CrowdGather, Inc.

Our Business.   CrowdGather operates a media network of forum and online communities focused on a broad number of vertical interests, as well as social casino games.  Following the merger with Plaor we began to operate a social casino game available free to play on Facebook, iOS, and Android. Subsequent to the sale of our Plaor subsidiary, we are no longer active in the gaming sector.  We continue to focus on pursuing opportunities to improve and increase monetization of our consolidated media network as well as opportunities to evolve our holdings by focusing more on the cannabis vertical which will allow for us to have more predictable growth due to the rate at which this segment of the economy is growing. We initially entered the digital cannabis space with the acquisition of WeedTracker.com, an online community forum dedicated to the cannabis industry in 2015. Going forward, we will launch other cannabis communities as well as leveraging our existing free forum building software to allow users to create their own cannabis themed communities. In this way we will continue the initial mission CrowdGather was formed for which was to ‘gather’ a large crowd of online enthusiasts, but with an emphasis on moving away from the diverse verticals we currently service so that we can gain significant leverage by focusing primarily on the online cannabis space.  Additionally, when funding permits it, we intend to ‘gather’ the crowd offline through the launch of cannabis themes coworking spaces beginning when our current lease is up in November 2016.  By consolidating all of our efforts into the burgeoning cannabis vertical, we hope to generate enough free cash flow to then leverage our capital into other attractive cannabis related acquisitions and opportunities.

Despite the development of a legal cannabis industry under the laws of certain states, these state laws legalizing medical and adult cannabis use are in conflict with the Federal Controlled Substances Act, which classifies cannabis as a schedule-I controlled substance and makes cannabis use and possession illegal on a national level. The United States Supreme Court has ruled that the Federal government has the right to regulate and criminalize cannabis, even for medical purposes, and thus Federal law criminalizing the use of cannabis preempts state laws that legalize its use. However, the Obama Administration has determined that it is not an efficient use of resources to direct Federal law enforcement agencies to prosecute those lawfully abiding by state laws allowing the use and distribution of medical and recreational cannabis. Yet, there is no guarantee that the Obama Administration will not change its stated policy regarding the low-priority enforcement of Federal laws in states where cannabis has been legalized. Additionally, we face another presidential election cycle in 2016 and a new administration could introduce a less favorable policy or decide to enforce the Federal laws strongly. Any such change in the Federal government’s enforcement of Federal laws could cause significant financial damage to us and our shareholders.

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 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 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