PART II AND III 2 tv489835_partiiandiii.htm PART II AND III

 

OFFERING CIRCULAR

 

DATED: March 30, 2018

 

GAB AI INC.

 

 

1900 Market Street

Philadelphia, PA. 19103

(650) 477-5525

 

https://gab.ai

 

Up to 2,000,000 shares of our Class B Non-Voting Common Stock, par value $0.0001 per share, in the form of electronic tokens issued via ERC-20 Smart Contracts (“GAB Tokens”), at a price of $5.00 per token. The minimum investment is $250.00 (50 GAB Tokens).

 

SEE “SECURITIES BEING

OFFERED” AT PAGE 27

 

GAB AI Inc. is offering a maximum of 2,000,000 GAB Tokens on a “best efforts” basis without a minimum investment target. The offering will terminate at the earlier of: (1) the date at which the maximum offering amount has been sold, (2) December 31, 2018, or (3) the date at which the offering is earlier terminated by us in our sole discretion. We may undertake one or more closings on a rolling basis. After each closing, funds tendered by investors will be available to us. Notwithstanding the foregoing, the number of GAB Tokens may be slightly exceeded as a result of the conversion to US dollars of payments tendered by investors in Ether and BitCoin. Following the offering, the Company shall be subject to the reporting requirements pursuant to Rule 257(b).

 

Subscription amounts received in US dollars shall be held in escrow by Prime Trust, our escrow agent, until the applicable closing. Subscription amounts received in BitCoin or Ether shall be paid directly to the Company, and held by the Company until the applicable subscription is closed.

 

GENERALLY, NO SALE MAY BE MADE TO YOU IN THIS OFFERING IF THE AGGREGATE PURCHASE PRICE YOU PAY IS MORE THAN 10% OF THE GREATER OF YOUR ANNUAL INCOME OR NET WORTH. DIFFERENT RULES APPLY TO ACCREDITED INVESTORS AND NON-NATURAL PERSONS. BEFORE MAKING ANY REPRESENTATION THAT YOUR INVESTMENT DOES NOT EXCEED APPLICABLE THRESHOLDS, WE ENCOURAGE YOU TO REVIEW RULE 251(d)(2)(i)(C) OF REGULATION A. FOR GENERAL INFORMATION ON INVESTING, WE ENCOURAGE YOU TO REFER TO www.investor.gov.

 

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   Price to
Public
   Underwriting
discount and
commissions (1)
   Proceeds
to issuer
(2)
 
Per token:  $5.00   $0.00   $5.00 
Total Maximum:  $10,000,000   $0.00   $10,000,00 

 

(1)Gab does not intend to use commissioned sales agents or underwriters.

 

(2)Does not include expenses of the offering, including, but not limited to, costs of blue sky compliance, or costs of posting offering information on StartEngine.com, marketing expenses and legal and accounting fees, which offering expenses are estimated to be $330,458 if this offering is fully subscribed. See “Plan of Distribution”.

 

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OR GIVE ITS APPROVAL OF ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.

 

There is currently no trading market for our GAB Tokens.

 

These are speculative securities. Investing in our GAB Tokens involves significant risks. You should purchase these securities only if you can afford a complete loss of your investment. See “Risk Factors” beginning on page 5.

 

Sales of these securities will commence on approximately March 1, 2018.

 

We are following the “Offering Circular” format of disclosure under Regulation A.

 

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TABLE OF CONTENTS  
  Page
SUMMARY 4
RISK FACTORS 5
DILUTION 12
PLAN OF DISTRIBUTION 15
USE OF PROCEEDS 17
OUR BUSINESS 19
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 22
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES 23
COMPENSATION OF DIRECTORS AND OFFICERS 25
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS 26
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS 26
SECURITIES BEING OFFERED 27
FINANCIAL STATEMENTS F-1

 

In this Offering Circular, the term “Gab,” “the company,” “us” and “we,” refers to GAB AI Inc.

 

THIS OFFERING CIRCULAR MAY CONTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN AND STRATEGY, AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO OUR MANAGEMENT. WHEN USED IN THE OFFERING MATERIALS, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,” “INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. WE DO NOT UNDERTAKE ANY OBLIGATION TO REVISE OR UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER SUCH DATE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.

 

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SUMMARY

 

The Summary highlights information contained elsewhere and does not contain all the information that you should consider in making your investment decision. Before investing in our GAB Tokens, you should carefully read this entire Offering Circular, including our financial statements and related notes. You should consider among other information, the matters described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

The Company

 

Gab AI Inc. is a social networking platform that offers telecommunications and social networking services, namely, providing live-streaming of video, online chat rooms, and electronic bulletin boards for the transmission of messages among users in the field of general interest. We empower creators, support free speech and defend the free flow of information online. As of March 25, 2018, approximately 431,000 persons have registered on our platform from around the world. See “Our Business”.

 

The Offering

 

We are offering up to 2,000,000 GAB Tokens for $5.00 per token.

 

The proceeds of this offering will be used primarily for further development of our technology platform, including, but not limited to, the launch of new services.

 

The minimum investment is $250.00 (50 GAB Tokens).

 

Rights and Preferences of the GAB Tokens

 

The holders of GAB Tokens, together with the holders of our Class A Common Stock, will be entitled to receive pro rata dividends, if any, declared by our board of directors out of legally available funds. Upon our liquidation, dissolution or winding-up, the holders of GAB Tokens, together with the holders of our Class A Common Stock, are entitled to share ratably in all assets that are legally available for distribution. The holders of GAB Tokens have no voting rights. See “Securities Being Offered.”

 

As of the date of this Offering Circular, Andrew Torba, our sole officer and director, owns over 60% of the shares of our issued and outstanding Common Stock, and through voting proxies, controls approximately 90% of our voting power. See “Risk Factors - A majority of our Common Stock is owned by our CEO.”

 

Use of Proceeds

 

The table below sets forth the manner in which we intend to use the net proceeds we receive from this offering, assuming the sale of 25%, 50%, 75% and 100% of the GAB Tokens we are offering. All amounts listed below are estimates. See “Use of Proceeds”.

 

    25%     50%     75%     100%  
R&D and Production   $ 500,000     $ 1,000,000     $ 1,000,000     $ 1,500,000  
Marketing   $ 300,000     $ 1,500,000     $ 2,500,000     $ 3,500,000  
Working Capital   $ 1,411,135     $ 2,197,271     $ 3,683,406     $ 4,669,542  
TOTAL   $ 2,211,135     $ 4,697,271     $ 7,183,406     $ 9,669,542  

 

Company’s Going Concern

 

Our auditor has issued a “going concern” opinion on our financial statements, which means that the auditor is not sure if we will be able to succeed as a business without additional financing. Our ability to continue as a going concern for the next twelve months is dependent upon our ability to generate sufficient cash flows from operations to meet our obligations, and/or to obtain additional capital financing from our investors and/or third parties. No assurance can be given that we will be successful in these efforts. These factors, among others, raise substantial doubt about our ability to continue as a going concern for a reasonable period of time. See “Risk Factors - Our financial statements include a going concern note.”

 

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RISK FACTORS

 

Investing in our tokens involves risk. In evaluating the company and an investment in the tokens, careful consideration should be given to the following risk factors, in addition to the other information included in this Offering Circular. Each of these risk factors could materially adversely affect our business, operating results or financial condition, as well as adversely affect the value of an investment in our tokens. The following is a summary of the risk factors that we currently believe make this offering speculative or substantially risky. We are still subject to all the same risks faced by all companies in our industry, and to which all such companies in the economy are exposed. These include risks relating to economic downturns, political and economic events and technological developments (such as cyber-security). Additionally, early-stage companies are inherently riskier than more developed companies. You should consider general risks as well as specific risks when deciding whether to invest.

 

If we cannot raise sufficient funds, we may not succeed or will require significant additional capital infusions.

 

We are offering GAB Tokens in the amount of up to $10,000,000 in this offering, but may sell much less. Even if the maximum amount is raised, we may need additional funds in the future in order to grow, and if we cannot raise those funds for whatever reason, including reasons outside our control, such as another significant downturn in the economy, we may not survive. If we do not sell all of the GAB Tokens we are offering, we may have to find other sources of funding in order to develop our business.

 

This Offering is being conducted on a “best efforts” basis and does not require a minimum amount to be raised. As a result, we may not be able to raise enough funds to fully implement our business plan and our investors may lose their entire investment.

 

The Offering is on a “best efforts” basis and does not require a minimum amount to be raised. If we are not able to raise sufficient funds, we may not be able to fund our operations as planned, and our growth opportunities may be materially adversely affected. This could increase the likelihood that an investor may lose their entire investment.

 

We have a limited operating history and have yet to earn a substantial profit or substantial operating revenue, which makes it difficult to accurately evaluate our business prospects.  

 

We have limited assets, a limited operating history, and minimal operating revenue to date.  We are still working on developing various features of our platform. Thus, our proposed business is subject to all the risks inherent in new business ventures. The likelihood of success must be considered in light of the expenses, complications, and delays frequently encountered with the start-up of new businesses and the competitive environment in which start-up companies operate.

 

Terms of subsequent financings may adversely impact your investment.

 

Even if we are successful in this Offering, we may need to engage in common equity, debt, preferred stock or token financings in the future. Your rights and the value of your investment in the GAB Tokens could be reduced. Interest on debt securities could increase costs and negatively impact operating results. Preferred stock or preferred tokens could be issued in series from time to time with such designations, rights, preferences, and limitations as needed to raise capital. The terms of preferred stock or preferred tokens could be more advantageous to those investors than to the holders of GAB Tokens. In addition, if we need to raise more equity capital from the sale of equity securities, institutional or other investors may negotiate terms at least as, and possibly more, favorable than the terms of your investment. GAB Tokens which we sell could be sold into any market which develops, which could adversely affect the market price of GAB Tokens.

 

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Risks of borrowing.

 

We may have to seek loans from financial institutions. Typical loan agreements might contain restrictive covenants which may impair our operating flexibility. A default under any loan agreement could result in a charging order that would have a material adverse effect on our business, results of operations or financial condition.

 

The regulatory regime governing blockchain technologies, cryptocurrencies, GAB Tokens and coin offerings is uncertain, and new regulations or policies may materially adversely affect the value, use or transferability of the GAB Tokens.

 

Regulation of tokens (including GAB Tokens) and token offerings such as this, cryptocurrencies, blockchain technologies, and cryptocurrency exchanges currently is undeveloped and likely to rapidly evolve, varies significantly among international, federal, state and local jurisdictions and is subject to significant uncertainty. Various legislative and executive bodies in the United States and in other countries may in the future, adopt laws, regulations, guidance, or other actions, which may severely impact the value, use or transferability of GAB Tokens. Failure by us or the holders of GAB Tokens to comply with any laws, rules and regulations, some of which may not exist yet or are subject to interpretation and may be subject to change, could result in a variety of adverse consequences, including civil penalties and fines.

 

As blockchain networks and blockchain assets have grown in popularity and in market size, federal and state agencies have begun to take interest in, and in some cases, regulate, their use and operation.

 

In the case of virtual currencies, state regulators like the New York Department of Financial Services have created new regulatory frameworks. Others, as in Texas, have published guidance on how their existing regulatory regimes apply to virtual currencies. Some states, like New Hampshire, North Carolina, and Washington, have amended their state's statutes to include virtual currencies into existing licensing regimes. Treatment of virtual currencies continues to evolve under federal law as well. The Department of the Treasury, the Securities Exchange Commission, and the Commodity Futures Trading Commission (“CFTC”), for example, have published guidance on the treatment of virtual currencies. The IRS released guidance treating virtual currency as property that is not currency for US federal income tax purposes, although there is no indication yet whether other courts or federal or state regulators will follow this classification. Both federal and state agencies have instituted enforcement actions against those violating their interpretation of existing laws.

 

The GAB Tokens may be subject to registration under the Exchange Act if we have assets above $10 million and more than 2,000 holders of GAB Tokens, which would increase our costs and require substantial attention from management.

 

Companies with total assets above $10 million and more than 2,000 holders of record of its equity securities, or 500 holders of record of its equity securities who are not accredited investors, at the end of their fiscal year, must register that class of equity securities with the SEC under the Exchange Act. The Company could trigger this requirement as a result of the Offerings and be required to register the GAB Tokens with the SEC under the Exchange Act, which would be a laborious and expensive process. Furthermore, if such registration takes place, the Company will have materially higher compliance and reporting costs going forward.

 

The tax treatment of GAB Tokens is uncertain and there may be adverse tax consequences for purchasers upon certain future events.

 

The tax characterization of GAB Tokens is uncertain, and each purchaser must seek his, her or its own tax advice in connection with an investment in GAB Tokens. An investment in GAB Tokens may result in adverse tax consequences to purchasers, including withholding taxes, income taxes and tax reporting requirements. Each purchaser should consult with and must rely upon the advice of its own professional tax advisors with respect to the United States and non-U.S. tax treatment of an investment in GAB Tokens.

 

If we are unable to satisfy data protection, security, privacy, and other government- and industry-specific requirements, our growth could be harmed.

 

There are a number of data protection, security, privacy and other government- and industry-specific requirements, including those that require companies to notify individuals of data security incidents involving certain types of personal data. Security compromises could harm our reputation, erode user confidence in the effectiveness of our security measures, negatively impact our ability to attract new users, or cause existing users to stop using our Platform.

 

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The further development and acceptance of blockchain networks, which are part of a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate.

 

The growth of the blockchain industry in general, as well as cryptocurrencies and digital securities, is subject to a high degree of uncertainty. The factors affecting the further development of the cryptocurrency and digital security industry, as well as blockchain networks, include, without limitation:

 

  § Worldwide growth in the adoption and use of BTC, ETH and other blockchain technologies;

 

§Government and quasi-government regulation of BTC, ETH and other blockchain assets and their use, or restrictions on or regulation of access to and operation of blockchain networks or similar systems;

 

§The maintenance and development of the open-source software protocol of the Ethereum network;

 

§General economic conditions and the regulatory environment relating to cryptocurrencies; or

 

§A decline in the popularity or acceptance of BTC, ETH or other blockchain-based tokens or coins, would adversely affect our results of operations.

 

The slowing or stopping of the development, general acceptance and adoption and usage of blockchain networks and blockchain assets may deter or delay the acceptance of GAB Tokens.

 

Some market participants may oppose the development of blockchain-based systems and tokens like the GAB Token.

 

Many participants in the system currently used in the private equity markets may oppose the development of alternative systems. The market participants who may oppose such a system may include market participants with significantly greater resources, including financial resources and political influence, than we have. Our ability to operate could be adversely affected by any actions of any such market participants that result in additional regulatory requirements or other activities that make it more difficult for us to operate, which could have a material adverse effect on our business or the GAB Token.

 

The prices of blockchain assets are extremely volatile. Fluctuations in the price of digital assets could materially and adversely affect our business, and the GAB Tokens may also be subject to significant price volatility.

 

The prices of blockchain assets such as BTC have historically been subject to dramatic fluctuations and are highly volatile, and the market price of GAB Tokens may also be highly volatile. Several factors may influence the market price of the GAB Tokens, including, but not limited to:

 

§Global blockchain asset supply;

 

§Global blockchain asset demand, which can be influenced by the growth of retail merchants' and commercial businesses' acceptance of blockchain assets like cryptocurrencies as payment for goods and services, the security of online blockchain asset exchanges and digital wallets that hold blockchain assets, the perception that the use and holding of blockchain assets is safe and secure, and the regulatory restrictions on their use;

 

§Investors’ expectations with respect to the rate of inflation;

 

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§Interest rates;

 

§Currency exchange rates, including the rates at which digital assets may be exchanged for fiat currencies;

 

§Fiat currency withdrawal and deposit policies of blockchain asset exchanges on which the GAB Tokens may be traded and liquidity on such exchanges;

 

§Interruptions in service from or failures of major blockchain asset exchanges on which the GAB Tokens may be traded;

 

§Investment and trading activities of large investors, including private and registered funds, that may directly or indirectly invest in us, GAB Tokens or other blockchain assets;

 

§Monetary policies of governments, trade restrictions, currency devaluations and revaluations;

 

§Regulatory measures, if any, that affect the use of blockchain assets such as the GAB Tokens;

 

§Global or regional political, economic or financial events and situations; or

 

§Expectations among blockchain asset participants that the value of the GAB Tokens or other blockchain assets will soon change.

 

A decrease in the price of a single blockchain asset may cause volatility in the entire blockchain asset industry and may affect other blockchain assets including GAB Tokens. For example, a security breach that affects investor or user confidence in BTC and ETH may affect the industry as a whole and may also cause the price of GAB Tokens and other blockchain assets to fluctuate.

 

Any BTC or ETH tendered in exchange for the purchase of GAB Tokens may decrease in value prior to the time at which the exchange rate into US dollars is determined, which could significantly reduce the amount of GAB Tokens issuable to the relevant purchaser.

 

In addition to US dollars, prospective purchasers may purchase GAB Tokens with BTC and ETH. Although we will determine the US dollar value of BTC and ETH based on the applicable exchange rate, within 26 hours following the receipt of payment, prices of cryptocurrencies such as BTC and ETH are known to fluctuate dramatically within short periods of time. In addition, our receipt of ETH or BTC sent as a payment for the GAB Tokens may be delayed as a result of a slowdown in the blockchain network. Any decrease in the value of BTC or ETH paid by a purchaser prior to the time at which the applicable exchange rate is determined could significantly reduce the amount of GAB Tokens issuable to such purchaser. Potential purchasers should carefully consider this risk prior to submitting payment for the GAB Tokens in cryptocurrency.

 

There are risks associated with us accepting payment for GAB Tokens in BTC and ETH .

 

In addition to US dollars, prospective purchasers may purchase GAB Tokens with BTC and ETH. We intend to convert into US dollars any cryptocurrencies received in the Offering on a quarterly basis, otherwise, as working capital is required, or as necessary for us to avoid becoming subject to the Investment Company Act. See “Risk Factors - We are subject to the risk of possibly becoming an investment company under the Investment Company Act. However, prices of such cryptocurrencies are known to fluctuate dramatically within short periods of time. Any such fluctuations could reduce dramatically the amount of fiat currency that we receive in exchange for the cryptocurrencies paid by purchasers, which would have an adverse effect on our operations.

 

In addition, we will hold and maintain the digital wallets into which ETH and BTC payments will be transferred by investors. While we have taken significant measures to secure our systems and digital wallets, payments we receive in cryptocurrencies are subject to potential loss. Our crypto-wallet credentials could be lost or stolen. The wallets in which we receive cryptocurrencies could contain software weaknesses or bugs and may be subject to cyber-attacks and hacks. In June 2016, a perpetrator hacked into the computing systems of DAO and stole over $50 million in ETH proceeds from the DAO’s token offering. If any of the foregoing occur, it could result in the permanent loss of such cryptocurrencies and have a material adverse effect on us.

 

We are subject to the risk of possibly becoming an investment company under the Investment Company Act.

 

The Investment Company Act regulates certain companies that invest in, hold or trade securities. Because a portion of our assets consist of cryptocurrencies, such as Ether (“ETH”) and BitCoin (“BTC”), if ETH or BTC are deemed to be securities, we run the risk of inadvertently becoming an investment company, which would require us to register under the Investment Company Act. Registered investment companies are subject to extensive, restrictive and potentially adverse regulations relating to, among other things, operating methods, leverage, management, capital structure, dividends and transactions with affiliates. In addition, we may structure transactions in a less advantageous manner than if we were not subject to such Investment Company Act risks, or we may avoid otherwise economically desirable transactions due to this risk. In addition, events beyond our control, including significant appreciation or depreciation in the market value of certain of our holdings, could result in us inadvertently becoming an investment company. If it were established that we were an investment company, there would be a risk, among other material adverse consequences, that we could become subject to monetary penalties or injunctive relief, or both, in an action brought by the SEC. If it were established that we were an investment company, it would have a material adverse effect on our business and financial operations and our ability to continue as a going concern. To avoid becoming and registering as an investment company under the Investment Company Act, we intend to monitor the value of our securities holdings and exchange any cryptocurrencies or cryptosecurities into US dollars prior to such time as the value of those assets exceeds 35% of the Company’s total assets.

 

Our decision to accept and hold cryptocurrency, such as BTC and ETH, may subject us to exchange risk and additional tax and regulatory requirements.

 

In addition to accepting payment for GAB Tokens via credit cards, wire transfer and ACH transfers, we will accept payment in the form of BTC and ETH. Cryptocurrencies are not considered legal tender or backed by any government, and have experienced price volatility, technological glitches and various law enforcement and regulatory interventions. We have exchange rate risk as the risks that regulatory or other developments may adversely affect the value of the cryptocurrencies we hold. The uncertainties regarding legal and regulatory requirements relating to cryptocurrencies or transactions utilizing cryptocurrencies, as well as potential accounting and tax issues, or other requirements relating to cryptocurrencies could have a material adverse effect on our business.

 

There risks related to ERC-20 Smart Contracts.

 

GAB Tokens are ERC-20 smart contracts. An ERC-20 smart contract is a cryptographic asset issued on the Ethereum blockchain that implements basic features in order to be compatible with existing software such as digital wallets. There are certain technology risks associated with the ownership of ERC-20 smart contracts which do not exist with typical certificated securities, including, but not limited to, the following:

 

· The smart contracts may contain software weaknesses or bugs;
· If your crypto-wallet credentials are lost or stolen, your GAB Tokens will be unrecoverable and will be permanently lost;
· Incorrectly transferred GAB Tokens may be irretrievable;
· Third parties may hack the GAB Token sale process, your crypto-wallet or the Company’s systems; and
· There could be errors or other problems with the Ethereum protocol on which the GAB Tokens are built.

 

If any of the above conditions exist or arise, it could adversely affect the receipt, use and value of GAB Tokens, or the total loss of GAB Tokens. The Company shall maintain on its website best practices for storing and maintaining crypto-wallets that hold GAB Tokens.

 

Risk of software weaknesses.

 

GAB Tokens and the related software and technology and technical concepts and theories are still in an early development stage and unproven, and there is no warranty that the process for receiving, use and ownership of GAB Tokens will be uninterrupted or error-free and there is an inherent risk that the software, GAB Tokens and related technologies and theories could contain weaknesses, vulnerabilities or bugs causing, inter alia, the partial or complete loss of GAB Tokens. 

 

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To the extent the source code and algorithm setting the rights and the features of the GAB Tokens contain errors or latent terms not disclosed to the investors, or use unsafe algorithms, these errors and hidden terms may result in losses to investors and substantially dilute the value of the GAB Tokens.

 

To the extent the source code and algorithm setting the rights and the features of the GAB Tokens contains errors or latent terms not disclosed to the investors, or use unsafe algorithms, these errors and hidden terms may result in losses to investors and substantially dilute the value of the GAB Tokens. While it is our policy to replace any GAB Tokens that are lost as a result of programming errors or latent terms, if such GAB Tokens are replaced, and the lost GAB Tokens remain outstanding and are recovered by a third party, the same would result in the dilution of the outstanding GAB Tokens.

 

Risk of loss of your credentials.

 

Your GAB Tokens will be held in a crypto-wallet. Your crypto-wallet stores your private key and public keys. Public keys allow outside parties to transmit cryptocurrencies into your digital wallet. Private keys allows you to receive, hold, access and use or transfer GAB Tokens. Accordingly, loss of requisite private key(s) associated with your wallet will result in your inability to access your GAB Tokens, and they will be unrecoverable. Moreover, any third party that gains access to such private key(s), including by gaining access to login credentials of a hosted wallet service you use, may be able to misappropriate your GAB Tokens. Any errors or malfunctions caused by or otherwise related to the wallet you choose to receive and store GAB Tokens, including your own failure to properly maintain or use such wallet, may also result in the loss of your GAB Tokens.

 

Incorrect or fraudulent token transactions may be irreversible.

 

Digital security transactions are irrevocable and stolen or incorrectly transferred GAB Tokens may be irretrievable. Token transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction. In theory, token transactions may be reversible with the control or consent of a majority of processing power on the network. Once a transaction has been verified and recorded in a block that is added to the blockchain, an incorrect transfer of a GAB Token or a theft of a GAB Token, generally will not be reversible and you may not be capable of seeking compensation for any such transfer or theft. It is possible that, through computer or human error, or through theft or criminal action, GAB Tokens could be transferred in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts. For example, if GAB Tokens are sent to a contract that is not ERC-20 compatible, the transaction will not be rejected because the contract will not recognize the incoming transaction, and the GAB Tokens could therefore get stuck in limbo and essentially be lost. Although the Company shall maintain on its website best practices for storing and maintaining crypto-wallets that hold GAB Tokens, the failure to precisely follow the procedures for buying, receiving and transferring GAB Tokens, including, for instance, providing an incorrect wallet address, or providing an address that is not ERC-20 compatible, may result in the loss of your GAB Tokens.

 

Cybercrime

 

The acquisition and management of GAB Tokens is inherently subject to the risk of cybercrime that is difficult to manage and mitigate. This may result in concerted attempts and even successful attempts to hack the GAB Token sale process and the Sites and software used to manage contributions received in respect of GAB Tokens. The GAB Token sale process may be subject unauthorized access, hacking and/or theft of GAB Tokens. Any unauthorized access or cybercrime may result in theft or loss or inability to access subscriptions, impacting the ability to issue GAB Tokens.

 

Risks association with the Ethereum protocol.

 

Because GAB Tokens are based on the Ethereum blockchain, any malfunction, breakdown or abandonment of the Ethereum protocol may result in the loss of or inability to transfer GAB Tokens. The Ethereum network is prone to periodic congestion during which transactions could be delayed or lost. Individuals may also intentionally spam the Ethereum network in an attempt to gain an advantage in purchasing cryptographic tokens. That may result in a situation where block producers may not include an investors transaction at the time such investor expects, or an investor’s transaction may not be included at all. Moreover, advances in cryptography, or technical advances such as the development of quantum computing, could present risks by undermining or vitiating the cryptographic consensus mechanism that underpins the Ethereum protocol. Also, legislatures and regulatory agencies could prohibit the use of current and/or future cryptographic protocols which could adversely impact the ability to transfer the GAB Tokens, resulting in a significant loss of value of the GAB Tokens.

 

Cryptocurrency exchanges and other trading venues are relatively new and, in most cases, largely unregulated and may therefore may be subject to fraud and failures.

 

When cryptocurrency exchanges or other trading venues are involved in fraud or experience security failures or other operational issues, such events could result in a reduction in cryptocurrency prices or confidence.

 

Cryptocurrency market prices depend, directly or indirectly, on the prices set on exchanges and other trading venues, which are new and, in most cases, largely unregulated as compared to established, regulated exchanges for securities, commodities or currencies. For example, during the past three years, a number of bitcoin exchanges have closed due to fraud, business failure or security breaches. In many of these instances, the customers of the closed exchanges were not compensated or made whole for partial or complete losses of their account balances. While smaller exchanges are less likely to have the infrastructure and capitalization that may provide larger exchanges with some stability, larger exchanges may be more likely to be appealing targets for hackers and “malware” (i.e., software used or programmed by attackers to disrupt computer operation, gather sensitive information or gain access to private computer systems) and may be more likely targets of regulatory enforcement actions. We do not maintain any insurance to protect from such risks, and do not expect any insurance for customer accounts to be available (such as federal deposit insurance) at any time in the future, putting customer accounts at risk from such events.

 

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It may be illegal now, or in the future, to acquire, own, hold, sell or use BTC, ETH, or other cryptocurrencies, participate in the blockchain or utilize similar digital assets in one or more countries.

 

Although currently BTC, ETH, and other cryptocurrencies, the blockchain and digital assets generally are not regulated or are lightly regulated in most countries, including the United States, one or more countries may take regulatory actions in the future that could severely restrict the right to acquire, own, hold, sell or use these digital assets. Such restrictions may adversely affect the holders of GAB Tokens.

 

Our financial statements include a going concern note.

 

Our ability to continue as a going concern for the next twelve months is dependent upon our ability to generate sufficient cash flows from operations to meet our obligations, and/or to obtain additional capital financing from our investors and/or third parties. No assurance can be given that we will be successful in these efforts. These factors, among others, raise substantial doubt about our ability to continue as a going concern for a reasonable period of time.

 

Product improvements.

 

In order to compete, we need to rapidly make updates to our product offerings as the market demands. These product improvements and transitions have no guarantees of success.

 

Government regulation, legislation, and censorship.

 

We are subject to local and international laws and regulations. Changes in current or future regulation or legislation could significantly increase the cost of operation, or even preclude it. An increase in government censorship of the internet could have a negative impact on our business.

 

Third party providers.

 

We rely on third-party service providers to operate. We rely on Microsoft's Azure hosting platform as well as Paypal, Stripe, and other services for payment processing. Any interruption or downtime in these third-party services, including Microsoft Azure, could have a negative impact on our ability to deliver the Gab service to our users and customers. If our agreement with Microsoft is terminated, there are numerous other hosting platforms available. Although we believe that we will be able to establish an alternate hosting platform, or our own hosting platform, we may be unable to do so at prices or costs that are favorable to us. The inability to secure a new platform or any disruption in the availability of our platform could lead to downtime of our website and applications, which could harm relationships with our customers and materially adversely affect our business, prospects and operating results. Unless we become completely independent of third-party services, we remain subject to the risk that third-party providers will be unable to meet our needs.

 

Breaches of our systems.

 

Any breach of our systems, databases, or other information may have a significant legal and monetary impact on our business and reputation.

 

App store rejections.

 

We have been repeatedly rejected from Apple’s App Store for what they deem to be “objectionable content.” We were removed from Google’s Play Store for what they deem to be “hate speech.” We have also faced problems in the past with our previous domain registrar for “hate speech” and were forced to move to a new domain registrar. The impact of these actions by third-parties has had an impact on our ability to grow our community and business. While our application may be manually downloaded to Android mobile devices, the additional steps required to manually download an application makes it more difficult to acquire customers. In addition, manual download of our application is currently not available on IOS mobile devices. Therefore, customers that desire to access our platform on IOS devices, must use their mobile web browser which is currently less user friendly than a mobile application. If we are unable to get our application on the Google Play Store or the Apple Store, it could have a negative impact on our ability to grow our business and user base. Further if our current domain name registrar were to refuse to continue to maintain our domain name and we are unable to locate an alternative registrar, we would be unable to operate our website.

 

We depend on certain key personnel.

 

Our future success depends on the efforts of key personnel and consultants, especially our founders, Andrew Torba and Ekrem Büyükkaya. The loss of services of any key personnel may have an adverse effect on us. There can be no assurance that we will be successful in attracting and retaining other personnel we require to successfully grow our business.

 

Page 10 of 29 

 

 

A majority of our Common Stock is owned by our CEO.

 

As of the date of this Offering Circular, Andrew Torba, our sole officer and director, owns over 60% of the shares of our issued and outstanding Common Stock, and through voting proxies granted to Mr. Torba by Ekrem Büyükkaya, our Chief Technology Officer and Utsav Sanduja, our Chief Communications Officer (the ”Voting Proxies”), controls approximately 90% of our voting power. Therefore, Mr. Torba is able control our management and affairs and most matters requiring stockholder approval, including, but not limited to, the election of directors and approval of significant corporate transactions. This concentration of ownership and voting power may have the effect of delaying or preventing a change in control, which may not be in the best interest of our other stockholders. The Voting Proxies were granted on August 25, 2017, and terminate upon, the consummation by us of an initial public offering. They also terminate upon the later of (i) the date on which the stockholder has secured, in a form reasonably acceptable to us, the requisite legal status and all appropriate permits, authorizations or other documents from any applicable governmental entity which are necessary for such stockholder to serve as a full-time employee within the United States of America or any other country which we, in our sole discretion, may approve in writing, and (ii) the date on which we and the stockholder have entered into a certain stock restriction agreement.

 

GAB Tokens have no voting rights.

 

Because the GAB Tokens have no voting rights, investors will not be able to participate in any stockholder votes, including, the election of any directors.

 

Management discretion as to use of proceeds.

 

Our success will be substantially dependent upon the discretion and judgment of our management team with respect to the application and allocation of the proceeds of this Offering. The use of proceeds described below is an estimate based on our current business plan. We, however, may find it necessary or advisable to re-allocate portions of the net proceeds reserved for one category to another, and we will have broad discretion in doing so.

 

Limited liquidity and possible manipulation of digital based assets.

 

To our knowledge, there is currently no formal licensed marketplace for the resale of GAB Tokens. To the extent any future exchanges are registered with the SEC, we may apply for listing on one or more such exchanges, and for registration of GAB Tokens for listing and trading on an exchange under Section 12(b) of the Securities Exchange Act. However, there is no guarantee that the SEC will license any cryptosecurities exchanges, that any licensed exchange will accept GAB Tokens for listing, that we will be able to satisfy the registration requirements of the Securities Exchange Act of 1934 for listing and trading on an exchange, or that there will be demand for the GAB Tokens. In addition, it is difficult to predict if we will ever be acquired by a larger company. Therefore, investors should assume that they may not be able to liquidate their investment for some time.

 

The Subscription Agreement and the Company’s Amended and Restated Certificate of Incorporation include exclusive venue provisions, and the Subscription Agreement provides that investors waive the right to a jury trial in connection with any action, suit or counterclaim arising out of the Subscription Agreement. 

 

By executing a Subscription Agreement for this Offering, investors shall be agreeing to waive their constitutional right to have any disputes, claims, or controversies arising out of or relating to the Subscription Agreement or their investment in us decided by a jury. Pursuant to the Subscription Agreement and the Company’s Amended and Restated Certificate of Incorporation, investors will also be agreeing that the State of Delaware shall be the sole and exclusive forum for, among other things, (i) any derivative action or proceeding brought on behalf of the Company; (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders; (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law; or (iv) any action, suit or counterclaim arising out of the Subscription Agreement. Therefore, investors may be compelled to travel to Delaware to prosecute or defend any claims involving the Company.

 

Foreign Securities Laws.

 

Prior to accepting any subscriptions from residents of foreign jurisdictions, we intend to consult with local counsel to ensure we accept any such subscription in compliance with local law. If, however, we accept any subscriptions and fail to comply with local law, it may subject the Company to regulatory actions in such foreign jurisdictions.

 

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DILUTION

 

Dilution means a reduction in value, control or earnings of the tokens an investor owns.

 

Immediate dilution

 

An early-stage company typically sells its securities to its founders and early employees at very low prices because, in most cases, they provide services to the business but are not paid market wages. Likewise, when a business is seeking financing to begin its operations, the prices at which it may sell its securities to early investors, often family members or friends, are low (collectively, we refer to the founders and early private placement investors as the “Primary Investors”). Later in its development, when the business seeks cash investments from new, unrelated investors, like you, the new investors often pay a higher price for their securities than the price paid by the Primary Investors. Each GAB Token has the same economic rights as each share of our Class A Common Stock. This means that the book value for each GAB Token you purchase is diluted because the book value per share of all the shares of Class A Common Stock and GAB Tokens is the same, but you paid more for your GAB Tokens than the Primary Investors paid for their shares of Class A Common Stock.

 

The following tables compare the price that investors in this offering will pay for their GAB Tokens assuming the sale of 25%, 50%, 75% and 100% of the GAB Tokens we are offering, with the effective cash price paid for the common stock by the Primary Investors and the investors in our Regulation CF Offering.

 

25% or $2,500,000

 

   Shares/Tokens Purchased   Total Consideration     
   Number   Percent   Amount   Percent   Avg Price Per Share 
Founders   9,000,000    85.750%  $270.00    0.008%  $0.0000 
Regulation CF Investors   995,641    9.486%  $1,070,000.00    29.970%  $1.0747 
New Investors   500,000    4.764%  $2,500,000.00    70.023%  $5.0000 
TOTAL   10,495,641    100.000%  $3,570,270.00    100.000%  $0.3402 

 

50% or $5,000,000

 

   Shares/Tokens Purchased   Total Consideration     
   Number   Percent   Amount   Percent   Avg Price Per Share 
Founders   9,000,000    81.851%  $270.00    0.004%  $0.0000 
Regulation CF Investors   995,641    9.055%  $1,070,000.00    17.627%  $1.0747 
New Investors   1,000,000    9.095%  $5,000,000.00    82.369%  $5.0000 
TOTAL   10,995,641    100.000%  $6,070,270.00    100.000%  $0.5521 

 

75% or $7,500,000

 

   Shares/Tokens Purchased    Total Consideration      
   Number   Percent   Amount   Percent   Avg Price Per Share 
Founders   9,000,000    78.291%  $270.00    0.003%  $0.0000 
Regulation CF Investors   995,641    8.661%  $1,070,000.00    12.485%  $1.0747 
New Investors   1,500,000    13.048%  $7,500,000.00    87.512%  $5.0000 
TOTAL   11,495,641    100.000%  $8,570,270    100.000%  $0.7455 

 

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100% or $10,000,000

 

   Shares/Tokens Purchased   Total Consideration     
   Number   Percent   Amount   Percent   Avg Price Per Share 
Founders   9,000,000    75.027%  $270.00    0.002%  $0.0000 
Regulation CF Investors   995,641    8.300%  $1,070,000.00    9.666%  $1.0747 
New Investors   2,000,000    16.673%  $10,000,000.00    90.332%  $5.0000 
TOTAL   11,995,641    100.000%  $11,070,270.00    100.000%  $0.9229 
                          

Future dilution

 

Another important way of looking at dilution is the dilution that happens due to future actions by the company. The investor’s stake in a company could be diluted due to the company issuing additional shares of common stock, tokens or securities convertible into shares of common stock or tokens. In other words, when the company issues more securities, the percentage of the company that you own will go down, even though the value of the company may go up. You will own a smaller piece of a larger company. This increase in number of shares or tokens outstanding could result from a stock or token offering (such as an initial public offering, another crowdfunding round, a venture capital round, or angel investment), employees exercising stock options, or by conversion of certain instruments (e.g. convertible bonds, preferred shares or warrants) into stock or tokens.

 

If we decide to issue more shares or tokens, an investor could experience value dilution, with each share or token being worth less than before, and control dilution, with the total percentage an investor owns being less than before. In addition, it is our policy to replace any GAB Tokens that are lost as a result of programming errors. If such GAB Tokens are replaced, and the lost GAB Tokens remain outstanding and are recovered by a third party, the total percentage an investor owns will be diluted. There may also be earnings dilution, with a reduction in the amount earned per share or per token (though this typically occurs only if the company offers dividends, and most early stage companies are unlikely to offer dividends, preferring to invest any earnings into the company).

 

The type of dilution that hurts early-stage investors most occurs when the company sells more shares, tokens or other equity securities in a “down round,” meaning at a lower valuation than in earlier offerings. An example of how this might occur is as follows (numbers are for illustrative purposes only):

 

·In June 2014, Ben invests $20,000 in tokens or shares that represent 2% of a company valued at $1 million.

 

·In December, the company is doing very well and sells $5 million in tokens or shares to venture capitalists on a valuation (before the new investment) of $10 million. Ben now owns only 1.3% of the company but his stake is worth $200,000.

 

·In June 2015, the company has run into serious problems and in order to stay afloat it raises $1 million at a valuation of only $2 million (the “down round”). Ben now owns only 0.89% of the company and his stake is worth only $26,660.

 

This type of dilution might also happen upon conversion of convertible notes into shares or tokens. Typically, the terms of convertible notes issued by early-stage companies provide that in the event of another round of financing, the holders of the convertible notes get to convert their notes into equity at a “discount” to the price paid by the new investors, i.e., they get more shares or tokens than the new investors would for the same price. Additionally, convertible notes may have a “price cap” on the conversion price, which effectively acts as a share or token price ceiling. Either way, the holders of the convertible notes get more shares or tokens for their money than new investors. In the event that the financing is a “down round,” the holders of the convertible notes will dilute existing equity holders, and even more than the new investors do because they get more shares for their money.

 

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If you are making an investment expecting to own a certain percentage of the company or expecting each GAB Token to hold a certain amount of value, it’s important to realize how the value of those tokens can decrease by actions taken by the company. Dilution can make drastic changes to the value of each share or token, ownership percentage, voting control, and earnings per token or share.

 

Page 14 of 29 

 

 

PLAN OF DISTRIBUTION

 

We are offering a maximum of 2,000,000 GAB Tokens on a “best efforts” basis, subject to a slight increase as a result of exchange rates for payments accepted in BTC or ETH.

 

We are not selling the tokens through commissioned sales agents or underwriters. We will use our existing website, www.gab.ai, to provide notification of the offering. Persons who desire information will be directed to www.StartEngine.com, a website owned and operated by an unaffiliated third party that provides technology support to issuers engaging in Regulation A Offerings.

 

We will pay StartEngine $200,000 for its services in hosting the offering of the GAB Tokens on its online platform, which includes, escrow fees, cash management fees, legal fees, accounting fees, marketing expenses and all other fees and expenses related to the offering, except for anti-money laundering checks for which we will pay in the amounts of $5 per domestic investor, and $10 for Canadian and United Kingdom Investors (up to $120 for other international investors).

 

Our Offering Circular will be furnished to prospective investors in this offering via download 24 hours a day, 7 days a week on the startengine.com website.

 

We intend to offer our securities in all states. We intend to attempt to take the necessary regulatory steps to register or qualify us or our agents to offer our securities in Texas, Florida, Arizona, New Jersey and North Dakota, and will not sell in those states unless we are able to register or qualify.

 

Process of Subscribing

 

Upon qualification of this Offering by the SEC, prospective investors who have submitted non-binding indications of interest on the StartEngine.com website, will be given the opportunity to confirm that they would like to subscribe to our offering.  Each prospective investor will receive an automated message from StartEngine indicating:

 

·that the offering is open for investment;
·they may convert their reservation into an investment;
·they may view the offering on our campaign page on Startengine.com; and
·if they are still interested in investing they need to click on the 'Invest Now' button at the top of our campaign page on Startengine.com.

 

The information provided is fairly basic and points back to our campaign page on StartEngine.com. The campaign page will have a link to the SEC HTML qualified version of our offering circular. The "Invest Now" button will take prospective investors to our subscription agreement for completion and submission to us for review. In connection with executing the Subscription Agreement, the investor will specify whether they will purchase GAB Tokens via credit card (if this option is available and approved through StartEngine’s credit card processing provider), wire transfer, ACH transfer or through the transfer of ETH and BTC. If an investor elects to pay the purchase price in BTC or ETH, the investor shall specify the aggregate amount of ETH or BTC that will be delivered (“Purchaser Commitment Amount”).

 

The subscription agreement can only be completed on www.StartEngine.com. The subscription agreement includes a representation by you to the effect that, if you are not an “accredited investor” as defined under securities law, you are investing an amount that does not exceed the greater of 10% of your annual income or 10% of your net worth (excluding your principal residence). The subscription agreement must be delivered to us and you may transfer funds for the subscribed amount in accordance with the instructions stated in the subscription agreement.

 

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Prospective investors who have not previously submitted a non-binding indication of interest on the StartEngine website may subscribe to purchase GAB Tokens through StartEngine.com by clicking on the Invest Now button and completing a subscription agreement.

 

Subscriptions may be rejected by the Company in whole, or in part, prior to their acceptance, in our sole discretion, for among other reasons, our determination that an investor does not meet the investor suitability standards or the KYC/AML standards, or our determination to close this Offering early. If any investor’s subscription is rejected, StartEngine shall, within three (3) days send electronic notification of such rejection, and shall return such investor’s funds. Such funds shall be returned within ten (10) business days for funds paid using ACH, within five (5) business days after the investor provides wire transfer instructions to StartEngine, for funds tendered by wire transfer, and within three (3) business days for funds tendered in BTC or ETH. Once investors submit their subscription and payment, they shall not have the right to rescind their subscription.

 

Investors’ Tender of Funds

 

After the Offering Statement has been qualified by the Securities and Exchange Commission, StartEngine will send an electronic notification of the acceptance of an investors’ subscription including instructions for sending payments in cash, BTC and ETH (the “Execution Notification”).

 

Payments in BTC:

 

· Each investor will receive a unique address for sending BTC to us, which will be provided to the purchaser in the Execution Notification.
· This unique address will be utilized to identify the purchaser and to attribute a received Purchaser Commitment Amount to the purchaser.

 

Payments in ETH:

 

· Investors will send ETH to a single Ethereum wallet, the address of which will be provided to the purchaser in the Execution Notification.
· Purchasers will be identified by the unique ETH address from which the purchaser sends their Purchaser Commitment Amount and such amount will be attributed to the applicable purchaser.

 

ETH and BTC tendered by investors as payment for GAB Tokens shall be held in our digital wallets as identified above until StartEngine delivers the GAB Tokens to the investor, after which time, we may transfer the BTC and ETH to another digital wallet or exchange the BTC or ETH into US dollars.

 

Funds tendered by credit card, wire transfer and ACH transfer will be held by Prime Trust, our escrow agent until the applicable closing.

 

Determination of number of GAB Tokens Issued For BTC and ETH

 

The number of GAB Tokens which an investor shall be entitled to receive in exchange for payments made in ETH or BTC ( the “Token Amount”), shall be determined based on the Daily BTC Exchange Rate (as defined below) and Daily ETH Exchange Rate (as defined below), as applicable, for the Receipt Day on which the Company receives the Purchaser Commitment Amount. The term “Receipt Day” means the period from, and including, 3:00:00 p.m. (ET) on a calendar day (the “Receipt Day Start Time”) and 2:59:59 p.m. (ET) on the succeeding calendar day (the “Receipt Day End Time”).

 

The Token Amount for BTC payments will be determined by StartEngine based upon the USD equivalent of the Purchaser Commitment Amount received by us, based upon the last traded price for a BTC to USD exchange transaction, as reflected on www.gdax.com (“GDAX”) which is closest to and includes (but is not after) 5:00:00 p.m. (ET), on the date on which the BTC Receipt Day End Time occurs (the “BTC Exchange Rate”). The Token Amount shall be calculated by dividing this USD equivalent Purchaser Commitment Amount by the per GAB Token USD price, rounded up to the nearest number of whole GAB Tokens.

 

The Token Amount for ETH payments will be determined by StartEngine based upon the USD equivalent of the Purchaser Commitment Amount received by us, based upon the last price quoted for an ETH to USD exchange transaction, as reflected on GDAX, which is closest to and includes (but is not after) 5:00:00 p.m. (ET), on the date on which the ETH Receipt Day End Time occurs (the “ETH Exchange Rate”). The Token Amount shall be calculated by dividing this USD equivalent Purchaser Commitment Amount by the per GAB Token USD price, rounded up to the nearest number of whole GAB Tokens.

For purposes of clarity and by way of example, if an investor’s Purchase Commitment Amount is 3 ETH, and the Company receives 3 ETH from such investor at 4:00 pm (ET) on Monday. The exchange rate for the ETH would be determined based on the last price quoted for an ETH to USD exchange transaction, as reflected on GDAX, closest to and including 5:00:00 p.m. (ET) on Tuesday. Assuming such last quoted price is $457.00, the investor would receive 92 GAB Tokens ($457/$5.00 = 91.4 GAB Tokens).

 

If at any time in the future, GDAX is no longer operational or operates with limited functionality such that the procedures set forth herein could not be applied, we shall select a replacement that, in the good faith judgment of management, is recognized in the market at such time as a reputable venue for such reporting purposes.

Prospective purchasers should carefully consider the risk that any purchase price paid by them in BTC or ETH, may decrease in value prior to the time at which the applicable exchange rate is determined. Any such decrease in the value of BTC or ETH could significantly reduce the amount of GAB Tokens issuable to the relevant purchaser. See “Risk Factors - Any BTC or ETH tendered in exchange for the purchase of GAB Tokens may decrease in value prior to the time at which the exchange rate into US dollars is determined, which could significantly reduce the amount of GAB Tokens issuable to the relevant purchaser.

 

We intend to convert into US dollars, any BTC and ETH received in the Offering on a quarterly basis, or otherwise, as working capital is required, or as necessary for us to avoid becoming subject to the Investment Company Act. See “Risk Factors - We are subject to the risk of possibly becoming an investment company under the Investment Company Act.

 

 

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Issuance of GAB Tokens

 

The GAB Tokens will be issued as Ethereum-based ERC-20 smart contracts on the Ethereum blockchain, which is a secured distributed ledger system using technology which records the ownership and transfer of GAB Tokens. Subscribers shall be required to establish an ERC-20 compatible digital wallet (the “Investor Wallet”) to receive the GAB Tokens. Subscribers can obtain an ERC-20 compatible crypto-wallet through companies such as MyEtherWallet (no download needed), Mist (Desktop), Parity (Desktop), imToken (iPhone), and imToken (Android). Upon receipt of the Execution Notification, investors shall send the Ethereum address for the Investor Wallet to StartEngine.

 

A private key, or a combination of private keys, is necessary to control and dispose of GAB Tokens stored in your Investor Wallet. Accordingly, loss of private key(s) associated with your wallet will result in loss of such GAB Tokens. Moreover, any third party that gains access to such private key(s), including by gaining access to login credentials of a hosted wallet service you use, may be able to misappropriate your GAB Tokens. See “Risk Factors – Risk of loss of your credentials”.

 

Notwithstanding the foregoing, to the extent GAB Tokens are lost due to programming errors, the Company, through the Transfer Agent, shall replace any such lost GAB Tokens. The Company shall maintain on its website best practices for storing and maintaining crypto-wallets that holds GAB Tokens.

 

Closings

 

We may close on investments on a "rolling" basis, therefore, not all investors shall receive their GAB Tokens at the same time.

 

With respect to funds tendered in BTC or ETH, within three (3) business days after the later of the applicable Receipt Time and the date the investor provides StartEngine with the Ethereum address for the Investor Wallet, StartEngine shall send the GAB Tokens to the Investor Wallet, along with an electronic notification alerting them that the GAB Tokens have been sent, and specifying the exchange rate applicable to their purchase.

 

With respect to funds tendered via credit card, wire transfer and ACH Transfer, we intend to hold the initial closing on or about __________, 2018, and thereafter, we expect to hold closings on a monthly basis, however, our Chief Executive Officer, in his discretion, may hold closings more frequently, depending on the amount subscribed for since the prior closing and the working capital needs of the Company.  Such subscribers should expect to receive their GAB Tokens within three (3) business days after the closing of their subscription.

 

USE OF PROCEEDS

 

We estimate that, at a per token price of $5.00, the net proceeds from the sale of the 2,000,000 tokens in this offering will be approximately $9,669,542, after deducting the estimated offering expenses of approximately $330,458 (including, payment to StartEngine and other offering expenses).

 

The table below shows the estimated net proceeds we would receive from this offering assuming the sale of 25%, 50%, 75% and 100% of the GAB Tokens we are offering. There is no guarantee that we will be successful in selling any of the GAB Tokens we are offering.

 

    25%     50%     75%     100%  
GAB Tokens Sold     500,000       1,000,000       1,500,000       2,000,000  
Gross proceeds   $ 2,500,000     $ 5,000,000     $ 7,500,000     $ 10,000,000  
Offering expenses   $ 288,865     $ 302,729     $ 316,594     $ 330,458  
Net proceeds to the company   $ 2,211,135     $ 4,697,271     $ 7,183,406     $ 9,669,542  

 

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The table below sets forth the manner in which we intend to use the net proceeds we receive from this offering, assuming the sale of 25%, 50%, 75% and 100% of the GAB Tokens we are offering. All amounts listed below are estimates.

 

   25%   50%   75%   100% 
R&D and Production  $500,000   $1,000,000   $1,000,000   $1,500,000 
Marketing  $300,000   $1,500,000   $2,500,000   $3,500,000 
Working Capital  $1,411,135   $2,197,271   $3,683,406   $4,669,542 
TOTAL  $2,211,135   $4,697,271   $7,183,406   $9,669,542 

 

We reserve the right to change the above use of proceeds if management believes it is in our best interests.

 

The allocation of the net proceeds of the offering set forth above represents our estimates based upon our current plans, assumptions we have made regarding the industry, general economic conditions and our future revenues (if any) and expenditures.

 

Investors are cautioned that expenditures may vary substantially from the estimates above. Investors will be relying on the judgment of our management, who will have broad discretion regarding the application of the proceeds from this offering. The amounts and timing of our actual expenditures will depend upon numerous factors, including market conditions, cash generated by our operations (if any), business developments and the rate of our growth. We may find it necessary or advisable to use portions of the proceeds from this offering for other purposes.

 

In the event that we do not raise the entire amount we are seeking, then we may attempt to raise additional funds through private offerings of our securities or by borrowing funds. We do not have any committed sources of financing.

 

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OUR BUSINESS

 

This discussion should be read in conjunction with the other sections of this Offering Circular, including "Risk Factors," "Use of Proceeds" and the Financial Statements attached and the related exhibits. The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Offering Circular.

 

Description of Business

 

Gab AI Inc. is a social networking platform. We offer telecommunications and social networking services, namely, providing live-streaming of video, online chat rooms, and electronic bulletin boards for the transmission of messages among users in the field of general interest. We have over 431,000 users from around the world, with our top five markets being the United States, the United Kingdom, Canada and Netherlands. As of the date hereof, approximately 78% of our users are located in the United States, 8% in the United Kingdom, 3% in Germany, 2.3% in Canada and 1.2% in the Netherlands.

 

We empower creators, support free speech and defend the free flow of information online. We stand for bringing folks together of all races, religions, and creeds who share in the common ideals of Western values, individual liberty and the free exchange and flow of information. Our mission is to provide people with the tools they need to create and shape their own experience.

 

According to a report from PageFair, ad blocker usage grew 30% in 2016.  There were 615 million devices blocking ads worldwide by the end of 2016, 62% (308 million) being on mobile devices. Recognizing this existential threat, Facebook and other giants began fighting back by blocking ad blockers. This launched an all-out war between ad blocking companies and social media giants, in return only creating more consumer awareness of ad blocking. 

 

Many content creators and publishers rely on advertising as their core business model. Unfortunately, with the rise of ad blocking and the backlash of creator demonetization on other platforms, it has become difficult for content creators to generate an income. Many content creators feel that they can no longer trust establishment social networks. As platforms like Twitch.tv and Patreon.com have proven, both tipping and paid subscriptions for premium content are models that work at scale for content creators. 

 

Gab Chat Rooms

 

Our GAB chat rooms are private forums through which our users can establish chat rooms with up to 50 participants to engage in topical discussions.

 

Live Topics

 

Gab Live Topics is our crowdsourced news and discussion product.

 

GabPro

 

In March 2017, we launched our online, premium-user subscription program - “GabPro”. We collect subscription fees primarily from credit cards at the beginning of the subscription period. Subscription revenues are recognized ratably over the subscription period, ranging from one month to one year, net of estimated cancellations. As of January 25, 2018, we had over 3,800 GabPro subscribers.

 

Page 19 of 29 

 

 

 

In November 2017, we launched GabPro Premium, that includes Gab Premium Creators, which is a set of premium content creator tools, that allow content creators to monetize their audience, by charging subscription fees for premium content and through tipping.

 

GabTV

 

In August 2017, we launched GabTV, which we believe is the future of video streaming and content creation online. GabTV empowers content creators of all types by giving them a unique and engaging way to connect directly with their audience. Instead of relying on advertisers for revenue, GabTV hosts will have the ability to offer premium content to those in their audience who subscribe to them. For example, a computer programmer could offer live or recorded video lessons that are only accessible to subscribers. They also have the ability to earn tips directly from their audience both during and after a broadcast. By eliminating the middleman of advertising from GabTV, viewers get a better experience and content creators can focus on creating great content that their audiences love instead of appeasing advertisers. 

 

 

We are continuing to build our core platform, community, and the business model of GabPRO. In recent months we have been conducting market research and analyzing different frameworks and technologies we can use to build out an alternative and censorship-resistant infrastructure. We have also significantly built out our core business by adding additional value to GabPRO and greatly improving the functionality of GabTV.

 

Our Market and Industry

 

We welcome everyone, but see a unique opportunity to carve a niche in a massively underserved and unrepresented market. We estimate that there are over 50 million conservative, libertarian, nationalist, and populist internet users from around the world who are seeking an alternative to the current social networking ecosystems. These users are also actively seeking alternative media platforms like Breitbart.com, DrudgeReport.com, Infowars.com, and others. Through November 26, 2017 alone, Breitbart.com had over 2.2 billion page views from around the world. As mainstream social networks continue to crack down on "objectionable content" and censor conservative views, we believe the need for alternative platforms will only continue to rise. We believe the trend of "cutting the cord" will continue as the popularity of streaming content over the internet increases. We believe this will also begin a fragmentation process of the social networking ecosystem into smaller niche communities with shared values and ideals. 

 

Page 20 of 29 

 

 

Our Accomplishments

 

We launched into private invite-only beta in August 2016. As of the date hereof, we have over 431,000 cumulative registered users from around the world. We are able to determine that users are unique via confirmed email addresses and unique IP addresses, however there may be some users who switch IP addresses using a VPN which we cannot account for in our data. During the 30 days prior to this filing, approximately 105,000 of our registered users have logged into our platform.

 

With our nimble technology team, we have built out an impressive suite of products including GabTV, Gab Chat Rooms, our private group chat product, and Live Topics, and our crowdsourced news and discussion product. As of March 2018, we were a top 3,300 website in the United States, up from being in the top 8,000 as of July 2017, and a top 13,280 website globally, up from being in the top 26,000 as of July 2017. Since launch, Gabbers have driven over 150 million page views. Users spend an average of 12 minutes on Gab every time they login.

 

Competition

 

Our competition includes various social networking platforms such as Facebook, Twitter, Snapchat, and other established communication platforms. We also face competition from alternative and new social networking platforms such as Vidme and Minds.

 

Litigation

 

We are currently not involved in any legal proceedings.

 

Page 21 of 29 

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

Gab AI Inc., was incorporated on September 9, 2016, in the state of Delaware. Our headquarters are located in Philadelphia, Pennsylvania. We offer a social network that empowers creators, supports free speech and defends the free flow of information online.

 

Results of Operation

 

For the period ending December 31, 2016, we did not generate any revenue. For the same period, our operating expenses were $46,151, consisting of $18,611 for research and development expenses, and $27,483 for general, and administrative costs, resulting in an operating loss of $46,151. During 2016, we received $58,792 in donations from our users, which we accounted for as other income, as donation income is not our intended revenue stream. After receipt of the donations, our net income for the year ended December 31, 2016, was $11,087.

 

In March 2017, we implemented our online, premium-user subscription program Gab Pro, for $5.99 per month or $59.99 per year. We expect that this is will be our primary source of revenue going forward. Subscription fees are collected primarily from credit cards at the beginning of the subscription period. Subscription revenues are recognized ratably over the subscription period, ranging from one month to one year, net of estimated cancellations. Subscription revenues are not allocated to any free-trial periods we may offer. Amounts received from subscribers for which the performance obligations have not been fulfilled are recorded as deferred revenues.

 

Our revenues were $26,182 for the six months ended June 30, 2017 and primarily consisted of revenue generated from subscription fees from our premium-user subscription programs. Our operating expenses for the six months ended June 30, 2017 totaled $138,206 and consisted of $2,666 for sales and marketing, $37,903 for research and development, and $97,637 for general and administrative, and our operating loss for the same period was $116,019. Our net loss for the six months ended June 30, 2017 was $23,142.

 

Liquidity and Capital Resources

 

Since our inception, we have relied on donations made by our users and advances from one of our founders for working capital. In 2017, we raised approximately $1,070,000 through an offering under Regulation CF of the Securities Act, in connection with which we sold approximately 995,641 shares of our common stock for $1.10 per share.

 

Page 22 of 29 

 

 

As of December 31, 2016, we had $16,187 in cash, and as of June 30, 2017, we had $12,593 in cash. As of March 22, 2018, we had $524,930 in cash on hand. For the 12-month period ended December 31, 2016, we collected $58,792 in donations and for the six-month period ended June 30, 2017, we collected $91,035 in donations. We will incur significant additional costs for the development and maintenance of our networking platform, and intend to continue to fund our operations with funding from additional non-binding donations, as well as through funds received from our Regulation Crowdfunding campaign, funds received through this offering, and additional debt and/or equity financing as determined to be necessary. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. Accordingly, our independent auditors report includes a paragraph regarding substantial doubt about our ability to continue as a going concern. We expect that based on our currently available cash resources, we can operate our business through July 2019 without any further capital infusion.

 

The funds raised in this offering will be primarily used to continue the build out of our alternative ad-free social network. We are also seeking to conduct research and development on censorship-resistant infrastructure solutions that can be built into our social networking platform. We anticipate that it will take 12-18 months and $1.1 million in capital to conduct research and development of a censorship-resistant infrastructure and build out this developer ecosystem. This research and development will occur alongside the building of our current infrastructure, community, platform, and business, which is the primary purpose of this offering.

 

Plan of Operations

 

During the first quarter of 2018, we achieved our milestones of launching a GAB API, which permits users to build applications over the GAB ecosystem, and launched a redesigned GAB interface with user experience improvements to GabTV. Throughout 2018, we shall continue to build and improve our core Gab platform, community, and the business model of GabPRO and GAB Premium Creators, including, conducting market research into different frameworks and technologies to support an alternative censorship-resistant infrastructure. We anticipate that we will need $1.45 million in addition to our current cash on hand, to complete our milestones as outlined below.

 

Estimated Completion Date   Task   Estimated Cost
Q2 – 2018   ·   Improve user privacy options and give users more control over their Gab account data.   $150,000
    ·   Make improvements to Gab's Topics feature to make it more like groups and smaller niche communities.     
         
Q3 – 2018   ·   Improve our backend infrastructure to support millions of users.   $150,000
    ·   Begin mass marketing Gab across several different ad networks in targeted demographics.    
    ·   Begin developer outreach, research and development into censorship-resistant infrastructure options.     
         
Q4- 2018   ·   Continue building developer ecosystem.   $150,000
    ·   Expand monetization options for Gab Premium Creators.    
    ·   Add more value to GabPRO via analytics and premium features.    
         
Q-1 2019   ·   Commence development of censorship-resistant infrastructure.   $250,000
         
Q-4 2019   ·   Complete and launch censorship-resistant infrastructure.   $750,000

 

DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

 

The following table sets forth information about our executive officers and directors.

 

Name   Position   Age   Term of Office   Approximate Hours per week
for part-time employees
                 
Andrew Torba   Chief Executive Officer, Chief Financial Officer, Secretary and Director   27   September 9, 2016 – Present   NA
                 
Ekrem Büyükkaya   Chief Technology Officer   24   September 9, 2016 – Present   NA
                 
Utsav Sanduja   Chief Operating Officer   28   October 15, 2016 – Present   NA

 

There are no arrangements or understandings between our executive officers and directors and any other persons pursuant to which the executive officer or director was selected to act as such. There are no family relationships between any director or executive officer. In addition, the Company has agreements with Ekrem Büyükkaya and Utsav Sanduja.

 

Andrew Torba has served as our Chief Executive Officer, Chief Financial Officer, Secretary and sole director since our inception in September 2016. He leads our product and company vision, marketing, operations, and monetization. Prior to founding us, Mr. Torba co-founded AutomateAds.com (Kuhcoon Inc,), a social media advertising technology startup, serving as the CEO between October 2011 and August 2016 and led the company through Y Combinator in 2015 as well as seed stage financing.

 

Ekrem Büyükkaya has served as our Chief Technology Officer since our inception in September 2016, and has led all engineering development and product management. Between June 2015 and August 2016, Mr. Biiyukkaya was a full stack engineer at AutomateAds.com (Kuhcoon Inc.), and between June 2014 and January 2015, he served as the lead developer at Adsuit.com, an advertising technology company. Mr. Biiyukkaya is seasoned in PHP, JavaScript, HTML5, and many other programming languages.

 

Page 23 of 29 

 

 

Utsav Sanduja, has served as our Chief Communication Officer between October 2016 and July 2017, and has served as our Chief Operating Officer since July 2017. Mr. Sanduja is, responsible for our day to day operations, our press communications, global corporate affairs, risk analysis, and GabTV production and oversight. Previously Mr. Sanduja worked at Appleton & Associates International Lawyers from November 2015 to September 2016 as a Research Assistant, Assistant News Director at Russian Canadian Broadcasting from May 2014 to November 2015, and Policy Advisor for the Minister of Human Resources and Skills Development Canada from May 2009 to September 2009.

 

Page 24 of 29 

 

 

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

 

The table below reflects the annual compensation of each of the three highest paid persons who were executive officers or directors, during the fiscal year ended December 31, 2017:

 

Name   Capacities in which
compensation received
  Cash Compensation     Other
Compensation
   

Total

Compensation

 
Andrew Torba(1)
PO Box 41
Falls, PA. 18615
  Chief Executive Officer, Chief Financial Officer, Secretary and Director   $ 65,384       0     $ 65,384  
                             
Ekrem Büyükkaya(2)
Aydınevler Mahallesi Arslanbey Caddesi Çatallı Sokak Nur Apt No:8-10/17 Maltepe/Istanbul/Turkey
  Chief Technology Officer   $ 64,000       0     $ 64,000  
                             
Utsav Sanduja(3)
4817 Apple Bossom Circle, Mississauga, Ontario
L5V 3C6, Canada
  Chief Operating Officer   $ 30,000       0     $ 30,000  

 

(1) Mr. Torba currently receives annual compensation in the amount of $80,000.
(2) Mr. Büyükkaya currently receives annual compensation in the amount of $60,000.
(3) Mr. Sanduja currently receives annual compensation in the amount of $60,000.

 

The directors do not receive any compensation for their service as directors.

 

Page 25 of 29 

 

 

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS

 

Set forth below is information regarding the beneficial ownership of our Class A Common Stock, our only outstanding class of capital stock, as of January 1, 2018, by (i) each person whom we know owned, beneficially, more than 10% of the outstanding shares of our Class A Common Stock, and (ii) all of the current officers and directors as a group. We believe that, except as noted below, each named beneficial owner has sole voting and investment power with respect to the shares listed. Unless otherwise indicated herein, beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, and includes voting or investment power with respect to shares beneficially owned.

 

Title of class   Name and address of
beneficial owner
  Amount and
nature of
Beneficial
ownership
    Amount and nature
of beneficial
ownership
acquirable
    Percent of class  
Common Stock  

Andrew Torba,

1900 Market Street

Philadelphia, PA. 19103

    6,000,000       0       60.03 %
                             
Common Stock  

Ekrem Büyükkaya

1900 Market Street

Philadelphia, PA. 19103

    2,500,000       0       25.01 %
                             
Common Stock   All directors and officers as a group (2 persons)     9,000,000 shares       0       90.04 %

 

 

INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS

 

In August 2016, Andrew Torba, our Chief Executive Officer, Chief Financial Officer, Secretary, Director and majority stockholder, loaned us $5,000. The loan accrued no interest and was repaid in July 2017.

 

Page 26 of 29 

 

 

SECURITIES BEING OFFERED

 

In this Offering, we are offering to investors Class B Non-Voting Common Stock designated as “GAB Tokens”, which will be issued through Ethereum-based ERC-20 smart contracts on the Ethereum blockchain.

 

Our authorized capital stock consists of 12,000,000 shares of Class A Voting Common Stock, $0.0001 par value per share, and 8,000,000 GAB Tokens, $0.0001 par value per token. As of January 1, 2018, we had 9,995,641 shares of Class A Common Stock outstanding and no GAB Tokens outstanding. Our Certificate of Incorporation may be amended by our Board of Directors and by the vote of the holders of a majority of the outstanding Class A Common Stock, to increase the number of authorized shares of Class A Common Stock or GAB Tokens and there is no limit on the number of shares of Class A Voting Common Stock or GAB Tokens that may be authorized and issued. Any Class A Common Stock or GAB Tokens that may be repurchased by the Company may be retired. The Board of Directors, with the approval of the holders of the Class A Voting Common Stock may also amend the Certificate of Incorporation to create one or more series of preferred stock that have rights, preferences and privileges senior to the rights, preferences and privledges of the GAB Tokens.

 

The holders of GAB Tokens, together with the holders of our Class A Common Stock, will be entitled to receive pro rata dividends, if any, declared by our Board of Directors out of legally available funds. Upon our liquidation, dissolution or winding-up, the holders of GAB Tokens, together with the holders of our Class A Common Stock, are entitled to share ratably in all assets that are legally available for distribution. For purposes of clarity, in connection with any dividends, liquidation, dissolution or winding up of the Company, each GAB Token shall be entitled to receive the same dividend or distribution to which each share of Class A Common Stock is entitled to receive.

 

The holders of GAB Tokens and Class A Common Stock have no preemptive, subscription, redemption or conversion rights.

 

The holders of Class A Common Stock are entitled to one vote per share. The holders of GAB Tokens have no voting rights.

 

We may issue, and holders may transfer, fractional tokens, and there is no limit on the divisibility of GAB Tokens.

 

Ethereum Network

 

GAB Tokens are ERC-20 smart contracts. An ERC-20 smart contract is a cryptographic asset issued on the Ethereum blockchain that implements basic features in order to be compatible with existing software such as digital wallets. Because GAB Tokens are based on the Ethereum blockhain, malfunctions, breakdowns or abandonment of the Ethereum protocol may have a material adverse effect on the GAB Tokens. See “Risk Factors – Risks association with the Ethereum protocol”.

 

Transfers and Loss of GAB Tokens

 

The GAB Token smart contract shall require the authorization of StartEngine to transfer GAB Tokens, which will record all transfers in our transfer ledger. StartEngine will permit transfers of GAB Tokens provided that transferees meet KYC/AML standards and such transfer is otherwise permitted pursuant to applicable securities laws.

 

The GAB Tokens will be tested by creating two ERC-20 wallets and testing the delivery, and then the transfer of the GAB Tokens, to ensure there are no errors and the correct operation of the GAB Tokens. To the extent GAB Tokens are lost by holders due to programming errors, the Company, through the Transfer Agent, shall replace any such lost GAB Tokens.

 

Page 27 of 29 

 

  

 

GAB AI INC.

 

FINANCIAL STATEMENTS

(UNAUDITED)

 

AS OF AND FOR THE SIX MONTHS ENDED

JUNE 30, 2017

 

 F-1 

 

 

GAB AI INC.

Index to Interim Financial Statements

(Unaudited) 

 

  PAGE
Balance Sheet F-3
Statement of Operations F-4
Statement of Cash Flows F-5
Statement of Stockholders’ (Deficit) Equity F-6
Notes to Interim Financial Statements F-7

 

 F-2 

 

 

GAB AI INC.

BALANCE SHEETS

 

   

(Unaudited)

June 30, 2017

    December 31, 2016  
ASSETS                
                 
Current Assets                
Cash   $ 12,593     $ 16,187  
Other current assets     934        
Total Current Assets     13,527       16,187  
                 
Total Assets   $ 13,527     $ 16,187  
                 

LIABILITIES AND

STOCKHOLDERS’ (DEFICIT) EQUITY

               
                 
Current Liabilities                
Accrued liabilities   $ 1,000     $  
Related party advances     5,000       5,000  
Deferred revenue     19,482        
Total Current Liabilities     25,482       5,000  
                 
Stockholders’ (Deficit) Equity                
Common stock, par value $0.0001; 12,000,000 shares authorized; 9,000,000 shares issued and outstanding     900       900  
Subscription receivable     (800 )     (800 )
Accumulated deficit     (12,055 )     11,087  
Total Stockholders’ (Deficit) Equity     (11,955 )     11,187  
Total Liabilities and Stockholders’ (Deficit) Equity   $ 13,527     $ 16,187  

 

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

 

 

 F-3 

 

 

GAB AI INC.

STATEMENT OF OPERATIONS

(UNAUDITED)

 

  

Six Months

Ended

June 30, 2017

 
Revenue  $26,182 
Cost of revenue   3,995 
Gross Profit   22,187 
      
Operating Expenses     
Sales and marketing   2,666 
General and administrative   97,637 
Research and development   37,903 
Total Operating Expenses   138,206 
Operating Loss   (116,019)
      
Other (Income)     
Donation income   (91,035)
Realized gains   (3,321)
Loss Before Income Taxes   (21,663)
Provision for income taxes   1,479 
Net Loss  $(23,142)
      
Net Loss per Common Share – Basic and Diluted:  $(0.00)
Weighted Average Common Shares Outstanding – Basic and Diluted   9,000,000 

 

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

 

 F-4 

 

 

GAB AI INC.

STATEMENT OF CASH FLOWS

(UNAUDITED)

 

  

Six Months Ended

June 30, 2017

 
CASH FLOWS FROM OPERATING ACTIVITIES:     
Net loss  $(23,142)
Changes in operating assets and liabilities:     
Other current assets   (934)
Accrued liabilities   1,000 
Deferred revenue   19,482 
Net cash used in operating activities   (3,594)
      
Decrease in cash   (3,594)
Cash, Beginning of Period   16,187 
Cash, End of Period  $12,593 
      
Supplemental disclosures of cash flow information:      
Cash paid for interest  $- 
Cash paid for taxes  $1,479 

 

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

 

 F-5 

 

 

GAB AI INC.

STATEMENT OF STOCKHOLDERS’ (DEFICIT) EQUITY

(UNAUDITED)

 

   Common Stock             
   Shares   Amount  

Subscription

Receivable 

   Accumulated
Deficit
  

Stockholders’
Equity

(Deficit)

 
Balance at December 31, 2016   9,000,000   $900   $(800)  $11,087   $11,187 
Net loss   -    -    -    (23,142)   (23,142)
Balance at June 30, 2017   9,000,000   $900   $(800)  $(12,055)  $(11,955)

 

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

 

 F-6 

 

 

GAB AI INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2017

(Unaudited)

 

NOTE 1 – ORGANIZATION AND BUSINESS

 

Gab AI Inc. (which may be referred to as the “Company,” “Gab,” “we,” “us,” or “our”) was incorporated on September 9, 2016 (“Inception”) in the state of Delaware. The Company’s headquarters are located in Philadelphia, Pennsylvania.

 

Gab is a social network that empowers creators, supports free speech, and defends the free flow of information online. Gab stands for bringing folks together of all races, religions, and creeds who share in the common ideals of Western values, individual liberty, and the free exchange and flow of information. At Gab, it is our mission to provide people with the tools they need to create and shape their own experience.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“US GAAP”).

 

Operating results for the six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. Notes to the unaudited interim financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the year ended December 31, 2016 have been omitted. This report should be read in conjunction with the audited financial statements and the footnotes thereto for the fiscal year ended December 31, 2016 included within the Company’s Form 1-A as filed with the Securities and Exchange Commission.

 

Use of Estimates 

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amount of revenues and expenses during the reporting period. Actual results could materially differ from these estimates. It is reasonably possible that changes in estimates will occur in the near term.

 

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:

 

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.

Level 3 - Unobservable inputs which are supported by little or no market activity.

 

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

 F-7 

 

 

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2017. Fair values of the Company’s financial instruments were assumed to approximate carrying values because of the instruments’ short-term nature.

 

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

 

Cryptocurrency Holdings

At times, we may hold cryptocurrency-denominated assets such as Bitcoin or Ether and we include them in other current assets in our balance sheet. Cryptocurrency-denominated assets are recorded at the lower of cost or market based on an average unit cost. On an interim basis, we recognize decreases in the value of these assets caused by market declines. Subsequent increases in the value of these assets through market price recoveries during the same fiscal year are recognized in the later interim period, but may not exceed the total previously recognized decreases in value during the same year. Gains or losses resulting from changes in the value of our cryptocurrency assets are recorded in other income, net in our statement of operations. During the six months ended June 30, 2017 the Company realized gains of $3,321 in the statement of operations.

 

Revenue Recognition

The Company recognizes revenue from its premium-user subscription model when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered to the customer, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.

 

Subscription fees are collected primarily from credit cards at the beginning of the subscription period. Subscription revenues are recognized ratably over the subscription period, ranging from one month to one year, net of estimated cancellations. Subscription revenues are not allocated to any free-trial periods the Company may offer. Amounts received from subscribers for which the performance obligations have not been fulfilled are recorded in deferred revenue.

 

Loss per Common Share

The Company presents basic loss per share (“EPS”) and diluted EPS on the face of the statement of operations. Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities. For periods in which we incur a net loss, the effects of potentially dilutive securities would be antidilutive and would be excluded from diluted EPS calculations. For the six months ended June 30, 2017, the Company had no dilutive securities outstanding.

 

Concentration of Credit Risk

The Company maintains its cash with a major financial institution, which it believes to be creditworthy, located in the United States of America. The Federal Deposit Insurance Corporation insures balances up to $250,000. At times, the Company may maintain balances in excess of the federally insured limits.

 

Recent Accounting Pronouncements

The FASB issues ASUs to amend the authoritative literature in the ASC. There have been a number of ASUs to date, including ASU 2014-09 above, that amend the original text of the ASC. The Company believes those updates issued-to-date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company, or (iv) are not expected to have a significant impact on the Company.

 

 F-8 

 

 

NOTE 3 – GOING CONCERN

 

Going Concern and Management Plans

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company only recently commenced revenue generated activities and is relatively unproven. Since Inception, the Company relied on donations made by our users and advances from one of our founders for working capital, along with funds raised through Regulation Crowdfunding in 2017, and the commencement of premium subscription services in 2017. We will incur significant additional costs for the development and maintenance of our networking platform, marketing, and ongoing operational costs. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The Company intends to fund operations with existing capital from its Regulation Crowdfunding campaign, subscription revenue, and additional equity financings. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned operations, which could harm our business, financial condition and operating results. The financial statements do not include any adjustments that might result from these uncertainties

 

NOTE 4 – COMMITMENTS AND CONTINGENCIES

 

We are currently not involved with or know of any pending or threatened litigation against the Company or any of its officers.

 

NOTE 5 – STOCKHOLDERS’ DEFICIT

 

Common Stock

The Company has authorized 12,000,000 shares of common stock with $0.0001 par value. The Company issued 9,000,000 shares of common stock to the founders for $900, subject to a restricted stock purchase agreement. One-quarter of the founders’ restricted shares vest one year after the commencement date stated in their agreements, and the remaining restricted shares vest monthly over the 48 months thereafter. At June 30, 2017, no shares were vested.

 

Stock Incentive Plan

In 2016, the Company’s Board of Directors adopted the Gab AI Inc. 2016 Stock Option/Stock Issuance Plan (the “2016 Plan”). The 2016 Plan provides for the grant of equity awards to employees and consultants, including stock options, stock purchase rights, and restricted stock units. Up to 1,000,000 shares of the Company’s common stock may be issued pursuant to awards granted under the 2016 Plan. The 2016 Plan is administered by the Board of Directors and expires ten years after adoption, unless terminated earlier by the Board. To date, no options or shares have been issued under the 2016 Plan.

 

NOTE 6 – SUBSEQUENT EVENTS

 

Subsequent to June 30, 2017, the Company issued 995,641 shares of common stock for $1.07 million in connection with a Regulation Crowdfunding offering.

 

Subsequent to June 30, 2017, the Company authorized 8,000,000 shares of non-voting common stock designated as “GAB Tokens”. The GAB Tokens have similar rights and preferences to common stock with the exception that they are non-voting. None have been issued as of the issuance date of these financial statements.

 

The Company has evaluated subsequent events that occurred after June 30, 2017 through January 24, 2018, the issuance date of these financial statements. There have been no other events or transactions during this time which would have a material effect on these financial statements.

 

 F-9 

 

 

GAB AI, INC.

 

FINANCIAL STATEMENTS

 

DECEMBER 31, 2016

 

Together with

Independent Auditors’ Report

 

 F-10 

 

 

Gab AI, Inc.

Index to Financial Statements

 

  Pages
Independent Auditors’ Report F-12
   
Balance Sheet F-13
   
Statement of Operations F-14
   
Statement of Stockholders’ Equity F-15
   
Statement of Cash Flows F-16
   
Notes to the Financial Statements F-17

 

 F-11 

 

 

INDEPENDENT AUDITORS’ REPORT

 

To Management and Stockholders

Gab AI, Inc.

Philadelphia, Pennsylvania

 

We have audited the accompanying financial statements of Gab AI, Inc. (a Delaware corporation), which comprise the balance sheet as of December 31, 2016, and the related statements of operations, stockholders’ equity, and cash flows for the period from September 9, 2016 (“Inception”) to December 31, 2016, and the related notes to the financial statements.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ Responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gab AI, Inc. as of December 31, 2016 , and the results of its operations and its cash flows for the period from Inception to December 31, 2016 in accordance with accounting principles generally accepted in the United States of America.

 

Emphasis of Matter Regarding Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, certain conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

 

/s/ dbbmckennon  
Newport Beach, California
January 24, 2018

 

 F-12 

 

 

GAB AI, INC.

BALANCE SHEET

 

   December 31, 2016 
Assets     
Cash  $16,187 
Total assets  $16,187 
      
Liabilities and Stockholders' Equity     
Related party advances   5,000 
Total liabilities   5,000 
      
Commitments and contingencies (Note 3)   - 
      
Stockholders' Equity     
Common stock, Par value $0.0001; 12,000,000 shares authorized, 9,000,000 shares issued and outstanding   900 
Subscription receivable   (800)
Retained earnings   11,087 
Total stockholders' equity   11,187 
Total liabilities and stockholders' equity  $16,187 

 

See accompanying notes to the financial statements

 

 F-13 

 

 

GAB AI, INC.

STATEMENT OF OPERATIONS

 

   Period from 
   September 9, 2016 
   (Inception) to 
   December 31, '2016 
     
Revenues  $- 
      
General and administrative   27,483 
Sales and marketing   57 
Research and development   18,611 
Total operating expenses   46,151 
      
Operating loss   (46,151)
      
Other (income):     
Donation income   (58,792)
Total other (income)   (58,792)
      
Income before provision for income taxes   12,641 
      
Provision for income taxes   1,554 
      
Net income  $11,087 
      
Net Income per Common Share - Basic and Diluted  $0.00 
Weighted Average Common Shares Outstanding - Basic and Diluted   9,000,000 

 

See accompanying notes to the financial statements

 

 F-14 

 

 

GAB AI, INC.

STATEMENT OF STOCKHOLDERS’ EQUITY

 

               Total 
   Common Stock   Subscription       Stockholders' 
   Shares   Amount   Receivable   Retained Earnings   Equity 
September 9, 2016 (Inception)   -   $-   $-   $-   $- 
Founder Shares   9,000,000    900    (800)   -    100 
Net income   -    -    -    11,087    11,087 
December 31, 2016   9,000,000   $900   $(800)  $11,087   $11,187 

 

See accompanying notes to the financial statements

 

 F-15 

 

 

GAB AI, INC.

STATEMENT OF CASH FLOWS

 

   Period from 
   September 9, 2016 
   (Inception) to 
   December 31, '2016 
     
Cash Flows from Operating Activities     
Net income  $11,087 
Net cash provided by operating activities   11,087 
      
Cash Flows from Financing Activities     
Related party advances   5,000 
Proceeds from founders' shares   100 
Net cash provided by financing activities   5,100 
      
Increase in cash and cash equivalents   16,187 
Cash and cash equivalents, beginning of period   - 
Cash and cash equivalents, end of period  $16,187 
      
Supplemental disclosures of cash flow information:     
Cash paid for interest  $- 
Cash paid for income taxes  $1,554 

 

See accompanying notes to the financial statements

 

 F-16 

 

 

GAB AI, INC.

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND BUSINESS

 

Gab AI, Inc. (which may be referred to as the "Company," “Gab,” "we," "us," or "our") was incorporated on September 9, 2016 (“Inception”) in the state of Delaware. The Company’s headquarters are located in Philadelphia, Pennsylvania.  

 

Gab is a social network that empowers creators, supports free speech and defends the free flow of information online. Gab stands for bringing folks together of all races, religions, and creeds who share in the common ideals of Western values, individual liberty and the free exchange and flow of information. At Gab, it is our mission to provide people with the tools they need to create and shape their own experience.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“US GAAP”).

 

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amount of expenses during the reporting periods. Actual results could materially differ from these estimates. It is reasonably possible that changes in estimates will occur in the near term.

 

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:

 

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.

Level 3 - Unobservable inputs which are supported by little or no market activity.

  

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2016. Fair values for these items were assumed to approximate carrying values because of their short term in nature or they are payable on demand.

 

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

 

 F-17 

 

 

GAB AI, INC.

NOTES TO THE FINANCIAL STATEMENTS

 

Cryptocurrency Holdings

At times, we may hold cryptocurrency-denominated assets such as Bitcoin or Ether and we include them in other current assets in our balance sheet. Cryptocurrency-denominated assets are recorded at the lower of cost or market based on an average unit cost. On an interim basis, we recognize decreases in the value of these assets caused by market declines. Subsequent increases in the value of these assets through market price recoveries during the same fiscal year are recognized in the later interim period, but may not exceed the total previously recognized decreases in value during the same year. Gains or losses resulting from changes in the value of our cryptocurrency assets are recorded in other income, net in our statement of operations. There were no recorded gains or losses on cryptocurrency holdings for the period ended December 31, 2016.

 

Stock-based Compensation

The Company accounts for stock options issued to employees under ASC 718 Share-Based Payment. Under ASC 718, share-based compensation cost to employees is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite vesting period. The fair value of each stock option or warrant award is estimated on the date of grant using the Black-Scholes option valuation model.

 

The Company measures compensation expense for its non-employee stock-based compensation under ASC 505 Equity. The fair value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital.

 

To date, the Company has not issued any share-based payments to its employees or non-employees.

 

Revenue Recognition

The Company will recognize revenue from its premium-user subscription model when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered to the customer, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.

 

During 2016, the Company was funded entirely by donations, which the Company has recognized as other income in the accompanying statement of operations.

 

During 2017, the Company implemented its online, premium-user subscription program. Subscription fees are collected primarily from credit cards at the beginning of the subscription period. Subscription revenues are recognized ratably over the subscription period, ranging from one month to one year, net of estimated cancellations. Amounts received from subscribers for which the performance obligations have not been fulfilled will be recorded in deferred revenues. 

 

Income Taxes

The Company is taxed as a corporation. Accordingly, the Company applies ASC 740 Income Taxes (“ASC 740”).  Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense for the period, if any and the change during the period in deferred tax assets and liabilities.

 

ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions.  A tax benefit from an uncertain position is recognized only if it is “more likely than not” that the position is sustainable upon examination by the relevant taxing authority based on its technical merit.

 

 F-18 

 

 

GAB AI, INC.

NOTES TO THE FINANCIAL STATEMENTS

 

Loss per Common Share

The Company presents basic loss per share (“EPS”) and diluted EPS on the face of the statement of operations. Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities. For periods in which we incur a net loss, the effects of potentially dilutive securities would be antidilutive and would be excluded from diluted EPS calculations. For the period ended December 31, 2016, the Company had no dilutive securities outstanding.

 

Concentration of Credit Risk

The Company maintains its cash with a major financial institution located in the United States of America which it believes to be credit worthy.  Balances are insured by the Federal Deposit Insurance Corporation up to $250,000.  At times, the Company maintains balances in excess of the federally insured limits.

 

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration expected to be received for those goods or services. The updated standard will replace most existing revenue recognition guidance under US GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard will be effective beginning January 1, 2018. The Company is currently evaluating the effect that the updated standard will have on its financial position and results of operations.

 

The FASB issues ASUs to amend the authoritative literature in the ASC. There have been a number of ASUs to date, including ASU 2014-09 above, that amend the original text of the ASC. The Company believes those updates issued-to-date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company, or (iv) are not expected to have a significant impact on the Company.

 

NOTE 3 – GOING CONCERN

 

Going Concern and Management Plans

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company only recently commenced revenue generated activities and is relatively unproven. Since Inception, the Company relied on donations made by our users and advances from one of our founders for working capital, along with funds raised through Regulation Crowdfunding in 2017, and the commencement of premium subscription services in 2017. We will incur significant additional costs for the development and maintenance of our networking platform, marketing, and ongoing operational costs. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The Company intends to fund operations with existing capital from its Regulation Crowdfunding campaign, subscription revenue, and additional equity financings. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned operations, which could harm our business, financial condition and operating results. The financial statements do not include any adjustments that might result from these uncertainties.

 

NOTE 4 – COMMITMENTS AND CONTINGENCIES

 

We are currently not involved with or know of any pending or threatening litigation against the Company or any of its officers.

 

 F-19 

 

 

GAB AI, INC.

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 5 – STOCKHOLDERS’ EQUITY

 

Common Stock

The Company has authorized 12,000,000 shares of common stock with $0.0001 par value. During 2016, the Company approved the issuance of 9,000,000 shares of common stock to founders for $900 in consideration, subject to a restricted stock purchase agreement. The restricted shares of the founders vest 25% in one year after the commencement date stated in their agreements and 1/48th monthly thereafter. Accordingly, at December 31, 2016, no shares are vested.

 

Stock Incentive Plan

On December 22, 2016, our Board of Directors adopted the Gab AI Inc. 2016 Stock Option/Stock Issuance Plan (the “2016 Plan”).  The 2016 Plan provides for the grant of equity awards to employees, and consultants, including stock options, stock purchase rights and restricted stock units to purchase shares of our common stock.  Up to 1,000,000 shares of our common stock may be issued pursuant to awards granted under the 2016 Plan. The 2016 Plan is administered by our Board of Directors, and expires ten years after adoption, unless terminated earlier by the Board. To date, no options or shares have been issued under the 2016 Plan.

 

NOTE 6 – INCOME TAXES

 

The Company recorded a tax provision of $1,554 based net income recognized during the year. There are no significant deferred tax assets, liabilities, or temporary or permeant differences as of December 31, 2016.

 

The United States Federal and applicable state returns from 2016 forward are still subject to tax examination by the United States Internal Revenue Service; however, we do not currently have any ongoing tax examinations.

 

NOTE 7 – RELATED PARTY TRANSACTIONS 

 

The Company’s CEO incurred $5,000 of expenses on behalf of the Company. These advances are presented as related party advances on the accompanying balance sheet, are due on demand, and carry no interest.

 

NOTE 8 – SUBSEQUENT EVENTS

 

In 2017, the Company began offering a premium subscription, Gab Pro, for $5.99 per month or $59.99 per year. This is will be the Company’s primary source of revenue going forward.

 

Subsequent to December 31, 2016, the Company issued 995,641 shares of common stock for approximately $1.07 million in connection with a Regulation Crowdfunding offering.

 

Subsequent to December 31, 2016, the Company authorized 8,000,000 shares of non-voting common stock designated as “GAB Tokens”. The GAB Tokens have similar rights and preferences to common stock with the exception that they are non-voting. None have been issued as of the issuance date of these financial statements.

 

The Company has evaluated subsequent events that occurred after December 31, 2016 through January 24, 2018, the issuance date of these financial statements. There have been no other events or transactions during this time which would have a material effect on these financial statements.

 

 F-20 

 

 

Part III

 

EXHIBITS

 

1.0 Posting Agreement with StartEngine Crowdfunding Inc.
   
2.1 Amended and Restated Certificate of Incorporation
   
2.2 Bylaws
   
4.1 Form of Subscription Agreement
   
5.1 Ekrem Büyükkaya Voting Proxy
   
5.2 Utsav Sanduja Voting Proxy
   
8.1 Escrow Agreement
   
11.1 Consent of dbbmckennon
   
12.1 Opinion of Alliance Legal Partners, Inc.
   
13.1 Testing the Waters materials

 

 

Page 28 of 29 

 

 

SIGNATURES

 

Pursuant to the requirements of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 1-A and has duly caused this Offering Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Scranton, State of Pennsylvania, on March 30, 2018.

 

GAB AI INC.

 

By

/s/ Andrew Torba

 
     
  Title: Chief Executive Officer, Chief Investment Officer, Principal Financial Officer and Principal Accounting Officer  

 

Page 29 of 29