ITEM 1. BUSINESS.
General
The financial statements presented in this report are of Gawk, Inc., a Nevada corporation. When the terms “Gawk”, the “Company,” “we,” “us” or “our” are used in this document, those terms refer to Gawk, Inc.
Our Company
Gawk, Inc., either directly or through its various subsidiaries (collectively, “Gawk”, “we”, or “the Company”), offers a comprehensive suite of cloud communications, cloud connectivity, cloud computing, and managed cloud-based applications solutions to small, medium and large businesses, and offers domestic and international voice services to communications carriers worldwide. Our advanced, cloud services platforms enable the integration of leading edge solutions in the cloud, increasing customer collaboration and productivity by seamlessly connecting employees, partners, customers and vendors.
In the Business Services segment, Gawk is focused on becoming our business customers’ single source for leveraging the increasing power of the cloud, providing a robust package of what we believe to be the essential services that form the foundation for their successful migration to, and efficient use of, the cloud. Our cloud computing and Infrastructure as a Service (“IaaS”) solutions are designed to provide our customers with a platform on which additional cloud services can be layered. Complemented by Software as a Service (“SaaS”) solutions such as storage, security and business continuity, our advanced cloud offerings allow our customers to experience the increased efficiencies and agility delivered by the cloud. Gawk's cloud-based services are flexible, scalable and rapidly deployed, reducing our customers’ cost of ownership while increasing their productivity.
As a result of the acquisition of one cloud services business during the past year, Gawk has gone through a significant transformation and has expanded its business customer base and added a significant number of network facilities and points of presence expanding its geographic reach. Through this acquisition, we acquired advanced systems and infrastructure, augmented our management team and employee base with talented, experienced, well-trained professionals, while continuing to provide a strong platform for further acquisitions.
Gawk is pursuing a three-tiered growth strategy: developing specialized solutions for key vertical markets, targeting cloud services companies for acquisition, and accelerating organic growth. Our continuing effort to deliver advanced cloud solutions to companies with more complex requirements is supported by our cloud solutions platform that allows us to rapidly respond to our customers and potential customers needs for customized or enhanced solutions. We also intend to continue to develop vertically oriented solutions to expand our revenue opportunities and further differentiate our service suite. We intend to acquire additional cloud services companies that can further expand our customer base, allow us to introduce additional cloud products and services, and gain scale. Our strategy to organically grow our Business Services revenue includes securing large strategic distribution partners, increasing our direct as well as indirect channel sales efforts, upselling solutions to our existing base and leveraging our management, Board of Directors and shareholder relationship network.
Item 1. Description of Business
Business Services
Our Cloud-based services are designed to meet the communications, network and computing requirements of growing businesses, while maximizing the price-performance ratio. We believe that giving our customers access to the Cloud provides a more cost-effective, reliable and secure communications and IT experience, and relieves them of the capital and support burdens associated with more traditional services. Additionally, customers can reduce costs while adding features and functionality and improving productivity across the enterprise. Gawk is increasingly focused on providing specialized, market-based solutions to important verticals and larger enterprises, matching our advanced solutions to key industry-specific customer requirements.
We offer a suite of advanced data center and cloud-based services, including fault tolerant, high availability cloud servers, which encompasses PaaS (platform as a service), IaaS (infrastructure as a service) and a worldwide CDN (content delivery network). In-building connectivity provides diverse and redundant access to the cloud for our Irvine location customers. The Company’s managed network services converge voice and data applications, structured cabling, wireless, security services, and includes Internet access via Ethernet or Fiber at speeds ranging from 10 Mbps to 10 Gbps. Our data center solutions include cloud services, colocation services, and business continuity services such as storage, and security.
Gawk’s services are designed to provide significant benefits to businesses of all sizes, with single or multiple locations. The integration of cloud solutions on our advanced services platform allows customers to seamlessly connect people with the information they need to collaborate effectively, regardless of the device they use.
Our cloud solutions are also designed to minimize upfront capital costs, increase the scalability and flexibility of the customer’s communications network and service environment, provide robust features and functionality to increase productivity, and reduce the overall cost of communications.
Our cloud platform allows us to quickly respond to customer requirements for new or enhanced products and services as well as provide for maximum flexibility and cost containment for our clients. Gawk’s growing suite of business services includes.
Unified Communications
The Gawk Unified Communications platform compliments our Cloud and Data Center solutions with integrated service features that seamlessly combine, voice, PBX, SIP trunks, wireless, messaging, and targeted automated dialing solutions. Our integrated suite of services are device and location agnostic, allowing clients of all sizes to increase productivity, lower costs by simplifying communications over the most preferred or available device.
Cloud Computing
Gawk’s Cloud Computing service centralizes information management, hardware, network and infrastructure in an off-premise location, hosted and managed by Gawk. Offered as private, hybrid or community solutions, Gawk’s secure offerings drive efficiencies in both costs and resources allowing for rapid scalability and deployment of applications. These offerings provide a predictable, utility-based OpEx model, which eliminates significant capital expenditures, removes obsolescence concerns and future-proofs customer investments.
Cloud-Based Storage
Gawk offers a solution that addresses the explosive growth of data across all industries with a cost-effective and secure storage solution hosted in the cloud. This scalable, fully redundant solution is hosted off-premise, reduces customer data center footprints and resource requirements, and facilitates additional SaaS solutions that can be accommodated on the same cloud platform. Gawk delivers a storage and data back-up assessment service as part of its storage offering, measuring growth and duplication benchmarked against best practices. The solution consolidates requirements across the enterprise, increases efficiency and achieves economies of scale designed to reduce overall customer costs.
Service Plans
Gawk’s business communications services generally offer several different service packages designed to meet specific customer needs and requirements. Base level plans offer a basic service package for a low monthly recurring charge. Additional charges, such as SIP, PBX, wireless, security or network consulting are charges on an individual case basis. Optional value-added features for basic services are available for an incremental monthly charge appropriate for the service. Cloud connectivity services such as In Building Internet access services and/or private line services are charged on a fixed monthly basis, and are generally based on the bandwidth utilized and the endpoints involved. Cloud computing services are based on a utility pricing model, and charges for managed cloud solutions are generally composed of an upfront charge and a monthly recurring charge. Gawk’s business customer contracts range from one to five years.
Network
Gawk operates a robust and reliable carrier-grade network and infrastructure that delivers high quality, diverse and secure connections to our Cloud services. Our Managed Network Services, Internet Access, Ethernet, Fiber and Cloud based solutions can be provided either on-net leveraging our own extensive network, or off-net using the networks of our carrier partners, for truly diverse and redundant connections.
Our Data Center and Business Services network operations centers are highly automated and monitored 24 hours per day, 7 days per week. Our centers employ state-of-the-art monitoring and alert systems that are designed to ensure quality of service and a proactive response to potential customer service issues.
The Gawk network is characterized by its low cost of deployment and low recurring costs. It has been constructed to meet actual, rather than speculative, customer demand with on-net and off-net connections to provide ubiquitous access, delivering maximum cost efficiency without sacrificing quality. Our robust network is designed as a fully meshed OSPF (Open Shortest Path First) running BGP with multiple peers. OSPF automatically detects changes in the topology, such as link failures, and selects a new routing structure within seconds.
Gawk’s centralized network elements are housed in carrier-grade facilities located in secure carrier buildings that house many other carriers and are interconnected to other major carrier buildings. These locations allow for cost-effective and rapid interconnection and capacity expansion to carrier customers, as well as major enterprise customers. Gawk believes its selected locations and equipment choices provide the platform required to support its envisioned growth and will allow it to quickly embrace emerging technologies as they become commercially available and viable.
Cloud Services Platform
Our custom Cloud services platform was designed and developed by our own team of experienced technicians with many years using advanced, yet proven technology. This platform is scalable, flexible and secure, delivering an integrated portfolio of Cloud-based communications services that enable businesses of every size to increase productivity and efficiency while controlling costs. Information management, hardware, network and infrastructure are centralized off-premise, hosted and managed by us, allowing customers to rapidly adjust to fluctuating and unpredictable service demands, drive efficiencies in staff and space, and eliminate the need for costly technology upgrades. The architecture of our platform has been designed to allow for the seamless integration of additional Cloud-based applications, whether or not developed by Gawk. Gawk’s custom platform allows faster, easier, more cost-effective introduction of new, business-critical applications, delivering a unique feature set engineered to quickly respond to customer demands and market requirements. We differentiate ourselves from our competitors by combining our robust carrier-grade network services to enable secure connections to the Cloud, delivering true diversity and a fully integrated solution for maximum efficiency and cost savings.
Our custom platform has been engineered using advanced technologies, best of breed equipment and provides for redundancy, fault tolerance and future geographical diversity. The platform has been designed for scalability as well as resiliency, and can be easily expanded to accommodate any required number of connections and customers. Platform solutions are location and device neutral, serving multiple as well as single locations nationwide, connecting users to customers and other employees on desktops, laptops, handsets, tablets and mobile phones, wherever they may be. The platform is currently deployed in our Irvine data center; the platform has a fully functional, redundant system whose services can be replicated at additional locations in a cost effective and timely manner. Thus, should one of the data centers be hit with a catastrophic event, customers should experience no interruption of service. The result is to ensure a proven, reliable and consistent uptime, which is crucial for delivering mission critical solutions.
Sales and Marketing
We market and sell our business services to small, medium and large customers through distribution partners, direct sales personnel and inside sales representatives. Our independent distribution partners are typically paid commissions based on their sales and, thereafter, the continued use of our services by the customers sold by them. Our sales employees, including direct sales and inside sales, are typically compensated through a combination of base salary and commissions based on their actual sales performance.
Our distribution partners generally target smaller- to medium- size businesses, while our direct sales force focuses on the larger enterprise customers in our targeted verticals. We believe that our Cloud platform, infrastructure, systems and connectivity provide a strong competitive advantage in serving these larger enterprise customers, creating real value with specialized solutions that meet their more complex and rigorous requirements. Referrals, strategic relationships and the strength of our corporate relationships are also a key part of our overall sales and marketing plan. We believe that the substantial experience and relationships of our executives and directors will assist us in organically growing our business through the addition of new customers.
Strategy
Our recent acquisitions and improved financial performance are important milestones in our strategic roadmap as we work to become the industry’s leading and most successful cloud services provider. Our plans for growth are supported by an experienced and tested management team and dedicated staff, our advanced cloud services platforms, and leading edge systems and infrastructure. We believe we are well positioned to continue to execute on our strategy to organically grow our revenue from the Business Services segment, develop vertically oriented solutions and acquire additional cloud services companies.
Gawk intends to grow organically through direct as well as indirect channel sales efforts; by securing large strategic distribution partners to extend our geographic and vertical market reach; through the up-sale and cross-sale of services to our existing customer base; and by leveraging management, Board and shareholder relationships to help penetrate larger enterprises.
We intend to increasingly focus our sales and marketing efforts on developing vertically oriented solutions for targeted markets that require the kind of specialized solutions made possible by our state-of-the-art network and advanced services platforms. Our vertically oriented solutions offer a substantial opportunity to gain market share.
Gawk intends to build on the success of its WebRunners transactions through additional acquisitions of cloud services companies. We believe that the experience gained in integrating people, products, systems, platforms and customers positions us well to advance our growth. We will continue to look to acquire companies that can expand our customer base and distribution capability, add additional cloud-based products and services and help us increase the scale of our operations.
Competition
Each of Gawk’s business segments are highly competitive, rapidly evolving, and subject to constant technological change. In each of our business segments, we compete with companies that are significantly larger and have substantially greater market presence, financial, technical, operational and marketing resources than we do. In the event that such a competitor expends significant sales and marketing resources in one or several markets where we compete with them, we may not be able to compete successfully in those markets. Specialized cloud services providers, who focus on one or more cloud service or application, could adopt aggressive pricing and promotion practices that could impact our ability to compete. We also believe that competition will continue to increase, placing downward pressure on prices. Such pressure could adversely affect our gross margins if we are not able to reduce our costs commensurate with the price reductions of our competitors. Further, the pace of technological change makes it impossible for us to predict whether we will face new competitors using different technologies to provide the same or similar services offered or proposed to be offered by us. If our competitors were to provide better and more cost effective services than ours, we may not be able to increase our revenues or capture any significant market share.
Employees
As of January 31, 2015, we had 8 full time employees. None of our employees are represented by a labor union or collective bargaining agreement. We consider our employee relations to be good, and, to date, we have not experienced a work stoppage.
Available Information
Our principal executive offices are located at 5300 Melrose Avenue, Suite 42, Los Angeles, California 90038. The telephone number at our executive offices is 888-754-6190 and our main corporate website is www.Gawkinc.com. The information on the Company’s website is neither a part of, nor incorporated by reference into, this report.
We make available our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, free of charge on our website, www.Gawkinc.com as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission or SEC. Additionally, copies of materials filed by us with the SEC may be accessed at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549, between the hours of 10:00 am to 3:00 pm, or at the SEC’s web site www.sec.gov. For information about the SEC’s Public Reference Room, please call 1-800-SEC-0339.
The Market and Industry
Through Gawk’s recent acquisition of WebRunners we have focused our efforts within the technology sector specializing in high-demand, high-availability hosting solutions and professional IT services. Since inception businesses all over the world have trusted WebRunners to deliver their data. Gawk provides enterprise-level hosting services to businesses of any size through our carefully-planned architecture and commitment to providing excellent support. Products offered include PaaS (platform as a service), IaaS (infrastructure as service), colocation space, dedicated servers, cloud services, shared hosting, email, spam filtering and network consulting services. Additional infrastructure services at our Irvine location include in-building bandwidth services; in-building structured cabling and managed network services. At various customer sites across Southern California Gawk provides private cloud services, security services and managed network services.
Our cloud-based services are designed to meet the communications, network and computing requirements of growing businesses, while maximizing the price-performance ratio. Our experience has demonstrated that giving our customers access to the cloud provides a more cost-effective, reliable and secure IT experience; relieves them of the capital and support burdens associated with traditional services. Additionally, customers can reduce costs while adding features, functionality and improving productivity across the enterprise.
“Amazon Web Services’ (AWS) continues to hold the lead in market share for cloud infrastructure services despite competition from Microsoft, according to latest figures from Synergy Research. The research, which examines infrastructure as a service (IaaS), platform as a service (PaaS), private and hybrid cloud, sees AWS’ overall share at 28%, compared to Microsoft’s 10%, IBM at 7%, Google at 5%, Salesforce 4%, and Rackspace 3%. Year on year growth saw Microsoft (96%) and Google (88%) the biggest climbers, with Amazon (51%) and IBM (48%) holding steady.
Synergy estimates quarterly cloud infrastructure service revenues are now approaching the $5 billion (£3.32bn) mark. Total revenues for 2014 grew by almost half from the previous year.
AWS and Microsoft’s uptime figures were recently put under scrutiny by Cloud Endure. Microsoft Azure saw 28 full service interruptions in Q2 last year, compared to 16 in Q3 and none in Q4. The vast majority of the 259 service errors in the first quarter of 2014 were advisory. In comparison, AWS in 2014 saw 46 service errors in EC2, 24 in scalable DNS provider Route 53, and 20 in network monitoring service CloudWatch.
In December last year, AWS dramatically cut its rates for several types of data transfers, as well as changing how it priced reserved EC2 instances.
Comparative figures from Synergy in previous quarters have shown Microsoft strive to claim second position in the cloud infrastructure market, with AWS way out in front. Many actual or perceived barriers to cloud adoption have now been removed, and the worldwide market is on a strong growth trajectory.” Source: By James Bourne 03 February 2015, Cloudtech, www. cloudcomputing-news.net
AWS continues to be the provider of choice for the large enterprise customer however; the cost to scale AWS instances can be prohibitively expensive even in the wake of recent price cuts. Price sensitive customers and knowledgeable IT professions find that the cost to grow infrastructure and the ability to migrate to another platform from AWS is a major concern. The Cloud services we offer are flexible, secure, and highly portable while simultaneously price completive in the market place.
Our latest Cloud offering frees us from proprietary third party hardware and the associated cost constraints to our growth. We continue to enjoy our long standing relationships with companies like cPanel, Microsoft, Spam Experts and the Irvine Company. We welcome recent relationships with OnApp, WHMCS and Level3 .
REGULATIONS
There are no regulatory requirements for this internet medium other than as follows:
Release Management Supplement, v1.0, Published June 28, 2013
This CMS Technical Reference Architecture - Release Management Supplement, Version 1.0 complements the CMS TRA by providing rules and engineering guidance for developing, testing, and hosting CMS distributed systems and business applications within the agency’s data center Development, Test, Implementation, and Production Processing environments.
This supplement provides the rules governing the support and use of CMS data center environments for the conduct of pre-approved, scheduled Development, Validation Testing, and Implementation Testing of distributed CMS systems, infrastructure, and business applications.
The CMS Chief Technology Officer authorizes and approves the publication of the Release Management Supplement and its contents. This supplement augments and aligns with the CMS TRA Foundation 3.0, and CMS will update it on an as-needed basis.
WHERE YOU CAN FIND MORE INFORMATION
You are advised to read this Form 10-K 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 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.
ITEM 1A.
ITEM 1A. RISK FACTORS
This information is not required for small reporting companies.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
This Item is not applicable.
ITEM 2.
ITEM 2. PROPERTIES
Starting in September 2013, the Company rents office space at 5300 Melrose Avenue, Suite 42, Los Angeles, CA 90038. The Company pays $100 per month in rent on a month to month basis. With our acquisition of WebRunners, Inc. starting in November 2014 the company rents space at 300 Spectrum center drive, Suite 140, Irvine, CA 92618. The company pays $5,940 per month in rent and has a lease ending 2018 with an option to renew for an additional 5 years.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations.
ITEM 4.
ITEM 4. REMOVED AND RESERVED
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Gawk’s common stock is traded in the over-the-counter market, and quoted in the National Association of Securities Dealers Inter-dealer Quotation System (“Electronic Bulletin Board) and can be accessed on the Internet at OTCmarkets.com under the symbol “GAWK.” There are 297 holders of certificates and 161,732,000 are outstanding as of July 1, 2015. There are no shares held by Depository Trust Company.
At January 31, 2015, there were 159,880,000 shares of common stock of Gawk outstanding and there were in excess of 297 shareholders of record of the Company’s common stock.
The following table sets forth for the periods indicated the high and low bid quotations for Gawk’s common stock. These quotations represent inter-dealer quotations, without adjustment for retail markup, markdown or commission and may not represent actual transactions.
On July 1, 2015, the closing bid price of our common stock was $0.0201.
Dividends
We may never pay any dividends to our shareholders. We did not declare any dividends for the year ended January 31, 2015. Our Board of Directors does not intend to distribute dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the Board of Directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the Board of Directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.
Transfer Agent
Gawk’s Transfer Agent and Registrar for the common stock is V Stock Transfer LLC, 77 Spruce Street, Suite 201, Cedarhurst, NY 11516, 646-536-3179, info@vstocktransfer.com.
Recent sales of Unregistered Securities
Fiscal Year Ending January 31, 2015 to the date of filing
In March 2015, the Company issued 9,000,000 shares of common stock for services valued at the trading price of the stock at $36,000
Fiscal Year Ended January 31, 2015
During the year ended January 31, 2015, the Company issued 9,732,000 shares of common stock valued at the trading prices of $0.10 for value of $973,200 for services rendered.
The CEO contributed $40,000 and the Company recorded it as Additional Paid in Capital.
Common Stock
On November 14, 2013, the Company amended its articles of incorporation to increase the authorized shares to 650,000,000 shares, at $0.01 par value. There were 161,732,000 shares issued and outstanding as of January 31, 2015. The holders of our common stock are entitled to receive such dividends, if any, as may be declared by our board of directors from time to time out of legally available funds. The dividend rights of our common stock are junior to any preferential dividend rights of any outstanding shares of preferred stock. The holders of our common stock also are entitled to receive distributions upon our liquidation, dissolution or winding up of our assets that are legally available for distribution, after payment of all debt and other liabilities and distribution in full of preferential amounts, if any, to be distributed to holders of our preferred stock.
The holders of our common stock are not entitled to preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of any series of preferred stock that we may designate and issue in the future.
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.
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.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
This is not required for smaller reporting companies and the company has elected to omit this information.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.
The following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto and other financial information contained elsewhere in this Form 10-K.
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 cloud communications, cloud connectivity, cloud computing, and managed cloud-based applications solutions to small, medium and large businesses. Our advanced, cloud services platforms enable the integration of leading edge solutions in the cloud, increasing customer collaboration and productivity by seamlessly connecting employees, partners, customers and vendors.
As a result of the acquisition of one cloud services business during the past year, Gawk has gone through a significant transformation and has expanded its business customer base and added a significant number of network facilities and points of presence expanding its geographic reach. Through this acquisition, we acquired advanced systems and infrastructure, augmented our management team and employee base with talented, experienced, well-trained professionals, while continuing to provide a strong platform for further acquisitions.
Gawk is pursuing a three-tiered growth strategy: developing specialized solutions for key vertical markets, targeting cloud services companies for acquisition, and accelerating organic growth. Our continuing effort to deliver advanced cloud solutions to companies with more complex requirements is supported by our cloud solutions platform that allows us to rapidly respond to our customers and potential customers’ needs for customized or enhanced solutions. We also intend to continue to develop vertically oriented solutions to expand our revenue opportunities and further differentiate our service suite. We intend to acquire additional cloud services companies that can further expand our customer base, allow us to introduce additional cloud products and services, and gain scale. Our strategy to organically grow our Business Services revenue includes securing large strategic distribution partners, increasing our direct as well as indirect channel sales efforts, upselling solutions to our existing base and leveraging our management, Board of Directors and shareholder relationship network.
The Future of Gawk
Gawk is pursuing a three-tiered growth strategy: developing specialized solutions for key vertical markets, targeting cloud services companies for acquisition, and accelerating organic growth. Our continuing effort to deliver advanced cloud solutions to companies with more complex requirements is supported by our cloud solutions platform that allows us to rapidly respond to our customers and potential customers’ needs for customized or enhanced solutions. We also intend to continue to develop vertically oriented solutions to expand our revenue opportunities and further differentiate our service suite. We intend to acquire additional cloud services companies that can further expand our customer base, allow us to introduce additional cloud products and services, and gain scale. Our strategy to organically grow our Business Services revenue includes securing large strategic distribution partners, increasing our direct as well as indirect channel sales efforts, upselling solutions to our existing base and leveraging our management, Board of Directors and shareholder relationship network.
Fiscal Year Ended January 31, 2015, Compared to Fiscal Year Ended January 31, 2014
RESULTS OF OPERATIONS
Revenue increased to $167,806 from $1,572 for the years ended January 31, 2015 and 2014, respectively. We changed management and expanded the focus beyond streaming media to also include the business of cloud communications, cloud connectivity, cloud computing, and managed cloud-based applications solutions to small, medium and large businesses.
General and administrative expenses increased to $2,042,906 from $423,950 for the years ended January 31, 2015 and 2014, respectively. The increase in general and administrative expenses are primarily related to the salaries of management of $310,000, consulting expenses of $475,194, marketing expenses of $467,158, publicity and advertising of $314,217, legal expenses of $89,550, accounting expenses of $71,914, travel expenses of $70,927, professional fees of $51,673, computers and internet expenses of $32,169 and other expenses of $160,103.
Research and development costs increased to $605,142 from $328,194 for the years ended January 31, 2015 and 2014, respectively. Our research and development increase is related to updates to our software and development of our software platform.
Related party transactions increased to $401,035 from $129,364 for the years ended January 31, 2015 and 2014, respectively. Our related party transactions increased because of unauthorized withdraws of funds that prior managed disbursed to them as follows:
Related Party Expenses for the years ended January 31, 2015 and 2014:
The above related party expenses are unauthorized withdrawal of expenses for personal expenses and past legal bills of Mars Callahan.
Impairment of assets increased to $0.00 from $622,000 for the years ended January 31, 2015 and 2014, respectively. Our impairment decrease from the impairment of two acquisitions that was impaired because the parties never delivered the content to us in accordance with our agreement (See Note 5 - Rescinded Asset Acquisition).
Interest expense increased to $229,634 from $0.00 for the years ended January 31, 2015 and 2014, respectively. Our interest expenses increase due to the legal settlement with Doyle Knudson.
Unrealized gain (loss) increased to $76,050 from $0.00 for the years ended January 31, 2015 and 2014 respectively. Our unrealized gain (loss) increased due to a decline in share price of our marketable securities as of January 31, 2015 of which the Company still holds those securities and the current market value as of July 17, 2015 is $163,500 versus the booked value of $28,950.
Depreciation expense increased to $14,748 from $0.00 for the years ended January 31, 2015 and 2014, respectively. Our depreciation expenses increase due to the business combination of Webrunner whereas the assets were placed in service and depreciate over a three (3) year period starting November 1, 2014.
Amortization expense increased to $36,749 from $0.00 for the years ended January 31, 2015 and 2014, respectively. Our amortization expenses increase due to the business combination of Webrunner whereas the certain intangible assets were placed in service and amortized over a three (3) year period starting November 1, 2014.
Legal settlement expense increased to $2,550,000 from $0.00 for the years ended January 31, 2015 and 2014, respectively. Our legal settlement increased from the cost of legal expenses related to the settlement with Doyle Knudson.
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 January 31, 2015 of $7,314,538 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 $750,000 to fund our operations. 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) operating activities were ($3,561,240) and ($599,837) for the years ended January 31, 2015 and 2014, respectively. The increase in cash flows provided by operations was primarily attributable to the changes in operating assets and liabilities, the increase in related unauthorized payments and assets from the failure of Mr. Callahan and Mr. Hermansen to deliver the content in accordance with the agreements with Poker Junkies and High Profile Distributions in the year ended January 31, 2014.
Cash flows from investing activities. Cash (used in) investing activities were ($1,159,069) and $0.00 for the years ended January 31, 2015 and 2014, respectively. On June 11, 2014 we entered into a license and subscription agreement with Cipherloc Corp. (CLOK) formerly 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. 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. As of July 21, 2015 the software has not been delivered to the Company, as such the cash paid for the encryption licensing agreement has been accounted as a deposit for $1,125,000. Net cash paid for the acquisition of Webrunners, Inc. was $34,069.
Cash flows from financing activities. Cash provided by financing activities were $3,941,554 and $1,527,988 for the years ended January 31, 2015 and 2014, respectively. We received cash from Doyle Knudson of $3,300,000, received advances from our CEO of $40,000, and proceeds of $699,200 and $1,378,000 from investors for year ended January 31, 2015 and 2014, respectively and proceeds of ($150,000) and $150,000 from subscription payable for year ended January 31, 2015 and 2014, respectively.
The Company has an accumulated deficit at January 31, 2015 of $7,314,538 and needs additional cash to maintain its operations.
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
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 years ended January 31, 2015 and 2014 were $605,142 and $328,194.
Marketable securities and other investments
We classify our investment securities as available-for-sale. Available-for-sale securities are recorded at fair value. Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss) until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. Dividend and interest income are recognized when earned.
Our marketable securities are held as “available-for-sale” pursuant to ASC 320, “Accounting for Certain Investments in Debt and Equity Securities.” We classify these investments as current assets and carry them at fair value. Unrealized gains and losses are recorded as a separate component of stockholders’ equity as accumulated other comprehensive income. We recognize all realized gains and losses on our available-for-sale securities in interest and other income in the accompanying statement of operations. Our marketable securities are maintained at one financial institution and are governed by our investment policy as approved by our Board of Directors.
To date we have not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value. We would recognize an impairment charge when the decline in the estimated fair value of a marketable security below the amortized cost is determined to be other-than-temporary. We consider various factors in determining whether to recognize an impairment charge, including the duration of time and the severity to which the fair value has been less than our amortized cost, any adverse changes in the investees’ financial condition and our intent and ability to hold the marketable security for a period of time sufficient to allow for any anticipated recovery in market value.
We adopted ASC 825, “The Fair Value Option for Financial Assets and Financial Liabilities. Under this statement, an entity may elect to use fair value to measure eligible items. The adoption of this statement did not have an impact on our results of operations or financial condition.
Revenue Recognition
The company pursues opportunities to realize revenues from consulting services. It is the company’s policy that revenues and gains will be recognized in accordance with ASC Topic 605-10-25, “Revenue Recognition.” Under ASC Topic 605-10-25, revenue earning activities are recognized when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
The Company typically is paid in cash or stock. When paid in stock the Company books the stock as Securities Available For Sale. The Company recognizes the revenue based on the current price per share of the stock received at the date the services are complete and prior to completion, interim measurements are taken at each reporting date. At the time the Company sells or otherwise disposes the shares, the company will record any realized gain or loss on the sale of the stock. After a measurement date has been reached for revenue recognition purposes, interim changes in fair value of the stock are reflected in Other Comprehensive Income (Loss) as an unrealized gain (loss).
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 9,100,000 options and no warrants issued by the Company during the year ended January 31, 2015. The 9,100,000 options were issued in accordance with the business combination of Webrunner, LLC, and See Note 8 - Business Combination.
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 January 31, 2015 and 2014, 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.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not hold any derivative instruments and do not engage in any hedging activities.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS
GAWK, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Gawk, Inc.
Los Angeles, California
We have audited the accompanying consolidated balance sheets of Gawk, Inc. and its subsidiaries (collectively, the “Company”) as of January 31, 2015 and 2014, and the related consolidated statements of operations and other comprehensive income(loss), stockholders’ equity, and cash flows for the years then ended. Gawk, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Gawk, Inc. and its subsidiaries as of January 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Malone Bailey LLP
Malone Bailey LLP
www.malonebailey.com
Houston, Texas
July 22, 2015
GAWK INCORPORATED
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
GAWK INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
The accompanying notes are an integral part of these consolidated financial statements.
GAWK INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JANUARY 31, 2015, AND 2014
The accompanying notes are an integral part of these consolidated financial statements.
GAWK INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these consolidated financial statements.
GAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2015 AND
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. Gawk is focused on becoming our business customers’ single source for leveraging the increasing power of the cloud, providing essential services that form the foundation for successful migration to, and efficient use of, the cloud. Our cloud computing and Infrastructure as a Service (“IaaS”) solutions are designed to provide our customers with a platform on which additional cloud services can be layered. Complemented by Software as a Service (“SaaS”) solutions such as storage, security and business continuity, our advanced cloud offerings allow our customers to experience the increased efficiencies and agility delivered by the cloud. Gawk's cloud-based services are flexible, scalable and rapidly deployed, reducing our customers’ cost of ownership while increasing their productivity.
NOTE 2 - BASIS OF PRESENTATION
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net revenues and expenses recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates.
In managements’ opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
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 an accumulated deficit at January 31, 2015 of $7,314,538 and net loss for year-end January 31, 2015 of $5,787,631 and needs additional cash to maintain its operations.
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.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are as follows:
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net revenues and expenses recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates. The Company’s most significant estimates relate to the valuation of its proprietary technology and the valuation of its common stock.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. We currently have no investments accounted for using the equity or cost methods of accounting.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At January 31, 2015 and 2014, cash and cash equivalents include cash on hand and cash in the bank. The FDIC insures these deposits up to $250,000.
Goodwill and Other Intangible Assets
We account for goodwill and intangible assets in accordance with ASC 350 "Intangibles-Goodwill and Other" ("ASC 350"). ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. In addition, ASC 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units; assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or goodwill impairment at future reporting dates.
We completed an evaluation of goodwill at January 31, 2015 and determined that there was no impairment. We employed a qualitative evaluation for the 2015 analyses.
We have acquired brands that have been determined to have indefinite lives due to the nature of our business. We evaluate a number of factors to determine whether an indefinite life is appropriate, including the competitive environment, market share, brand history, product life cycles, operating plans and the macroeconomic environment of the countries in which the brands are sold. When certain events or changes in operating conditions occur, an impairment assessment is performed and indefinite-lived brands may be adjusted to a determinable life.
The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Patents, technology and other intangibles with contractual terms are generally amortized over their respective legal or contractual lives. Customer relationships, brands and other non-contractual intangible assets with determinable lives are amortized over periods 3 years. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.
Long-Lived Assets
Long-lived assets are evaluated for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted future cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost reduced by accumulated depreciation. Depreciation expense is recognized over the assets’ estimated useful lives using the straight-line method. Machinery and equipment includes office furniture and fixtures (15-year life), computer equipment and capitalized software (3- to 5-year lives) and manufacturing equipment (3- to 20-year lives). Buildings are depreciated over an estimated useful life of 40 years. Estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively. When certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts.
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. As of January 31, 2015 and 2014, the Company had no valuation allowance for the Company’s accounts receivable.
Marketable securities and other investments
We classify our investment securities as available-for-sale. Available-for-sale securities are recorded at fair value. Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss) until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. Dividend and interest income are recognized when earned.
Our marketable securities are held as “available-for-sale” pursuant to ASC 320, “Accounting for Certain Investments in Debt and Equity Securities.” We classify these investments as current assets and carry them at fair value. Unrealized gains and losses are recorded as a separate component of stockholders’ equity as accumulated other comprehensive income. We recognize all realized gains and losses on our available-for-sale securities in interest and other income in the accompanying statement of operations. Our marketable securities are maintained at one financial institution and are governed by our investment policy as approved by our Board of Directors.
To date we have not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value. We would recognize an impairment charge when the decline in the estimated fair value of a marketable security below the amortized cost is determined to be other-than-temporary. We consider various factors in determining whether to recognize an impairment charge, including the duration of time and the severity to which the fair value has been less than our amortized cost, any adverse changes in the investees’ financial condition and our intent and ability to hold the marketable security for a period of time sufficient to allow for any anticipated recovery in market value.
We adopted ASC 825, “The Fair Value Option for Financial Assets and Financial Liabilities. Under this statement, an entity may elect to use fair value to measure eligible items. The adoption of this statement did not have an impact on our results of operations or financial condition.
Revenue Recognition
The company pursues opportunities to realize revenues from consulting services. It is the company’s policy that revenues and gains will be recognized in accordance with ASC Topic 605-10-25, “Revenue Recognition.” Under ASC Topic 605-10-25, revenue earning activities are recognized when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
The Company typically is paid in cash or stock. When paid in stock the Company books the stock as Securities Available For Sale. The Company recognizes the revenue based on the current price per share of the stock received at the date the services are complete and prior to completion, interim measurements are taken at each reporting date. At the time the Company sells or otherwise disposes the shares, the company will record any realized gain or loss on the sale of the stock. After a measurement date has been reached for revenue recognition purposes, interim changes in fair value of the stock are reflected in Other Comprehensive Income (Loss) as an unrealized gain (loss).
Income Taxes
The Company utilizes the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carry-forwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that the value of such assets will be realized.
The Company uses the two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments. At January 31, 2015, the Company did not record any liabilities for uncertain tax positions.
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 years ended January 31, 2015 and 2014 were $605,142 and $328,194, 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 9,100,000 options and no warrants issued by the Company during the years ended January 31, 2015 and 2014. The 9,100,000 options were issued in accordance with the business combination of Webrunner, LLC, and See Note 8 - Business Combination.
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. There were 9,100,000 options, a convertible note for $1,800,000 secured by 18,000,000 shares of common stock and no warrants issued by the Company during the years ended January 31, 2015 and 2014.
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.
Concentration of Credit Risk
All of the Company’s cash and cash equivalents are maintained in regional and national financial institutions. The Company has exposure to credit risk to the extent that its cash and cash equivalents exceed amounts covered by the U.S. federal deposit insurance; however, the Company has not experienced any losses in such accounts. In management’s opinion, the capitalization and operating history of the financial institutions are such that the likelihood of material loss is remote.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, accounts payable and accrued expenses, and debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.
The Company adopted ASC Topic 820, Fair Value Measurements (“ASC Topic 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent definition of fair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.
The three-level hierarchy for fair value measurements is defined as follows:
●
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; liabilities in active markets;
●
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active; or directly or indirectly including inputs in markets that are not considered to be active;
●
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement
The following table summarizes fair value measurements by level at January 31, 2015 and January 31, 2014 for assets measured at fair value on a recurring basis:
Carrying Value at January 31, 2015
Carrying Value at January 31, 2014
Recent Accounting Pronouncements
No accounting standards or interpretations issued recently are expected to a have a material impact on the Company’s financial position, operations or cash flows.
NOTE 5 - RESCINDED ASSET ACQUISITIONS
The following is a detail of software at January 31, 2015 and 2014:
Poker Junkies Production LLC
On November 14, 2013, Gawk Incorporated (the “Purchaser”), and Poker Junkies Production, LLC (the “Seller”) closed on an Asset Purchase Agreement, dated November 14, 2013 (the “Asset Purchase Agreement”), whereby the Purchaser purchased from the Seller, all rights, title and interest in and to the motion picture currently entitled “Poker Junkies”, together with all other literary material and other intellectual property relating thereto in consideration in exchange for the Purchaser’s issuance to the Seller of 20 Series C Preferred Shares representing $20,000,000 worth of the Company’s Common Stock upon conversion in accordance with the Company’s Amended and Restated Articles of Incorporation and its Certificate of Designation of Rights, Privileges, Preferences and Restrictions of Series C Convertible Preferred Stock (the “Issued Shares”), and a Warrant to purchase 8,000,000 of the Company’s Series B Preferred Shares (the “Warrant Shares”). The Warrants were valued at $0.00 by and independent third party Certified Valuation Analyst.
On December 30, 2013, the Board of Gawk Incorporated (the “Company”) modified Section 2 of the Warrant Agreement dated November 14, 2013, by extending the exercise deadline entitling Poker Junkies, LLC to purchase from the Company 8,000,000 shares of Series B Preferred Stock from December 31, 2013 until the new date of June 30, 2014.
In connection with the Stock Purchase, the company has continued its focus on the business of online distribution of all digital content.
On June 18, 2014 the Company rescinded this transaction because Mr. John Hermansen failed to deliver the assets that were purchased therefore the Company impaired the entire asset.
High Profile Distribution LLC
On December 31, 2013, Gawk Incorporated (the “Purchaser”), and High Profile Distribution, LLC (the “Seller”) closed on an Asset Purchase Agreement, dated December 31, 2013 (the “Asset Purchase Agreement”), whereby the Purchaser purchased from the Seller, all rights, title and interest in and to the television series currently entitled “House Game”, together with all other literary material and other intellectual property relating thereto in consideration in exchange for the Purchaser’s issuance to the Seller of 18 Series C Preferred Shares representing $18,000,000 worth of the Company’s Common Stock upon conversion in accordance with the Company’s Amended and Restated Articles of Incorporation and its Certificate of Designation of Rights, Privileges, Preferences and Restrictions of Series C Convertible Preferred Stock (the “Issued Shares”).
In connection with the Stock Purchase, the company has continued its focus on the business of online distribution of all digital content.
On June 18, 2014 the Company rescinded this transaction because Mr. Mars Callahan failed to deliver the assets that were purchased therefore the Company impaired the entire asset.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Rent expense for the years ended January 31, 2015 and 2014 was $19,311 and $360, respectively.
NOTE 7 - 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 with par value of $150,000 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.
As of year ended January 31, 2015 and 2014, the current CEO had unpaid salaries of $136,500 and $100,000, respectively.
During the years ended January 31, 2015 and 2014, the CEO advanced the Company cash of $52,354 and $26,537, respectively. In addition, during the year ended January 31, 2014 the Company repaid the prior CEO $26,537 As of January 31, 2015 and 2014, the amount owed to the prior CEO for advances was $52,354 and $0, respectively.
Related Party Expenses for the years ended January 31, 2015 and 2014:
The above related party expenses are unauthorized withdrawal of expenses for personal expenses and past legal bills of Mars Callahan and John Hermansen.
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 8 - BUSINESS COMBINATION
October 30, 2014 the Company through a comprehensive agreement with Webrunner, LLC, has purchased a complete data center.
The fair value of the consideration and the assets acquired is based on the aggregate value of the common stock issued in exchange for the software as shown below:
The acquisition consisted primarily of the purchase of a data center and all of its business, which are considered to meet the definition of a business in accordance with FASB codification Topic 805, "Business Combinations", As such, the Company accounted for the acquisition as a business combination.
Management determined that the Company was the acquirer in the business combination in accordance with FASB codification Topic 805, "Business Combinations", based on the following factors: (i) there was a change in control of Webrunner; (ii) the Company was the entity in the transaction that issued its equity instruments, and in a business combination, the acquirer usually is the entity that issues its equity interests; (iii) the Company’s pre-transaction directors retained the largest relative voting rights of the Company post-transaction; (iv) the composition of the Company’s current board of directors and management was the result of the appointment by the Company’s pre-transaction directors.
The purchase price paid for the Acquisition was $2,104,932 which included $225,000 in cash, 1 Preferred Series C shares convertible into $1,000,000 of common stock and 9,100,000 options to purchase stock at an exercise price of $0.10 value at $879,932 using the Black Scholes option pricing model. In the Black Scholes option model prepared by the company to value the 9,100,000 options issued to Webrunner, Inc, the company used 333 consecutive daily stock price observations from October 11, 2013 through January 30, 2015, to compute a Volatility factor of 268% and a Cumulative Volatility factor of 599.66%. The stock price on the Measurement (Issuance) Date was $0.0978, and the strike price on the options is $0.10. The options have a five (5) year exercise life. Accordingly, the value was computed as $879,932. The following table summarizes the fair value of the consideration paid by the Company and the fair value amounts assigned to the assets acquired on the acquisition date:
Webrunner, Inc. assets includes IP Address space assigned to it through American Registry for Internet Numbers (ARIN) which consists of a /19, pronounced “Slash Nineteen”, which contains 8192 IP Addresses that are used in conjunction with our services provided to our customers.
An Internet Protocol address (IP address) is a numerical label assigned to each device (e.g., computer, printer) participating in a computer network that uses the Internet Protocol for communication. An IP address serves two principal functions: host or network interface identification and location addressing.
The designers of the Internet Protocol defined an IP address as a 32-bit number and this system, known as Internet Protocol Version 4 (IPv4), is still in use today. However, because of the growth of the Internet and the predicted depletion of available addresses, a new version of IP (IPv6), using 128 bits for the address, was developed in 1995. IPv6 was standardized as RFC 2460 in 1998, and its deployment has been ongoing since the mid-2000s.
IP addresses are usually written and displayed in human-readable notations, such as 172.16.254.1 (IPv4), and 2001:db8:0:1234:0:567:8:1 (IPv6).
The Internet Assigned Numbers Authority (IANA) manages the IP address space allocations globally and delegates five regional Internet registries (RIRs) to allocate IP address blocks to local Internet registries (Internet service providers) and other entities.
The expected of the Equipment, IP Addresses and Customer List is 3 years of which we will be applying both amortization and depreciation on a quarterly basis in a straight line format.
The comprehensive agreement call for the implementation of three employment agreement and three management agreements for the members of Webrunner LLC. The Company has not adopted an employee stock option plan which has been approved by the shareholders.
The following (unaudited) Proforma consolidated results of operations have been prepared as if the acquisition had occurred at February 1, 2013 and 2014.
NOTE 9 - PROPRIETARY TECHNOLOGY AND INTANGIBLES
On October 30, 2014 we entered into a business combination agreement with Webrunner, LLC for $2,104,932 which included the purchase of intangible and tangible assets of $440,987. See Note 8 - Business Combination.
The following is a detail of intangible assets at January 31, 2015 and January 31, 2014:
There was amortization expense for the fourth quarter of $36,749 as the assets were placed in service by the Company.
NOTE 10 - PROPERTY PLANT AND EQUIPMENT
On October 30, 2014 we entered into a business combination agreement with Webrunner, LLC for $2,104,932 which included the purchase of tangible assets of $176,975. See Note 8 - Business Combination.
The following is a detail of tangible assets at January 31, 2015 and January 31, 2014:
NOTE 11 - MARKETABLE SECURITIES
On September 4, 2014 Cloud issued 3,000,000 common shares through a consulting agreement with Gawk, Inc. valued at $105,000 at the trading price of $.035 per share and the common stock issued to Gawk for consulting has been accounted as a marketable securities valued at $105,000. The services have been earned and completed in accordance with the agreement.
The Company fair valued the marketable security available for sale at January 31, 2015 and recorded a loss on change in fair value of the asset of $76,050 Total available security available for sale at January 31, 2015 is $28,950.
NOTE 12 - LICENSING AGREEMENT / DEPOSIT
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. 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. As of July 20, 2015 the software has not been delivered to the Company, as such the cash paid for the encryption licensing agreement has been accounted as a deposit for $1,125,000.
NOTE 13 - EQUITY
In October 2013, the Company issued 2,000,000 shares of common stock for services valued at the trading price of the stock at $40,000.
On December 19, 2013 the Company entered into a Stock Purchase Agreement for $100,000 with GWH Revocable Trust for 100,000 Preferred Series B Stock. As of January 31, 2014 this has been accounted for as an investor payable.
On January 23, 2014 the Company entered into a Stock Purchase Agreement for $250,000 with James E. McCrink Trust for 250,000 Preferred Series B Stock. As of January 31, 2014 this has been accounted for as an investor payable.
On November 14, 2013 the Company issued 20 Series C Preferred Stock for the purchase of the assets of Poker Junkies, LLC. On June 18, 2014 the Company rescinded this transaction for the failure of Mr. Hermansen to deliver the assets purchased (See Note 5 - Rescinded Asset Acquisition).
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 (See Note 5 - Rescinded Asset Acquisition).
On November 11, 2013, the Board of Directors of the Company approved a proposal to amend the Company’s 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 and Six Hundred Fifty Million (650,000,000) shares are designated $.001 common stock.
On November 14, 2013, the Company 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.
1) Series B Convertible Preferred Stock, consisting of Fifty Million (50,000,000) shares, with certain rights, privileges, preferences and restrictions as set forth in the Series B Preferred Stock Certificate of Designation; and
2) Series C Convertible Preferred Stock, consisting of One Hundred (100) shares, with certain rights, privileges, preferences and restrictions as set forth in Series C Preferred Stock Certificate of Designation.
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 and was repaid in the nine months ended October 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. During the year ended January 31, 2015, the Company issued 9,232,000 shares of common stock valued at the trading prices of $0.10 for value of $923,200 for conversion from Preferred B. As of October 31, 2014 the Company has accounted for as an investor payable in the amount of $1,154,000.
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 with par value of $150,000 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.
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").
On November 4, 2014 a verified complaint was filed in Clark County, Nevada being case number A-14-709328-C against the Company by an investor known as James McCrink on behalf of the James E. McCrink Trust. The company and James E McCrink Trust reached a settlement on January 19, 2015 and issued 2,700,000 shares of common stock at a fair market value of $54,000 on February 17, 2015 in accordance with the settlement agreement.
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.
Amendment to Articles of Incorporation or Bylaws
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 with par value of $150,000 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.
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 in exchange for surrender of 150,000 shares of common 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.
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.
The Company has 9,100,000 options issued in connection with the acquisition of Webrunner, LLC, and See Note 8 - Business Combination.
Fiscal Year Ending January 31, 2015 to the date of Filing
In March 2015, the Company issued 9,000,000 shares of common stock for services valued at the trading price of the stock at $36,000 to its board members for services rendered.
Fiscal Year Ended January 31, 2015
During the year ended January 31, 2015, the Company issued 9,232,000 shares of common stock valued at the trading prices of $0.10 for value of $923,200 for conversion from Preferred B and 500,000 shares of common stock valued at the trading price of $0.10 for value of $50,000 for services rendered.
The CEO contributed $40,000 and the Company recorded it as Additional Paid in Capital.
NOTE 14 - INCOME TAXES
The provision (benefit) for income taxes from continued operations for the years ended January 31, 2015 and 2014 consist of the following:
The difference between income tax expense computed by applying the federal statutory corporate tax rate and actual income tax expense is as follows:
Deferred income taxes result from temporary differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes. The tax effect of these temporary differences representing deferred tax asset and liabilities result principally from the following:
Deferred income taxes result from temporary differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes. The Company has a net operating loss carryforward of approximately $6,380,721 available to offset future taxable income through 2034. For income tax reporting purposes, the Company’s aggregate unused net operating losses are subject to limitations of Section 382 of the Internal Revenue Code, as amended. Under the Tax Reform Act of 1986, the benefits from net operating losses carried forward may be impaired or limited on certain circumstances. Events which may cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. The consolidation of any limitations that may be imposed for future issuances of equity securities, including issuances with respect to acquisitions have not been determined. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, because in the opinion of management based upon the earning history of the Company; it is more likely than not that the benefits will not be realized.
For the years ended January 31, 2015 and 2014, the difference between the amounts of income tax expense or benefit that would result from applying the statutory rates to pretax income to the reported income tax expense of $0 is the result of the net operation loss carryforward and the related valuation allowance.
The Company anticipates it will continue to record a valuation allowance against the losses of certain jurisdictions, primarily federal and state, until such time as it is able to determine it is “more-likely-than-not” the deferred tax asset will be realized. Such position is dependent on whether there will be sufficient future taxable income to realize such deferred tax assets. The Company’s effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to federal, state or foreign tax laws, future expansion into areas with varying country, state, and local income tax rates, deductibility of certain costs and expenses by jurisdiction.
NOTE 15 - CONVERTIBLE NOTES PAYABLE
The Company had the following convertible notes payable outstanding as of January 31, 2015 and January 31, 2014:
Note C-1: 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. The total value of the legal settlement was $2,550,000.
Mr. Knudson has filed a Stipulation to Dismiss the Lawsuit with prejudice.
The Company recorded a discount on the convertible note payable due to a beneficial conversion feature of $358,200 and amortized $149,250 for the year ended January 31, 2015.
NOTE 16 - NOTES PAYABLE
Note D-1: On October 30, 2014 the Company exercised the comprehensive acquisition agreement of Webrunner, LLC and in the acquisition the Company assumed the debt of RNC Media in the amount of $10,000. The Note does not have any interest payable and is due upon demand.
NOTE 17 - MAJOR CUSTOMERS
Prior to the Company’s acquisition of Webrunners, Inc. and subsequent asset purchase of Net D Consulting, Inc. the Company’s primary source of income came in the form of performing consulting services of which it relied on one major customer, ”Customer 1”, for its source of income. Since the acquisition of Webrunner and the subsequent asset acquisition of Net D the Company has diversified its source of revenue to not have a dependence on any one customer. Webrunners has one customer, “Customer 2”, which at filing date represents 12% of its revenue. No other customers are in excess of 10% of total revenues.
NOTE 18 - SUBSEQUENT EVENTS
On March 4, 2015 the Company issued 2,060,000 in converting warrant purchaser shares.
On February 13, 2015 the Company issued 4,587,156 shares for legal services rendered.
On February 3, 2015 the Company entered into a consulting agreement with Stoneridge, Inc. for $250,000 to provide services for capital market advisory and financing services.
On March 23, 2015 the Company issued 9,000,000 shares with 3,000,000 shares going to each board member as compensation for serving on the board.
On April 30, 2015 the Company entered into an asset purchase agreement with Net D Consulting, Inc. of which the Company is currently in default under the terms of the agreement but has received a waiver of time in order to complete the asset purchase.
On May 7, 2015 the Company entered into an Equity Purchase agreement with Tarpon Bay Partners, LLC for $5,000,000 USD.
ITEM 9.
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, regulations and related forms, and that such information is accumulated and communicated to our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As of January 31, 2015, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and our principal financial officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.
Management's Report on Internal Control Over Financial Reporting
Our management is also responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that;
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; and
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
That our receipts and expenditures are being made only in accordance with authorizations of the Company's management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
As of January 31, 2015, our management conducted an assessment of the effectiveness of the Company's internal control over financial reporting. In making this assessment, management followed an approach based on the framework in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management has determined that the Company's internal control over financial reporting were ineffective as of January 31, 2015.
Management has identified two material weaknesses and is taking action to remedy and remove the weakness in its internal controls over financial reporting:
●Lack of an independent board of directors, including an independent financial expert. The current board of directors is evaluating expanding the board of directors to include additional independent directors. The current board is composed of two (2) members and may be expanded to as many as seven members under the Company’s Articles of Incorporation and By-Laws.
●Lack of segregation of duties and adequate documentation of our internal controls.
●The inability of the Company to prepare and file its financial statements timely due to its limited financial and personnel resources and delays in the Company’s ability to respond to SEC inquiries regarding financial and accounting presentation. Further, the Company is delinquent in filings for fiscal year ended January 31, 2015 and quarter ended April 30, 2015. The Company also lacks segregation of duties and adequate documentation of our system of internal controls. The Company has implemented controls that the CEO would approve all transactions and the CFO would record and report these transactions which would implement segregation of duties weakness.
●This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
●Changes in internal control over financial reporting
●There were no changes in our internal control over financial reporting that occurred during the year ended January 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
●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.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks.
This annual report does not include a standard internal control report by the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to current rules of the SEC that permit the Company, as a smaller reporting company, to provide only management’s report in this annual report.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
There are no events required to be disclosed by the Item. The registrant must disclose under this item any information required to be disclosed in a report on Form 8-K during the fourth quarter of the year covered by this Form 10-K, but not reported, whether or not otherwise required by this Form 10-K. If disclosure of such information is made under this item, it need not be repeated in a report on Form 8-K which would otherwise be required to be filed with respect to such information or in a subsequent report on Form 10-K.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Director and Executive Officer
Set forth below is information regarding the Company’s current directors and executive officers. There are no family relationships between any of our directors or executive officers. The directors are elected annually by stockholders. The executive officers serve at the pleasure of the Board of Directors.
The chief executive officer and director and officer of the Company will hold office until additional members or officers are duly elected and qualified. The background and principal occupations of the officers and directors of the Company is as follows:
Scott Kettle - Chief Executive Officer, Chief Information Officer, Chairman, President
Mr. Kettle, age 47, is the founder of a series of successful family-owned and operated public companies in the telephony and telecommunications industry in the wake of the government-mandated break-up of AT&T’s monopoly some 25 years ago. Beginning with Thrifty-Tel (TTEL) in partnership with his father William Kettle, a steeply discounted provider of long-distance telephone service and pioneer of Flat Rate Communications, Kettle moved on to the wholesale sector serving as CIO for Five Star Telecom from 1994 to 1999. In 1998, Mr. Kettle founded and served as President and CEO of Tele Com Specialists, Inc. a software company. Kettle moved into the emerging DSL area, founding SpeeDsl, Inc.
Mr. Kettle’s extensive public company experience and more than twenty-five years of executive management give him the qualifications and skills to serve as a senior executive for the Gawk team
Ryan Wyler - Previous Chief Technology Officer, Director, and Secretary
Ryan Wyler, in 2001, Ryan created several automated deployment strategies for American Express. In 2004, American Express outsourced their technologies department to IBM Global Services. Impressed with Ryan’s work at Amex, IBM then commissioned Wyler to further develop technologies called “VSA” (Virtual Systems Admin) to manage and automate the key infrastructure of many of its customers including Nissan, Honeywell, Johnson & Johnson, American Express, and many more. Returning to American Express in 2011 as a lead technical architect,
Chris Hall - Director
Chris Hall is a noted VoIP Networking Leader. Chris has been designing, deploying and operating VOIP networks since 1998 and has been in telecommunications since his initial four year entry to the industry with AT&T (Pacific Telephone) beginning in 1978. He has been a serial entrepreneur for the last twenty years, starting up or advancing many telecom companies to the point where they could be sold to larger (often public) firms.
Global deregulation of telecoms and the development of VOIP technology combined to give Chris the opportunity to apply his USC undergraduate degree in International Relations and his UCLA M.B.A. in Finance to start building wholesale international simple resale (ISR) routes in 1998, he built and operated routes under FCC Section 214 license to every region of the world - a total of 15 countries, including: Costa Rica, Jamaica, Mexico, Vietnam, China, Thailand, Philippines, Japan, India, Bangladesh, Egypt, Ghana, Netherlands, the United Kingdom and most recently Panama, Uruguay and Argentina. In most cases, he visited each of these countries personally (more than once), and became familiar with the local business practices and import/export requirements. He returned with more than just "routes" and extra passport pages as he collected children’s dolls, in native costume, from each country for his youngest daughter - giving her the best doll collection in the neighborhood.
During this time Chris became operationally qualified on Cisco, Excel and Nuera equipment, building on top of his degree in Data Communications Engineering, as well as mastering telecom billing applications software and advanced database programs (like MS Sequel). With a staff of three people, he did most of the operational work, and sub-contracted out as required. Chris also did much of the sales, and is well known amongst the international wholesale community.
The proliferation of Competitive Local Exchange Carriers (CLEC's) made possible by the 1996 Telecom Act, the declining cost of VOIP equipment and the availability of next generation Session Border Controllers (SBC's) like Nextone and Sansay gave Chris a new challenge and opportunity in 2003 - to apply his VOIP expertise to the domestic (USA) market, this time building on his AT&T experience. This meant less travel and more stability. He built a profitable 30 million minute per month carrier with a capital investment of less than $350,000, annualized revenue reached over $3.5M from scratch in a short two year period, while still preserving his operational & sales involvement. Chris is operationally well qualified on OpenSIPS, Nextone and Sansay Session Border Controllers (aka Softswitches) and is well known to most major and minor wholesale carriers in the USA and many abroad.
Chris is a recognized VOIP industry leader, he has spoken at several trade shows and conferences such as Comptel, VON and Intelecard, and is a member of several industry associations, including Comptel, the Pacific Telecommunications Council and the West Coast Carrier Forum.
Michael Selsman - Director and Secretary
Michael Selsman has been an executive with 20th Century-Fox, Paramount, MGM, Samuel Goldwyn, Jr., at Goldwyn Studios, and Universal. He was also a talent agent, representing Judy Garland, Marilyn Monroe, Peter Sellers, Marlene Dietrich, Henry, Jane, and Peter Fonda, Mervyn LeRoy, James Stewart, Lawrence Harvey, Rock Hudson, James Mason, James Garner, Alan Arkin, and Robert Redford, as well as authors Truman Capote and Roald Dahl, among others. He also worked with Bing Crosby Productions on "Ben Casey", "Medic", "Slattery's People" and "Hogan's Heroes".
As a film producer, he associate-produced “Gotcha,” distributed by Universal, co-developed 18 motion picture projects at MGM, facilitated production of the feature film "Dirty Little Billy,” for Columbia Pictures, and was involved in developing "Bury My Heart at Wounded Knee," by Dee Brown, 'World Without End, Amen," by Jimmy Breslin, "I, Robot," by Issac Asimov, “RFK Must Die,” and "The Fortunate Pilgrim," by Mario Puzo. He also co- or line-produced films made in Berlin, Spain, Arizona, Florida, Montana, Wyoming, Texas and Arkansas. With Orson Welles, he developed “RFK Must Die,” a film project about the assassination of Robert Kennedy. He has written screenplays for Hemdale Pictures, MGM, Robert Halmi Production, New World Pictures, and others.
He is considered an expert source on international entertainment and has been quoted in such publications as Time, Newsweek, TV Guide, and in various newspapers and books on the subjects of contracts and changing mores and social values in the media and commenting on Hollywood studio history,. He has also appeared on national and international television programs, such as ABC-TV’s “The Dark Side of Camelot,” hosted by the late Peter Jennings, “Current Affair,” on Fox-TV, “Hard Copy,” for CBS-TV, “Marilyn: Contre-Enquette Sur Une Mort Suspect,” one-hour investigative program for French TV, “The Final Day,” one-hour investigative program for London’s Channel 4, and, most recently, filmed a segment for CBS News’ “48 Hours.”
He also served US Senator Dianne Feinstein as Deputy State Finance Director for her initial Senatorial campaign. He was recently in an advisory capacity for Marianne Williamson in her campaign for the 33rd Congressional District, and is advising Heidi Shink in her campaign for City Council, West Hollywood.
Serving for five years as Chairman of the Public Relations Committee and on the Foundation Board of Directors of St. Vincent Medical Center, Los Angeles, Selsman created and edited a quarterly, leading-edge journal, Medical-Science News.
Selsman has represented and worked with Neah Power Systems (NPWZ), where he was also a member of the Board of Directors; Buzz Technologies, Inc. (BZTG), Archer Entertainment Media Communications, Inc. (AEMC), where he also functioned as CEO; Advanced Technetix (AKYI), The Sinclair Private Fund, Signal Capital Hedge Fund, Applied DNA Sciences, Inc. (APDN), Herman Miller Workplace Resource, Inc., BKM Total Office, Investprivate.com, Alpha Spacecom, Inc. (ASPC) Creditz, Inc. (CEOA), Innovative Marketing, Inc. (INOV), Advanced Recycling (ARYC), Color Imaging, Inc.(CIMG), Electropure (ELTP), XO Communications (XOXO), Gene Cell (GCLL), Precom Technology (PMMT), Cyper Media (CYPR), Los Angeles Stars ABA franchise, Travel Dynamics (TDMN), Brilliant Digital Entertainment, Koo Koo Roo, American Technology Group, Texas Capital, Securities America, Newport West Financial, 20th Century-Fox, MGM, Donald T. Sterling Corporation, Los Angeles Clippers NBA franchise, and Fred Sands Realtors, among others.
He has guest-lectured at schools and universities such as UCLA, USC, Pepperdine, Westlake, Mount St. Mary's and Loyola, and has been quoted in Time, Newsweek, TV Guide and various books and newspapers, on contracts and changing social mores and values in the media. He has also appeared on national and European network television programs commenting on Hollywood studio history.
PREVIOUS OFFICERS AND DIRECTORS
Mars Callahan - Previous Chief Executive Officer, President and Director
Mars Callahan was involved in the filming making of The Red Bag, and Double Down starring Jason Priestly and Richard Portnow. Then came PoolHall Junkies starring Christopher Walken, Chazz Palminteri, Rod Steiger and Mars Callahan in the lead role of Johnny Doyle.
Mr. Callahan was removed as an Officer and Director of the Company for failing to disclose his Cease and Desist for securities fraud from the State of California as follows:
On January 9, 2012 The People of the State of California through the California Corporation issued a Judgment of Permanent Injunction, Civil Penalties and Ancillary Relief in Support of Stipulation Case No BC453611 in the Superior Court of California. The Injunction was issued against DEFENDANTS Big Sky Motion Pictures, L.L.C., Spring Break ’83 Production, L.L.C., Spring Break ’83 Distribution, L.L.C., Spring Break ’83, Rand Jay Chortkoff and each of them, and their officers, directors, successors in interest, agents, employees, attorneys in fact, and all persons acting in concert or participating with them, shall be and are hereby permanently enjoined from engaging in, committing, aiding and abetting, or performing directly or indirectly, by any means whatsoever, from (1) violating Corporation Code Section 25401 - offering for sale of securities by means of written or oral communications which includes any untrue statements of material fact or fails to state material facts (2) Corporation Code 25110 - offering to sell offering the sale of securities unless such security or transaction is qualified or exempted qualification (3) violating the Desist and Refrain Order issued by the Commissioner by offering and selling unqualified, non-exempt securities (4) destroying any records for a period of (3) years. Mr. Mars Callahan was the Chief Executive Officer, Director and owner of Big Sky Motion Pictures, L.L.C., Spring Break ’83 Production, L.L.C., Spring Break ’83 Distribution, L.L.C., Spring Break ’83, during which time this Permanent Injunction to be issued.
John Hermansen - Previous Chief Content Officer and Director
Mr. Hermansen was removed as an Officer and Director of the Company for failing to disclose his Cease and Desist for securities fraud from the State of Colorado as follows:
On February 15, 2011 The State of Colorado issued a Consent Cease and Desist Order concerning Poker Junkies Production LLC, Abundance Entertainment, LLC and John Hermansen Case No XY 11-CD-008. The Defendants were herby and permanently ordered to cease and desist from engaging in (1) Offering to sell or selling unregistered securities in or from the State of Colorado in violation of §11-51-301, C.R.S; (2) Offering to sell or selling any securities in or from the State of Colorado unless Respondents are in compliance with the provisions of §§ 11-51-301, 401, and 501 C.R.S. or (3) Otherwise engaging in conduct in violation of any provision of the CSA, §§11-51-101, et. Seq., C.R.S.
Audit Committee Financial Expert
The Company does not have an audit committee or a compensation committee of its board of directors. In addition, the Company’s board of directors has determined that the Company does not have an audit committee financial expert serving on the board. When the Company develops its operations, it will create an audit and a compensation committee and will seek an audit committee financial expert for its board and audit committee.
Conflicts of Interest
Members of our management are associated with other firms involved in a range of business activities. Consequently, there are potential inherent conflicts of interest in their acting as officers and directors of our company. Although the officers and directors are engaged in other business activities, we anticipate they will devote an important amount of time to our affairs.
Our officers and directors are now and may in the future become shareholders, officers or directors of other companies, which may be formed for the purpose of engaging in business activities similar to ours. Accordingly, additional direct conflicts of interest may arise in the future with respect to such individuals acting on behalf of us or other entities. Moreover, additional conflicts of interest may arise with respect to opportunities which come to the attention of such individuals in the performance of their duties or otherwise. Currently, we do not have a right of first refusal pertaining to opportunities that come to their attention and may relate to our business operations.
Our officers and directors are, so long as they are our officers or directors, subject to the restriction that all opportunities contemplated by our plan of operation which come to their attention, either in the performance of their duties or in any other manner, will be considered opportunities of, and be made available to us and the companies that they are affiliated with on an equal basis. A breach of this requirement will be a breach of the fiduciary duties of the officer or director. If we or the companies with which the officers and directors are affiliated both desire to take advantage of an opportunity, then said officers and directors would abstain from negotiating and voting upon the opportunity. However, all directors may still individually take advantage of opportunities if we should decline to do so. Except as set forth above, we have not adopted any other conflict of interest policy with respect to such transactions.
Compliance with Section 16(A) Of the Exchange Act 9.A. Directors and Executive Officers, Promoters, and Control Persons:
As of January 31, 2015, the Company is aware that all filings of Form 4 and 5 required of Section 16(a) of the Exchange Act of Directors, Officers or holders of 10% of the Company's prior management and board of directors have not filed the requirements timely. Current management needs to file Form 5 for the issuance of common shares.
Code of Ethics
We have adopted a code of ethics that applies to all of our executive officers, directors and employees. Code of ethics codifies the business and ethical principles that govern all aspects of our business as Exhibit 14.1 to the Annual Report on Form 10-K attached hereto.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Executive Officers and Directors
Summary Compensation Table
The following tables set forth certain information concerning all compensation paid, earned or accrued for service by (i) our Principal Executive Officer and Principal Financial Officer and (ii) all other executive officers who earned in excess of $100,000 in the fiscal years ended January 31, 2015 and 2014, and each of the other two most highly compensated executive officers of the Company who served in such capacity at the end of the fiscal year whose total salary and bonus exceeded $100,000 (collectively, the “Named Executive Officer”):
and 2014 SUMMARY COMPENSATION TABLE
and 2014 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
Compensation of Directors
Our current compensation policy for directors is to compensate them through options to purchase common stock or through common stock as consideration for their joining our board and/or providing continued services as a director. We do not currently provide our directors with cash compensation, although we do reimburse their expenses, with exception for a chairman of the board. No additional amounts are payable to the Company’s directors for committee participation or special assignments. There are no other arrangements pursuant to which any directors was compensated during the Company’s last completed fiscal year for any service provided except as follows:
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.
Additional Compensation. The Employee shall be entitled to receive an annual bonus no less than Two Percent (2%) of Adjusted Gross Sales. For the purpose of this Agreement, Adjusted “Adjusted Gross Sales” shall mean Gross Sales minus all fixed costs. Further, the Employee shall be entitled to receive such additional bonus payments or incentive compensation as may be determined at any time or from time to time by the Board of Directors of the Company (or any authorized committee thereof) in its discretion, but no less than once every quarter.
Asset Sale or Merger. In the event of a sale of all of the assets or a merger in which the Company is not the surviving entity and in which the Company is valued at $50,000,000 or more, Employee will be entitled to the greater of 5 of the gross proceeds of the value of the transaction or $2,500,000 in cash to be paid upon the transaction’s closing.
The Agreement allows for standard vacation, health, participation in employee benefit plan among other things (See Exhibit 10.4)
On November 19, 2013, the Board of Directors appointed John Hermansen as a member of the Board of Directors and the Chief Content Officer, and Secretary.
On December 31, 2013, the Board of Gawk Incorporated accepted the resignation of Scott Kettle as the Company’s Chief Executive Officer, President, and Director, and appointed Mr. Kettle to serve the Company as Chief Information Officer. On the same date the Board appointed Mr. Mars Callahan as the Company’s new CEO, President and Director. On the same date, the Board appointed Mr. Ryan Wyler as the Company’s Chief Technology Officer. John Hermansen, the Company’s Chief Content Officer, continues to serve in that capacity, and he remains a member of the Board.
On May 13, 2014 Mars Callahan and John Hermansen recently became board members and both of these gentlemen failed to disclose, as required under 14 CFR 229.401(f)(5) that they were found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated. Mars Callahan and John Hermansen were requested to resign and refused without severance payments that the board rejected.
On May 13, 2014 Mars Callahan and John Hermansen were removed from the board and fired as officers by Scott Kettle a director and majority shareholder. Then Michael Selsman and Chris Hall replaced Mars Callahan and John Hermansen as directors.
Specifically, the following information was not disclosed to the registrant. On January 9, 2012 The People of the State of California through the California Corporation Commission issued a Judgment of Permanent Injunction, Civil Penalties and Ancillary Relief in Support of Stipulation Case No BC453611 in the Superior Court of California. The Injunction was issued against DEFENDANTS Big Sky Motion Pictures, L.L.C., Spring Break ’83 Production, L.L.C., Spring Break ’83 Distribution, L.L.C., Spring Break ’83, Rand Jay Chortkoff and each of them, and their officers, directors, successors in interest, agents, employees, attorneys in fact, and all persons acting in concert or participating with them, shall be and are hereby permanently enjoined from engaging in, committing, aiding and abetting, or performing directly or indirectly, by any means whatsoever, from (1) violating Corporation Code Section 25401 - offering for sale of securities by means of written or oral communications which includes any untrue statements of material fact or fails to state material facts (2) Corporation Code 25110 - offering to sell offering the sale of securities unless such security or transaction is qualified or exempted qualification (3) violating the Desist and Refrain Order issued by the Commissioner by offering and selling unqualified, non-exempt securities (4) destroying any records for a period of (3) years. Mr. Mars Callahan was the Chief Executive Officer, Director and owner of Big Sky Motion Pictures, L.L.C., Spring Break ’83 Production, L.L.C., Spring Break ’83 Distribution, L.L.C., Spring Break ’83, during which time this Permanent Injunction to be issued.
On February 15, 2011 The State of Colorado issued a Consent Cease and Desist Order concerning Poker Junkies Production LLC, Abundance Entertainment, LLC and John Hermansen Case No XY 11-CD-008. The Defendants were herby and permanently ordered to cease and desist from engaging in (1) Offering to sell or selling unregistered securities in or from the State of Colorado in violation of §11-51-301, C.R.S; (2) Offering to sell or selling any securities in or from the State of Colorado unless Respondents are in compliance with the provisions of §§ 11-51-301, 401, and 501 C.R.S. or (3) Otherwise engaging in conduct in violation of any provision of the CSA, §§11-51-101, et. Seq., C.R.S.
On 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. 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.
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.
Upon closing, the Company will receive gross proceeds of $3,300,000. Pursuant to the terms of the Series C Preferred Stock, after holding the Series C Preferred Stock for at least one year, the Purchaser will have the right to convert each share of Series C Preferred Stock into $1,000,000 worth of Common Stock of the Company.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table lists stock ownership of our Common Stock as of January 31, 2015 based on 161,732,000 shares of common stock issued and outstanding on a fully diluted basis. The information includes beneficial ownership by (i) holders of more than 5% of our Common Stock, (ii) each of our directors and executive officers and (iii) all of our directors and executive officers as a group. Except as noted below, to our knowledge, each person named in the table has sole voting and investment power with respect to all shares of our Common Stock beneficially owned by them.
(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities.
Changes in Control
We are not aware of any arrangements that may result in a change in control of the Company.
DESCRIPTION OF SECURITIES
General
Common Stock
On November 14, 2013, the Company amended its articles of incorporation to increase the authorized shares to 650,000,000 shares, at $0.01 par value. There were 302,000,000 shares issued and outstanding as of January 31, 2014. The holders of our common stock are entitled to receive such dividends, if any, as may be declared by our board of directors from time to time out of legally available funds. The dividend rights of our common stock are junior to any preferential dividend rights of any outstanding shares of preferred stock. The holders of our common stock also are entitled to receive distributions upon our liquidation, dissolution or winding up of our assets that are legally available for distribution, after payment of all debt and other liabilities and distribution in full of preferential amounts, if any, to be distributed to holders of our preferred stock.
The holders of our common stock are not entitled to preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of any series of preferred stock that we may designate and issue in the future.
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.
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.
Convertible Securities
The Company has no convertible securities as of January 31, 2015.
Amendment of our Bylaws
Our bylaws may be adopted, amended or repealed by the affirmative vote of a majority of our outstanding shares. Subject to applicable law, our bylaws also may be adopted, amended or repealed by our board of directors.
Transfer Agent
Gawk’s Transfer Agent and Registrar for the common stock is V Stock Transfer LLC, 77 Spruce Street, Suite 201, Cedarhurst, NY 11516, 646-536-3179, info@vstocktransfer.com.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
During the years ended January 31, 2015 and 2014, the CEO advanced the Company cash of $52,354 and $26,537, respectively. In addition, during the year ended January 31, 2014 the Company repaid the prior CEO $26,537 As of January 31, 2015 and 2014, the amount owed to the prior CEO for advances was $52,354 and $0, respectively.
Related Party Expenses for the years ended January 31, 2015 and 2015:
The above related party expenses are unauthorized withdrawal of expenses for personal expenses and past legal bills of Mars Callahan.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees. The aggregate fees billed by Malone Bailey LLP for the audit of the Company’s annual financial statements for fiscal years ended January 31, 2015 and 2014 were approximately $15,000 and $15,000, respectively.
Audit-Related Fees. The aggregate fees billed by Malone Bailey LLP for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements for the fiscal years ended January 31, 2015 and 2014, and that are not disclosed in the paragraph captioned “Audit Fees” above, were $0 and $0, respectively.
Tax Fees. The aggregate fees billed by Malone Bailey LLP for professional services rendered for tax compliance, tax advice and tax planning for the fiscal years ended January 31, 2015 and 2014 were $0 and $0, respectively.
All Other Fees. The aggregate fees billed by Malone Bailey LLP for products and services, other than the services described in the paragraphs “Audit Fees,” “Audit-Related Fees,” and “Tax Fees” above for the fiscal years ended January 31, 2015 and 2014 were $0 and $0, respectively.
The Board of Directors has received and reviewed the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and has discussed with its auditors its independence from the Company. The Board of Directors has considered whether the provision of services other than audit services is compatible with maintaining auditor independence.
Based on the review and discussions referred to above, the Board of Directors approved the inclusion of the audited financial statements be included in the Company’s Annual Report on Form 10-K for its 2014 fiscal year for filing with the SEC.
The Board of Directors pre-approved all fees described above.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND REPORTS
Exhibits
(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 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.
SIGNATURES
In accordance with 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, there unto duly authorized.
Registrant Gawk, Inc.
Date: July 22, 2015 By: /s/ Scott Kettle
Scott Kettle
Director, Chief Executive Officer (Principal Executive Officer), President
Date: July 22, 2015 By: /s/ Scott Kettle
Scott Kettle
Principal Accounting Officer, Treasurer
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Date: July 22, 2015
By:
/s/ Scott Kettle
Scott Kettle
Director
Date: July 22, 2015
By: /s/ Michael Selsman
Michael Selsman
Director
Date: July 22, 2015
By: /s/ Chris Hall
Chris Hall
Director