The financial statements required by Item 8 are presented in
the following order:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2016
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1.
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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 developed, 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 was 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. On March 18, 2016, we sold Plaor, Inc.
This summary of significant accounting policies is presented
to assist the reader in understanding and evaluating the Company’s financial statements. Critical accounting policies are
the Company’s management’s representations and require the most subjective and complex judgment, often involving the
use of estimates on the impact and effects related matters with a large degree of inherent uncertainty. The accompanying policies
conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation
of the consolidated financial statements.
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.
Plaor, Inc. was sold on March 18, 2016 and has been presented in the accompanying consolidated financial statements as discontinued
operations in accordance with ASC 205-20
Discontinued Operations.
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 as the current economic environment increases the degree of uncertainly inherent in the estimates and uncertainty. The
more significant estimates and assumptions made my management include allowances for doubtful accounts, allowance for deferred
income, depreciation and amortization, fair market value of equity and embedded derivative instruments, fair market value of purchased
and sold assets, and impairment of intangible assets.
Identifiable Intangible Assets
In accordance with ASC 350
Intangibles – Goodwill and
Other
, 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. During the years ended April 30, 2016 and 2015 we recognized approximately $1,021,000 and $0 of impairment
expense related to our continuing operations and $0 and $1,020,000 of impairment expense related to our discontinued operations
for each of the years respectively. For the details of our impairment expenses related to continuing operations please refer to
Note 8 below. For the details related to impairment expenses associated with our discontinued operations please refer to Note 4
below.
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
Property, Plant and Equipment
,
we generally 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. However,
in cases where we determine a non-material amount we assess specific facts and circumstances to assess potential impairment. 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. During the years ended on April 30, 2016 and 2015 we did not recognize
any impairment of long lived assets.
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.
During the fiscal year ended April 30, 2015 we wrote down our
investment in EROX of $21,000 to $0.
Inventory
Inventory is valued at the lower of cost or market, using the
first-in, first-out (FIFO) method.
During the fiscal year ended April 30, 2015 we wrote down our
inventory of $31,000 to $0.
Related Parties
A party is considered to be related to
the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under
common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or
operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly
influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate
interests is also a related party.
During year ended April 30, 2015 the Company
paid $32,800 for legal services provided by Mr. Hazim Ansari, which the Company has identified to be a related party, as he later
became a member of the Board of Directors.
Fair Value of Financial Instruments
The Company applies the provisions of accounting
guidance, FASB Topic ASC 825 that requires all entities to disclose the fair value of financial instruments, both assets and liabilities
recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value
of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.
As of April 30, 2016 and 2015, the fair value of cash, accounts payable, and notes payable approximated carrying value due to the
short maturity of the instruments, quoted market prices or interest rates which fluctuate with market rates.
Basic and Diluted Earnings
Per Share
Basic earnings (loss) per common share
is computed by dividing net earnings applicable to common stockholders by the weighted-average number of common shares outstanding
during the period. Diluted earnings (loss) per common share is determined using the weighted-average number of common shares outstanding
during the period, adjusted for the dilutive effect of common stock equivalents, using the treasury stock method, consisting of
shares that might be issued upon exercise of common stock warrants and conversion of convertible notes. In periods where losses
are reported, the weighted-average number of common stock outstanding excludes common shares equivalents, because their inclusion
would be anti-dilutive. The following are types of potentially dilutive instruments:
|
Warrants,
|
|
|
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Convertible notes,
|
|
|
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Employee stock options,,
|
|
|
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Restricted stock units, and
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Other equity awards, which include long-term incentive awards.
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The FASB ASC Topic 260, “
Earnings
Per Share”
, requires the Company to include additional shares in the computation of earnings per share, assuming dilution.
The additional shares included in diluted earnings per share represents the number of shares that would be issued if all of the
Company’s outstanding dilutive instruments were converted into common stock.
Diluted earnings per share are based on
the assumption that all dilutive options were converted or exercised. Dilution is computed by applying the treasury stock method.
Under this method, options, warrants, and convertible notes are assumed to be exercised at the time of issuance, and as if funds
obtained thereby were used to purchase common stock at the average market price during the period.
Basic and diluted earnings (loss) per share are the same since
the Company had net losses for all periods presented and including the additional potential common shares would have an anti-dilutive
effect.
Revenue Recognition
We currently work with third-party advertising networks selling
online advertising on our forum and branded website network on a cost per thousand impressions, cost per click or cost per action
basis. 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
Our former wholly owned subsidiary Plaor operated 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. Deferred revenue associated with the operation MFC has been presented as
discontinued operations on our income statement and statement of financial position. Please see Note 4 for additional detail.
Cost of Revenue
Our cost of revenue consists primarily of the direct expenses
incurred in order to generate revenue. Such costs are recorded as incurred. We also record costs related to the fulfillment of
specific customer advertising campaigns and the costs associated with the manufacture and distribution of our synthetic human pheromone
consumer products.
Employee 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).
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.
We did not issue any employee stock based compensation during
the years ended April 30, 2016 and 2015.
Non-employee Stock Based Compensation
We account for non-employee stock based compensation in accordance
with ASC 505-50,
Equity Payments to Non-Employees
. For awards with service or performance conditions, we generally recognize
expense over the service period or when the performance condition is met; however, there may be circumstances in which we determine
that the performance condition is probable before the actual performance condition is achieved. In such circumstances, the amount
recognized as expense is the pro rata amount, depending on the estimated progress towards completion of the performance condition.
Nonemployee share-based payments are measured at fair value, based on either the fair value of the equity instrument issued. We
determine the fair value of common stock grants based on the price of the common stock on the measurement date (which is the earlier
of the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, if there are sufficient
disincentives to ensure performance, or the date at which the counterparty’s performance is complete). We use historical
data to estimate expected forfeiture rate. For awards that are recognized when a performance condition is probable, the fair value
is estimated at each reporting date. The cost ultimately recognized is the fair value of the equity award on the date the performance
condition is achieved. Accordingly, the expense recognized may change between interim reporting dates and the date the performance
condition is achieved.
Debt
We issue debt that may have separate warrants, conversion features,
or no equity-linked attributes.
Debt with warrants
– When we issue debt with
warrants, we treat the warrants as a debt discount, record as a contra-liability against the debt, and amortize the balance over
the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations. The
offset to the contra-liability is recorded in our consolidated balance sheet as either additional paid in capital in the case of
equity treatment of the warrants or as derivative liability in the case of liability treatment of the warrant. We determine
the value of the warrants using the Binomial Lattice Model using the stock price on the date of issuance, the risk free interest
rate associated with the life of the debt, and the volatility of our stock. If the debt is retired early, the associated
debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statement of operations.
The debt is treated as conventional debt.
Convertible debt
–
derivative treatment
–
When we issue debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be
treated as a derivative, as follows: a) one or more underlyings, typically the price of our common stock; b) one or more
notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which
typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means
the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition
of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain
contracts involving an issuer’s own equity. The scope exception applies if the contract is both a) indexed to its own
stock; and b) classified in stockholders’ equity in its statement of financial position.
If the conversion feature within convertible debt meets the
requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using binomial options
pricing upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of
the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible
debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount
of the debt. The convertible debt derivative is revalued at the end of each reporting period and any change in fair value
is recorded as a gain or loss in the consolidated statement of operations. The debt discount is amortized through interest
expense over the life of the debt.
During the fiscal years ended April 30, 2016 and 2015 we determined
that all of the embedded conversion features associated with debt issued within the years qualified for embedded derivative treatment
in accordance with ASC 815,
Derivatives and Hedging
. As such, no future classification analysis was needed for additional
testing for beneficial conversion features.
Modification of Debt Instruments
Modifications or exchanges of debt, which are not considered
a troubled debt restructuring, are considered extinguishments if the terms of the new debt and the original instrument are substantially
different. The instruments are considered substantially different when the present value of the cash flows under the terms
of the new debt instrument are at least 10% different from the present value of the remaining cash flows under the terms of the
original instrument. If the original and new debt instruments are substantially different, the original debt is derecognized
and the new debt is initially recorded at fair value, with the difference recognized as an extinguishment gain or loss. See Note
13 for details on individual notes subject to modification during the fiscal year ended April 30, 2016.
Business Combinations
Amounts paid for acquisitions are allocated to the assets acquired
and liabilities assumed based on their estimated fair value at the date of acquisition. The fair value of identifiable intangible
assets is based on detailed valuations that use information and assumptions provided by management, including expected future cash
flows or management’s best estimate when no valuation is obtained. We allocate any excess purchase price over the fair value
of the net assets and liabilities acquired to goodwill. Identifiable intangible assets with finite lives are amortized over
their useful lives. Acquisition-related costs, including advisory, legal, accounting, valuation and other costs, are expensed in
the periods in which the costs are incurred. The results of operations of acquired businesses are included in the consolidated
financial statements from the acquisition date.
Discontinued Operations
Plaor, Inc. was sold on March 18, 2016 and has been presented in the accompanying consolidated financial
statements as discontinued operations in accordance with ASC 205-20 Discontinued Operations. As further discussed in
Note
4, the operations of our wholly-owned subsidiary, Plaor, were divested during the fourth quarter of the fiscal year ended April
30, 2016 (“fiscal 2016”). All significant intercompany transactions and accounts are eliminated in consolidation
.
Fair Value Measurements
Fair value is defined as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability,
in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value
must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three
levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
Level 1 –
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Quoted prices in active markets for identical assets or liabilities.
|
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Level 2 –
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Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
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Level 3 –
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Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.
|
Our financial instruments include cash, accounts receivable,
and accounts payables. The carrying values of these financial instruments approximate their fair value due to their short maturities.
The carrying amount of our debt approximates fair value because the interest rates on these instruments approximate the interest
rate on debt with similar terms available to us. Our derivative liability was adjusted to fair market value at the end of
each reporting period, using Level 3 inputs.
Income Taxes
The provision for income
taxes, income taxes payable and deferred income taxes are determined using the asset and liability method. Deferred tax assets
and liabilities are determined based on temporary differences between the financial carrying amounts and the tax basis of assets
and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. On a
periodic basis, the Company assesses the probability that its net deferred tax assets, if any, will be recovered. If after evaluating
all of the positive and negative evidence, a conclusion is made that it is more likely than not that some portion or all of the
net deferred tax assets will not be recovered, a valuation allowance is provided by a charge to tax expense to reserve the portion
of the deferred tax assets which are not expected to be realized.
The Company reviews
its filing positions for all open tax years in all U.S. federal and state jurisdictions where the Company is required to file.
When there are uncertainties
related to potential income tax benefits, in order to qualify for recognition, the position the Company takes has to have at least
a “more likely than not” chance of being sustained (based on the position’s technical merits) upon challenge
by the respective authorities. The term “more likely than not” means a likelihood of more than 50 percent. Otherwise,
the Company may not recognize any of the potential tax benefit associated with the position. The Company recognizes a benefit for
a tax position that meets the “more likely than not” criterion at the largest amount of tax benefit that is greater
than 50 percent likely of being realized upon its effective resolution. Unrecognized tax benefits involve management’s judgment
regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments
to recorded amounts and may affect our results of operations, financial position and cash flows.
The Company’s
policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual
for interest or penalties at April 30, 2016 and April 30 2015, respectively, and has not recognized interest and/or penalties during
the years ended April 30, 2016 and April 30, 2015, respectively, since there are no material unrecognized tax benefits. Management
believes no material change to the amount of unrecognized tax benefits will occur within in the next 12 months.
The tax years subject to examination by major tax jurisdictions
include the years 2013 and forward by the U.S. Internal Revenue Service.
Internal-Use Software Development Costs
We expense costs as incurred for internal-use software during
the preliminary stages of development. Costs incurred 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 April 30, 2016 and 2015, we have not capitalized any internal-use software development costs. All costs identified as software
maintenance costs have been expensed and reflected within our statement of operations as operating costs associated with normal
business activities.
Recent Accounting Pronouncements
FASB ASU 2016-15 “Statement of Cash Flows (Topic 230)”
–
In August 2016, the FASB issued ASU 2016-15, which clarified the presentation of certain cash receipts and cash payments
on the statement of cash flows. Previous GAAP was either unclear or lacked specific guidance on the presentation of the items addressed
in ASU 2016-15, as a result a diversity of practice had developed. The amendment provides specific guidance on the presentation
of eight specific items on the statement of cash flows. This ASU is effective for annual periods beginning after December 15, 2017,
and the interim periods within those fiscal years. We plan to evaluate the potential impact this standard will have on
our consolidated financial statements and related disclosures.
FASB ASU 2015-17”Income Taxes (Topic 740)” –
In
November 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred tax assets and liabilities on the balance
sheet. Previous GAAP required an entity to separate deferred income tax liabilities and assets into current and noncurrent
amounts on the balance sheet. The amendment requires that deferred tax liabilities and assets be classified as noncurrent
in a classified balance sheet. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods
within annual periods beginning after December 15, 2018. We plan to evaluate the potential impact this standard will
have on our consolidated financial statements and related disclosures.
FASB ASU 2015-16 “Business Combinations (Topic
805),” or ASU 2015-16
- In September 2015, the FASB issued ASU 2015-16, which requires that an acquirer
recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in
which the adjustment amounts are determined. This ASU is effective for interim and annual reporting period beginning after
December 15, 2016, including interim periods within those fiscal years, with the option to early adopt for financial
statements that have not been issued. We plan to evaluate the potential impact this standard will have on our consolidated
financial statements and related disclosures.
FASB ASU 2015-11 “Inventory (Topic 330): Simplifying
the Measurement of Inventory,” or ASU 2015-11
- In July 2015, the FASB issued ASU 2015-11, which requires an entity
to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices
in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments
apply to inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU is effective for interim and annual
reporting periods beginning after December 15, 2016, with the option to early adopt as of the beginning of an annual or interim
period. We do not expect the adoption of this ASU to have a significant impact on our financial position, results of operations
and cash flows.
FASB ASU 2015-03 “Interest - Imputation of Interest
(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Cost,” or ASU 2015-03
- In April 2015, the FASB
issued ASU 2015-03, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated
debt liability. This ASU is effective for annual periods beginning after December 15, 2015, and the interim periods within those
fiscal years. We do not expect the adoption of this ASU to have a significant impact on our financial position, results of operations
and cash flows.
FASB ASU 2015-02 “Consolidation (Topic 810):
Amendments to the Consolidation Analysis,” or ASU 2015-02
- In February 2015, the FASB issued ASU 2015-02,
which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of
legal entities. This ASU is effective for annual reporting periods beginning after December 15, 2015 and we plan to evaluate
the impact of adoption of this ASU on our consolidated results of operations, cash flows and financial position.
Financial Accounting Standards Board, or FASB, Accounting
Standards Update, or FASB ASU 2016-12 “Revenue from Contracts with Customers (Topic 606)”
– In May 2016,
the FASB issued 2016-12. The core principle of the guidance is that an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. ASU 2016-12 provides clarification on assessing collectability, presentation of
sales taxes, noncash consideration, and completed contracts and contract modifications. This ASU is effective for annual
reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. We plan to evaluate
the impact of adoption of this ASU on our consolidated results of operations, cash flows and financial position.
FASB ASU 2016-11 “Revenue Recognition (Topic 605) and
Derivatives and Hedging (Topic 815)”
– In May 2016, the FASB issued 2016-11, which clarifies guidance on assessing
whether an entity is a principal or an agent in a revenue transaction. This conclusion impacts whether an entity reports
revenue on a gross or net basis. This ASU is effective for annual reporting periods beginning after December 15, 2017, with
the option to adopt as early as December 15, 2016. We plan to evaluate the impact of adoption of this ASU on our consolidated
results of operations, cash flows and financial position.
FASB ASU 2016-10 “Revenue from Contracts with Customers
(Topic 606)”
– In April 2016, the FASB issued ASU 2016-10, clarify identifying performance obligations and
the licensing implementation guidance, while retaining the related principles for those areas. This ASU is effective for
annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. We plan to evaluate the impact of adoption of this ASU on our consolidated results of operations, cash flows and financial position.
FASB ASU 2016-09 “Compensation – Stock Compensation
(Topic 718)”
– In March 2016, the FASB issued ASU 2016-09, which includes multiple provisions intended to
simplify various aspects of accounting for share-based payments. While aimed at reducing the cost and complexity of the accounting
for share-based payments, the amendments are expected to significantly impact net income, earnings per share, and the statement
of cash flows. Implementation and administration may present challenges for companies with significant share-based payment
activities. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those
fiscal years. We plan to evaluate the potential impact this standard will have on our consolidated financial statements
and related disclosures.
FASB ASU 2016-02 “Leases (Topic 842)” –
In
February 2016, the FASB issued ASU 2016-02, which will require lessees to recognize almost all leases on their balance sheet as
a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases
to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those
applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model,
but updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective
for fiscal years beginning after December 18, 2018, including interim periods within those fiscal years. We plan to evaluate the potential impact this standard will have on our consolidated financial statements and related disclosures.
The consolidated financial statements have been prepared on
a going concern basis, which assumes we will be able to realize our assets and discharge our liabilities in the normal course
of business for the foreseeable future. We have incurred a net loss of $5,048,000 for the year ended April 30, 2016 and have
an accumulated deficit of $36,550,000 as of April 30, 2016, 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. These matters raise substantial
doubt of our ability to continuing operating as a going concern. Management believes that actions presently being taken to further
implement its business plan and generate additional revenues provide opportunity for us to continue as a going concern. 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.
Plaor Merger
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”). We issued 55,075,800 shares of our $0.01 par value common stock to the shareholders
of Plaor. These shares were valued for accounting purposes at $0.11 per share which represented the closing share price of our
stock on May 19, 2014, for a total purchase price of $6,058,000. The purchase price has been allocated in accordance with ASC 805
as per management’s best estimate as follows:
Cash and cash equivalents
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$
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102,000
|
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Accounts receivable, Net
|
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87,000
|
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Prepaids and other assets
|
|
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25,000
|
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Property and equipment
|
|
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18,000
|
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Amortizable intangible assets:
|
|
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Trademarks, trade name, licensing and branding
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4,241,000
|
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Goodwill allocated
|
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1,817,000
|
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Total assets acquired
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6,290,000
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Fair value of liabilities assumed
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(232,000
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)
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Net fair value
|
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$
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6,058,000
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4.
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SALE OF PLAOR, INC. AND DISCONTINUED OPERATIONS
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On March 18, 2016 we sold our wholly owned subsidiary Plaor,
Inc. to Native Games America, LLC (“NGA”). The sale allows us to focus more directly on our core online communities
and digital cannabis businesses while also removing approximately $1,848,000 of current debt and accrued interest from our balance
sheet along with the elimination of approximately $589,000 of liabilities related to Plaor, Inc.
The liabilities assumed and assets acquired by Native Games
America, Inc. consisted of the following on March 18, 2016:
Liabilities Assumed:
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|
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Debt
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$
|
1,600,000
|
|
Accrued interest
|
|
|
248,000
|
|
|
|
|
1,848,000
|
|
|
|
|
|
|
Accounts Payable
|
|
|
125,000
|
|
Deferred revenue
|
|
|
266,000
|
|
Accrued Liabilities
|
|
|
198,000
|
|
|
|
|
589,000
|
|
|
|
|
|
|
Note Payable to NGA
|
|
|
284,000
|
|
Payments received from NGA
|
|
|
200,000
|
|
|
|
|
484,000
|
|
|
|
|
|
|
Note Receivable
|
|
|
731,000
|
|
|
|
|
|
|
Total Consideration
|
|
$
|
3,652,000
|
|
|
|
|
|
|
Assets Acquired:
|
|
|
|
|
Cash
|
|
|
7,000
|
|
Accounts receivable
|
|
|
42,000
|
|
Prepaids/Deposits
|
|
|
19,000
|
|
PPE
|
|
|
8,000
|
|
Intangibles
|
|
|
3,576,000
|
|
Total Assets
|
|
$
|
3,652,000
|
|
|
|
|
|
|
Gain (Loss) on Sale
|
|
$
|
-
|
|
At close of the transaction on March 18, 2016, NGA assumed $1,848,000 of debt and accrued interest, $589,000
of outstanding liabilities and made cash payments of $200,000 to the Company and cash payments on behalf of Ploar to settle liabilities
of $284,000. The balance was a note receivable of $731,000. Based on discussion with the management of NGA we impaired the balance
in note receivable on our balance sheet to $0.
The Company has recorded
terminating its operations of Plaor, Inc as of March 18, 2016, in accordance with Accounting Standards Codification (ASC) No. 205-20,
Discontinued Operations. As such, the historical results of Plaor, Inc. have been adjusted to include discontinued-related
costs and exclude corporate allocations with CrowdGather, Inc and have been classified as discontinued operations in all periods
presented.
The following financial information presents the discontinued
operations of Plaor, Inc.
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,587,000
|
|
|
$
|
1,744,000
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
443,000
|
|
|
|
550,000
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,144,000
|
|
|
|
1,194,000
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Payroll and related expenses
|
|
|
691,000
|
|
|
|
1,691,000
|
|
General and administrative
|
|
|
1,330,000
|
|
|
|
3,020,000
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,021,000
|
|
|
|
4,711,000
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
Legal settlement
|
|
|
-
|
|
|
|
175,000
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
(1,020,000
|
)
|
Total Other income (expense), net
|
|
|
-
|
|
|
|
(845,000
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(877,000
|
)
|
|
$
|
(4,362,000
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding- basic and diluted
|
|
|
118,987,173
|
|
|
|
114,068,425
|
|
|
|
|
|
|
|
|
|
|
Net loss per share – basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
For the years ended April 30, 2016 and 2015 we recognized amortization
of trademarks of $683,000 and $779,000, respectively, which was included in general and administrative expenses.
During the year ended April 30, 2015 we received $175,000 related
to a settlement agreement reached with Hollywood Casinos, LLC concerning certain marks, social media accounts and domain names.
We have recognized the $175,000 as Other Income during that year related to discontinued operations.
As of April 30, 2015 we determined that the estimated fair value
of our trademarks and goodwill did not exceed its carrying value and therefore was impaired. We recorded an impairment of $653,000
on trademarks and $367,000 on goodwill, for a total of $1,020,000.
The following table presents the aggregate carrying amounts
of the assets and liabilities associated with the discontinued operations of Plaor, Inc.
|
|
APRIL 30, 2015
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
131,000
|
|
Prepaid expenses and deposits
|
|
|
15,000
|
|
Total current assets
|
|
|
146,000
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation of $27,000 respectively
|
|
|
13,000
|
|
Goodwill
|
|
|
1,450,000
|
|
Intangible and other assets, net of accumulated amortization of $779,000 respectively
|
|
|
2,809,000
|
|
|
|
|
|
|
Total assets of discontinued operations
|
|
|
4,418,000
|
|
|
|
|
|
|
Current liabilities of discontinued operations
|
|
|
|
|
Accounts payable
|
|
$
|
73,000
|
|
Other accrued liabilities
|
|
|
628,000
|
|
Deferred revenue, net of deferred platform fees
|
|
|
379,000
|
|
Assigned notes payable disposed
of in sale of Plaor, Inc - net of debt discount of $330,000
|
|
|
1,221,000
|
|
|
|
|
|
|
Total current liabilities of discontinued operations
|
|
|
2,301,000
|
|
|
|
|
|
|
Total liabilities of discontinued operations
|
|
|
2,301,000
|
|
Assigned debt
As a component of the consideration in the sale of our subsidiary
Plaor, Inc to Native Games America, LLC (“NGA”). Approximately $1,848,000 of debt principal plus all accrued interested
related to the principal was assigned to NGA, which is recorded in the accompanying statement of financial position at April 30,
2015 under Notes Payable disposed of in the sale of Plaor, Inc. A discussion of the debt assigned to NGA follows.
Assigned Exchange Notes:
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. On March 18, 2016 and on April 30, 2015
outstanding principal was $1,100,000, unamortized debt discount was $0 and $256,000, and accrued interest was $172,000 and
$55,000 on those dates respectively. 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 connection
with the sale of our subsidiary Plaor, Inc, all Exchange Notes, principal of $1,100,000 and accrued interest of $172,000, was
assigned to the buyer of Plaor, Inc on March 18, 2016. The warrants associated with the notes were detached and remain
outstanding with CrowdGather, Inc. We recognized the detached Exchange Warrants as equity instruments according to the
guidance of ASC 480,
Distinguishing Liabilities from Equity
and recorded at relative fair value at the time of
issuance according to ASC 470-20,
Debt with Conversion and Other Options
. On the date of issuance, the
estimate relative fair value of the warrants was approximately $334,000 using the lattice model and the following inputs:
stock price $0.10, strike price $0.11, volatility 146%, risk free rate 1.64%. Furthermore, we recognized the following: note
payable of $1,100,000; additional paid in capital of approximately $334,000; debt discount of approximately $334,000 the
relative fair value of the warrants and an additional debt discount of approximately $100,000, for a total debt discount of
$434,000; and the extinguishment of $1,000,000 worth of our Series B preferred shares.
For the period ended March 18, 2016, accreted debt discount and interest expense was approximately $256,000
and $117,000, respectively and were included in continuing operations. For the year ended April 30, 2015, accreted debt discount
and interest expense was approximately $178,000 and $55,000, respectively. No interest payments were made in 2016 or 2015.
Assigned Secured Notes:
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. On March 18, 2016 and April 30, 2015 outstanding principal was $250,000,
unamortized debt discount was $0 and $41,000, and accrued interest was $39,000 and $13,000 on those dates respectively. 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.
.
As part of our sale of Plaor, Inc. on March 18, 2016
the Notes have been assigned to Native Games America, LLC, the purchaser of Plaor, Inc. as a component of total consideration of
the sale. The Warrants remained outstanding and have been recognized as equity instruments according to the guidance of ASC 480,
Distinguishing Liabilities from Equity
and recorded the value at relative fair value at the time of issuance according to
ASC 470-20,
Debt with Conversion and Other Options
. On the date of issuance, the estimate relative fair value of the warrants
was approximately $73,000 using the lattice model and the following inputs: stock price $0.09, strike price $0.10, volatility 146%,
risk free rate 1.62%. Furthermore, we recognized the following: note payable of $250,000; additional paid in capital of approximately
$73,000; and debt discount of approximately $73,000.
For the period ended March 18, 2016, accreted debt
discount and interest expense was approximately $41,000 and $26,000, respectively and were included in continuing operations.
For the year ended April 30, 2015, accreted debt discount and interest expense was approximately $32,000 and $13,000, respectively.
On December 1, 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 principal balance on March 18, 2016 and April 30, 2015 was $200,000 with accrued interest of
$33,000 and $11,000 on those dates respectively. 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
.
As part of our sale of Plaor, Inc. on March 18, 2016 the Note have been assigned to Native Games America, LLC,
the purchaser of Plaor, Inc. as a component of total consideration of the sale. We recognized the detached Exchange Warrants as
equity instruments according to the guidance of ASC 480,
Distinguishing Liabilities from Equity
and recorded the value at
relative fair value at the time of issuance according to ASC 470-20,
Debt with Conversion and Other Options
. . On the date
of issuance, the estimate relative fair value of the warrants was approximately $58,000 using the lattice model and the following
inputs: stock price $0.09, strike price $0.10, volatility 146%, risk free rate 1.62%. Furthermore, we recognized the following:
note payable of $200,000; additional paid in capital of approximately $58,000; and debt discount of approximately $58,000.
For the period ended March 18, 2016, accreted debt discount and interest expense was approximately $33,000
and $22,000, respectively and were included in continuing operations. For the year ended April 30, 2015, accreted debt discount
and interest expense was approximately $25,000 and $11,000, respectively.
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 agreed repay the $50,000 including interest at 12% or the maximum allowable under the law, whichever is
lower. The note, including interest was assigned to Native Games America, the purchaser of our former subsidiary Plaor, Inc. as
a comment of the sale of Plaor, Inc on March 18, 2016. The principal balance on March 18, 2016 was $50,000 with accrued interest
of $4,000.
For the period ended March 18, 2016 interest expense was approximately $4,000.
Any associated warrants with the notes were detached and remain
outstanding with CrowdGather, Inc.
Investment in Plaor
As of April 30, 2015, we determined that the fair value of the non-goodwill intangible assets of Plaor,
Inc did not exceed its carrying value and therefore was impaired. We recorded an impairment charge of $653,000 and held a net carrying
value after impairment of $3,587,000, which was subsequently eliminated as a result of our sale of Plaor, Inc (“Plaor”).
Our determination was largely based on the short period we owned Plaor, Inc. and the resulting consideration received on the sale
of Plaor.
Goodwill
During the year ended April 30, 2015, we recorded $1,817,000
of goodwill relating to the merger with Plaor. The total value of the acquisition was approximately $6,058,000 and has been allocated
in accordance with ASC 805 as per our management’s valuation estimate.
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 of April 30, 2015, we determined that the fair value of
the goodwill did not exceed its carrying value and therefore was impaired. We recorded an impairment charge of $367,000 and held
a net carrying value after impairment of $1,450,000, which was subsequently eliminated as a result of our sale of Plaor, Inc (“Plaor”).
Our determination was largely based on the short period of time we owned Plaor, Inc. and the resulting consideration received
on the sale of Plaor.
Basic net loss per share is computed by dividing net loss by
the weighted-average number of common shares outstanding during the reporting period. We are in a net loss position and as
such Diluted net loss per share is calculated similarly to Basic net loss per share.
The following table presents a reconciliation of the denominators
used in the computation of net loss per share – basic and diluted:
|
|
|
Year ended April 30
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(3,440,000
|
)
|
|
|
(2,868,000
|
)
|
Net loss from discontinued operations
|
|
|
(1,608,000
|
)
|
|
|
(4,362,000
|
)
|
Net loss
|
|
|
(5,048,000
|
)
|
|
|
(7,230,000
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average outstanding shares of common stock
|
|
|
118,987,173
|
|
|
|
114,068,425
|
|
Dilutive effect of stock options and warrants
|
|
|
-
|
|
|
|
-
|
|
Common stock and equivalents
|
|
|
118,987,173
|
|
|
|
114,068,425
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.04
|
)
|
Net loss
|
|
|
(0.04
|
)
|
|
|
(0.07
|
)
|
The following instruments
are currently antidilutive and have been excluded from the calculations of diluted income or loss per share for the years ended
April 30, as follows:
|
|
Year ended April 30
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Common stock upon the conversion of debt
|
|
|
62,407,000
|
|
|
|
11,855,000
|
|
Warrants
|
|
|
7,750,000
|
|
|
|
8,590,000
|
|
Stock Options
|
|
|
3,264,000
|
|
|
|
4,554,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,421,000
|
|
|
|
24,999,000
|
|
|
6.
|
PROVISION FOR INCOME TAXES
|
For the years ended April 30, 2016 and 2015, 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.
As of April 30, 2016, we had federal and state net operating
loss carry forwards of approximately $21,000,000 which can be used to offset future federal income tax. The federal and state net
operating loss carry forwards expire at various dates through 2035. Deferred tax assets resulting from the net operating losses
are reduced by a valuation allowance, when, in our opinion, utilization is not reasonably assured. We also continue to be subject
to examination by the IRS and the state taxing authorities for the tax years 2009 to 2015.
As of April 30, 2016, we had the following deferred tax assets
related to net operating losses. A 100% valuation allowance has been established due to the uncertainty of our ability to realize
future taxable income and to recover its net deferred tax assets.
|
|
Year Ended April 30, 2016
|
|
|
Year Ended April 30, 2015
|
|
Federal net operating loss (at 34%)
|
|
$
|
4,511,000
|
|
|
|
4,280,000
|
|
State net operating loss (at 8.84%)
|
|
|
1,173,000
|
|
|
|
1,113,000
|
|
|
|
|
5,684,000
|
|
|
|
5,393,000
|
|
Less: valuation allowance
|
|
|
(5,684,000
|
)
|
|
|
(5,393,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
|
-
|
|
Our valuation allowance increased by $195,000 and $1,140,000
for the years ended April 30, 2016 and 2015, respectively.
|
7.
|
PROPERTY AND EQUIPMENT
|
Property and equipment consisted of the following:
|
|
April 30, 2016
|
|
|
April 30, 2015
|
|
|
|
|
|
|
|
|
Furniture, fixtures and office equipment
|
|
$
|
31,000
|
|
|
$
|
31,000
|
|
Computers, servers and equipment
|
|
|
594,000
|
|
|
|
593,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
625,000
|
|
|
|
624,000
|
|
Less: accumulated depreciation
|
|
|
(614,000
|
)
|
|
|
(600,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,000
|
|
|
$
|
24,000
|
|
Depreciation expense was $14,000 and $99,000 for the years ended
April 30, 2016 and 2015, respectively.
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. Intangibles consist of the following:
|
|
Est. Life
|
|
APRIL 30, 2016
|
|
|
APRIL 30, 2015
|
|
|
|
|
|
|
|
|
|
|
Online forums and related websites
|
|
Indefinite
|
|
$
|
4,216,000
|
|
|
$
|
4,216,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Impairment
|
|
|
|
|
(1,021,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,195,000
|
|
|
$
|
4,216,000
|
|
In accordance with ASC 350-30
General Intangibles Other Than
Goodwill
, we evaluate the remaining useful life of our intangible assets not being amortized to determine whether events and
circumstances continue to support an indefinite useful life. As of April 30, 2016 and 2015 we determined that our forum assets
remained indefinite-lived assets not subject to amortization. We considered factors including: expected cash flow, our historical
experiences, regulatory factors and the effects of possible obsolescence and maintenance required to support the assets.
As of April 30, 2016, we determined that the fair value of our
online forums and related websites did not exceed its carrying value and therefore was impaired. We recorded an impairment charge
of approximately $1,021,000 and held a net carrying value after impairment of $3,195,000. The impairment amount was determined
using the income approach and specifically the multi-period excess earnings method. We engaged the services of an independent appraisal
firm to conduct the impairment analysis according to US GAPP principles including ASC 350
Intangibles – Goodwill and Other
.
On April 8, 2015, we acquired the digital assets of
Weedtracker.com and related online community in exchange for a $5,000 cash payment due December 31, 2015 and 250,000 shares of
our $0.001 par value common stock, valued for accounting purposes at $0.08 per share which represented the closing share price
on the closing date of the transaction for a total stock based payment of $20,000. As a result, the total purchase price was $25,000.
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 for a total stock based payment of $1,000. As a result, the total purchase
price was $2,000.
The Board of Directors and management of CrowdGather, Inc determined,
after discussions with our independent registered public accounting firm, concluded that, based on a review of the Company’s
accounting for certain losses related to the sale of certain intangible assets in April 2014 were not properly accounted for in
prior years and the related financial statements were materially misstated.
In April 2014 we had entered into a definitive agreement to
sell our website PBNation.com. Pursuant to the Web Site Purchase Agreement (the “Agreement”), we agreed to transfer
and assign all right, title, and interest in the web site(s) known as PBNation.com. The purchase price of the site as stated in
the Agreement was $1,380,000. The Agreement also stated escrow fees, known accrued receivables, and a $25,000 “holdback”
would reduce the cash paid to us. A portion of the $25,000 holdback amount would furthermore be due to us one year following the
sale net of certain accrued receivables paid to us but due to the buyer as per the terms of the Agreement. The loss on this sale
of $1,529,000 was previously reported as of the date of the transaction closing in May 2014. As a result of our analysis, we have
concluded that this loss should have been recorded as of April 30, 2014. Accordingly, the beginning accumulated deficit balance
for the year ended April 30, 2014 was restated.
On September 22, 2014 300,000 Restricted Stock
Units were granted to Monarch Bay Securities for an advisory engagement lasting six months. In consideration of the
irrevocable nature of the granted shares and the performance commitment embodied by engagement agreement, we have determined that
a single measurement of fair value at the time of the grant was appropriate in accordance with ASC 505-
-
50-
-
30-
-
11(a). We
subsequently recognized the fair value of the Restricted Stock Units on a straight line basis over the term of the engagement in
consideration of ASC 505-
-
50-
-
25-
-
4.
In Fiscal 2015 we wrote down for-sale securities related
to the investment in EROX that we had previously recorded effects on other comprehensive income. The original value of the securities
recorded was $50,000, with $29,000 in Accumulated Other Comprehensive Income and the remaining $21,000 was originally recorded
on the balance sheet and written down to $0 in Fiscal 2015.
On April 8, 2015, we acquired the digital assets of
Weedtracker.com and related online community and issued 250,000 shares of our $0.001 par value common stock, valued for accounting
purposes at $0.08 per share which represented the closing share price on the closing date of the transaction for a total stock
based payment of $20,000. The company determined the acquisition did not fall within the scope of
ASC 805 Business Combinations
;
and that the acquisition did not meet the definition of a business combination.
On August 11, 2015, we acquired the digital assets of CouponsForWeed.com
and related mobile application and issued 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 for a total stock
based payment of $1,000. The company determined the acquisition did not fall within the scope of
ASC 805 Business Combinations
;
and that the acquisition did not meet the definition of a business combination.
On May 26, 2015 we granted 100,000 shares of restricted stock units,
par value $0.001, for consulting services to the company. Vesting of the restricted shares will take place over a 4-year period
with ¼ of the originally granted shares vesting on each of four anniversaries. We recognize the fair value of each vesting
as non-cash compensation over the vesting period. As of April 30, 2016 we have recognized $1,000 of non-cash compensation expense
related to this grant. No stock units have vested and no shares of common stock have been issued.
On May 26, 2015 we granted 100,000 shares of restricted stock units,
par value $0.001, for consulting services to the company. Vesting of the restricted shares will take place over a 2-year period
with 1/8 of the originally granted shares vesting every 90 days following the grant date. We recognize the fair value of each vesting
as non-cash compensation over the vesting period at each vesting date. As of April 30, 2016 we have recognized $2,000 of non-cash
compensation expense related to this grant. Approximately 38,000 of stock units have vested and no shares of common stock have
been issued.
On June 5, 2015 we granted 100,000 shares of restricted stock units,
par value $0.001, for consulting services to the company. Vesting of the restricted shares will take place over a 4-year period
with ¼ of the granted shares vesting on each anniversary date. We recognize the fair value of each vesting as non-cash compensation
over the vesting period. As of April 30, 2016 we have recognized $1,000 of non-cash compensation expense related to this grant..
No stock units have vested and no shares of common stock have been issued.
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. Upon the exercising of the warrant we remeasured
the fair value of the warrant and recognized a decrease in value of $21,000. Additionally, we extinguished the then outstanding
derivative liability of $131,000 with that amount recorded as common stock and additional paid in capital. See Note 13 for further
discussion.
On April 20, 2016 Iconic Holdings elected to convert $15,000 of the outstanding balance of the
Second
Note into our common stock at a price of $0.01 per share. We issued to iconic 1,500,000 shares of our common stock and reduced
the outstanding balance by $15,000. As of April 30, 2016 the outstanding principal of the note was $147,000. Upon conversion of
the note, we recorded $325,000 as additional paid in capital related to the removal of the portion of the embedded conversion feature.
See Note 13 for further discussion.
|
11.
|
STOCK OPTIONS AND WARRANTS
|
In May 2008 our board of directors approved the CrowdGather,
Inc. 2008 Stock Option Plan (the Plan). The Plan authorizes a reserve of up to 12,000,000 shares and 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 years ended April 30, 2016 and 2015, we recognized $59,000
and $266,000 of stock-based compensation costs, respectively, as a result of the issuance of stock options to employees, directors
and consultants in accordance with ASC 718.
As April 30, 2016, total unrecognized stock-based compensation
cost related to unvested stock options was $20,000, which is expected to be recognized over a weighted-average period of approximately
1.27 years.
Stock option activity was as follows for the year ended April
30, 2016 and 2015:
|
|
Number of Options
|
|
|
Weighted-Average Exercise
Price
|
|
|
Weighted-Average
Remaining Contract
Term (Years)
|
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, May 1, 2014
|
|
|
6,039,000
|
|
|
$
|
0.75
|
|
|
|
7.89
|
|
|
$
|
28,000
|
|
Granted
|
|
|
0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Expired
|
|
|
(1,485,000
|
)
|
|
|
0.33
|
|
|
|
6.83
|
|
|
|
-
|
|
Exercised
|
|
|
0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2015
|
|
|
4,554,000
|
|
|
$
|
0.64
|
|
|
|
5.94
|
|
|
$
|
24,000
|
|
Exercisable, April 30, 2015
|
|
|
3,418,000
|
|
|
$
|
0.83
|
|
|
|
5.25
|
|
|
$
|
16,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Expired
|
|
|
(1,290,000
|
)
|
|
|
0.29
|
|
|
|
6.89
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2016
|
|
|
3,264,000
|
|
|
|
0.78
|
|
|
|
4.56
|
|
|
$
|
-
|
|
Exercisable, April 30, 2016
|
|
|
2,911,000
|
|
|
|
0.87
|
|
|
|
4.24
|
|
|
$
|
-
|
|
A summary of the status of our unvested shares related to the
Plan as of April 30, 2016 and 2015 is presented below:
|
|
Number
of Shares
|
|
|
Weighted-Average Grant-
Date Fair Value
|
|
|
|
|
|
|
|
|
Non-vested balance, April 30, 2014
|
|
|
2,720,000
|
|
|
$
|
0.15
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(285,000
|
)
|
|
|
0.07
|
|
Forfeited/Expired
|
|
|
(1,299,000
|
)
|
|
|
0.33
|
|
|
|
|
|
|
|
|
|
|
Non-vested balance, April 30, 2015
|
|
|
1,136,000
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(285,000
|
)
|
|
|
0.01
|
|
Forfeited/Expired
|
|
|
(498,000
|
)
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
|
Non-vested balance, April 30, 2016
|
|
|
353,000
|
|
|
$
|
0.06
|
|
The warrant activity for the period starting May 1,
2014, through April 30, 2016, is described as follows:
|
|
|
|
|
Weighted-Average Exercise
|
|
|
|
Number of Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding, May 1, 2014
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
18,590,000
|
|
|
|
0.11
|
|
Forfeited/Expired
|
|
|
(10,000,000
|
)
|
|
|
0.10
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2015
|
|
|
8,590,000
|
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,884,493
|
|
|
|
0.05
|
|
Forfeited/Expired
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(2,724,493
|
)
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2016
|
|
|
7,750,000
|
|
|
|
0.11
|
|
Following is a summary of the status of warrants outstanding
at April 30, 2016
Exercise Price
|
|
|
Number of Shares
|
|
|
Expiration Date
|
|
|
Weighted-Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.11
|
|
|
|
1,250,000
|
|
|
|
11/21/2019
|
|
|
$
|
0.11
|
|
|
0.11
|
|
|
|
1,000,000
|
|
|
|
12/2/2019
|
|
|
|
0.11
|
|
$
|
0.11
|
|
|
|
5,500,000
|
|
|
|
12/3/2019
|
|
|
|
0.11
|
|
|
Total
|
|
|
|
7,750,000
|
|
|
|
|
|
|
$
|
0.11
|
|
See Notes 4 and 13 for further description of warrant activity.
|
12.
|
COMMITMENTS AND CONTINGENCIES
|
As of July 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 six months.
Our rent is $2,553 per month. The Company no longer occupies this office space.
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.
|
13.
|
NOTES PAYABLE AND DERIVATIVE LIABILITIES
|
Related Party Notes
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 $56,000.
As part of the Agreement, we issued to Mr. Sabnani a Promissory Note whereby we will repay the $56,000 including interest at 12%
or the maximum allowable under the law, whichever is lower. The note, including interest was due April 13, 2016. $6,000 was repaid
to Mr. Sabnani in July 2015. As of April 30, 2016 and 2015 the principal balance of the note was $50,000 and $56,000 with interest
accrued and payable $7,000 and $1,000 respectively. On July 19, 2016 $50,000 principal balance and all interest due
was converted into the company’s common stock. A total of 5,793,267 shares were issued at a price of $0.01 per share. Our
common stock closing price on the date of conversion was $0.01.
On April 17, 2015, we issued a Promissory Note
for $239,000 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 agreed to repay
the $239,000 including interest at 12%. The note, including interest, was due October 20, 2015. Mr. Sabnani extended the maturity
date to April 15, 2017. We accounted for the extension as a modification of the original instrument in accordance with ASC 470-50
Modifications and Extinguishments
. As of April 30, 2016 and 2015 the balance of the note was $239,000 with interest accrued
and payable of $29,000 and $0 respectively.
On September 15, 2015, we issued a Promissory Note
for $10,000 received from Mr. James Sacks, a member of our board. The proceeds were used for general working capital. Under the
terms of the note, we agreed to repay the $10,000 including interest at 12%. The note, including interest, was due March 13, 2016.
Mr. Sacks has granted a waiver of default and maturity date extension. We accounted for the extension as a modification of
the original instrument in accordance with ASC 470-50
Modifications and Extinguishments
. The Note is now due April 15, 2017
with a principal balance of $10,000 with accrued and payable interest $1,000 as of April 30, 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 were used for general working capital. Under the
terms of the note, we agreed to repay the $10,000 including interest at 12%. The note, including interest, was due March 13, 2016.
Mr. Ansari has granted a waiver of default and maturity date extension. We accounted for the extension as a modification of the
original instrument in accordance with ASC 470-50
Modifications and Extinguishments
. The Note is now due April 15, 2017
with a principal balance of $10,000 with accrued and payable interest of $1,000 as of April 30, 2016.
On September 17, 2015, we issued a Promissory Note
for $10,000 received from Mr. Richard Corredera, our CFO. The proceeds were used for general working capital. Under the terms of
the note, we agreed to repay the $10,000 including interest at 12%. The note, including interest, was due March 15, 2016. Mr. Corredera
has granted a waiver of default and maturity date extension. We accounted for the extension as a modification of the original instrument
in accordance with ASC 470-50
Modifications and Extinguishments
. The Note is now due April 15, 2017 with a principal balance
of $10,000 with accrued and payable interest of $1,000 as of April 30, 2016.
Promissory Notes and Note Purchase Agreements
During the fiscal year ended April 30, 2016,
we entered into various Note Purchase Agreements and related Security Agreement for total aggregate amount of $758,000 with Vinay
Holdings. As part of the Agreement, we issued to Vinay Holdings various Promissory Notes whereby we agreed repay the $758,000 including
interest at 12% or the maximum allowable under the law, whichever is lower. The notes, including interest were due within ranges
from 60 days to one year from the respective issuances of the notes. Vinay holdings granted an extension of the maturity dates
and all of the notes are now due June 7, 2018. As of April 30, 2016 the aggregate principal balance of notes was $758,000 with
accrued and payable interest of $63,000. We accounted for the note extensions as and extinguishment of the original instruments
and the recognition of new notes in accordance with ASC 470-50
Modifications and Extinguishments
. We recognized neither
a gain nor a loss as a result of the extinguishment.
Convertible Notes
In the follow paragraphs we outline the details of
all convertible notes, including those extinguished during the years, issued during the first years ended April 30, 2016 and 2015.
We determined the conversion feature of the notes meet the definition of a derivative under ASC 815,
Derivatives and Hedging
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. The fair market value of the conversion features were calculated using a binomial lattice model utilizing
(1) historical volatility factors calculated by historical observations of our common stock volatility over a period of time similar
to the terms of each specific interment, (2) a risk free rates based on the US Treasury Note rate over a similar term as the specific
instrument, and (3) discount conversion prices of our common stock consistent with each instruments’ terms. The embedded
conversion features were recorded as a debt discount and a derivative liability on the balance sheet at their estimated fair values.
If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately
recognized as interest expense. Debt discounts are amortized over the life of the debt. The fair value of the embedded derivatives
are also remeasured and recorded at fair value at each subsequent reporting period with changes in fair value 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; unamortized debt discount has been recorded in Debt Discount; 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 October 23, 2014, we entered into a 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 October 20, 2014 on that day, with
the Company receiving $149,000 of net proceeds after payment of KBM's legal fees. The Note bears interest at the rate of 8% per
annum, was due and payable on July 21, 2015, and may be converted by KBM at any time after 180 days of the date of closing into
shares of 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.
We analyzed the embedded
conversion feature of the convertible note payable in accordance to ASC 815, Derivatives and Hedging and determined that
the embedded conversion feature was a derivative liability. On the date of issuance, the estimate fair value was approximately
$149,000 using the lattice model and the following inputs: stock price $0.11, strike price $0.07, volatility 149%, risk free rate
0.1%. As a result, we recognized the following: convertible note payable of $154,000; derivative liability of approximately $149,000;
debt discount of approximately $5,000 related to the original issue discount and debt discount of approximately $149,000 related
to the derivative liability, for a total debt discount of $154,000.
On April 20, 2015, we extinguished
the note payable through a cash payment of approximately $214,000. The result was a gain of approximately $41,000 due to the extinguishment
of the note payable of $154,00, unamortized debt discount of approximately $53,000, accrued interest of approximately $6,000,
and derivative liability of approximately $148,000. The derivative liability estimated fair value was determined using the lattice
model and the following inputs: stock price $0.08, strike price $0.04, volatility 150%, risk free rate 0.02%.
For the year ended April 30, 2015 accreted debt discount,
interest expense, and the change in the estimated derivative liability was approximately $10,000, $6,000, and $1,00 respectively.
On January 23, 2015, we entered into a 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, was 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.
We analyzed the embedded conversion
feature of the convertible note payable in accordance to ASC 815,
Derivatives and Hedging,
and determined that the embedded
conversion feature was a derivative liability. On the date of issuance, the estimate fair value was approximately $201,000 using
the lattice model and the following inputs: stock price $0.09, strike price $0.05, volatility 148%, risk free rate 0.08%. As a
result, we recognized the following: convertible note payable of $154,000; derivative liability of approximately $201,000; debt
discount of approximately $4,000 related to the original issue discount and debt discount of approximately $150,000 related to
the derivative liability, for a total debt discount of $154,000; and interest expense of approximately $51,000.
As of April 30, 2015, the derivative liability
estimated fair value was approximately $149,000 using the lattice model and the following inputs: stock price $0.07, strike price
$0.04, volatility 178%, risk free rate 0.1%. The result was the recognition of a fair value adjustment of $52,000 in the accompanying
statement of operations.
For the year ended April
30, 2016, accreted debt discount and interest expense were $45,000 and $3,000, respectively. As of April 30, 2015, outstanding
principal, unamortized debt discount and accrued interest were approximately $154,000, $98,000 and $3,000, respectively. For the
year ended April 30, 2015, accreted debt discount and interest expense were approximately $56,000 and $3,000, respectively.
On July 16, 2015, the Note was assigned to Vinay
Holdings (“Vinay”) as the result of a payment of approximately $214,000 made to KBM by Vinay. The result was an extinguishment
of the Note held by KBM and the simultaneous creation of a new Note held by Vinay. The extinguishment of the KBM note resulted
in a gain of approximately $87,000 due to the extinguishment of the note payable of $154,000, unamortized debt discount of approximately
$53,000, accrued interest of approximately $6,000, and derivative liability of approximately $194,000. The derivative liability
estimated fair value was determined using the lattice model and the following inputs: stock price $0.06, strike price $0.03, volatility
283%, risk free rate 0.03%. The result was the recognition of a fair value adjustment of $45,000 in the accompanying statement
of operations. Details of the newly created Vinay note can be found below the section related to the July 16, 2016 Vinay 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 and was due and payable on February 13, 2016. Iconic had 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 did 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.
We analyzed the embedded conversion feature of the
convertible note payable in accordance to ASC 815,
Derivatives and Hedging,
and determined that the embedded conversion
feature was a derivative liability. On the date of issuance, the estimate fair value was approximately $122,000 using the lattice
model and the following inputs: stock price $0.07, strike price $0.04, volatility 161%, risk free rate 0.22%. As of April 30, 2015,
the derivative liability estimated fair value was approximately $130,000 using the lattice model and the following inputs: stock
price $0.07, strike price $0.04, volatility 183%, risk free rate 0.23%. The result was the recognition of a fair value adjustment
of $8,000 in the accompanying statement of operations. Furthermore, we recognized the following at inception: convertible note
payable of $108,000; derivative liability of approximately $122,000; debt discount of approximately $8,000 related to the original
issue discount and debt discount of approximately $100,000 related to the derivative liability, for a total debt discount of $108,000;
and interest expense of approximately $22,000.
As of April 30, 2015, outstanding
principal, unamortized debt discount and accrued interest were approximately $108,000, $86,000 and $2,000, respectively. For the
year ended April 30, 2015, accreted debt discount and interest expense were approximately $22,000 and $2,000, respectively.
For the year ended April 30, 2016, accreted
debt discount, change in the estimated derivative liability, and interest expense were approximately $30,000 $68,000, and $6,000,
respectively.
On August 10, 2015, we extinguished the note payable
through a cash payment of approximately $154,000. The result was a gain of approximately $18,000 due to the extinguishment of the
note payable of $108,000, unamortized debt discount of approximately $56,000, accrued interest of approximately $8,000, and derivative
liability of approximately $112,000. The derivative liability estimated fair value was determined using the lattice model and the
following inputs: stock price $0.05, strike price $0.03, volatility 169%, risk free rate 0.19%.
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, was 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 had 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.
We analyzed the embedded conversion feature of the
convertible note payable in accordance to ASC 815, Derivatives and Hedging, and determined that the embedded conversion feature
was a derivative liability. On the date of issuance, the estimate fair value was approximately $1,480,000 using the lattice model
and the following inputs: stock price $0.12, strike price $0.01, volatility 179%, risk free rate 0.37%. As a result, we recognized
the following: convertible note payable of $162,000; derivative liability of approximately $1,480,000; debt discount of approximately
$12,000 related to the original issue discount and debt discount of approximately $150,000 related to the derivative liability,
for a total debt discount of $162,000; and interest expense of approximately $1,330,000.
On March 18, 2016, we
entered into an amendment and extension agreements with Iconic that provided for an extension of the earliest conversion date
to April 20, 2016 for a payment to Iconic of $25,000. On April 15, 2016 we entered into a second amendment and extension
agreement with Iconic providing for a fixed price at $.01 per share, except that if our common stock closes below $.01 for
three consecutive trading days, Iconic can put the Note to us requiring us to pay Iconic the balance due, including interest,
within 30 days, plus a premium of 20% thereupon. An additional amendment to Note provisions is, that at any time prior to
conversion of any remaining portion of the Iconic Note, we may offer cash to Iconic for the outstanding balance due plus a
20% premium on such balance, and Iconic shall thereupon accept the offered payment or convert the balance to common stock at
$.01 per share within 72 hours by written notice to us.
Based on the modifications, we determined that the
embedded conversion feature met the criteria for extinguishment in accordance with ASC 470-50 that would require the recognition
of a gain or loss. We determined the estimated fair value of the embedded conversion feature immediately prior to the modification
to be approximately $163,000 using the lattice model and the following inputs: stock price $0.01, strike price $0.01, volatility
178%, risk free rate 0.36%. As a result, we recognized a loss on extinguishment of debt of approximately $214,000 in the accompanying
consolidated statement of operations based on elimination of the derivative liability of approximately $1,480,000 and unamortized
debt discount of approximately $52,000, recognition of approximately $325,000 in additional paid in capital in the accompanying
consolidated balance sheet, and recognized a fair value adjustment of approximately $1,317,000.
For the year ended April 30, 2016, accreted debt
discount and interest expense were approximately $110,000 and $8,000, respectively.
On April 20, 2016 Iconic Holdings elected to
convert $15,000 of the outstanding balance of the
Second
Note into our common stock at a price of $0.01 per share. We issued to iconic 1,500,000 shares of our common stock and
reduced the outstanding balance by $15,000. As of April 30, 2016 the outstanding principal of the note was $147,000 and accrued interest of $8,000. Upon
conversion of the note, we recorded $325,000 as additional paid in capital related to the removal of the portion of the
embedded conversion feature.
On October 7, 2016 Iconic Holdings notified us (“Default
Notice”) of a default under the terms of the Second Note. As of the date of Default Notice the outstanding principle balance
of the Second Note was $57,000 with $13,607 of interest payable. We are currently in active discussions with Iconic Holdings to
cure the default status of the Second Note.
JMJ Financial
On March 24, 2015, we issued to JMJ Financial
(the “Investor”) a convertible promissory note in the principal amount of $72,000 with an original issue discount of
$7,000 (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.
We analyzed the embedded conversion
feature of the convertible note payable in accordance to ASC 815,
Derivatives and Hedging,
and determined that the embedded
conversion feature was a derivative liability. On the date of issuance, the estimate fair value was approximately $115,000 using
the lattice model and the following inputs: stock price $0.08, strike price $0.04, volatility 183%, risk free rate 0.64%. As of
April 30, 2015, the derivative liability estimated fair value was approximately $98,000 using the lattice model and the following
inputs: stock price $0.07, strike price $0.04, volatility 183%, risk free rate 0.54%. The result was the recognition of a fair
value adjustment of $17,000 in the accompanying statement of operations. Furthermore, we recognized the following: convertible
note payable of $72,000; derivative liability of approximately $115,000; debt discount of approximately $7,000 related to the original
issue discount and debt discount of approximately $65,000 related to the derivative liability, for a total debt discount of $72,000;
and interest expense of approximately $50,000.
As of April 30, 2015, outstanding
principal, unamortized debt discount and accrued interest were approximately $72,000, $68,000 and $1,000, respectively. For the
year ended April 30, 2015, accreted debt discount and interest expense were approximately $4,000 and $1,000, respectively.
On September 22, 2015, we extinguished the note
payable through a cash payment of approximately $122,000. The result was a gain of approximately $81,000 due to the extinguishment
of the note payable of $72,000, unamortized debt discount of approximately $54,000, accrued interest of approximately $4,000, and
derivative liability of approximately $181,000. The derivative liability estimated fair value was determined using the lattice
model and the following inputs: stock price $0.08, strike price $0.03, volatility 169%, risk free rate 0.71%.
For the year ended April 30, 2016, the change
in estimated fair value of the derivative liability was approximately $83,000.
For the year ended April 30, 2016, accreted debt
discount and interest expense were approximately $14,000 and $3,000, respectively.
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 was payable 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 had 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 analyzed the embedded conversion feature of
the convertible note payable in accordance to ASC 815,
Derivatives and Hedging,
and determined that the embedded conversion
feature was a derivative liability. On the date of issuance, the estimate fair value was approximately $169,000 using the lattice
model and the following inputs: stock price $0.07, strike price $0.04, volatility 148%, risk free rate 0.25%. As of April 30, 2015,
the derivative liability estimated fair value was approximately $159,000 using the lattice model and the following inputs: stock
price $0.07, strike price $0.04, volatility 156%, risk free rate 0.23%. The result was the recognition of a fair value adjustment
of $10,000 in the accompanying statement of operations. Furthermore, we recognized the following at inception: convertible note
payable of $168,000; derivative liability of approximately $169,000 related to the conversion feature and $153,000 related to the
warrant; debt discount of approximately $18,000 related to the original issue discount and debt discount of approximately $150,000
related to the derivative liability, for a total debt discount of $168,000; and interest expense of approximately $172,000. As
of April 30, 2015, outstanding principal, unamortized debt discount and accrued interest were approximately $168,000, $139,000
and $3,000, respectively. For the year ended April 30, 2015, accreted debt discount and interest expense were approximately $29,000
and $3,000, respectively.
On July 30, 2015, we extinguished the note payable
through a cash payment of approximately $219,000. The result was a gain of approximately $40,000 due to the extinguishment of the
note payable of $168,000, unamortized debt discount of approximately $93,000, accrued interest of approximately $7,000, and derivative
liability of approximately $177,000. The derivative liability estimated fair value was determined using the lattice model and the
following inputs: stock price $0.06, strike price $0.03, volatility 173%, risk free rate 0.14%.
For the year ended April 30, 2016, the change
in estimated fair value of the derivative liability was approximately $18,000.
For the year ended April 30, 2016, accreted debt
discount and interest expense were approximately $46,000 and $4,000, respectively.
Additionally, we granted Typenex warrants
(“Warrants”) to purchase shares of our common stock, $.001 par value. The Warrants entitled 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. Under the provision of ASC 480,
Distinguishing Liabilities from Equity
we initially
recorded the warrant as a liability on our balance sheet in Derivative liabilities. As of April 30, 2015 we had recorded a derivative
liability related to the warrant of $152,000 on our balance sheet with $1,000 recognized as a change in the fair value of the derivative
liability. 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. Upon the exercising of the warrant we remeasured the fair value of the warrant and recognized a decrease
in value of $21,000. Additionally, we extinguished the then outstanding derivative liability of $131,000 with that amount recorded
as common stock and additional paid in capital.
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, 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 extended the maturity date of the note to June
7, 2018. We accounted for the modification of the original instrument according to ASC 470-50
Modifications and Extinguishments
.
For the year ended April 30, 2016, we have recorded $12,000 of stated interest expense and $46,000 of amortized debt discount which
we recognized on our statement of operations as stated interest and issuance (expense) and Debt discount (expense) respectively.
We analyzed the embedded conversion feature of the convertible note payable in accordance to ASC 815,
Derivatives and Hedging,
and determined that the embedded conversion feature was a derivative liability. On the date of issuance, the estimate fair
value was approximately $219,000 using the lattice model and the following inputs: stock price $0.07, strike price $0.04, volatility
168%, risk free rate 0.98%. As of April 30, 2016, the derivative liability estimated fair value was approximately $350,000 using
the lattice model and the following inputs: stock price $0.02, strike price $0.01, volatility 217%, risk free rate 0.77%. The result
was the recognition of a fair value adjustment of $131,000 in the accompanying statement of operations. Furthermore, we recognized
the following at inception: convertible note payable of $150,000; derivative liability of approximately $219,000; debt discount
of approximately $150,000 related to the derivative liability; and interest expense of approximately $69,000. For the year ended
April 30, 2016, accreted debt discount and interest expense were $46,000 and $12,000, respectively. As of April 30, 2016, outstanding
principal, unamortized debt discount and accrued interest were approximately $150,000, $104,000 and $12,000, respectively
In addition on June 5, 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 extended
the maturity date of the note to June 7, 2018. We accounted for the modification of the original instrument according to ASC 470-50
Modifications and Extinguishments
. For the year ended April 30, 2016 and as of that date, we have recorded $7,000 of stated
interest expense and $29,000 of amortized debt discount which we recognized on our statement of operations as stated interest and
issuance (expense) and Debt discount (expense) respectively. We analyzed the embedded conversion feature of the convertible note
payable in accordance to ASC 815,
Derivatives and Hedging,
and determined that the embedded conversion feature was a derivative
liability. On the date of issuance, the estimate fair value was approximately $160,000 using the lattice model and the following
inputs: stock price $0.07, strike price $0.04, volatility 168%, risk free rate 0.1.07%. As of April 30, 2016, the derivative liability
estimated fair value was approximately $234,000 using the lattice model and the following inputs: stock price $0.02, strike price
$0.01, volatility 217%, risk free rate 0.77%. The result was the recognition of a fair value adjustment of $74,000 in the accompanying
statement of operations. Furthermore, we recognized the following at inception: convertible note payable of $100,000; derivative
liability of approximately $160,000; debt discount of approximately $100,000 related to the derivative liability; and interest
expense of approximately $60,000. For the year ended April 30, 2016, accreted debt discount and interest expense were $29,000 and
$7,000, respectively. As of April 30, 2016, outstanding principal, unamortized debt discount and accrued interest were approximately
$100,000, $71,000 and $7,000, respectively
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 extended the maturity
date of the note to June 7, 2018. We accounted for the modification of the original instrument according to ASC 470-50
Modifications
and Extinguishments
. 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. For the year ended April 30, 2016 and as of that date, we have
recorded $10,000 of stated interest expense and $40,000 of amortized debt discount which we recognized on our statement of operations
as stated interest and issuance (expense) and Debt discount (expense) respectively. We analyzed the embedded conversion feature
of the convertible note payable in accordance to ASC 815,
Derivatives and Hedging,
and determined that the embedded conversion
feature was a derivative liability. On the date of issuance, the estimate fair value was approximately $262,000 using the lattice
model and the following inputs: stock price $0.06, strike price $0.03, volatility 175%, risk free rate 1.03%. As of April 30, 2016,
the derivative liability estimated fair value was approximately $359,000 using the lattice model and the following inputs: stock
price $0.02, strike price $0.01, volatility 212%, risk free rate 0.77%. The result was the recognition of a fair value adjustment
of $97,000 in the accompanying statement of operations. Furthermore, we recognized the following at inception: convertible note
payable of $154,000; derivative liability of approximately $262,000; debt discount of approximately $154,000 related to the derivative
liability; and interest expense of approximately $108,000. For the year ended April 30, 2016, accreted debt discount and interest
expense were $40,000 and $10,000, respectively. As of April 30, 2016, outstanding principal, unamortized debt discount and accrued
interest were approximately $154,000, $114,000 and $10,000, respectively
On May 10, 2016 we received a notice of conversion
from Iconic Holdings, LLC (“Iconic”) related to the note originally issued to them on September 21, 2015. Iconic elected
to convert $20,000 of the outstanding balance of the note to our common stock at a price of $0.01 per share as per our second amendment
of the note dated April 15, 2016. We subsequently issued Iconic 2,000,000 shares of common stock. The remaining principal balance
of the note following the issuance of shares was $127,000.
On May 24, 2016 we received a notice of conversion
from Iconic Holdings, LLC (“Iconic”) related to the note originally issued to them on September 21, 2015. Iconic elected
to convert $20,000 of the outstanding balance of the note to our common stock at a price of $0.01 per share as per our second amendment
of the note dated April 15, 2016. We subsequently issued Iconic 2,000,000 shares of common stock. The remaining principal balance
of the note following the issuance of shares was $107,000.
On June 7, 2016, we issued a Promissory Note for
$50,000 received from an individual. The proceeds were to provide us with working capital. Under the terms of the Note,
the balance of the note will be converted into our shares of our common stock at a price of $0.01 per share on the 90
th
day following the issuance of the note.
On June 7, 2016, we issued a Promissory Note for
$75,000 received from an individual. The proceeds were to provide us with working capital. Under the terms of the Note,
the balance of the note will be converted into our shares of our common stock at a price of $0.01 per share on the 90
th
day following the issuance of the note.
On June 23, 2016, we granted to three individuals
an aggregate amount of 500,000 options to purchase shares of common stock of the Company, under the 2008 Stock Option Plan, at
a purchase of $0.01 per share. The stock options vest quarterly over a two year period and expire on the earlier of six months
from the end of the business relationship or June 23, 2026.
On June 28, 2016, we issued a Promissory Note for
$75,000 received from an individual. The proceeds were to provide us with working capital. Under the terms of the Note,
the balance of the note will be converted into our shares of our common stock at a price of $0.01 per share on the 90
th
day following the issuance of the note.
On July 19, 2016, Crowdgather, Inc. (the "Company")
issued 5,793,267 shares of restricted common stock to Sanjay Sabnani (CEO) related to a $56,000 loan on April 13, 2014. The shares
were issued pursuant to a settlement of a Promissory Note. Mr. Sabnani converted the remaining $57,932.67 due to him into 5,793,267
shares of restricted common stock of CrowdGather, Inc. The conversion rate was $0.01 per share and this conversion extinguishes
the Note.
On September 6, 2016, we issued a Promissory Note
for $27,500 received from an individual. The proceeds were to provide us with working capital. Under the terms of the
Note, the balance of the note will be converted into our shares of our common stock at a price of $0.01 per share on the 90
th
day following the issuance of the note.
On September 9, 2016, we issued a Promissory Note
for $25,000 received from an individual. The proceeds were to provide us with working capital. Under the terms of the
Note, the balance of the note will be converted into our shares of our common stock at a price of $0.01 per share on the 90
th
day following the issuance of the note.
On October 24, 2016, we issued a Promissory Note
for $50,000 received from Sanjay Sabnani, our Chief Executive Officer. The proceeds were to provide us with working capital.
Under the terms of the Note, the balance of the note and interest at a rate of 12% per year will be due 18 months from the issuance
of the Note.
On November 11, 2016
CrowdGather entered into a licensing agreement for its free forum communities
(including
Yuku.com
,
Freeforums.org
,
Forumer.com
, and
Lefora.com
)
with Tapatalk, Inc. in order to address needs for greater engineering and infrastructure support. As a result of
this agreement, Tapatalk will pay CrowdGather license fees including an upfront payment covering the first six months
of operations of $100,000 received on November 16, 2016. After the initial six months, Tapatalk will make royalty
payments amounting to no less than $10,000 per month and no more than $30,000 per month. $5000 will be withheld for
costs. Tapatalk will take over all costs and operations of the hosted forum business thereby allowing CrowdGather to
focus its resources on developing a mobile application for its relaunch of
WeedTracker.com
in the first half
of 2017.