NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2014 AND 2013
NOTE 1 - DESCRIPTION OF BUSINESS
We were incorporated in the state of Nevada on January 6, 2011 and our principal business address is 5300 Melrose Avenue, Suite 42, Los Angeles, CA 90038 telephone number 888-754-6190. We have a January 31 fiscal year end. In connection with the Stock Purchase, the company has changed its focus to engage in the business of online distribution of all digital content including but not limited to full length feature films, television series, sports, documentaries, live events via our proprietary content distribution network (CDN).
NOTE 2 - BASIS OF PRESENTATION
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, 2014 of $1,526,907 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.
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, 2014 and 2013, cash and cash equivalents include cash on hand and cash in the bank. The FDIC insures these deposits up to $250,000.
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.
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, 2014, 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, 2014 and 2013 were $328,194 and $0.00, respectively.
Share-Based Compensation
The Company measures the cost of services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Compensation cost is recognized over the vesting or requisite service period. The Black-Scholes option-pricing model is used to estimate the fair value of options or warrants granted. There were no options or warrants issued by the Company during the years ended January 31, 2014 and 2013.
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, 2014 and 2013, the Company had no potentially dilutive instruments outstanding.
Diluted loss per share is the same as basic loss per share during periods where net losses are incurred since the inclusion of the potential common stock equivalents would be anti-dilutive as a result of the net loss.
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.
Recent Accounting Pronouncements
In the year ended January 31, 2014, the Company has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the company to remove the inception to date information and all references to development stage.
NOTE 5 – RECINDED ASSET ACQUISTIONS
The following is a detail of software at January 31, 2014 and 2013:
|
|
|
2014
|
|
|
|
2013
|
|
Poker Junkies Intangibles
|
|
$
|
238,000
|
|
|
$
|
-
|
|
High Profile Distribution Intangibles
|
|
|
384,000
|
|
|
|
-
|
|
Total intangible assets
|
|
|
622,000
|
|
|
|
-
|
|
Accumulated impairment of assets
|
|
|
(622,000
|
)
|
|
|
-
|
|
Total proprietary technology, net
|
|
$
|
-
|
|
|
$
|
-
|
|
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.
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.
Purchase Price Allocation
|
|
November 14, 2013
|
Value of Consideration:
|
|
|
|
|
Equity instrument of 20 Series C Preferred Stock on December 31, 2013 value by a third party valuation
|
|
$
|
238,000
|
|
Total Purchase Price
|
|
$
|
238,000
|
|
Assets:
|
|
|
|
|
Media content
|
|
$
|
238,000
|
|
Total assets
|
|
$
|
238,000
|
|
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
”).
Purchase Price Allocation
|
|
December 31, 2013
|
Value of Consideration:
|
|
|
|
|
Equity instrument of 18 Series C Preferred Stock on December 31, 2013 value by a third party valuation
|
|
$
|
384,000
|
|
Total Purchase Price
|
|
$
|
384,000
|
|
Assets:
|
|
|
|
|
Media content
|
|
$
|
384,000
|
|
Total assets
|
|
$
|
384,000
|
|
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, 2014 and 2013 was $360 for 2014. The rental agreement is month to month and can be cancelled at any time.
NOTE 7– RELATED PARTY TRANSACTIONS
On September 10, 2013, the Company issued 2,000,000 common shares to the prior CEO for services valued at the trading price at the date of issuance at $40,000.
During the years ended January 31, 2014 and 2013, the prior CEO advanced the Company cash of $26,537 and $12, respectively. In addition, during the year ended January 31, 2013 the Company repaid the prior CEO $26,537. As of January 31, 2014 and 2013, the amount owed to the prior CEO for advances was $0 and $0, respectively.
As of January 31, 2014 the Company owes Mr. Scott Kettle $100,000 of unpaid salaries.
Related Party Expenses
Legal
|
Personal Expenses of Mars Callahan
|
|
$
|
30,000
|
|
Unauthorized withdrawals
|
Personal Expenses of John Hermansen
|
|
|
75,364
|
|
Unauthorized withdrawals
|
Personal Expenses of Mars Callahan
|
|
|
24,000
|
|
Related Party Expenses
|
|
|
$
|
129,364
|
|
The above related party expenses are unauthorized withdrawal of expenses for personal expenses and past legal bills of Mars Callahan.
On August 20, 2013 the Company entered into an employment agreement with Scott Kettle the Chief Executive Officer. The Fixed Annual Compensation. The Company shall pay to Employee salary ("Fixed Annual Compensation") at the rate of $240,000 per annum beginning on August 20, 2013; at the rate of $300,000 per annum beginning on August 20, 2014; and at the rate of $360,000 per annum beginning on August 20, 2015. Fixed Annual Compensation is payable to the Employee in accordance with the Company’s usual salary practices, but in no event less than once monthly.
The Agreement allows for Bonus of the highest bonus incentive program (hereafter “BIP”) set up by the Board. While the specific structure and trigger mechanisms for the BIP are at the sole discretion of the Board, the BIP shall afford Employee the opportunity to earn a minimum of $150,000 per year in cash bonuses through the Employee’s accomplishment of specific pre-identified reasonable milestones in the development of the Company’s business, or by exceeding the approved business plan revenue and income levels. Any payments under the BIP shall be paid annually to Employee and shall be paid no later than the end of the first quarter following the Company’s fiscal year-end. In addition to the BIP, Employee shall also be entitled to such additional bonus, if any, as may be granted by the Board (with Employee abstaining from any vote thereon) or compensation or similar committee thereof in the Board's (or such committee's) sole discretion based upon employee's performance of his Services under this Agreement.
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)
NOTE 8- EQUITY
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.
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. 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.
Fiscal Year Ending January 31, 2014 to the date of Filing
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.
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. 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 (See Note 5 - Rescinded Asset Acquisition). As of January 31, 2014 this has been accounted for as an investor payable.
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).
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.
Fiscal Year Ended January 31, 2013
During the year ended January 31, 2014, the Company issued 75,000,000 shares of common stock for $50,000 in net cash proceeds
The provision (benefit) for income taxes from continued operations for the years ended January 31, 2014 and 2013 consist of the following:
|
|
Year Ended
January 31,
|
|
|
2014
|
|
|
2013
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
295,253
|
|
|
$
|
10,605
|
|
State
|
|
|
78,155
|
|
|
|
-
|
|
|
|
|
373,408
|
|
|
|
|
|
Valuation allowance
|
|
|
(
373,408
|
)
|
|
|
(
10,605
|
)
|
Provision benefit for income taxes, net
|
|
$
|
-
|
|
|
$
|
-
|
|
The difference between income tax expense computed by applying the federal statutory corporate tax rate and actual income tax expense is as follows:
|
|
January 31
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Statutory federal income tax rate
|
|
|
(34.0
|
%)
|
|
|
(34.0
|
%)
|
State income taxes and other
|
|
|
9.0
|
%
|
|
|
0.0
|
%
|
Change in valuation allowance
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
Effective tax rate
|
|
|
-
|
|
|
|
-
|
|
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:
|
|
January 31
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
|
295,253
|
|
|
|
|
|
Valuation allowance
|
|
|
(
295,253
|
)
|
|
|
(
10,605
|
)
|
|
|
|
|
|
|
|
|
|
Deferred income tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
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 $868,390 available to offset future taxable income through 2033. 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, 2014 and 2013, 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 10– SUBSEQUENT EVENTS
Related Party Expenses
Legal
|
Personal Expenses of Mars Callahan
|
|
$
|
102,114
|
|
Unauthorized withdrawals
|
Personal Expenses of John Hermansen
|
|
|
193,215
|
|
Unauthorized withdrawals
|
Personal Expenses of Mars Callahan
|
|
|
105,705
|
|
Related Party Expenses
|
|
|
$
|
401,034
|
|
The above related party expenses are unauthorized withdrawal of expenses for personal expenses and past legal bills of Mars Callahan.
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 and from February 2014 through August 6, 2014 the Company issued additional 599,200 of Series B Preferred stock of $599,200 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 (See Note 5 - Rescinded Asset Acquisition). As of January 31, 2014 this has been accounted for as an investor payable.
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 and TEKNOVU cancelled 150,000,000 common 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.
On May 29, 2014 the Company entered into a consulting agreement with BCMG Entertainment, Inc. for $100,000 to provide services for the procurement of content from movies, television series, music videos, shorts, animated films, live sporting events, and other Company business models (See Exhibit 10. 5).
On June 9, 2014 the company entered into a consulting agreement with Kamrol Imperial Corporation for $450,000. This agreement will assist management in developing a practical and effective strategic marketing and social media planning program, company branding, assessment of current technology and develop a technology roadmap, provide merger and acquisition assistance, and management consulting services (Exhibit 10.2).
On June 10, 2014 the Company entered into a consulting agreement with BCMG Entertainment, Inc. for $125,000 to provide services for the procurement of content from movies, television series, music videos, shorts, animated films, live sporting events, and other Company business models (See Exhibit 10. 6).
On June 11, 2014 we entered into a license and subscription agreement with Cloud Medical Doctor Software Corporation (NSCT) (“Cloud”) for $1,125,000. The agreement grants to us a non-exclusive encryption license agreement which entitles us to utilize Cloud’s encryption software solution within the Customer’s business. We purchased a 48 months encryption licensing agreement to incorporate into our existing web based software and 3,000,000 common shares of Cloud through a consulting agreement with Gawk, Inc. The licensing agreement will protect members of our platform from hackers and other privacy intrusion vehicles. Cipherloc has various features that will further protect our members and end users of our web developed platform (Exhibit 10.1 and 10.3).
CipherLoc™ is the first truly Polymorphic Cipher Engine that can be used in commercial, security sensitive applications and is far more secure than any cipher by itself. This PKPA Engine eliminates replay attacks because the cipher morphs quickly over time. It also rejects data access and injection, false commands, and data alteration. All such methods are keys to cyber intrusion, spoofing, and electronic attacks. CipherLoc™ is one facet of a layered defense in depth protection plan for any organization. Cost effective and easy to use, the CipherLoc™ Polymorphic Cipher Engine provides an electronic gate that restricts access to vital assets, production facilities, and distribution systems that comprise the backbone of today’s electronics based organizations.
A polymorphic cipher has the ability to change an encryption to another method of encryption or key on the fly and is more commonly known as a “mutating” cipher. Polymorphic ciphers are a revolutionary idea based on the information content in a message rather than the difficulty of the key. Using advanced set theory and information theory, this encryption method does not rely exclusively on large keys and complicated permutation/obscuring techniques. This makes the algorithm faster, thus, allowing cipher changes to occur VERY quickly, and requires less memory than other encryptions. Polymorphic changes take place at a rate no slower than the effective “unicity distance” (that certain amount of information needed in order to decrypt an encrypted message) of the cipher, more frequently than enough information can be collected to break the code. Most other ciphers are easily broken as hardware gets faster because it is easier to check all possible keys in the cipher key space. However, if a polymorphic cipher is implemented properly, the speed of the encryption will increase as the hardware gets faster. Thus, unlike other ciphers, this type of software becomes safer as computers get faster.
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. A temporary restraining order preventing the company from using any of the funds invested by Knudson was entered on the date of filing. The complaint alleges fraud by the Company and its CEO in that Knudson allegedly was misinformed by the Company as to the use of the funds he invested. The Company denies the allegations and will vigorously defend this frivolous claim and possibly file a counterclaim against the Plaintiff.
The temporary restraining order has prevented the use of its cash thereby preventing the Company from operating. In order to continue to operate and protect the Company and its shareholders, the Company may have to file for protection under Chapter 11 of the United States Bankruptcy Code unless this matter is quickly resolved and dismissed.
The parties are in serious negotiations to settle this matter.