsequent Events.
Effective November 28, 2014, the Company engaged an investor relations firm as a consultant to provide services related to shareholder information and public relations. The term of the agreement is for six (6) months. As compensation for the services, the Company issued the consultant 250,000 shares of common stock and will pay the consultant a monthly cash fee of $2,500. The Company valued the stock based upon the quoted market price of $0.90 on the date of grant, or $225,000. The $225,000 is being amortized to consulting expense over the 6-month term of the consulting agreement. At April 30, 2015, $37,500 of this amount (final month of the agreement) was recorded as prepaid consulting and during the year ended April 30, 2016, was amortized to consulting expense in the accompanying financial statements.
Effective March 23, 2015, the Company engaged a consultant to provide services primarily related to strategic planning, business development and strategic advisory services. The term of the agreement is two (2) years and as compensation for the agreement, the Company issued the consultant 500,000 shares of common stock. The Company valued the stock based upon the quoted market price of $0.30 on the date of grant, or $150,000. The $150,000 is being amortized to consulting expense over the two-year term of the consulting agreement. Through April 30, 2016, the Company recorded $83,014 of consulting expense and the remaining balance of $66,986 was recorded as prepaid consulting at April 30, 2016. During the year ended April 30, 2017, the Company recorded $66,986 of consulting expense and the prepaid consulting amount has been fully amortized at April 30, 2017.
Effective August 28, 2015, the Company issued 400,000 shares of common stock and 1,400,000 warrants to purchase common stock as compensation to a consultant. See Note 5 – Stock based Compensation for further discussion related to this transaction.
Effective September 16, 2015, 100,000 shares of common stock were issued for the exercise of a stock warrant at $.01 per share resulting in $1,000 of proceeds to the Company – See Note 5 – Stock Based Compensation.
Effective September 30, 2015, 10,000 shares of common stock were issued for the exercise of a stock option at $0.30 per share resulting in $3,000 of proceeds to the Company – See Note 5 – Stock Based Compensation.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 4 – STOCK (CONTINUED)
Effective October 15, 2015, the Company engaged a consultant to provide services primarily related to media services. The term of the agreement is one (1) year and as compensation for the agreement, the Company issued the consultant 112,500 shares of common stock. The Company valued the stock based upon the quoted market price of $1.00 on the date of grant, or $112,500. The $112,500 is being amortized to consulting expense over the one-year term of the consulting agreement. During the year ended April 30, 2016, the Company recorded $61,389 of consulting expense and the remaining unamortized amount of $51,111 was recorded as prepaid consulting at April 30, 2016. During the year ended April 30, 2017, the Company recorded $51,111 of consulting expense and the prepaid consulting amount has been fully amortized at April 30, 2017.
Effective October 31, 2015, 2,330,327 shares of common stock and warrants were issued for the conversion of convertible notes payable at a price of $0.30 per share. See Note 2- Debt.
Effective December 8, 2015, the Company engaged a consultant to provide services primarily related to public relations services. The term of the agreement is six (6) months and as compensation for the agreement, the Company issued the consultant 500,000 shares of common stock. The Company valued the stock based upon the quoted market price of $0.72 on the date of grant, or $275,000. The $275,000 is being amortized to consulting expense over the six-month term of the consulting agreement. During the year ended April 30, 2016, the Company recorded $219,093 of consulting expense and the remaining unamortized amount of $55,907 was recorded as prepaid consulting at April 30, 2016. During the year ended April 30, 2017, the Company recorded $55,907 of consulting expense and the prepaid consulting amount has been fully amortized at April 30, 2017.
Effective January 1, 2016, the Company engaged three consultants to provide services primarily related to corporate strategies. The term for each of the three agreements is six (6) months and as compensation for the agreement, the Company issued the three consultants an aggregate 150,000 shares of common stock. The Company valued the stock based upon the quoted market price of $0.72 on the date of grant, or $108,000. The $108,000 is being amortized to consulting expense over the six-month term of the consulting agreement. During the year ended April 30, 2016, the Company recorded $36,000 of consulting expense and the remaining unamortized amount of $72,000 was recorded as prepaid consulting at April 30, 2016. During the year ended April 30, 2017, the Company recorded $72,000 of consulting expense and the prepaid consulting amount has been fully amortized at April 30, 2017.
Effective January 8, 2016, the Company amended a previous consulting agreement dated April 23, 2015. Because of the amendment, the Company issued the consultant 100,000 shares of common stock for prior services provided. The Company valued the stock based upon the quoted market price of $0.72 on the date of grant, or $72,000. The $72,000 was recorded as consulting expense in the accompanying Statement of Operations for the year ended April 30, 2016.
Effective January 14, 2016, the Company engaged a consultant to provide services primarily related to corporate strategies. The term of the agreement is six (6) months and as compensation for the agreement, the Company issued the consultant 100,000 shares of common stock. The Company valued the stock based upon the quoted market price of $0.80 on the date of grant, or $80,000. The $80,000 is being amortized to consulting expense over the six-month term of the consulting agreement. During the year ended April 30, 2016, the Company recorded $47,473 of consulting expense and the remaining unamortized amount of $32,527 was recorded as prepaid consulting at April 30, 2016. During the year ended April 30, 2017, the Company recorded $32,527 of consulting expense and the prepaid consulting amount has been fully amortized at April 30, 2017.
From November 2, 2015 to February 16, 2016, the Company received $499,450 of proceeds from a private placement offering, representing 1,664,840 shares of stock and 832,426 warrants (see Note 5 – Stock Based Compensation). The $499,450 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. As a result, the Company allocated $323,095 to the shares of stock and $146,355 to the warrants. The value allocated to the warrants was classified as additional paid in accompanying balance sheet at April 30, 2016.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE
4 – STOCK (CONTINUED)
From March 3, 2016 to March 22, 2016, the Company received $55,000 of proceeds from a private placement representing 183,333 shares of common stock. The $55,000 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. As a result, the Company allocated $38,083 to the shares of stock and $16,917 to the warrants. The value allocated to the warrants was classified as additional paid in capital in the accompanying Balance Sheet at April 30, 2016.
Effective March 8, 2016, an investor that received warrants from the conversion of debt (See Note 2 – Debt and Note 5 – Stock Based Compensation) elected to exercise 4,007 warrants at an exercise price of $0.30 a share and the Company received $1,202 of cash proceeds. Accordingly, the Company issued the warrant holder 4,007 shares of common stock.
Effective March 22, 2016, an investor that received warrants from the conversion of debt (See Note 2 – Debt and Note 5 – Stock Based Compensation) elected to exercise 6,667 warrants at an exercise price of $0.30 a share and the Company received $2,000 of cash proceeds. Accordingly, the Company issued the warrant holder 6,667 shares of common stock.
Effective April 21, 2016, the Company issued 161,396 shares of common stock to employees as a component of a Registration Statement on Form S-8 for an aggregate of 8,690,000 shares of the Company’s common stock. The shares were per the Company’s 2014 Employee Stock Plan. The Company valued the stock based upon the quoted market price of $0.51 on the date of grant, or $82,312 and was classified as stock compensation expense in the accompanying Statement of Operations for the year ended April 30, 2016.
From May 3, 2016 to June 10, 2016, the Company issued 160,132 shares of common stock to employees as a component of a Registration Statement on Form S-8 for an aggregate of 8,690,000 shares of the Company’s common stock. 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.
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.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 4 – STOCK (CONTINUED)
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 the cashless exchange option included in the warrant 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 as a component of a Registration Statement on Form S-8 for an aggregate of 8,690,000 shares of the Company’s common stock. 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.
Common Stock Issuable:
Effective April 27, 2017, a consultant exercised 400,000 warrants at an exercise price of $0.01 or $4,000 of consideration. The consultant paid for the exercise price of $4,000 by electing the cashless exchange option included in the warrant to decrease the balance due under the respecting consulting invoice. However, the underlying common stock was not issued by the transfer agent until June 2017 – see Note 8 – Subsequent Events. At April 30, 2017, the Company recorded the 400,000 shares exercised by the Consultant as Common Stock Issuable in the accompanying financial statements.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
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, 2017 and 2016, 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).
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 will vest over a period of three to four years based upon the specific consulting agreements. The Company valued the stock options in accordance with ASC 505, Stock Compensation – Non-Employees, by using the Black Scholes Pricing Model.
The 1,100,000 stock options that vested immediately on the grant date of July 14, 2014 were valued at $55,000 and expensed to consulting expense. In January 2015, 300,000 of the vested stock options were exercised leaving a balance of 800,000 unexercised vested stock options.
The remaining 3,050,000 unvested stock options are being re-measured by the Company each reporting period and the resulting fair value is used to determine the new remaining consulting expense to be recorded over the vesting period of three to four years. Effective in December 2014, 1,050,000 of the unvested stock options were canceled due to the termination of the underlying consulting agreements. As a result, the consulting expense for the remaining 2,000,000 unvested stock options was $44,657 for the year ended April 30, 2017.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 5 – STOCK BASED COMPENSATION (CONTINUED)
The Company used the following assumptions in estimating fair value:
Stock Price (re-measurement date of April 30, 2017)
|
|
$
|
0.57
|
|
Exercise Price
|
|
$
|
0.05
|
|
Expected Remaining Term
|
|
7.20 years
|
|
Volatility
|
|
|
167
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate – Three-Month Treasury Bill
|
|
|
0.79
|
%
|
Stock Options to Employees
On February 24, 2015, pursuant to the terms of the 2014 Employee Stock Plan the Company issued to its employees, options to purchase up to 2,900,000 shares of common stock at an exercise price of $0.30 per share. The options vest over a period of 4 years, with 580,000 options vesting immediately. All options expire on February 23, 2025.
In addition, on February 24, 2015, the Company granted Jerome Vainisi, the Company’s acting Chief Executive Officer, an option to purchase up to 3,000,000 shares of common stock at an exercise price of $0.30 per share. These vest over a two-year period, with 250,000 options vesting immediately and the remaining 2,750,000 options vesting in eight equal quarterly installments of 343,750 options. Effective December 11, 2015, Mr. Vainisi notified the Company that he would not finalize his employment agreement and is no longer the Company’s Chief Executive Officer. As a result, he retained all vested options and the unvested options would be forfeited. At January 31, 2016, 1,281,250 (250,000 that vested immediately and 1,031,250 that vested as per above) of the options were vested and the remaining 1,718,750 were forfeited. In accordance with the Company’s 2014 Employee Stock Plan, Mr. Vainisi has 90 days from the separation date of December 11, 2015, or March 10, 2016 to exercise the vested options or they expire. Mr. Vainisi did not exercise his 1,281,250-vested option on March 10, 2016 and they expired.
As a result, a total of 5,900,000 stock options were granted on February 24, 2015. Of the 5,900,000 stock options, 830,000 vested immediately on the grant date of February 24, 2015 and the remaining 5,070,000 would vest over a period of two to four years based upon the specific agreement. As discussed above, 1,718,750 of Mr. Vainisi’s unvested options were forfeited on December 11, 2015 and 1,281,250 of Mr. Vainisi’s vested options expired on March 10, 2016. As a result, 2,070,000 unvested options are outstanding at April 30, 2017.
The Company valued the 2,070,000 unvested stock options in accordance with ASC 718, Stock Compensation, using the Black Scholes Pricing Model to estimate fair value. The Company used the ‘simplified method’ for estimating the ‘remaining expected contractual term’ because it does not have sufficient information to make more accurate estimates of the remaining expected term or employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies).
The 830,000 stock options that vested immediately (including 250,000 for Mr. Vainisi) on the grant date were valued at $390,100 and recorded to stock-based compensation expense. Effective September 30, 2015, 10,000 of the vested stock options were exercised at $0.30 per share resulting in $3,000 of proceeds to the Company – See Note 4 – Stock.
The remaining 2,070,000 unvested stock options (excluding Mr. Vainisi) had a fair value of $1,090,400 on the grant date and are being amortized ratably over the vesting periods. Mr. Vainisi’s remaining 1,090,250 vested options that expired were included in stock-based compensation expense through the expiration date of March 10, 2016. For the year ended April 30, 2017, the Company recorded $226,540 in stock-based compensation expense.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 5 – STOCK BASED COMPENSATION (CONTINUED)
The Company used the following assumptions in estimating fair value:
Stock Price (grant date)
|
|
$
|
0.47
|
|
Exercise Price
|
|
$
|
0.30
|
|
Expected Remaining Term
|
|
5 years
|
|
Volatility
|
|
|
246
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.11
|
%
|
Effective June 10, 2016, the Company granted 1,910,000 options to purchase common stock to five employees. The exercise price is $0.31 per share and on the grant date, 102,500 of the options vested immediately and the remaining 1,807,500 options will vest in various stages over a three-year period.
The Company valued the stock options in accordance with ASC 718, Stock Compensation, using the Black Scholes Pricing Model to estimate fair value. The Company used the ‘simplified method’ for estimating the ‘remaining expected contractual term’ because it does not have sufficient information to make more accurate estimates of the remaining expected term or employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies).
The 102,500 stock options that vested immediately on the grant date were valued at $32,717 and were recorded to stock-based compensation expense. The remaining 1,807,500 unvested stock options had a fair value of $576,944 on the grant date and will be amortized ratably over the vesting periods. For the year ended April 30, 2017, the Company recorded $507,924 of stock-based compensation expense related to the 1,807,500 unvested stock options.
The Company used the following assumptions in estimating fair value:
Stock Price (grant date)
|
|
$
|
0.32
|
|
Exercise Price
|
|
$
|
0.31
|
|
Expected Remaining Term
|
|
10 years
|
|
Volatility
|
|
|
191
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.27
|
%
|
On August 4, 2016, pursuant to the terms of the 2014 Employee Stock Plan the Company issued to an employee, an option to purchase 50,000 shares of common stock at an exercise price of $0.30 per share. The options vest over a period of 3 years, with 20,000 vesting immediately. This option expires on August 3, 2026.
The Company valued the options in accordance with ASC 718, Stock Compensation, using the Black Scholes Pricing Model to estimate fair value. The Company used the ‘simplified method’ for estimating the ‘remaining expected contractual term’ because it does not have sufficient information to make more accurate estimates of the remaining expected term or employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies).
The 20,000 stock options that vested immediately on the grant date were valued at $3,418 and were recorded to stock-based compensation expense.
The remaining 30,000 unvested stock options had a fair value of $5,233 on the grant date and are being amortized ratably over the vesting periods. During the year ended April 30, 2017, the Company recorded $1,286 of stock-based compensation expense related to the 30,000 unvested stock options.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 5 – STOCK BASED COMPENSATION (CONTINUED)
The Company used the following assumptions in estimating fair value:
Stock Price (grant date)
|
|
$
|
0.18
|
|
Exercise Price
|
|
$
|
0.30
|
|
Expected Remaining Term
|
|
5 years
|
|
Volatility
|
|
|
184
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.26
|
%
|
The following table summarizes employee and consultant stock option activity of the Company for the years ended April 30, 2017 and 2016, respectively – See Note 8 – Subsequent Events:
|
|
Employee and Consultant Stock Options Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2015
|
|
|
8,740,000
|
|
|
$
|
0.22
|
|
|
|
9.60
|
|
|
$
|
616,000
|
|
Exercised September 30, 2015
|
|
|
(10,000
|
)
|
|
$
|
0.30
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited December 11, 2015
|
|
|
(1,718,750
|
)
|
|
$
|
0.30
|
|
|
|
-
|
|
|
|
-
|
|
Expired March 10, 2016
|
|
|
(1,281,250
|
)
|
|
$
|
0.30
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, April 30, 2016
|
|
|
5,730,000
|
|
|
$
|
0.18
|
|
|
|
7.48
|
|
|
$
|
1,951,800
|
|
Granted June 10, 2016
|
|
|
1,910,000
|
|
|
$
|
0.31
|
|
|
|
9.12
|
|
|
|
—
|
|
Granted August 4, 2016
|
|
|
50,000
|
|
|
$
|
0.30
|
|
|
|
9.27
|
|
|
|
—
|
|
Outstanding, April 30, 2017
|
|
|
7,690,000
|
|
|
$
|
0.22
|
|
|
|
7.90
|
|
|
$
|
19,600
|
|
Exercisable, April 30, 2017
|
|
|
2,547,500
|
|
|
$
|
0.22
|
|
|
|
7.50
|
|
|
$
|
8,575
|
|
Stock Warrants
Effective August 28, 2015, the Company granted 1,400,000 warrants to purchase common stock, exercisable at $0.35 per share, to a consultant for services to be provided over a one-year period. Additionally, the Company issued 400,000 shares of stock to the Consultant as compensation for the services. Of the 1,400,000 stock warrants, 700,000 vested immediately on the grant date of August 28, 2015 and the remaining 700,000 will vest six (6) months from the grant date on February 28, 2016. The warrant has an exercise period of thirty (30) months through August 28, 2018. The Company valued the stock warrant in accordance with ASC 505-50, Equity Based Payments to Non-Employees, using the Black Scholes Pricing Model to determine the fair value.
According to ASC 505-50, a measurement date was reached at the date of grant, or August 28, 2015 for the 700,000 warrants which vested on the grant date. For the 700,000 warrants that vest in six (6) months, the fair value was re-valued at each reporting date until the vesting date of February 28, 2016.
The 700,000 stock warrants that vested immediately on the grant date were valued at $289,867, recorded to prepaid expense and will be amortized ratably to consulting expense over the twelve (12) month service period. The Company recorded $94,505 of consulting expense for the 700,000 vested stock warrants for the year ended April 30, 2017. As a result, the prepaid balance is zero at April 30, 2017.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 5 – STOCK BASED COMPENSATION (CONTINUED)
The Company used the following assumptions in estimating fair value:
Stock Price (grant date)
|
|
$
|
0.42
|
|
Exercise Price
|
|
$
|
0.35
|
|
Expected Remaining Term
|
|
2.33 years
|
|
Volatility
|
|
|
317
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.30
|
%
|
The remaining 700,000 unvested stock warrants had a fair value of $289,867 on the grant date and will also be amortized ratably to consulting expense over the twelve (12) month service period, however these warrants were re-valued through the vesting date of February 28, 2016, and the adjusted valuation, less the amounts amortized through the vesting date, have been amortized over the remaining service period of six (6) months. For the final re-measurement at February 28, 2016, the valuation was adjusted to $680,821 and the unamortized prepaid expense balance was $221,966 at April 30, 2016.
For the year ended April 30, 2017, the Company recorded $221,966 of consulting expense and the prepaid balance is zero at April 30, 2017.
The Company used the following assumptions in estimating fair value:
Stock Price (re-measurement date of February 28, 2016)
|
|
$
|
1.00
|
|
Exercise Price
|
|
$
|
0.35
|
|
Expected Remaining Term
|
|
1.83 years
|
|
Volatility
|
|
|
293
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.32
|
%
|
In relation to the 400,000 shares issued on the grant date, the Company valued the stock based upon the quoted market price of $0.42 on the date of grant, or $168,000. The $168,000 was amortized to consulting expense over the one-month term of the consulting agreement and the unamortized prepaid consulting balance was $54,773 at April 30, 2016. During the year ended April 30, 2017, the Company recorded $54,773 of consulting expense and the prepaid balance is zero at April 30, 2017.
Effective September 30, 2015, 100,000 stock warrants were exercised at $0.01 per share resulting in $1,000 of proceeds to the Company – See Note 4 – Stock.
In November 2015, the Company commenced a $500,000 private placement offering 50 units at $10,000 per unit. Each unit represents 33,333 shares of common stock at $0.30 per share and a one-year warrant to purchase 16,667 shares of common stock at an exercise price of $0.50 per share. From November 2, 2015 through February 16, 2016, the Company received $499,450 of proceeds from the offering representing 1,664,840 shares of stock and 832,426 warrants.
The $499,450 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. As a result, the Company allocated $343,910 to the shares of stock and $155,540 to the warrants. The value allocated to the warrants was classified as additional paid in capital in the accompanying financial statements. The November 2015 offering was terminated at the end of February 2016.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 5 – STOCK BASED COMPENSATION (CONTINUED)
In March 2016, the Company commenced a $500,000 private placement offering 50 units at $10,000 per unit. Each unit represents 33,333 shares of common stock at $0.30 per share and a one-year warrant to purchase 16,667 shares of common stock at an exercise price of $0.50 per share. From March 3, 2016 through March 22, 2016, the Company received $55,000 of proceeds from the offering representing 183,333 shares of stock and 91,667 warrants.
The $55,000 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. As a result, the Company allocated $40,317 to the shares of stock and $17,885 to the warrants. The value allocated to the warrants was classified as additional paid in capital in the accompanying financial statements.
As discussed above in Note 2 – Debt, in relation to a convertible secured promissory note, the Company issued the lender two warrants, a Series A warrant with a three (3) year term to acquire 250,000 shares of common stock of the Company at an exercise price of $1.02 per share and a Series B warrant with a three (3) year term to acquire 250,000 shares of common stock of the Company at an exercise price of $1.19 per share.
Effective March 8, 2016, an investor that received warrants from the conversion of debt (See Note 2 – Debt and Note 4 – Stock) elected to exercise 4,007 warrants at an exercise price of $0.30 a share and the Company received $1,202 of cash proceeds.
Effective March 22, 2016, an investor that received warrants from the conversion of debt (See Note 2 – Debt and Note 4 – Stock) elected to exercise 6,667 warrants at an exercise price of $0.30 a share and the Company received $2,000 of cash proceeds.
Effective April 27, 2016, the Company granted 300,000 warrants to purchase common stock, exercisable at $0.01 per share, to a consultant for prior services provided. The warrant vested immediately and has an exercise period of three years. The Company valued the stock warrant in accordance with ASC 505-50, Equity Based Payments to Non-Employees, using the Black Scholes Pricing Model to determine the fair value. The fair value for this stock warrant was $149,508, which was recorded to consulting expense immediately.
The Company used the following assumptions in estimating fair value:
Stock Price (grant date)
|
|
$
|
0.50
|
|
Exercise Price
|
|
$
|
0.01
|
|
Expected Remaining Term
|
|
3 years
|
|
Volatility
|
|
|
248
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.24
|
%
|
Effective April 27, 2016, the Company granted 1,000,000 warrants to purchase common stock, exercisable at $0.01 per share, to a consultant for prior services provided. The warrant vested immediately and has an exercise period of three years. The Company valued the stock warrant in accordance with ASC 505-50, Equity Based Payments to Non-Employees, using the Black Scholes Pricing Model to determine the fair value. The fair value for this stock warrant was $498,359, which was recorded to consulting expense immediately.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 5 – STOCK BASED COMPENSATION (CONTINUED)
The Company used the following assumptions in estimating fair value:
Stock Price (grant date)
|
|
$
|
0.50
|
|
Exercise Price
|
|
$
|
0.01
|
|
Expected Remaining Term
|
|
3 years
|
|
Volatility
|
|
|
248
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.24
|
%
|
Effective June 10, 2016, the Company granted 2,400,000 warrants to purchase common stock, exercisable at $0.01 per share, to six (6) consultants for prior services provided. The warrants vested immediately and have an exercise period of three years. The Company valued the stock warrants in accordance with ASC 505-50, Equity Based Payments to Non-Employees, using the Black Scholes Pricing Model to determine the fair value. The fair value for these stock warrants was $758,808, which was recorded to consulting expense immediately.
The Company used the following assumptions in estimating fair value:
Stock Price (grant date)
|
|
$
|
32
|
|
Exercise Price
|
|
$
|
0.01
|
|
Expected Remaining Term
|
|
3 years
|
|
Volatility
|
|
|
191
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.27
|
%
|
Effective August 4, 2016, the Company granted 400,000 warrants to purchase common stock, exercisable at $0.01 per share, to a consultant for corporate strategy services. The warrants vested immediately and have an exercise period of two years. The Company valued the stock warrants in accordance with ASC 505-50, Equity Based Payments to Non-Employees, using the Black Scholes Pricing Model to determine the fair value. The fair value for these stock warrants was $69,741, which was recorded to consulting expense immediately in the accompanying Statement of Operations for the year ended April 30, 2017.
The Company used the following assumptions in estimating fair value:
Stock Price (grant date)
|
|
$
|
0.18
|
|
Exercise Price
|
|
$
|
0.01
|
|
Expected Remaining Term
|
|
2 years
|
|
Volatility
|
|
|
184
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
Risk Free Interest Rate
|
|
|
0.26
|
%
|
Effective August 4, 2016, two of the 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 the cashless exchange option included in the warrant to decrease the balance due under their respecting consulting invoices
In January 2017, the Company commenced a $400,000 private placement offering eight (8) units at $50,000 per unit. Each unit represents 500,000 shares of common stock at $0.10 per share and a warrant to purchase 250,000 shares of common stock for two years at an exercise price of $1.00 per share. From January 12, 2017 through April 17, 2017, the Company received $216,500 of proceeds from the offering representing 2,165,000 shares of stock and 1,082,500 warrants. See Note 4 – Stock.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 5 – STOCK BASED COMPENSATION (CONTINUED)
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 Balance Sheet at April 30, 2017.
From October 30, 2016 through March 2, 2017, 3,243,746 warrants expired as they were not exercised before the end of the exercise period.
The following table summarizes stock warrant activity of the Company for the year ended April 30, 2017:
|
|
Consultant Stock Warrants Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2016
|
|
|
850,000
|
|
|
$
|
0.01
|
|
|
|
4.82
|
|
|
$
|
690,000
|
|
Issued August 28, 015
|
|
|
1,400,000
|
|
|
$
|
0.35
|
|
|
|
1.83
|
|
|
$
|
238,000
|
|
Exercised September 28, 2015
|
|
|
(100,000
|
)
|
|
$
|
0.01
|
|
|
|
-
|
|
|
$
|
-
|
|
Issued October 31, 2015 from conversion of debt
|
|
|
2,330,327
|
|
|
$
|
0.30
|
|
|
|
0.50
|
|
|
$
|
510,324
|
|
Issued November 2, 2016 through February 16, 2016
|
|
|
832,426
|
|
|
$
|
0.50
|
|
|
|
0.67
|
|
|
$
|
16,245
|
|
Issued March 3, 2016 through March 22, 2016
|
|
|
91,667
|
|
|
$
|
0.50
|
|
|
|
0.84
|
|
|
$
|
1,833
|
|
Exercised March 8, 2016
|
|
|
(4,067
|
)
|
|
$
|
0.30
|
|
|
|
-
|
|
|
$
|
-
|
|
Issued March 9, 2016
|
|
|
500,000
|
|
|
$
|
0.46
|
|
|
|
2.85
|
|
|
$
|
30,000
|
|
Exercised March 10, 2016
|
|
|
(6,667
|
)
|
|
$
|
0.30
|
|
|
|
-
|
|
|
$
|
-
|
|
Issued April 27, 2016
|
|
|
1,300,000
|
|
|
$
|
0.01
|
|
|
|
2.99
|
|
|
$
|
663,000
|
|
Outstanding, April 30, 2016
|
|
|
7,193,746
|
|
|
$
|
0.19
|
|
|
|
1.59
|
|
|
$
|
46,250
|
|
Issued June 10, 2016
|
|
|
2,400,000
|
|
|
$
|
0.01
|
|
|
|
2.11
|
|
|
|
112,800
|
|
Issued August 4, 2016
|
|
|
400,000
|
|
|
$
|
0.01
|
|
|
|
1.26
|
|
|
|
18,800
|
|
Exercised August 4, 2016
|
|
|
(1,300,000
|
)
|
|
$
|
0.01
|
|
|
|
—
|
|
|
|
—
|
|
Issued January 12, 2017 through April 17, 2017 from Private Placement at $1.00
|
|
|
1,082,500
|
|
|
$
|
1.00
|
|
|
|
1.78
|
|
|
|
—
|
|
Expired October 30, 2016 through March 2, 2017
|
|
|
(3,243,746
|
)
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding, April 30, 2017
|
|
|
6,532,500
|
|
|
$
|
0.25
|
|
|
|
1.79
|
|
|
$
|
177,850
|
|
Exercisable, April 30, 2017
|
|
|
6,532,500
|
|
|
$
|
0.25
|
|
|
|
1.79
|
|
|
$
|
177,850
|
|
NOTE 6 – RELATED PARTY TRANSACTIONS
During the year ended April 30, 2017, the Company recorded $900,000 of compensation for its management in accordance with executed management service agreements. At April 30, 2017, a total of $1,860,000 was unpaid and is recorded as accrued officer compensation in the accompanying financial statements. Additionally, the Company recorded $93,278 of accrued employers share of payroll taxes related to the unpaid officer compensation at April 30, 2017. See Note 8 – Subsequent Events.
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. 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. 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, recorded 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, 2017 AND 2016
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 is recorded in other assets in the accompanying financial statements at April 30, 2017 and 2016, respectively.
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.
|
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 at April 30, 2016 and 2017. The Company negotiated with Stradley and in July 2014, agreed to issue Stradley 100,000 shares of common stock valued at $0.05 per share, the quoted market price on the date of grant, as a sign of good faith towards a resolution. The Company is still in discussions with the law firm related to this Judgment and anticipates a resolution in the future.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 7 – COMMITMENTS AND CONTINGENCIES (Continued)
Breach of Investor Stock Purchase Agreement
On February 5, 2016, the Company disclosed that the previously executed $20,000,000 sale and purchase of common stock with Clairemont Private Investment Group, LLC (“Clairemont”), scheduled to close on February 1, 2016 was in default. The Company disclosed that Clairemont breached the Amended Purchase Agreement by not providing to the Company the $20,000,000 purchase price for the common stock as required by the terms of the Amended Purchase Agreement. The Company intends to pursue legal remedies against Clairemont.
Vendor Lawsui
ts
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, classified as prepaid legal in the accompanying financial statements at April 30, 2017.
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.
Jerry Craig, the CEO of the Company at that time, submitted the required $50,000 payment in a timely fashion to the trustee. However, on September 15, 2018, the trustee notified the Company that the payment made was returned for insufficient funds. Mr. Craig 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 may be 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. The Company has recorded accrued expenses of $50,000 for the potential settlement in the accompanying balance sheet at April 30, 2017.
On December 29, 2017, the trustee for H&J filed a second lawsuit against the Company and Jerry Craig, 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, Jerry Craig did not respond in a timely manner and the court has entered a default judgment against Mr. Craig.
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 $153,0154, 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 calls for MLFB to make payment Interactive in the sum of $10,000 immediately upon receipt of an initial tranche of funding. MLFB must then make an additional payment of $30,000 on or before June 1, 2018. MLFB’s failure to make the payments as outlined will result in the entry of a judgment in favor of Interactive against MLFB in the sum of $153,016 (less payment of $10,000 if made before June 1.), 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, 2017.
MAJOR LEAGUE FOOTBALL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 7 – COMMITMENTS AND CONTINGENCIES (Continued)
Vendor Lawsuits (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 would be instituted. The Company has recorded accounts payable to Lamnia of $124,968 in the accompanying balance sheet at April 30, 2017.
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, 2017.
Unpaid Taxes and Penalties
At April 30, 2017, the Company owed the State of Delaware $110,154 for unpaid state income taxes from the tax year ended April 30, 2007. The unpaid state income taxes are included as state income taxes payable in accompanying unaudited financial statements at April 30, 2017. Additionally, the Company owes the State of Delaware for penalties and interest from the tax year ending April 30, 2007 of $182,056, which is included as accrued expenses in the accompanying Balance Sheet at April 30, 2017. 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, 2017. 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, 2017 AND 2016
NOTE 8 – SUBSEQUENT EVENTS
Stock Issued to Employees
On May 8, 2017, the Company issued 15,000 shares of common stock to employees as a component of a Registration Statement on Form S-8 for an aggregate of 8,690,000 shares of the Company’s common stock. 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 will be recorded as stock compensation expense by the Company.
Conversions of Convertible Secured Promissory Note
On (1) May 1, 2017, (2) May 11, 2017, (3) June 20, 2017, (4) July 27, 2017 and (5) August 1, 2017, the lender of a convertible secured promissory note, elected to exercise their right to convert (1) $10,000, (2) $15,000, (3) $15,000, (4) 10,000 and (5) $20,000 on each of the above dates of the remaining $170,000 principal balance and the note payable balance has been paid down to $100,000 as of the date of these financial statements after the conversions. Based upon the calculated Conversion Prices of (1) $0.04, (2) $0.04, (3) $0.05, (4) $0.03 and (5) $0.03 on the respective conversion dates, the Company issued an aggregate 2,168,193 shares of common stock to the lender.
Issuance of Common Stock Subscribed
On June 5, 2017, the Company issued 400,000 shares of common stock to a consultant that exercised 400,000 warrants at an exercise price of $0.01 or $4,000 of consideration. The shares were recorded by the Company as Common Stock Issuable at April 30, 2017 because the Company had signed the documentation in April 2017. See Note 4 – Stock
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 .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 of the Company’s Series A convertible preferred stock at $.07.
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, 2017 AND 2016
NOTE 8 – SUBSEQUENT EVENTS (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.
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 “charging 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.
Former Officers Compensation Waived
Effective December 4, 2017, the previous Chief Operating Officer of the Company executed an agreement waiving his right to $560,000 of compensation that has been accrued by the Company at April 30, 2017. Additionally, the waiver stated that no further compensation since April 30, 2017 was due to the former officer. Accordingly, the Company will reduce accrued officer compensation by the $560,000 waiver in its future accounting records.
Effective December 4, 2017, the previous President of the Company executed an agreement waiving his right to $687,500 of compensation that has been accrued by the Company at April 30, 2017. Additionally, the waiver stated that no further compensation since April 30, 2017 was due to the former officer. Accordingly, the Company will reduce accrued officer compensation by the $687,500 waiver in its future accounting records.
Warrant Exercise:
On December 10, 2017, the sole officer of the Company, Frank Murtha, 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 the cashless exchange option included in the warrant to decrease the balance due under outstanding expenses owed by the Company
Stock Options Forfeited
At April 30, 2017, the Company had 7,690,000 stock options outstanding representing 7,650,000 under the 2014 Plan and 40,000 under the 2006 Plan – See Note 5 – Stock Based Compensation.
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 6,450,000 of the 7,690,000 stock options have been forfeited. The remaining 1,240,000 stock options are comprised of 1,200,000 held by Frank Murtha, the known remaining employee of the Company that had a grant under the 2014 Plan and 40,000 (20,000 each) held by two individuals under the 2006 Plan.
Unvested Common Stock
On July 14, 2014, the Company granted 7,000,000 shares of its common stock to the new MLFB management team. Which vested in equal annual installments over a 4-year employment period commencing July 2015 – See Note 4 – Stock. The original 7,000,000 unvested shares were valued at $0.05 per share or $350,000 and were being amortized to compensation expense over the vesting period and the Company had recorded $305,104 of compensation expense in total through April 30, 2017 leaving an unamortized balance of $$44,896. The remaining management team unvested shares were with two employees that have been terminated. 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 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.