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EX-31.1 - CERTIFICATION - Gawk Inc.f10q0414ex31i_gawkinc.htm
EX-31.2 - CERTIFICATION - Gawk Inc.f10q0414ex31ii_gawkinc.htm
EX-32.2 - CERTIFICATION - Gawk Inc.f10q0414ex32ii_gawkinc.htm
EX-10.7 - DOYLE KNUDSON VS. GAWK INC. SETTLEMENT AGREEMENT - Gawk Inc.f10q0414ex10vii_gawkinc.htm
EX-10.8 - DOYLE KNUDSON CONVERTIBLE PROMISSORY NOTE - Gawk Inc.f10q0414ex10viii_gawkinc.htm
EXCEL - IDEA: XBRL DOCUMENT - Gawk Inc.Financial_Report.xls
EX-32.1 - CERTIFICATION - Gawk Inc.f10q0414ex32i_gawkinc.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q 

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended April 30, 2014

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT

 

For the transition period from N/A to N/A

  

Commission File No. 333-180611

 

Gawk Incorporated

(Name of small business issuer as specified in its charter)

 

(formerly Media Mechanics, Inc.)

 

Nevada   33-1220317
(State or other jurisdiction of
incorporation or organization)
  (IRS Employer
Identification No.)

 

5300 Melrose Avenue Suite 42

Los Angeles, CA 90038

(Address of principal executive offices) (Zip Code)

 

(888) 754-6190

Registrant’s telephone number, including area code

 

Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:  

Yes  o   No  x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes o     No x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨ 
Non–Accelerated filer  ¨ Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act). Yes  ¨    No  x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class   Outstanding at  September 2, 2014
Common stock, $0.001 par value   152,000,000

 

 

 

 
 

 

GAWK INCORPORATED

INDEX TO FORM 10-Q FILING

FOR THE THREE MONTHS ENDED APRIL 30, 2014 AND 2013

 

TABLE OF CONTENTS

 

      PAGE
PART I - FINANCIAL INFORMATION    
     
Item 1. Condensed Consolidated Financial Statements (Unaudited)   1
  Condensed Balance Sheets   2
  Condensed Statements of Operations   3
  Condensed Statement of Cash Flows   4
  Notes to Condensed Consolidated Financial Statements   5
Item 2. Management Discussion & Analysis of Financial Condition and Results of Operations   12
Item 3 Quantitative and Qualitative Disclosures About Market Risk   16
Item 4. Controls and Procedures   16
     
PART II - OTHER INFORMATION    
     
Item 1. Legal Proceedings   17
Item 1A. Risk Factors   17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   17
Item 3. Defaults Upon Senior Securities   17
Item 4. Mining Safety Disclosures   17
Item 5 Other information   17
Item 6. Exhibits   18
       
CERTIFICATIONS    

31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
32.2 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

 

 
 

 

PART I

FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

The accompanying interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q.  Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles.  Except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended January 31, 2014.  In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.  Operating results for the three months ended April 30, 2014 are not necessarily indicative of the results that can be expected for the year ending January 31, 2015.

 

-1-
 

 

GAWK INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 

 

   April 30,  January 31,
   2014  2014
ASSETS:      
CURRENT ASSETS      
Cash  $3,847,779   $1,034,210 
Total current assets   3,847,779    1,034,210 
           
TOTAL ASSETS  $3,847,779   $1,034,210 
           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):          
           
CURRENT LIABILITIES:          
Accounts payable and accrued liabilities  $114,772   $146,559 
Subscription payable   -      150,000 
Investor payable   2,077,200    1,378,000 
Due to related party   159,000    100,000 
TOTAL LIABILITIES   2,350,972    1,774,559 
           
CONTINGENCIES AND COMMITMENTS   -      -   
           
STOCKHOLDERS' EQUITY (DEFICIT):          
A Preferred stock, $0.001 par value, 1,000 shares authorized;   1    -   
1,000 and none issued and outstanding; respectively          
B Preferred stock, $0.001 par value, 50,000,000 shares authorized;   -      -   
none  issued and outstanding          
C Preferred stock, $0.001 par value, 100 shares authorized;   -      -   
7 and none issued and outstanding; respectively          
Common stock, $0.001 par value, 650,000,000 shares authorized;          
152,000,000  and 302,000,000 issued and outstanding; respectively   152,000    302,000 
Additional paid-in capital   3,934,999    485,000 
Accumulated other comprehensive loss   (442)   (442)
Accumulated deficit   (2,589,751)   (1,526,907)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)   1,496,807    (740,349)
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)  $3,847,779   $1,034,210 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

-2-
 

 

GAWK INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
       

 

   For the Three Months Ended
   April 30,
   2014  2013
       
REVENUE  $-   $1,572 
           
OPERATING EXPENSES:          
General and administrative   199,074    35,824 
Research and development   478,735    - 
Related party transactions   385,035    - 
Total operating expenses   1,062,844    35,824 
           
NET LOSS  $(1,062,844)  $(34,252)
           
Comprehensive income (loss):          
NET LOSS  $(1,062,844)  $(34,252)
Other comprehensive income (loss)          
Foreign currency translation adjustments   -    (259)
Total comprehensive income (loss)  $(1,062,844)  $(34,511)
           
NET LOSS PER COMMON SHARE:          
Basic and diluted  $(0.01)  $(0.00)
Weighted average common shares          
outstanding, basic and diluted   210,333,333    300,000,000 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

-3-
 

 

GAWK INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
       

 

   For the Three Months Ended
   April 30,
   2014  2013
       
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(1,062,844)  $(34,252)
Adjustments to reconcile net loss to net cash used in operating activities:          
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   -    1,617 
Accounts payable and accrued liabilities   (31,787)   1,619 
Due to related party   59,000    - 
Net cash used in operating activities   (1,035,631)   (31,016)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Refund of subscription payable   (150,000)     
Proceeds for investor payable   699,200    - 
Proceeds from the sale of Preferred C stock   3,300,000      
Net cash provided by financing activities   3,849,200    - 
           
Effect of exchange rate changes   -    (259)
INCREASE (DECREASE) IN CASH   2,813,569    (31,275)
CASH, BEGINNING OF PERIOD   1,034,210    106,410 
CASH, END OF PERIOD  $3,847,779   $75,135 
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
           
Interest paid  $-   $- 
Income taxes paid  $-   $- 
           
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING AND FINANCING ACTIVITIES:          
           
Preferred A stock exchanged for common stock  $150,000   $- 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

-4-
 

 

GAWK INCORPORATED

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED APRIL 30, 2014 AND 2013

 

NOTE 1 - DESCRIPTION OF BUSINESS

 

We were incorporated in the state of Nevada on January 6, 2011 and our principal business address is 5300 Melrose Avenue, Suite 42, Los Angeles, CA 90038 telephone number 888-754-6190. We have a January 31 fiscal year end. In connection with the Stock Purchase, the company has changed its focus to engage in the business of online distribution of all digital content including but not limited to full length feature films, television series, sports, documentaries, live events via our proprietary content distribution network (CDN).

  

NOTE 2 – BASIS OF PRESENTATION OF INTERIM FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation of Interim Financial Statements

 

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.  The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information in accordance with the instructions to Form 10-Q/A and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended April 30, 2014 are not necessarily indicative of the results that may be expected for the year ending January 31, 2015. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year 2014 have been omitted; this report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended January 31, 2014 included within its Form 10-K as filed with the Securities and Exchange Commission.

 

Research and Development and Software Development Costs

 

Capitalization of certain software development costs are recorded after the determination of technological feasibility. Based on our product development process, technological feasibility is determined upon the completion of a working model. To date, costs incurred by us from the completion of the working model to the point at which the product is ready for general release have been insignificant. Accordingly, we have charged all such costs to research and development expense in the period incurred.  Our research and development costs for the three months ended April 30, 2014 and 2013 were $478,735 and $0.00, respectively.

 

Share-Based Compensation

 

The Company measures the cost of services received in exchange for an award of an equity instrument based on the grant-date fair value of the award.  Compensation cost is recognized over the vesting or requisite service period. The Black-Scholes option-pricing model is used to estimate the fair value of options or warrants granted.  There were no options or warrants issued by the Company during the three months ended April 30, 2014 and 2013.

 

-5-
 

 

Basic and Diluted Net Loss per Common Share

 

Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. The weighted average number of shares is calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding.  Diluted earnings per share reflects the potential dilution that could occur if stock options, warrants, and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company.  As of April 30, 2014 and April 30, 2013, the Company had no potentially dilutive instruments outstanding.

 

Diluted loss per share is the same as basic loss per share during periods where net losses are incurred since the inclusion of the potential common stock equivalents would be anti-dilutive as a result of the net loss.

 

NOTE 3 - GOING CONCERN ISSUES

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has a net loss for the three months ended April 30, 2014 of $1,062,844, an accumulated deficit of $2,589,751, cash flows used by operating activities of $1,035,631 and needs additional cash to maintain its operations.

 

These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s continued existence is dependent upon management’s ability to develop profitable operations, continued contributions from the Company’s executive officers to finance its operations and the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of the Company’s products and business.

 

NOTE 4– RELATED PARTY TRANSACTIONS

 

In a Board Consent dated March 6, 2014 the Board of Directors approved the filing of a Certificate of Designation establishing the designations, preferences, limitations and relative rights of the Company’s Series A Preferred Stock (the “Designation” and the “Series A Preferred Stock”).  The Board of Directors authorized the issuance of 1,000 shares of Series A Preferred Stock, which the Board agreed to issue to TEKNOVU  or its assigns, upon the Company filing the Certificate of Designation with the Nevada Secretary of State. In exchange, TEKNOVU surrendered 150,000,000 common shares TEKNOVU is controlled by our CEO and is a related party. The terms of the Certificate of Designation of the Series A Preferred Stock, which was filed with the State of Nevada on March 6, 2014, include the right to vote in aggregate, on all shareholder matters equal to 51% of the total vote (“Super Majority Voting Rights”).  The Series A Preferred Stock will be entitled to this 51% voting right no matter how many shares of common stock or other voting stock of the Company are issued or outstanding in the future.

 

-6-
 

 

As of April 30, 2014 and year ended January 31, 2014, the current CEO had unpaid salaries of $159,000 and $100,000, respectively.

 

Related Party Expenses for the three months ended April 30, 2014:

 

Legal  Personal Expenses of Mars Callahan  $102,115 
Unauthorized withdrawals  Personal Expenses of John Hermansen   177,215 
Unauthorized withdrawals  Personal Expenses of Mars Callahan   105,705 
Related Party Expenses     $385,035 

 

The above related party expenses are unauthorized withdrawal of expenses for personal expenses and past legal bills of Mars Callahan.

 

On August 20, 2013 the Company entered into an employment agreement with Scott Kettle the Chief Executive Officer. The Fixed Annual Compensation. The Company shall pay to Employee salary ("Fixed Annual Compensation") at the rate of $240,000 per annum beginning on August 20, 2013; at the rate of $300,000 per annum beginning on August 20, 2014; and at the rate of $360,000 per annum beginning on August 20, 2015. Fixed Annual Compensation is payable to the Employee in accordance with the Company’s usual salary practices, but in no event less than once monthly.

 

The Agreement allows for Bonus of the highest bonus incentive program (hereafter “BIP”) set up by the Board. While the specific structure and trigger mechanisms for the BIP are at the sole discretion of the Board, the BIP shall afford Employee the opportunity to earn a minimum of $150,000 per year in cash bonuses through the Employee’s accomplishment of specific pre-identified reasonable milestones in the development of the Company’s business, or by exceeding the approved business plan revenue and income levels. Any payments under the BIP shall be paid annually to Employee and shall be paid no later than the end of the first quarter following the Company’s fiscal year-end. In addition to the BIP, Employee shall also be entitled to such additional bonus, if any, as may be granted by the Board (with Employee abstaining from any vote thereon) or compensation or similar committee thereof in the Board's (or such committee's) sole discretion based upon employee's performance of his Services under this Agreement.

 

NOTE 5 - EQUITY

 

On November 11, 2013, the Board of Directors of the Company approved a proposal to amend the Company’s Articles of Incorporation (the “Articles of Incorporation”) to provide for an increase in the authorized shares of the Company's Common Stock and Preferred Stock. The Amended and Restated Articles of Incorporation of the Company were filed with the Nevada Secretary of State on November 14, 2013 and authorize Seven Hundred Fifty Million (750,000,000) shares of $.001 par value capital stock, of which One Hundred Million (100,000,000) shares are designated $.001 par value preferred stock (the “Preferred Stock”) and Six Hundred Fifty Million (650,000,000) shares are designated $.001 common stock (the “Common Stock”). 

 

On August 22, 2013, the Company affected a forward split of 30 shares for each one share outstanding as of August 22, 2013, where each stockholder will receive 30 additional shares for each share owned as of the record date. All share amounts in this report have been retroactively adjusted for all periods presented to reflect this forward split.

 

The Company entered into a Stock Purchase Agreement on January 20, 2014 and the investor requested the return of their investment of $150,000.  The Company returned those funds on February 12, 2014.  This has been accrued as Subscription Payable as of January 31, 2014.

 

The Company issued 8,000,000 Preferred B Warrants with the acquisition of Poker Junkies LLC.  These Preferred Series B Warrants once exercised the Company would issue Preferred Series B stock.  From November 2013 through January 31, 2014 the Company issued 1,028,000 of Series B Preferred stock of $1,028,000 for the exercise of the Preferred B warrants.  From February 2014 through April 2014 the Company issued 699,200 of Series B Preferred stock of $699,200 for the exercise of the Preferred B warrants.  On June 18, 2014 the Company rescinded this transaction as Mr. John Hermansen refused to deliver the Preferred Series B warrants.  On June 18, 2014, the Board of Directors agreed that since Mr. Hermansen refused to deliver the Preferred Series B warrants that were exercised the Company will issue common stock in lieu of issuing Convertible Preferred Series B shares.  The Company intends to issue common stock at 125% of the value of the stock of the Preferred Series B investment. As of April 30, 2014 the Company has accounted for as an investor payable in the amount of $2,077,200.

 

-7-
 

 

Amendment of Articles of Incorporation

 

On November 14, 2013, the Company likewise filed with the Nevada Secretary of State two Certificates of Designation, setting forth the rights and restrictions upon two new Series of Preferred Stock authorized in the foregoing Amended and Restated Articles of Incorporation.

 

Preferred Stock

 

Series A Preferred Stock

 

On March 6, 2014 the Board of Directors approved the filing of a Certificate of Designation establishing the designations, preferences, limitation and relative rights of the Company’s Series A Preferred Stock. The Board of Directors authorized the issuance of 1,000 shares of Series A Preferred Stock. The terms of the Certificate of Designation of the Series A Preferred Stock, include the right to vote in aggregate, on all shareholder matters equal to 51% of the total vote (“Super Majority Voting Rights”). The Series A Preferred Stock will be entitle to this 51% voting right no matter how many shares of common stock or other voting stock of the Company are issued or outstanding in the future.

 

Series B Convertible Preferred Stock

 

The Series B Convertible Preferred stock consist of Fifty Million (50,000,000) shares (the “Series B Stock”), with certain rights, privileges, preferences and restrictions as set forth in the Series B Preferred Stock

 

Holders of the Series B Stock shall be entitled to receive dividends or other distributions with the holders of the Corporation’s Common Stock on an “as converted” basis when, as, and if declared by the Directors of the Corporation.

 

The Holders have the right to convert each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof and subject to notice requirements, at any time after Six (6) months from the date of issuance, into fully paid and non-assessable shares of the Common Stock. Each Share of Series B Preferred Stock is convertible into the Common Stock of the Company on the basis of One (1) Series B Preferred Share for One and One Quarter (1.25) Common Shares (1:1.25) Each Share of Series B Preferred Stock is convertible into the Common Stock of the Company on the basis of One (1) Series B Preferred Share for One and One Quarter (1.25) Common Shares (1:1.25).

 

Series C Convertible Preferred Stock

 

The Series C Convertible Preferred Stock consists of One Hundred (100) shares (the “Series C Stock”), with certain rights, privileges, preferences and restrictions as set forth in Series C Preferred Stock Certificate of Designation.

  

A new series of Preferred Stock from the Corporation’s authorized shares of Preferred Stock is hereby created, designated Series C Convertible Preferred Stock, consisting of One Hundred (100) shares (the “Series C Stock”), with certain rights, privileges, preferences and restrictions as set forth in the November 12, 2013 Consent.

 

-8-
 

 

Holders of the Series C Stock shall be entitled to receive dividends or other distributions with the holders of the Corporation’s Common Stock on an “as converted” basis when, as, and if declared by the Directors of the Corporation.

 

Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof and subject to notice requirements at any time following Twelve (12) Months from the issuance of such shares of Series C Stock, into such number of fully paid and non-assessable shares of the Common Stock. For each share of Series C Stock, the holder will receive upon Conversion, $1,000,000 worth of Common Shares (the “Conversion Ratio”) of the Corporation.

 

Warrants and Options

 

The Company had 8,000,000 warrants were issued and outstanding as of January 31, 2014. As of June 18, 2014 all warrants have been rescinded for failure to deliver the assets in accordance with the Agreement with Poker Junkies. The warrants had a holding period of 6 months and were excisable at 125% of the common stock.

 

The Company has valued these warrants at $0.00 in accordance with a third party Certified Valuation Analyst.

 

Voting Rights 

 

Each holder of Common Stock is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders. However the Holders of the Series A Preferred Stock will be entitle to this 51% voting right no matter how many shares of common stock or other voting stock of the Company are issued or outstanding in the future.

 

Dividends 

 

Subject to preferences that may be applicable to any then-outstanding shares of Preferred Stock, if any, and any other restrictions, holders of Common Stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the Company’s board of directors out of legally available funds. The Company and its predecessors have not declared any dividends in the past. Further, the Company does not presently contemplate that there will be any future payment of any dividends on Common Stock.

 

In November 14, the Company issued 8,000,000 Preferred B Warrants with the acquisition of Poker Junkies LLC. These Preferred Series B Warrants once exercised the Company would issue Preferred Series B stock. From January 31, 2014 through April 30, 2014, the Company issued 699,200 of Series B Preferred stock of $699,200. On June 18, 2014 the Company rescinded this transaction as Mr. John Hermansen refused to deliver the Preferred Series B warrants. On June 18, 2014, the Board of Directors agreed that since Mr. Hermansen refused to deliver the Preferred Series B warrants that were exercised the Company will issue common stock in lieu of issuing Convertible Preferred Series B shares. The Company intends to issue common stock at 125% of the value of the stock of the Preferred Series B investment.

 

On December 31, 2013 the Company issued 18 Series C Preferred Stock for the purchase of the assets of High Profile Distribution, LLC. On June 18, 2014 the Company rescinded this transaction for the failure of Mr. Callahan to deliver the assets purchased.

 

-9-
 

 

On April 11, 2014, GAWK Incorporated (the "Company") and Doyle Knudson, an individual (the "Purchaser") entered into a Series C Preferred Stock Purchase Agreement dated as of April 10, 2014, pursuant to which the Company has agreed to sell, and the Purchaser has agreed to purchase, seven (7) shares of Series C Preferred Stock for an aggregate purchase price of $3,300,000 (the "Transaction").  The Series C Preferred Stock Purchase Agreement contains standard representations and warranties and provides that closing is subject to minimal closing conditions including a bring down of the representations and warranties of the parties, payment and delivery of a stock certificate.  Pursuant to the Series C Preferred Stock Purchase Agreement, if the Purchaser requests, the Company shall add the Purchaser to the Company's board of directors.  After closing the Transaction and for so long as Purchaser owns at least one share of Series C Preferred Stock or at least five percent (5%) of the Company's outstanding Common Stock, the Purchaser shall receive executive producer credit and reasonable executive producer fees in an amount to be determined by the parties in good faith in association with the production of all new original content produced by the Company.

 

NOTE 6– SUBSEQUENT EVENTS

 

In accordance with the Subsequent Events Topic of the FASB ASC 855, Management has evaluated subsequent events, and has determined that the following events are reasonably likely to impact the financial statements:

 

On May 29, 2014 the Company entered into a consulting agreement with BCMG Entertainment, Inc. for $100,000 to provide services for the procurement of content from movies, television series, music videos, shorts, animated films, live sporting events, and other Company business models.

 

On June 9, 2014 the company entered into a consulting agreement with Kamrol Imperial Corporation for $450,000. This agreement will assist management in developing a practical and effective strategic marketing and social media planning program, company branding, assessment of current technology and develop a technology roadmap, provide merger and acquisition assistance, and management consulting services.

 

On June 10, 2014 the Company entered into a consulting agreement with BCMG Entertainment, Inc. for $125,000 to provide services for the procurement of content from movies, television series, music videos, shorts, animated films, live sporting events, and other Company business models.

 

On June 11, 2014 we entered into a license and subscription agreement with Cloud Medical Doctor Software Corporation (NSCT) (“Cloud”) for $1,125,000. The agreement grants to us a non-exclusive encryption license agreement which entitles us to utilize Cloud’s encryption software solution within the Customer’s business. We purchased a 48 month encryption licensing agreement to incorporate into our existing web based software and 3,000,000 common shares of Cloud through a consulting agreement with Gawk, Inc. The licensing agreement will protect members of our platform from hackers and other privacy intrusion vehicles. Cipherloc has various features that will further protect our members and end users of our web developed platform.

 

CipherLoc™ is the first truly Polymorphic Cipher Engine that can be used in commercial, security sensitive applications and is far more secure than any cipher by itself. This PKPA Engine eliminates replay attacks because the cipher morphs quickly over time. It also rejects data access and injection, false commands, and data alteration. All such methods are keys to cyber intrusion, spoofing, and electronic attacks. CipherLoc™ is one facet of a layered defense in depth protection plan for any organization. Cost effective and easy to use, the CipherLoc™ Polymorphic Cipher Engine provides an electronic gate that restricts access to vital assets, production facilities, and distribution systems that comprise the backbone of today’s electronics based organizations.

 

-10-
 

 

A polymorphic cipher has the ability to change an encryption to another method of encryption or key on the fly and is more commonly known as a “mutating” cipher. Polymorphic ciphers are a revolutionary idea based on the information content in a message rather than the difficulty of the key. Using advanced set theory and information theory, this encryption method does not rely exclusively on large keys and complicated permutation/obscuring techniques. This makes the algorithm faster, thus, allowing cipher changes to occur VERY quickly, and requires less memory than other encryptions. Polymorphic changes take place at a rate no slower than the effective “unicity distance” (that certain amount of information needed in order to decrypt an encrypted message) of the cipher, more frequently than enough information can be collected to break the code. Most other ciphers are easily broken as hardware gets faster because it is easier to check all possible keys in the cipher key space. However, if a polymorphic cipher is implemented properly, the speed of the encryption will increase as the hardware gets faster. Thus, unlike other ciphers, this type of software becomes safer as computers get faster.

 

On June 17, 2014 a verified complaint was filed in Maricopa County, Arizona being case number CV 2014-008511 against the Company by an investor known as Doyle Knudson. On August 22, 2014 the parties settled this case recognizing that the settlement constitutes a compromise of disputed claims by the respective Parties, liability for which is expressly denied by the Parties. The summary of the settlement is as follows:

 

The Company transferred $750,000 to Mr. Knudson on the day of settlement, executed a $1.8 million Convertible Promissory Note with a conversion price of $0.10 per share, a Settlement Agreement and amended Mr. Knudson’s Series C Preferred Stock Purchase Agreement to provide that Mr. Knudson can convert his seven (7) Series C Preferred shares into common stock at any time after the date of this Settlement Agreement. The Company has also amended the Certificate of Designation for the Series C Preferred shares to reflect that the shares are convertible on any date after the date of this Settlement Agreement as reflected in the Amendment to the Certificate of Designation

 

Mr. Knudson will be filing a Stipulation to Dismiss the Lawsuit with prejudice.

 

 * * * * * * * * * * * *

 

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In this Quarterly Report on Form 10-Q, “Company,” “our company,” “us,” and “our” refer to Gawk Incorporated and its subsidiaries, unless the context requires otherwise.

 

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

Management’s Discussion and Analysis contains various “forward looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10-Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company’s business, including but not limited to, reliance on key customers and competition in its markets, market demand, delayed payments of accounts receivables, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. Management will elect additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets (i.e. SBDC). The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.

 

Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results and achievements and cause them to materially differ from those contained in the forward-looking statements include those identified in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended January 31, 2014, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future.

 

In addition, the foregoing factors may affect generally our business, results of operations and financial position. Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements.

 

Overview

 

We were incorporated in the state of Nevada on January 6, 2011 and our principal business address 5300 Melrose Avenue, Suite 42, Las Angeles, CA 90038. In connection with the Stock Purchase, the company has changed its focus to engage in the business of online distribution of all digital content including but not limited to full length feature films, television series, sports, documentaries, live events via our proprietary content distribution network (CDN).

 

The Future of Gawk

 

On June 11, 2014 we entered into a license and subscription agreement with Cloud Medical Doctor Software Corporation (NSCT) (“Cloud”) for $1,125,000. The agreement grants to us a non-exclusive encryption license agreement which entitles us to utilize Cloud’s encryption software solution within the Customer’s business. We purchased a 48 months encryption licensing agreement to incorporate into our existing web based software and 3,000,000 common shares of Cloud through a consulting agreement with Gawk, Inc. The licensing agreement will protect members of our platform from hackers and other privacy intrusion vehicles. Cipherloc has various features that will further protect our members and end users of our web developed platform.

 

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CipherLoc™ is the first truly Polymorphic Cipher Engine that can be used in commercial, security sensitive applications and is far more secure than any cipher by itself. This PKPA Engine eliminates replay attacks because the cipher morphs quickly over time. It also rejects data access and injection, false commands, and data alteration. All such methods are keys to cyber intrusion, spoofing, and electronic attacks. CipherLoc™ is one facet of a layered defense in depth protection plan for any organization. Cost effective and easy to use, the CipherLoc™ Polymorphic Cipher Engine provides an electronic gate that restricts access to vital assets, production facilities, and distribution systems that comprise the backbone of today’s electronics based organizations.

 

A polymorphic cipher has the ability to change an encryption to another method of encryption or key on the fly and is more commonly known as a “mutating” cipher. Polymorphic ciphers are a revolutionary idea based on the information content in a message rather than the difficulty of the key. Using advanced set theory and information theory, this encryption method does not rely exclusively on large keys and complicated permutation/obscuring techniques. This makes the algorithm faster, thus, allowing cipher changes to occur VERY quickly, and requires less memory than other encryptions. Polymorphic changes take place at a rate no slower than the effective “unicity distance” (that certain amount of information needed in order to decrypt an encrypted message) of the cipher, more frequently than enough information can be collected to break the code. Most other ciphers are easily broken as hardware gets faster because it is easier to check all possible keys in the cipher key space. However, if a polymorphic cipher is implemented properly, the speed of the encryption will increase as the hardware gets faster. Thus, unlike other ciphers, this type of software becomes safer as computers get faster.

 

Strategic Alliances

 

On May 29, 2014 the Company entered into a consulting agreement with BCMG Entertainment, Inc. for $100,000 to provide services for the procurement of content from movies, television series, music videos, shorts, animated films, live sporting events, and other Company business models.

 

On June 9, 2014 the company entered into a consulting agreement with Kamrol Imperial Corporation for $450,000. This agreement will assist management in developing a practical and effective strategic marketing and social media planning program, company branding, assessment of current technology and develop a technology roadmap, provide merger and acquisition assistance, and management consulting services.

 

On June 10, 2014 the Company entered into a consulting agreement with BCMG Entertainment, Inc. for $125,000 to provide services for the procurement of content from movies, television series, music videos, shorts, animated films, live sporting events, and other Company business models.

 

Three Months Ended April 30, 2014, Compared to Three Months Ended April 30, 2013

 

RESULTS OF OPERATIONS

 

Revenue decreased to $0.00 from $1,572 for the three months ended April 30, 2014 and 2013, respectively. We changed management and changed the focus to a software and content development Company.

 

General and administrative expenses increased to $199,074 from $35,824 for the three months ended April 30, 2014 and 2013, respectively. The increase in general and administrative expenses are primarily related to the salaries of management of $60,000, legal expenses of $23,500, consulting of $38,553, and accounting expenses of $35,035.

 

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Research and development costs increased to $478,735 from $0.00 for the three months ended April 30, 2014 and 2013, respectively. Our research and development increase is related to updates to our software and development of our software platform.

 

Related party transactions increased to $385,035 from $0.00 for the three months ended April 30, 2014 and 2013, respectively. Our related party transactions increased because of funds that prior managed disbursed to themselves for legal of $102,115, consulting fees of $177,215, and $105,705 to the prior CEO and COO.

 

Liquidity and Capital Resources

 

We expect to incur substantial expenses and generate significant operating losses as we continue to grow our operations, as well as incur expenses related to operating as a public company and compliance with regulatory requirements.

 

The independent auditor’s report on our financial statements contains explanatory language that substantial doubt exists about our ability to continue as a going concern. We have an accumulated deficit at April 30, 2014 of $2,581,751 and need additional cash flows to maintain our operations. We depend on the continued need to raise financing to finance our operations and need to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of our products and business. We expect our cash needs for the next 12 months to be $450,000 to fund our operations and further $350,000 to development of our website platform. The ability of the Company to continue its operations is dependent on the successful execution of management’s plans, which include expectations of raiding debt or equity based capital until such time that funds from operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with related parties to sustain the Company’s existence. There is no assurance that such funding, if required will be available to us or, if available, will be available upon terms favorable to us.

 

Cash flows from operations. Our cash (used in) provided by operating activities were ($1,035,631) and ($31,016) for the three months ended April 30, 2014 and 2013, respectively. The increase in cash flows provided by operations was primarily attributable to the changes in operating assets and liabilities.

 

Cash flows from financing activities. Cash provided by financing activities were $3,849,200 and $0.00 for the three months ended April 30, 2014 and 2013, respectively. We received cash from sales of our investment payable of common stock of $699,200 proceeds from Series C Preferred Stock of $3,300,000, and the repayment of investors of $150,000 for the three months ended April 30, 2014 and 2013, respectively.

 

These factors raise doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s continued existence is dependent upon management’s ability to develop profitable operations, continued contributions from the Company’s executive officers to finance its operations and the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of the Company’s products and business.

 

Critical Accounting Policies

 

Accounts Receivable and Allowance for Uncollectible Accounts

 

Substantially all of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company will maintain allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments for services. Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped in categories by the number of days the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history. Account balances are charged against the allowance when it is probable the receivable will not be recovered.

 

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Long-lived Assets

 

The Company reviews its fixed assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

 

We have no off-balance sheet arrangements including arrangements that would affect the liquidity, capital resources, market risk support and credit risk support or other benefits.

 

WHERE YOU CAN FIND MORE INFORMATION

 

You are advised to read this Quarterly Report on Form 10-Q in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.

 

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ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Our business is currently conducted principally in the United States. As a result, our financial results are not affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets. We do not engage in hedging transactions to reduce our exposure to changes in currency exchange rates, although if the geographical scope of our business broadens, we may do so in the future.

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

ITEM 4.          CONTROLS AND PROCEDURES

 

(a)Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that the controls and procedures would meet their objectives. As required by SEC Rule 13a-15(b), our Chief Executive Officer and Principal Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective.

 

Our Chief Executive Officer and Principal Financial Officer are responsible for establishing and maintaining adequate internal control over our financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has used the framework set forth in the report entitled Internal Control-Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, our Chief Executive Officer and Principal Financial Officer have concluded that our internal control over financial reporting were effective as of April 30, 2014. There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

a.There were no changes in our internal control over financial reporting that occurred during the three months ended April 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

b.It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

c. We did not sufficiently segregate duties over incompatible functions at our corporate headquarters.

 

Our inability to sufficiently segregate duties is due to a small number of personnel at the corporate headquarters, which management expects to remedy when the acquisition of an operating company is completed.

 

d. In conjunction with the lack of segregation of duties, we did not institute specific anti-fraud controls.

 

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PART II

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

On June 17, 2014 a verified complaint was filed in Maricopa County, Arizona being case number CV 2014-008511 against the Company by an investor known as Doyle Knudson. On August 22, 2014 the parties settled this case recognizing that the settlement constitutes a compromise of disputed claims by the respective Parties, liability for which is expressly denied by the Parties. The summary of the settlement is as follows:

 

The Company transferred $750,000 to Mr. Knudson on the day of settlement, executed a $1.8 million Convertible Promissory Note with a conversion price of $0.10 per share, a Settlement Agreement and amended Mr. Knudson’s Series C Preferred Stock Purchase Agreement to provide that Mr. Knudson can convert his seven (7) Series C Preferred shares into common stock at any time after the date of this Settlement Agreement. The Company has also amended the Certificate of Designation for the Series C Preferred shares to reflect that the shares are convertible on any date after the date of this Settlement Agreement as reflected in the Amendment to the Certificate of Designation

 

Mr. Knudson will be filing a Stipulation to Dismiss the Lawsuit with prejudice.

 

ITEM 1A - RISK FACTORS

 

There were no material changes from the risk factors previously disclosed in Part II, Item 1A, “Risk Factors” in our  Annual Report on Form 10-K for the year ended January 31, 2013 during our three months ended April 30, 2014.

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS SECURITIES

 

None

 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

  

There were no defaults upon senior securities during the period ended April 30, 2014.

 

ITEM 4. MINING SAFETY DISCLOSURES 

 

N/A

  

ITEM 5.  OTHER INFORMATION

 

There is no information with respect to which information is not otherwise called for by this form.

 

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ITEM 6.  EXHIBITS

 

Exhibits filed herein for April 30, 2014

 

Exhibits

 

Exhibit Number   Description of Exhibits
3.1   Articles of Incorporation (1)
3.2   Bylaws (1)
14.1   Code of Ethics (2)
10.1   Cloud Medical Doctors Software Corporation 48 month Licensing Agreement (3)
10.2   Consulting Agreement with Kamrol Imperial Corporation (3)
10.3   Gawk, Inc. Consulting Agreement with Cloud Medical Doctors Software Corporation (3)
10.4   Scott Kettle Employment Agreement (3)
10.5   Consulting Agreement with BCMG Entertainment, Inc.  Dated May 29, 2014 (3)
10.6   Consulting Agreement with BCMG Entertainment, Inc. Dated June 10, 2014(3)
10.7   Doyle Knudson Vs. Gawk Inc. Settlement Agreement (4)
10.8   Doyle Knudson Convertible Promissory Note (4)
31.1   Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted Section 302 of the Sarbanes-Oxley Act of 2002. (4)
32.1   Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (4)
101.INS *   XBRL Instance Document
101.SCH *   XBRL Taxonomy Schema
101.CAL *   XBRL Taxonomy Calculation Linkbase
101.DEF *   XBRL Taxonomy Definition Linkbase
101.LAB *   XBRL Taxonomy Label Linkbase
101.PRE *   XBRL Taxonomy Presentation Linkbase

_____________________

 

(1) Filed as an Exhibit on Form S-1 with the SEC on April 6, 2012.
(2) 10-SB/12g filed on February 13, 2008

(3) Filed in the 10K for year ended January 31, 2014

(4) Filed herein

 

XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of this annual report or purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Registrant

Gawk Incorporated

 
Date: September 3, 2014 By: /s/ Scott Kettle
    Scott Kettle
    Chief Executive Officer (Principal Executive Officer), Secretary Treasurer

 

Registrant

Gawk Incorporated

 
Date: September 3, 2014 By: /s/ Scott Kettle
    Scott Kettle
    Chief Financial Officer (Principal Financial Officer)

 

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