Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

	For the quarterly period ended July 31, 2017

or

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ____________ to ____________

Commission File Number 000-55499

GAWK INCORPORATED

(Exact name of registrant as specified in its charter)

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

5300 Melrose Avenue, Suite 42, Los Angeles, CA		90038
(Address of principal executive offices)		(Zip Code)

(632) 893-8909

(Registrant’s telephone number, including area code)

______________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x YES o NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x YES o NO

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

Large accelerated filer	o		Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	x
			Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) o YES x NO

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. o YES o NO

APPLICABLE ONLY TO CORPORATE ISSUERS

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

6,342,546,507 common shares issued and outstanding as of March 1, 2018.

FORM 10-Q

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	27

SIGNATURES		28

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

GAWK INCORPORATED

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	July 31,			January 31,
	2017			2017
ASSETS
Current Assets
Cash and cash equivalents	$	118,843		$	133,249
Accounts receivable, net		218,940			232,305
Marketable securities - available for sale		70,500			102,300
Prepaid and other current assets		46,828			54,028
Total Current Assets		455,111			521,882

Intangible assets and proprietary technology, net of accumulated amortization of $957,257 and $656,244		848,817			1,149,831
Goodwill		1,416,851			1,416,851
TOTAL ASSETS	$	2,720,779		$	3,088,564

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts payable and accrued liabilities	$	2,213,849		$	1,953,401
Note payable, net of unamortized discounts of $177,116 and $1,546		500,529			98,930
Current portion of notes payable -related party		582,182			614,085
Current portion of convertible notes payable, net of unamortized discounts of $nil and $598,790		3,014,327			2,061,952
Investor payable - common shares		658,000			658,000
Due to related parties		341,428			305,458
Derivative liabilities		1,912,495			2,088,684
Total Current Liabilities		9,222,810			7,780,510
Long-Term Liabilities
Notes payables -related party, less current portion		-			159,514
TOTAL LIABILITIES		9,222,810			7,940,024

Series C Convertible Preferred stock, $0.001 par value, 100 shares designated; 16 shares issued and outstanding		16,000,000			16,000,000
Series D Convertible Preferred stock, $0.001 par value, 1,000 shares designated; 21 shares issued and outstanding		2,100,000			2,100,000
		18,100,000			18,100,000

Stockholders’ Deficit
Preferred stock, $0.001 par value; authorized 100,000,000 shares
Series A Preferred stock, $0.001 par value, 1,000 shares designated; 1,000 shares issued and outstanding		1			1
Series B Convertible Preferred stock, $0.001 par value, 95,000,000 shares designated; 68,187,500 shares issued and outstanding		68,188			68,188
Common stock, $0.001 par value, 14,900,000,000 shares authorized; 6,342,546,507 and 2,357,089,633 shares issued and outstanding, respectively		6,343,046			2,357,089
Additional paid-in capital		1,160,177			984,577
Common stock issued at discount to par value		(3,244,638	)		-
Accumulated deficit		(28,928,805	)		(26,361,315	)
Total Stockholders’ Deficit		(24,602,031	)		(22,951,460	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	2,720,779		$	3,088,564

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

Table of Contents

GAWK INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	July 31,						July 31,
	2017			2016			2017			2016

Revenue	$	1,446,365		$	1,244,366		$	2,814,089		$	2,619,327

Operating expenses
Cost of revenue		1,167,082			933,830			2,139,107			1,988,863
General and administration		602,678			756,428			1,316,792			1,225,879
Legal settlement		-			-			25,000			-
Depreciation and amortization		150,507			186,623			301,014			373,244
Total operating expenses		1,920,267			1,876,881			3,781,913			3,587,986

Net loss from operations		(473,902	)		(632,515	)		(967,824	)		(968,659	)

Other income (expense)
Other income		5,029			4,678			10,812			10,286
Interest expense, net		(1,224,312	)		(473,413	)		(1,791,470	)		(904,733	)
Unrealized gain on marketable securities		(3,900	)		(300	)		(31,800	)		17,700
Change in fair value of derivative liabilities		(450,139	)		(46,739	)		(33,355	)		(101,629	)
Gain on sale of assets		73,728			-			73,728			-
Loss on settlement of debt		109,806			-			172,419			-
Total other expense		(1,489,788	)		(515,774	)		(1,599,666	)		(978,376	)

Loss from continuing operations		(1,963,690	)		(1,148,289	)		(2,567,490	)		(1,947,035	)

Gain (loss) from discontinued operations, net of tax benefits
Loss from discontinued operations		-			(9,608	)		-			(24,375	)
Total gain (loss) from discontinued operations		-			(9,608	)		-			(24,375	)

Net loss		(1,963,690	)		(1,157,897	)	$	(2,567,490	)	$	(1,971,410	)

Basic and diluted loss per common share from continued operation	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.01	)
Basic and diluted loss per common share from discontinued operation	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)

Weighted average number of common shares outstanding, basic and diluted		6,343,046,507			388,995,621			5,317,001,329			344,531,928

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

Table of Contents

GAWK INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended
	July 31,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,567,490	)	$	(1,971,710	)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock options issued for services		-			177,000
Stock-based compensation		174,000			61,157
Amortization of debt discount and deferred financing fees		1,171,084			566,618
Unrealized gain on marketable securities		31,800			(17,400	)
Amortization expense of intangible assets		301,014			373,244
Depreciation expense from discontinued operations		-			29,496
Amortization expense from discontinued operations		-			59,843
Gain on settlement of liabilities		(172,419	)		-
Default penalty		333,829			-
Change in fair value of derivative liabilities		33,355			101,629
Gain on sale of intangible asset		(73,728	)		-
Changes in operating assets and liabilities:
(Increase) decrease in operating assets:
Accounts receivable		13,365			(48,572	)
Prepaid expenses and other assets		7,200			-
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities		395,139			188,238
Due to related parties		35,970			200,782
Other current liabilities		-			1,300
Net Cash Used In Operating Activities		(316,881	)		(278,375	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of XTELUS, net of cash acquired		-			397
Sales of intangible assets		73,728			-
Net Cash Provided by (Used in) Investing Activities		73,728			397

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable		665,109			-
Payment of notes payable		(338,982	)		-
Proceeds from convertible notes, net of original issue discounts and deferred financing fees		92,500			557,579
Payment of convertible notes payable		(63	)		(33,333	)
Proceeds from notes payable - related party		-			25,000
Payment of notes payable - related party		(191,417	)		(301,278	)
Contribution		1,600			-
Proceeds from issuance of Series B Preferred stock		-			20,000
Net Cash Provided By Financing Activities		228,747			267,968

Net decrease in cash and cash equivalents		(14,406	)		(10,010	)
Cash and cash equivalents, beginning of period		133,249			64,944
Cash and cash equivalents, end of period	$	118,843		$	54,934

Supplemental cash flow information
Cash paid for interest	$	72,178		$	183,923
Cash paid for taxes	$	-		$	-

Non-cash financing transactions:
Acquisition of XTELUS through issuance of Series D Preferers shares	$	-		$	100,000
Series B Preferred shares issued to settle preferred share payable	$	-		$	13,438
Issuance of common stock for conversion of debt and accrued interest	$	741,319		$	1,026,198
Common stock issued for exercise of options and warrants	$	-		$	24,000
Debt discount from derivative liability	$	484,222		$	672,772
Accrued interest added to principal	$	-		$	1,159
Convertible note issued for prepayment penalty	$	-		$	31,438

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

Table of Contents

GAWK INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2017

NOTE 1 – DESCRIPTION OF BUSINESS

Gawk Incorporated (“we”, “our”, the “Company”) was incorporated in the state of Nevada on January 6, 2011 with principal business address at 5300 Melrose Avenue, Suite 42, Los Angeles, CA. The Company offers a 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. It offers a suite of advanced data center and cloud-based services managed network services that converge voice and data applications.

NOTE 2 – GOING CONCERN

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has a deficiency in equity of $24,602,031, a working capital deficit of $8,767,699, and an accumulated deficit of $28,928,805.

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

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation of Interim Financial Statements

The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six months ended July 31, 2017 are not necessarily indicative of the results that may be expected for the year ending January 31, 2018. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year 2017 have been omitted. This report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended January 31, 2017 included in the Company’s Form 10-K/A as filed with the Securities and Exchange Commission on October 24, 2017.

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.

Table of Contents

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.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation.

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.

Our Business Services revenue includes monthly recurring charges (“MRC”) to customers, for whom charges are contracted over a specified period of time, and variable usage fees charged to customers that purchase our business products and services. Revenue recognition commences after the provisioning, testing and acceptance of the service by the customer. MRCs continue until the expiration of the contract, or until cancellation of the service by the customer. To the extent that payments received from a customer are related to a future period, the payment is recorded as deferred revenue until the service is provided or the usage occurs.

Our Carrier Services revenue is primarily derived from usage fees charged to other carriers that terminate voice traffic over our network. Variable revenue is earned based on the length of a call, as measured by the number of minutes of duration. It is recognized upon completion of the call, and is adjusted to reflect the allowance for billing adjustments. Revenue for each customer is calculated from information received through our network switches. Our customized software tracks the information from the switches and analyzes the call detail records against stored detailed information about revenue rates. This software provides us with the ability to complete a timely and accurate analysis of revenue earned in a period. We believe that the nature of this process is such that recorded revenues are unlikely to be revised in future periods.

Derivative Financial Instruments

The fair value of an embedded conversion option that is convertible into a variable amount of shares and warrants that include price protection reset provision features are deemed to be “down-round protection” and, therefore, do not meet the scope exception for treatment as a derivative under ASC 815 “Derivatives and Hedging”, since “down-round protection” is not an input into the calculation of the fair value of the conversion option and warrants and cannot be considered “indexed to the Company’s own stock” which is a requirement for the scope exception as outlined under ASC 815.

The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

The Black-Scholes option valuation model was used to estimate the fair value of the embedded conversion options and warrants. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time, of our common stock, equal to the weighted average life of the options.

Conversion options are recorded as debt discount and are amortized as interest expense over the life of the underlying debt instrument.

Table of Contents

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 July 31, 2017 and January 31, 2017 for assets measured at fair value on a recurring basis:

Carrying Value at July 31, 2017

July 31, 2017	Level 1		Level 2		Level 3		Total
Marketable securities- available for sale	$	70,500	$	-	$	-	$	70,500

Derivative liabilities		-		-	$	1,912,495	$	1,912,495

Carrying Value at January 31, 2017

January 31, 2017	Level 1		Level 2		Level 3		Total

Marketable securities- available for sale	$	102,300	$	-	$	-	$	102,300

Derivative liabilities	$	-	$	-	$	2,088,684	$	2,088,684

Table of Contents

Recent Accounting Pronouncements

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”). Topic 606 removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets, provides more useful information to users of financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The guidance in this update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. In August 2015, ASU 2015-14 was issued which delayed the effective date for public entities to reporting periods beginning after December 15, 2017. Early adoption is not permitted. The Company is currently evaluating the impact of the adoption of this new standard.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the guidance in the new revenue standard on assessing whether an entity is a principal or an agent in a revenue transaction. This conclusion impacts whether an entity reports revenue on a gross or net basis. We are currently evaluating the impact of this standard on our Consolidated Financial Statements and related disclosures.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies the guidance in the new revenue standard regarding an entity’s identification of its performance obligations in a contract, as well as an entity’s evaluation of the nature of its promise to grant a license of intellectual property and whether or not that revenue is recognized over time or at a point in time. We are currently evaluating the impact of this standard on our Consolidated Financial Statements and related disclosures.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers: Narrow- Scope Improvements and Practical Expedients which amends the guidance in the new revenue standard on collectability, noncash consideration, presentation of sales tax, and transition. The amendments are intended to address implementation issues and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. These amendments have the same effective date as the new revenue standard. While we are currently evaluating the method of adoption and the impact of the new revenue standard, as amended, on our Consolidated Financial Statements and related disclosures, we believe the adoption of the new standard may have a significant impact on the accounting for certain transactions with multiple elements or “bundled” arrangements because the requirement to have VSOE for undelivered elements under current accounting standards is eliminated under the new standard. Accordingly, we may be required to recognize as revenue a portion of the sales price upon delivery of the software, as compared to the current requirement of recognizing the entire sales price ratably over an estimated offering period. We continue to evaluate the impact of the new revenue standard on our Consolidated Financial Statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments: Measurement of Credit Losses on Financial Instruments which amends the guidance on measuring credit losses on financial assets held at amortized cost. The amendment is intended to address the issue that the previous “incurred loss” methodology was restrictive for Company’s ability to record credit losses based on not yet meeting the “probable” threshold. The new language will require these assets to be valued at amortized cost presented at the net amount expected to be collected will a valuation provision. The amendments will be effective for fiscal years beginning after December 15, 2019. We are evaluating the impact of this amendment on our consolidated financial statements and related disclosures.

In February 2016, FASB issued ASU 2016-02, Leases . The guidance would require lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right –of-use assets. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2018. The Company is currently evaluating the impact of its pending adoption of ASU 2016-02 on its consolidated financial statements

NOTE 4 – DISCONTINUED OPERATIONS

On October 31, 2016, the Company entered into the asset purchase and sale agreement (the “Agreement”) with Giggle Fiber, LLC. Pursuant to the terms of the Agreement, the Company sold the equipment, customer list of Webrunner and bank accounts related to Webrunner for $413,861, payable in installments. The Company recorded gain on sales of assets of $111,467 as discontinued operations during the year ended January 31, 2017. The total consideration received was $401,052.

Table of Contents

The following table shows the results of operations of Webrunner for the six months ended July 31, 2017 and 2016 which are included in the loss from discontinued operations:

	Three Months Ended					Six Months Ended
	July 31,					July 31,
	2017		2016			2017		2016
Revenue	$	-	$	75,063		$	-	$	160,755

Operating expenses
General and administration		-		(40,001	)		-		(95,790	)
Depreciation and amortization		-		(44,670	)		-		(89,340	)
Loss from discontinued operations	$	-	$	(9,608	)	$	-	$	(24,375	)

NOTE 5 – NOTES PAYABLE

The Company had the following notes payable and notes payable – related party outstanding as of July 31, 2017 and January 31, 2017:

Notes Payable

	July 31,			January 31,
	2017			2017
Dated – October 30, 2014	$	10,000		$	10,000
Dated – August 4, 2016		25,000			25,000
Dated – September 30, 2016		-			65,476
Dated – March 10, 2017		173,104			-
Dated – April 11, 2017		86,495			-
Dated – May 16, 2017		98,136			-
Dated – May 30, 2017		73,714			-
Dated – July 10, 2017		45,600			-
Dated – July 21, 2017		165,596			-
Total notes payable	$	677,645		$	100,476
Less: debt discount and deferred financing fees		(177,116	)		(1,546	)
		500,529			98,930
Less: current portion of notes payable		500,529			98,930
Long-term notes payable		-			-

The Company recognized amortization expense related to the debt discount and deferred financing fees of $75,472 and $0 for the six months ended July 31, 2017 and 2016, respectively. The total borrowings and principal repayment on note payable during the six months ended July 31, 2017 was $665,109 and $338,982, respectively.

Dated – October 30, 2014

On October 30, 2014, the Company exercised the comprehensive acquisition agreement of Webrunner, LLC (“Webrunner”) 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.

Dated – August 4, 2016

The note was issued to Mr. Doyle Knudson, are subject to annual interest of 15% and are secured by 250,000 shares of common stock. The note matured in February 2017. The total cash proceeds received from the note was $25,000

Table of Contents

Dated – September 30, 2016

The Company entered into the revenue based factoring agreement with Powerup Lending Group, Ltd. And received cash of $125,000. The note includes an original issue discount and financing fee of $2,950 and the Company received cash of $122,050. The Company is required to make weekly principal and interest payments of $4,560 for a period of 34 weeks through May 30, 2017. During the three months ended April 30, 2017, the Company repaid $65,476 fully.

Dated – March 10, 2017

The Company entered into the revenue based factoring agreement with PIRS Capital, LLC. The principal amount of note is $291,900 and the note includes an original issue discount and financing fee of $86,499 and the Company received cash of $205,401. The Company is required to make weekly principal and interest payments of $5,657 for a period of 51 weeks through February 23, 2018.

Dated – April 11, 2017

The Company entered into the revenue based factoring agreement with Powerup Lending Group, Ltd. The principal amount of note is $156,250 and the note includes an original issue discount and financing fee of $33,750 and the Company received cash of $122,500. The Company is required to make weekly principal and interest payments of $4,560 for a period of 34 weeks through December 5, 2017.

Dated – May 16, 2017

The Company entered into the agreement with Arcarius LLC. The principal amount of note is $136,000 and the note includes an original issue discount and financing fee of $38,495 and the Company received cash of $97,505. The Company is required to make daily principal and interest payments of $773 for a period of 176 days.

Dated – May 30, 2017

The Company entered into the revenue based factoring agreement with Powerup Lending Group, Ltd. The principal amount of note is $108,000 and the note includes an original issue discount and financing fee of $29,600 and the Company received cash of $78,400. The Company is required to make weekly principal and interest payments of $4,286 for a period of 26 weeks through December 30, 2017.

Dated – July 10, 2017

The Company entered into the revenue based factoring agreement with Powerup Lending Group, Ltd. The principal amount of note is $54,000 and the note includes an original issue discount and financing fee of $14,800 and the Company received cash of $39,200. The Company is required to make daily principal and interest payments of $600 for a period of 90 days.

Dated – July 21, 2017

The Company entered into the revenue based factoring agreement with PIRS Capital, LLC. The principal amount of note is $170,000 and the note includes an original issue discount and financing fee of $47,899 and the Company received cash of $122,101. The Company is required to make weekly principal and interest payments of $4,404 for a period of 39 weeks through April 20, 2018.

Table of Contents

Notes Payable – related party

	July 31,		January 31,
	2017		2017
Dated – April 23, 2015	$	231,250	$	231,250
Dated – December 21, 2016		350,932		542,349
Total notes payable		582,182		773,599
Less: current portion of notes payable		582,182		614,085
Long-term notes payable	$	-	$	159,514

The total borrowings and principal repayment on related party note payable during the six months ended July 31, 2017 and 2016 was $191,417 and $301,278, respectively

Dated – April 23, 2015

On May 1, 2015, in connection with the acquisition of the assets of Net D Consulting, Inc. (“Net D”), the Company issued a $350,000 note which bears no interest and matures on October 7, 2016. The Company made repayments on the note of $0 during the six months ended July 31, 2017.

Dated – December 21, 2016

On December 21, 2016, the Company entered into the new agreement which the company issued a note payable of $574,252 for payment of the Note dated January 18, 2016. The Note bears interest rate of $7.29% for 1 ^st 12 months and then 3.25% for 13 through 18 months. The Company is required to make monthly principal and interest payments of $226,985 for a period of 18 months through June 20, 2018. The Company paid principal and interest payments of $191,417 for the six months ended July 31, 2017.

NOTE 6 – CONVERTIBLE NOTES PAYABLE

The Company had the following convertible notes payable outstanding as of July 31, 2017 and January 31, 2017:

	July 31,		January 31,
	2017		2017
Promissory Note – Issued August 22, 2014, with a fixed conversion price of $0.10 per common share or 17,000,000 shares of common stock.	$	1,700,000	$	1,700,000
Promissory notes – Issued in fiscal year 2016, with variable conversion features.		-		83,951
Promissory notes – Issued in fiscal year 2017, with variable conversion features.		588,728		876,791
Promissory notes – Issued in fiscal year 2018, with variable conversion features.		725,599		-
Total convertible notes payable		3,014,327		2,660,742
Less: debt discount and deferred financing fees		-		(598,790	)
		3,014,327		2,061,952
Less: current portion of convertible notes payable		3,014,327		2,061,952
Long-term convertible notes payable	$	-	$	-

Notes in Default

Certain convertible notes held by the company are in default. During the three month period ended July 31, 2017, the Company did not maintain the covenant requiring the Company to be current with all financial filings. As a result of the breach, the convertible debentures are due on demand. No demand for payment has been made as at July 31, 2017. The terms of default for notes are as follows:

	·	Default interest rates ranging from 20% to 24 %

	·	The Conversion Price discount for certain notes shall be permanently increased by 10%

	·	The Company shall pay an amount equal to the greater of

Table of Contents

	·	(i) 150% times the sum of the outstanding principal amount of certain Notes plus accrued and unpaid interest on the unpaid principal amount of this Notes to the date of payment (the “Mandatory Prepayment Date”) plus Default Interest.

	·	(ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date, multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date

During the three and six month periods ended July 31, 2017, the Company recorded default penalty interest of $333,829 (2016: $nil).

The unamortized debt discount has been accelerated and recognized in the consolidated statement of operations and loss. The Company recognized amortization expense related to the debt discount and deferred financing fees of $1,078,112 and $566,618 for the six months ended July 31, 2017 and 2016, respectively.

Promissory Note - August 22, 2014

In connection with the settlement agreement entered into with Doyle Knudson, an investor, in 2014, the Company issued a $1.8 million convertible promissory note with a fixed conversion price of $0.10 per share or 18,000,000 shares of common stock. The note is subject to annual interest of 10%, matured in August 2015 and is currently past due. In May and December 2015, a total of $100,000 note principal was transferred to another lender.

The Company initially recorded a discount on the convertible note due to a beneficial conversion feature of $358,200 and fully amortized for the year ended January 31, 2016. Due to the variable conversion rates in the other convertible notes (see below), the $1,700,000 balance of the note became tainted and the embedded fixed conversion option was bifurcated and accounted for as a derivative liability.

Promissory Notes - Issued in fiscal year 2016

During the year ended January 31, 2016, the Company issued a total of $449,666 of promissory notes with the following terms:

	·	Terms ranging from 9 months to 2 years
	·	Annual interest rates ranging from 5% to 12%
	·	Convertible at the option of the holders either at issuance or 180 days from issuance. The note dated September 29, 2015 is convertible at the later of the maturity date or date of default.
	·	Conversion prices are typically based on the discounted (50% to 60% discount) lowest trading prices of the Company’s shares during various periods prior to conversion. Certain notes allow for the conversion price to be the lower of $0.01 or the discounted trading price

Certain notes allow the Company to redeem the notes at rates ranging from 118% to 148% depending on the redemption date provided that no redemption is allowed after the 180 ^th day. Likewise, certain notes include original issue discounts totaling to $24,166. During the year ended January 31, 2016, the Company also recognized deferred financing fees totaling $55,142

The Company determined that the conversion feature met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock and therefore bifurcated the embedded conversion option once the note becomes convertible and accounted for it as a derivative liability. The fair value of the conversion feature was recorded as a debt discount and amortized to interest expense over the term of the note.

Table of Contents

Promissory Notes - Issued in fiscal year 2017

During the year ended January 31, 2017, the Company issued a total of $1,266,417 of promissory notes with the following terms:

	·	Terms ranging from 9 months to 20 months
	·	Annual interest rates ranging from 8% to 12%
	·	Convertible at the option of the holders either at issuance or 180 days from issuance.
	·	Conversion prices are typically based on the discounted (50% to 60% discount) lowest trading prices of the Company’s shares during various periods prior to conversion. Certain notes allow for the conversion price to be a floor of $0.0005 and $0.00005 per share.

Certain notes allow the Company to redeem the notes at rates ranging from 118% to 150% depending on the redemption date provided that no redemption is allowed after the 180 ^th day. Likewise, certain notes include original issue discounts and deferred financing cost totaling to $146,976. The Company received cash of $785,858. During the year ended January 31, 2017, the Company repaid notes with principal amounts totaling to $33,333 and a total of $5,517 accrued interest was also added to principal.

The Company valued the conversion feature using the Black Scholes valuation model. The fair value of the derivative liability for all the notes that became convertible, including the notes issued in prior years, during the year ended January 31, 2017 amounted to $3,245,991. $1,356,692 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $1,889,299 was recognized as a “day 1” derivative loss.

Promissory Notes - Issued in fiscal year 2018

During the six months ended July 31, 2017, the Company issued a total of $496,822 of promissory notes with the following terms:

	·	Terms 9 months
	·	Annual interest rates 10%
	·	Convertible at the option of the holders either at issuance.
	·	Conversion prices are typically based on the discounted (40% to 50% discount) lowest trading prices of the Company’s shares during various periods prior to conversion.

Certain notes allow the Company to redeem the notes at rates ranging from 120% to 150% depending on the redemption date provided that no redemption is allowed after the 180 ^th day. Likewise, certain notes include original issue discounts totaling to $12,600 and the Company received cash of $92,500 and replaced old notes and accrued interest of $283,063.

The Company valued the conversion feature using the Black Scholes valuation model. The fair value of the derivative liability for all the notes that became convertible during the six months ended July 31, 2017 amounted to $1,156,832. $484,222 of the value assigned to the derivative liability was recognized as a debt discount to the notes, $194,994 was recognized as a “day 1” derivative loss and $166,975 was recognized as gain on settlement of debt and $644,591 offset the fair value of the derivative liability that related to the notes that were replaced by the new notes.

Table of Contents

Conversion

During the six months ended July 31, 2017, the Company converted notes with principal amounts of $200,566 and accrued interest of $13,962 into 3,985,956,874 shares of common stock. The corresponding derivative liability at the date of conversion of $526,791 was credited to common stock issued at a discount.

Replacement of Notes

During the year ended January 31, 2017, the Company assigned 16 notes with outstanding principal amounts totaling to $424,178 to two lenders which resulted to the payment of prepayment penalties amounting to $156,809 and recognized loss on debt settlement of $267,646 due to the modification of the replacement note conversion feature, and the difference between the fair value of derivative of the conversion feature.

As a result of replacement of notes during the six months ended July 31, 2017, the Company recognized gain on settlement of debt of $166,975.

NOTE 7 – DERIVATIVE LIABILITIES

The Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging, and hedging, and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item.

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of July 31, 2017. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note is estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used in the July 31, 2017 and January 31, 2017:

	Six Months Ended	Year Ended
	July 31, 2017	January 31, 2017
Expected term	0.01 - 0.88 years	0 - 1.50 years
Expected average volatility	294% - 483%	120% - 716%
Expected dividend yield	-	-
Risk-free interest rate	0.51% - 1.13%	0.18% - 0.84%

Table of Contents

At July 31, 2017, the estimated fair values of the liabilities measured on a recurring basis are as follows:

July 31, 2017	Level 1		Level 2		Level 3		Total
Promissory Note – Issued August 22, 2014	$	-	$	-	$	1,700	$	1,700
Promissory Notes – Issued in fiscal year 2016		-		-		-		-
Promissory Notes – Issued in fiscal year 2017		-		-		898,684		898,684
Promissory Notes – Issued in fiscal year 2018		-		-		1,012,111		1,012,111
Total liabilities	$	-	$	-	$	1,912,495	$	1,912,495

The following table summarizes the changes in the derivative liabilities during the six months ended July 31, 2017:

Fair Value Measurements Using Significant Observable Inputs (Level 3)

Balance - January 31, 2017	$	2,088,684

Addition of new derivatives recognized as debt discounts		484,222
Addition of new derivatives recognized as loss on derivatives		194,994
Derivatives settled upon conversion of debt and exercise of warrants		(526,791	)
Gain on debt extinguishment		(166,975	)
Gain on change in fair value of the derivative		(161,639	)
Balance - July 31, 2017	$	1,912,495

The following table summarizes the loss on derivative liability included in the income statement for the six months ended July 31, 2017 and 2016, respectively.

	Six Months Ended
	July 31,
	2017			2016
Day one loss due to derivative liabilities on convertible notes	$	194,994		$	632,279
Gain on change in fair value of the derivative liabilities		(161,639	)		(530,650	)
Loss on change in the fair value of derivative liabilities	$	33,355		$	101,629

NOTE 8 – EQUITY

Preferred Stock

Series A Preferred Stock

There were no issuances of the Series A Preferred Stock during the six months ended July 31, 2017.

As of July 31, 2017 and January 31, 2017, 1,000 shares of Series A Preferred Stock were issued and outstanding, respectively.

Series B Convertible Preferred Stock

There were no issuances of the Series B Preferred Stock during the six months ended July 31, 2017.

As of July 31, 2017 and January 31, 2017, 68,178,500 shares of Series B Preferred Stock were issued and outstanding, respectively.

Table of Contents

Series C Convertible Preferred Stock

There were no issuances of the Series C Preferred Stock during the six months ended July 31, 2017.

As of July 31, 2017 and January 31, 2017, 16 shares of Series C Preferred Stock were issued and outstanding, respectively.

The Company determined the Series C Convertible Preferred Stock is considered to be contingently redeemable convertible and as a result, has been classified as mezzanine equity in the Company’s balance sheet, as of July 31, 2017 and January 31, 2017.

Series D Convertible Preferred Stock

There were no issuances of the Series D Preferred Stock during the six months ended July 31, 2017.

As of July 31, 2017 and January 31, 2017, 21 shares of Series D Preferred Stock were issued and outstanding, respectively.

The Company determined the Series D Convertible Preferred Stock is considered to be contingently redeemable convertible and as a result, has been classified as mezzanine equity in the Company’s balance sheet, as of July 31, 2017 and January 31, 2017.

Common stock

The Company is authorized to issue 14,900,000,000 shares of common stock at a par value of $0.001.

During the six months ended July 31, 2017, the Company issued common shares, as follows:

3,985,956,874 common shares were issued for the conversion of debt and accrued interest of $214,528.

As of July 31, 2017, and January 31, 2017, 6,343,046,507 and 2,357,089,633 shares of common stock were issued and outstanding, respectively.

Warrants and Options

Warrants

As of July 31, 2017, and January 31, 2017, there are no warrants outstanding.

Options

The Company has 9,100,000 options issued in connection with the acquisition of Webrunner.

The following table summarizes information relating to outstanding and exercisable stock options as of July 31, 2017:

	Options Outstanding
			Weighted Average
	Shares		Exercise Price
Outstanding, January 31, 2017		9,100,000	$	0.10
Granted		-		-
Exercised		-		-
Forfeited/canceled		-		-
Outstanding, July 31, 2017		9,100,000	$	0.10

Table of Contents

Options Outstanding

Options Exercisable

Number of Shares

Weighted Average
Remaining Contractual
life (in years)

Weighted Average

Exercise Price

Number
of Shares

Weighted Average

Exercise Price

9,100,000

2.25

0.10

9,100,000

0.10

The options have no intrinsic value at July 31, 2017.

Employee Incentive Bonus Plan

On June 27, 2016, the Company entered into employee agreement with two employees that contain preferred share issuance incentive bonuses based on various sales targets for XTELUS, for the 12- month period ending June 27, 2017. The first award contains cash compensation of $10,000 per month and the ability to earn 500,000 shares of Series B preferred stock if XTELUS revenue of $1,000,000 is generated within 12 months. The second award contains cash compensation of $20,000 per month, 5 shares of Series D preferred stock earned on June 27, 2017 (with 1 share earned immediately upon revenue of $100,000 being generated within first six months) and the ability to earn up to 6,500,000 shares of Series B preferred stock based upon XTELUS revenue targets up to $1,000,000 over 12 months and up to an additional 3,000,000 shares of Series B preferred stock based upon XTELUS revenue targets up between $1,000,000 and greater than $7,000,000 over 12 months. The Company assessed the probability that the revenue targets will be met and determined that the target revenue will most likely meet $1,000,000 and based on the stock awards, estimated the fair value of 6,500,000 shares of Preferred B stock at $32,500, 5 shares of Preferred D stock at $500,000 and 500,000 shares of Preferred B stock at $2,500, respectively. For the six months ended July 31, 2017 and 2016, the Company recognized stock based compensation of $174,000 and $61,157 under these awards, with a corresponding credit to additional paid in capital.

NOTE 9 – CONTINGENCIES

The Company is a party to various legal claims which have arisen in the normal course of business, none of which are expected to have a material adverse effect on the financial position, results of operations, or cash flows of the Company.

NOTE 10 – RELATED PARTY TRANSACTIONS

During the six months ended July 31, 2017, the Company paid a total of $137,700 consulting fees to the company’s officers.

As of July 31, 2017, and January 31, 2017, the amount owed to the company’s officers was $92,500 and $0, respectively.

As of July 31, 2017, and January 31, 2017, the Company has outstanding notes payable to Net D totaling to $582,182 and $773,599, respectively, in connection with the Company’s acquisition of Connexum and certain assets of Net D (see Note 5). The sole owner of Net D is a director the Company. Net D also performs certain services for the Company in connection with the latter’s Carrier Services business. During the six months ended July 31, 2017, the Company incurred total fees in connection with such services of $164,093. As of July 31, 2017, and January 31, 2017, the Company has an outstanding payable to Net D of $248,928 and $305,458, respectively.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results and achievements and cause them to materially differ from those contained in the forward-looking statements include those identified in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended January 31, 2017, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future.

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

General 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. Gawk, Inc. offers a 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. It offers a suite of advanced data center and cloud-based services, including fault tolerant, high availability cloud servers, which comprise platform as a service, infrastructure as a service, and a content delivery network; managed network services that converge voice and data applications, structured cabling, wireless, and security services, as well as include Internet access via Ethernet or fiber at speeds ranging from 10 Mbps to 10 Gbps; and data center solutions, including cloud services, colocation services, and business continuity services, such as storage and security. www.gawkinc.com.

As a result of our growth through acquisition strategy, Gawk continues to expand its business customer base, revenue stream and added a significant number of network facilities and points of presence expanding its geographic reach. Through these acquisitions, 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.

Table of Contents

Results of Operations

Three Months Ended July 31, 2017, Compared to Three Months Ended July 31, 2016

Revenue

	For the Three Months Ended July 31,
	2017		2016		Change		%
Revenue	$	1,446,365	$	1,244,366	$	201,999		16	%

The increase in revenue by 16% during 2017, is primarily related to the acquisition of Xtelus and organic sales growth.

Operating Expenses

	For the Three Months Ended
	2017		2016		Change			%
Cost of revenue	$	1,167,082	$	933,830	$	233,252			25	%
General and administration		602,678		756,428		(153,750	)	(20		%)
Depreciation and amortization		150,507		186,623		(36,116	)	(19		%)
Total operating expenses	$	1,920,267	$	1,876,881	$	43,386			2	%

Cost of revenue increased by $232,252 or 25% for the three months ended July 31, 2017, from $933,830 for the three months ended July 31, 2016. The increase in cost of revenue is primarily due to the increase in gross revenue.

General and administrative expenses decreased by $153,750 or 20% for the three months ended July 31, 2017, from $756,428 for the three months ended July 31, 2016. The decrease in general and administrative expenses is primarily related staff reduction associated with the completion of new product software development.

Depreciation and amortization expenses were $150,507 from $186,621 for the three months ended July 31, 2017 and 2016, respectively. Depreciation and amortization expenses decreased in 2017, due to the sale of Webrunner and impairment of customer list in Net D.

Net loss

For the three months ended July 31, 2017, the Company had a net loss of $2,013,217, as compared to a net loss for the three months ended July 31, 2016 of $1,157,897. The increase in net loss is primarily due to increase in interest expense and loss of change in fair value of derivative liabilities.

Six Months Ended July 31, 2017, Compared to Six Months Ended July 31, 2016

Revenue

	For the Six Months Ended
	July 31,
	2017		2016		Change		%
Revenue	$	2,814,089	$	2,619,327	$	194,762		7	%

The increase in revenue by 7% during 2017, is primarily related to an additional weekly billing cycle in the quarter.

Table of Contents

Operating Expenses

	For the Six Months Ended
	July 31,
	2017		2016		Change			%
Cost of revenue	$	2,139,107	$	1,988,863	$	150,244			8	%
General and administration		1,316,792		1,225,879		90,913			7	%
Legal settlement		25,000		-		25,000			-
Depreciation and amortization		301,014		373,244		(72,230	)	(19		%)
Total operating expenses	$	3,781,913	$	3,587,986	$	193,927			5	%

Cost of revenue increased by $150,244 or 8% for the six months ended July 31, 2017, from $1,988,863 for the six months ended July 31, 2016. The increase in cost of revenue is primarily due to an additional weekly billing cycle in the quarter.

General and administrative expenses increased by $90,913 or 7% for the six months ended July 31, 2017, from $1,225,879 for the six months ended July 31, 2016. The increase in general and administrative expenses is primarily related increased staffing costs associated with new product development.

Legal settlement of $25,000 was related to the Tarpon Bay settlement agreement.

Depreciation and amortization expenses were $301,014 from $373,244 for the six months ended July 31, 2017 and 2016, respectively. Depreciation and amortization expenses decreased in 2017, due to the sale of Webrunner and impairment of customer list in Net D.

Net loss

For the six months ended July 31, 2017, the Company had a net loss of $2,617,017, as compared to a net loss for the six months ended July 31, 2016 of $1,971,410. The increase in net loss is primarily due to increase in interest expense.

Liquidity and Capital Resources

The following table presents selected financial information on our capital as of July 31, 2017 and January 31, 2017.

	July 31,		January 31,
	2017		2017		Change			%
Current Assets	$	455,111	$	521,882	$	(66,771	)	(13%)
Current Liabilities		9,222,810		7,780,510		1,442,300			19	%
Working Deficiency	$	8,767,699	$	7,258,628	$	1,509,071			21	%

The following table presents selected financial information on our cash flows as of and for the six months ended July 31, 2017 and 2016.

	For the Six Months Ended
	2017			2016			Change
Cash Flows used in Operating Activities	$	316,881		$	278,375		$	38,506
Cash Flows provided by Investing Activities		73,728			397			73,331
Cash Flows from Financing Activities		228,747			267,968			(39,221	)
Net Decrease in Cash During the Period	$	(14,406	)	$	(10,010	)	$	(4,396	)

As of July 31, 2017 and January 31, 2017 our cash was $118,843 and $133,249, respectively. The Company does not believe its existing balances of cash and cash equivalents will be sufficient to satisfy its working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with its existing operations over the 12 months.

As of July 31, 2017, we experienced an increase in working capital deficiency of $1,509,071 or 21%, as compared to January 31, 2017. The increase in working capital deficiency during July 31, 2017 was primarily from increased in convertible notes, notes payable and accounts payable and accrued liabilities. Current assets decreased primarily due to reduced cash, accounts receivable and marketable securities as of July 31, 2017. The increase in current liabilities by $1,442,300 was primarily due to an increase in convertible notes, notes payable and accounts payable and accrued liabilities.

Table of Contents

Cash flows used in operating activities. The increase in cash flows used in operating activities was primarily attributable to non-cash adjustments, primarily from an amortization of debt discount, change in derivative liability and default penalty.

Cash flows from investing activities. Cash provided by investing activities were $73,728 from sales of intangible assets for the six months ended July 31, 2017. Cash provided by investing activities were $397 from an acquisition of XTELUS for the six months ended July 31, 2016.

Cash flows from financing activities . Cash provided by financing activities were $234,404 and $267,968 for the six months ended July 31, 2017 and 2016, respectively. We received cash from convertible notes of $92,500, note payable of $665,109, contribution of $1,600, and repaid notes payable of $333,325, notes payable – related party of $191,417 and convertible notes of $63 for the six months ended July 31, 2017. We received cash from convertible notes of $557,579, note payable - related party of $25,000 and issuance of Series B Preferred stock of $20,000 and repaid notes payable of $301,275 and convertible note of $33,333 for the six months ended July 31, 2016.

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, for the year ended January 31, 2017, contains explanatory language that substantial doubt exists about our ability to continue as a going concern. We have an accumulated deficit at July 31, 2017 of $28,928,805 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.

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.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Critical Accounting Policies

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.

Table of Contents

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.

Long-lived Assets

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

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.

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.

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

Table of Contents

Derivative Financial Instruments

The fair value of an embedded conversion option that is convertible into a variable amount of shares and warrants that include price protection reset provision features are deemed to be “down-round protection” and, therefore, do not meet the scope exception for treatment as a derivative under ASC 815 ”Derivatives and Hedging,” since “down-round protection” is not an input into the calculation of the fair value of the conversion option and warrants and cannot be considered “indexed to the Company’s own stock” which is a requirement for the scope exception as outlined under ASC 815.

Conversion options are recorded as debt discount and are amortized as interest expense over the life of the underlying debt instrument.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining adequate internal control over our financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has used the framework set forth in the report entitled Internal Control-Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, our Chief Executive Officer and Chief Financial Officer have concluded that our internal control over financial reporting were not effective as of July 31, 2017. There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Table of Contents

Our company’s material weaknesses in financial reporting were:

	a.	Lack of an independent board of directors, including an independent financial expert; and

	b.	Lack of segregation of duties and adequate documentation of our internal controls.

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.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Other than as set out below, we know of no material pending legal proceedings to which our company is a party or of which any of our properties, or the properties of our subsidiaries, is the subject. In addition, we do not know of any such proceedings contemplated by any governmental authorities.

On or about November 11, 2016 a verified complaint was filed in the Circuit Court for Howard County, Maryland being case number C-16-107586-DT against the Company by an investor known as John Boritz. The Company intends to fervently defend the foregoing action.

Item 1A. Risk Factors

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Table of Contents

Item 6. Exhibits

Exhibit Number		Description
(31)		Rule 13a-14 (d)/15d-14d) Certifications
31.1*		Section 302 Certification by the Principal Executive Officer
31.2*		Section 302 Certification by the Principal Financial Officer and Principal Accounting Officer
(32)		Section 1350 Certifications
32.1**		Section 906 Certification by the Principal Executive Officer
32.2**		Section 906 Certification by the Principal Financial Officer and Principal Accounting Officer
101 **		Interactive Data File
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

__________

* Filed herewith.

** Furnished herewith.

Table of Contents

SIGNATURES

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

		GAWK INCORPORATED
		(Registrant)

Dated: March 13, 2018		/s/ Scott Kettle
		Scott Kettle
		Chief Executive Officer, President, Chief Information Officer and Director
		(Principal Executive Officer)

Dated: March 13, 2018		/s/ Chris Hall
		Chris Hall
		Chief Financial Officer and Director
		(Principal Financial Officer and Principal Accounting Officer)