UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x |
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
For the quarterly period ended October 31, 2015 |
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-52143
CrowdGather, Inc.
(Exact name of registrant as specified in
its charter)
Nevada |
20-2706319 |
(State or other jurisdiction
of incorporation or organization) |
(I.R.S. Employer
Identification No.) |
23945 Calabasas Road Suite 115, Calabasas CA, 91302 |
(Address of principal executive offices) (Zip Code) |
(818) 435-2472 |
(Registrant’s telephone number, including area code) |
________________________________________________
(Former name or former address, if changed
since last report)
Indicate
by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. x
Yes ¨ No
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x
Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated
file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
¨ |
|
Accelerated filer |
¨ |
Non-accelerated filer |
¨ |
(Do not check if a smaller reporting company) |
Smaller reporting company |
x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨
Yes x No
As of December 1, 2015, there were 120,063,572 shares of the
issuer’s $.001 par value common stock issued and outstanding.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CROWDGATHER, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
| |
OCTOBER 31, 2015 (UNAUDITED) | | |
APRIL 30, 2015 | |
ASSETS | |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash | |
$ | 16,012 | | |
$ | 73,801 | |
Accounts receivable | |
| 169,246 | | |
| 214,255 | |
Investments | |
| 21,480 | | |
| 21,480 | |
Inventory | |
| 31,648 | | |
| 31,744 | |
Prepaid expenses and deposits | |
| 56,838 | | |
| 37,389 | |
| |
| | | |
| | |
Total current assets | |
| 295,224 | | |
| 378,669 | |
| |
| | | |
| | |
Property and equipment, net of accumulated depreciation of $639,209 and $625,097, respectively | |
| 27,033 | | |
| 41,143 | |
| |
| | | |
| | |
Intangible and other assets, net of accumulated amortization of $1,202,716 and $812,846, respectively | |
| 7,260,838 | | |
| 7,664,328 | |
Goodwill | |
| 1,817,400 | | |
| 1,817,400 | |
| |
| | | |
| | |
Total assets | |
$ | 9,400,495 | | |
$ | 9,901,540 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 283,089 | | |
$ | 184,113 | |
Line of credit | |
| 297,415 | | |
| 449,760 | |
Deferred revenue | |
| 407,549 | | |
| 278,982 | |
Accrued vacation | |
| 101,791 | | |
| 96,564 | |
Other accrued liabilities | |
| 264,822 | | |
| 243,821 | |
Convertible notes payable, net of discount | |
| 517,431 | | |
| 223,316 | |
Derivative liabilities | |
| 378,922 | | |
| 819,240 | |
Notes payable, net of discount | |
| 2,710,167 | | |
| 1,455,859 | |
Notes payable to related parties, net of discount | |
| 299,336 | | |
| 296,359 | |
| |
| | | |
| | |
Total current liabilities | |
| 5,260,522 | | |
| 4,048,014 | |
| |
| | | |
| | |
Stockholders’ equity | |
| | | |
| | |
Common stock, $0.001 par value, 975,000,000 shares authorized, 120,036,572 and 117,283,509 issued and outstanding, respectively | |
| 120,037 | | |
| 117,284 | |
Additional paid-in capital | |
| 36,347,828 | | |
| 35,657,048 | |
Accumulated deficit | |
| (32,299,372 | ) | |
| (29,892,286 | |
Accumulated other comprehensive loss | |
| (28,520 | ) | |
| (28,520 | ) |
| |
| | | |
| | |
Total stockholders’ equity | |
| 4,139,973 | | |
| 5,853,526 | |
| |
| | | |
| | |
Total liabilities and stockholders’ equity | |
$ | 9,400,495 | | |
$ | 9,901,540 | |
See accompanying
notes to financial statements.
CROWDGATHER,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE THREE
MONTHS AND SIX MONTHS ENDED October 31, 2015 AND 2014
UNAUDITED
| |
Three Months | | |
Six Months | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Revenue | |
$ | 518,964 | | |
$ | 393,734 | | |
$ | 1,228,115 | | |
$ | 800,324 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of revenue | |
| 95,976 | | |
| 147,445 | | |
| 253,268 | | |
| 254,914 | |
| |
| | | |
| | | |
| | | |
| | |
Gross profit | |
| 462,989 | | |
| 246,289 | | |
| 974,847 | | |
| 545,410 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Payroll and related expenses | |
| 312,295 | | |
| 573,641 | | |
| 666,489 | | |
| 1,246,683 | |
Stock based compensation | |
| 17,900 | | |
| 100,000 | | |
| 78,900 | | |
| 199,000 | |
General and administrative | |
| 485,771 | | |
| 1,162,210 | | |
| 1,223,234 | | |
| 2,395,914 | |
Legal settlements, net | |
| - | | |
| 50,000 | | |
| - | | |
| 50,000 | |
Loss on disposal of assets | |
| - | | |
| - | | |
| - | | |
| 1,529,262 | |
Total operating expenses | |
| 815,966 | | |
| 1,885,851 | | |
| 1,968,623 | | |
| 5,420,859 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (392,977 | ) | |
| (1,639,562 | ) | |
| (993,776 | ) | |
| (4,875,449 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense), net | |
| | | |
| | | |
| | | |
| | |
Stated interest and issuance (expense) | |
| (104,916 | ) | |
| (13,749 | ) | |
| (200,859 | ) | |
| (13,508 | ) |
Debt discount (expense), net fair value adjustment | |
| (233,911 | ) | |
| - | | |
| (419,939 | ) | |
| - | |
Gain (Loss) on notes payable | |
| (64,785 | ) | |
| 2442 | | |
| (124,412 | ) | |
| 2,442 | |
Other interest (expense) | |
| (1,448 | ) | |
| - | | |
| (2,236 | ) | |
| - | |
Total Other income (expense), net | |
| (405,060 | ) | |
| (11,307 | ) | |
| (747,446 | ) | |
| (11,066 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss before provision for income taxes | |
| (798,037 | ) | |
| (1,650,869 | ) | |
| (1,741,222 | ) | |
| (4,886,515 | ) |
| |
| | | |
| | | |
| | | |
| | |
Provision for income taxes | |
| - | | |
| - | | |
| 800 | | |
| 800 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (798,037 | ) | |
$ | (1,650,869 | ) | |
$ | (1,742,022 | ) | |
$ | (4,887,315 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding- basic and diluted | |
| 118,201,197 | | |
| 116,733,508 | | |
| 117,742,353 | | |
| 111,046,333 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share – basic and diluted | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | (0.04 | ) |
See accompanying
notes to financial statements.
CROWDGATHER,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE SIX
MONTHS ENDED OCTOBER 31, 2015 AND 2014
UNAUDITED
| |
2015 | | |
2014 | |
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (1,742,022 | ) | |
$ | (4,887,315 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 208,492 | | |
| 448,243 | |
Stock-based compensation | |
| 78,900 | | |
| 199,000 | |
Loss on disposal of assets | |
| - | | |
| 1,529,262 | |
Change in fair value of derivative liabilities | |
| (414,692 | ) | |
| (2,442 | ) |
Loss on extinguishment of debt | |
| 124,412 | | |
| - | |
Changes in operating assets and liabilities: | |
| | | |
| | |
(Increase) decrease in accounts receivable | |
| 10,346
| | |
| (69,294 | ) |
Decrease in inventory | |
| 26 | | |
| 113 | |
(Increase) decrease in prepaid expenses and deposits | |
| (10,816 | ) | |
| (18,388 | ) |
Increase in accounts payable and accrued liabilities | |
| (36,494 | ) | |
| 819,045 | |
| |
| | | |
| | |
Net cash used in operating activities | |
| (1,781,848 | ) | |
| (1,981,776 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of property and equipment | |
| - | | |
| (12,384 | ) |
Proceeds from sale of intangible assets, net of fees | |
| 16,120 | | |
| 1,430,847 | |
Purchase of intangible assets | |
| - | | |
| - | |
| |
| | | |
| | |
Net cash provided by investing activities | |
| 16,120.00 | | |
| 1,418,463 | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Cash account acquired with the purchase of subsidiary | |
| - | | |
| 102,358 | |
Proceeds from the issuance of debt | |
| 1,611,859 | | |
| 154,000 | |
Payments on capital lease obligations | |
| - | | |
| - | |
| |
| | | |
| | |
Net cash provided by financing activities | |
| 1,611,859 | | |
| 256,358 | |
| |
| | | |
| | |
Net increase (decrease) in cash | |
| (153,869 | ) | |
| (306,955 | ) |
Cash, beginning of period | |
| 169,881 | | |
| 546,158 | |
Cash, end of period | |
$ | 16,012 | | |
$ | 239,203 | |
| |
| | | |
| | |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Cash paid for: | |
| | | |
| | |
Interest | |
$ | - | | |
$ | - | |
Income taxes | |
$ | 800 | | |
$ | 800 | |
Non-cash transactions: | |
| | | |
| | |
Purchase of property and equipment | |
$ | - | | |
$ | 27,538 | |
Accounts payable and accrued liabilities assumed for acquisition of Plaor, Inc. | |
| | | |
| 232,000 | |
Stock-based compensation | |
$ | 78,900 | | |
$ | 199,000 | |
Stock issued for the acquisition of Plaor, Inc. | |
$ | - | | |
$ | 6,058,338 | |
See accompanying
notes to financial statements.
CROWDGATHER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
OCTOBER 31, 2015
(UNAUDITED)
| 1. | NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES |
Nature of Operations
CrowdGather, Inc. (hereinafter referred to as “we”,
“us”, “our”, or “the company”) is a social networking, internet company that specializes
in developing and hosting forum based websites and provides targeted advertising and marketing services for online customers. Through
our merger with Plaor, Inc on May 19, 2014, we also develop, market and operate online social games as live services played over
the Internet and on social networking sites and mobile platforms. Plaor’s initial social gaming platform is a simulated casino
environment referred to as Mega Fame Casino. We are headquartered in Calabasas, California, and were incorporated under the laws
of the State of Nevada on April 20, 2005.
Principles of Consolidation
The accompanying consolidated financial statements
include our activities and our wholly-owned subsidiaries, Adisn, Inc. and Plaor, Inc. All intercompany transactions have been eliminated.
Basis of Presentation
The condensed consolidated unaudited financial statements
included herein have been prepared in accordance with accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all information
and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed
herein, there have been no material changes in the information disclosed in the notes to the financial statements included in our
annual report on Form 10-K for the year ended April 30, 2015. In the opinion of management, all adjustments (including normal recurring
accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended October 31,
2015, are not necessarily indicative of the results that may be expected for any other interim period or the entire year. For further
information, these unaudited financial statements and the related notes should be read in conjunction with our audited financial
statements for the year ended April 30, 2015, included in our annual report on Form 10-K.
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the reported periods. Actual results could materially differ
from those estimates.
Identifiable Intangible Assets
In accordance with Financial Accounting Standards
Board (FASB) Accounting Standards Codification No. 350, Intangibles – Goodwill and Other (ASC 350), goodwill and intangible
assets with indefinite lives are not amortized but instead are measured for impairment at least annually in the fourth quarter,
or when events indicate that impairment exists. As required by ASC 350, in the impairment tests for indefinite-lived intangible
assets, we compare the estimated fair value of the indefinite-lived intangible assets, website domain names, using a combination
of discounted cash flow analysis and market value comparisons. If the carrying value exceeds the estimate of fair value, we calculate
the impairment as the excess of the carrying value over the estimate of fair value and accordingly record the loss.
Intangible assets that are determined to have definite
lives are amortized over the shorter of their legal lives or their estimated useful lives and are measured for impairment only
when events or circumstances indicate the carrying value may be impaired in accordance with ASC 360, Property, Plant and Equipment
discussed below.
Impairment of Long-Lived Assets
In accordance with ASC 360, we estimate the future
undiscounted cash flows to be derived from the asset to assess whether or not a potential impairment exists when qualitative events
or circumstances indicate the carrying value of a long-lived asset may be impaired. If the carrying value exceeds our estimate
of future undiscounted cash flows, we then calculate the impairment as the excess of the carrying value of the asset over our estimate
of its fair value.
| 1. | NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued) |
Investments
Investments are classified as available for sale and
consist of marketable equity securities that we intend to hold for an indefinite period of time. Investments are stated at fair
value and unrealized holding gains and losses, net of the related tax effect, are reported as a component of accumulated other
comprehensive income until realized. Realized gains or losses on disposition of investments are computed on the “specific
identification” method and are reported as income or loss in the period of disposition on our consolidated statements of
operations.
Inventory
Inventory is valued at the lower of cost or market,
using the first-in, first-out (FIFO) method.
Revenue Recognition
We currently work with third-party advertising networks
and advertisers pay for advertising on a cost per thousand impressions, cost per click or cost per action basis. We also derive
revenue from the sale of virtual goods associated with our online games, as well as from services provided for customer events.
All sales are recorded in accordance with ASC 605, Revenue Recognition. Revenue is recognized when all the criteria have
been met:
• When persuasive evidence of an arrangement
exists.
• The services have been provided to the customer.
• The fee is fixed or determinable.
• Collectability is reasonably assured.
Online Game
We operate Mega Fame Casino (“MFC”), a
full-featured free-to-play online social casino. MFC is available on Facebook, Google Play, and the Apple App Store. MFC generates
revenue through the sale of virtual currency to players that they may exchange to play at any of our online slot machines, video
poker machines, Hold’em style poker tables, or for other features and experiences available within MFC. Players can pay for
our virtual currency using Facebook credits (prior to July 2013) or Facebook local currency payments (beginning July 2013) when
playing our games through Facebook and can use other payment methods such as credit cards or PayPal on other platforms.
Revenue from the sale of virtual currency to players
is recognized when the service has been provided to the player, assuming all other revenue recognition criteria have been met.
We have determined that an implied obligation exists by the Company to the paying player to continue displaying the purchased virtual
goods within the online game over their estimated life or until they are consumed. The proceeds from the sale of virtual goods
are initially recorded as deferred revenue. We recognize revenue as the goods are consumed, assuming all other revenue recognition
criteria have been met, which is generally over a period of 90 days.
Events
Our games also offer unique interactions with a large
number of well-known celebrities from film, television, professional sports, and the music industry. Through a combination of regularly
scheduled events and special events, our players can play and interact with their favorite stars in ways not known to be available
in other social games. Our most popular celebrity event is our bi-weekly celebrity shootout tournament. We recognize revenue upon
conclusion of the event, assuming all other revenue recognition criteria have been met.
Deferred Revenue
Advance payments from customers that are non-refundable
and relate to non-cancellable contracts that specify our obligations are recorded to deferred revenue until the aforementioned
revenue recognition criteria have been met.
Cost of Revenue
Our cost of revenue consists primarily of the direct
expenses incurred in order to generate online game revenue. Such costs are recorded as incurred. Our cost of revenue consists primarily
of hosting and data center costs related to operating our online games, royalty fees and expenses for hosting celebrity events,
primarily appearance and facility fees. Additionally, expenses relating to the fulfillment of specific customer advertising campaigns
and the costs associated with the manufacturing and distribution of our synthetic human pheromone consumer products are included
in our cost of revenue as well.
Stock Based Compensation
We account for employee stock option grants in accordance
with ASC 718, Compensation – Stock Compensation . ASC 718 establishes standards for the accounting for transactions
in which an entity exchanges its equity instruments for goods or services. ASC 718 requires a public entity to measure the cost
of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That
cost will be recognized over the period during which an employee is required to provide service in exchange for the award - the
requisite service period (usually the vesting period).
For options and warrants issued as compensation to
non-employees for services that are fully vested and non-forfeitable at the time of issuance, the estimated value is recorded in
equity and expensed when the services are performed and benefit is received as provided by ASC 505-50, Equity – Disclosure
. For unvested shares, the change in fair value during the period is recognized in expense using the graded vesting method.
Internal-Use Software Development Costs
We expense costs as incurred for internal-use software
during the preliminary stages of development. Costs incurred by us during the application development stage are capitalized, subject
to their recoverability. All costs incurred after the software has been implemented and is fully operational are expensed as incurred.
As of October 31, 2015, we have not capitalized any internal-use software development costs.
Comprehensive Loss
We apply ASC No. 220, Comprehensive Income
(ASC 220). ASC 220 establishes standards for the reporting and display of comprehensive income or loss, requiring its
components to be reported in a financial statement that is displayed with the same prominence as other financial statements. Our
comprehensive loss was $798,000 and $1,741,000 for the three and six months ended October 31, 2015, respectively.
Recent Accounting Pronouncements
There were various accounting updates recently issued,
most of which represented technical corrections to the accounting literature or application to specific industries and are not
expected to a have a material impact on our condensed consolidated financial position, results of operations or cash flows.
Reclassifications
Certain amounts in the prior year financial statements
have been reclassified for comparative purposes to conform to the current year presentation.
We have incurred a net loss of $1,741,000 for
the six months ended October 31, 2015 and have an accumulated deficit of $32,299,000 as of October 31, 2015, and additional
debt or equity financing will be required to fund our activities and to support our operations. However, there
is no assurance we will be able to obtain additional financing. Furthermore, there is no assurance that rapid technological
changes, changing customer needs and evolving industry standards will enable us to introduce new products on a continual and timely
basis so that profitable operations can be attained.
We are currently devoting our efforts to assimilate
our business combination with Plaor to enhance our product offerings and revenues as further described in Management’s Discussion
and Analysis. There can be no assurance that our efforts will translate in a beneficial manner. The accompanying statements
do not include any adjustments that might result should we be unable to continue as a going concern.
On May 19, 2014, we completed a merger agreement for
100% of the issued and outstanding common stock of Plaor, Inc. (Plaor), a social gaming company, pursuant to which Plaor survived
as our wholly-owned subsidiary (“Merger”). The Company issued 55,075,801 shares of its $0.01 par value common stock
to the shareholders of Plaor. These shares were valued for the Company's accounting purposes at $0.11 per share which represented
the closing share price of the Company’s stock on May 19, 2014. The total value of the acquisition was approximately $6,058,000
and has been allocated in accordance with ASC 805 as per the Company’s valuation estimate as follows:
Cash and cash equivalent | |
$ | 102,000 | |
Accounts receivable, Net | |
| 87,000 | |
Prepaids and other assets | |
| 25,000 | |
Property and equipment | |
| 18,000 | |
Amortizable intangible assets: | |
| | |
Trademarks, trade name, licensing and branding | |
| 4,240,938 | |
Goodwill allocated | |
| 1,817,400 | |
| |
| | |
Total assets acquired | |
| 6,290,338 | |
Fair value of liabilities assumed | |
| (232,000 | ) |
Net fair value | |
$ | 6,058,338 | |
As of October 31, 2015, inventory consisted of all
finished goods of our synthetic human pheromone consumer products in the amount of approximately $31,000.
Pursuant to our agreement with Human Pheromone Sciences,
Inc., we converted our $50,000 advance payment into 714,286 shares of Human Pheromone restricted common stock in January 2012. These
securities are classified as available for sale and are stated at fair value.
Property and equipment consisted of the following:
| |
October 31, 2015 | | |
April 30, 2015 | |
| |
| | |
| |
Furniture, fixtures and office equipment | |
$ | 34,000 | | |
$ | 34,000 | |
Computers, servers and equipment | |
| 620,000 | | |
| 620,000 | |
Leasehold improvements | |
| 12,000 | | |
| 12,000 | |
| |
| 666,000 | | |
| 666,000 | |
Less: accumulated depreciation | |
| (639,000 | ) | |
| (625,000 | ) |
| |
| | | |
| | |
| |
$ | 27,000 | | |
$ | 41,000 | |
Depreciation expense was $12,000 and $59,000 for the
six months ended October 31, 2015 and 2014, respectively.
| 7. | CONCENTRATIONS OF CREDIT RISK |
| | As of October 31, 2015 100% of our social game outstanding receivables were derived from three platforms, Facebook, Google,
and Apple. This concentration of receivable sources causes us to face significant risks related to both our standing with these
platforms and also their commercial success and user participation. |
Intangibles are either amortized over their estimated
lives, if a definite life is determined, or are not amortized if their life is considered indefinite. We account for the intangible
assets at cost. Intangible assets acquired in a business combination, if any, are recorded under the purchase method of accounting
at their estimated fair values at the date of acquisition. For the six months ended October 31, 2015 and 2014, we recorded
$390,000 and $389,000 respectively, of amortization associated with its definite lived intangibles. Intangibles consist of the
following:
| |
Est. Life | |
October 31, 2015 | | |
April 30, 2015 | |
| |
| |
| | |
| |
Online forums and related websites | |
Indefinite | |
$ | 4,398,000 | | |
$ | 4,411,000 | |
Plaor acquisition | |
5 years | |
| 4,066,000 | | |
| 4,066,000 | |
| |
| |
| 8,464,000 | | |
| 8,477,000 | |
Less: accumulated amortization | |
| |
| (1,203,000 | ) | |
| (813,000 | ) |
| |
| |
| | | |
| | |
| |
| |
$ | 7,261,000 | | |
$ | 7,664,000 | |
During the six months ended October 31, 2015 we recorded
reduction of approximately $16,000 of asset value related to online forums and related websites in connection with sale of our
PbNation online community to VerticalScope during our 2015 fiscal year.
On August 11, 2015, we acquired
the digital assets of CouponsForWeed.com and related mobile application in exchange for a $1,000 cash payment due at closing and
28,571 shares of our $0.001 par value common stock, valued for accounting purposes at $0.05 per share which represented the volume
weighted average share price on the closing date of the transaction.
Goodwill represents the excess of the purchase price
over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized, but
is tested for impairment on an annual basis and between annual tests in certain circumstances. An impairment charge is recognized
for the excess of the carrying value of goodwill over its implied fair value. As October 31, 2015, we determined that
the fair value of the goodwill exceeded its carrying value and therefore goodwill was not impaired.
| 10. | PREFERRED SERIES B STOCK |
On April 8, 2013, we filed with the Secretary of State
of Nevada the Certificate of Designation of the Relative Rights and Preferences of the Series B Preferred Stock (the “Certificate
of Designation”) specifying the designations, preferences and relative rights of the Series B Convertible Preferred Stock
(“Series B Shares”). The Certificate of Designation created a series of preferred stock consisting of 1,000,000
out of the 25,000,000 shares of our preferred stock, which will be designated “Series B Preferred Stock.” The
Certificate of Designation provides, among other things, that: (i) the conversion price for the shares of Series B Shares is the
price per share equal to the quotient of the original issue price of $1.00 per share (the “Original Issue Price”) divided
by the number of shares of common stock into which each share of Series B Shares may be converted (the “Conversion Rate”),
subject to adjustment from time to time for recapitalizations and as otherwise set forth in the Certificate of Designation; (ii)
each share of Series B Shares is convertible into shares of common stock at the option of the holder at any time after the date
of issuance at a Conversion Rate of 20 shares of common stock for each share of Series B Shares; (iii) the holder of outstanding
Series B Shares will be entitled to receive dividends, when declared by the Board of Directors, at an annual dividend rate of 10%
per share of Series B Shares, with such right to receive dividends being cumulative and will accrue and be payable annually; (iv)
the shares of Series B Shares may be redeemed by us, at our option, at a redemption price equal to 120% of the amount obtained
by multiplying the Original Issue Price of the Series B Shares by the number of shares of Series B Shares to be redeemed from the
investor; and (v) so long as any shares of Series B Shares remain outstanding, we will not, among other things, amend or restate
any provisions of our Articles of Incorporation or Bylaws, declare or pay dividends on any shares of common stock or other security
other than Series B Shares, authorize or issue any equity security having a preference over or being on parity with the Series
B Shares, change the authorized number of directors, or enter into indebtedness of more than $1,000,000, without the prior written
consent of a majority of outstanding shares of Series B Shares.
During fiscal years 2013 and 2014, we sold 1,000,000
shares of our Series B Shares to various investors in exchange for $1,000,000, or $1.00 per share, pursuant to securities purchase
agreements (“Purchase Agreements”). In connection with the sale of Series B Shares, the investors also received warrants
to purchase 10,000,000 shares of our common stock at a purchase price of $0.08 per share. The warrant agreements (“Warrants”)
provide for an expiration period of five years from the date of the investment.
On December 1, 2014, we entered into a separate exchange
agreement with each holder (collectively, the “Holders”) of (i) shares of our Series B Preferred Stock (“Preferred
Stock”), and (ii) warrants to purchase 10,000,000 shares of common stock issued in connection with the Preferred Stock (the
“Old Warrants”) pursuant to which we issued Secured Promissory Notes (“Exchange Notes”) in the aggregate
principal amount of $1,100,000 and warrants to purchase 5,500,000 shares of our common stock (the “Exchange
Warrants”) to the Holders in the amounts as specified in the separate Exchange Agreements in exchange for all of the issued
and outstanding Preferred Stock and all of the Old Warrants held by the Holders. Following the consummation of the transactions
contemplated by each Exchange Agreement, the Preferred Stock and Old Warrants were no longer outstanding, and we removed from reservation
30,000,000 shares of common stock underlying the Preferred Stock and Old Warrants. The Exchange Warrants grant the Holders the
right to purchase five shares of our common stock for every one dollar of principal of the Exchange Notes issued to the Holders
at an exercise price equal to $0.11 per share. The Exchange Warrants have an exercise term equal to five years and are
exercisable commencing on December 3, 2014. In connection with the issuance of the Exchange Notes, we entered into a security agreement
with the Holders to secure the timely payment and performance in full of our obligations pursuant to the Exchange Notes.
In May 2008 our board of directors approved the CrowdGather,
Inc. 2008 Stock Option Plan (the Plan). The Plan permits flexibility in types of awards, and specific terms of awards, which will
allow future awards to be based on then-current objectives for aligning compensation with increasing long-term shareholder value.
For the three months ended October 31, 2015 and 2014,
we recognized $18,000 and $100,000 of stock-based compensation costs, respectively, as a result of the issuance of stock options
to employees, directors and consultants in accordance with ASC 505.
There were no new grants for the three months
ended October 31, 2015
A
summary of the status of our unvested shares as of October 31, 2015 is presented below:
| |
Number of Shares | | |
Weighted-Average Grant- Date Fair Value | |
| |
| | |
| |
Non-vested balance, August 1, 2015 | |
| 3,210,261 | | |
$ | 0.1 | |
Granted | |
| 0 | | |
| - | |
Vested | |
| (69,688 | ) | |
| 0.06 | |
Forfeited/Expired | |
| (261,198 | ) | |
| - | |
| |
| | | |
| | |
Non-vested balance, October 31, 2015 | |
| 2,879,375 | | |
$ | 0.09 | |
As October 31, 2015, total unrecognized stock-based
compensation cost related to unvested stock options was $189,323 which is expected to be recognized over a weighted-average period
of approximately 8.71 years.
The fair value of each option grant is estimated on
the date of the grant using the Black-Scholes option-pricing model based on the following weighted-average assumptions:
| |
October 31, 2015 | |
| |
| |
Risk-free interest rate | |
| 0.00% to 0.50% | |
Expected volatility | |
| 100.00 | % |
Expected option life (in years) | |
| 4.00 | |
Expected dividend yield | |
| 0.00 | |
The risk-free interest rate is based on the implied
yield currently available on U.S. Treasury zero coupon issues. The expected volatility is primarily based on historical volatility
levels of our public company peer group. The expected option life of each award granted was calculated using the “simplified
method” in accordance with ASC 718.
| 12. | COMMITMENTS AND CONTINGENCIES |
As of October 31, 2015, we lease approximately 1,309
square feet of office space located at 23945 Calabasas Road, Suite 115, Calabasas California. The term of our lease is for twelve
months and expires on June 30, 2016. Our rent is $2,553 per month.
We also rent approximately 10,000 square feet of office
space at 12 Channel Street, Boston, MA 02210. The term of our lease is for six years and expires on July 31, 2020. Our rent
is $14,000 per month.
The Company has two (2) principal operating segments, which are (1) forum advertising, and (2) social
gaming. These operating segments were determined based on the nature of the products and services offered. Operating segments are
defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the
chief operating decision-maker in deciding how to allocate resources and in assessing performance. The Company’s chief executive
officer and chief operating officer have been identified as the chief operating decision makers. The Company’s chief operating
decision makers direct the allocation of resources to operating segments based on the profitability and cash flows of each respective
segment. Interim segment information for sales and related costs for the six months ended October 31, 2015 and 2014
was as follows:
| |
Six Months Ended October 31, 2015 | | |
Six Months Ended October 31, 2014 | |
Revenues: | |
| | | |
| | |
Forum advertising | |
| 257,000 | | |
| 385,000 | |
Social gaming | |
| 971,000 | | |
| 415,000 | |
Total revenues | |
| 1,228,000 | | |
| 800,000 | |
Cost of Revenues: | |
| | | |
| | |
Forum advertising | |
| 1,000 | | |
| 2,000 | |
Social gaming | |
| 252,000 | | |
| 253,000 | |
Total cost of revenues | |
| 253,000 | | |
| 255,000 | |
Gross Profit: | |
| | | |
| | |
Forum advertising | |
| 256,000 | | |
| 383,500 | |
Social gaming | |
| 719,000 | | |
| 162,000 | |
Total gross profit | |
| 975,000 | | |
| 545,500 | |
| 14. | PROVISION FOR INCOME TAXES |
For the years to date ended April 31, 2015 and 2014, we have
recognized the minimum amount of franchise tax required under California corporation law of $800. We are not currently subject
to further federal or state tax since we have incurred losses since our inception.
| 15. | NOTES PAYABLE AND DERIVATIVE LIABILITIES |
Promissory Notes and Note Purchase Agreements
On April 13, 2015, we entered into a Note Purchase
Agreement (Agreement) and related Security Agreement. Under the Agreement, our CEO Sanjay Sabnani agreed to loan the Company $50,000.
As part of the Agreement, we issued to Mr. Sabnani a Promissory Note whereby we will repay the $50,000 including interest at 12%
or the maximum allowable under the law, whichever is lower. The note, including interest is due April 13, 2016.
On April 17, 2015, we issued a Promissory Note for
$238,976 received from Mr. Sanjay Sabnani. The proceeds were used to pay off a short-term convertible note issued to KBM Worldwide,
Inc. on October 20, 2014, as well as to provide us with $25,000 in working capital. Under the terms of the note, we agree to repay
the $238,976 including interest at 12%. The note, including interest, was due October 20, 2015. Mr. Sabnani has granted a waiver
of default and the note is currently in good standing.
On July 16, 2015, we entered into a Note Purchase
Agreement (Agreement) and related Security Agreement for $50,000 with an investor. As part of the Agreement, we issued to the investor
a Promissory Note whereby we will repay the $50,000 including interest at 12% or the maximum allowable under the law, whichever
is lower. The note, including interest is due one year from the issue date.
On July 16, 2015, we entered into a Note Purchase
Agreement (Agreement) and related Security Agreement for $96,000 with Vinay Holdings. As part of the Agreement, we issued to the
Vinay Holdings a Promissory Note whereby we will repay the $96,000 including interest at 12% or the maximum allowable under the
law, whichever is lower. The note, including interest is due one year from the issue date.
On July 23, 2015, we entered into a Note Purchase
Agreement (Agreement) and related Security Agreement for $372,000 with Vinay Holdings . As part of the Agreement, we issued to
Vinay Holdings a Promissory Note whereby we will repay the $372,000 including interest at 12% or the maximum allowable under the
law, whichever is lower. The note, including interest was due 60 days from issue date. Vinay Holdings has granted a waiver of default
and the note is currently in good standing.
On August 18, 2015, we entered into a Note Purchase
Agreement (Agreement) and related Security Agreement for $100,000 with Vinay Holdings . As part of the Agreement, we issued to
Vinay Holdings a Promissory Note whereby we will repay the $100,000 including interest at 12% or the maximum allowable under the
law, whichever is lower. The note, including interest was due 60 days from issue date. Vinay Holdings has granted a waiver of
default and the note is currently in good standing.
On September 15, 2015, we issued a Promissory Note
for $10,000 received from Mr. James Sacks, a member of our board. The proceeds will be used for general working capital. Under
the terms of the note, we agree to repay the $10,000 including interest at 12%. The note, including interest, is due March 13,
2016.
On September 15, 2015, we issued a Promissory Note
for $10,000 received from Mr. Hazim Ansari, a member of our board. The proceeds will be used for general working capital. Under
the terms of the note, we agree to repay the $10,000 including interest at 12%. The note, including interest, is due March 13,
2016.
On September 17, 2015, we issued a Promissory Note
for $10,000 received from Mr. Richard Corredera, our CFO. The proceeds will be used for general working capital. Under the terms
of the note, we agree to repay the $10,000 including interest at 12%. The note, including interest, is due March 15, 2016.
On October 14, 2015, we issued a Promissory Note
for $50,000 received from Vinay Holdings. The proceeds will be used for general working capital. Under the terms of the note, we
agree to repay the $50,000 including interest at 12%. The note, including interest, is due April 11, 2016.
On October 22, 2015, we issued a Promissory Note
for $40,000 received from Vinay Holdings. The proceeds will be used for general working capital. Under the terms of the note, we
agree to repay the $10,000 including interest at 12%. The note, including interest, is due April 19, 2016.
Notes and Warrant Purchase Agreements
Embedded warrant and host contract summary as of October 31, 2015 |
Instrument Date | |
Fair value | | |
Gains (losses) | | |
Carrying Value | | |
Amortization Costs | |
Nov. 20, 2014 | |
$ | 18,871 | | |
$ | (7,104 | ) | |
$ | 96,426 | | |
$ | 15,658 | |
Nov. 21, 2014 | |
$ | 28,307 | | |
$ | (10,655 | ) | |
$ | 144,639 | | |
$ | 23,488 | |
Dec. 01, 2015 | |
$ | 208,024 | | |
$ | (161,708 | ) | |
$ | 1,038,400 | | |
$ | 343,468 | |
Dec. 02, 2015 | |
$ | 37,743 | | |
$ | (14,207 | ) | |
$ | 192,852 | | |
$ | 31,317 | |
In the cases of each instrument summarized in the
table above and detailed in the paragraphs below we determined the embedded warrants attached to the notes meet the definition
of a derivative under ASC 815 and require bifurcation and are accounted for as separate embedded derivatives. We have
estimated the fair market value of the embedded derivatives of the notes as the difference between the fair market value of the
notes with the conversion feature and the fair market value of the notes without the conversion feature associated with the embedded
derivative, in both cases using relevant market data. In the case of the fair market value of the notes with the conversion feature,
a binomial lattice model was used utilizing a discount rate based on variable conversion probability. In the case of the fair market
value of the notes without the conversion feature associated with the embedded derivative, a discounted cash flow approach was
used. The key valuation assumptions used consist of the price of our common stock, a risk free interest rate based on the average
yield of a similarly termed Treasury Note and the historical volatility of our common stock over a period of similar length to
the term of the instrument, all as of the measurement dates. The embedded derivatives were recorded on the balance sheet at their
estimated fair values. Debt discounts are amortized over the life of the debt using the effective interest rate method. The fair
value of the embedded derivative will be measured and recorded at fair value each subsequent reporting period and changes in fair
value will be recognized in the statement of operations as a gain or loss on derivative
We have recorded each of the instruments’ derivative
liability balances on our balance sheet in the Derivative liabilities account; the carrying amount of each host contract has been
recorded in Notes payable, net of discount; on our statement of operations we have recorded gains (losses) resulting from fair
value adjustments in Change in fair value of derivative liabilities; we have recognized the amortization costs in Interest expense,
net
On November 20, 2014 and
November 21, 2014, we entered into two Note and Warrant Purchase Agreements with two investors
(“Investors”) providing for the purchase of Secured Promissory Notes (“Notes”) in the aggregate
principal amount of $250,000 and warrants to purchase an aggregate amount of 1,250,000 shares of our common
stock (the “Warrants”). The Notes were issued on November 20, 2014 and November 21, 2014, respectively. The
Notes bear interest at the rate of 12% per annum and were due and payable one year from the date of issuance. The investors
have granted waivers of default valid until February 14, 2016 and the notes are currently in good standing. The Warrants
grant the Investors the right to purchase five shares of our common stock for every one dollar of principal of the Notes
purchased by the Investors at an exercise price equal to 110% of the closing price of our common stock on the date of
investment. The Warrants have an exercise term equal to five years and are exercisable commencing on November 20,
2014 and November 21, 2014, respectively. In connection with the issuance of the Notes, we entered into a security agreement
with the Investors to secure the timely payment and performance in full of our obligations pursuant to the Notes.
On December 2, 2014, we
entered a Note and Warrant Purchase Agreement with one investor providing for the purchase of a Secured
Promissory Note (“Note”) in the principal amount of $200,000 and warrants to purchase 1,000,000 shares of
our common stock (the “Warrants”). The Note was issued and funded on December 2, 2014. The Note bears
interest at the rate of 12% per annum and was due and payable one year from the date of issuance. The investors have granted
waivers of default and the notes are currently in good standing. The Warrants grant the investor the right to
purchase five shares of our common stock for every one dollar of principal of the Note purchased by the investor at an
exercise price of $0.11 per share which is equal to 110% of the closing price of our common stock on the date of
investment. The Warrants have an exercise term equal to five years and are exercisable commencing on the date of
issuance. In connection with the issuance of the Note, we entered into a security agreement with the investor to secure the
timely payment and performance in full of our obligations pursuant to the Note.
Exchange Notes and Warrant Purchase Agreements
On
December 1, 2014, we entered into a separate exchange agreement with each holder (collectively, the “Holders”) of
(i) shares of our Series B Preferred Stock (“Preferred Stock”), and (ii) warrants to purchase 10,000,000 shares of
our common stock issued in connection with the Preferred Stock (the “Old Warrants”) pursuant to which we issued Secured
Promissory Notes (“Exchange Notes”) in the aggregate principal amount of $1,100,000 and warrants to purchase 5,500,000 shares
of our common stock (the “Exchange Warrants”) to the Holders in the amounts as specified in the separate Exchange
Agreements in exchange for all of the issued and outstanding Preferred Stock and all of the Old Warrants held by the Holders.
Following the consummation of the transactions contemplated by each Exchange Agreement, the Preferred Stock and Old Warrants were
no longer outstanding, and we removed from reservation 30,000,000 shares of common stock underlying the Preferred Stock and Old
Warrants. The Notes bear interest at the rate of 12% per annum and were due and payable one year from the date of issuance. The
investors have granted waivers of default and the notes are currently in good standing. The
Exchange Warrants grant the Holders the right to purchase five shares of our common stock for every one dollar of principal
of the Exchange Notes issued to the Holders at an exercise price equal to $0.11 per share. The Exchange Warrants have
an exercise term equal to five years and are exercisable commencing on December 3, 2014. In connection with the issuance of the
Exchange Notes, we entered into a security agreement with the Holders to secure the timely payment and performance in full of
our obligations pursuant to the Exchange Notes.
Equity Purchase Agreement
On January 30, 2015, we entered into an Equity
Purchase Agreement (“Purchase Agreement”) and a Registration Rights Agreement (“Registration Rights Agreement
“) with Aladdin Trading, LLC (“Aladdin”) pursuant to which Aladdin has agreed to provide up to $1,400,000 of
funding upon effectiveness of a registration statement on Form S-1. Following effectiveness of the registration statement, we can
deliver puts to Aladdin under the Equity Purchase Agreement under which Aladdin will be obligated to purchase shares of our common
stock based on the investment amount specified in each put notice, which investment amount may be any amount up to $1,400,000 less
the investment amount received by us from all prior puts, if any. Puts may be delivered by us to Aladdin until the earlier of December
31, 2015, or the date on which Aladdin has purchased an aggregate of $1,400,000 of put shares. The number of shares of our common
stock that Aladdin will purchase pursuant to each put notice (“Put Shares”) will be determined by dividing the investment
amount specified in the put by the purchase price. The purchase price per share of common stock will be set at sixty (60%) of the
Market Price for our common stock with Market Price being defined as the volume weighted average trading price for our common stock
during the three consecutive trading days immediately following the date of our put notice to Aladdin (the “Pricing Period”).
There is no minimum amount that we can put to Aladdin at any one time. On the put notice date, we are required to deliver put shares
(“Estimated Put Shares”) to Aladdin in an amount determined by dividing the closing price on the trading day immediately
preceding the put notice date multiplied by 60% and Aladdin is required to simultaneously deliver to us the investment amount indicated
on the put notice. At the end of the Pricing Period, when the purchase price is established and the number of Put Shares for a
particular put is determined, Aladdin must return to us any excess Put Shares provided as Estimated Put Shares or alternatively
we must deliver to Aladdin any additional Put Shares required to cover the shortfall between the amount of Estimated Put Shares
and the amount of Put Shares. At the end of the Pricing Period, we must also return to Aladdin any excess related to the investment
amount previously delivered to us. Pursuant to the Equity Purchase Agreement, Aladdin and its affiliates will not be issued shares
of our common stock that would result in Aladdin’s beneficial ownership equaling more than 9.99% of our outstanding common
stock. Pursuant to the Registration Rights Agreement, we will be registering 17,500,000 shares of our common stock for issuance
to and sale by Aladdin pursuant to the Equity Purchase Agreement.
Note, Securities Purchase
Agreement, and Warrant Purchase Agreement
Embedded convertible feature and host contract summary as of October 31, 2015 |
Instrument Date | |
Fair value | | |
Gains (losses) | | |
Carrying Value | | |
Amortization Costs | |
Jan. 23, 2015 | |
$ | 97,800 | | |
$ | (23,417 | ) | |
$ | 170,812 | | |
$ | 144,315 | |
Feb. 16, 2015 | |
$ | 0 | | |
$ | (9,369 | ) | |
$ | 0 | | |
$ | 40,848 | |
Mar. 25, 2015 | |
$ | 0 | | |
$ | (32,487 | ) | |
$ | 0 | | |
$ | 19,603 | |
May 5, 2015 | |
$ | 21,795 | | |
$ | 50,579 | | |
$ | 164,161 | | |
$ | 86,534 | |
Jun. 6, 2015 | |
$ | 18,114 | | |
$ | 21,205 | | |
$ | 112,993 | | |
$ | 52,312 | |
Sep. 21, 2015 | |
$ | 103,573 | | |
$ | 316 | | |
$ | 69,464 | | |
$ | 12,666 | |
In the cases of each instrument summarized in the
table above and detailed in the paragraphs below we determined the conversion feature of the notes meet the definition of a derivative
under ASC 815 and require bifurcation and are accounted for as separate embedded derivatives. We have estimated the
fair market value of the embedded derivatives of the Notes as the difference between the fair market value of the Notes with the
conversion feature and the fair market value of the Notes without the conversion feature associated with the embedded derivative,
in both cases using relevant market data. In the case of the fair market value of the Notes with the conversion feature, a binomial
lattice model was used utilizing a discount rate based on variable conversion probability. In the case of the fair market value
of the Notes without the conversion feature associated with the embedded derivative, a discounted cash flow approach was used.
The key valuation assumptions used consist of the price of our common stock, a risk free interest rate based on the average yield
of a similarly termed Treasury Note and the historical volatility of our common stock over a period of similar length to the term
of the instrument, all as of the measurement dates. The embedded derivatives were recorded on the balance sheet at their estimated
fair values. Debt discounts are amortized over the life of the debt using the effective interest rate method. The fair value of
the embedded derivative will be measured and recorded at fair value each subsequent reporting period and changes in fair value
will be recognized in the statement of operations as a gain or loss on derivative
We have recorded each of the instruments’ derivative
liability balances on our balance sheet in the Derivative liabilities account; the carrying amount of each host contract has been
recorded in Convertible note payable; On our statement of operations we have recorded gains (losses) resulting from fair value
adjustments in Change in fair value of derivative liabilities and Gain on extinguishment of debt; we have recognized the amortization
costs in Interest expense, net
KBM Worldwide, Inc
On January 23, 2015, we entered into a similar
Securities Purchase Agreement with KBM Worldwide, Inc. ("KBM") providing for the purchase of a Convertible Promissory
Note ("Note") in the aggregate principal amount of $154,000. The Note was signed as of January 23, 2015 and was funded
on January 23, 2015, with the Company receiving $150,000 of net proceeds after payment of KBM's legal fees. The Note bears interest
at the rate of 8% per annum, is due and payable on October 16, 2015, and may be converted by KBM at any time after 180 days of
the date of closing into shares our common stock at a conversion price equal to a 39% discount of the lowest closing bid price
(as determined in the Note) calculated at the time of conversion. The Note also contains certain representations, warranties, covenants
and events of default, and increases in the amount of the principal and interest rates under the Note in the event of such defaults.
On July 16, 2015 with a payment of $213,908, constituting a repayment of the principle as well as payment of interest and a prepayment
fee of 25% of the outstanding balance at payoff, the Note was assigned to Vinay Holdings. The Note was prepaid using funds invested
by Vinay expressly for the purpose of purchasing the KBM Note.
Iconic Holdings, LLC
Note #1
On February 13, 2015, we entered into a Note Purchase
Agreement with Iconic Holdings, LLC (“Iconic”) providing for the purchase of a Convertible Promissory Note ("Note")
in the aggregate principal amount of $108,000. On February 13, 2015, the Note was funded and we received $100,000 with $8,000 retained
by Iconic through an original issue discount for due diligence and legal expenses related to this transaction. The Note
bears interest at the rate of 8% per annum, is due and payable on February 13, 2016. Iconic shall have the right to convert
any unpaid sums into our common stock at the rate of 60% of the lowest trading price reported in the 15 days prior to date of conversion,
subject to adjustment as described in the Note. The Note also provides that Iconic will not be permitted to convert any portion
of the note if the number of shares of our common stock beneficially owned by Iconic and its affiliates, together with the number
of shares of our common stock issuable upon any full or partial conversion, would exceed 9.99% of our outstanding shares of common
stock.
During the first 180 days following the date of the
Note, we had the right to prepay the principal and accrued but unpaid interest due under the Note, together with any other amounts
we may owe the holder under the terms of the Note, at a graduating premium ranging from 105% to 135% of face value. After this
initial 180 day period, we do not have a right to prepay the note without written consent from Iconic. The Note also contains certain
representations, warranties, covenants and events of default, and increases in the amount of the principal and interest rates under
the Note in the event of such defaults.
On August 10, 2015 we elected to prepay the Note.
We fully extinguished the Note with a payment of $154,440 constituting a repayment of the principal as well as accrued interest
and a 35% prepayment fee.
Note #2
On September 21, 2015, we entered into an additional
Note Purchase Agreement with Iconic providing for the purchase of a second Convertible Promissory Note ("Second Note")
in the aggregate principal amount of $162,000. On September 21, 2015, the Second Note was funded and we received $150,000 with
$12,000 retained by Iconic through an original issue discount for due diligence and legal expenses related to this transaction. The
proceeds of the Second Note where used to extinguish the outstanding JMJ Financial note (see below) in addition to general working
capital. The Second Note bears interest at the rate of 8% per annum, is due and payable on February 13, 2016. Iconic shall
have the right to convert any unpaid sums into our common stock at the rate of 60% of the lowest trading price reported in the
15 days prior to date of conversion, subject to adjustment as described in the Second Note. The Second Note also provides that
Iconic will not be permitted to convert any portion of the note if the number of shares of our common stock beneficially owned
by Iconic and its affiliates, together with the number of shares of our common stock issuable upon any full or partial conversion,
would exceed 9.99% of our outstanding shares of common stock.
During the first 180 days following the date of the
Second Note, we have the right to prepay the principal and accrued but unpaid interest due under the Second Note, together with
any other amounts we may owe the holder under the terms of the Second Note, at a graduating premium ranging from 105% to 135% of
face value. After this initial 180 day period, we do not have a right to prepay the note without written consent from Iconic. The
Second Note also contains certain representations, warranties, covenants and events of default, and increases in the amount of
the principal and interest rates under the Second Note in the event of such defaults.
JMJ Financial
On March 24, 2015, we issued to JMJ Financial
(the “Investor”) a convertible promissory note in the principal amount of $250,000 with an original issue discount
of $25,000 (the “Note”). The Note is due in March 2017. As of March 25, 2015, the Investor funded
$65,000 pursuant the Note. We may repay the Investor within 90 days of issuance without any interest payment. Thereafter,
we may not make any payment until the Note matures, unless such payment is approved by the Investor. Interest accrues
at the rate of 12% per annum with respect to any payment made after the initial 90-day period. At any time after 180 days of the
Effective Date, the Investor may convert all or part of the Note into shares of our common stock at (a) the lesser of $0.08 or
(b) 65% of the lowest trading price in the 25 trading days prior to the conversion.
On September 22, 2015 we elected to prepay the Note.
We fully extinguished the Note with a payment of $121,333 constituting a repayment of the principal as well as accrued interest
and a 50% prepayment fee.
Typenex Co-Investment, LLC
On March 2, 2015, we entered into a Securities Purchase
Agreement with Typenex Co-Investment, LLC ("Typenex"), for the sale of a 10% convertible note in the principal
amount of $168,000 (which includes Typenex legal expenses in the amount of $3,000 and a $15,000 original issue discount)
(the “Note”) in exchange for proceeds of $150,000 to the Company.
The Note bears interest at the rate of 10% per annum.
All interest and principal must be repaid on February 2, 2016. The Note is convertible into common stock, at Typenex’s
option, at the lesser of (i) $0.10, and (ii) 65% (the “Conversion Factor”) of the average of the three (3) lowest Closing
Bid Prices in the twenty (20) Trading Days immediately preceding the applicable conversion, provided that if at any time the average
of the three (3) lowest Closing Bid Prices in the twenty (20) Trading Days immediately preceding any date of measurement is below
$0.05, then in such event the then-current Conversion Factor shall be reduced to 60% for all future Conversions, subject to other
reductions set forth in the Note. In the event we elect to prepay all or any portion of the Note, we are required to pay to Typenex
an amount in cash equal to 125% multiplied by the sum of all principal, interest and any other amounts owing. The Note includes
customary event of default provisions.
Typenex has agreed to restrict its ability to
convert the Note and receive shares of our common stock such that the number of shares of common stock held by them in the aggregate
and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common
stock. The Note is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial
obligation of the Company. The Note also provides for penalties and rescission rights if we do not deliver shares of our common
stock upon conversion within the required timeframes.
We extinguished the Note on July 30, 2015 with a payment
of $218,934 constituting a repayment of the principle as well as payment of interest and a prepayment fee of 25% of the outstanding
balance at payoff.
Additionally, we granted Typenex warrants
(“Warrants”) to purchase shares of our common stock, $.001 par value. The Warrants will entitle the holder to purchase
a number of shares equal to $84,000 divided by the Conversion Factor multiplied by the average of the three (3) lowest Closing
Bid Prices in the twenty (20) Trading Days immediately preceding March 2, 2015, as such number may be adjusted from time to time
pursuant to the terms of the Warrants. The Warrants are exercisable for five years at $0.10 per share subject to certain anti-dilution
provisions set forth in the Warrants. On September 23, 2015 Typenex elected to fully exercise their Warrants and were issued 2,724,493
shares according to the terms of the agreement.
All of the above Notes and Warrants were issued in
transactions which we believe satisfies the requirements of that exemption from the registration and prospectus delivery requirements
of the Securities Act of 1933, which exemption is specified by the provisions of Section 4(2) of that act and Rule 506 of Regulation
D promulgated pursuant to that act by the SEC.
Vinay Holdings
On May 4, 2015, we entered into a Securities
Purchase Agreement with Vinay Holdings. ("Vinay") providing for the purchase of a Convertible Promissory Note ("Note")
in the aggregate principal amount of $150,000. The Note bears interest at the rate of 8% per annum, is due and payable on November
4, 2015, and may be converted by Vinay at any time after 180 days of the date of closing into shares our common stock at a conversion
price equal to a 39% discount of the lowest closing bid price (as determined in the Note) calculated at the time of conversion.
The Note also contains certain representations, warranties, covenants and events of default, and increases in the amount of the
principal and interest rates under the Note in the event of such defaults.
In addition on June 6, 2015, we entered into a
similar Securities Purchase Agreement with Vinay Holdings. ("Vinay") providing for the purchase of a Convertible
Promissory Note ("Note") in the aggregate principal amount of $100,000. The Note bears interest at the rate of 8% per
annum, is due and payable on October 16, 2015, and may be converted by Vinay at any time after 180 days of the date of closing
into shares our common stock at a conversion price equal to a 39% discount of the lowest closing bid price (as determined in the
Note) calculated at the time of conversion. The Note also contains certain representations, warranties, covenants and events of
default, and increases in the amount of the principal and interest rates under the Note in the event of such defaults.
On July 16, 2015 Vinay was assigned the Note
formerly held by KBM Worldwide, Inc. dated January 23, 2015. The note was due and payable on October 16, 2015. Vinay has
granted a waiver of default and the note is currently in good standing. The assignment was the result of our prepayment
of the Note to KBM Worldwide, Inc. with funds invested by Vinay Holdings expressly for the purpose of the Note assignment.
| 16. | DEPARTURES OF OFFICERS AND DIRECTORS |
On July 16, 2015, Jonathan
Weiss resigned as our Chief Financial Officer. Mr. Weiss's resignation was not the result of any disagreement with our policies,
practices or procedures. Mr. Weiss continues to hold 320,000 shares of our restricted common stock or approximately 0.3%
of the issued and outstanding common.
On July 16, 2015, the Board
of Directors appointed Richard Corredera as our new Chief Financial Officer. Mr. Corredera joined CrowdGather in May 2014 resulting
from the merger with Plaor, Inc., and has served, and will continue to serve, as our Chief Operating Officer. Mr. Corredera has
approximately 20 years of experience in software engineering, systems design and business development. From April 2012 to
the present, Mr. Corredera has served as President and Chief Operating Officer of Plaor where he manages the business operations
of Plaor including strategic business development, compliance, and accounting. Mr. Corredera is an enrolled agent and admitted
to practice before the Internal Revenue Service.
On July 17, 2015, Jonathan Dariyanani resigned as
a director of CrowdGather, Inc. Mr. Dariyanani's resignation was not the result of any disagreement with our policies, practices,
or procedures.
On November 15, 2015, we issued
a Promissory Note for $50,000 received from Vinay Holdings. The proceeds are used to provide us with working capital.
Under the terms of the Note, we agree to repay the principal including interest at 12%. The Note, including interest, is due
November 15, 2016.
On December 1, 2015, we issued
a Promissory Note for $50,000 received from Vinay Holdings. The proceeds are used to provide us with working capital.
Under the terms of the Note, we agree to repay the principal including interest at 12%. The Note, including interest, is due
December 1, 2016.
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
The following discussion relates to the financial condition
and results of operations of CrowdGather, Inc., a Nevada corporation herein used in this report, unless otherwise indicated, under
the terms “Registrant,” “Company,” “CrowdGather,” “we,” “us” and similar
terms.
Forward Looking Statements
The following information specifies certain forward-looking
statements of management of the Company. Forward-looking statements are statements that estimate the happening of future events
and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such
as “may,” “shall,” “could,” “expect,” “estimate,” “anticipate,”
“predict,” “probable,” “possible,” “should,” “continue,” or similar
terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information
have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable.
Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred
from those forward-looking statements.
The assumptions used for purposes of the forward-looking statements
specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes
in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other
information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of
judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected
results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. We cannot guaranty
that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and
we assume no obligation to update any such forward-looking statements. Factors that could cause actual results to differ materially
include, but are not limited to:
· |
|
changes in our business; |
· |
|
general economic, industry and market sector conditions; |
· |
|
the ability to generate increased revenues from our forums and Plaor’s social games; |
· |
|
the ability to obtain additional financing to fund our operations; |
· |
|
the ability to manage our growth; |
· |
|
our ability to develop and market new technologies to respond to rapid technological changes; |
· |
|
competitive factors in the market(s) in which we operate; and |
· |
|
and other events, factors and risks disclosed from time to time in our filings with the Securities and Exchange Commission |
No assurance can be given that any of the assumptions relating
to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any
such forward-looking statements.
Critical Accounting Policies and Estimates. Our Management’s
Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing
operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various
other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation
of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are
not readily apparent from other sources. In addition, these accounting policies are described at relevant sections in this discussion
and analysis and in the notes to the financial statements included in this report for the period ended October 31, 2015.
Overview. CrowdGather operates a media
network of forum and online communities focused on a broad number of vertical interests, as well as social casino games. Following
the merger with Plaor we began to operate a social casino game available free to play on Facebook, iOS, and Android. We
continue to focus on building and maintaining our online social communities, and expand our portfolio of social games while pursuing
opportunities to improve and increase monetization of our consolidated media network. Through our Merger with Plaor,
we believe will be able to leverage our newly acquired engineering talent to offer additional engagement and retention features
for both our forum and our game user bases. These features may also facilitate new channels of user acquisition as we
cross promote and integrate our forums and our social games.
Our forum business specializes in monetizing a network
of online forums and message boards designed to engage, provide information to and build community around users. We are in the
process of building what we hope will become an important social, advertising and user generated content network by consolidating
existing groups of online users who post on message boards and forums. Our goal is to create superb user experiences for forum
communities and world class service offerings for forum owners. We believe that the communities built around message boards and
forums are one of the most dynamic sources of information available on the web because forums are active communities built around
interest and information exchange on specific topics.
Our network is comprised of two types of forum communities:
branded and hosted communities that are built on one of our forum hosting platforms. The branded communities, such as
Pocketables.com and Digishoptalk.com, are wholly owned by us and we monetize them through a combination of text and display ads. The
hosted communities comprise the majority of our revenues, traffic, and page views, and are built upon one of our leading forum
hosting platforms - Yuku.com and Freeforums.org. We monetize the web traffic on these sites through a combination of
Internet advertising mediums at our discretion in exchange for providing free software, support and hosting. In some
instances, we may derive subscription revenues in lieu of or in addition to advertising revenue because the site administrator
has decided to pay monthly fees in exchange for providing an ad-free experience and other services for their members. Our
goal is to ultimately build an advertising network that allows us to leverage the targeted demographics of the combined network
in order to generate the highest advertising rates for all of our member sites.
As a result of the Merger with Plaor, we have subsequently
devoted a significant portion of our operations to the business of Plaor and expect to continue to do so in order to expand our
operations. Plaor specializes in developing highly scalable multi-platform social games that are available on Facebook, Google
Play, and the Apple App Store. Plaor’s initial social gaming platform is a simulated casino environment referred
to as Mega Fame Casino wherein individual gamers are able to play online casino style games socially with other players from around
the world. Unlike traditional casinos or their online counterparts, the betting on Mega Fame is virtual and no real money
bets are accepted and there is no ability for a player to redeem their winnings for cash. Despite the lack of traditional cash
betting, we believe that players experience the same entertainment as they experience in a casino setting. Mega Fame
Casino is a gaming platform, which includes multiple games, combined to emulate a casino environment. Along with the company’s
initial offering, the Mega Fame Casino also includes Video Poker, multiple slot machines, and a daily celebrity challenge designed
to increase engagement and retention of players.
We continue to focus on improving our forum network
to enhance our user and community experience, and on seeking avenues to grow our business and contribute to our long-term viability,
whether through improving advertising opportunities on our existing ad inventory or developing partnerships with third party publishers
to improve monetization. We recognize that many online advertisers seek engagement with online enthusiasts and users
who are passionate about specific topics and products. We believe that forums offer a significant opportunity to advertisers,
as they are tightly knit social communities with concentrations of influencers who are often experts on the forum subject matter. Forum
users have traditionally been inaccessible to advertisers with larger budgets and who prefer making broad category or vertically
oriented purchases. Through the use of technology we intend to pursue a strategy that will help us better connect advertisers
to our users in niche specific verticals. We will also focus on promoting our social games across our forum communities
to gain new users, as well as engage in cost-effective advertising to attract users from across the internet. Additionally,
we are evaluating strategic options, including potential business combinations as well as debt and equity financing.
Across our network we are committed to delivering
quality, brand safe content for forum advertisers. Since advertisers are drawn to quality content and curated home pages,
we have been working diligently to improve our branded sites. We have thousands of volunteer moderators and forum administrators
patrolling our network, and we are in the process of deploying a proprietary inventory management system that will help identify
and prune non-monetizable content that violates our terms of service.
We also continue to conduct ongoing software development
across all of our forum network properties to keep improving the administrator and user experience in the communities. We
are constantly working toward offering our communities favorable terms, features and incentives to help them grow and prosper.
Throughout the last three quarters we have explored
the feasibility of launching a cannabis and technology focused crowd-funding platform. Although we believe there is a strong
future market for such an offering we have recently concluded to focus our expansion effort more narrowly on our digital
publishing and brands business due to the risk profile of both general crowd-funding businesses and specifically financial
services businesses focused on the cannabis sector. We continue to be committed to developing a strong business in the
digital cannabis space and we are looking forward to leveraging our community building, marketing, and business intelligence
capabilities to provide targeted digital cannabis services in the coming months.
The following discussion of our financial condition and results
of operations should be read in conjunction with our financial statements for the period ended October 31, 2015, together with notes
thereto, which are included in this report.
Performance Metrics
Management regularly reviews the following key metrics
in the assessment of our current performance, to evaluate our business, and in the preparation of reports and formation of strategic
decisions.
Bookings
Bookings are a non-GAAP financial measure we used
in both the social gaming and forums operations. Social gaming bookings are equal to (1) social gaming revenue recognized
during the period plus (2) the change in social gaming deferred revenue during the period plus (3) social gaming platform transaction
fees for virtual goods sales accrued during the period. Platform transaction fees include fees paid to online transaction platforms
such as Google and Apple. Generally those fees are 30% of the transaction amount. We record the sale of virtual goods
as deferred revenue and then recognize that revenue over the estimated average life of the purchased virtual goods or as the virtual
goods are consumed. We also include in bookings our revenue from forum operations including advertising revenue. Forum
bookings are generally equal to recognized forum revenue for a period. Bookings, as opposed to revenue, are the fundamental top-line
metric we use to manage our business, as we believe it is a better indicator of the sales activity in a given period. Over the
long term, the factors impacting our bookings and revenue are the same. However, in the short term, there are factors that may
cause revenue to exceed or be less than bookings in any period.
We use bookings to evaluate the results of our operations,
generate future operating plans and assess the performance of our company. While we believe that this non-GAAP financial measure
is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute
for revenue recognized in accordance with US GAAP. In addition, other companies, including companies in our industry, may calculate
bookings differently or not at all, which reduces its usefulness as a comparative measure. Further, to reflect the impact of seasonality,
we will compare the current quarter to the same quarter in the prior year beginning in the second quarter of fiscal year 2016 as
we began to report Bookings in the second quarter of fiscal year 2015.
| |
Three Months Ended October 31, 2015 | | |
Six Months Ended October 31, 2015 | |
Bookings to Revenue Reconciliation: | |
| | | |
| | |
Forum Revenue | |
$ | 119,000.00 | | |
$ | 257,000.00 | |
Social Gaming Revenue | |
| 399,000.00 | | |
| 971,000.00 | |
Changes to Social Gaming Deferred Revenue | |
| 39,000.00 | | |
| (28,000.00 | ) |
Changes to Deferred Allowance for Social Gaming Refunds and Charge-backs | |
| (10,000.00 | ) | |
| (4,000.00 | ) |
Changes in Accrued Social Gaming Transaction Fees | |
| (35,000.00 | ) | |
| (35,000.00 | ) |
Bookings | |
$ | 512,000.00 | | |
$ | 1,161,000.00 | |
Key Performance Metrics Specific to Social Gaming
DAU
We define DAU, Daily Active Users, as the number of
unique players who have played Mega Fame Casino during any given day. Where possible we attempt to count only unique players
across all supported platforms. For example, a single player accessing Mega Fame Casino twice during a given day, once from
a desktop platform and once from a mobile platform would be counted as a single DAU under this metric.
MAU
We define MAU, Monthly Active Users, as the number
of unique players who have plated Mega Fame Casino during a given 30-day period ending with the measurement date. Similarly
to DAU, we attempt to count players accessing Mega Fame Casino multiple times within a given 30-day period from different platforms
as a single MAU.
DUP
We define DUP, Daily Unique Payers, as the number
of unique players making a payment within Mega Fame Casino within a given day. Where a single payer has made multiple payments
on different platforms, for example Facebook and Apple, we count that payer only once under this metric.
MUP
We define MUP, Monthly Unique Payers, as the number
of unique players making a payment within Mega Fame Casino within a given 30-day period. Where a single payer has made multiple
payments on different platforms within a 30-day period, for example Facebook and Apple, we count that payer only once under this
metric.
ABPU
ABPU, Average Bookings Per User, is a fundamental
metric we calculate in the following way: (1) Total Social Gaming Bookings in a given period, divided by (2) the number of days
in that period, divided by (3) the average DAU during the measurement period. We believe ABPU provides useful information
to investors and other for the evaluation and assessment of our social game performance in a given period. Management utilizes
the metric on a nearly constant basis to understand and measure the effectiveness of new features, events, and the general health
of Mega Fame Casino.
Social
Gaming Performance Metrics Three
Months Ended October 31, 2015 and 2014 |
| |
Three Months Ended October
31, 2015 | | |
Three Months Ended October
31, 2014 | |
Average Daily Bookings | |
$ | 4,749 | | |
$ | 5,740 | |
ABPU | |
$ | .29 | | |
$ | .24 | |
Average DAU | |
| 16,542 | | |
| 24,154 | |
Average MAU | |
| 59,747 | | |
| 118,727 | |
Average DUP | |
| 208 | | |
| 287 | |
Average MUP | |
| 1,819 | | |
| 2,567 | |
Taken together we believe bookings, DAU, MAU, DUP,
MUP, and ABPU reflect a key data set for the understanding and management of Mega Fame Casino. Our managers, developers,
and product managers focus on these metrics to measure and improve the overall economic value of various elements within the social
game experience.
Overall we have seen a decrease of 21% in Average
Daily Bookings from the three months ended October 31, 2014 and the three months ended October 31, 2015. During the same period
of time we have increased our ABPU 21% from $0.24 to $0.29. The changes are the result of an overall reduction in our DAU, from
24,000 to 17,000, combined with an increased focus on pre-player monetization techniques aimed to increased players’ individual
bookings potential. We believe the expanding diversity of slot machines is a key factor in our players’ monetization behaviors.
We anticipate continuing to add new slot machines to our casino at a steady pace throughout the upcoming year and furthermore
we expect to continue to work with our slot machine partners to license additional slot themes for future additions to the casino.
Our user count metrics have fallen between the two compared
periods with our average DAU falling 29% from 24,000 in the second fiscal quarter of 2014 to 17,000 in second fiscal quarter of
2015; our average MAU fell 50% from 119,000 to 60,000 between the same two periods. The reduction in average DAU and MAU are largely
the result of refocused advertising efforts on top-tier locales and higher value users along with a significant reduction in our
overall advertising spending. We believe our ability to improve our ratio of daily players over monthly players (DAU/MAU) from
20% in the second fiscal quarter of 2014 to 28% in the second fiscal quarter of 2015 is a signal our strategy has been effective.
We anticipate in the coming fiscal year to focus from growth
of our ABPU and DAU/MAU performance to a focus on an increase of our average DAU and MAU. It is our belief that the casino has
achieved a sufficient level of monetization and retention performance levels that it can now more effectively support expansion
of our player count.
For the three months ended October 31, 2015, as compared
to the three months ended October 31, 2014.
Results of Operations
Revenues and Gross Profit. We realized revenues of $519,000
for the three months ended October 31, 2015, as compared to revenues of $394,000 for the three months ended October 31, 2014.
The increase of approximately 32% between comparable periods was driven primarily by revenue related to Mega Fame Casino. We continue
to focus on the refinement of monetization and retention systems within Mega Fame Casino with the goal of driving the increased
per player revenue and play characteristics possible.
Our cost of revenue for the three months ended October 31, 2015
was approximately $96,000, as compared to cost of revenue of $147,000 for the three months ended October 31, 2014. As
we work to enhance the per-player efficiency of our in game systems our cost of revenue has declined as a result of an overall
lower transaction volume and a reduction of certain marketing campaigns.
Our gross profit for the three months ended October 31, 2015
was $463,000 as compared to gross profit of $246,000 for the three months ended October 31, 2014.
Operating Expenses. For the three months ended October
31, 2015, our total operating expenses were $816,000, as compared to total operating expenses of $1,886,000 for the three months
ended October 31, 2014. Payroll and related expenses decreased by $262,000 from $574,000 for the three months ended October 31,
2014 to $312,000 for the three months ended October 31, 2015. The reduction of payroll expenses was the result our cost cutting
program begun during the second half of our 2015 fiscal year. That cost cutting effort has largely concluded and our expectation
is that our payroll and related expenses will remain at their current levels for at least the next two quarters. We also reduced
our general and administrative expenses approximately 58% or $676,000 from $1,162,000 for the three months ended October 31, 2014
to $486,000 for the three months ended October 31, 2015. The reduction of our general and administrative expenses was the result
of the same cost cutting program we started last fiscal year.
Other Income (Expense.) For the three months ended October
31, 2015, we had other expenses of $405,000 as compared to other expenses of $11,000 for the three months ended October 31, 2014.
The increase in these expenses was largely an increase of our interest and amortization expenses related to debt financing.
Net Loss. For the three months ended October 31, 2015,
our net loss was $(798,000), as compared to a net loss of $(1,651,000) for the three months ended on October 31, 2014.
For the six months ended October 31, 2015, as compared
to the six months ended October 31, 2014.
Results of Operations
Revenues and Gross Profit. We realized revenues of $1,228,000
for the three months ended October 31, 2015, as compared to revenues of $800,000 for the six months ended October 31, 2014.
The increase of approximately 54% between comparable periods was driven primarily by revenue related to Mega Fame Casino. We continue
to focus on the refinement of monetization and retention systems within Mega Fame Casino with the goal of driving the increased
per player revenue and play characteristics possible.
Our cost of revenue for the six months ended October 31, 2015
was approximately $253,000, as compared to cost of revenue of $255,000 for the six months ended October 31, 2014. Our
cost of revenue has declined with our continued optimization and elimination of less effective marketing campaigns and a focus
on per-player monetization and retention systems in Mega Fame Casino.
Our gross profit for the six months ended October 31, 2015 was
$975,000 as compared to gross profit of $545,000 for the six months ended October 31, 2014.
Operating Expenses. For the six months ended October
31, 2015, our total operating expenses were $1,969,000, as compared to total operating expenses of $5,421,000 for the six months
ended October 31, 2014. Payroll and related expenses decreased by $518,000 from $1,247,000 for the six months ended October 31,
2014 to $666,000 for the six months ended October 31, 2015. The reduction of payroll expenses was the result our cost cutting program
begun during the second half of our 2015 fiscal year. That cost cutting effort has largely concluded and our expectation is
that our payroll and related expenses will remain at their current levels for at least the next two quarters. We also reduced our
general and administrative expenses by $1,173,000 from $2,396,000 for the six months ended October 31, 2014 to $1,223,000 for the
six months ended October 31, 2015. The reduction of our general and administrative expenses was the result of the same cost cutting
program we started last fiscal year.
Other Income (Expense.) For the six months ended October
31, 2015, we had other expenses of $747,000 as compared to other expenses of $11,000 for the six months ended October 31, 2014.
The increase in these expenses was largely an increase of our interest and amortization expenses related to debt financing.
Net Loss. For the six months ended October 31, 2015,
our net loss was $(1,742,000), as compared to a net loss of $(4,887,000) for the six months ended on October 31, 2014.
Liquidity and Capital Resources. Our total assets were
$9,400,000 as of October 31, 2015, which consisted of cash of $16,000, accounts receivable of $169,000, investments of $21,000,
inventory of $32,000, prepaid expenses and deposits of $57,000, property and equipment with a net value of $27,000, intangible
and other assets of $7,259,000, represented by our domain names and other intellectual property owned, and goodwill of $1,817,000
related to our acquisition of Plaor.
Our current liabilities as of October 31, 2015, were approximately
$5,261,000, which is comprised of accounts payable of $283,000, line of credit of $297,000, deferred revenue of $408,000,
accrued vacation of $102,000, other accrued liabilities of $265,000, derivative liabilities of 379,000, and notes payable of 3,526,000.
We had no other liabilities and no long-term commitments or contingencies at October 31, 2015.
As of October 31, 2015, we had approximately $16,000 cash. Subsequent
to October 31, 2015 we have raised additional debt financing but estimate that our cash on hand will not be sufficient for us to
continue our current operations for the next twelve months. The period for which our existing financial resources as well as the
financial resources necessary to support our operations involves risks and uncertainties and could differ as a result of a number
of factors including our assumptions for increasing revenues through the monetization of our forum advertising and social gaming
businesses, anticipated efficiencies gained from the completion of ongoing automation and technical initiatives and anticipated
further cost reductions. We remain optimistic about our ability to increase revenues in the coming months and are concentrating
on optimizing our network of forum properties and social casino games. However, in addition to generating revenues from
our current operations, we will need to raise additional capital to sustain our operations and expand our business to the point
at which we are able to operate profitably.
We have been, and intend to continue, working toward identifying
and obtaining new sources of financing. No assurances can be given that we will be successful in obtaining additional financing
in the future. Any future financing that we may obtain may cause significant dilution to existing stockholders. Any
debt financing or other financing of securities senior to common stock that we are able to obtain will likely include financial
and other covenants that will restrict our flexibility. Any failure to comply with these covenants would have a negative impact
on our business, prospects, financial condition, results of operations and cash flows.
If adequate funds are not available, we may be required to delay,
scale back or eliminate portions of our operations or obtain funds through arrangements with strategic partners or others that
may require us to relinquish rights to certain of our assets. Accordingly, the inability to obtain such financing could result
in a significant loss of ownership and/or control of our assets and could also adversely affect our ability to fund our continued
operations and our expansion efforts.
The majority of our research and development activity is focused
on development of the social casino games on our forum network. For Plaor’s business, we believe it is necessary to invest
in the development of new games, code, and tools in an effort to achieve our strategic goals and objectives.
We do not anticipate that we will purchase any significant equipment
over the next twelve months.
We do not anticipate any significant changes in the number of
employee unless we significantly increase the size of our operations. We believe that we do not require the services of additional
independent contractors to operate at our current level of activity. However, if our level of operations increases beyond the level
that our current staff can provide, we may need to supplement our staff in this manner.
Material Contracts
Note Warrant Purchase Agreement dated November 20, 2014 and
November 21, 2014. Aggregate principal amount of $250,000 and a 12% annual interest rate due one year from issuance. Filed as an
exhibit with our Form 8-K dated and filed November 26, 2014.
Exchange Agreement dated December 1, 2014. Aggregate principal
amount of $1,100,000 and a 12% annual interest rate due one year from issuance. Additionally we granted a warrant to purchase 5,500,000
shares of our common stock. Filed as an exhibit with our Form 8-K dated and filed December 5, 2014.
Promissory Note and Securities Purchase Agreement with KBM Worldwide,
Inc. dated January 23, 2015. Aggregate principle amount of $154,000 and an 8% annual interest rate due October 16, 2015. Now assigned
to Vinay Holdings. Vinay Holdings may, at any time after 180 days of issuance, convert some or the entire principle into our common
stock at a conversion price equal to a 39% discount of the lowest trading price as calculated in the note. The initial Note agreement
is filed as an exhibit with our Form 8-K dated and filed January 26, 2015. The assignment of the Note to Vinay Holdings was filed
as an exhibit with our Form 8-K file January 17, 2015.
On May 4, 2015, we entered into a Securities Purchase
Agreement with Vinay Holdings. ("Vinay") providing for the purchase of a Convertible Promissory Note ("Note")
in the aggregate principal amount of $150,000. The Note bears interest at the rate of 8% per annum, was due and payable on November
4, 2015, and may be converted by Vinay at any time after 180 days of the date of closing into shares our common stock at a conversion
price equal to a 39% discount of the lowest closing bid price (as determined in the Note) calculated at the time of conversion.
The Note also contains certain representations, warranties, covenants and events of default, and increases in the amount of the
principal and interest rates under the Note in the event of such defaults. Vinay has granted a waiver of default and the note is
currently in good standing.
In addition on June 6, 2015, we entered into a similar
Securities Purchase Agreement with Vinay Holdings. ("Vinay") providing for the purchase of a Convertible Promissory
Note ("Note") in the aggregate principal amount of $100,000. The Note bears interest at the rate of 8% per annum, was
due and payable on October 16, 2015, and may be converted by Vinay at any time after 180 days of the date of closing into shares
our common stock at a conversion price equal to a 39% discount of the lowest closing bid price (as determined in the Note) calculated
at the time of conversion. The Note also contains certain representations, warranties, covenants and events of default, and increases
in the amount of the principal and interest rates under the Note in the event of such defaults. Vinay has granted a waiver of
default and the note is currently in good standing.
On July 16, 2015 Vinay was assigned the Note formerly held
by KBM Worldwide, Inc dated January 23, 2015. The note was due and payable on October 16, 2015. The assignment was the result
of our prepayment of the Note to KBM Worldwide, Inc with funds invested by Vinay Holdings expressly for the purpose of the Note
assignment. Vinay has granted a waiver of default and the note is currently in good standing.
Promissory Note and Securities Purchase Agreement with Iconic
Holders, LLC dated September 21, 2015. Aggregate principle amount of $162,000 and an 8% annual interest rate due February 13, 2016.
Iconic may convert some or the entire principle into our common stock at a conversion price equal to a 40% discount of the lowest
trading price as calculated in the note. Filed as an exhibit with our Form 8-K dated and filed September 21, 2015.
Off Balance Sheet Arrangements
We had no off balance sheet arrangements at October 31, 2015.
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures. We
maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file
or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and communicated to our management including our principal
executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. Based upon
their evaluation of those controls and procedures performed as of the end of the period covered by this report, our principal executive
officer and our principal financial officer concluded that our disclosure controls and procedures were effective.
Changes in internal controls. There were no changes in
our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may be involved in litigation relating
to claims arising out of our operations in the normal course of business. As of the date of this report, we are not
currently involved in any legal proceeding that we believe has a material adverse effect on our business, financial condition or
operating results.
Item 1A. Risk Factors.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Item 6. Exhibits.
31.1 |
Certification of Principal Executive Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934 |
31.2 |
Certification of Principal Financial Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934 |
32.1 |
Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2 |
Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.ins |
Instance Document |
101.sch |
XBRL Taxonomy Schema Document |
101.cal |
XBRL Taxonomy Calculation Linkbase Document |
101.def |
XBRL Taxonomy Definition Linkbase Document |
101.lab |
XBRL Taxonomy Label Linkbase Document |
101.pre |
XBRL Taxonomy Presentation Linkbase Document |
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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CrowdGather, Inc.,
a Nevada corporation |
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December 18, 2015 |
By: |
/s/ Sanjay Sabnani |
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Sanjay Sabnani |
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Its: |
President, Secretary, Director |
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(Principal Executive Officer) |
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December 18, 2015 |
By: |
/s/ Richard Corredera |
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Richard Corredera |
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Its: |
Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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Exhibit 31.1
Certification of Principal Executive
Officer,
Required By Rule 13a-14(A) of the Securities
Exchange Act of 1934, As Amended,
As Adopted Pursuant To Section 302
of the Sarbanes-Oxley Act of 2002
I, Sanjay Sabnani, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of CrowdGather, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant‘s internal control over financial reporting. |
Date: December 18, 2015
/s/ Sanjay Sabnani |
|
Sanjay Sabnani
Chief Executive Officer |
|
Exhibit 31.2
Certification of Principal Financial
Officer,
Required By Rule 13a-14(A) of the Securities
Exchange Act of 1934, As Amended,
As Adopted Pursuant To Section 302
of the Sarbanes-Oxley Act of 2002
I, Richard Corredera, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of CrowdGather, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant‘s internal control over financial reporting. |
Date: December 18, 2015
/s/ Richard Corredera |
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Richard Corredera
Chief Financial Officer |
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Exhibit 32.1
Certification of Principal Executive
Officer, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of CrowdGather, Inc.
a Nevada corporation (the “Company”) on Form 10-Q for the period ending October 31, 2015, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), Sanjay Sabnani, Chief Executive Officer of the Company,
certifies to the best of his knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002, that:
|
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
A signed original of this written statement required by Section
906 has been provided to CrowdGather, Inc., and will be retained by CrowdGather, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.
/s/ Sanjay Sabnani |
|
Sanjay Sabnani
Chief Executive Officer
December 18, 2015 |
|
Exhibit 32.2
Certification of Principal Financial
Officer, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of CrowdGather, Inc.
a Nevada corporation (the “Company”) on Form 10-Q for the period ending October 31, 2015, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), Richard Corredera, Chief Financial Officer of the Company,
certifies to the best of his knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002, that:
|
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
A signed original of this written statement required by Section
906 has been provided to CrowdGather, Inc., and will be retained by CrowdGather, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.
/s/ Richard Corredera |
|
Richard Corredera
Chief Financial Officer
December 18, 2015 |
|
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