NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JANUARY 31, 2016
(UNAUDITED)
|
1.
|
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Nature of Operations
CrowdGather, Inc. (hereinafter referred to as “we”, “us”, “our”, or
“the company”) is a social networking, internet company that specializes in developing and hosting forum based
websites and provides targeted advertising and marketing services for online customers. Through our merger with Plaor,
Inc on May 19, 2014, we also develop, market and operate online social games as live services played over the Internet and on social
networking sites and mobile platforms. Plaor’s initial social gaming platform is a simulated casino environment referred
to as Mega Fame Casino. We are headquartered in Calabasas, California, and were incorporated under the laws of the State
of Nevada on April 20, 2005. On March 18, 2016, subsequent to the end of the quarter reported in this report, we sold Plaor, Inc.
Principles of Consolidation
The accompanying consolidated financial statements include our
activities and our wholly-owned subsidiaries, Adisn, Inc. and Plaor, Inc. All intercompany transactions have been eliminated.
Basis of Presentation
The condensed consolidated unaudited financial statements included
herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all information and notes
required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there
have been no material changes in the information disclosed in the notes to the financial statements included in our annual report
on Form 10-K for the year ended April 30, 2015. In the opinion of management, all adjustments (including normal recurring accruals)
considered necessary for a fair presentation have been included. Operating results for the three and nine months ended January
31, 2016, are not necessarily indicative of the results that may be expected for any other interim period or the entire year. For
further information, these unaudited financial statements and the related notes should be read in conjunction with our audited
financial statements for the year ended April 30, 2015, included in our annual report on Form 10-K.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reported periods. Actual results could materially differ from those
estimates.
Identifiable Intangible Assets
In accordance with Financial Accounting Standards Board (FASB)
Accounting Standards Codification No. 350,
Intangibles – Goodwill and Other
(ASC 350), goodwill and intangible assets
with indefinite lives are not amortized but instead are measured for impairment at least annually in the fourth quarter, or when
events indicate that impairment exists. As required by ASC 350, in the impairment tests for indefinite-lived intangible assets,
we compare the estimated fair value of the indefinite-lived intangible assets, website domain names, using a combination of discounted
cash flow analysis and market value comparisons. If the carrying value exceeds the estimate of fair value, we calculate the impairment
as the excess of the carrying value over the estimate of fair value and accordingly record the loss.
Intangible assets that are determined to have definite lives
are amortized over the shorter of their legal lives or their estimated useful lives and are measured for impairment only when events
or circumstances indicate the carrying value may be impaired in accordance with ASC 360,
Property, Plant and Equipment
discussed
below. We recognized no impairment during the three or nine months ended January 31, 2016.
Impairment of Long-Lived Assets
In accordance with ASC 360, we estimate the future undiscounted
cash flows to be derived from the asset to assess whether or not a potential impairment exists when qualitative events or
circumstances indicate the carrying value of a long-lived asset may be impaired. If the carrying value exceeds our estimate of
future undiscounted cash flows, we then calculate the impairment as the excess of the carrying value of the asset over our estimate
of its fair value. We recognized no impairment during the three or nine months ended January 31, 2016.
Investments
Investments are classified as available for sale and consist
of marketable equity securities. Investments are stated at fair value and unrealized holding gains and losses, net of the related
tax effect, are reported as a component of accumulated other comprehensive income until realized. Realized gains or losses on disposition
of investments are computed on the “specific identification” method and are reported as income or loss in the period
of disposition on our consolidated statements of operations.
Inventory
Inventory is valued at the lower of cost or market, using the
first-in, first-out (FIFO) method.
Revenue Recognition
We currently work with third-party advertising networks and
advertisers pay for advertising on a cost per thousand impressions, cost per click or cost per action basis. We also derive revenue
from the sale of virtual goods associated with our online games, as well as from services provided for customer events. All sales
are recorded in accordance with ASC 605,
Revenue Recognition.
Revenue is recognized when all the criteria have been
met:
• When persuasive evidence of an arrangement exists.
• The services have been provided to the customer.
• The fee is fixed or determinable.
• Collectability is reasonably assured.
Online Game
We operate Mega Fame Casino (“MFC”), a full-featured
free-to-play online social casino. MFC is available on Facebook, Google Play, and the Apple App Store. MFC generates revenue through
the sale of virtual currency to players that they may exchange to play at any of our online slot machines, video poker machines,
Hold’em style poker tables, or for other features and experiences available within MFC. Players can pay for our virtual currency
using Facebook credits (prior to July 2013) or Facebook local currency payments (beginning July 2013) when playing our games through
Facebook and can use other payment methods such as credit cards or PayPal on other platforms.
Revenue from the sale of virtual currency to players is recognized
when the service has been provided to the player, assuming all other revenue recognition criteria have been met. We have determined
that an implied obligation exists by the Company to the paying player to continue displaying the purchased virtual goods within
the online game over their estimated life or until they are consumed. The proceeds from the sale of virtual goods are initially
recorded as deferred revenue. We recognize revenue as the goods are consumed, assuming all other revenue recognition criteria have
been met, which is generally over a period of 90 days.
Events
Our games also offer unique interactions with a large number
of well-known celebrities from film, television, professional sports, and the music industry. Through a combination of regularly
scheduled events and special events, our players can play and interact with their favorite stars in ways not known to be available
in other social games. Our most popular celebrity event is our bi-weekly celebrity shootout tournament. We recognize revenue upon
conclusion of the event, assuming all other revenue recognition criteria have been met.
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. Our cost of revenue consists primarily of virtual good
transaction fees paid to platform operators such as Facebook, Google, and Apple. 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.
Stock Based Compensation
We account for employee stock option grants in accordance with
ASC 718,
Compensation – Stock Compensation
. ASC 718 establishes standards for the accounting for transactions in which
an entity exchanges its equity instruments for goods or services. ASC 718 requires a public entity to measure the cost of employee
services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will
be recognized over the period during which an employee is required to provide service in exchange for the award - the requisite
service period (usually the vesting period).
For options and warrants issued as compensation to non-employees
for services that are fully vested and non-forfeitable at the time of issuance, the estimated value is recorded in equity and expensed
when the services are performed and benefit is received as provided by ASC 505-50,
Equity – Disclosure
. For unvested
shares, the change in fair value during the period is recognized in expense using the graded vesting method.
Internal-Use Software Development Costs
We expense costs as incurred for internal-use software during
the preliminary stages of development. Costs incurred 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 January 31, 2016, we have not capitalized any internal-use software development costs.
Comprehensive Loss
We apply ASC No. 220,
Comprehensive Income
(ASC 220). ASC 220 establishes standards for the reporting and display of comprehensive income or loss, requiring
its components to be reported in a financial statement that is displayed with the same prominence as other financial statements. We
incurred no items of comprehensive loss during either the three of nine months ended January 31, 2016. As a result, comprehensive
loss and our net loss were identical at $756,000 and $2,304,000 for the three and nine months ended January 31, 2016, respectively.
Recent Accounting Pronouncements
There were various accounting updates recently issued, most
of which represented technical corrections to the accounting literature or application to specific industries and are not expected
to a have a material impact on our condensed consolidated financial position, results of operations or cash flows.
Reclassifications
Certain amounts in the prior year financial statements have
been reclassified for comparative purposes to conform to the current year presentation.
We have incurred a net loss of $2,305,000 for the nine
months ended January 31, 2016 and have an accumulated deficit of $32,197,000 as of January 31, 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.
On May 19, 2014, we completed a merger agreement
for 100% of the issued and outstanding common stock of Plaor, Inc. (Plaor), a social gaming company, pursuant to which Plaor survived
as our wholly-owned subsidiary (“Merger”). The Company issued 55,075,801 shares of its $0.01 par value common stock
to the shareholders of Plaor. These shares were valued for the Company's accounting purposes
at $0.11 per share which represented the closing share price of the Company’s stock on May 19, 2014. The total value of
the acquisition was approximately $6,058,000 and has been allocated in accordance with ASC 805 as per the Company’s valuation
estimate as follows:
Cash and cash equivalent
|
|
$
|
102,000
|
|
Accounts receivable, Net
|
|
|
87,000
|
|
Prepaids and other assets
|
|
|
25,000
|
|
Property and equipment
|
|
|
18,000
|
|
Amortizable intangible assets:
|
|
|
|
|
Trademarks, trade name, licensing and branding
|
|
|
4,066,000
|
|
Goodwill allocated
|
|
|
1,817,000
|
|
|
|
|
|
|
Total assets acquired
|
|
|
6,115,000
|
|
Fair value of liabilities assumed
|
|
|
(232,000
|
)
|
Net fair value
|
|
$
|
5,883,000
|
|
In addition, in connection with the Merger, Hazim Ansari was
appointed a director of CrowdGather. See our Current Report on Form 8-K filed on May 5, 2014.
As of January 31, 2016, inventory consisted of all finished goods of our synthetic human pheromone consumer
products in the amount of approximately $32,000.
Our investments consist of 714,286 shares of Human Pheromone, Inc. restricted common stock acquired
in January 2012. These securities are classified as available for sale and are stated at fair value.
|
6.
|
PROPERTY AND EQUIPMENT
|
Property and equipment consisted of the following:
|
|
January 31,
2016
|
|
|
April 30,
2015
|
|
|
|
|
|
|
|
|
Furniture, fixtures and office equipment
|
|
$
|
34,000
|
|
|
$
|
34,000
|
|
Computers, servers and equipment
|
|
|
620,000
|
|
|
|
620,000
|
|
Leasehold improvements
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
|
666,000
|
|
|
|
666,000
|
|
Less: accumulated depreciation
|
|
|
(644,000
|
)
|
|
|
(625,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,000
|
|
|
$
|
41,000
|
|
Depreciation expense was $19,000 and $83,000 for the nine months ended January 31, 2016 and 2015, respectively.
|
7.
|
CONCENTRATIONS OF CREDIT RISK
|
As of January 31, 2016 and 2015, our top five customers accounted
for approximately 60% and 88% of our outstanding receivables, respectively. In addition, our top five customers accounted for approximately
80% and 77% of our sales for the nine months ended January 31, 2016 and 2015, respectively.
Additionally, Facebook is a significant distribution, marketing,
promotion and payment platform for our social games. Approximately 85% of our social gaming revenue for both the three months and
the nine months ended January 31, 2016 was generated from players who accessed our games through Facebook. Furthermore, Facebook
serves as our primary platform to acquire and retain users via their advertising platform. As of January 31, 2016 our line of credit
with Facebook carried a balance of approximately $130,000.
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
|
|
January 31,
2016
|
|
|
April 30,
2015
|
|
|
|
|
|
|
|
|
|
|
Online forums and related websites
|
|
Indefinite
|
|
$
|
4,397,000
|
|
|
$
|
4,411,000
|
|
Plaor acquisition
|
|
5 years
|
|
|
4,066,000
|
|
|
|
4,066,000
|
|
|
|
|
|
|
8,463,000
|
|
|
|
8,477,000
|
|
Less: accumulated amortization
|
|
|
|
|
(1,389,000
|
)
|
|
|
(813,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,074,000
|
|
|
$
|
7,664,000
|
|
During the year ended April 30, 2015, we recorded $4,241,000
of trademarks and branding assets 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 valuation estimate. Offsetting this was $175,000 of certain
marks, social media accounts and domain names transferred to Hollywood Casinos LLC as part of a settlement agreement.
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.
In May 2014 we entered into a web site purchase agreement to
sell the online forum PbNation.com and related website and domain name to VerticalScope, Inc for $1,380,000 in cash. The
cost of the online forums and websites was approximately $2,834,000 and as a result, we recorded a loss on sale of these assets
of approximately $1,529,000, after amounts held in escrow and fees of approximately $75,500.
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 January 31, 2016, we determined that the fair
value of the goodwill exceeded its carrying value and therefore goodwill was not impaired.
During the nine months ended January 31, 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.
|
10.
|
PREFERRED SERIES B STOCK
|
On April 8, 2013, we filed
with the Secretary of State of Nevada the Certificate of Designation of the Relative Rights and Preferences of the Series B Preferred
Stock (the “Certificate of Designation”) specifying the designations, preferences and relative rights of the Series
B Convertible Preferred Stock (“Series B Shares”). The Certificate of Designation created a series of preferred
stock consisting of 1,000,000 out of the 25,000,000 shares of our preferred stock, which will be designated “Series B Preferred
Stock.” The Certificate of Designation provides, among other things, that: (i) the conversion price for the shares
of Series B Shares is the price per share equal to the quotient of the original issue price of $1.00 per share (the “Original
Issue Price”) divided by the number of shares of common stock into which each share of Series B Shares may be converted (the
“Conversion Rate”), subject to adjustment from time to time for recapitalizations and as otherwise set forth in the
Certificate of Designation; (ii) each share of Series B Shares is convertible into shares of common stock at the option of the
holder at any time after the date of issuance at a Conversion Rate of 20 shares of common stock for each share of Series B Shares;
(iii) the holder of outstanding Series B Shares will be entitled to receive dividends, when declared by the Board of Directors,
at an annual dividend rate of 10% per share of Series B Shares, with such right to receive dividends being cumulative and will
accrue and be payable annually; (iv) the shares of Series B Shares may be redeemed by us, at our option, at a redemption price
equal to 120% of the amount obtained by multiplying the Original Issue Price of the Series B Shares by the number of shares of
Series B Shares to be redeemed from the investor; and (v) so long as any shares of Series B Shares remain outstanding, we will
not, among other things, amend or restate any provisions of our Articles of Incorporation or Bylaws, declare or pay dividends on
any shares of common stock or other security other than Series B Shares, authorize or issue any equity security having a preference
over or being on parity with the Series B Shares, change the authorized number of directors, or enter into indebtedness of more
than $1,000,000, without the prior written consent of a majority of outstanding shares of Series B Shares.
During fiscal years 2013 and 2014, we sold 1,000,000 shares
of our Series B Shares to various investors in exchange for $1,000,000, or $1.00 per share, pursuant to securities purchase agreements
(“Purchase Agreements”). In connection with the sale of Series B Shares, the investors also received warrants to purchase
10,000,000 shares of our common stock at a purchase price of $0.08 per share. The warrant agreements (“Warrants”) provide
for an expiration period of five years from the date of the investment.
On December 1, 2014, we entered into a separate exchange agreement
with each holder (collectively, the “Holders”) of (i) shares of our Series B Preferred Stock (“Preferred Stock”),
and (ii) warrants to purchase 10,000,000 shares of common stock issued in connection with the Preferred Stock (the “Old
Warrants”) pursuant to which we issued Secured Promissory Notes (“Exchange Notes”) in the aggregate principal
amount of $1,100,000 and warrants to purchase 5,500,000 shares of our common stock (the “Exchange Warrants”)
to the Holders in the amounts as specified in the separate Exchange Agreements in exchange for all of the issued and outstanding
Preferred Stock and all of the Old Warrants held by the Holders. Following the consummation of the transactions contemplated by
each Exchange Agreement, the Preferred Stock and Old Warrants were no longer outstanding, and we removed from reservation 30,000,000
shares of common stock underlying the Preferred Stock and Old Warrants. The Exchange Warrants grant the Holders the right to purchase five
shares of our common stock for every one dollar of principal of the Exchange Notes issued to the Holders at an exercise price
equal to $0.11 per share. The Exchange Warrants have an exercise term equal to five years and are exercisable commencing
on December 3, 2014. In connection with the issuance of the Exchange Notes, we entered into a security agreement with the Holders
to secure the timely payment and performance in full of our obligations pursuant to the Exchange Notes. The Holders granted
a waiver of default and the agreements are currently in good standing.
In May 2008 our board of directors approved the CrowdGather,
Inc. 2008 Stock Option Plan (the Plan). The Plan permits flexibility in types of awards, and specific terms of awards, which will
allow future awards to be based on then-current objectives for aligning compensation with increasing long-term shareholder value.
For the three months ended January 31, 2016 and 2015, we recognized
$18,000 and $118,000 while for the nine months ended January 31, 2016 and 2015, we recognized $97,000 and $317,000 of stock-based
compensation costs, respectively, as a result of the issuance of stock options to employees, directors and consultants in accordance
with ASC 505.
A summary of the status of our
unvested shares as of January 31, 2016 is presented below:
|
|
Number
of Shares
|
|
|
Weighted-Average
Grant-Date
Fair Value
|
|
|
|
|
|
|
|
|
Non-vested balance, November 1, 2015
|
|
|
2,879,000
|
|
|
$
|
0.09
|
|
Granted
|
|
|
0
|
|
|
|
-
|
|
Vested
|
|
|
(70,000
|
)
|
|
|
0.06
|
|
Forfeited/Expired
|
|
|
(115,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-vested balance, January 31, 2016
|
|
|
2,694,000
|
|
|
$
|
0.09
|
|
As January 31, 2016, total unrecognized stock-based
compensation cost related to unvested stock options was $187,000 which is expected to be recognized over a weighted-average period
of approximately 8.73 years.
|
12.
|
COMMITMENTS AND CONTINGENCIES
|
As of October 31, 2015, we lease approximately
1,309 square feet of office space located at 23945 Calabasas Road, Suite 115, Calabasas California. The term of our lease is for
twelve months and expires on June 30, 2016. Our rent is $2,553 per month.
We also rent approximately 10,000 square
feet of office space at 12 Channel Street, Boston, MA 02210. The term of our lease is for six years and expires on July 31,
2020. Our rent is $14,000 per month.
On November 25, 2015, we received Notice of Service Process related to a complaint filed with the District
Court of California by FameFlynet Inc. and BWP Media USA. The complaint alleged copyright infringement stemming from
content posted to our forum network by users not affiliated with CrowdGather, Inc. We intend to vigorously defend our
interests and generally believe the suit to be without merit.
The Company has two (2) principal operating segments, which
are (1) forum advertising, and (2) social gaming. These operating segments were determined based on the nature of the products
and services offered. Operating segments are defined as components of an enterprise about which separate financial information
is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing
performance. The Company’s chief executive officer and chief operating officer have been identified as the chief operating
decision makers. The Company’s chief operating decision makers direct the allocation of resources to operating segments based
on the profitability and cash flows of each respective segment. Interim segment information for sales and related costs
for the three and nine ended January 31, 2016 was as follows:
|
|
Three Months Ended
January 31, 2016
|
|
|
Three Months Ended
January 31, 2015
|
|
|
Nine Months Ended
January 31, 2016
|
|
|
Nine Months Ended
January 31, 2015
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forum advertising
|
|
|
98,000
|
|
|
|
143,000
|
|
|
|
355,000
|
|
|
|
528,000
|
|
Social gaming
|
|
|
418,000
|
|
|
|
548,000
|
|
|
|
1,389,000
|
|
|
|
963,000
|
|
Total revenues
|
|
|
516,000
|
|
|
|
691,000
|
|
|
|
1,744,000
|
|
|
|
1,491,000
|
|
Cost of Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forum advertising
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
2,000
|
|
|
|
3,000
|
|
Social gaming
|
|
|
132,000
|
|
|
|
173,000
|
|
|
|
384,000
|
|
|
|
426,000
|
|
Total cost of revenues
|
|
|
133,000
|
|
|
|
174,000
|
|
|
|
386,000
|
|
|
|
429,000
|
|
Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forum advertising
|
|
|
97,000
|
|
|
|
142,000
|
|
|
|
353,000
|
|
|
|
525,000
|
|
Social gaming
|
|
|
286,000
|
|
|
|
375,000
|
|
|
|
1,005,000
|
|
|
|
537,000
|
|
Total gross profit
|
|
|
383,000
|
|
|
|
517,000
|
|
|
|
1,358,000
|
|
|
|
1,062,000
|
|
For the quarter ended January 31
|
|
Forum Advertising
|
|
|
Social Gaming
|
|
2016
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
4,570,302
|
|
|
|
4,626,421
|
|
|
14.
|
NOTES PAYABLE AND DERIVATIVE LIABILITIES
|
Related Party Notes, Promissory Notes, and Note Purchase Agreements
On April 13, 2015, we entered into a Note Purchase
Agreement (Agreement) and related Security Agreement. Under the Agreement, our CEO Sanjay Sabnani agreed to loan the Company $50,000.
As part of the Agreement, we issued to Mr. Sabnani a Promissory Note whereby we will repay the $50,000 including interest at 12%
or the maximum allowable under the law, whichever is lower. The note, including interest is due April 13, 2016.
On April 17, 2015, we issued a Promissory Note for
$238,976 received from Mr. Sanjay Sabnani. The proceeds were used to pay off a short-term convertible note issued to KBM Worldwide,
Inc. on October 20, 2014, as well as to provide us with $25,000 in working capital. Under the terms of the note, we agree to repay
the $238,976 including interest at 12%. The note, including interest, was due October 20, 2015. Mr. Sabnani has granted a waiver
of default and the note is currently in good standing.
On July 16, 2015, we entered into a Note Purchase
Agreement (Agreement) and related Security Agreement for $50,000 with an investor. As part of the Agreement, we issued to the investor
a Promissory Note whereby we will repay the $50,000 including interest at 12% or the maximum allowable under the law, whichever
is lower. The note, including interest is due one year from the issue date.
On July 16, 2015, we entered into a Note Purchase
Agreement (Agreement) and related Security Agreement for $96,000 with Vinay Holdings. As part of the Agreement, we issued to the
Vinay Holdings a Promissory Note whereby we will repay the $96,000 including interest at 12% or the maximum allowable under the
law, whichever is lower. The note, including interest is due one year from the issue date.
On July 23, 2015, we entered into a Note Purchase
Agreement (Agreement) and related Security Agreement for $372,000 with Vinay Holdings . As part of the Agreement, we issued to
Vinay Holdings a Promissory Note whereby we will repay the $372,000 including interest at 12% or the maximum allowable under the
law, whichever is lower. The note, including interest was due 60 days from issue date. Vinay Holdings has granted a waiver of default
and the note is currently in good standing.
On August 18, 2015, we entered into a Note Purchase
Agreement (Agreement) and related Security Agreement for $100,000 with Vinay Holdings . As part of the Agreement, we issued to
Vinay Holdings a Promissory Note whereby we will repay the $100,000 including interest at 12% or the maximum allowable under the
law, whichever is lower. The note, including interest was due 60 days from issue date. Vinay Holdings has granted a waiver of default
and the note is currently in good standing.
On September 15, 2015, we issued a Promissory
Note for $10,000 received from Mr. James Sacks, a member of our board. The proceeds will be used for general working capital. Under
the terms of the note, we agree to repay the $10,000 including interest at 12%. The note, including interest, is due March 13,
2016. Mr. Sacks has granted a waiver of default and the note is currently in good standing
On September 15, 2015, we issued a Promissory
Note for $10,000 received from Mr. Hazim Ansari, a member of our board. The proceeds will be used for general working capital.
Under the terms of the note, we agree to repay the $10,000 including interest at 12%. The note, including interest, is due March
13, 2016. Mr. Ansari has granted a waiver of default and the note is currently in good standing
On September 17, 2015, we issued a Promissory
Note for $10,000 received from Mr. Richard Corredera, our CFO. The proceeds will be used for general working capital. Under the
terms of the note, we agree to repay the $10,000 including interest at 12%. The note, including interest, is due March 15, 2016.
Mr. Corredera has granted a waiver of default and the note is currently in good standing
On October 14, 2015, we issued a Promissory Note
for $50,000 received from Vinay Holdings. The proceeds will be used for general working capital. Under the terms of the note, we
agree to repay the $50,000 including interest at 12%. The note, including interest, is due April 11, 2016.
On October 22, 2015, we issued a Promissory Note
for $40,000 received from Vinay Holdings. The proceeds will be used for general working capital. Under the terms of the note, we
agree to repay the $10,000 including interest at 12%. The note, including interest, is due April 19, 2016.
On November 15, 2015, we issued
a Promissory Note for $50,000 received from Vinay Holdings. The proceeds are used to provide us with working capital.
Under the terms of the Note, we agree to repay the principal including interest at 12%. The Note, including interest, is due
November 15, 2016.
On December 1, 2015, we issued
a Promissory Note for $50,000 received from Vinay Holdings. The proceeds are used to provide us with working capital.
Under the terms of the Note, we agree to repay the principal including interest at 12%. The Note, including interest, is due
December 1, 2016.
Notes and Warrant Purchase Agreements
Embedded warrant and host contract summary as of January 31, 2016
|
|
|
|
|
Host Contract
|
|
Instrument Date
|
|
|
|
Carrying Value
|
|
|
Unamortized Discount
|
|
Nov. 20, 2014
|
|
|
|
$
|
100,000
|
|
|
$
|
-
|
|
Nov. 21, 2014
|
|
|
|
$
|
150,000
|
|
|
$
|
-
|
|
Dec. 01, 2015
|
|
|
|
$
|
1,100,000
|
|
|
$
|
-
|
|
Dec. 02, 2015
|
|
|
|
$
|
200,000
|
|
|
$
|
-
|
|
In the cases of each instrument summarized in the
table above and detailed in the paragraphs below we determined the embedded warrants attached to the notes meet the definition
of a derivative under ASC 815 and require bifurcation and are accounted for as separate embedded derivatives. We have
estimated the fair market value of the embedded derivatives of the notes as the difference between the fair market value of the
notes with the conversion feature and the fair market value of the notes without the conversion feature associated with the embedded
derivative, in both cases using relevant market data. In the case of the fair market value of the notes with the conversion feature,
a binomial lattice model was used utilizing a discount rate based on variable conversion probability. In the case of the fair market
value of the notes without the conversion feature associated with the embedded derivative, a discounted cash flow approach was
used. The key valuation assumptions used consist of the price of our common stock, a risk free interest rate based on the average
yield of a similarly termed Treasury Note and the historical volatility of our common stock over a period of similar length to
the term of the instrument, all as of the measurement dates. The embedded derivatives were recorded on the balance sheet at their
estimated fair values. Debt discounts are amortized over the life of the debt using the effective interest rate method. The fair
value of the embedded derivative will be measured and recorded at fair value each subsequent reporting period and changes in fair
value will be recognized in the statement of operations as a gain or loss on derivative
We have recorded each of the instruments’ derivative
liability balances on our balance sheet in the Derivative liabilities account; the carrying amount of each host contract has been
recorded in Notes payable, net of discount; on our statement of operations we have recorded gains (losses) resulting from fair
value adjustments in Change in fair value of derivative liabilities; we have recognized the amortization costs in Interest expense,
net
On November 20, 2014 and November 21, 2014, we entered into
two Note and Warrant Purchase Agreements with two investors (“Investors”) providing for the purchase
of Secured Promissory Notes (“Notes”) in the aggregate principal amount of $250,000 and warrants to purchase an
aggregate amount of 1,250,000 shares of our common stock (the “Warrants”). The Notes were issued on November 20,
2014 and November 21, 2014, respectively. The Notes bear interest at the rate of 12% per annum and were due and payable one year
from the date of issuance. The investors have granted waivers of default valid until April 17, 2016 and the notes are currently
in good standing. The Warrants grant the Investors the right to purchase five shares of our common stock for every one dollar
of principal of the Notes purchased by the Investors at an exercise price equal to 110% of the closing price of our common stock
on the date of investment. The Warrants have an exercise term equal to five years and are exercisable commencing on
November 20, 2014 and November 21, 2014, respectively. In connection with the issuance of the Notes, we entered into a security
agreement with the Investors to secure the timely payment and performance in full of our obligations pursuant to the Notes.
On December 2, 2014, we entered a Note and
Warrant Purchase Agreement with one investor providing for the purchase of a Secured Promissory Note (“Note”)
in the principal amount of $200,000 and warrants to purchase 1,000,000 shares of our common stock (the “Warrants”).
The Note was issued and funded on December 2, 2014. The Note bears interest at the rate of 12% per annum and was due and payable
one year from the date of issuance. The investors have granted waivers of default and the notes are currently in good standing.
The Warrants grant the investor the right to purchase five shares of our common stock for every one dollar of principal of
the Note purchased by the investor at an exercise price of $0.11 per share which is equal to 110% of the closing price of our common
stock on the date of investment. The Warrants have an exercise term equal to five years and are exercisable commencing
on the date of issuance. In connection with the issuance of the Note, we entered into a security agreement with the investor to
secure the timely payment and performance in full of our obligations pursuant to the Note
.
Exchange Notes and Warrant Purchase Agreements
On December 1, 2014,
we entered into a separate exchange agreement with each holder (collectively, the “Holders”) of (i) shares of our Series
B Preferred Stock (“Preferred Stock”), and (ii) warrants to purchase 10,000,000 shares of our common stock issued in
connection with the Preferred Stock (the “Old Warrants”) pursuant to which we issued Secured Promissory Notes (“Exchange
Notes”) in the aggregate principal amount of $1,100,000 and warrants to purchase 5,500,000 shares of our common
stock (the “Exchange Warrants”) to the Holders in the amounts as specified in the separate Exchange Agreements
in exchange for all of the issued and outstanding Preferred Stock and all of the Old Warrants held by the Holders. Following the
consummation of the transactions contemplated by each Exchange Agreement, the Preferred Stock and Old Warrants were no longer outstanding,
and we removed from reservation 30,000,000 shares of common stock underlying the Preferred Stock and Old Warrants. The Notes bear
interest at the rate of 12% per annum and were due and payable one year from the date of issuance. The investors have
granted waivers of default and the notes are currently in good standing.
The Exchange Warrants
grant the Holders the right to purchase five shares of our common stock for every one dollar of principal of the Exchange
Notes issued to the Holders at an exercise price equal to $0.11 per share. The Exchange Warrants have an exercise term
equal to five years and are exercisable commencing on December 3, 2014. In connection with the issuance of the Exchange Notes,
we entered into a security agreement with the Holders to secure the timely payment and performance in full of our obligations pursuant
to the Exchange Notes.
Equity Purchase Agreement
On January 30, 2015, we entered into an Equity
Purchase Agreement (“Purchase Agreement”) and a Registration Rights Agreement (“Registration Rights Agreement
“) with Aladdin Trading, LLC (“Aladdin”) pursuant to which Aladdin has agreed to provide up to $1,400,000 of
funding upon effectiveness of a registration statement on Form S-1. Following effectiveness of the registration statement, we can
deliver puts to Aladdin under the Equity Purchase Agreement under which Aladdin will be obligated to purchase shares of our common
stock based on the investment amount specified in each put notice, which investment amount may be any amount up to $1,400,000 less
the investment amount received by us from all prior puts, if any. Puts may be delivered by us to Aladdin until the earlier of December
31, 2015, or the date on which Aladdin has purchased an aggregate of $1,400,000 of put shares. The number of shares of our common
stock that Aladdin will purchase pursuant to each put notice (“Put Shares”) will be determined by dividing the investment
amount specified in the put by the purchase price. The purchase price per share of common stock will be set at sixty (60%) of the
Market Price for our common stock with Market Price being defined as the volume weighted average trading price for our common stock
during the three consecutive trading days immediately following the date of our put notice to Aladdin (the “Pricing Period”).
There is no minimum amount that we can put to Aladdin at any one time. On the put notice date, we are required to deliver put shares
(“Estimated Put Shares”) to Aladdin in an amount determined by dividing the closing price on the trading day immediately
preceding the put notice date multiplied by 60% and Aladdin is required to simultaneously deliver to us the investment amount indicated
on the put notice. At the end of the Pricing Period, when the purchase price is established and the number of Put Shares for a
particular put is determined, Aladdin must return to us any excess Put Shares provided as Estimated Put Shares or alternatively
we must deliver to Aladdin any additional Put Shares required to cover the shortfall between the amount of Estimated Put Shares
and the amount of Put Shares. At the end of the Pricing Period, we must also return to Aladdin any excess related to the investment
amount previously delivered to us. Pursuant to the Equity Purchase Agreement, Aladdin and its affiliates will not be issued shares
of our common stock that would result in Aladdin’s beneficial ownership equaling more than 9.99% of our outstanding common
stock. Pursuant to the Registration Rights Agreement, we will be registering 17,500,000 shares of our common stock for issuance
to and sale by Aladdin pursuant to the Equity Purchase Agreement.
Note, Securities Purchase
Agreement, and Warrant Purchase Agreement
Embedded conversion feature and host contract summary as of January 31, 2016
|
|
|
Conversion Feature
|
|
|
Host Contract
|
|
Instrument Date
|
|
Fair Value
|
|
|
Change in Fair Value
|
|
|
Carrying Value
|
|
|
Unamortized
Discount
|
|
Jan. 23, 2015
|
|
$
|
104,000
|
|
|
$
|
49,000
|
|
|
$
|
150,000
|
|
|
|
-
|
|
May 4, 2015
|
|
$
|
97,000
|
|
|
$
|
49,000
|
|
|
$
|
150,000
|
|
|
|
-
|
|
Jun. 6, 2015
|
|
$
|
65,000
|
|
|
$
|
21,000
|
|
|
$
|
100,000
|
|
|
|
-
|
|
Sep. 21, 2015
|
|
$
|
195,000
|
|
|
$
|
(3,500
|
)
|
|
$
|
162,000
|
|
|
$
|
92,000
|
|
In the cases of each instrument summarized in the
table above and detailed in the paragraphs below we determined the conversion feature of the notes meet the definition of a derivative
under ASC 815 and require bifurcation and are accounted for as separate embedded derivatives. We have estimated the
fair market value of the embedded derivatives of the Notes as the difference between the fair market value of the Notes with the
conversion feature and the fair market value of the Notes without the conversion feature associated with the embedded derivative,
in both cases using relevant market data. In the case of the fair market value of the Notes with the conversion feature, a binomial
lattice model was used utilizing a discount rate based on variable conversion probability. In the case of the fair market value
of the Notes without the conversion feature associated with the embedded derivative, a discounted cash flow approach was used.
The key valuation assumptions used consist of the price of our common stock, a risk free interest rate based on the average yield
of a similarly termed Treasury Note and the historical volatility of our common stock over a period of similar length to the term
of the instrument, all as of the measurement dates. The embedded derivatives were recorded on the balance sheet at their estimated
fair values. Debt discounts are amortized over the life of the debt using the effective interest rate method. The fair value of
the embedded derivative will be measured and recorded at fair value each subsequent reporting period and changes in fair value
will be recognized in the statement of operations as a gain or loss on derivative
We have recorded each of the instruments’ derivative
liability balances on our balance sheet in the Derivative liabilities account; the carrying amount of each host contract has been
recorded in Convertible note payable; On our statement of operations we have recorded gains (losses) resulting from fair value
adjustments in Change in fair value of derivative liabilities and Gain on extinguishment of debt; we have recognized the amortization
costs in Interest expense, net
KBM Worldwide, Inc
On January 23, 2015, we entered into a similar
Securities Purchase Agreement with KBM Worldwide, Inc. ("KBM") providing for the purchase of a Convertible Promissory
Note ("Note") in the aggregate principal amount of $154,000. The Note was signed as of January 23, 2015 and was funded
on January 23, 2015, with the Company receiving $150,000 of net proceeds after payment of KBM's legal fees. The Note bears interest
at the rate of 8% per annum, 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.
On July 16, 2015 with a payment of $213,908, constituting a repayment of the principle as well as payment of interest and a prepayment
fee of 25% of the outstanding balance at payoff, the Note was assigned to Vinay Holdings. The Note was prepaid using funds invested
by Vinay expressly for the purpose of purchasing the KBM Note.
Iconic Holdings, LLC
Note #1
On February 13, 2015, we entered into a Note Purchase
Agreement with Iconic Holdings, LLC (“Iconic”) providing for the purchase of a Convertible Promissory Note ("Note")
in the aggregate principal amount of $108,000. On February 13, 2015, the Note was funded and we received $100,000 with $8,000 retained
by Iconic through an original issue discount for due diligence and legal expenses related to this transaction. The Note
bears interest at the rate of 8% per annum, 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 Note. The Note also provides that Iconic will not be permitted to convert any portion
of the note if the number of shares of our common stock beneficially owned by Iconic and its affiliates, together with the number
of shares of our common stock issuable upon any full or partial conversion, would exceed 9.99% of our outstanding shares of common
stock.
During the first 180 days following the date of the
Note, we had the right to prepay the principal and accrued but unpaid interest due under the Note, together with any other amounts
we may owe the holder under the terms of the Note, at a graduating premium ranging from 105% to 135% of face value. After this
initial 180 day period, we do not have a right to prepay the note without written consent from Iconic. The Note also contains certain
representations, warranties, covenants and events of default, and increases in the amount of the principal and interest rates under
the Note in the event of such defaults.
On August 10, 2015 we elected to prepay the Note.
We fully extinguished the Note with a payment of $154,440 constituting a repayment of the principal as well as accrued interest
and a 35% prepayment fee.
Note #2
On September 21, 2015, we entered into an additional
Note Purchase Agreement with Iconic providing for the purchase of a second Convertible Promissory Note ("Second Note")
in the aggregate principal amount of $162,000. On September 21, 2015, the Second Note was funded and we received $150,000 with
$12,000 retained by Iconic through an original issue discount for due diligence and legal expenses related to this transaction. The
proceeds of the Second Note where used to extinguish the outstanding JMJ Financial note (see below) in addition to general working
capital. The Second Note bears interest at the rate of 8% per annum, 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.
On March 18, 2016 we entered into an
amendment and extension agreement with Iconic providing for an extension of the earliest conversion date to April 20, 2016 for
a payment to Iconic of $25,000.
JMJ Financial
On March 24, 2015, we issued to JMJ Financial
(the “Investor”) a convertible promissory note in the principal amount of $250,000 with an original issue discount
of $25,000 (the “Note”). The Note is due in March 2017. As of March 25, 2015, the Investor funded
$65,000 pursuant the Note. We may repay the Investor within 90 days of issuance without any interest payment. Thereafter,
we may not make any payment until the Note matures, unless such payment is approved by the Investor. Interest accrues
at the rate of 12% per annum with respect to any payment made after the initial 90-day period. At any time after 180 days of the
Effective Date, the Investor may convert all or part of the Note into shares of our common stock at (a) the lesser of $0.08 or
(b) 65% of the lowest trading price in the 25 trading days prior to the conversion.
On September 22, 2015 we elected to prepay the Note.
We fully extinguished the Note with a payment of $121,333 constituting a repayment of the principal as well as accrued interest
and a 50% prepayment fee.
Typenex Co-Investment, LLC
On March 2, 2015, we entered into a Securities Purchase
Agreement with Typenex Co-Investment, LLC ("Typenex"), for the sale of a 10% convertible note in the principal
amount of $168,000 (which includes Typenex legal expenses in the amount of $3,000 and a $15,000 original issue discount)
(the “Note”) in exchange for proceeds of $150,000 to the Company.
The Note bears interest at the rate of 10% per annum.
All interest and principal 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 has agreed to restrict its ability to
convert the Note and receive shares of our common stock such that the number of shares of common stock held by them in the aggregate
and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common
stock. The Note is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial
obligation of the Company. The Note also provides for penalties and rescission rights if we do not deliver shares of our common
stock upon conversion within the required timeframes.
We extinguished the Note on July 30, 2015 with a payment
of $218,934 constituting a repayment of the principle as well as payment of interest and a prepayment fee of 25% of the outstanding
balance at payoff.
Additionally, we granted Typenex warrants
(“Warrants”) to purchase shares of our common stock, $.001 par value. The Warrants will entitle the holder to purchase
a number of shares equal to $84,000 divided by the Conversion Factor multiplied by the average of the three (3) lowest Closing
Bid Prices in the twenty (20) Trading Days immediately preceding March 2, 2015, as such number may be adjusted from time to time
pursuant to the terms of the Warrants. The Warrants are exercisable for five years at $0.10 per share subject to certain anti-dilution
provisions set forth in the Warrants. On September 23, 2015 Typenex elected to fully exercise their Warrants and were issued 2,724,493
shares according to the terms of the agreement.
All of the above Notes and Warrants were issued in
transactions which we believe satisfies the requirements of that exemption from the registration and prospectus delivery requirements
of the Securities Act of 1933, which exemption is specified by the provisions of Section 4(2) of that act and Rule 506 of Regulation
D promulgated pursuant to that act by the SEC.
Vinay Holdings
On May 4, 2015, we entered into a Securities
Purchase Agreement with Vinay Holdings. ("Vinay") providing for the purchase of a Convertible Promissory Note ("Note")
in the aggregate principal amount of $150,000. The Note bears interest at the rate of 8% per annum, was due and payable on November
4, 2015, and may be converted by Vinay at any time after 180 days of the date of closing into shares our common stock at a conversion
price equal to a 39% discount of the lowest closing bid price (as determined in the Note) calculated at the time of conversion.
The Note also contains certain representations, warranties, covenants and events of default, and increases in the amount of the
principal and interest rates under the Note in the event of such defaults. Vinay has granted a waiver of default and the note is
currently in good standing
In addition on June 6, 2015,
we entered into a similar Securities Purchase Agreement with Vinay Holdings. ("Vinay") providing for the purchase
of a Convertible Promissory Note ("Note") in the aggregate principal amount of $100,000. The Note bears interest at the
rate of 8% per annum, was due and payable on October 16, 2015, and may be converted by Vinay at any time after 180 days of the
date of closing into shares our common stock at a conversion price equal to a 39% discount of the lowest closing bid price (as
determined in the Note) calculated at the time of conversion. The Note also contains certain representations, warranties, covenants
and events of default, and increases in the amount of the principal and interest rates under the Note in the event of such defaults.
Vinay has granted a waiver of default and the note is currently in good standing
On July 16, 2015 Vinay was assigned the Note formerly
held by KBM Worldwide, Inc. dated January 23, 2015. The note was due and payable on October 16, 2015. Vinay has granted a waiver
of default and the note is currently in good standing. The assignment was the result of our prepayment of the Note to KBM Worldwide,
Inc. with funds invested by Vinay Holdings expressly for the purpose of the Note assignment.
|
15.
|
DEPARTURES OF OFFICERS AND DIRECTORS
|
On July 16, 2015, Jonathan
Weiss resigned as our Chief Financial Officer. Mr. Weiss's resignation was not the result of any disagreement with our policies,
practices or procedures. Mr. Weiss continues to hold 320,000 shares of our restricted common stock or approximately 0.3%
of the issued and outstanding common.
On July 16, 2015, the Board
of Directors appointed Richard Corredera as our new Chief Financial Officer. Mr. Corredera joined CrowdGather in May 2014 resulting
from the merger with Plaor, Inc., and has served, and will continue to serve, as our Chief Operating Officer. Mr. Corredera has
approximately 20 years of experience in software engineering, systems design and business development. From April 2012 to
the present, Mr. Corredera has served as President and Chief Operating Officer of Plaor where he manages the business operations
of Plaor including strategic business development, compliance, and accounting. Mr. Corredera is an enrolled agent and admitted
to practice before the Internal Revenue Service.
On July 17, 2015, Jonathan Dariyanani resigned as
a director of CrowdGather, Inc. Mr. Dariyanani's resignation was not the result of any disagreement with our policies, practices,
or procedures.
On March 18, 2016, we agreed to sell our subsidiary
Plaor, Inc. (“Plaor”) to Native Games America, LLC (“NGA”). The terms outlined included a cash payment
of $200,000, the assumption of approximately $1,800,000 of CrowdGather, Inc debt, approximately $500,000 of Plaor, Inc. debt, and
a deferred payment of nearly $1,000,000 twelve months following the closing of the sale. Total consideration offered was in aggregate
$3,500,000. During our consideration of the terms and further discussion we received $164,000 in advance of the sale of Plaor to
NGA. Those funds were taken as reductions of total consideration allocated between the $200,000 cash payment and the approximately
$500,000 of Plaor liabilities with $12,000 and $152,000 to each respectively. The terms of the sale would bring us not only working
capital but would reduce our overall debt by approximately $2,300,000, or approximately 43% of our total liabilities, in addition
to a future deferred payment of nearly $1,000,000 pledge to further reduce our liabilities, or another 18% of our total liabilities
as of this report. In total the sale of Plaor would facilitate the reduction of our total liabilities as of the time of this report
by approximately 61%. Upon closing, CrowdGather held approximately $2,600,000 net intangible asset value and $1,800,000 of goodwill
related to the purchase of Plaor. As a result we do expect an aggregate loss of approximately $900,000. The results and adjustments
of the transaction are not reflected in this quarterly report.
CROWDGATHER, INC.
UNAUDITED PRO FORMA BALANCE SHEET
JANUARY 31, 2016
|
|
JANUARY 31, 2016
(UNAUDITED)
|
|
|
PRO FORMA
ADJUSTMENTS
|
|
|
PRO FORMA
COMBINED
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
9,196,000
|
|
|
$
|
(3,472,000
|
)
|
|
$
|
5,724,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
5,212,000
|
|
|
|
(2,265,000
|
)
|
|
|
2,947,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
3,984,000
|
|
|
|
(1,207,000
|
)
|
|
|
2,777,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
9,196,000
|
|
|
$
|
(3,472,000
|
)
|
|
$
|
5,724,000
|
|
CROWDGATHER,
INC.
UNAUDITED PRO
FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS
ENDED JANUARY 31, 2016
|
|
Nine Months Ended
JANUARY 31, 2016
|
|
|
PRO FORMA
ADJUSTMENTS
|
|
|
PRO FORMA
COMBINED
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,744,000
|
|
|
$
|
(1,388,000
|
)
|
|
$
|
356,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
386,000
|
|
|
|
(384,000
|
)
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,358,000
|
|
|
|
(1,004,000
|
)
|
|
|
354,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,720,000
|
|
|
|
(304,000
|
)
|
|
|
2,416,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,362,000
|
)
|
|
|
(700,000
|
)
|
|
|
(2,062,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other income (expense), net
|
|
|
(942,000
|
)
|
|
|
610,000
|
|
|
|
(332,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before provision for income taxes
|
|
|
(2,304,000
|
)
|
|
|
(90,000
|
)
|
|
|
(2,394,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,305,000
|
)
|
|
|
(90,000
|
)
|
|
$
|
(2,395,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding- basic and diluted
|
|
|
118,507,093
|
|
|
|
|
|
|
|
118,507,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share – basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
|
|
|
$
|
(0.02
|
)
|
On March 18, 2016 we entered into an
amendment and extension agreement with Iconic providing for an extension of the earliest conversion date to April 20, 2016 for
a payment to Iconic of $25,000.
|
17.
|
CORRECTION OF AN ERROR
|
During the process of our quarterly review for the
quarter ended January 31, 2016 we discovered certain misclassifications related to our convertible notes. In the financial
statements presented and accompanying footnotes, we have reclassified amounts accordingly to correct for the error discovered.
The adjustments included reclassification of our convertible notes payables, accrued interest, gain on notes payable, and
fair value adjustments on derivative liabilities. The adjustments also included an additional current period interest expense
of approximately $40,000. Based on an analysis of the results of the correction and consideration of ASC Topic 205, we determined
that that correction was immaterial. The conclusion was based on the overall impact and non-cash nature of the adjustments.