PART II AND III

AN OFFERING CIRCULAR PURSUANT TO REGULATION A RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. INFORMATION CONTAINED IN THIS PRELIMINARY OFFERING CIRCULAR IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED BEFORE THE OFFERING CIRCULAR FILED WITH THE COMMISSION IS QUALIFIED. THIS PRELIMINARY OFFERING CIRCULAR SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR MAY THERE BE ANY SALES OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL BEFORE REGISTRATION OR QUALIFICATION UNDER THE LAWS OF SUCH STATE. WE MAY ELECT TO SATISFY OUR OBLIGATION TO DELIVER A FINAL OFFERING CIRCULAR BY SENDING YOU A NOTICE WITHIN TWO BUSINESS DAYS AFTER THE COMPLETION OF OUR SALE TO YOU THAT CONTAINS THE URL WHERE THE FINAL OFFERING CIRCULAR OR THE OFFERING CIRCULAR IN WHICH SUCH FINAL OFFERING CIRCULAR WAS FILED MAY BE OBTAINED.

OFFERING CIRCULAR

DATED: January 28, 2019

GAB AI INC.

 

700 North State Street

Clark Summit, PA. 18411

(650) 477-5525

https://gab.ai

Up to 2,000,000 shares of our Class A Common Stock (the “Class A Shares”), par value $0.0001 per share, at a price of $5.00 per share. The minimum investment is $250.00 (50 Class A Shares).

SEE “SECURITIES BEING

OFFERED” AT PAGE 25

GAB AI Inc. is offering a maximum of 2,000,000 Class A Shares 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) the date which is one year from this offering being qualified by the Commission, 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. Following the offering, the Company shall be subject to the reporting requirements pursuant to Rule 257(b).

Subscription amounts shall be held in escrow by Prime Trust, our escrow agent, until the applicable closing.

We are engaging in a concurrent offering under Regulation CF to sell GAB Tokens at $4.00 per share, which is less than the price at which we are selling Class A Shares in this offering, which will result in dilution of your investment. See- Risk Factors - Terms of our concurrent Regulation CF Offering will, and terms of subsequent financings may, adversely impact your investment.

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.

Page 1 of 27

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

(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 Class A Shares.

These are speculative securities. Investing in our Class A Shares 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 within 90 days of the qualification of this Offering.

The Company shall file periodic reports as required pursuant to Rule 257(b).

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

Page 2 of 27

TABLE OF CONTENTS
	Page
SUMMARY	4
RISK FACTORS	5
DILUTION	11
PLAN OF DISTRIBUTION	13
USE OF PROCEEDS	15
OUR BUSINESS	17
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES	22
COMPENSATION OF DIRECTORS AND OFFICERS	23
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS	24
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS	24
SECURITIES BEING OFFERED	25
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.

Page 3 of 27

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 Class A Shares, 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 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 December 13, 2018, approximately 835,000 persons have registered on our platform from around the world. See “Our Business”.

The Offering

We are offering up to 2,000,000 Class A Shares for $5.00 per share.

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 Class A Shares).

Rights and Preferences of the Class A Shares

The holders of Class A Shares, together with the holders of our Class B Non-Voting Common Stock designated as “GAB Tokens”, 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 Class A Shares, together with the holders of our GAB Tokens, are entitled to share ratably in all assets that are legally available for distribution. The holders of Class A Shares shall grant a voting proxy to our Chief Executive Officer, that will limit their ability to vote their Class A Shares until the occurrence of events specified in the proxy, which include the company’s IPO or acquisition by another entity, which may never happen. See “Securities Being Offered.”

As of the date of this Offering Circular, Andrew Torba, our sole officer and director, owns over 84% of the shares of our issued and outstanding Common Stock, and controls approximately 85% 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 Class A Shares 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	$	1,396,135	$	2,182,271	$	3,668,406	$	4,654,542
TOTAL	$	2,196,135	$	4,682,271	$	7,168,406	$	9,654,542

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RISK FACTORS

Investing in our shares involves risk. In evaluating the company and an investment in our Class A Shares, 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 Class A Shares . 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.

We are offering Class A Shares 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 Class A Shares 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 being conducted 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 our concurrent Regulation CF Offering will, and terms of subsequent financings may, adversely impact your investment.

We are engaging in a concurrent offering under Regulation CF to sell GAB Tokens at $4.00 per share, which is less than the price at which we are selling Class A Shares in this offering, which will result in dilution of your investment. In addition, even if we are successful in this Offering and our concurrent Regulation CF 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 Class A Shares 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 Class A Shares. 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. Class A Shares which we sell could be sold into any market which develops, which could adversely affect the market price of Class A Shares.

Page 5 of 27

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 us.

We are concurrently engaging in a Regulation CF offering of GAB Tokens, which are ERC-20 smart contracts. The regulation of tokens (including GAB Tokens), token offerings, 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, related to token offerings and cryptocurrencies. 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 on us.

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 Class A Shares may be subject to registration under the Exchange Act if we have assets above $10 million and more than 2,000 holders of Class A Shares, 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 Class A Shares 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.

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.

Page 6 of 27

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.

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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. Our failure to comply with existing or future regulations, including federal securities laws that apply to GAB Tokens or our subsequent sale of tokens, including transfers on trading platforms that may be operating without compliance with applicable federal securities laws, could result in an enforcement action against us by the SEC, the criminal liability of our principals or civil liabilities being imposed against us, which could result in our requirement to pay substantial penalties or damages, or otherwise have a material adverse effect on our business.

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 and enhance our product offerings as the market demands. The development of such updates and enhancements to our platform will require capital funding, expertise of management and time and effort in order to be successful. It is possible that one or more of these contemplated updates or enhancements may never be developed or released. Even if successfully developed and released, such updates or enhancements may not be successful and may not result in an increase in revenue.

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.

We depend on certain third party providers, including web hosting providers and payment processors, which have the right to terminate their services at any time. We have recently experienced service terminations which have adversely effected our business, and have experienced difficulties finding alternative providers. We could experience additional service disruptions in the future and may have difficulty finding alternative providers.

We rely on third-party service providers to operate our business, including, third party hosting services and payment processors which may terminate services at any time. Any interruption, downtime or cancelation of such third-party services, could have a negative impact on our ability to operate our business. We previously relied on Microsoft Azure as our hosting platform, however on September 30, 2018, we mutually agreed to terminate our hosting contract with Microsoft, after Microsoft demanded that we remove first amendment protected speech or face service termination. We previously relied on Stripe to provide us with payment processing services.  Stripe terminated their relationship with us after it alleged that we did not meet Stripe’s standards for preventing adult content from being sold on the platform, although we do not allow adult content to be sold on our platform.  

Although we were able to secure alternative hosting and payment platforms, on October 28, 2018, as a result of certain postings on our platform related to the shooting in a Pittsburg Synagogue, our hosting platforms terminated our service agreements.   Although we were able to secure a new hosting platform from Sibyl, our website was down for six days. See - Our Business – Material Contracts.  As a result of the same incident, on October 27, 2018 and November 7, 2018, two of our payment processors terminated their services with us, and we were unable to secure a new payment processor until January 16, 2019, and had to rely on receiving subscription fees in the form of checks and money orders from our customers, which resulted in a 90% decline in payments for our subscription services. If any future payment processor terminates our service agreement, it would have a material adverse effect on our business. The inability to secure and maintain webhosting platforms and payment processing, could lead to downtime of our website and applications and impact our ability to collect subscription fees from our customers, either of 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.  We have a plan to establish our own hosting platform, to mitigate potential downtime from the cancellation of services from third party hosting platforms, however, we may be unable to do so at prices or costs that are favorable to us.

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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 and must attract and retain additional talent.

Our future success depends on the efforts of key personnel and consultants, especially our founder, Andrew Torba, and the need to attract and retain additional talent. The loss of services of any key personnel, or the in ability to attract and retain additional talent, may have an adverse effect on us.  As a result of the controversial nature of our platform, we may have a difficult time attracting and retaining additional personnel, as such personnel may become the subject of personal harassment from activists and the mainstream media.  On October 28, 2018, our former Chief Technology Officer, who resides in Turkey, resigned from his position after two years of mainstream press attacks on Gab took a toll on him personally.  There can be no assurance that we will be successful in attracting and retaining other personnel we require to successfully grow our business.

We are particularly susceptible to negative press.

Due to the controversial nature of our free speech platform, we are particularly susceptible to negative publicity. For example, as a result of postings on our platform by the alleged shooter in the tragic Synagogue shooting in Pittsburgh on October 27, 2018, we and our founder received a significant amount of negative press. The negative press resulting from this incident and any negative press resulting from any future activities on our platform, could have a material adverse impact on our business, including, but not limited to, a decrease in subscribers, potential bans of our platform in foreign jurisdictions, the loss of third party service providers such as web hosting services and payment services, on which the operation of our platform depends and the inability to retract and retain talent. See Risk Factors – Third Party Providers.

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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 84% of the shares of our issued and outstanding Common Stock, and controls over 85% 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 proxy terminates upon, the consummation by us of an initial public offering. 

Investors in our Class A Shares will have to assign their voting rights.

As part of this investment, each investor in this offering will be required to agree to the terms of the Subscription Agreement included as Exhibit 4.1 to the Offering Statement of which this Offering Circular is a part. By each such investor’s execution of the Subscription Agreement and under the terms thereof, that investor will grant an irrevocable proxy, giving the right to vote its Class A Shares to our CEO. That will limit investors’ ability to vote their Class A Shares until the events specified in the proxy, which include our IPO or acquisition by another entity, which may never happen.

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.

The Subscription Agreement includes an exclusive venue provision. 

Pursuant to the Subscription Agreement and the Company’s Subscription Agreement, investors will be agreeing that the State of Pennsylvania shall be the sole and exclusive forum for any action, suit or counterclaim arising out of the Subscription Agreement. Therefore, investors may be compelled to travel to Pennsylvania to prosecute or defend any claims involving us.

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.

We have been served a subpoena from the Attorney General of Pennsylvania.

On November 5, 2018, we were served with a document subpoena from the Attorney General of the Commonwealth of Pennsylvania issued under the authority of 71 P.S. § 307-3, which provides the Bureau of Consumer Protection authority to investigate matters relating to commercial and trade practices, which subpoena we responded to on November 19, 2018. We do not believe we have violated any laws, however, if we are deemed to have violated any laws, the same could result in fines and penalties, or an order for us to cease operating our business. Even if we are not found to have violated any laws, such investigation could be time consuming and divert management attention from administering our core business, and the continuation of the same could result in significant legal costs. We may also in the future become involved in other investigations or lawsuits which could divert management’s attention from operations and cost substantial sums of money to prosecute or defend.

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DILUTION

Dilution means a reduction in value, control or earnings of the shares 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 currently outstanding GAB Token, has the same economic rights as each share of our Class A Shares. This means that the book value for each Class A Share you purchase is diluted because the book value per share of all the Class A Shares and GAB Tokens is the same, but you paid more for your Class A Shares than the Primary Investors paid for their Class A Shares, or investors paid for their GAB Tokens.

The following tables compare the price that investors in this offering will pay for their Class A Shares assuming the sale of 25%, 50%, 75% and 100% of the Class A Shares we are offering, with the effective cash price paid for the common stock by the Primary Investors, for the common stock by the investors in our initial Regulation CF Offering, and by the investors for GAB Tokens in our concurrent Regulation CF offering. The figures assume the sale of all GAB Tokens for $4.00 per GAB Token, we are offering in our concurrent Regulation CF offering, and includes an award of 580 bonus GAB Tokens to be issued to 23 investors who invested in the Regulation CF Offering during the first 24 hours after its launch. The table includes an aggregate of 3,000,000 Class A Shares previously held by two of our former officers, which were cancelled in connection with their respective separations from the company during 2018.

25% or $2,500,000

	Shares/Tokens Purchased					Total Consideration
	Number		Percent			Amount		Percent			Avg Price Per Share
Founders		9,000,000		83.614	%	$	270.00		0.006	%	$	0.0000
2017 Regulation CF Investors		995,641		9.250	%	$	1,070,000.00		23.059	%	$	1.0747
2018 Regulation CF Investors		268,070		2.490	%	$	1,070,000.00		23.059	%	$	3.9915
New Investors		500,000		4.645	%	$	2,500,000.00		53.876	%	$	5.0000
TOTAL		10,763,711		100.000	%	$	4,640,270.00		100.000	%	$	0.4311

50% or $5,000,000

	Shares/Tokens Purchased					Total Consideration
	Number		Percent			Amount		Percent			Avg Price Per Share
Founders		9,000,000		79.903	%	$	270.00		0.004	%	$	0.0000
2017 Regulation CF Investors		995,641		8.839	%	$	1,070,000.00		14.985	%	$	1.0747
2018 Regulation CF Investors		268,070		2.380	%	$	1,070,000.00		14.985	%	$	3.9915
New Investors		1,000,000		8.878	%	$	5,000,000.00		70.025	%	$	5.0000
TOTAL		11,263,711		100.000	%	$	7,140,270.00		100.000	%	$	0.6339

75% or $7,500,000

75% or $7,500,000
	Shares/Tokens Purchased					Total Consideration
	Number		Percent			Amount		Percent			Avg Price Per Share
Founders		9,000,000		76.506	%	$	270.00		0.003	%	$	0.0000
2017 Regulation CF Investors		995,641		8.464	%	$	1,070,000.00		11.099	%	$	1.0747
2018 Regulation CF Investors		268,070		2.279	%	$	1,070,000.00		11.099	%	$	3.9915
Concurrent Regulation CF Investors		1,500,000		12.751	%	$	7,500,000.00		77.799	%	$	5.0000
TOTAL		11,763,711		100.000	%	$	9,640,270		100.000	%	$	0.8195

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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		73.387	%	$	270.00		0.002	%	$	0.0000
2017 Regulation CF Investors		995,641		8.119	%	$	1,070,000.00		8.814	%	$	1.0747
2018 Regulation CF Investors		268,070		2.186	%	$	1,070,000.00		8.814	%	$	3.9915
New Investors		2,000,000		16.308	%	$	10,000,000.00		82.370	%	$	5.0000
TOTAL		12,263,711		100.000	%	$	12,140,270.00		100.000	%	$	0.9899

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 or warrants 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. 

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

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PLAN OF DISTRIBUTION

We are offering a maximum of 2,000,000 Class A Shares on a “best efforts” basis.

We are not selling the shares 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 Class A Shares 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 Class A Shares via credit card (if this option is available and approved through StartEngine’s credit card processing provider), wire transfer or ACH transfer.

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 Class A Shares through StartEngine.com by clicking on the Invest Now button and completing a subscription agreement. Once investors submit their subscription and payment, they shall not have the right to rescind their subscription.

Subscriptions may be rejected by us 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 through ACH, and within five (5) business days after the investor provides wire transfer instructions to StartEngine, for funds tendered by wire transfer. Upon any rejection of a subscription, all funds received in connection with such subscription will be promptly returned to such investor without interest.

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 (the “Execution Notification”). Funds tendered by credit card, wire transfer and ACH transfer will be held by Prime Trust, our escrow agent until the applicable closing.

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Closings

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

We intend to hold the initial closing on or about 30 days after the sale of the securities commence, 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 Class A Shares within three (3) business days after the closing of their subscription.

USE OF PROCEEDS

We estimate that, at a per share price of $5.00, the net proceeds from the sale of the 2,000,000 Class A Shares in this offering will be approximately $9,654,542, after deducting the estimated offering expenses of approximately $345,458 (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 Class A Shares we are offering. There is no guarantee that we will be successful in selling any of the Class A Shares we are offering.

	25%		50%		75%		100%
Class A Shares 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	$	303,865	$	317,729	$	331,594	$	345,458
Net proceeds to the company	$	2,196,135	$	4,682,271	$	7,168,406	$	9,654,542

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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 Class A Shares 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	$	1,396,135	$	2,182,271	$	3,668,406	$	4,654,542
TOTAL	$	2,196,135	$	4,682,271	$	7,168,406	$	9,654,542

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 online chat rooms and electronic bulletin boards for the transmission of messages among users in the field of general interest. We have over 835,000 users from around the world, with our top five markets being the United States, Brazil, the United Kingdom, Canada and Germany. As of the date hereof, approximately 43.4% of our users are located in the United States, 22.7% in Brazil, 7.7% in the United Kingdom, 4.6% in Canada and 3.3% in Germany.

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. Our GAB Tokens are not intended to interact with our platform in any way.

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 December 13, 2018, we had over 5,000 GabPro subscribers.

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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.

Our Market and Industry

We welcome all people to speak freely. To defend themselves and promote their causes, the oppressed need voices, and if one is to adopt an objective principle that defends the free speech and privacy rights of any oppressed group, one has defended all oppressed groups, whether our management agrees with them or not. 

As censorship undertaken by and at the behest of major platforms like Twitter and Facebook grows, marginalized people from every background – and the interesting conversations they have – need a safe place to engage in public, and where necessary anonymous, expression.

We, by choosing American rules as our own, are in a unique position to extend crucial civil liberties protections that other countries lack to marginalized people all over the planet, including journalists, members of religious minorities, LGBTQ+ persons, and politically exposed persons or viewpoints.

We also 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. As mainstream social networks continue to crack down on "objectionable content" and censor dissenting 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. 

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Material Agreements

We currently host our web platform through Sibyl System Ltd., a hosting platform based in Norway. Under the Terms of Service, we pay Sibyl $1,175 per month. The term of the Agreement is monthly, and is terminable by either party, at any time, on 30 days advanced written notice, however, may be terminated by either party immediately if the other party materially breaches the agreement. See Risk Factors - We depend on certain third party providers, including web hosting providers and payment processors, which have the right to terminate their services at any time. We have recently experienced service terminations which have adversely effected our business, and have experienced difficulties finding alternative providers. We could experience additional service disruptions in the future and may have difficulty finding alternative providers.

We also rely on Wholesale Processing Systems, LLC, to handle our payment processing. The terms and conditions has a term of 48 months, however, may be terminated by Wholesale Processing Systems, at any time, immediately, upon the request of MasterCard, Visa or any other issuing banks with which Wholesale Processing Systems is affiliated, or, by either party, at any time, on 30 days’ prior notice. Under our Agreement, we pay Wholesale Processing Systems, a processing fee equal to 4.5% of the amounts processed, plus $0.30 per transaction.

We have entered into a Service Agreement with StartEngine Crowdfunding, Inc., to provide software and services relating to the recording of the issuance, transfer and registration of the GAB Tokens and associated holders through its LDGR platform. Under the Service Agreement, we are obligated to pay StartEngine (a) 5 ETH annually for the use of a securities symbol for the GAB Tokens, (b) 1 ETH for each issuance of GAB Tokens, (c) 0.02 ETH for each uploaded GAB Token holder, and (d) 0.02ETH for each recorded transaction reflecting a transfer of GAB Tokens. The Services Agreement has a term of one year, beginning upon the qualification of this Offering, which automatically renews for successive one-year terms unless either party provides written notice of cancellation 30 days prior to the end of any applicable term period. In addition, either party may terminate this Agreement (i) at any time upon 30 days’ notice. 

Our Accomplishments

We launched into private invite-only beta in August 2016. As of December 13, 2018, we had over 835,000 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. In the 30 days prior to December 13, 2018, approximately 200,000 of our registered users have logged into our platform. 

With our nimble technology team, we have built out an impressive suite of products including Gab Chat Rooms, our private group chat product, and Live Topics, and our crowdsourced news and discussion product. As of November 2018, we were a top 5,000 website in the United States, up from being in the top 8,000 as of July 2017, and a top 11,000 website globally, up from being in the top 26,000 as of July 2017. Since launch, Gabbers have driven over 150 million page views. 

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 as Minds.

Legal Proceedings

We are currently not involved in any legal proceedings, however, on November 5, 2018, we were served with and responded to a subpoena from the Attorney General of the Commonwealth of Pennsylvania issued under the authority of 71 P.S. § 307-3, which provides the Bureau of Consumer Protection authority to investigate matters relating to commercial and trade practices. We do not believe we have violated any laws or that the investigation will have any adverse effects on us.

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

Overview

Gab AI Inc., was incorporated on September 9, 2016 (“Inception”), 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

Six Months ended June 30, 2018 Compared to Six Months Ended June 30, 2017

Our revenues increased to $133,408 for the six months ended June 30, 2018 (“Interim 2018”) from $26,182 for the six months ended June 30, 2017 (“Interim 2017”).   The increase primarily resulted from significant growth in our user base and GAB Pro subscriptions, as well as the commencement of merchandise sales. As a result of certain postings on our platform related to the shooting in a Pittsburg Synagogue, on October 27, 2018 and November 7, 2018, two of our payment processors terminated their services with us, and had to rely on accepting subscription fees in the form of checks and money orders from our customers between November 7, 2018 and January 16, 2019, which resulted in an approximate 90% decline in payments for our subscription services. Therefore, there will be a significant decline in our revenue for the fourth quarter of 2018. If any future payment processor terminates our service agreement, or if we are unable to obtain sufficient amounts of capital from this offering or future fundraising efforts, we may be required to reduce the scope of our planned development and operations, which could harm our business, financial condition, and operating results. See Risk Factors - We depend on certain third party providers, including web hosting providers and payment processors, which have the right to terminate their services at any time. We have recently experienced service terminations which have adversely effected our business, and have experienced difficulties finding alternative providers. We could experience additional service disruptions in the future and may have difficulty finding alternative providers.

Cost of revenues increased to $44,344 for Interim 2018 from $3,995 for Interim 2017. The increase primarily resulted from payments to content creators, merchandise costs, and higher web hosting costs.

Our gross profit increased to $89,064 for Interim 2018 from $22,187 for Interim 2017 primarily due to higher revenue as discussed above. Gross margins decreased to 67% for Interim 2018 from 85% for Interim 2017 primarily due to the commencement of payments to content creators and merchandise sales, which have higher costs than subscription revenue.

Our operating expenses consist of general and administrative expenses, sales and marketing and research and development. Operating expenses totaled $254,537 for Interim 2018, compared to $138,206 for Interim 2017. The increase primary resulted from:

· An increase in sales and marketing expenses to $13,793 for Interim 2018 from $2,666 for Interim 2017, primarily resulting from Facebook advertising costs.

· An increase in general and administrative expenses to $183,542 for Interim 2018 from $97,637 for Interim 2017, primarily resulting from higher payroll and contractor costs.

· An increase in research and development expenses to $57,202 for Interim 2018 from $37,903 for Interim 2017, primarily resulting from higher contractor costs.

Other income was $5,449 for Interim 2018, compared to $91,035 for Interim 2017. The change was due to a decrease in donation income.

As a result of the foregoing, net loss increased to $160,454 in Interim 2018, from $23,142 for Interim 2017.

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2017 compared to 2016

Revenue increased from $0 to $93,260 for the period from Inception to December 31, 2016 and the year ended December 31, 2017, respectively, primarily due to the commencement of Gab Pro, our premium-user subscription program, in 2017. Cost of revenue increased from $0 to $49,843 for the period from Inception to December 31, 2016 and the year ended December 31, 2017, respectively. Cost of revenue increased due to the commencement of revenue-generating activities in 2017 and consists primarily of certain software subscription fees, hosting fees, and payment processing fees.

Our operating expenses consist of sales and marketing expenses, general and administrative expenses, and research and development expenses. Operating expenses increased from $46,151 to $364,676 for the period from Inception to December 31, 2016 and the year ended December 31, 2017, respectively.

Sales and marketing expenses increased from $57 to $15,168 for the period from Inception to December 31, 2016 and the year ended December 31, 2017, respectively, due to higher advertising expenses. General and administrative expenses increased from $27,483 to $258,207 for the period from Inception to December 31, 2016 and the year ended December 31, 2017, respectively, primarily due to higher payroll costs and legal expenses. Research and development expenses increased from $18,611 to $91,301 for the period from Inception to December 31, 2016 and the year ended December 31, 2017, respectively, primarily due to higher contractor costs.

Other income increased from $58,792 to $121,034 for the period from Inception to December 31, 2016 and the year ended December 31, 2017, respectively. The increase in other income was due to more donations, which increased from $58,792 to $116,882 for the period from Inception to December 31, 2016 and the year ended December 31, 2017, respectively, and realized gains of $4,152 related to our cryptocurrency holdings.

As a result of the foregoing, we recognized a net loss of $201,704 for the year ended December 31, 2017, compared to net income of $11,087 for the period from Inception to December 31, 2016.

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 995,641 shares of our common stock. We are also concurrently engaging in a Regulation CF offering of GAB Tokens for $4.00 per GAB Token, which has been fully subscribed. As of December 1, 2018, we had closed on $420,972 in such offering.

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As of December 31, 2017, we had $637,291 in cash and did not have any loans or available credit facilities. As of June 30, 2018, we had $506,771 in cash, primarily as a result of funds received in connection with our concurrent Regulation CF Offering. We will incur additional costs for the development and maintenance of our networking platform, along with general operations. We intend to fund our operations using funds raised through Regulation Crowdfunding in 2018, premium subscription revenue, donations, funds received through this offering, and additional debt and/or equity financing, as necessary. As a result of certain postings on our platform related to the shooting in a Pittsburg Synagogue, on October 27, 2018 and November 7, 2018, two of our payment processors terminated their services with us, and we were unable to secure a new payment processor until January 16, 2019, and had to rely on accepting subscription fees in the form of checks and money orders from our customers, which resulted in an approximate 90% decline in payments for our subscription services. If any future payment processor terminates our service agreement, or if we are unable to obtain sufficient amounts of capital from this offering or future fundraising efforts, we may be required to reduce the scope of our planned development and operations, which could harm our business, financial condition, and operating results. See Risk Factors - We depend on certain third party providers, including web hosting providers and payment processors, which have the right to terminate their services at any time. We have recently experienced service terminations which have adversely effected our business, and have experienced difficulties finding alternative providers. We could experience additional service disruptions in the future and may have difficulty finding alternative providers.

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 in-house 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 in-house 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. Throughout 2019, 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 in-house 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
Q1- 2019	·  Refine user experience and user interface to make the product more user friendly.	$150,000
	·  Integrate new payment processing solutions.
	·  Improve product performance and speed. ·  Redesign user onboarding experience  ·  Launch Gab commenting plugin for third-party publishers
Q-1 2019	·  Commence development of in-house infrastructure. ·  Build out developer ecosystem on the Gab API ·  Refine new payment processing solutions. ·  Add more value to GabPro. ·  Continue building out Gab Commenting plugin for third-party publishers.	$250,000
Q-4 2019	·  Expand engineering team to scale backend infrastructure. ·  Scale Gab Commenting engine for large publishers. ·  Build out audio/podcast sharing functionality .	$750,000

The extent to which we will be able to complete the milestones outlined above is dependent upon the funds raised in this offering. If we do not raise a sufficient amount of funds in this offering, we may not incur all the costs or complete all the milestones outlined above.

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

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.

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.

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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	Former Chief Technology Officer	$	66,350		0	$	66,350
Utsav Sanduja(3) 4817 Apple Bossom Circle, Mississauga, Ontario L5V 3C6, Canada	Former Chief Communications Officer	$	30,000		0	$	30,000

(1) Mr. Torba currently receives annual compensation in the amount of $80,000.

(2) Mr. Büyükkaya, our former Chief Technology Officer received annual compensation in the amount of $60,000, however, he separated from us in October 2018. In connection with such separation, we paid Mr. Büyükkaya severance in the amount of $60,000.  

(3) Mr. Sanduja, our former Chief Communications Officer received annual compensation in the amount of $60,000, however, he separated from us in June 2018. In connection with such separation, we paid Mr. Sanduja severance in the amount of $15,000.

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

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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS

Set forth below is information regarding the beneficial ownership of our common stock (which includes our Class A Shares and GAB Tokens), as of December 1, 2018, by (i) each person whom we know owned, beneficially, more than 10% of the outstanding 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
Class A Common Stock	Andrew Torba 700 N State Street Clarks Summit, Pa 18411		6,000,000		0		85.77	%
Class A Common Stock	All directors and officers as a group (1 person)		6,000,000		0		85.77	%

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 24 of 27

SECURITIES BEING OFFERED

In this Offering, we are offering to investors Class A Voting Common Stock.

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 December 1, 2018, we had 6,995,641 Class A Shares outstanding and 106,354 GAB Tokens outstanding, and are currently in the process of closing on an additional 160,625 GAB Tokens in connection with our concurrent Regulation CF Offering. We also have an outstanding warrant to purchase 50,000 Class A Shares having an exercise price of $4.00 per share.

The rights of investors in Class A Shares are governed by our Certificate of Incorporation, which are described below, and the rights of the holders of GAB Tokens are governed by our Certificate of Incorporation and the terms of the smart contract for the GAB Tokens, which are described below.

Certificate of Incorporation

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 Shares, to increase the number of authorized Class A Shares 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 Shares 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 privileges of the Class A Shares.

The holders of Class A Shares, together with the holders of GAB Tokens, 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 Class A Shares, together with the holders of our GAB Tokens, 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 Class A Share shall be entitled to receive the same dividend or distribution to which each GAB Token is entitled to receive.

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

The holders of Class A Shares are entitled to one vote per share, however, the holders of Class A Shares issued in this offering shall grant a voting proxy to our CEO, that will limit investors’ ability to vote their Class A Shares until the occurrence of events specified in the proxy, which include the company’s IPO or acquisition by another entity, which may never happen. The holders of GAB Tokens have no voting rights, except as provided under Delaware law, which include the right to vote on an amendment to our Certificate of Incorporation if the amendment would increase or decrease the par value of the Gab Tokens or alter or change the powers, preferences, or special rights of the GAB Tokens so as to affect them adversely. For purposes of clarity, an amendment to authorize a class of stock with rights superior to the rights of the holders of GAB Tokens, would not be subject to the approval of GAB Token holders.

GAB Tokens and Class A Shares are different classes of securities, and are therefore are not fungible with each other. There are no differences between the ownership or transferability of GAB Tokens and Class A Shares, except (a) GAB Tokens have no voting rights, and (b) GAB Tokens, which are in the form of an ERC-20 Smart contract, are transferable electronically with the approval of our transfer agent.

We have structured our GAB Tokens pursuant to Section 224 of the Delaware General Corporation Law, which permits us to maintain our stock ledger on a distributed electronic network, such as the Ethereum blockchain. StartEngine Secure will maintain a separate database off the blockchain that contains all required information about GAB Token holders.

We do not currently intend to issue digital securities representing Class A Shares.

Terms of the GAB Tokens under the Smart Contract

The GAB Tokens are smart contracts based on the ERC-20 standard, modified to address the requirements of securities law and to limit the ability of wallet holders or any persons other than the stock transfer agent to transfer or otherwise change the number of GAB Tokens in a wallet. The smart contract may be changed only by the stock transfer agent by providing the transfer agent with a signed notarized sworn affidavit attached to a letter explaining the loss and providing a new Ethereum wallet address. The smart contact has no transfer functionality that can be accessed by a securities holder. Therefore any vulnerabilities, including bugs, errors or hacks, can be fixed by issuing a new smart contract to the affected securities holders. Because the GAB Tokens represent our Class B Common Stock, there is no limitation embedded in the smart contract on the number of GAB Tokens that can be created. The overall potential number of GAB Tokens will be a function of corporate law, and will be increased in accordance with laws of the state of Delaware and our Certificate of Incorporation and Bylaws.  Under the terms of the smart contract, a single GAB Token may not be divided into fractions of a GAB Token and only whole GAB Tokens may be transferred or accepted.  We have entered into a Service Agreement with StartEngine Crowdfunding, Inc., to provide software and services relating to the recording of the issuance, transfer and registration of the GAB Tokens and associated holders through its LDGR platform. See - See - Our Business – Material Contracts.

The GAB Token smart contract shall require the authorization of StartEngine to transfer GAB Tokens, which will record all transfers in the transfer ledger. To effect a transfer, the applicable broker-dealer will confirm that a requested transfer is permitted under applicable securities law, verify the purchase agreement terms, and obtain the seller and purchaser wallet addresses. StartEngine Secure will then obtain verification from Prime Trust that the transfer is permitted pursuant to applicable KYC/AML laws, and if so, shall approve the transfer and enter the new investor data into the stock ledger. Each holder shall have control of their own private key for their digital wallet that holds their Gab Tokens. If a holder desires to transfer their Gab Tokens, the smart contract will communicate with our transfer agent, StartEngine Secure, which shall be required to confirm the transfer and record it in the transfer ledger, prior to completion of the transfer.

As a regulated, chartered financial institution, Prime Trust is required to maintain a robust, Patriot Act compliant AML program that is subject to external audit and periodic examinations by banking regulators and the US Treasury. Prime Trust employ a chief compliance officer, and maintains detailed policies and procedures which have been vetted by regulatory authorities. Its systems are built to perform KYC, collect customer data and complete AML background checks. With the collected data Prime Trust runs a rigorous analysis to verify the identity of the customer.

Page 25 of 27

GAB AI INC.

BALANCE SHEETS

(UNAUDITED)

	June 30, 2018			December 31, 2017
ASSETS
Current Assets
Cash	$	506,771		$	637,291
Prepaid expenses		6,398			19,195
Deferred offering costs		150,000			100,000
Other current assets		2,574			2,574
Total Current Assets		665,743			759,060
Noncurrent Assets
Fixed assets		2,679			—
Intangible assets		17,509			17,509
Total Assets	$	685,931		$	776,569
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	3,879		$	357
Accrued liabilities		—			2,305
Deferred revenue		53,040			48,296
Total Current Liabilities		56,919			50,958
Commitment and Contingencies (Note 3)
Common stock, par value $0.0001; 12,000,000 shares authorized; 9,995,641 issued and outstanding as of June 30, 2018 and December 31, 2017, respectively		1,000			1,000
Non-voting common stock, par value $0.0001; 8,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2018 and December 31, 2017		—			—
Additional paid-in capital		979,083			981,391
Subscription receivable		—			(66,163	)
Accumulated deficit		(351,071	)		(190,617	)
Total Stockholders’ Equity		629,012			725,611
Total Liabilities and Stockholders’ Equity	$	685,931		$	776,569

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

F-1

GAB AI INC.

STATEMENTS OF OPERATIONS

(UNAUDITED)

	Six Months Ended
	June 30,
	2018			2017
Revenue	$	133,408		$	26,182
Cost of revenue		44,344			3,995
Gross Profit		89,064			22,187
Operating Expenses
Sales and marketing		13,793			2,666
General and administrative		183,542			97,637
Research and development		57,202			37,903
Total Operating Expenses		254,537			138,206
Operating Loss		(165,473	)		(116,019	)
Other Income
Donation income		(5,449	)		(91,035	)
Realized gains		—			(3,321	)
Loss Before Income Taxes		(160,024	)		(21,663	)
Provision for income taxes		430			1,479
Net Loss	$	(160,454	)	$	(23,142	)
Net Loss per Common Share – Basic and Diluted	$	(0.02	)	$	(0.00	)
Weighted Average Common Shares Outstanding – Basic and Diluted		9,995,641			9,000,000

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

F-2

GAB AI INC.

STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	June 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(160,454	)	$	(23,142	)
Adjustments to reconcile net loss to cash flows used in operating activities:
Depreciation		321			—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		12,797			(934	)
Accounts payable		3,522			—
Accrued liabilities		(2,305	)		1,000
Deferred revenue		4,744			19,482
Net cash used in operating activities		(141,375	)		(3,594	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets		(3,000	)		—
Net cash used in investing activities		(3,000	)		—
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued for cash		66,163			—
Offering costs		(52,308	)		—
Net cash provided by financing activities		13,855			—
Decrease in Cash		(130,520	)		(3,594	)
Cash, Beginning of Period		637,291			16,187
Cash, End of Period	$	506,771		$	12,593
Supplemental disclosures of cash flow information:
Cash paid for interest	$	—		$	—
Cash paid for income taxes	$	430		$	1,479

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

F-3

GAB AI INC.

STATEMENT OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

	Common Stock				Additional Paid-in			Subscription			Accumulated			Stockholders’
	Shares		Amount		Capital			Receivable			Deficit			Equity
Balance at December 31, 2017		9,995,641	$	1,000	$	981,391		$	(66,163	)	$	(190,617	)	$	725,611
Offering costs		—		—		(2,308	)		2,308			—			—
Receipt of subscription receivable		—		—		—			63,855			—			63,855
Net loss		—		—		—			—			(160,454	)		(160,454	)
Balance at June 30, 2018		9,995,641	$	1,000	$	979,083		$	—		$	(351,071	)	$	629,012

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

F-4

GAB AI INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 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 Clarks Summit, 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.

Going Concern

The Company has incurred losses from operations and had an accumulated deficit of $351,071 as of June 30, 2018. Additionally, the Company had negative cash flows from operations totaling $141,375 for the six months ended June 30, 2018. We will incur additional costs for the development and maintenance of our networking platform along with general operating costs. These factors raise doubt about the Company’s ability to continue as a going concern.

The Company raised $1.07 million in its previous Regulation Crowdfunding offering and commenced revenue-generating activities in 2017. Additionally, the Company commenced a second Regulation Crowdfunding offering subsequent to June 30, 2018 and is planning a Regulation A offering later in 2018, for which over $5 million of testing-the-waters reservations have already been received. Based on the Company’s cash balance of $506,771 as of June 30, 2018, increasing income from premium subscription services, the Company’s current Regulation Crowdfunding offering, and its planned Regulation A offering, management believes that the factors indicating substantial doubt about the Company’s ability to continue as a going concern are alleviated, and that the Company will have sufficient access to capital over the next twelve months to continue normal operating activities.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and in accordance with Rule 8-03 of Regulation S-X per Regulation A requirements. Certain information and disclosures normally included in the annual financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included. These interim financial statements should be read in conjunction with the audited annual financial statements of the Company for the year ended December 31, 2017 included within the Company’s Form 1-K as filed with the Securities and Exchange Commission. The results of operations for the six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. 

Use of Estimates 

The preparation of financial statements in conformity with US 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.

F-5

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 June 30, 2018 and December 31, 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 (expense) in our statement of operations.

We occasionally use our cryptocurrencies to purchase other cryptocurrencies. Gains and losses realized on these non-cash transactions are also recorded in other income (expense) in our statement of operations and are presented as an adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities in our statement of cash flows.

During the six months ended June 30, 2018 and 2017, the Company realized gains of $0 and $3,321 in the statement of operations. The following table presents the cryptocurrencies held by the Company as of June 30, 2018 and December 31, 2017. All amounts are in U.S. dollars at historical cost.

	June 30, 2018		December 31, 2017
Bitcoin Cash (BCH)	$	36	$	36
Bitcoin (BTC)		2,513		2,513
Ether (ETH)		25		25
	$	2,574	$	2,574

Internal Use Software

We incur software development costs to develop software programs to be used solely to meet our internal needs and cloud-based applications used to deliver our services. In accordance with Accounting Standards Codification (“ASC”) 350-40, Internal-Use Software, we capitalize development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended. No costs have been capitalized to date.

F-6

Intangible Assets

The Company’s intangible assets are comprised of its trademark and web domain. These intangible assets were determined to be indefinite-lived and are reviewed for impairment whenever events or other changes in circumstances indicate that the carrying amount may not be recoverable. The impairment testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value. Impairment charges, if any, are recorded in the period in which the impairment is determined. As of June 30, 2018 and December 31, 2017, intangible assets were comprised of the following:

	June 30, 2018		December 31, 2017
Trademark	$	14,484	$	14,484
Website domain		3,025		3,025
Total	$	17,509	$	17,509

Equity Offering Costs

The Company accounts for offering costs in accordance with ASC 340, Other Assets and Deferred Costs. Prior to the completion of an offering, offering costs will be capitalized as deferred offering costs on the balance sheet. The deferred offering costs will be charged to stockholders’ equity upon the completion of an offering or to expense if the offering is not completed. Offering costs of $150,000 and $100,000 related to the Company’s planned Regulation A offering were capitalized as of June 30, 2018 and December 31, 2017, respectively. Offering costs of $2,308 related to the Company’s previous Regulation Crowdfunding offering were charged to stockholders’ equity during the six months ended June 30, 2018. No offering costs were charged to stockholders’ equity during the six months ended June 30, 2017.

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 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 an equity instrument 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 and other variables, as appropriate, 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 recognizes revenue from its premium-user subscription model and transaction fees 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.

Income (Loss) per Common Share

The Company presents basic income (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, 2018 and 2017, the Company had no dilutive securities outstanding.

F-7

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

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, and has issued subsequent amendments to this guidance. 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 guidance is effective for interim and annual periods beginning after December 15, 2017 for public business entities and December 31, 2018 for all other entities. 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 – 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 4 – STOCKHOLDERS’ EQUITY

Common Stock

The Company has authorized 12,000,000 shares of common stock with $0.0001 par value, of which 9,995,641 shares were outstanding as of June 30, 2018 and December 31, 2017. During the six months ended June 30, 2018, the Company recognized offering costs of $2,308 and received $63,855 from its subscription receivable, both related to its previous Regulation Crowdfunding offering in 2017.

The Company has also authorized 8,000,000 shares of non-voting common stock with $0.0001 par value. No shares of non-voting common stock have been issued as of June 30, 2018.

NOTE 5 – SUBSEQUENT EVENTS

Subsequent to June 30, 2018, the Company sold 106,354 shares of non-voting common stock deliverable in token form for gross proceeds of 425,416 through its Regulation Crowdfunding offering.

The Company has evaluated subsequent events that occurred after June 30, 2018 through September 27, 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-8

GAB AI INC.

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2017 AND 2016

AND FOR THE YEAR ENDED DECEMBER 31, 2017 AND THE PERIOD FROM SEPTEMBER 9, 2016 (INCEPTION) TO DECEMBER 31, 2016

F-9

GAB AI INC.

TABLE OF CONTENTS

	PAGE
Independent Auditors’ Report	F-11
Balance Sheets	F-12
Statements of Operations	F-13
Statements of Cash Flows	F-14
Statements of Stockholders’ Equity	F-15
Notes to Financial Statements	F-16

F-10

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 sheets as of December 31, 2017 and 2016, and the related statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2017 and 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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, 2017 and 2016, and the results of its operations and its cash flows for the year ended December 31, 2017 and the period from September 9, 2016 (Inception) to December 31, 2016, in accordance with accounting principles generally accepted in the United States of America.

/s/ dbbmckennon

Newport Beach, CA

June 21, 2018

F-11

GAB AI INC.

BALANCE SHEETS

AS OF DECEMBER 31, 2017 AND 2016 

	December 31, 2017			December 31, 2016
ASSETS
Current Assets
Cash	$	637,291		$	16,187
Prepaid expenses		19,195			—
Deferred offering costs		100,000			—
Other current assets		2,574			—
Total Current Assets		759,060			16,187
Noncurrent Assets
Intangible assets		17,509			—
Total Assets	$	776,569		$	16,187
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	357		$	—
Accrued liabilities		2,305			—
Related party advances		—			5,000
Deferred revenue		48,296			—
Total Current Liabilities		50,958			5,000
Commitments and Contingencies (Note 3)
Stockholders’ Equity
Common stock, par value $0.0001; 12,000,000 shares authorized; 9,995,641 and 9,000,000 shares issued and outstanding as of December 31, 2017 and 2016, respectively		1,000			900
Non-voting common stock, par value $0.0001; 8,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2017 and 2016		—			—
Additional paid-in capital		981,391			—
Subscription receivable		(66,163	)		(800	)
Accumulated deficit		(190,617	)		11,087
Total Stockholders’ Equity		725,611			11,187
Total Liabilities and Stockholders’ Equity	$	776,569		$	16,187

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

F-12

GAB AI INC.

STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2017 AND

PERIOD FROM SEPTEMBER 9, 2016 (INCEPTION) TO DECEMBER 31, 2016 

	2017			2016
Revenue	$	93,260		$	—
Cost of revenue		49,843			—
Gross Profit		43,417			—
Operating Expenses
Sales and marketing		15,168			57
General and administrative		258,207			27,483
Research and development		91,301			18,611
Total Operating Expenses		364,676			46,151
Operating Loss		(321,259	)		(46,151	)
Other (Income)
Donation income		(116,882	)		(58,792	)
Realized gains		(4,152	)		—
(Loss) Income Before Income Taxes		(200,225	)		12,641
Provision for income taxes		1,479			1,554
Net (Loss) Income	$	(201,704	)	$	11,087
Net Loss per Common Share – Basic and Diluted:	$	(0.02	)	$	0.00
Weighted Average Common Shares Outstanding – Basic and Diluted		9,296,193			9,000,000

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

F-13

GAB AI INC.

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2017 AND

PERIOD FROM SEPTEMBER 9, 2016 (INCEPTION) TO DECEMBER 31, 2016 

	2017			2016
Cash Flows From Operating Activities:
Net (loss) income	$	(201,704	)	$	11,087
Adjustments to reconcile net (loss) income to cash flows (used in) provided by operating activities:
Gain on exchange of cryptocurrencies		670			—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(22,439	)		—
Accounts payable		357			—
Accrued liabilities		2,305			—
Deferred revenue		48,296			—
Net cash (used in) provided by operating activities		(172,515	)		11,087
Cash Flows From Investing Activities:
Acquisition of intangible assets		(17,509	)		—
Net cash used in investing activities		(17,509	)		—
Cash Flows From Financing Activities:
Common stock issued for cash		1,004,122			100
Offering costs		(187,994	)		—
Related party advances		—			5,000
Repayment of related party advances		(5,000	)		—
Net cash provided by financing activities		811,128			5,100
Increase in cash and cash equivalents		621,104			16,187
Cash, beginning of year		16,187			—
Cash, end of year	$	637,291		$	16,187
Supplemental disclosures of cash flow information:
Cash paid for interest	$	—		$	—
Cash paid for income taxes	$	1,479		$	1,554

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

F-14

GAB AI INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2017 AND

PERIOD FROM SEPTEMBER 9, 2016 (INCEPTION) TO DECEMBER 31, 2016 

	Common Stock				Non-Voting Common Stock
	Shares		Amount		Shares		Amount	Additional Paid-in  Capital			Subscription Receivable			Accumulated Deficit			Stockholders’ Deficit
September 9, 2016 (Inception)		—	$	—	—	$	—	$	—		$	—		$	—		$	—
Common stock issued for cash		9,000,000		900	—		—		—			(800	)		—			100
Net income		—		—	—		—		—			—			11,087			11,087
December 31, 2016		9,000,000		900	—		—		—			(800	)		11,087			11,187
Common stock issued for cash		995,641		100	—		—		1,069,385			(65,363	)		—			1,004,122
Offering costs		—		—	—		—		(87,994	)		—			—			(87,994	)
Net loss		—		—	—		—		—			—			(201,704	)		(201,704	)
December 31, 2017		9,995,641	$	1,000	—	$	—	$	981,391		$	(66,163	)	$	(190,617	)	$	725,611

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

F-15

GAB AI INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2017 AND

PERIOD FROM SEPTEMBER 9, 2016 (INCEPTION) TO DECEMBER 31, 2016

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.

Going Concern

Since Inception, we have relied on donations made by our users, funds raised through Regulation Crowdfunding in 2017, and the commencement of premium subscription services in 2017. We will incur additional costs for the development and maintenance of our networking platform along with general operating costs. The Company has incurred losses from operations and had an accumulated deficit of $190,617 as of December 31, 2017. Additionally, the Company had negative cash flows from operations totaling $172,515 for the year ended December 31, 2017. These factors raise doubt about the Company’s ability to continue as a going concern.

The Company raised $1.07 million in its Regulation Crowdfunding offering and commenced revenue-generating activities in 2017. Additionally, the Company is planning a Regulation A offering in 2018, for which over $5 million of testing-the-waters reservations have already been received. Based on the Company’s cash balance of $637,291 as of December 31, 2017, increasing income being produced by premium subscription services, and the Company’s planned Regulation A offering, Management believes that the factors indicating substantial doubt about the Company’s ability to continue as a going concern are alleviated, and that the Company will have sufficient access to capital over the next twelve months to continue normal operating activities.

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 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:

F-16

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, 2017 and 2016. 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.

We occasionally use our cryptocurrencies to purchase other cryptocurrencies. Gains and losses realized on these non-cash transactions are also recorded in other income, net in our statement of operations and are presented as an adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities in our statement of cash flows.

During the year ended December 31, 2017 the Company realized gains of $4,152 in the statement of operations. There were no recorded gains or losses on cryptocurrency holdings for the period from Inception to December 31, 2016. The following table presents the cryptocurrencies held by the Company as of December 31, 2017 and 2016. All amounts are in U.S. dollars at historical cost.

	December 31,
	2017		2016
Bitcoin Cash (BCH)	$	36	$	—
Bitcoin (BTC)		2,513		—
Ether (ETH)		25		—
	$	2,574	$	—

Internal Use Software

We incur software development costs to develop software programs to be used solely to meet our internal needs and cloud-based applications used to deliver our services. In accordance with ASC 350-40 Internal-Use Software, we capitalize development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended. No costs have been capitalized to date.

Intangible Assets

The Company’s intangible assets are comprised of its trademark and web domain. These intangible assets were determined to be indefinite-lived and are reviewed for impairment whenever events or other changes in circumstances indicate that the carrying amount may not be recoverable. The impairment testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value. Impairment charges, if any, are recorded in the period in which the impairment is determined. As of December 31, 2017 and 2016, intangible assets were comprised of the following:

	December 31,
	2017		2016
Trademark	$	14,484	$	—
Website domain		3,025		—
	$	17,509	$	—

F-17

Equity Offering Costs

The Company accounts for offering costs in accordance with Accounting Standards Codification (“ASC”) No. 340, Other Assets and Deferred Costs. Prior to the completion of an offering, offering costs will be capitalized as deferred offering costs on the balance sheet. The deferred offering costs will be charged to stockholders’ equity upon the completion of an offering or to expense if the offering is not completed. Offering costs of $100,000 related to the Company’s planned Regulation A (Tier 2) offering in 2018 were capitalized as of December 31, 2017, and offering costs of $87,994 related to the Company’s Regulation Crowdfunding offering were charged to stockholders’ equity during the year ended December 31, 2017. No offering costs were capitalized as of December 31, 2016, and no offering costs were charged to stockholders’ equity during the period from Inception to December 31, 2016.

Stock-based Compensation

The Company accounts for stock options issued to employees under ASC No. 718, Share-Based Payment (“ASC 718”). 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 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 an equity instrument 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 and other variables, as appropriate, 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 recognizes revenue from its premium-user subscription model and transaction fees 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.

Income Taxes

The Company is taxed as a corporation. Accordingly, the Company applies ASC No. 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.

Income (Loss) per Common Share

The Company presents basic income (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 year ended December 31, 2017 and the period from Inception to December 31, 2016, the Company had no dilutive securities outstanding.

F-18

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

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, and has issued subsequent amendments to this guidance. 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 guidance is effective for interim and annual periods beginning after December 15, 2017 for public business entities and December 31, 2018 for all other entities. 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 – 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 4 – STOCKHOLDERS’ EQUITY

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. As of December 31, 2017 and 2016, 2,671,875 and 0 shares, respectively, were vested. See Note 7 for certain forfeitures related to these restricted shares.

During the year ended December 31, 2017, the Company sold 995,641 shares of common stock through the Company’s Regulation Crowdfunding offering. The Company received gross proceeds of $1,069,485 for which there is a subscription receivable of $65,363 related to the sale of these shares. In connection with this offering, the Company incurred offering costs of $87,994, which reduced additional paid-in capital.

On December 1, 2017, the Company authorized 8,000,000 shares of non-voting common stock with $0.0001 par value. No shares of non-voting common stock have been issued to date.

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 5 – INCOME TAXES

On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Act") was signed into law in the U.S. The Tax Act has resulted in significant changes to the U.S. corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21%, the elimination or reduction of certain domestic deductions and credits, and limitations on the deductibility of interest expense and executive compensation. These changes are effective beginning in 2018.

F-19

We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities, as well as reassessing the net realizability of our deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, we consider the accounting of the transition tax, deferred tax re-measurements, and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions. We expect to complete our analysis within the measurement period in accordance with SAB 118.

The following table presents the current and deferred tax provision for federal and state income taxes for the year ended December 31, 2017 and the period from Inception to December 31, 2016:

	2017			2016
Current tax provision
Federal	$	—		$	—
State		1,479			1,554
	$	1,479		$	1,554
Deferred tax (benefit) provision
Federal	$	(68,000	)	$	—
State		(12,000	)		—
		(80,000	)		—
Valuation allowance		80,000			—
Provision for income taxes	$	1,479		$	1,554

Reconciliations of the U.S. federal statutory rate to the actual tax rate are as follows for the year ended December 31, 2017 and the period from Inception to December 31, 2016:

	2017			2016
Federal tax benefit/provision at statutory rate		34.0	%		34.0	%
Permanent differences:
State taxes, net of federal benefit		6.6	%		6.6	%
Non-deductible meals and entertainment		-0.1	%		—	%
Temporary differences:
Accounts payable and accrued liabilities		-0.1	%		—	%
Other		0.1	%		-28.3	%
Change in valuation allowance		-39.8	%		—	%
Total provision		0.7	%		12.3	%

The components of our deferred tax assets (liabilities) for federal and state income taxes consisted of the following as of December 31:

	Asset (Liability)
	2017			2016
Current:
Other	$	—		$	—
Noncurrent:
Net operating loss carryforwards		80,000			—
Valuation allowance		(80,000	)		—
Net deferred tax asset	$	—		$	—

F-20

Based on federal tax returns filed, or to be filed, through December 31, 2017, we had available approximately $200,000 in U.S. tax net operating loss carryforwards, pursuant to the Tax Reform Act of 1986, which assesses the utilization of a Company’s net operating loss carryforwards resulting from retaining continuity of its business operations and changes within its ownership structure. Net operating loss carryforwards start to expire 2036 or 20 years for federal income and state tax reporting purposes.

The Company is subject to tax in the US and files tax returns in the US federal jurisdiction and Pennsylvania state jurisdiction. The Company is subject to US federal, state, and local income tax examinations by tax authorities for all periods starting in 2016. The Company currently is not under examination by any authority.

NOTE 6 – RELATED PARTY TRANSACTIONS

During the period from Inception to December 31, 2016, the Company’s CEO incurred $5,000 of expenses on behalf of the Company, which was repaid to the CEO by the Company during the year ended December 31, 2017.

NOTE 7 – SUBSEQUENT EVENTS

In June 2018, 281,250 shares of restricted common stock were forfeited and deemed repurchased by the Company based on the terms of certain restricted stock outlined in Note 4.

The Company has evaluated subsequent events that occurred after December 31, 2017 through June 21, 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-21

Part III

EXHIBITS

1.0	Posting Agreement with StartEngine Crowdfunding Inc. (1)
2.1	Amended and Restated Certificate of Incorporation (2)
2.2	Bylaws (3)
3.1	Form of Code for Smart Contract for GAB Tokens (4)
4.1	Form of Subscription Agreement (5)
6.1	StartEngine Secure Services Agreement (6)
6.2	Sibyl System Ltd Web Hosting Terms and Conditions (7)
6.3	StartEngine LEDGR Services Agreement (8)
6.4	Wholesale Processing Systems, LLC, Terms and Conditions (9)
8.1	Escrow Agreement (10)
11.1	Consent of dbbmckennon (11)
12.1	Opinion of Alliance Legal Partners, Inc. (12)
13.1	Test the Waters materials (13)

Notes:

(1) Filed as an exhibit to the GAB AI Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-10797) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1709244/000114420418065375/tv509259_ex1-0.htm  

(2) Filed as an exhibit to the GAB AI Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-10797) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1709244/000114420418048832/tv502451_ex2-1.htm

(3) Filed as an exhibit to the GAB AI Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-10797) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1709244/000114420418004542/tv484000_ex2-2.htm

(4) Filed as an exhibit to the GAB AI Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-10797) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1709244/000114420418048832/tv502451_ex3-1.htm

(5) Filed as an exhibit to the GAB AI Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-10797) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1709244/000114420418065375/tv509259_ex4-1.htm

(6) Filed as an exhibit to the GAB AI Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-10797) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1709244/000114420418065375/tv509259_ex6-1.htm

(7) Filed as an exhibit to the GAB AI Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-10797) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1709244/000114420418065375/tv509259_ex6-2.htm

(8) Filed as an exhibit to the GAB AI Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-10797) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1709244/000114420418048832/tv502451_ex6-3.htm

(9) Filed herewith.

(10)	Filed as an exhibit to the GAB AI Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-10797) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1709244/000114420418065375/tv509259_ex8-1.htm
(11)	Filed herewith.

(12) Filed as an exhibit to the GAB AI Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-10797) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1709244/000114420418048832/tv502451_ex12-1.htm

(13) Filed as exhibits to the GAB AI Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-10797) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1709244/000114420418048832/tv502451_ex13-1.htm, and https://www.sec.gov/Archives/edgar/data/1709244/000114420418065375/tv509259_ex13-1.htm

Page 26 of 27

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 January 28, 2019.

GAB AI INC.

By	/s/ Andrew Torba
	Title:	Chief Executive Officer/Principal Executive Officer

/s/ Andrew Torba

Andrew Torba, Chief Financial Officer

(Principal Financial Officer, Principal Accounting Officer)

/s/ Andrew Torba

Andrew Torba, Director

Page 27 of 27

EX1A-6 MAT CTRCT

Exhibit 6.4

TERMS AND CONDITIONS

This Merchant Processing Agreement (“Agreement”) is entered into as of the date the Agreement is executed (“Effective Date”) by and among 2^nd Amendment Processing, an ISO, a Michigan limited liability company (“2AP”), A national financial institution in good standings with the card brand associations national banking association (“Bank”), and the business or person that executed the Agreement and is to receive card processing services pursuant to this Agreement (“Merchant” or “you”). The Bank is a principal member of Mastercard International Inc. (“MC” or “Mastercard”) and Visa USA, Inc. (“Visa”). 2AP participates in programs affiliated with (a) Mastercard, Visa, DFS Services, LLC d/b/a Discover Network (“Discover Network”)(including any card issuer whose Cards are processed and settled through the Discover Network) and American Express Travel Related Services Company Inc. (“Amex”) and (b) certain similar entities, including without limitation those appearing in the application or pricing section of this Agreement, and any other network supported by 2AP, including without limitation debit networks (“Other Networks” and collectively with the entities listed in subparagraph (a) the “Card Networks”). Your desire to participate in the Card Networks in connection with the provision of goods and services to any person authorized to use the Cards or accounts established in connection with the Cards (the “Cardholder” or “Cardholders”, as applicable). The term “Card” or “Cards” shall mean a card or cards that (a) enable Cardholders to purchase goods and services and that access a Cardholder’s account within fourteen (14) days of purchase (“Debit Cards”) and (b) any other card that enables holders of a Card Network card to purchase goods and services (“Other Cards”). Debit Cards include, without limitation, cards issued by debit networks listed in the application, stored value cards, prepaid cards, payroll cards, electronic benefit transfer cards, gift cards and check cards.

1. Rules, Regulations and Laws.

A.        Regulations. You hereby agree to comply with all the certificates of incorporation, by- laws, operating regulations and any other rules, policies or procedures of the Card Networks, including without limitation manuals, guides and bulletins, as amended from time to time (collectively the “Operating Regulations”). Without in any way limiting the foregoing, you hereby agree to comply with the Payment Card Industry Data Security Standard (“PCI- DSS”), the Visa Cardholder Information Security Program (“CISP”), the Mastercard Site Data Protection Program (“SDP”), the Discover Network’s Discover Information Security and Compliance (“DISC”) and any other similar program mandated by a Card Network (collectively the “Data Security Regulations”). You may review copies of the Operating Regulations for Visa and Mastercard at respectively, http://usa.visa.com/merchants/operations/opregula tions.html, http://www.Mastercard.com/us/merchant/pdf/BM- Entire_Manual_public.pdf and/or through each entity’s website. You agree that you will take all steps necessary to review the Operating Regulations and to ensure that you and your employees are familiar with and up to date on the applicable Operating Regulations, including without limitation reviewing all information available on the Card Network websites. You agree that you assume the risk of complying with all of the Operating Regulations, regardless of whether you have possession of or have reviewed the Operating Regulations. You agree that you are responsible for demonstrating compliance by your agents with all Data Security Regulations and you agree to fully cooperate with any forensic investigation that is ongoing at the time this Agreement is executed. You are responsible for all of your employees’ actions, including without limitation your employees’ compliance with this Agreement.

B.        Laws. You hereby agree to comply with all applicable federal, state and local laws, statutes and ordinances (“Laws”) including without limitation all requirements of the US Patriot Act and all other similar laws.

C.        Rules. You hereby agree to comply with any rules promulgated by 2AP or Bank regarding the processing of Card transactions (the “Rules”), including without limitation those rules set forth in the welcome letter. If the Rules change, this Agreement will automatically be amended to conform to the revised Rules.

D.        Incorporation of Operating Regulations, Rules and Laws. The Operating Regulations, Rules and Laws are incorporated in this Agreement as if fully set forth herein.

2. Cardholder Data and PCI Compliance

A.        Cardholder Data. You shall not sell, purchase, provide or exchange Cardholder names, addresses, account numbers, track-2 data, security verification codes, expiration dates or any other Cardholder information (“Cardholder Data”) with any third party, other than the Card Networks for the purpose of completing a sales transaction. You agree that under no circumstances will you or your agents store Cardholder Data in violation of the Operating Regulations, Rules or Laws, including without limitation track-2 data. You agree that you and your agents will not retain magnetic-stripe data after completion of the authorization process.

B.        Use of Cardholder Data. You agree that Cardholder Data may only be used for assisting in completing a Card transaction, for fraud control services, for loyalty programs, or as specifically agreed to by Card Networks or as required by applicable law.

C.        Reporting Cardholder Data Compromises. In the event of a breach or intrusion of or otherwise unauthorized access to Cardholder Data stored at your location or for you, you shall immediately notify 2AP, in the manner required in Data Security Regulations, and provide the Card Networks, the Bank, 2AP and their respective designees access to your premises, facilities and all pertinent records to conduct a review of your compliance with the Data Security Regulations. You shall fully cooperate with any reviews or investigations of their facilities and records provided for in this paragraph.

D.        Backup Systems. You shall maintain appropriate business continuity procedures and systems to ensure security of Cardholder Data in the event of a disruption, disaster or failure of 2AP’s or merchant’s primary data systems.

E.        Compliance with Data Security Regulations Post- Termination. You and your successors and assigns shall continue to comply with the PCI requirements after termination of this agreement.

F.        Compliance with Data Security Regulations does not Prevent Liability. You agree that compliance with the Data Security Regulations does not relieve you of financial responsibility for any loss or damage that may result in the event of a breach or intrusion regarding Cardholder Data held by you or on your behalf by a third party.

G.        PCI Compliance. You agree to take all steps and perform all acts required by the data security vendor (“DSV”) retained by 2AP or Bank necessary to validate your compliance with the Data Security Regulations. Compliance with the requirements of the the program established by the DSV (which program may be identified as “365 PCI & Compliance Regulatory”, “Easy Breach PCI Protection” or such other branding designation identified by 2AP, DSV or otherwise in this Agreement) will require at least the completion of a self- assessment questionnaire and may require a vulnerability scan and/or the satisfaction of other requirements imposed by the Operating Regulations or the Data Security Regulations. Under certain circumstances as set forth in the Data Security Regulations, you may be required to re-validate your compliance. If re-validation becomes necessary; you agree that you will take all steps deemed necessary by the DSV to re- validate your compliance with the Data Security Regulations. In return for the services performed by the DSV, you agree to pay to 2AP the PCI Compliance Fee contained in the fee schedule that is part of this agreement. To the extent that Integrity Payment System’s losses are covered by insurance obtained by DSV, 2AP will waive up to $100,000 in damages related to mandatory forensic audits, card replacement costs and fines levied by Card Networks. For more information regarding terms, exclusions and limits of insurance program obtained by DSV for the benefit of Integrity Payment Systems, please refer to www.royalgroupservices.com/trustwave. This waiver only applies while you are (i) compliant with PCI DSS, (ii) compliant with the requirements of DSV program, and (iii) you are a merchant of Integrity Payment Systems.

I.         PCI Non-Compliance Fee. In the event that you do not comply with the PCI DSS requirements, 2AP shall be entitled to impose and collect from you a PCI non-compliance fee in the amount $19.95 per month until such time as you are in compliance with the PCI requirements.

3. Honoring Cards.

A.        Card Acceptance. (i) You will honor, without discrimination and in accordance with the Rules and Operating Regulations any Card, as indicated on the Application, properly tendered by a Cardholder, without imposing any conditions that are prohibited by the Rules or the Operating Regulations. You acknowledge that if you accept Cards bearing the Visa or Mastercard logo, the Visa and Mastercard Operating Regulations require you to accept any Cards issued by non-U.S. members. You may not do any of the following: (a) add any tax to a transaction, unless applicable law expressly requires Merchant to impose a tax, and in such event the tax amount must be included in the transaction amount and not collected separately; (b) request or use an account number for any purpose other than as payment for goods or services, except as permitted by the Operating Regulations or Laws; (c) disburse funds in the form of travelers checks, if the sole purpose is to allow Cardholder to make a cash purchase of goods or services from you; (d) permit a Cardholder to purchase travelers checks, or other similar item, if the sole purpose is to allow the Cardholder to make a cash purchase of goods or services from you; (e) accept a Card to collect or refinance an existing debt that had been deemed uncollectible; (f) enter into interchange a transaction that represents collection of a dishonored check; (g) require a Cardholder to waive his/her rights to dispute a transaction as a condition of sale; (h) accept Cardholder payments for previous Card charges incurred at the Merchant location; (i) submit for payment into interchange any transaction that may in the sole discretion of a Card Network damage the goodwill of such Card Network or reflect negatively on a Card Network’s brands; (j) enter into interchange any transaction receipt for a transaction that was previously charged back to Bank and subsequently returned to Merchant, irrespective of Cardholder approval; (k) accept a Card for the purchase of Scrip; or (l) accept a Visa Electron Card or a Visa Travel Money Card for manual cash disbursement. Merchant may establish a minimum sale amount as a condition for honoring Cards, provided that the minimum transaction amount does not differentiate between Card networks and/or issuers and the minimum transaction amount does not exceed $10.00 (or any higher amount established by the Operating Regulations or applicable Laws). Unless otherwise set forth below or otherwise allowed by applicable Laws or the Operating Regulations, Merchant may not establish a maximum sale amount as a condition for honoring Cards.

(ii)       Limited Acceptance. You have the option to elect to be a Limited Acceptance Provider and only accept only certain Visa, Mastercard or other Card Network Card types (“Limited Acceptance”). 2AP, Bank and their designated vendors have no obligations with regard to Limited Acceptance except those expressly stated in the Operating Regulations or the Laws. 2AP, Bank and their designated vendors have no obligation to police card types accepted by you at the point of sale. If you elect to be a Limited Acceptance Provider, you are solely responsible for implementing your Limited Acceptance and for paying all costs related thereto. Should you submit a transaction involving a Card type you have indicated you do not wish to accept, 2AP, Bank and/or their designated vendors may process that transaction and you will be responsible for all fees, charges and assessments related to that transaction. A general description of Visa/Mastercard card types are: (a) Consumer Credit: a consumer credit card issued by a U.S. Issuer or a commercial credit card issued by a non-U.S. Issuer, this category does not include Visa or Mastercard branded signature-based debit cards; (b) Consumer Debit: a Visa or Mastercard branded signature-based debit card (including certain stored-value and prepaid cards); and (c) Business Credit: a Visa or Mastercard branded credit card issued by a U.S. Issuer that bears the descriptive term “Business Card,” “Corporate Card,” “Purchasing Card,” “Fleet Card,” or similar descriptive term indicated pursuant to the Rules. If indicated on the Merchant Application, Provider agrees to elect to be a Limited Acceptance Provider and will accept only the Visa and/or Mastercard types indicated on the Merchant Application.

B.        Cardholder Identification. You will identify the Cardholder and check the expiration date and signature on each Card. You will not honor any Card if:

(i)        the Card has expired; (ii) the signature on the Sales Draft (as defined in Section 6) does not correspond with the signature on the Card; (iii) the account number embossed on the Card does not match the account number on the Card’s magnetic stripe (as printed on electronic form); (iv) the account number embossed on the Card is listed on a current Electronic Warning Bulletin file; or (v) the security features on the Card for the applicable Card Network are either not present or incorrect. Unless permitted under the Operating Regulations, Laws and Rules (defined below), you will not require a Cardholder to provide personal information, such as a home or business telephone number, a home or business address, or a driver’s license number, as a condition for honoring a Card. You may not require a Cardholder to complete a postcard or similar device that includes the Cardholder’s account number, Card expiration date, signature, or any other Card account data in plain view when mailed. You may not request the Card Verification Value 2 (CVV2) data on any paper order form.

C.        Card Recovery. You will use your reasonable, best efforts to recover any Card: (i) if the printed four digits above the embossed account number, on Visa Cards only, do not match the first four digits of the embossed account number; (ii) if you are advised by Bank (or its designee), the issuer of the Card, or the designated voice authorization center to retain it; (iii) if you have reasonable grounds to believe the Card is counterfeit, fraudulent, or stolen, or use of the Card has not been authorized by the Cardholder; (iv) the embossed account number, indented printed account number, and/or encoded account number, on Mastercard Cards only, do not agree; or (v) the Card does not have a Visa or Mastercard hologram on the lower right corner of the Card face. All Card recovery, including Discover Network Card recovery, must occur reasonably, lawfully and in accordance with the Operating Regulations, Laws and Rules, including without limitation section 14.2.3 of the Discover Network operating regulations.

D.       Surcharges. You will not add any amount to the posted price of goods or services you offer as a condition of paying with a Card, unless permitted by the Operating Regulations or Laws. This paragraph does not prohibit you from offering a discount to induce a person to pay by cash, check, or similar means rather than by using a Card.

E.        Return Policy. You will properly disclose to the Cardholder in writing, at the time of the Card transaction and in accordance with the Operating Regulations, Laws and Rules, your return policy and any limitation you have on accepting returned merchandise.

F.        No Claim Against Cardholder. You will not have any claim against, or right to receive payment from, a Cardholder unless Bank or 2AP refuses to accept the Sales Draft or revokes its prior acceptance of the Sales Draft (after receipt of a chargeback or otherwise). You will not accept any payments from a Cardholder relating to previous charges for merchandise or services included in a Sales Draft, and if you receive such payments, you promptly will remit them to 2AP. You may not reimburse a Cardholder in cash or check for any Card transaction.

G.       Disputes with Cardholders. All disputes between you and any Cardholder, relating to any Card transaction, will be settled between you and the Cardholder. Neither Bank nor 2AP bears any responsibility for such transactions.

H.       Employee Actions. You are responsible for your employees’ actions while in your employ.

I.         Responsibility for Transactions. You will ensure that the Cardholder is easily able to understand that you are responsible for the transaction, including delivery of the goods or provision of the services that are the subject of the transaction, and for customer service and dispute resolution, all in accordance with the terms applicable to the transaction. You will not deposit a transaction until the transaction is completed or the merchandise or services are shipped or provided, unless the Cardholder has paid a partial or full prepayment. You will only operate and accept transactions in the United States.

J.        Cash Advances. Merchant shall not make cash advances on credit cards to Cardholders without the prior written consent of 2AP and Bank. 

4. Authorization.

A.        Required on All Transactions. You will obtain a prior authorization via electronic terminal or similar device before completing any transaction. You will follow any instructions received during the authorization process. Upon receipt of authorization, you may consummate only the transaction authorized and must note on the Sales Draft the authorization number. Where authorization is obtained, you will be deemed to warrant the true identity of the customer as the Cardholder. If you receive a negative response to your request for authorization, you may not complete the sale and you may be requested to recover the Card. Transactions will be deemed invalid on Cards that are expired, whether or not an Authorization has been obtained. For electronic commerce transactions, you must attempt to obtain the Card expiration date and forward it as part of the authorization request.

B.        Effect. Authorizations are not a guarantee of acceptance or payment of the Card transaction and will not waive any provision of this Agreement or validate a fraudulent transaction or a transaction involving the use of an expired Card. Notwithstanding any authorization you may receive, you remain fully liable for all chargebacks.

C.        Unreadable Magnetic Stripes and/or Manually Keyed Transactions. If you authorize and present Card transactions electronically and your terminal is unable to read the magnetic stripe on the Card, you will obtain an imprint of the Card and the Cardholder’s signature on the imprinted draft before presenting the Sales Draft to Bank and

D.        

E.         for processing.

5. Presentment of Sales Drafts.

A.        Forms. You will use a sales draft or other form approved by the Bank and 2AP (“Sales Draft”) to document each Card transaction. Each Sales Draft will be legibly imprinted with the: (i) Merchant’s name and account number; (ii) no more than the last four digits of the Card number and shall not include the expiration date; (iii) date of the transaction, (iv) brief description of the goods or services involved; (v) transaction authorization number; (vi) total amount of the sale (including applicable taxes) or credit transaction; and (vii) if applicable, adjacent to the signature line, a credit policy notation that all sales are final and that special orders will take a period of time, if applicable. You agree to comply with all Fair and Accurate Credit Transactions Act (“FACTA”) requirements.

B.        Signatures. If required by the Rules or Operating Regulations, Sales Drafts must be signed by the Cardholder.

C.        Delivery and Retention of Sales Drafts. You will deliver a complete and legible copy of the Sales Draft or credit voucher to the Cardholder at the time of the transaction. You will retain the “merchant copy” of the Sales Draft or credit memorandum in a secure and limited access area for the periods set forth in the Operating Regulations for the applicable Card Network.

D.        Electronic Transmission. If you utilize electronic authorization and/or data capture services, you will enter the data related to a sales or credit transaction into a computer, electronic point of sale terminal or magnetic stripe reading terminal no later than the close of business on the date the transaction is completed and you will Batch Out your system or terminal every day. “Batch Out” is the process in which all transactions are totaled and settled on each system or terminal and transmitted to 2AP or its designated agent. In all cases you must present the record within 3 business days of the transaction (2 business days for Electron Cards). You will be charged a batch fee for Batch Outs and for batch inquiries. If you provide your own electronic terminal or similar device, or you lease a terminal from a third party, such terminals must meet 2AP’s requirements for processing transactions. Information regarding a sales or credit transaction transmitted with a computer or magnetic stripe-reading terminal will be transmitted by you to 2AP, Bank or its agent in the form 2AP specifies or as required under the Laws or Operating Regulations. If Bank or 2AP requests a copy of a Sales Draft, credit voucher, or other transaction evidence, you will provide it within 24 hours following the request.

6. Merchant Responsibilities.

A.        Deposit of Sales Drafts. You agree that this Agreement is a contract of financial accommodation within the meaning of the Bankruptcy Code, 11 U.S.C. §365, as amended from time to time. Subject to this Section, Bank will deposit to the Merchant Account (defined in Section 8A below) all sales drafts (whether evidenced in writing or by electronic means, hereinafter “Sales Drafts”) that comply with the terms of this Agreement and the Operating Regulations and will provide you with provisional credit for such Sales Drafts (less any credits, adjustments and chargebacks). You acknowledge that your obligation to 2AP and Bank for all amounts owed under this Agreement arise out of the same transaction as Bank’s obligation to deposit funds to the Merchant Account. Notwithstanding the previous sentence, under no circumstances will Bank or 2AP be responsible for processing credits or adjustments related to original sales transactions not processed by Bank or 2AP. All Sales Drafts and deposits are subject to audit and final checking by Bank and 2AP, and may be adjusted for inaccuracies. You acknowledge that all credits provided to you are provisional and subject to chargebacks and adjustments in accordance with the Operating Regulations. Bank and 2AP may elect to grant conditional credit for individual or groups of any Sales Drafts. Final credit for those conditional Sales Drafts will be granted within Bank or 2AP’s sole discretion.

B.        Chargebacks. You are fully liable to 2AP and Bank for all transactions returned to 2AP and Bank for whatever reason, otherwise known as chargebacks, or for PIN Debit Cards known as reversals (“chargebacks” and “reversals” shall be collectively referred to herein as “chargebacks”). You will pay 2AP and Bank on demand, the value of all chargebacks. You agree to accept for chargeback, and will be liable to 2AP and Bank in the amount of, any sale for which the Cardholder disputes the validity of the sale. You authorize 2AP and Bank to offset from incoming transactions and to debit the Merchant Account, the Reserve Account (as defined in Section 9B below), or any other account held at Bank or at another financial institution the amount of all chargebacks. You will fully cooperate with 2AP and Bank in complying with the Operating Regulations regarding chargebacks. Guarantors are personally liable for all chargebacks. You are obligated to monitor any and all chargeback related notices and reports provided by 2AP. Your failure to respond to a chargeback within the applicable deadline may result in a forfeiture of any right you may have had to contest the chargeback. You are subject to chargebacks on sales for at least 180 days following the sale transaction.

C.        Excessive Activity. Your presentation to 2AP of Excessive Activity will be a breach of this Agreement and cause for immediate termination of this Agreement. “Excessive Activity” means, during any monthly period and for any one of your terminal identification numbers or merchant identification numbers or all of your merchant identification numbers in the aggregate, chargebacks and/or retrieval requests in excess of 1% of your average monthly Card transactions or returns in excess of 3% of the average monthly dollar amount of Sales Drafts. You authorize, upon the occurrence of Excessive Activity, 2AP and Bank to take additional actions as either of them may deem necessary including, but not limited to, suspension of processing privileges or creation or maintenance of a Reserve Account in accordance with this Agreement.

D.        Credits. i. Credit Memoranda. You will issue a credit memorandum, instead of making a cash advance, a disbursement or a refund on any Card transaction. 2AP and/or Bank will debit the Merchant Account for the total face amount of each credit memorandum submitted to 2AP. You will not submit a credit relating to any Sales Draft not originally submitted to 2AP and Bank, nor will you submit a credit that exceeds the amount of the original Sales Draft. You will, within the time period specified by applicable law, provide 2AP with a credit memorandum or credit statement for every return of goods or forgiveness of debt for services that was the subject of a Card transaction. ii. Revocation of Credit. 2AP or Bank may refuse to accept any Sales Draft or revoke the prior acceptance of a Sales Draft in the following circumstances: (a) the transaction giving rise to the Sales Draft was not made in compliance with all terms and conditions of this Agreement, the Laws, and the Operating Regulations; (b) the Bank or 2AP receives notification that the Cardholder disputes his or her liability to Merchant for any reason including, but not limited to, those chargeback rights enumerated in the Operating Regulations; or (c) the transaction giving rise to the Sales Draft was not directly between you and the Cardholder. You will pay Bank and 2AP, as appropriate, any amount previously credited to you for a Sales Draft not accepted by 2AP or, where accepted, that is subsequently revoked.

E.        Reprocessing. Notwithstanding any authorization or request from the Cardholder or customer, you will not Re-enter or reprocess any Card transaction that has been charged back.

F.        Fraud and Factoring. You will not present for processing or credit, directly or indirectly, any transaction not originated as a result of a Card transaction directly between you and a Cardholder or any transaction you know or should know to be fraudulent or not authorized by the Cardholder. You will not deposit Sales Drafts evidencing sales that were solicited by telemarketers. Perpetrators of fraudulent transactions will be referred to law enforcement officials. You will not sell or disclose to third parties Card account information other than in the course of performing your obligations under this Agreement. You will not deposit any Sales Draft representing the refinancing of an existing obligation of a Cardholder. You agree that 2AP may, within its sole discretion, suspend the disbursement of Sales Draft funds for any reasonable period of time required to investigate suspicious or unusual deposit activity. 2AP and Bank will have no liability for any losses you may attribute to any suspension of funds disbursement.

G.        Agreement Information and Tax ID Numbers. You agree, represent and warrant that all information regarding you and your business provided in the Agreement, including without limitation your tax identification number (“TIN”), is true and correct. Furthermore, you represent that the TIN provided in the Agreement is the same TIN you use to file your tax returns. In the event that you change your TIN, you agree to immediately update 2AP and Bank regarding any new TIN you use to file your tax returns. You acknowledge that 2AP and/or Bank may be obligated to provide certain information about you to government entities, including without limitation your entity name, DBAs, TIN, processing volume and principals’ social security number. You agree to release and indemnify 2AP and/or Bank from any claims, liability, damages and losses, including penalties and fines and attorneys’ fees, that result from the information you provided in the Agreement (including without limitation your TIN) being incorrect or not complying with your representations in this Section. Furthermore, in addition to your indemnification obligation set forth in this Section, 2AP shall be entitled to collect a fee from you in the amount of $29.95 each time 2AP determines that the current TIN you have provided 2AP is not valid. In addition, Merchant agrees and understands it may be subject to back-up withholding requirements as provided in the Internal Revenue Code of the United States and related regulations.

H.        Merchant Financials. Upon receipt of a request from 2AP or Bank, you will provide quarterly and/or annual audited financial statements prepared in accordance with generally accepted accounting principles and such other financial information as 2AP or Bank may reasonably request. Such information shall be provided as soon as possible following the request, but in no event less than thirty (30) days following such request.

I.        Review of Statements. You agree to promptly review all statements, receipts and invoices prepared by 2AP and/or Bank and made available to you, including such information provided pursuant to 2AP’s on-line reporting tools, for any mistakes or errors. You will notify 2AP in writing of any errors contained in such statements, receipts or invoices within thirty (30) days of such document being made available to you. In the event such notification is not provided within the thirty (30) day period, then you will be deemed to have accepted such statements, receipts and invoices and waived any claims arising from any inaccuracies in those statements, receipts and invoices.

J.        Optional Services.  In many instances 2AP may offer and you may elect to use services from third parties that are related to the services provided by 2AP or Bank to you pursuant to this Agreement (“Optional Services”). Even though 2AP may collect the fees related to the Optional Services, you agree that you will use these Optional Services at your own risk and 2AP shall have no liability for the failure of the third parties who provide the Optional Services to provide those services. 2AP and/or Bank shall have no obligation to provide the Optional Services and that the provision of any Optional Services is subject to the availability of the Optional Services from the third party actually providing such Optional Services. The Optional Services may require that you agree to additional terms and conditions or that you enter into an agreement directly with the vendor providing such services. Optional Services shall include, without limitation, check services (including guaranty, conversion and other services) (“Check Services”), Wireless Processing, Mobile Processing, Gateway, and Accounting Integration. If you elect to use any Optional Services, the terms and conditions related to each applicable Optional Service that you have selected will be attached as exhibits to this Agreement and incorporated herein as part of the Agreement. Without limiting any of the foregoing provisions, if you elect to use any form of wireless service in connection with Card Transactions then you agree that 2AP and/or Bank are not responsible, and will not be liable, for (a) verifying wireless service coverage for you, (b) any loss of coverage in any particular area, (c) for termination of your wireless coverage, or (d) the continued use of your equipment as a wireless terminal if your wireless coverage is terminated or suffers a loss of coverage.

K.       Your Agents. In the event that you use a third party to perform any of your obligations under this Agreement or you use a third party to perform services that are related to or interact with the services performed by 2AP, Bank or their agents under this Agreement, then you agree that you will be responsible for the actions of such third party as though you had performed those acts yourself. Furthermore, you agree to cause each such third party to comply with all requirements of the Operation Regulations and Laws, including without limitation all requirements related to due diligence, registration and/or certification and to be responsible for all costs and expenses related thereto. You agree to be responsible for all losses or damages suffered by 2AP or Bank as a result of the actions of any such third party and agree to indemnify 2AP and Bank, pursuant to Section 11B, for the acts of such third party.

L.        Disclosure of Merchant Location. You shall prominently and clearly disclose to the Cardholder that you are the merchant, at all points of the interaction, and provide the Cardholder your location (physical address) so that the Cardholder can easily distinguish the you from any other party, such as a supplier of products or services. The Merchant name and location, as disclosed to the Cardholder, must be the same as provided in authorization and clearing Transaction messages.

7. Other Types of Transactions.

A.        Mail Order. You may not solicit or accept mail or telephone orders or any transaction in which the Cardholder and Card are not present (“mail/telephone orders”) without prior consent from 2AP. Mail/telephone orders completed without prior consent of 2AP will be a breach of this Agreement and cause for immediate termination, in addition to any other remedies available under the Operating Regulations, Laws and Rules. You may be required to use an address verification service (“AVS”) on mail/telephone transactions. AVS is not a guarantee of payment and the use of AVS will not waive any provision of this Agreement or validate a fraudulent transaction. You will obtain the expiration date of the Card for a mail/telephone order and submit the expiration date when obtaining authorization of the Card transaction. For mail/telephone order transactions, you will type or legibly print on the signature line of the Sales Draft the following applicable words or letters: “telephone order” or “TO” or “mail order” or “MO.” No Sales Draft shall be submitted for processing prior to the shipping of the product or the provision of the services purchased by the Cardholder

B.        Recurring Transactions. For recurring transactions, you must obtain a written request from the Cardholder for such goods and services to be charged to the Cardholder’s account, the frequency of the recurring charge and the duration of time during which such charges may be made. You will not complete any recurring transaction after receiving: (i) a cancellation notice from the Cardholder; (ii) notice from 2AP that authority to accept recurring transactions has been revoked; or (iii) a response that the Card is not to be honored. You must print legibly on the Sales Draft the words “Recurring Transaction.”

C.        Multiple Sales Drafts. You will include a description and total amount of goods and services purchased in a single sales transaction on a single Sales Draft or transaction record unless: (i) partial payment is entered on the Sales Draft or transaction record and the balance of the transaction amount is paid in cash or by check at the time of transaction; or (ii) a Sales Draft represents an advance deposit in a Card transaction completed in accordance with this Agreement and the Operating Regulations.

D.        Partial Completion. i. Prior Consent. You will not accept for payment by Card any amount representing a deposit or partial payment for goods or services to be delivered in the future without the prior written consent of 2AP. The acceptance of a Card for payment or partial payment of goods or services to be delivered in the future without prior consent will be deemed to be a breach of this Agreement and cause for immediate termination, in addition to any other remedies available under the Laws or Operating Regulations. ii. Acceptance. If you have obtained prior written consent from 2AP, then you will complete such Card transactions in accordance with the terms set forth in this Agreement, the Operating Regulations, and the Laws. Cardholders must execute one Sales Draft upon making a deposit with a Card and a second Sales Draft upon paying the balance. You will note upon the Sales Draft the words “deposit” or “balance” as appropriate. You will not deposit the Sales Draft labeled “balance” until the goods have been delivered to Cardholder or you have fully performed the services.

E.        Future Delivery. You will not present any Sales Draft or other memorandum to 2AP for processing (whether by electronic means or otherwise) that relates to the sale of goods or services for future delivery (including without limitation deposits) without prior written authorization from 2AP. If 2AP has given such consent, you represent and warrant to 2AP that you will not rely on any proceeds or credit resulting from such transactions to purchase or furnish goods or services. You will maintain sufficient working capital to provide for the delivery of goods or services at the agreed upon future date, independent of any credit or proceeds resulting from Sales Drafts or other memoranda taken in connection with future delivery transactions.

F.        Internet and ACH Transactions. i. Internet. You must receive consent to process transactions using the internet (“Internet Transactions”) from 2AP, and you may process such transactions only if the transactions have been encrypted by a third party vendor acceptable to 2AP. If you submit Internet Transactions without the consent from 2AP, 2AP may immediately terminate this Agreement. If you have indicated on the Application that you will be submitting Internet Transactions, you acknowledge that you have received a copy of the CISP, PCI-DSS, SDP, DISC and other manuals related to the Data Security Regulations. You agree that you are, and will remain, fully compliant with the Data Security Regulations, including but not limited to undertaking the required annual or quarterly self-assessments and Web infrastructure scans, as appropriate. All Internet transactions must comply with the CISP requirements. You agree that transactions processed via Internet are high risk and subject to a higher incidence of chargebacks. You are liable for all chargebacks and losses related to Internet transactions, whether or not: (i) Internet transactions have been encrypted; or (ii) you have obtained consent from 2AP to engage in such transactions. Encryption is not a guarantee of payment and will not waive any provision of this Agreement or otherwise validate a fraudulent transaction. You must offer Cardholders a secure transaction method, such as Secure Sockets Layer (SSL) or 3-D Secure or any other PCI compliant encryption standard. All communication costs related to Internet transactions will be your responsibility. You agree that 2AP will not manage the Internet telecommunications link, and that it is your responsibility to manage that link. Other than a terminal help desk, you also agree that 2AP does not have a seven day per week, 24-hour operation. All Internet transactions will be settled by Bank into a depository institution of the United States in U.S. currency. Use of software or hardware that has connectivity to the Internet or any external network that interacts in any way with the services provided by 2AP or Bank under this Agreement poses an increased risk and Merchant assumes all liability and shall be solely liable for all such losses resulting from the use of such software or hardware. ii. Requirements. For goods to be shipped on Electronic Commerce (“EC”) transactions, you may obtain authorization up to seven (7) calendar days prior to the shipment date. You need not obtain a second authorization if the Sales Draft amount is within 15% of the authorized amount, provided that the additional amount represents shipping costs. Further, your Web site must contain all of the following information: (a) complete description of the goods or services offered; (b) returned merchandise and refund policy; (c) customer service contact, including electronic mail address and/or telephone number; (d) transaction currency (e.g., U.S. or Canadian dollars); (e) if known, export or legal restrictions; (f) consumer data privacy policy; (g) your security method for transmission of payment data; (h) all accepted card brand logos in full color (i) the address of your permanent establishment and your country of domicile on the same screen view as the checkout screen used to present the total purchase amount, or within the sequence of Web pages the Cardholder accesses during the checkout process; and (j) your delivery policy. If you store cardholder account numbers, expiration dates, and other personal cardholder data in a database, you must follow the Operating Regulations, Laws and Rules, including without limitation PCI-DSS requirements, on securing such data. You agree to indemnify and reimburse 2AP and Bank immediately for any loss, liability, assessment or fine incurred due to your breach of this Section. iii. ACH Transactions. You may request 2AP to convert your Internet transactions into a format that can be processed by an automated clearing house (“ACH Transactions”). If 2AP agrees to provide that service, 2AP and Bank will forward such transactions to the relevant automated clearing house (“ACH”) for processing. You will follow the procedures established by 2AP and the ACH for ACH Transactions, which procedures are incorporated into this Agreement. You authorize 2AP or Bank to initiate ACH debits, credits, and adjustments to the Merchant Account. Confirmation from 2AP of a credit or debit ACH Transaction does not constitute a warranty that you will be paid for the transaction. All relevant terms of this Agreement apply to ACH Transactions.

G.        Amex. Unless you have selected the 2AP Amex Optblue Program in the Application, upon your request, 2AP will provide access to authorization and/or data capture services for Amex directly from Amex (“Amex Direct Program”). If you request the Amex Direct Program you must enter into a separate merchant agreement with Amex. Neither 2AP nor Bank is responsible for funding transactions under the Amex Direct Program. Further, 2AP or Bank may notify you that Amex, or other cards (“Additional Cards”) may be accepted by you. If you do not decline this offer in writing, 2AP or Bank will forward certain information, including, but not limited to, your Merchant Account number, to the Additional Card issuer. The terms of this Agreement will apply to Additional Card transactions. 2AP or Bank will notify you in writing of the fees applicable to Additional Card transactions. Your acceptance of Additional Cards and transmission of Additional Card transactions to 2AP or Bank will constitute your agreement to the terms of this Agreement with regard to Additional Cards.

H.        Nonbankcard Services. From time to time, 2AP may offer you certain additional products and services which may or may not be related to the processing of Card transactions. You will indicate your desire to 2AP to decline such offers or be deemed to have accepted the offers and be liable to pay 2AP for the services provided.

8. Merchant Account.

A.        Establishment and Authority. You will establish and maintain with Bank and 2AP (or with an ACH-receiving depository institution acceptable to Bank) one or more commercial checking account(s) to facilitate payment for Card transactions (collectively, the “Merchant Account”). You will maintain sufficient funds in the Merchant Account to accommodate all transactions contemplated by this Agreement, including, but not limited to, fees, fines, and chargebacks. You irrevocably authorize 2AP to debit the Merchant Account for chargebacks in accordance with the Operating Regulations and for fees and any other penalties or payments under this Agreement. You also authorize vendors or agents of 2AP or Bank to debit the Merchant Account as appropriate. This authority will remain in effect for two years after termination of this Agreement, whether or not you have notified 2AP of a change to the Merchant Account. You must obtain prior written consent from 2AP to change a Merchant Account. If you change the Merchant Account without 2AP’s prior written consent, 2AP may immediately terminate the Agreement and may take any other action it deems necessary to protect 2AP and Bank.

B.        Deposits. 2AP or Bank has the right to delay, within their discretion, crediting the Merchant Account with funds evidenced by submitted Sales Drafts. You authorize 2AP to initiate reversal or adjustment entries and initiate or suspend such entries as may be necessary to grant you conditional credit for any entry. 2AP or Bank will make deposits to the Merchant Account pursuant to this Agreement and the ACH Authorization (defined below). You authorize and appoint 2AP and Bank to act as your agent to collect Card transaction amounts from the Card issuing bank. As the collecting agent, 2AP or Bank, in its sole discretion, may grant you provisional credit for transaction amounts, in the process of collection, subject to receipt of final payment by 2AP or Bank, and subject to all chargebacks, returns, fees, and fines.

C.        Asserted Errors. You must promptly examine all statements relating to the Merchant Account and immediately notify 2AP, in writing, of any errors. Your written notice must include: (i) Merchant name and account number; (ii) the dollar amount of the asserted error; (iii) a description of the asserted error; and (iv) an explanation of why you believe an error exists and, if known, the cause of it. That written notice must be received by 2AP or Bank within 30 days after you received the periodic statement containing the asserted error or any claims related to such error will be barred. You may not make any claim against 2AP or Bank for any loss or expense relating to any asserted error for 60 days immediately following 2AP or Bank receipt of your written notice. During that 60-day period, 2AP or Bank will be entitled to investigate the asserted error.

D.        Indemnity. You will indemnify and hold 2AP and/or Bank harmless for any action they take against the Merchant Account or Reserve Account pursuant to this Section. You will also indemnify and hold harmless the institution at which you maintain your Merchant Account for acting in accordance with any instruction from 2AP and Bank regarding the Merchant Account. This Section will survive termination of this Agreement.

E.        ACH Authorization. You authorize 2AP or Bank to initiate debit/credit entries to the Merchant Account, the Reserve Account, or any other account maintained by you at any institution that is a receiving member of ACH, all in accordance with this Agreement. This authorization will remain in effect after termination of this Agreement and until all of your obligations to 2AP or Bank has been paid in full. In the event you change the Merchant Account, you will notify 2AP, and this authorization will apply to the new account.

9. Security Interests, Reserve Account, Recoupment, and Set-Off.

A.        Security Interests. i. Security Agreement. This Agreement will constitute a security agreement under the Uniform Commercial Code. You grant to Bank and 2AP a security interest in and lien upon: (i) all funds at any time in the Merchant Account, regardless of the source of such funds; (ii) all funds at any time in the Reserve Account (as defined below), regardless of the source of such funds; (iii) present and future Sales Drafts; and (iv) any amount which may be due to you under this Agreement, including, without limitation, all rights to receive any payments or credits under this Agreement (collectively, the “Secured Assets”). You agree to provide other security to 2AP and Bank upon request. Upon request of 2AP or Bank, you will execute one or more financing statements or other documents to evidence this security interest. You represent and warrant that no other person or entity has a security interest in the Secured Assets. These security interests and liens will secure all of your obligations under this Agreement and any other agreements now existing or later entered into between Merchant, 2AP, and Bank including, but not limited to, your obligation to pay any amount due to 2AP or Bank. This security interest may be exercised by 2AP or Bank without notice or demand of any kind by making an immediate withdrawal or freezing the secured assets. Further, with respect to such security interest and liens, 2AP and Bank will have all rights afforded under the Uniform Commercial Code, any other applicable law and equity. You will obtain from 2AP or Bank written consent prior to granting a security interest of any kind in the Secured Assets to a third party. You agree that this is a contract of recoupment, and 2AP or Bank are not required to file a motion for relief from a bankruptcy action automatic stay to realize on any of the Secured Assets. Nevertheless, you agree not to contest or object to any motion for relief from the automatic stay filed by 2AP or Bank.

B.        Reserve Account. i. Establishment. If requested by 2AP or Bank you will deposit into a non-interest bearing deposit account designated by 2AP or Bank (“Reserve Account”) sums sufficient to satisfy your current and future obligations to 2AP or Bank. 2AP or Bank may establish a Reserve Account by depositing incoming items into a Reserve Account if it determines in good faith that a reserve is necessary to protect the interests of 2AP or Bank, including but not limited to a determination that transactions are outside the risk parameters indicated by you in this Agreement. You also authorize 2AP or Bank to debit the Merchant Account to establish or maintain funds in the Reserve Account and to deposit into the Reserve Account funds, for the purpose of establishing or maintaining the Reserve Account, that 2AP or Bank would otherwise be obligated to pay you if 2AP or Bank determines such action is reasonably necessary to protect one or both of their interests. ii. Authorizations. 2AP or Bank may in its sole discretion, without notice to you, apply any amounts in the Reserve Account to satisfy any amounts you owe under this Agreement or under any other agreement between you and 2AP or Bank. iii. Funds. Funds in the Reserve Account will remain in the Reserve Account, and any other funds being held by 2AP pursuant to this Agreement will be held, until at least 270 days following termination of this Agreement, provided, however, that you will remain liable to 2AP or Bank for all liabilities occurring beyond such 270-day period. 2AP or Bank will have sole control of the Reserve Account. 2AP may be entitled to collect from Merchant, as either a debit to your Merchant Account or charge against funds held in your Reserve Account, a fee necessary to cover the cost related to administration of your Reserve Account.

C.        Recoupment and Set-Off. 2AP or Bank has the right of recoupment and set-off. This means that 2AP or Bank may set off against: (i) any amounts 2AP or Bank would otherwise be obligated to deposit into the Merchant Account, and (ii) any other amounts 2AP or Bank may owe you under this Agreement or any other agreement, any amounts that are due and owing from you to 2AP or Bank. You acknowledge that in the event of a bankruptcy proceeding, in order for you to provide adequate protection under Bankruptcy Code §362 to 2AP, you must create or maintain the Reserve Account as required by 2AP, and 2AP will have the right to offset against the Reserve Account for any and all obligations which you may owe to 2AP and Bank, without regard to whether the obligations relate to Sales Drafts initiated or created before or after the filing of the bankruptcy petition.

D.        Remedies Cumulative. The rights and remedies conferred upon 2AP or Bank in this Agreement are not intended to be exclusive of each other. Rather, each and every right of 2AP or Bank under this Agreement, at law or equity, will be cumulative and concurrent and in addition to every other right.

10. Rates & Fees and Other Services.

A.        Rates & Fees. You will pay 2AP fees for services, products, equipment or forms in accordance with the rates & fees as set forth and populated in this Agreement, including all schedules and exhibits thereto (“Rates & Fees”). Such Rates & Fees will be calculated and debited from the Merchant Account once each business day or each month, as determined by 2AP, for the previous business days’ or monthly activity, or will be netted out from the funds due you under this Agreement. 2AP may adjust the Rates & Fees as set forth in the Agreement. You agree that all Rates & Fees are considered accurate and final unless you dispute them in accordance with the provisions of Section 8.C. Furthermore, Merchant agrees that every credit voucher issued will be subject to a Transaction fee and Processor Assessment fee, as part of Rates & Fees, and there will be no refund of any Rate & Fees or fees or charges associated with the original transaction. In the event that you select InterChange Plus Pricing, you agree to pay to 2AP, in return for the services provided hereunder, (a) the Processor Assessment, plus (b) the Transaction Fee, plus (c) InterChange, plus (d) the Card Networks fees or charges (“Card Network Fees”) plus (e) all other Rates & Fees, other than those set forth in subparagraphs (a) – (d) above. The Card Network Fees shall be summarized or listed on your monthly statement and shall include, without limitation (i) assessments, rates, fees, expenses and other charges from the Card Networks, (ii) front-end authorization/network vendor expenses for Amex OptBlue charged to 2AP, (iii) Visa FANF monthly fee equal to the greater of $4.90 per month or the actual fee calculated in accordance with the Visa guidelines. In certain instances 2AP may bundle or combine some or all of the Card Network Fees as a single line item on the statement, which may be designated on your monthly statement, for example, as “Card Access Fees.” For purposes of InterChange Plus Pricing, the term “InterChange” shall mean, with regard to each transaction, shall mean the interchange rates, fees, charges or other amounts charged by the applicable Card Networks itself or on behalf of a Card issuer, on Transaction volume, on a per-item basis or other Card Networks or Card issuer charge methodology. In the event that you select tiered pricing (“Tiered Pricing”) you agree to pay to 2AP, in return for the services provided hereunder, (w) the Processor Assessment, plus (x) the per Transaction Fee, plus (y) Card Networks Fees, plus (z) all other Rates & Fees, other than those set forth in subparagraphs (w) – (y) above. The Processor Assessment together with the Transaction Fee shall be referred to as the “Processor Fees.” In the event that the Processor Fees due from you to 2AP for any given month are less than the monthly minimum set forth in the Rates & Fees, then you will pay to 2AP, in addition to the other amounts due from you under this Agreement for that month, the positive difference between the monthly minimum and the Processor Fees actually due for that month.

B.        Other Amounts Owed. You will immediately pay 2AP or Bank any losses incurred by 2AP or Bank attributable to this Agreement, including, but not limited to chargebacks, fines imposed by any Card Network and all non-sufficient fund fees, and ACH debits that overdraw the Merchant Account, the Reserve Account, or any other account you have at Bank or at any other financial institution for any amount you owe 2AP or Bank under this Agreement or under any other contract, note, guaranty, instrument or dealing of any kind now existing or later entered into between you and 2AP or Bank, whether your obligation is direct, indirect, primary, secondary, fixed, contingent, joint, or several. In the event such ACH does not fully reimburse 2AP or Bank for the amount owed, you will immediately pay 2AP or Bank such amount.

C.        Rate or Fee Amendments. 2AP or Bank, at its discretion, may amend, add to or modify, the Rates & Fees from time to time and upon 30 days’ notice, which notice shall be delivered via mail to the billing address on file for you with 2AP or via email transmission. Such notice may be sent separately or may be included as part of your monthly statement. Your continued submission of transactions after the effective date of the amendment of the Rates & Fees will be deemed your consent to the amended Rates & Fees.

D.        Taxes. You are also obligated to pay all taxes and other charges imposed by any governmental authority on the services provided under this Agreement.

E.        Other Services. 2AP, other service providers as designated or identified, or Bank will provide those products and services designated as Rates & Fees.

F.        Integrity Advantage (optional merchant club fee). In the event that you have elected to be enrolled in Integrity Advantage by populating the Integrity Advantage monthly fee contained in the Rates & Fees (“Integrity Advantage Fee”), you will be enrolled in the Integrity Advantage (or such other name as designated by 2AP) merchant club program (“Integrity Advantage Program”) and you agree to pay the monthly Integrity Advantage Fee. You agree and acknowledge that the Integrity Advantage Fee and the benefits provided by the Integrity Advantage Program are subject to change or cancellation as provided in the terms and conditions of the Integrity Advantage Program provided to you in the Welcome Kit for the Integrity Advantage Program. You will be billed the Integrity Advantage Fee on your regular monthly statement beginning with the first billing cycle following thirty (30) days of processing with 2AP, and each month thereafter. If you choose not to participate in Integrity Advantage Program any equipment failure not covered under your warranty will be repaired or replaced at your cost. The Integrity Advantage Fee, and any other amounts due from you to 2AP related to your participation in the Integrity Advantage program, shall be debited against the Merchant Account beginning on the month following approval of this Agreement and shall be subject to Merchant’s ACH authorization contained in Section 8E of this Agreement. You will not be charged the Integrity Advantage Fee for the first month of this service. Thereafter, you will be billed on a monthly basis. To cancel this service, please reference the Credit Card Acceptance Manual you will receive in your Welcome Kit, which is incorporated by reference in this Agreement. In the event of any inconsistency between Credit Card Acceptance Manual and this Agreement, the terms and conditions of this Agreement shall control. The terms and conditions related to Integrity Advantage Program are provided in the Welcome Kit.

G.        Chargeback Fee. You agree that 2AP or Bank will assess up to $35.00 for each chargeback, and up to $33.00 for each chargeback that is debited to the Merchants Account and subsequently returned to 2AP or Bank through ACH for insufficient funds or any other reason. Furthermore, 2AP or Bank may assess Merchant for any fines imposed by Card Network plus a fee for processing such fine as may be required by 2AP or Bank at its sole discretion.

H.        Transaction Fee. Transaction fee is a fee charged on each sales and credit draft regardless of the total stated and shall also mean a fee charged for any other transaction which utilizes a POS device for transaction or reception of data or information, including but not limited to debit card transactions address verifications, batch closing, authorizations, and any other communication using the POS terminal.

I.         Retrieval Fee. You agree that 2AP or Bank will assess up to $15.00 for each retrieval request.

J.        Annual Renewal. You agree that 2AP will charge a nonrefundable annual renewal fee in November of each year, or in such month as otherwise designated in the Rates & Fees, in the amount set forth in the Rates & Fees.

K.       UCC Fee. In the event that 2AP receives a notice from a secured creditor of yours requesting that funds due to you under this Agreement be paid to the secured creditor or held pending further instruction from the secured creditor, you agree to pay 2AP a fee in the amount of Five Hundred and Ninety-Nine Dollars ($599.00) to cover the time, costs and expenses incurred by 2AP in handling such notice. Such fee shall be in addition to any other fees due to 2AP under this Agreement and in addition to any amounts that are payable to such secured creditor

L.        Enhanced Interchange Service (EIS). If Merchant is 1.) boarded on the TSYS Authorization Platform, or such other Authorization Platform as 2AP may designate that this service is available on from time to time, 2.) is enrolled in InterChange Plus Pricing, and 3.) Merchant elects to utilize and enrolls in the Enhanced Interchange Service (“EIS”) as part of  Rates & Fees, 2AP will augment applicable commercial, business or other similar card transactions with the tax amount percentage that is either  input from the Merchant in Rates & Fees, or, if no tax rate is entered by Merchant, Merchant hereby authorizes 2AP to input the current tax rate based on the Business Information dba zip code included in this Agreement and 2AP will obtain the Merchant’s tax rate from a commercially available tax lookup table.  Except however, 2AP does not guarantee that this tax rate input will always accurately reflect all applicable Merchant tax rates and will use its best efforts to input the accurate tax rate, and update these tax rates on a “good-faith” basis, from time to time, as reasonably determined by 2AP.  Merchant hereby agrees to notify 2AP of any tax rate corrections in event tax rate being input is not accurate. 2AP also does not guarantee that all such augmented transactions will qualify for a better or lower interchange rate as other factors can or may also impact interchange qualification for these transactions, including but not limited to all other Level II or other qualification requirements as existing, established or may be established by the Card Networks, and as otherwise may be promulgated in the Operating Regulations, for applicable commercial, business or other similar card transactions. In the event EIS is used for any transaction (each such transaction and all such transactions in the aggregate hereafter “EIS Transactions”), 2AP will provide the Merchant a credit, labelled on its monthly statement as “Enhanced Interchange Service-credit” equal to a.) the total savings equal to the “good-faith” calculated difference between the Interchange amount that the EIS Transactions would have qualified at if not for EIS and the Interchange amount that the EIS Transactions qualified for as a result of EIS, times b.) Interchange Savings Credit % to Merchant, as populated in the Rates & Fees.

11. Application, Indemnification, Limitation of Liability.

A.        Application. You represent and warrant to 2AP and Bank that all information in the Application, which is incorporated into this Agreement by reference, is correct and complete. You must notify 2AP in writing of any changes of information in the Application, including but not limited to: any additional location or new business, the identity of principals and/or owners, the form of business organization (i.e., sole proprietorship, partnership), type of goods and services provided and how sales are completed (i.e., by telephone, by mail, in person at your place of business). The notice must be received by 2AP or Bank within five (5) business days of the change. You will provide updated information to 2AP or Bank within a reasonable time upon request. You are liable to 2AP or Bank for all losses and expenses incurred by 2AP or Bank arising out of your failure to report changes. 2AP or Bank retains the right to review your processing activity to confirm that you are processing transactions as stated in the Application, and to re-price or terminate its services based on changes to the facts stated in the Application.

B.        Indemnification. You agree to indemnify and hold harmless 2AP, the Bank and the Card Networks from and against any and all claims, damages, liabilities, fines, penalties and expenses, including without limitation attorneys’ fees and litigation costs, arising from or related to (a) any act or omission by you or your employees, agents, or representatives including but not limited to, any intentional, negligent, fraudulent or deceptive act; (b) any breach by you of the terms of this Agreement; (c) any fine or penalty imposed upon 2AP or Bank by any third party related to any act or omission by you in connection with any Card transaction; (d) any violation by you of any applicable Laws, Operating Regulations or Rules; and (e) any use of Optional Services by you.

C.        Limitation of Liability. The aggregate liability of 2AP and Bank under this Agreement, whether to you or any other party, whatever the basis of the liability, will not exceed in the aggregate the difference between (i) the amount of fees 2AP received from you during the month in which the transaction out of which the liability arose and (ii) assessments, chargebacks, and offsets against such fees which arose during that month. If more than one month is involved, the aggregate amount of 2AP and Bank’s liability will not exceed the lowest amount determined in accordance with the previous sentence for any one month involved. In no event will 2AP, Bank, or their agents, officers, directors, or employees be liable for loss of profits, indirect, special, or consequential damages. No party will be liable to the other for any failure or delay of its performance of the Agreement if such failure or delay arises out of causes beyond the control and without the fault or negligence of such party.

D.        Disclaimer of Warranties. 2AP AND BANK WILL PERFORM ALL SERVICES IN ACCORDANCE WITH THIS AGREEMENT. 2AP AND BANK MAKE NO OTHER WARRANTY, EXPRESS OR IMPLIED, REGARDING THE SERVICES, AND NOTHING CONTAINED IN THE AGREEMENT WILL CONSTITUTE SUCH WARRANTY. 2AP AND BANK DISCLAIM ALL IMPLIED WARRANTIES, INCLUDING THOSE OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

12. Representation, Warranties and Covenants. You represent and warrant to 2AP and Bank, at the time of execution and during the term of this Agreement, the following:

A.        Information. All information contained on the Application or any other document submitted to 2AP or Bank is true and complete and properly reflects the business, financial condition, and the principal partners, owners or officers of Merchant. You are not engaged or affiliated with any business, products or methods of selling other than those set forth on the Application.

B.        Corporate Power. You and the person signing this Agreement have the power to execute and perform this Agreement. This Agreement will not violate any law or conflict with any other agreement to which you are subject.

C.        No Litigation. There is no action, suit, or proceeding pending, or to your knowledge threatened, which, if decided adversely, would impair your ability to carry on your business as it is now conducted or which would adversely affect your financial condition or operations.

D.        Transactions. All transactions are bona fide. No transaction involves the use of a Card for any purpose other than the purchase of goods or services from you and does not involve Cardholder obtaining cash from you unless allowed by the Operating Regulations and agreed to in writing by 2AP.

E.        Rule Compliance. You will comply with the Operating Regulations, Laws and Rules.

F.        Business. You will not engage in or be affiliated with any business, products or methods of selling other than those set forth in the Application, without the prior written consent of 2AP.

13. Audit, Financial Information and Personal Guarantee

A.        Audit. You authorize 2AP, Bank and Card Networks to audit your records to confirm compliance with all of your obligations under the Agreement. You will obtain and submit a copy of an audit of your business when requested by 2AP, Bank or Card Networks.

B.        Financial Information. You and the personal guarantors authorize 2AP and Bank to make any credit inquiries regarding you or the guarantors that 2AP or Bank consider necessary to review the acceptance and continuation of this Agreement. You and guarantors also authorize any person or credit reporting agency to compile information to answer those credit inquiries and to furnish that information to 2AP and/or Bank.

14. Third Parties.

A.        Services. You may be using special services or software provided by a third party to assist you in processing transactions, including authorizations and settlements, or accounting functions. You are responsible for assuring compliance with the requirements of any third party in using their products. This includes making sure you have and comply with any software updates. 2AP and Bank have no responsibility for any transaction until that point in time 2AP and Bank receive data about the transaction.

B.        Use of Terminals Provided by Others. You will notify 2AP immediately if you decide to use electronic authorization or data capture terminals provided by any entity other than 2AP or its authorized designee (third party terminals) to process transactions, including without limitation leasing a terminal from a third party. If you elect to use third party terminals, you agree (i) the third party providing the terminals will be your agent in the delivery of card transactions to 2AP and Bank; and (ii) to assume full responsibility and liability of any failure of that third party to comply with the Operating Regulations, Laws or this Agreement. 2AP and Bank will not be responsible for any losses or additional fees incurred by you as a result of any error by a third party agent or a malfunction of a third party terminal.

15. Terms and Termination.

A.        Term. The Agreement will become effective on the date 2AP and Bank approve and assign Merchant Identification Number (“Effective Date”). The Agreement will remain in effect for a period of 48 months (“Initial Term”) and will renew for successive 24 month terms (“Renewal Term”), or such shorter period as provided by applicable law, unless terminated as set forth below. You shall maintain a copy of his Agreement on file at your place of business.

B.        Termination.

i Without Cause. The Agreement may be terminated by either party to be effective at the end of the Initial Term or Renewal Term by giving written notice of the intention not to renew at least 90 days before the end of the current term. This Agreement may be terminated immediately upon the request of any of the Card Networks’ request. Further, this Agreement may be terminated at any time with 30 days’ prior notice by 2AP or Bank.

ii. With Cause. The appropriate party or the any of the Card Networks may terminate this Agreement immediately upon the occurrence of an Event of Default, defined below. Notice of a with cause termination by 2AP, Bank or the Card Networks may be given orally or in writing, at the discretion of 2AP and Bank. Any termination by you must be provided in writing to 2AP and Bank. Termination will be effective on the date specified by the notice.

C.        Events of Default. The following will constitute an event of default:

i.         Adverse Financial Condition. Your financial condition changes adversely.

ii.      Garnishment. Your Merchant Account, or any of your property in the possession of 2AP and/or Bank, is garnished, levied upon or attached.

iii.      Asset Assignment. You assign your assets generally for the benefit of creditors.

iv.      Bankruptcy. A proceeding is commenced by or against you under any bankruptcy, insolvency or similar law seeking an order to adjudicate you bankrupt or insolvent or other relief with respect to you or your debts, or seek appointment of a receiver or similar official for you or any substantial part of your assets.

v.        Breach. A party fails to perform a material obligation of this Agreement, and such failure continues for a period of 30 days after the breaching party receives notice of the breach.

vi.      False Representation. Any representation and warranty is or becomes false or misleading in any material respect as of the date made or becomes false or misleading at any time during the term of this Agreement.

vii.      Fraud. 2AP and Banks’ reasonable determination that fraud is occurring.

vii.      Prohibited Activity. You shall not: (a) engage in fraudulent activity, (b) present transaction receipts that do not result from an act between you and a Cardholder (laundering), (c) enter into a this Agreement with a new name with the intent to circumvent the Rules, (d) engage in activity that causes 2AP or Bank to violate the Rules, (e) engage in activity that results in the Card Networks prohibiting you from participating in the Card Network program, (f) exceed chargeback thresholds as provided by the Rules, (g) enter illegal or brand-damaging transaction activity into the payment system, (h) engage in any activity that may result in undue economic hardship or damage to the goodwill of 2AP, Bank, and/or any Card Network.

D.        Action Upon an Event of Default. Upon the occurrence of an Event of Default, 2AP and Bank may take the following action: i. suspend processing privileges and terminate this Agreement; ii. create a Reserve Account; and/or iii. any other reasonable action deemed necessary by 2AP and/or Bank to protect their interests.

E.        Action Upon Termination.

Terminated Merchant File. You acknowledge that 2AP is required to report your business name and the name of Merchant’s principals to Visa, Mastercard and Discover Network when Merchant is terminated due to certain reasons listed in the Operating Regulations. You waive and hold harmless 2AP and Bank for all claims and liabilities that may occur as a result of 2AP and/or Bank complying with its reporting obligations under the Operating Regulations or the Laws.

i.         Merchant Account. All your obligations regarding accepted Sales Drafts will survive termination. You must maintain in the Merchant Account and the Reserve Account enough funds to cover all chargebacks, deposit charges, refunds and fees incurred by you for a reasonable time, which shall be no less than 270 days, unless otherwise agreed by 2AP and Bank. You authorize 2AP to hold all funds due to you at the time of termination for at least 270 days and to apply those funds to satisfy your obligations under this Agreement. You authorize 2AP and Bank to charge the Merchant Account, or any other account maintained under this Agreement, for all such amounts. If the amounts available in the Merchant Account and Reserve Account are not adequate to satisfy your obligations to 2AP or Bank, you will pay 2AP and Bank the amount you owe upon demand, together with all costs and expenses incurred to collect the amount, including reasonable attorneys’ fees.

ii.      Equipment. Within 14 business days of the date of termination, you must return, at your expense all equipment owned by 2AP, including equipment loaned to you by 2AP and immediately pay 2AP any amounts you owe 2AP for equipment costs and in the event that you do not return such equipment in accordance with this section, you shall be obligated to pay 2AP, in addition to the Early Termination fee set forth below, up to $525 for each piece of equipment that is not returned and 2AP is authorized to debit your Merchant Account for any such amounts due or to invoice you for such amounts, in which case payments shall be due 10 days after the date of the invoice .

iii.      Early Termination. If you terminate this Agreement before the end of the Initial Term, you will immediately pay 2AP and Bank as liquidated damages, an early termination fee equal to $595 or the maximum amount allowed by applicable law. If you terminate this Agreement during any succeeding Renewal Terms you will not be charged a termination fee. You agree that the termination fee is not a penalty, but rather is reasonable in the light of the financial harm caused by your early termination.

16. Use of Trademarks and Confidentiality.

A.        Use of Trademarks. Your use of Visa, Mastercard and Discover Network marks will fully comply with the Operating Regulations. Your use of Visa, Mastercard, Discover Network or any other Card Network’s promotional material will not indicate directly or indirectly, that Visa, Mastercard, Discover Network or any other Card Network endorses any goods or services other than their own and you may not refer to Visa, Mastercard, Discover Network or any other Card Network indicating eligibility for your products or services. If you have requested signage for the purpose of indicating acceptance of Debit Cards, you must display such signage for a minimum of 3 months. All point of sale displays or websites must, if required by the applicable Card Network, include either appropriate Card Network marks to indicate acceptance of Debit and Other Cards or Card Network approved signage to indicate acceptance of the limited acceptance category you have selected. You will comply with all requirements regarding marks, advertising and signage set forth in the applicable Operating Regulations for each Card Network. Your use of Card Network Marks will terminate effective with the termination of this Agreement or upon notification by the Card Network to discontinue such use or display. Your use or display of any Mark does not give you any ownership or interest in the Mark.

B.         Confidentiality.

i.         Cardholder Information. You will not disclose to any third party Cardholders’ account information or other personal information except to an agent of yours assisting in completing a Card transaction, or as required by the Operating Regulation or Laws. You must keep all material systems and media containing account, Cardholder, or transaction information (physical or electronic, including, but not limited to account numbers, card imprints, Sales Drafts, and TIDs) in a secure manner, to prevent access by or disclosure to anyone other than your authorized personnel. You must destroy in a manner that will render the data unreadable all such media that you no longer deem necessary or appropriate to store (except for Sales Drafts maintained in accordance with this Agreement, the Operating Regulations, Laws and Rules). Further, you must take all steps reasonably necessary to ensure Cardholder Data is not disclosed or otherwise misused.

ii.      Prohibition. You will not use for your own purposes, will not disclose to any third party, and will retain in strictest confidence all information and data belonging to or relating to the business of 2AP and Bank (including without limitation the terms of this Agreement), and will safeguard such information and data by using the same degree of care that you use to protect your own confidential information. If you have requested BIN information, you must only use this BIN information for product identification purposes at the point of sale, and not disclose this proprietary and confidential BIN information to any third party without prior written permission from 2AP, Bank, and Visa.

iii.      Transfer. In the event of a failure of your business, including bankruptcy, insolvency, or other suspension of business operations, you must not sell, transfer, or disclose any materials that contain Cardholder Data or other Card transaction information to third parties. You must either return this information to 2AP or provide acceptable proof of destruction of this information to 2AP.

C.        Return to 2AP. All promotional materials, advertising displays, emblems, Sales Drafts, credit memoranda and other forms supplied to you by 2AP and/or Bank and not purchased by you or consumed in use will remain the property of 2AP and will be immediately returned to 2AP upon termination of this Agreement. You will be fully liable for any and all loss, cost, and expense suffered or incurred by 2AP and Bank arising out of failure to return or destroy such materials following termination.

D.        Passwords. If you receive a password from 2AP to access an 2AP database, you will: (i) keep the password confidential; (ii) not allow any other entity or person to use the password to gain access to the 2AP database; (iii) be liable for all action taken by any user of the password; and (iv) promptly notify 2AP if you believe the confidentiality of the database or your information was compromised by using the password. You will also keep your merchant identification number confidential and maintain it in a secure location and you will not use it for any other purpose other than as authorized by 2AP, Bank or the applicable Card Network.

17. PIN Based Debit

A.        Honoring PIN-Debit Cards. You shall not require Cardholders to provide personal information (such as telephone number or address) as a condition for honoring a PIN-Debit Card, unless required by the Rules. You may not require or request the Cardholder’s signature or any other means of verifying the Cardholder’s identity. Merchant shall place the PIN entry device in an area accessible by all Cardholders and that will reasonably prevent others, including your employees, from observing the PIN.

B.        PIN-Debit Card Sales Drafts.

i.         Procedures. You shall deliver to the Cardholder at the time of a sale a true and completed copy of the Sales Draft evidencing a sale involving use of a PIN- Debit Card (“PIN-Debit Sales Draft”). The PIN-Debit Sales Draft must comply with the Operating Regulations and Laws. The following information must be included on the PIN-Debit Dales Draft: (i) the PIN- Debit Card account number; (ii) your DBA name; (iii) your city and state; (iv) the amount of sale; and (v) the sale date. A PIN-Debit Sales Draft shall be made available to the Cardholder at each terminal. You may not require or request the Cardholder to provide or disclose their PIN in any oral or written manner to you or your employees. You shall not impose any fee or charge for a PIN-Debit Card transaction without the prior written consent of 2AP or Bank. If surcharging is approved by 2AP or Bank, it must be a separate line item on the PIN-Debit Sales Draft and must be in compliance with all applicable Operating Regulations and Laws.

ii.       Reversal. A sale may be reversed or voided electronically, but only if such reversal/void is entered prior to midnight of the calendar day on which the sale was initiated. To effect reversal or void, Cardholder must re-enter the PIN, the magnetic stripe reader must read the card, and you must transmit the trace number and the exact dollar amount of the sale to be reversed or voided. Any reversal or void by you must be initiated with you.

iii.      Returns. All returns shall be processed in accordance with your normal procedures except that you or Cardholder shall not attempt to reverse a previously approved POS transaction unless otherwise permitted in accordance with the applicable Card Network’s Operating Regulations. Any sale known by you to be erroneous should be canceled and re-billed in the Cardholder’s presence.

iv.       Balance Inquiry. Balance inquiries may be performed only by the Cardholder at a Cardholder- operated terminal and shall at all times require the Cardholder to enter the PIN and use the magnetic stripe reader.

C.        Distribution and Storage of Information. You shall store all such PIN-Debit Sales Drafts in accordance with applicable Operating Regulations and Laws. You shall destroy or make unreadable all material containing Cardholder account numbers. There are no voice authorizations for PIN-Debit Card transactions and no manually imprinted PIN-Debit Sales Drafts. Merchant may not store Cardholder’s PIN in any manner.

D.        Promotional Materials. You will adequately display promotional materials to inform the public that PIN- Debit Cards will be honored by Merchant.

E.        Equipment. You shall take all necessary steps to ensure all POS terminals and PIN entry devices operated in all of its locations:

i.         are placed in an area accessible to all Cardholders;

ii.        are available for use whenever Merchant is open for business;

iii.       will function with minimal error, meeting all applicable technical specifications and security regulations;

iv.        will require the Cardholder to enter the Cardholder’s PIN at or near the checkout location when initiating a POS transaction; and

v.         when PINs are used in conjunction with any store and forward transaction or resubmission you must insure they are encrypted and stored within a tamper- resistant security module and if your authorization system is capable of store and forward, it must comply with the applicable Operating Regulations regarding this function. 2AP, Bank Card Networks and Card issuers shall not be liable for any losses suffered by you arising from the use of the store and forward function. A PIN must never be logged in any form as a function of software either in the clear or encrypted.

F.        Supply of Information. Merchant must submit all information requested by 2AP, Bank or any Card Network including, but not limited to, lists and mailing addresses of terminals. You shall not sell, purchase, provide, or exchange account number information in any form, including, but not limited to, transaction receipts, carbon copies of transaction receipts, mailing lists, or tapes to any third party other than to your agents for the purpose of assisting you in your business, or to the Card Networks, 2AP or Bank or pursuant to a government request.

G.        Left PIN-Debit Cards. PIN-Debit Cards that are inadvertently left at your location must be held under dual control during the time they are retained. PIN- Debit Cards inadvertently left at your location may be returned to the Cardholder by you under the following conditions: (A) the Card was inadvertently left by the Cardholder at an on premise location, (B) the Cardholder requests the Card within 1 business day, and (C) the Cardholder provides 2 forms of current identification, at least 1 of which is a photo identification. If the Cardholder has not requested the Card within 1 business day, the Card should be destroyed by cutting it in half through the stripe.

18. General Provisions.

A.        Entire Agreement. This Agreement, including the completed Application, the Operating Regulations, and any amendment or supplement to this Agreement made in accordance with the procedures set forth in Section 18.J. below, all of which are incorporated into this Agreement, constitute the entire agreement between the parties, and all prior or other agreements or representations, written or oral, are terminated and superseded by this Agreement.

B.        Governing Law. This Agreement will be governed by the laws of the State of Illinois. The parties agree that all performances and transactions under this Agreement will be deemed to have occurred in Illinois and that Merchant’s entry into and performance of this Agreement will be deemed to be the transaction of business within the State of Illinois. Subject to the provision of Section 18E below, all suits by either party shall be instituted exclusively in the Illinois courts located in Chicago, Illinois or in the United States District Court for the Northern District of Illinois and in no other venue or jurisdiction. YOU HEREBY SUBMIT TO THE JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS.

C.        Construction. The headings used in this Agreement are inserted for convenience only and will not affect the interpretation of any provision. The language used will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party.

D.        Assignability. This Agreement may be assigned by 2AP, but may not be assigned by Bank or Merchant directly or by operation of law, without the prior written consent of 2AP. If you nevertheless assign this Agreement without the consent of 2AP, the Agreement will be binding on the assignee.

E.        Arbitration. All claims or controversies between the parties related to this Agreement, which are not otherwise settled by agreement of parties, shall be submitted to and decided by arbitration held in Chicago, Illinois in accordance with the rules of the American Arbitration Association. ALL CLAIMS OR CONTROVERSIES SUBMITTED TO ARBITRATION SHALL BE BROUGHT ON AN INDIVIDUAL BASIS AND SHALL NOT BE CONSOLIDATED WITH THE CLAIMS OF ANY OTHER PARTY. CLASS ARBITRATIONS, CLASS ACTIONS, PRIVATE ATTORNEY GENERAL ACTIONS AND CONSOLIDATION WITH OTHER ARBITRATIONS IS NOT PERMITTED AND YOU ARE WAIVING ANY RIGHT TO HAVE ANY DISPUTE WITH 2AP OR BANK DECIDED BY A JURY AND TO PARTICIPATE IN ANY CLASS ACTION AGAINST 2AP OR BANK. The arbitrator will have the authority to award any remedy or relief that a court in Illinois could order or grant, including without limitation specific performance, issuance of an injunction, or imposition of sanctions for abuse or frustration of the arbitration process. Costs of the arbitration will be paid by the unsuccessful party to the arbitration. The parties agree that anything communicated, exchanged, said, done, or occurring in the course of arbitration, including any private caucus between the arbitrator and any party before or after any joint arbitration session, will be kept confidential.

F.        Notices. Any written notice under this Agreement will be deemed given upon the actual receipt, if to 2AP: such notice will be addressed to: 1700 Higgins Road, Suite 690, Des Plaines, Illinois 60018-5621, and if to other parties: such notice shall be addressed to the last address shown on the records of the sender.

G.       Bankruptcy. You will immediately notify Bank and 2AP of any bankruptcy, receivership, insolvency, or similar action or proceeding initiated by or against the Merchant. You will include Bank and 2AP on the list and matrix of creditors as filed with the bankruptcy court, whether or not a claim may exist at the time of filing, and failure to do so will be cause for immediate termination or any other action available to 2AP under applicable Law. You acknowledge that this Agreement constitutes an executory contract to make a loan or extend other debt financing or financial accommodations to or for the benefit of you, and, as such, cannot be assumed or assigned in the event of your bankruptcy.

H.        Attorneys’ Fees. You will be liable for and will indemnify and reimburse Bank and 2AP for all attorneys’ fees and other costs and expenses paid or incurred by Bank and 2AP in the enforcement of this Agreement or in collecting any amounts due from Merchant to Bank or 2AP or resulting from any breach by Merchant of this Agreement.

I.         Customer Contact. You authorize Bank and 2AP to contact your customers or their card issuing bank if they determine that such contact is necessary to find out information about any Card transaction between you and the customer.

J.        Amendments. 2AP may propose amendments or additions to this Agreement. 2AP will inform you of a proposed change in a periodic statement or other written notice. You will be deemed to have agreed to the change if you continue to present transactions to Bank and 2AP after 30 days following the mailing of the notice. Notwithstanding the previous sentence, changes to fees authorized by this Agreement are effective upon notice to you, unless a later effective date is provided. Further, 2AP is entitled to pass through to you any fee increases imposed by Visa, Mastercard, Discover Network or telecommunication vendors without giving you the right to terminate this Agreement.

K.       Severability and Waiver. If any provision of this Agreement is illegal, the invalidity of that provision will not affect any of the remaining provisions, and this Agreement will be construed as if the illegal provision is not contained in the Agreement. Neither the failure nor delay by 2AP or Bank to exercise, or the partial exercise of, any right under this Agreement will operate as a waiver or estoppel of such right, nor shall it amend this Agreement. All waivers must be signed by 2AP.

L.       Independent Contractors. 2AP, Bank, and Merchant will be deemed independent contractors and none will be considered agent, joint venture, or partner of the other.

M.      Survival. Sections 1, 2, 3.F, 3.G, 3.H, 6.A., 6.B., 6.G, 6. I, 6.J, 6.K, 8, 9, 10, 11, 12, 13, 14, 16, 17 and 18 will survive termination of this Agreement.

N.       Bank Contact. Merchant may contact Bank at the following address and telephone number: MB Financial Bank, N.A., 6111 N. River Road, Rosemont IL 60018. Telephone 847-653-2595.

TERMS AND CONDITIONS FOR AMERICAN EXPRESS OPTBLUE

To the extent Merchant elects at any time to accept American Express Transaction Cards and qualifies for 2AP’s Direct Settlement Program for American Express OptBlue (registered trademark), the following terms and conditions shall apply, in addition to the Merchant Agreement, including the general terms and conditions as applicable (the “Agreement”), shall apply to the relationship between 2AP and Merchant covered by this Addendum. In the event of any conflict between the Agreement and this Addendum related to an American Express Transaction Card or transaction related thereto, the terms of this Addendum shall apply.

1.          DEFINITIONS. The following capitalized terms shall have the meanings set forth below when used in these Terms and Conditions of 2AP’s Direct Settlement Program for American Express. Any terms not defined in this Addendum shall have the meaning given to them in the Agreement):

“American Express Brand” means the American Express name, trademarks, service marks, logos, and other proprietary designs and designations and the imagery owned by American Express or American Express affiliates and the goodwill associated with all of the foregoing and with all the goods and services now and in the future provided, marketed, offered, or promoted by American Express or an American Express affiliate.

“American Express Transaction Card” means (a) any card, account device, or payment device or service bearing an American Express or an American Express affiliate trademark or logo and issued by an Issuer or (b) an account number issued by an Issuer, which can be used to purchase goods or services at merchants on the American Express network.

“Applicable Law” means: (a) any law, statute, regulation, ordinance or subordinate legislation in force from time to time to which a party or its affiliates is subject; (b) the common law as applicable to the parties from time to time; (c) any court order, judgment, or decree that is binding on a party or its affiliates; and (d) any directive, policy, rule or order that is binding on a party or its affiliates and that is made or given by a regulator, or other government or government agency, of, in the case of items (a) through (d) above, any country, or other national, federal, commonwealth, state, provincial or local jurisdiction.

“High CV Merchant” means Merchant has either: (i) greater than $1,000,000 in American Express Transaction Card volume (net of Chargebacks, credits and any other amounts Merchant owes to American Express) in a rolling 12 month period or (ii) greater than $100,000 in American Express Transaction Card volume (net of Chargebacks, credits and any other amounts Merchant owes to American Express) in any 3 consecutive months. For clarification, if Merchant has multiple Locations, the American Express Transaction Card volume from all of Merchant’s Locations shall be summed together when determining whether Merchant has exceeded the thresholds above.

“Issuer” means any legally recognized entity or organization (including American Express and American Express affiliates) authorized by American Express or an American Express affiliate to issue an American Express Transaction Card and to engage in the American Express Transaction Card issuing business.

“Location” means any or all of Merchant’s locations, outlets, websites, online networks, and all other methods for selling goods and services, including methods that Merchant adopts in the future.

“Other Payment Products” means any charge, credit, debit, stored value or smart cards, account access devices, or other payment cards, services or products other than the American Express Transaction Cards.

2.         AMERICAN EXPRESS TRANSACTION CARD ACCEPTANCE. Merchant shall accept the American Express Transaction Card as payment for goods and services (other than those goods and services prohibited under the Agreement, including without limitation, Section 3.A of the Agreement and the paragraph below in this Section 2) sold, or (if applicable) for charitable contributions made, at all of Merchant’s Locations, except as expressly permitted by state statute. Merchant is jointly and severally liable for the obligations of all of Merchant’s Locations under the Agreement. To accept American Express Transaction Cards, you must clearly and conspicuously disclose all material terms of sale prior to obtaining an Authorization and clearly and conspicuously inform Cardholders at all points of the interactions (e.g., sales conducted in person, over the internet, mobile or via mail or telephone order) what entity is making the sales offer so that the Cardholder can clearly distinguish you from any other party involved in the interaction (e.g. a vender of goods or provider of services you may engage, or another Merchant seeking to conduct business with the Cardholder). The Transaction Data you collect to facilitate the transaction must be, or have been, provided directly to you by the Cardholder.

Merchant must not accept the American Express Transaction Card for any of the following: (a) adult digital content sold via the internet (b) amounts that do not represent bona fide sales of goods or services (or, if applicable, amounts that do not represent bona fide charitable contributions made) at your establishment; (c) amounts that do not represent bona fide, direct sales by your establishments to Cardholders made in the ordinary course of your business; (d) cash or equivalent; for example, purchases of gold, silver, platinum, and palladium bullion and/or bars (collectible coins and jewelry are not prohibited), or virtual currencies that can be exchanged for real currency (loyalty program currencies are not prohibited); (e) charges that the Cardholder has not specifically approved; (f) costs or fees over the normal price of goods or services (plus applicable taxes) that the Cardholder has not specifically approved; (g) damages, losses, penalties, or fines of any kind; (h) gambling services (including online gambling), gambling ch 2AP, gambling credits, or lottery tickets; (i) unlawful/illegal activities, fraudulent business transactions or when providing the goods or services is unlawful/illegal (e.g., unlawful/illegal online internet sales of prescription medications or controlled substances; sales of any goods that infringe the rights of a “rights-holder” under laws applicable to American Express, you, or the Cardholder; (j) overdue amounts or amounts covering returned, previously dishonored or stop-payment checks (e.g. where the American Express Transaction Card is used as payment of last resort); (k) amounts that represent repayment of a cash advance including, but not limited to, payday loans, pawn loans, or payday advances; (l) sales made by third parties or entities conducting business in industries other than yours; or (m) other items of which American Express, 2AP, or Bank notifies you. You must not use American Express Transaction Cards to verify the age of you customers.

3.          SETTLEMENT. 2AP shall settle all American Express Transaction Card transactions processed by 2AP hereunder for Merchant in accordance with the Agreement. Merchant hereby designates the Bank and 2AP as Merchant’s agent to receive all payments pertaining to Merchant’s American Express Transaction Card transactions. All payments required to be made to Merchant under this Agreement for American Express Transaction Card transactions shall be made by 2AP to the Merchant Account, via electronic funds transfer by ACH (or other electronic means) or by wire transfer, at 2AP’s option, as soon as practicable after 2AP’s receipt of such funds from American Express.

2.          TREATMENT OF THE AMERICAN EXPRESS MARKS. Whenever payment methods are communicated to customers, or when customers ask what payments are accepted, Merchant must indicate Merchant’s acceptance of the American Express Transaction Card and display American Express Marks (including any American Express Transaction Card application forms provided to Merchant) as prominently and in the same manner as any Other Payment Products. Merchant must not use the American Express Marks in any way that injures or diminishes the goodwill associated with the Mark, nor (without prior written consent from 2AP) indicate that American Express endorses Merchant’s goods or services. Merchant shall only use the American Express Marks as permitted by the Agreement and shall cease using and shall remove American Express’ Marks from Merchant’s website and wherever else they are displayed upon termination of the Agreement or Merchants participation in 2AP’s Direct Settlement Program for American Express. For additional guidelines on the use of the American Express Marks, contact 2AP.

3.          TREATMENT OF AMERICAN EXPRESS CARD MEMBER INFORMATION. Any and all information about Cardholders (including names, addresses, account numbers and card identification numbers) or American Express Transaction Card transactions is confidential and the sole property of the Issuer, American Express or its Affiliates. Except as otherwise specified, Merchant must not disclose any such information, nor use nor store it, other than to facilitate transactions at Merchant’s Locations in accordance with the Agreement.

4.          CONVERSION IF BECOME A HIGH CV MERCHANT. Merchant will be converted from 2AP’s Direct Settlement Program for American Express to a direct card acceptance agreement with American Express if and when Merchant becomes a High CV Merchant (or if Merchant currently is a High CV Merchant). Upon such conversion, (i) Merchant will be bound by American Express’ then current Card Acceptance Agreement; and (ii) American Express will set pricing and other fees payable by Merchant’s American Express Transaction Card acceptance.

5.          AMERICAN EXPRESS THIRD PARTY BENEFICIARY. American Express shall have the right, but not the obligation, to enforce the terms of the Agreement against Merchant with respect to American Express Transaction Card transactions and 2AP’s Direct Settlement Program for American Express.

6.          CEASE ACCEPTANCE OF AMERICAN EXPRESS. By contacting 2AP customer service or using some other method established by 2AP, Merchant may opt out of accepting American Express Transaction Cards at any time without directly or indirectly or affecting Merchant’s rights to accept other Transaction Cards.

2.          REFUNDS. Merchant’s refund policies for purchases with an American Express Transaction Card must be at least as favorable as Merchant’s refund policy for purchases with any other Transaction Card and the refund policy must be disclosed to Cardholders at the time of purchase and in compliance with Applicable Law.

3.          RIGHT TO BILL OR COLLECT FROM CARDHOLDER. Merchant shall not bill or collect from any Cardholder for any purchase or payment made with an American Express Transaction Card unless (i) American Express has exercised Chargeback for such charge, (ii) Merchant has fully paid American Express for such charge, and (iii) Merchant otherwise has the right to do so.

4.          INFORMATION RIGHTS. Merchant hereby authorizes (i) 2AP to disclose to American Express transaction data (including without limitation, information obtained at the point of sale, information obtained or generated during authorization and settlement, and any Chargeback or other fee information related to a transaction), Merchant data (including without limitation, name, postal and email addresses, tax ID numbers, names and social security numbers of Merchant’s authorized signers and similar identifying information), and other information about Merchant; (ii) American Express to use such information disclosed in (i) to perform its responsibilities in connection with 2AP’s American Express Direct Settlement Program, promote the American Express network, perform analytics and create reports, and for any other lawful business purposes, including marketing purposes; and (iii) 2AP to share information that Merchant discloses to 2AP with 2AP’s agents, subcontractors, affiliates and other parties including industry organizations and reporting agencies, for any purpose permitted by Applicable Law. In addition, American Express may use the information obtained in the setup of Merchant’s account to screen and/or monitor Merchant in connection with American Express Transaction Card marketing and administrative purposes. Any person (including Merchant) providing permission to obtain or disclose information in connection with this Agreement hereby releases and waives any right or claim arising out of or related to such disclosure, including defamation claims, even if the information that is disclosed is incorrect or incomplete, Merchant acknowledges that its business name and the name of its principals may be reported to MATCH and hereby consents to such reporting, and waives and holds 2AP harmless from all claims and liabilities it may have as a result of such reporting.

5.          AMERICAN EXPRESS MERCHANT REQUIREMENTS. You must abide by and are subject to the American Express Merchant Operating Guide which can be found at www.americanexpress.com/merchantopguide and the American Express Opt Blue Operating Regulations, including without limitation the Data Security Operating Policy contained therein, which may be found at www.americanexpress.com/dsr.

2.          TREATMENT OF THE AMERICAN EXPRESS BRAND. Except as expressly permitted by Applicable law, you must not: (i) indicate or imply that you prefer, directly or indirectly, any Other Payment Products over American Express Transaction Cards; (ii) try to dissuade Cardholders from using American Express Transaction Cards; (iii) criticize or mischaracterize American Express Transaction Cards or any of American Express’ services or programs; (iv) try to persuade or prompt Cardholders to use Other Payment Products or any other method of payment; (v) impose any restrictions, conditions, disadvantages, or fees when a American Express Transaction Card is accepted that is not imposed equally on all Other Payment Products, except for electronic funds transfer, cash, or check; (vi) suggest or require Cardholders to waive their right to dispute any Transaction; (vii) engage in activities that harm American Express’ business or the American Express Brand (or both); (viii) promote any Other Payment Products (except your own private label card that you issue for use solely at your establishments) more actively than you promote American Express Transaction Cards, or (ix) convert the currency of the original sale transaction to another currency when requesting authorization or submitting transactions (or both).

You may offer discounts or in-kind incentives from your regular prices for payments in cash, ACH funds transfer, check, debit card, or credit/charge card, provided that (to the extent required by Applicable Law): (a) you clearly and conspicuously disclose the terms of the discount of in-kind incentive to your customers; (b) the discount or the in-kind incentive is offered to all of your prospective customers, and (c) the discount or in-kind incentive does not differentiate on the basis of the issuer or, except as expressly permitted by applicable state statute, payment card network (e.g., Visa, MasterCard, Discover, JCB, American Express). The offering of discounts or in-kind incentives in compliance with the terms of this paragraph will not constitute a violation of the provision set forth above in this Section 13.

3.          TERMINATION. 2AP may immediately terminate Merchant’s right to accept American Express Transaction Cards if (i) Merchant breaches any of the provisions in this Addendum, the Agreement, or the American Express Merchant Operating Guide or (ii) upon American Express’ request.

2.          ASSIGNMENT OF PAYMENTS. Merchant shall not assign to any third party any payments due to Merchant under the Agreement, and all indebtedness arising from any charges will be for bona fide sales of goods and services (or both) at its Locations and free of liens, claims, and encumbrances other than ordinary sales taxes; provided, however, that Merchant may sell and assign future transaction receivables to 2AP, its affiliated entities and/or any other cash advance funding source that partners with 2AP or its affiliated entities, without consent of American Express.

ACCOUNTING INTEGRATION TERMS AND CONDITIONS

These terms and conditions are between you and 2AP, and not Bank, and govern your use of the Accounting Integration Services and related software (collectively the “AI Service”). Contact Customer Service for the Accounting Integration Service Provider, which may or may not be 2AP, (“ASP”) availability in your market area. Rates and AI Service are subject to change by the ASP. Any such changes shall be posted on ASP’s web site.

IMPORTANT: READ THIS AGREEMENT BEFORE USING THE AI SERVICE PROVIDED BY ASP. YOUR USE OF THE AI SERVICE, OR SIGNED ACKNOWLEDGEMENT, WILL INDICATE YOUR ACCEPTANCE OF ALL OF THE FOLLOWING TERMS. If this Agreement is unacceptable to you, do not use the AI Service. ASP is willing to provide the AI Service only if you agree to be bound by the following terms:

1. AI Services and Information

1.1        Neither ASP nor 2AP is responsible for the accuracy or completeness of information sent or received by you through the AI Service. In certain instances, ASP may make available through the AI Service certain information, data, or messages (collectively referred to as “Information”) independently obtained by ASP from various sources, their affiliates, and others (collectively referred to as “Information Providers”). Such Information may be the subject of additional terms and conditions of the Information Providers. Your use of and access to the Information shall constitute your acceptance of those terms and conditions. If you do not agree to the additional terms and conditions, do not use and access the Information. The accuracy, completeness, timeliness, or correct sequencing of the Information is not guaranteed by ASP, the Information Providers, or any parties processing Information or payments (the foregoing parties are collectively referred to as the “Disseminating Parties”). The AI Service must be used in compliance with the Federal Communications Commission and other federal, state and local laws, rules and regulations. The AI Service shall not be used to transmit unauthorized or illegal credit card charges and may not be resold or otherwise provided to third parties.

1.2        Although ASP uses commercially reasonable efforts to provide for the secure transmission of information through the AI Service, confidential use of the AI Service by you cannot be guaranteed by ASP, 2AP or the Disseminating Parties. Neither ASP nor 2AP is responsible for any harm that you or any person may suffer as a result of a breach of confidentiality in respect to your use of the AI Service. Subject to these terms and conditions, ASP will provide you with AI Service that enables the transport and reporting of certain data over certain wireless and other carrier networks to and from various credit and debit card payment processors. The AI Service may include network connectivity via providers to the ASP application architecture including access to a variety of external payment processors that ASP arranges from time to time. Since the AI Service integrates third-party vendors as an essential part of the AI Service, availability may vary due to events beyond the control of ASP and 2AP, including but not limited to, routine maintenance and outages by telecommunications carriers and payment processors. You shall be solely responsible for obtaining, installing, supporting, and maintaining hardware, handheld devices and related hardware required to access and use the AI Service. ASP may suspend the AI Service to you to: (i) prevent damages to, or degradation of, its network integrity which may be caused by you, 2AP or their respective employees or agents; (ii) comply with any law, regulation, court order, or other governmental request order which requires immediate action; or (iii) otherwise protect ASP in its good faith judgment from potential legal liability. ASP may also suspend AI Service in the event fees hereunder are not paid when due. To the extent commercially reasonable, ASP shall give notice to you before suspending or terminating the AI Service. In the event of a suspension, ASP shall promptly restore the AI Service after the event giving rise to the suspension has been resolved. ASP reserves the right in its discretion and without notice to make changes to the AI Service and to terminate your access to, and use of, the AI Service to permit other customers to use the radio frequency, or frequencies, on which the AI Service are being provided. You acknowledge that the AI Service is subject to transmission limitations caused by conditions such as your operating characteristics, selected hardware, atmospheric, weather, topographical, operating characteristics of mobile terminal devices, and other like conditions. Additionally, AI Service may be suspended, refused, limited or curtailed due to governmental regulations or orders, system capacity limitations, limitations imposed by an underlying carrier, or because of hardware or software modifications, upgrades, repairs or reallocations or other similar activities necessary or proper for the operation or improvement of ASP’s facilities and the Service.

1.3        YOU HAVE NO CONTRACTUAL RELATIONSHIP WITH THE UNDERLYING ASP AND YOU ARE NOT A THIRD PARTY BENEFICIARY OF ANY AGREEMENT BETWEEN ASP AND 2AP. YOU UNDERSTAND AND AGREE THAT THE ASP SHALL HAVE NO LEGAL, EQUITABLE, OR OTHER LIABILITY OF ANY KIND TO YOU.

1.4        YOU SHALL INDEMNIFY AND HOLD HARMLESS 2AP AND ASP AND THEIR OFFICERS, EMPLOYEES, AND AGENTS AGAINST ANY AND ALL CLAIMS, INCLUDING WITHOUT LIMITATION CLAIMS FOR LIBEL, SLANDER, OR ANY PROPERTY DAMAGE, PERSONAL INJURY OR DEATH, ARISING IN ANY WAY, DIRECTLY OR INDIRECTLY, IN CONNECTION WITH THIS AGREEMENT OR THE USE, FAILURE TO USE, OR INABILITY TO USE THE SERVICE AND/OR NUMBER AND/OR THE NEGLIGENCE OF ASP AND 2AP AND THEIR OFFICERS, EMPLOYEES, AND AGENTS EXCEPT WHERE THE CLAIMS RESULT FROM ASP’S OR 2AP’S WILLFUL MISCONDUCT. THIS INDEMNITY SHALL SURVIVE THE TERMINATION OF THE AGREEMENT.

1.5        YOU HAVE NO PROPERTY RIGHT IN ANY NUMBER ASSIGNED TO IT, AND UNDERSTAND THAT ANY SUCH NUMBER CAN BE CHANGED FROM TIME TO TIME.

1.6        YOU UNDERSTAND THAT ASP AND 2AP CANNOT GUARANTY THE SECURITY OF WIRELESS OR OTHER TELECOMMUNICATIONS TRANSMISSIONS, AND WILL NOT BE LIABLE FOR ANY LACK OF SECURITY RELATING

1.7        You agree not to reproduce, re-transmit, disseminate, sell, distribute, publish, broadcast, circulate or commercially exploit the Information in any manner without the express written consent of ASP and the relevant Information Provider(s). You agree to immediately notify ASP and 2AP if you become aware of any of the following: (a) any loss or theft of your access number(s) and/or password(s) to the AI Service or Information, or (b) any unauthorized use of any of your access number(s) and/or password(s), or of the AI Service or any Information. You agree to abide by all federal, state and local laws, rules, and regulations when utilizing the AI Service and Information. You agree to defend, indemnify, and hold ASP, 2AP and the Disseminating Parties harmless from and against any and all claims, losses, liabilities, costs and expenses (including but not limited to attorneys’ fees) arising from your violation of this Agreement or any third party’s rights.

1.8        You acknowledge that neither the AI Service nor any of the Information is intended to supply advice of any nature. Although the AI Service may provide Information on a number of topics, none of the Information is endorsed by ASP, 2AP, the underlying wireless service and/or telecommunication carrier(s), or any Disseminating Party. Neither ASP, 2AP nor the Disseminating Parties recommends any service or product offered or advertised in the Information.

2. Pricing and Payment

2.1        You shall make payment to 2AP for all AI Services in accordance with the pricing set forth in the Agreement.

2.2        Prices do not include federal, state, or local taxes, shipping, fees, duties, or licenses. You agree to pay to 2AP all applicable taxes, fees, duties, and licenses and such amounts will be added to the amount due to 2AP from you pursuant to Section 2.1.

3.         DISCLAIMER. YOU ASSUME TOTAL RISK AND RESPONSIBILITY FOR YOUR USE OF THE AI SERVICE AND INFORMATION. NEITHER ASP, 2AP NOR ANY DISSEMINATING PARTY WILL BE LIABLE IN ANY WAY TO YOU OR ANY THIRD PARTY FOR (A) ANY INACCURACY, ERROR OR DELAY IN, OR OMISSION OF

(I) ANY INFORMATION OR (II) THE TRANSMISSION OR DELIVERY OF ANY SUCH INFORMATION, OR (B) ANY LOSS OR DAMAGE ARISING FROM OR OCCASIONED BY

(I) ANY SUCH INACCURACY, ERROR, DELAY OR OMISSION, (II) NON-PERFORMANCE, OR (III) INTERRUPTION IN ANY SUCH INFORMATION FOR ANY REASON, INCLUDING BUT NOT LIMITED TO ANY NEGLIGENT ACT OR OMISSION BY ASP, 2AP OR ANY DISSEMINATING PARTY. THE AI SERVICE AND INFORMATION ARE PROVIDED “AS IS,” WITH ALL FAULTS, AND WITHOUT WARRANTY OF ANY KIND. ASP, 2AP AND THE DISSEMINATING PARTIES EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, QUIET ENJOYMENT, QUALITY OF INFORMATION, TITLE/NON- INFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE. ASP AND 2AP MAKE NO WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED WITH REGARD TO ANY HARDWARE, PRODUCTS, SOFTWARE, OR PROGRAMMING OBTAINED BY YOU FROM THIRD PARTIES (COLLECTIVELY, THE “THIRD PARTY ITEMS”) AND EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, QUIET ENJOYMENT, QUALITY OF INFORMATION, TITLE/NON- INFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE RELATED TO SUCH THIRD PARTY ITEMS.

4.             Intellectual Property (IP) Rights and Trademarks. All copyrights, patents, patent rights, trade secrets, trademarks, servicemarks, tradenames, moral rights and other intellectual property and proprietary rights in the AI Service and Information are and will remain the sole and exclusive property of, as applicable, ASP and its vendors/licensors and Disseminating Parties. The AI Service and Information contain material that is protected by United States copyright law and trade secret law, and by international treaty provisions. All rights not expressly granted to you under this Agreement are expressly reserved by ASP and its vendors/licensors and the Disseminating Parties. You may not remove or modify any proprietary notice of ASP and its vendors/licensors and Disseminating Parties from the AI Service or Information.

5.             Term and Termination. ASP and 2AP reserve the right to terminate your access to the AI Service and Information or any portion of them in their sole discretion, without notice, and without limitation, for any reason whatsoever, including but not limited to the unauthorized use of your access number(s) and/or password(s), breach of this Agreement, failure to pay amounts due ASP, 2AP and/or the Disseminating Parties, discontinuance of the AI Service, or loss of access to any Information from any of the Disseminating Parties. Upon termination, ASP, 2AP and the Disseminating Parties shall have no liability to you; provided, however, that if the termination is without cause, 2AP shall refund the pro rata portion of any fee which may have been pre-paid by you for the portion of the AI Service not furnished to you as of the date of such termination.

6.             LIMITATION OF LIABILITY. IN NO EVENT WILL ASP OR 2AP BE LIABLE TO YOU OR ANY THIRD PARTY FOR ANY DIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, INDIRECT, PUNITIVE OR EXEMPLARY DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS, LOSS OF PROFITS, LOSS OF GOODWILL OR BUSINESS REPUTATION, BUSINESS INTERRUPTION, LOSS OF DATA, LOSS OF BUSINESS INFORMATION AND DAMAGES THAT RESULT FROM INCONVENIENCE, DELAY OR LOSS OF THE USE OF AI SERVICE), EVEN IF ASP OR 2AP HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR LOSSES. IN ANY EVENT, REGARDLESS OF THE FORM OF THE ACTION, WHETHER FOR BREACH OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY IN TORT OR OTHERWISE, YOUR EXCLUSIVE REMEDY FOR CLAIMS (WHETHER IN CONTRACT, TORT OR OTHERWISE) ARISING IN ANY WAY IN CONNECTION WITH THIS AGREEMENT, FOR ANY CAUSE WHATSOEVER, INCLUDING BUT NOT LIMITED TO ANY FAILURE OR DISRUPTION OF AI SERVICE PROVIDED HEREUNDER, IS LIMITED TO PAYMENT OF DIRECT DAMAGES IN AN AMOUNT NOT TO EXCEED $25.00.

7.            Assignment. You may not assign or transfer any right or obligation under this Addendum without the written consent of 2AP.

8.             Force Majeure. Neither ASP or 2AP shall be liable for any loss resulting from a cause over which such entity does not have direct control, including but not limited to, failure of electronic or mechanical equipment or communication lines, Internet slowdowns or failures, telephone or other interconnect problems, unauthorized access, theft, operator errors, severe weather, earthquakes, floods, acts of war, and strikes or other labor problems.

9.             Incorporation of Terms of Agreement. All terms of the Agreement, except those inconsistent with the terms of this Addendum are incorporated and included as part of this Addendum. All capitalized terms not defined in this Addendum shall have the meaning set forth in the Agreement.

10.           General. You acknowledge that in providing you with the AI Service ASP and 2AP have relied upon your assent to be bound by the terms of this Agreement. Subject to ASP’s and 2AP’s right to change applicable pricing and AI Service terms by posting such changes on their Web sites, this Agreement and any license or other restrictions provided with the Information constitute the entire agreement between the parties and supersedes all prior or simultaneous representations, negotiations, and agreements, whether written or oral, and all industry customs or trade practices. Neither party has entered into this Agreement by reason of or in reliance on any representations which are not fully stated in this Agreement. If any provision of this Agreement is invalid or unenforceable under applicable laws, it is, to that extent, deemed omitted and the remaining provisions will continue in full force and effect. Any dispute, controversy or claim arising under, out of, in connection with or in relation to this Agreement, or the breach, termination, validity or enforceability of any provision hereof (a “Dispute”), if not resolved informally through negotiation between the parties, will be submitted to a binding arbitration by a single arbitrator conducted in accordance with and subject to the Commercial Arbitration Rules of the American Arbitration Association then applicable. Any negotiation or arbitration pursuant to this Section will take place in the state in which the ASP’s principal place of business is located. These terms and conditions related to the AI Services shall be governed by the law of the state in which the ASP’s principal place of business is located. The award of the arbitrator shall be final, binding, and convertible to a court judgment in any appropriate jurisdiction. Notwithstanding the foregoing, this Section shall not preclude either party from seeking temporary, provisional, or injunctive relief from any court. In any action/arbitration brought under this Agreement, the prevailing party shall be entitled to recover its actual costs and attorneys’ fees and all other litigation costs, including expert witness fees, and all actual attorneys’ fees and costs incurred in connection with the enforcement of a judgment arising from any action or proceeding.

11.           Survival. The terms and conditions of Sections 1 through 10, above, shall survive any expiration or termination of this Agreement.

2AP MOBILE PROCESSING TERMS AND CONDITIONS

These Mobile Processing terms and conditions are between you and 2AP, and not Bank, and govern your use of the Mobile Service, defined below. Contact Customer Service for the Mobile Processing Service Provider (“MSP”) availability in your market area. Rates and Mobile Service are subject to change by the MSP. Any such changes may be posted on MSP’s web site.

IMPORTANT: READ THIS AGREEMENT BEFORE USING THE MOBILE SERVICE PROVIDED BY MSP. YOUR USE OF THE MOBILE SERVICE, OR SIGNED ACKNOWLEDGEMENT, WILL INDICATE YOUR ACCEPTANCE OF ALL OF THE FOLLOWING TERMS. If this Agreement is unacceptable to you, do not use the Mobile Service. MSP is willing to provide the Mobile Service only if you agree to be bound by the following terms:

1.             Mobile Services and Information.

1.1        2AP, through MSP, will provide you with the ability to process credit and debit card transactions using a mobile device virtual terminal ( the “Mobile Service”) in accordance with the terms and conditions of this Addendum and the Merchant Processing Agreement (the “Agreement”), by and between 2AP and you.

1.2        2AP will, or will cause MSP to, make available training tools and videos as generally available on 2AP’s or MSP’s web site.

1.3        You will identify the mobile device(s) to be used in connection with the Mobile Services and will not change any cell phone used without notice to 2AP. 2AP is not responsible for providing the Mobile Services if you change the mobile device(s) used to a mobile device(s) that is not compatible with the Mobile Services.

1.4        You will be required to agree to MSP’s terms and conditions before the Mobile Services are available for use.

1.5        Although MSP uses commercially reasonable efforts to provide for the secure transmission of information through the Mobile Services, confidential use of the Mobile Services by you cannot be guaranteed by MSP, 2AP or the Disseminating Parties. Neither MSP nor 2AP is responsible for any harm that you or any person may suffer as a result of a breach of confidentiality in respect to your use of the Mobile Services. Subject to these terms and conditions, MSP will provide you with Mobile Services that enable the transport and reporting of certain data over certain wireless and other carrier networks to and from various credit and debit card payment processors. The Mobile Services may include network connectivity via providers to the MSP application architecture including access to a variety of external payment processors that MSP arranges from time to time. Since the Mobile Services integrate third-party vendors as an essential part of the Mobile Services, availability may vary due to events beyond the control of MSP and 2AP, including but not limited to, routine maintenance and outages by telecommunications carriers and payment processors. You shall be solely responsible for obtaining, installing, supporting, and maintaining hardware, handheld devices and related hardware required to access and use the Mobile Services. MSP may suspend the Mobile Services to you to: (i) prevent damages to, or degradation of, its network integrity which may be caused by you, 2AP or their respective employees or agents; (ii) comply with any law, regulation, court order, or other governmental request order which requires immediate action; or (iii) otherwise protect MSP in its good faith judgment from potential legal liability. MSP may also suspend Mobile Services in the event fees hereunder are not paid when due. To the extent commercially reasonable, MSP shall give notice to you before suspending or terminating the Mobile Services. In the event of a suspension, MSP shall promptly restore the Mobile Services after the event giving rise to the suspension has been resolved. MSP reserves the right in its discretion and without notice to make changes to the Mobile Services and to terminate the your access to, and use of, the Mobile Services to permit other customers to use the radio frequency, or frequencies, on which the Mobile Services are being provided. You acknowledge that the Mobile Services are subject to transmission limitations caused by conditions such as your operating characteristics, selected hardware, atmospheric, weather, topographical, operating characteristics of mobile terminal devices, and other like conditions. Additionally, Mobile Services may be suspended, refused, limited or curtailed due to governmental regulations or orders, system capacity limitations, limitations imposed by an underlying carrier, or because of hardware or software modifications, upgrades, repairs or reallocations or other similar activities necessary or proper for the operation or improvement of MSP’s facilities and the Mobile Services.

1.6        MSP or 2AP may, at any time, make such alterations to the Mobile Services or discontinue support for specific mobile devices, as MSP or 2AP, in its sole discretion, deems appropriate. Provided, however, MSP or 2AP will provide you at least fifteen (15) days written notice of any material change to the Mobile Services provided.

2. Pricing and Payment

1.7        You shall make payment to 2AP for all Mobile Services in accordance with the pricing set forth in the Agreement.

1.8        Prices do not include federal, state, or local taxes, shipping, fees, duties, or licenses. You agree to pay to 2AP all applicable taxes, fees, duties, and licenses and such amounts will be added to the amount due to 2AP from you pursuant to Section 2.1.

2.         DISCLAIMER. YOU ASSUME TOTAL RISK AND RESPONSIBILITY FOR YOUR USE OF THE MOBILE SERVICE AND INFORMATION. NEITHER MSP, 2AP NOR ANY DISSEMINATING PARTY WILL BE LIABLE IN ANY WAY TO YOU OR ANY THIRD PARTY FOR (A) ANY INACCURACY, ERROR OR DELAY IN, OR OMISSION OF

(I) ANY INFORMATION OR (II) THE TRANSMISSION OR DELIVERY OF ANY SUCH INFORMATION, OR (B) ANY LOSS OR DAMAGE ARISING FROM OR OCCASIONED BY

(I) ANY SUCH INACCURACY, ERROR, DELAY OR OMISSION, (II) NON-PERFORMANCE, OR (III) INTERRUPTION IN ANY SUCH INFORMATION FOR ANY REASON, INCLUDING BUT NOT LIMITED TO ANY NEGLIGENT ACT OR OMISSION BY MSP, 2AP OR ANY DISSEMINATING PARTY. THE MOBILE SERVICES, INCLUDING THE SOFTWARE, AND INFORMATION ARE PROVIDED “AS IS,” WITH ALL FAULTS, AND WITHOUT WARRANTY OF ANY KIND. MSP, 2AP AND THE DISSEMINATING PARTIES EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, QUIET ENJOYMENT, QUALITY OF INFORMATION, TITLE/NON-INFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE. MSP AND 2AP MAKE NO WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED WITH REGARD TO ANY, HARDWARE, PRODUCTS, SOFTWARE, OR PROGRAMMING OBTAINED BY YOU FROM THIRD PARTIES (COLLECTIVELY, THE “THIRD PARTY ITEMS”) AND EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, QUIET ENJOYMENT, QUALITY OF INFORMATION, TITLE/NON- INFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE RELATED TO SUCH THIRD PARTY ITEMS.

3.         Intellectual Property (IP) Rights and Trademarks. All IP Rights evidenced by or embodied in and/or attached/connected/related to the Mobile Services (including the code and documentation) and 2AP’s or its MSP’s trademarks shall be owned solely by 2AP or the subcontractor, as applicable. You acknowledge that except as expressly provided hereunder in connection with the use of the Mobile Services, 2AP does not convey any IP Rights to you hereunder.

4. Term and Termination.

4.1        Either Party shall have the right to terminate the Mobile Services in the event of a material and continuing breach by the other Party of its obligations hereunder. The non-breaching Party shall send a written notice of termination identifying the breach upon which termination is based, and the notice shall become effective thirty (30) days after delivery thereof to the breaching Party (the “Notice Period”) unless the breaching Party shall have cured or commenced to cure the breach during the Notice Period.

4.2        2AP may terminate the Mobile Services immediately if one or more MSPs providing all or part of the Mobile Services to you cease to provide such Mobile Services to 2AP for any reason.

4.3        2AP or MSP shall have the right to furnish notice of termination of the Mobile Services in the event you engage in any conduct or practice which, in the reasonable judgment of 2AP or MSP, is detrimental or harmful to the good name, goodwill or reputation of 2AP or MSP, including but not limited to your failure to comply with your obligations under these terms and conditions and/or the Agreement.

4.4        Upon termination for any reason the Mobile Services may be disabled by 2AP or MSP.

5. LIMITATION OF LIABILITY.

5.1        UNDER NO CIRCUMSTANCES SHALL 2AP BE LIABLE TO YOU FOR ANY CLAIM FOR (I) INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, (II) COMPENSATION FOR LOSS OF PROFITS, ANTICIPATED REVENUE, SAVINGS OR GOODWILL, OR OTHER ECONOMIC LOSS, (III) EXEMPLARY, AGGRAVATED OR PUNITIVE DAMAGES HOWSOEVER INCURRED, (IV) CONTRIBUTION OR SET- OFF IN RESPECT OF ANY CLAIMS AGAINST YOU, (V) ANY DAMAGES WHATSOEVER RELATING TO THIRD PARTY PRODUCTS OR MOBILE SERVICES OR YOUR MATERIALS, OR (VI) ANY DAMAGES WHATSOEVER RELATING TO INTERRUPTION, DELAYS, ERRORS OR OMISSIONS, IN EACH CASE UNDER ANY THEORY OF LAW OR EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS ADDENDUM OR THE MOBILE SERVICES OR ANY MOBILE SERVICES PROVIDED BY 2AP OR ITS SUBCONTRACTORS IN RELATION TO THE MOBILE SERVICES (FOR GREATER CERTAINTY, INCLUDING IN RELATION TO ANY SUPPORT, TRAINING OR MAINTENANCE OR ANY ENHANCEMENTS, UPGRADES, FIXES, OR REPLACEMENTS TO THE SOFTWARE OR HARDWARE ASSOCIATED WITH THE MOBILE SERVICES), EVEN IF ADVISED OF THE POSSIBILITY THEREOF.

5.2        2AP’S AND ITS MSP’S LIABILITY TO YOU FOR ANY AND ALL DIRECT, COMPENSATORY LOSS OR DAMAGES, UNDER ANY THEORY OF LAW OR EQUITY, WHETHER FOR BREACH OF CONTRACT, TORT OR OTHERWISE, ARISING OUT OF OR IN ANY WAY RELATED TO THIS ADDENDUM OR THE INTENDED FULFILLMENT OF ANY OF ITS OBLIGATIONS UNDER THIS ADDENDUM OR ANY MOBILE SERVICES PROVIDED BY 2AP OR ITS MSP’s IN RELATION TO THE MOBILE SERVICES (FOR GREATER CERTAINTY, INCLUDING IN RELATION TO ANY SUPPORT, TRAINING OR MAINTENANCE OR ANY ENHANCEMENTS, UPGRADES, FIXES, OR REPLACEMENTS TO THE MOBILE SERVICES SOFTWARE OR HARDWARE), SHALL BE STRICTLY LIMITED TO THE AGGREGATE OF ANY FEES OR PURCHASE PRICE OR OTHER AMOUNTS PAID BY YOU TO 2AP FOR THE PRIOR 4 MONTHS UNDER THIS ADDENDUM FOR THE MOBILE SERVICES THAT CAUSED SUCH LOSS OR DAMAGES.

6.            Assignment. You may not assign or transfer any right or obligation under this Addendum without the written consent of 2AP.

7.             Force Majeure. 2AP shall be excused from delays in performing or from its failure to perform hereunder to the extent that such delays or failures result from a natural calamity, act of government, or similar cause beyond the control of 2AP, provided that, in order to be excused from delay or failure to perform, 2AP must act diligently to remedy the effect of such delay or failure.

8.             Incorporation of Terms of Agreement. All terms of the Agreement, except those inconsistent with the terms of this Addendum are incorporated and included as part of this Addendum. All capitalized terms not defined in this Addendum shall have the meaning set forth in the Agreement.

9.             Survival. The Parties' rights and obligations under Sections 2, 3, 4, 5, 6, 7, 8, and 9 shall survive expiration or termination of this Addendum for any reason.

GATEWAY TERMS AND CONDITIONS

These Gateway terms and conditions are between you and 2AP, and not Bank, and govern your use of the Gateway Services, defined below. Rates and Gateway Service are subject to change by the Gateway Service Provider, who may or may not be 2AP (“GSP”). Any such changes shall be posted on GSP’s web site.

IMPORTANT: READ THIS AGREEMENT BEFORE USING THE GATEWAY SERVICE PROVIDED BY GSP. YOUR USE OF THE GATEWAY SERVICE, OR SIGNED ACKNOWLEDGEMENT, WILL INDICATE YOUR ACCEPTANCE OF ALL OF THE FOLLOWING TERMS. If this Agreement is unacceptable to you, do not use the Gateway Service. GSP is willing to provide the Gateway Service only if you agree to be bound by the following terms:

1. Gateway Services and Information.

1.1        2AP, through GSP, will provide you with the ability to process credit and debit card transactions using GSP’s payment processing and gateway services (“Gateway Services”) in accordance with these terms and conditions and the Merchant Processing Agreement (the “Agreement”), by and between 2AP and you.

1.2        2AP will, or will cause GSP to, make available training tools and videos as generally available on 2AP’s or GSP’s web site.

1.3        You will identify the hardware and software to be used in connection with the Gateway Services and will not

change any hardware or software used without notice to 2AP. 2AP is not responsible for providing the Gateway Services if you change the hardware or software used to hardware or software that is not compatible with the Gateway Services.

1.4        You will be required to agree to GSP terms and conditions before the Gateway Services are available for use.

1.5        Although GSP uses commercially reasonable efforts to provide for the secure transmission of information through the Gateway Services, confidential use of the Gateway Services by you cannot be guaranteed by GSP, 2AP or the Disseminating Parties. Neither GSP nor 2AP is responsible for any harm that you or any person may suffer as a result of a breach of confidentiality in respect to your use of the Gateway Services. Subject to these terms and conditions, GSP will provide you with Gateway Services that enable the transport and reporting of certain data over certain networks to and from various credit and debit card payment processors. The Gateway Services may include network connectivity via providers to the GSP application architecture including access to a variety of external payment processors that GSP arranges from time to time. Since the Gateway Services integrate third-party vendors as an essential part of the Gateway Services, availability may vary due to events beyond the control of GSP and 2AP, including but not limited to, routine maintenance and outages by telecommunications carriers and payment processors. You shall be solely responsible for obtaining, installing, supporting, and maintaining hardware, handheld devices and related hardware required to access and use the Gateway Services. GSP may suspend the Gateway Services to you to: (i) prevent damages to, or degradation of, its network integrity which may be caused by you, 2AP or their respective employees or agents; (ii) comply with any law, regulation, court order, or other governmental request order which requires immediate action; or (iii) otherwise protect GSP in its good faith judgment from potential legal liability. GSP may also suspend Gateway Services in the event fees hereunder are not paid when due. To the extent commercially reasonable, GSP shall give notice to you before suspending or terminating the Gateway Services. In the event of a suspension, GSP shall promptly restore the Gateway Services after the event giving rise to the suspension has been resolved. GSP reserves the right in its discretion and without notice to make changes to the Gateway Services and to terminate your access to, and use of, the Gateway Services to permit other customers to use the radio frequency, or frequencies, on which the Gateway Services are being provided. You acknowledge that the Gateway Services are subject to transmission limitations caused by conditions such as your operating characteristics, selected hardware, atmospheric, weather, topographical, operating characteristics of mobile terminal devices, and other like conditions. Additionally, Gateway Services may be suspended, refused, limited or curtailed due to governmental regulations or orders, system capacity limitations, limitations imposed by an underlying carrier, or because of hardware or software modifications, upgrades, repairs or reallocations or other similar activities necessary or proper for the operation or improvement of GSP’s facilities and the Gateway Services.

1.6        2AP or GSP may, at any time, make such alterations to the Gateway Services or discontinue support for specific hardware or software, as 2AP or GSP, in its sole discretion, deems appropriate. Provided, however, 2AP or GSP will provide you at least fifteen (15) days written notice of any material change to the Gateway Services provided.

2. Pricing and Payment

2.1        You shall make payment to 2AP for all Gateway Services in accordance with the pricing set forth in the Agreement.

2.2        Prices do not include federal, state, or local taxes, shipping, fees, duties, or licenses. You agree to pay to 2AP 2AP all applicable taxes, fees, duties, and licenses and such amounts will be added to the amount due to 2AP from you pursuant to Section 2.1.

3.          DISCLAIMER. YOU ASSUME TOTAL RISK AND RESPONSIBILITY FOR YOUR USE OF THE GATEWAY SERVICE AND INFORMATION. NEITHER GSP, 2AP NOR ANY DISSEMINATING PARTY WILL BE LIABLE IN ANY WAY TO YOU OR ANY THIRD PARTY FOR (A) ANY INACCURACY, ERROR OR DELAY IN, OR OMISSION OF

(I) ANY INFORMATION OR (II) THE TRANSMISSION OR DELIVERY OF ANY SUCH INFORMATION, OR (B) ANY LOSS OR DAMAGE ARISING FROM OR OCCASIONED BY

(I) ANY SUCH INACCURACY, ERROR, DELAY OR OMISSION, (II) NON-PERFORMANCE, OR (III) INTERRUPTION IN ANY SUCH INFORMATION FOR ANY REASON, INCLUDING BUT NOT LIMITED TO ANY NEGLIGENT ACT OR OMISSION BY GSP, 2AP OR ANY DISSEMINATING PARTY. THE GATEWAY SERVICES, INCLUDING THE SOFTWARE, AND INFORMATION ARE PROVIDED “AS IS,” WITH ALL FAULTS, AND WITHOUT WARRANTY OF ANY KIND. GSP, 2AP AND THE DISSEMINATING PARTIES EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, QUIET ENJOYMENT, QUALITY OF INFORMATION, TITLE/NON-INFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE. GSP AND 2AP MAKE NO WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED WITH REGARD TO ANY HARDWARE, PRODUCTS, SOFTWARE, OR PROGRAMMING OBTAINED BY YOU FROM THIRD PARTIES (COLLECTIVELY, THE “THIRD PARTY ITEMS”) AND EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, QUIET ENJOYMENT, QUALITY OF INFORMATION, TITLE/NON- INFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE RELATED TO SUCH THIRD PARTY ITEMS.

4.             Intellectual Property (IP) Rights and Trademarks. All IP Rights evidenced by or embodied in and/or attached/connected/related to the Gateway Services (including the code and documentation) and 2AP’s or its GSP’s trademarks shall be owned solely by 2AP or the subcontractor, as applicable. You acknowledge that except as expressly provided hereunder in connection with the use of the Gateway Services, 2AP does not convey any IP Rights to you hereunder.

5. Term and Termination.

5.1        Either Party shall have the right to terminate the Gateway Services in the event of a material and continuing breach by the other Party of its obligations hereunder. The non-breaching Party shall send a written notice of termination identifying the breach upon which termination is based, and the notice shall become effective thirty (30) days after delivery thereof to the breaching Party (the “Notice Period”) unless the breaching Party shall have cured or commenced to cure the breach during the Notice Period.

5.2        2AP may terminate the Gateway Services immediately if one or more GSPs providing all or part of the Gateway Services to you cease to provide such Gateway Services to 2AP for any reason.

5.3        2AP or GSP shall have the right to furnish notice of termination of the Gateway Services in the event you engage in any conduct or practice which, in the reasonable judgment of 2AP or GSP, is detrimental or harmful to the good name, goodwill or reputation of 2AP or GSP, including but not limited to your failure to comply with your obligations under these terms and conditions and/or the Agreement.

5.4        Upon termination for any reason the Gateway Services may be disabled by 2AP or GSP.

6. LIMITATION OF LIABILITY.

6.1        UNDER NO CIRCUMSTANCES SHALL 2AP BE LIABLE TO YOU FOR ANY CLAIM FOR (I) INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, (II) COMPENSATION FOR LOSS OF PROFITS, ANTICIPATED REVENUE, SAVINGS OR GOODWILL, OR OTHER ECONOMIC LOSS, (III) EXEMPLARY, AGGRAVATED OR PUNITIVE DAMAGES HOWSOEVER INCURRED, (IV) CONTRIBUTION OR SET- OFF IN RESPECT OF ANY CLAIMS AGAINST YOU, (V) ANY DAMAGES WHATSOEVER RELATING TO THIRD PARTY PRODUCTS OR GATEWAY SERVICES OR YOUR MATERIALS, OR (VI) ANY DAMAGES WHATSOEVER RELATING TO INTERRUPTION, DELAYS, ERRORS OR OMISSIONS, IN EACH CASE UNDER ANY THEORY OF LAW OR EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS ADDENDUM OR THE GATEWAY SERVICES OR ANY GATEWAY SERVICES PROVIDED BY 2AP OR ITS SUBCONTRACTORS IN RELATION TO THE GATEWAY SERVICES (FOR GREATER CERTAINTY, INCLUDING IN RELATION TO ANY SUPPORT, TRAINING OR MAINTENANCE OR ANY ENHANCEMENTS, UPGRADES, FIXES, OR REPLACEMENTS TO THE SOFTWARE OR HARDWARE ASSOCIATED WITH THE GATEWAY SERVICES), EVEN IF ADVISED OF THE POSSIBILITY THEREOF.

6.2        2AP’S AND ITS GSP’S LIABILITY TO YOU FOR ANY AND ALL DIRECT, COMPENSATORY LOSS OR DAMAGES, UNDER ANY THEORY OF LAW OR EQUITY, WHETHER FOR BREACH OF CONTRACT, TORT OR OTHERWISE, ARISING OUT OF OR IN ANY WAY RELATED TO THIS ADDENDUM OR THE INTENDED FULFILLMENT OF ANY OF ITS OBLIGATIONS UNDER THIS ADDENDUM OR ANY GATEWAY SERVICES PROVIDED BY 2AP OR ITS GSPS IN RELATION TO THE GATEWAY SERVICES (FOR GREATER CERTAINTY, INCLUDING IN RELATION TO ANY SUPPORT, TRAINING OR MAINTENANCE OR ANY ENHANCEMENTS, UPGRADES, FIXES, OR REPLACEMENTS TO THE GATEWAY SERVICES SOFTWARE OR HARDWARE), SHALL BE STRICTLY LIMITED TO THE AGGREGATE OF ANY FEES OR PURCHASE PRICE OR OTHER AMOUNTS PAID BY YOU TO 2AP FOR THE PRIOR 4 MONTHS UNDER THIS ADDENDUM FOR THE GATEWAY SERVICES THAT CAUSED SUCH LOSS OR DAMAGES.

7.         Assignment. You may not assign or transfer any right or obligation under this Addendum without the written consent of 2AP.

8.          Force Majeure. 2AP shall be excused from delays in performing or from its failure to perform hereunder to the extent that such delays or failures result from a natural calamity, act of government, or similar cause beyond the control of 2AP, provided that, in order to be excused from delay or failure to perform, 2AP must act diligently to remedy the effect of such delay or failure.

9.          Incorporation of Terms of Agreement. All terms of the Agreement, except those inconsistent with the terms of this Addendum are incorporated and included as part of this Addendum. All capitalized terms not defined in this Addendum shall have the meaning set forth in the Agreement.

10.        Survival. The Parties' rights and obligations under Sections 2, 3, 4, 5, 6, 7, 8, and 9 shall survive expiration or termination of this Addendum for any reason.

FUNDING TERMS AND CONDITIONS

The funding terms and conditions contained in this Addendum are between you and 2AP, and not Bank, and govern your use of the various funding options and related software, including but not limited to Next Day Funding and Same Day Money Express (individually a “Funding Service” and collectively the “Funding Services”) provided by 2AP. Rates, fees and the Funding Services provided by 2AP are subject to change by the 2AP. Any such changes shall either be provided to you by written notification or posted on 2AP’s web site. Further, your continued participation in Next Day Funding or Same Day Money Express is subject ongoing credit approval.

IMPORTANT: READ THIS AGREEMENT BEFORE USING THE FUNDING OPTION PROVIDED BY 2AP PURSUANT TO THIS AGREEMENT. YOUR USE OF NEXT DAY FUNDING OR SAME DAY MONEY EXPRESS, OR YOUR SIGNED ACKNOWLEDGEMENT REGARDING THE SAME, WILL INDICATE YOUR ACCEPTANCE OF ALL OF THE FOLLOWING TERMS. IF THIS AGREEMENT IS UNACCEPTABLE TO YOU, DO NOT USE THE SAME DAY MONEY EXPRESS. 2AP IS WILLING TO PROVIDE THE SAME DAY MONEY EXPRESS ONLY IF YOU AGREE TO BE BOUND BY THE FOLLOWING TERMS:

1.             Next Day Funding and Same Day Money Express. 2AP agrees that for Visa, Mastercard and Amex OptBlue Card transaction submitted in accordance with the requirements of the Agreement before (a) before 7:00 PM central time each day if you have elected Next Day Funding or (b) before 4:00 am central time if you have elected Same Day Money Express , 2AP will, subject to the limitation set forth in Section 1.3,

(a) if you have elected Next Day Funding make funds due to you for Card transactions submitted on Friday, Saturday and Sunday available to you on Monday morning central time;

(b) if you have elected Same Day Money Express make funds due to you for Card Transactions submitted on Saturday and Sunday available to you on Monday morning central time;

(c) If you have elected Next Day Funding make funds due to you for Card Transactions submitted on Monday through Thursday available to you on the next business day; and

(d) If you have elected Same Day Money Express make funds due to you for Card Transactions submitted on Monday through Friday available to you on the same business day

For any batches submitted on Holidays or on a day on which the Federal Reserve is closed, the funds for Visa, Mastercard and Amex OptBlue Card transactions will be made available to you on the next business day following the Holiday or the date on which the Federal Reserve is closed.

2.             Posting of ACH Receipts. 2AP cannot guarantee that your bank will post ACH receipts the next morning, even though those funds were forwarded to your bank by 2AP on a timely basis.

3.             Failure to Timely Fund. In the event that any unforeseen circumstance prevents 2AP from making the funds available in accordance with the provisions of Section 1 above, such funds will then be made available in accordance with 2AP’s Standard Funding schedule.

4.             Limitation of Liability. IN THE EVENT THAT 2AP FAILS TO FUND IN ACCORDANCE WITH SECTION 1 AND 3 ABOVE, YOUR SOLE AND EXCLUSIVE REMEDY SHALL BE LIMITED TO REDCUTION OF THE MONTHLY FEE FOR THE NEXT DAY FUNDING OR SAME DAY MONEY EXPRESS PROGRAM, AS APPLICABLE, PAID BY YOU FOR THE MONTH IN WHICH 2AP FAILED TO SATISFY 2AP’S FUNDING OBLIGATION UNDER SECTIONS 1 AND 2. SUCH REDUCTION SHALL BE EQUAL TO THE NUMBER OF DAYS ON WHICH 2AP DID NOT MEET ITS FUNDING OBLIGATION DIVIDED BY THE NUMBER OF DAYS IN THE APPLICABLE MONTH.

5.             DISCLAIMER. YOU ASSUME TOTAL RISK AND RESPONSIBILITY FOR YOUR USE OF THE FUNDING SERVICES. EXCEPT AS EXPRESLY SET FORTH IN THESE FUNDING TERMS AND CONDITIONS 2AP WILL NOT BE LIABLE IN ANY WAY TO YOU OR ANY THIRD PARTY FOR (A) ANY INACCURACY, ERROR OR DELAY IN, OR OMISSION OF (I) ANY INFORMATION OR FUNDS OR (II) THE TRANSMISSION OR DELIVERY OF ANY SUCH FUNDS, OR (B) ANY LOSS OR DAMAGE ARISING FROM OR OCCASIONED BY (I) ANY SUCH INACCURACY, ERROR, DELAY OR OMISSION, (II) NON-PERFORMANCE, OR (III) INTERRUPTION IN ANY SUCH INFORMATION FOR ANY REASON, INCLUDING BUT NOT LIMITED TO ANY NEGLIGENT ACT OR OMISSION BY 2AP. THE NEXT DAY FUNDING AND SAME DAY MONEY EXPRESS ARE PROVIDED “AS IS,” WITH ALL FAULTS, AND WITHOUT WARRANTY OF ANY KIND. 2AP EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, QUIET ENJOYMENT, QUALITY OF INFORMATION, TITLE/NON-INFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE. 2AP MAKES NO WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED WITH REGARD TO ANY HARDWARE, PRODUCTS, SOFTWARE, OR PROGRAMMING OBTAINED BY YOU FROM THIRD PARTIES (COLLECTIVELY, THE “THIRD PARTY ITEMS”) AND EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, QUIET ENJOYMENT, QUALITY OF INFORMATION, TITLE/NON- INFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE RELATED TO SUCH THIRD PARTY ITEMS.

6.             Fee for Next Day Funding or Same Day Money Express. You agree to pay the fee for Next Day Funding or Same Money Express set forth in this Agreement. 2AP may change the fee for Next Day Funding or Same Day Money Express at any time by providing notice to you.

7.             ACH Authorization. By signing the Merchant Application and electing to receive Next Day Funding or Same Day Money Express you authorize 2AP to collect the aforementioned fee by electronically debiting the Merchant Account using the ACH System.

8.             Termination. 2AP, in its sole discretion, reserves the right to terminate your participation in the Overnight Money Express™ program at any time.

9.             Force Majeure. 2AP shall not be liable for any loss resulting from a cause over which 2AP does not have direct control, including but not limited to, failure of electronic or mechanical equipment or communication lines, Internet slowdowns or failures, telephone or other interconnect problems, unauthorized access, theft, operator errors, severe weather, earthquakes, floods, acts of war, and strikes or other labor problems.

10.           Incorporation of Terms of Agreement. All terms of the Agreement, except those inconsistent with the terms of this Addendum are incorporated and included as part of this Addendum. All capitalized terms not defined in this Addendum shall have the meaning set forth in the Agreement.

11.           General. This Addendum and the Agreement constitute the entire agreement between the parties and supersedes all prior or simultaneous representations, negotiations, and agreements, whether written or oral, and all industry customs or trade practices. Neither party has entered into this Agreement by reason of or in reliance on any representations which are not fully stated in this Agreement. If any provision of this Agreement is invalid or unenforceable under applicable laws, it is, to that extent, deemed omitted and the remaining provisions will continue in full force and effect. Any dispute, controversy or claim arising under, out of, in connection with or in relation to this Agreement, or the breach, termination, validity or enforceability of any provision hereof (a “Dispute”), if not resolved informally through negotiation between the parties, will be submitted to a binding arbitration in accordance with the terms of the Agreement. Notwithstanding the foregoing, this Section shall not preclude either party from seeking temporary, provisional, or injunctive relief from any court. In any action/arbitration brought under this Agreement, the prevailing party shall be entitled to recover its actual costs and attorneys’ fees and all other litigation costs, including expert witness fees, and all actual attorneys’ fees and costs incurred in connection with the enforcement of a judgment arising from any action or proceeding.

12.          Survival. The terms and conditions of Sections 1 through 10, above, shall survive any expiration or termination of this Agreement.

WIRELESS SERVICES TERMS AND CONDITIONS

These Wireless Services terms and conditions are between you and 2AP, and not Bank, and govern your use of the Wireless Services (the “Wireless Services”). Contact Customer Service for the Wireless Service Provider (“2AP”) availability in your market area. Rates and Wireless Service are subject to change by the 2AP. Any such changes shall be posted on 2AP’s web site.

IMPORTANT: READ THIS AGREEMENT BEFORE USING THE WIRELESS SERVICE PROVIDED BY WSP. YOUR USE OF THE WIRELESS SERVICE, OR SIGNED ACKNOWLEDGEMENT, WILL INDICATE YOUR ACCEPTANCE OF ALL OF THE FOLLOWING TERMS. If this Agreement is unacceptable to you, do not use the Wireless Service. 2AP is willing to provide the Wireless Service only if you agree to be bound by the following terms:

1.            Wireless Services and Information.

1.1        Neither 2AP nor 2AP is responsible for the accuracy or completeness of information sent or received by you through the Wireless Service. In certain instances, 2AP may make available through the Wireless Service certain information, data, or messages (collectively referred to as “Information”) independently obtained by 2AP from various sources, their affiliates, and others (collectively referred to as “Information Providers”). Such Information may be the subject of additional terms and conditions of the Information Providers. Your use of and access to the Information shall constitute your acceptance of those terms and conditions. If you do not agree to the additional terms and conditions, do not use and access the Information. The accuracy, completeness, timeliness, or correct sequencing of the Information is not guaranteed by 2AP, the Information Providers, or any parties processing Information or payments (the foregoing parties are collectively referred to as the “Disseminating Parties”).

1.2        Although 2AP uses commercially reasonable efforts to provide for the secure transmission of information through the Wireless Service, confidential use of the Wireless Service by you cannot be guaranteed by 2AP, 2AP or the Disseminating Parties. Neither 2AP nor 2AP is responsible for any harm that you or any person may suffer as a result of a breach of confidentiality in respect to your use of the Wireless Service. Subject to these terms and conditions, WSP will provide you with Wireless Services that enable the transport and reporting of certain data over certain wireless and other carrier networks to and from various credit and debit card payment processors. The Wireless Services may include network connectivity via Velocita Wireless, Cingular Wireless, AT&T Wireless and other providers to the WSP application architecture including access to a variety of external payment processors that WSP arranges from time to time. Since the Wireless Services integrate third-party vendors as an essential part of the Wireless Services, availability may vary due to events beyond the control of 2AP and 2AP including but not limited to routine maintenance and outages by telecommunications carriers and payment processors. You shall be solely responsible for obtaining, installing, supporting, and maintaining the handheld devices and related hardware required to access and use the Wireless Services. 2AP may suspend the Wireless Services to you to: (i) prevent damages to, or degradation of, its network integrity which may be caused by you, 2AP or their respective employees or agents; (ii) comply with any law, regulation, court order, or other governmental request order which requires immediate action; or (iii) otherwise protect WSP in its good faith judgment from potential legal liability. WSP may also suspend Wireless Services in the event fees hereunder are not paid when due. To the extent commercially reasonable, WSP shall give notice to you before suspending or terminating the Wireless Services. In the event of a suspension, WSP shall restore the Wireless Services promptly after the event giving rise to the suspension has been resolved.

1.3        YOU HAVE NO CONTRACTUAL RELATIONSHIP WITH THE UNDERLYING WIRELESS AND/OR TELECOMMUNICATIONS SERVICE CARRIER(S) AND YOU ARE NOT A THIRD PARTY BENEFICIARY OF ANY AGREEMENT BETWEEN 2AP, 2AP AND THE UNDERLYING WIRELESS AND/OR TELECOMMUNICATIONS SERVICE CARRIER(S). YOU UNDERSTAND AND AGREE THAT THE UNDERLYING WIRELESS AND/OR TELECOMMUNICATIONS SERVICE CARRIER(S) SHALL HAVE NO LEGAL, EQUITABLE, OR OTHER LIABILITY OF ANY KIND TO YOU.

1.4        YOU SHALL INDEMNIFY AND HOLD HARMLESS 2AP, 2AP AND THE UNDERLYING WIRELESS, AND/OR TELECOMMUNICATIONS SERVICE CARRIER(S) AND THEIR OFFICERS, EMPLOYEES, AND AGENTS AGAINST ANY AND ALL CLAIMS, INCLUDING WITHOUT LIMITATION CLAIMS FOR LIBEL, SLANDER, OR ANY PROPERTY DAMAGE, PERSONAL INJURY OR DEATH, ARISING IN ANY WAY, DIRECTLY OR INDIRECTLY, IN CONNECTION WITH THIS AGREEMENT OR THE USE, FAILURE TO USE, OR INABILITY TO USE THE WIRELESS SERVICE AND/OR NUMBER AND/OR THE NEGLIGENCE OF ASP, 2AP AND THE UNDERLYING WIRELESS, AND/OR TELECOMMUNICATIONS SERVICE CARRIER(S) AND THEIR OFFICERS, EMPLOYEES, AND AGENTS EXCEPT WHERE THE CLAIMS RESULT FROM 2AP’S, 2AP’S OR THE UNDERLYING WIRELESS AND/OR TELECOMMUNICATIONS SERVICE CARRIER’S WILLFUL MISCONDUCT. THIS INDEMNITY SHALL SURVIVE THE TERMINATION OF THE AGREEMENT.

1.5        YOU HAVE NO PROPERTY RIGHT IN ANY NUMBER ASSIGNED TO IT, AND UNDERSTAND THAT ANY SUCH NUMBER CAN BE CHANGED FROM TIME TO TIME.

1.6        YOU UNDERSTAND THAT 2AP, 2AP AND THE UNDERLYING WIRELESS AND/OR TELECOMMUNICATIONS SERVICE CARRIER(S) CANNOT GUARANTY THE SECURITY OF WIRELESS OR OTHER TELECOMMUNICATIONS TRANSMISSIONS, AND WILL NOT BE LIABLE FOR ANY LACK OF SECURITY RELATING TO THE USE OF THE WIRELESS SERVICES.

1.7        You agree not to reproduce, re-transmit, disseminate, sell, distribute, publish, broadcast, circulate or commercially exploit the Information in any manner without the express written consent of WSP and the relevant Information Provider(s). You agree to immediately notify 2AP and 2AP if you become aware of any of the following: (a) any loss or theft of your access number(s) and/or password(s) to the Wireless Service or Information, or (b) any unauthorized use of any of your access number(s) and/or password(s), or of the Wireless Service or any Information. You agree to abide by all federal, state and local laws, rules, and regulations when utilizing the Wireless Service and Information. You agree to defend, indemnify, and hold 2AP, 2AP and the Disseminating Parties harmless from and against any and all claims, losses, liabilities, costs and expenses (including but not limited to attorneys’ fees) arising from your violation of this Agreement or any third party’s rights.

1.8        You acknowledge that neither the Wireless Service nor any of the Information is intended to supply advice of any nature. Although the Wireless Service may provide Information on a number of topics, none of the Information is endorsed by 2AP, 2AP, the underlying wireless service and/or telecommunication carrier(s), or any Disseminating Party. Neither 2AP, 2AP nor the Disseminating Parties recommend any service or product offered or advertised in the Information.

2. Pricing and Payment

2.1        You shall make payment to 2AP for all Wireless Services in accordance with the pricing set forth in the Agreement.

2.2        Prices do not include federal, state, or local taxes, shipping, fees, duties, or licenses. You agree to pay to 2AP all applicable taxes, fees, duties, and licenses and such amounts will be added to the amount due to 2AP from you pursuant to Section 2.1.

3.             DISCLAIMER. YOU ASSUME TOTAL RISK AND RESPONSIBILITY FOR YOUR USE OF THE WIRELESS SERVICE AND INFORMATION. NEITHER 2AP, 2AP NOR ANY DISSEMINATING PARTY WILL BE LIABLE IN ANY WAY TO YOU OR ANY THIRD PARTY FOR (A) ANY INACCURACY, ERROR OR DELAY IN, OR OMISSION OF (I) ANY INFORMATION OR (II) THE TRANSMISSION OR DELIVERY OF ANY SUCH INFORMATION, OR (B) ANY LOSS OR DAMAGE ARISING FROM OR OCCASIONED BY

(I) ANY SUCH INACCURACY, ERROR, DELAY OR OMISSION, (II) NON-PERFORMANCE, OR (III) INTERRUPTION IN ANY SUCH INFORMATION FOR ANY REASON, INCLUDING BUT NOT LIMITED TO ANY NEGLIGENT ACT OR OMISSION BY 2AP, 2AP OR ANY DISSEMINATING PARTY. THE WIRELESS SERVICE AND INFORMATION ARE PROVIDED “AS IS,” WITH ALL FAULTS, AND WITHOUT WARRANTY OF ANY KIND. 2AP, 2AP AND THE DISSEMINATING PARTIES EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, QUIET ENJOYMENT, QUALITY OF INFORMATION, TITLE/NON- INFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE. WSP AND 2AP MAKE NO WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED WITH REGARD TO ANY HARDWARE, PRODUCTS, SOFTWARE, OR PROGRAMMING OBTAINED BY YOU FROM THIRD PARTIES (COLLECTIVELY, THE “THIRD PARTY ITEMS”) AND EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, QUIET ENJOYMENT, QUALITY OF INFORMATION, TITLE/NON- INFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE RELATED TO SUCH THIRD PARTY ITEMS.

4.             Intellectual Property (IP) Rights and Trademarks. All copyrights, patents, patent rights, trade secrets, trademarks, servicemarks, tradenames, moral rights and other intellectual property and proprietary rights in the Wireless Service and Information are and will remain the sole and exclusive property of, as applicable, WSP and its vendors/licensors and Disseminating Parties. The Wireless Service and Information contain material that is protected by United States copyright law and trade secret law, and by international treaty provisions. All rights not expressly granted to you under this Agreement are expressly reserved by 2AP and its vendors/licensors and the Disseminating Parties. You may not remove or modify any proprietary notice of 2AP and its vendors/licensors and Disseminating Parties from the Wireless Service or Information.

5.             Term and Termination. 2AP and 2AP reserve the right to terminate your access to the Wireless Service and Information or any portion of them in their sole discretion, without notice, and without limitation, for any reason whatsoever, including but not limited to the unauthorized use of your access number(s) and/or password(s), breach of this Agreement, failure to pay amounts due 2AP, 2AP and/or the Disseminating Parties, discontinuance of the Wireless Service, or loss of access to any Information from any of the Disseminating Parties. Upon termination, 2AP, 2AP and the Disseminating Parties shall have no liability to you; provided, however, that if the termination is without cause, 2AP shall refund the pro rata portion of any fee which may have been pre-paid by you for the portion of the Wireless Service not furnished to you as of the date of such termination.

6.             LIMITATION OF LIABILITY. IN NO EVENT WILL 2AP, 2AP, ANY UNDERLYING WIRELESS AND/OR TELECOMMUNICATIONS WIRELESS SERVICE CARRIER(S), OR ANY DISSEMINATING PARTY BE LIABLE TO YOU OR ANY THIRD PARTY FOR ANY DIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, INDIRECT, PUNITIVE OR EXEMPLARY DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS, LOSS OF PROFITS, LOSS OF GOODWILL OR BUSINESS REPUTATION, BUSINESS INTERRUPTION, LOSS OF DATA, LOSS OF BUSINESS INFORMATION AND DAMAGES THAT RESULT FROM INCONVENIENCE, DELAY OR LOSS OF THE USE OF WIRELESS SERVICE), EVEN IF 2AP, 2AP, THE UNDERLYING WIRELESS AND/OR TELECOMMUNICATIONS SERVICE CARRIER(S), OR ANY DISSEMINATING PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR LOSSES. IN ANY EVENT, REGARDLESS OF THE FORM OF THE ACTION, WHETHER FOR BREACH OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY IN TORT OR OTHERWISE, YOUR EXCLUSIVE REMEDY FOR CLAIMS (WHETHER IN CONTRACT, TORT OR OTHERWISE) ARISING IN ANY WAY IN CONNECTION WITH THIS AGREEMENT, FOR ANY CAUSE WHATSOEVER, INCLUDING BUT NOT LIMITED TO ANY FAILURE OR DISRUPTION OF WIRELESS SERVICE PROVIDED HEREUNDER, IS LIMITED TO PAYMENT OF DIRECT DAMAGES IN AN AMOUNT NOT TO EXCEED $25.00.

7.            Assignment. You may not assign or transfer any right or obligation under this Addendum without the written consent of 2AP.

8.             Force Majeure. Neither 2AP, 2AP, the underlying wireless and/or telecommunications service carrier(s), nor any Disseminating Party shall be liable for any loss resulting from a cause over which such entity does not have direct control, including but not limited to, failure of electronic or mechanical equipment or communication lines, Internet slowdowns or failures, telephone or other interconnect problems, unauthorized access, theft, operator errors, severe weather, earthquakes, floods, acts of war, and strikes or other labor problems.

9.             Incorporation of Terms of Agreement. All terms of the Agreement, except those inconsistent with the terms of this Addendum are incorporated and included as part of this Addendum. All capitalized terms not defined in this Addendum shall have the meaning set forth in the Agreement.

10.           General. You acknowledge that in providing you with the Wireless Service 2AP and 2AP have relied upon your assent to be bound by the terms of this Agreement. Subject to 2AP’s and 2AP’s right to change applicable pricing and Wireless Service terms by posting such changes on their Web sites, this Agreement and any license or other restrictions provided with the Information constitute the entire agreement between the parties and supersedes all prior or simultaneous representations, negotiations, and agreements, whether written or oral, and all industry customs or trade practices. Neither party has entered into this Agreement by reason of or in reliance on any representations which are not fully stated in this Agreement. If any provision of this Agreement is invalid or unenforceable under applicable laws, it is, to that extent, deemed omitted and the remaining provisions will continue in full force and effect. Any dispute, controversy or claim arising under, out of, in connection with or in relation to this Agreement, or the breach, termination, validity or enforceability of any provision hereof (a “Dispute”), if not resolved informally through negotiation between the parties, will be submitted to a binding arbitration by a single arbitrator conducted in accordance with and subject to the Commercial Arbitration Rules of the American Arbitration Association then applicable. Any negotiation or arbitration pursuant to this Section will take place in the state in which the WSP’s principal place of business is located. These terms and conditions related to the Wireless Services shall be governed by the law of the state in which the WSP’s principal place of business is located. The award of the arbitrator shall be final, binding, and convertible to a court judgment in any appropriate jurisdiction. Notwithstanding the foregoing, this Section shall not preclude either party from seeking temporary, provisional, or injunctive relief from any court. In any action/arbitration brought under this Agreement, the prevailing party shall be entitled to recover its actual costs and attorneys’ fees and all other litigation costs, including expert witness fees, and all actual attorneys’ fees and costs incurred in connection with the enforcement of a judgment arising from any action or proceeding.

11.           Survival. The terms and conditions of Sections 1 through 10, above, shall survive any expiration or termination of this Agreement.

ACCOUNT UPDATER TERMS AND CONDITIONS

These Account Updater terms and conditions are between you, 2AP, and Bank, and govern your use of the Account Updater Services. 2AP and Bank reserve the right to allocate their duties in connection with the Account Updater Service amongst themselves as they deem appropriate in their sole discretion. Rates and Service are subject to change by the 2AP. Any such changes shall be posted on 2AP’s web site.

IMPORTANT: READ THIS AGREEMENT BEFORE USING THE ACCOUNT UPDATER SERVICE. YOUR USE OF THE SERVICE, OR SIGNED ACKNOWLEDGEMENT, WILL INDICATE YOUR ACCEPTANCE OF ALL OF THE FOLLOWING TERMS. If this Agreement is unacceptable to you, do not use the Account Updater Service. 2AP is willing to provide the Account Updater Service only if you agree to be bound by the following terms:

1.            Account Updater Services. The Account Updater Service allows 2AP and Bank to access, or supply to you, the most current cardholder account information to the extent your businesses requires electronic maintenance of customer account data. Using this service 2AP and Bank will be able to obtain updated cardholder account information to support your subscription services, recurring payments, and other account on-file-functions, to the extent applicable to you. You shall only use this service for your own account and you may not submit inquiries on behalf of any other entity.

2.             Use of Data. You shall only use the data obtained from the Account Updater Services (“Updated Data”) for the purpose of updating Cardholder information in order to complete future pre-authorized Card transactions in accordance with the Rules and Operating Regulations and shall not use the Updated Data for any other purpose, including without limitation in connection with any transactions that are not Card transactions or in connection with the development of any other service or product.

3.             Validation. You shall allow 2AP or Bank to validate, which shall include without limitation auditing your books, records and business, (a) that your use of the Updated Data complies with your obligations hereunder and (b) your compliance with the Data Security Standards in connection with the Updated Data.

4.             PCI/DSS Compliance. Upon the request of 2AP or Bank you shall provide any documents requested by 2AP or Bank necessary to validate your compliance with the Data Security Standards and any annual re-validation or certification or your compliance with those standards, including without limitation providing Attestations of Compliance and Reports of Compliance prepared in connection with complying with PCI/DSS.

5.            Card Network Agreements. You shall enter into any written agreements and submit any forms required by any Card Network or requested by 2AP or Bank in connection our receipt of the Account Updater Services.

6.             Rights of 2AP and Bank. 2AP, Bank and the applicable Card Networks each reserve the right to:

a. Control access to the Updated Data;

b. Revoke your access to the Updated Data in the event that 2AP, Bank or the applicable Card Network determines that your use of the Updated Data violates this Agreement, any agreement you signed with the applicable Card Network, the Rules or the Operating Regulations; and

c. Determine the content access through the Account Updater Service, including limiting or removing content without prior notice.

7.            Compliance with Rules. You agree, in connection with your use of the Account Updater Services to comply with all of the Rules and Operating Regulations applicable to those services, including, without limitation all of the applicable Data Security Standards.

8.             Indemnification. You shall, at your sole expense, indemnify, defend and hold harmless 2AP, Bank and the Card Networks and their employees, agents and affiliates from and an against all claims, suits, actions, damages, settlements, losses, liabilities, costs and expenses, including without limitation reasonable attorneys’ fees, arising out of or in connection with (a) a breach of your obligations under the Account Updater Terms and Conditions, (b) your failure to comply with the Rules, the Operating Regulations or applicable law, or (c) your, or your employees, agents or representatives, negligent or intentional misconduct in connection with the Account Updater Services or the Updated Data.

9.             LIMITATION OF LIABILITY. IN NO EVENT SHALL 2AP OR BANK BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES ARISING IN CONNECTION WITH THIS AGREEMENT AND/OR ITS SUBJECT MATTER, REGARDLESS OF THE THEORY OF LIABILITY GIVING RISE TO SUCH DAMAGES, WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE, AND REGARDLESS OF WHETHER SUCH PARTY WAS ADVISED OR AWARE OF THE POSWSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL 2AP’S OR BANKS LIABILITY, IN THE AGGREGATE, FOR ANY REASONA IN CONNECTION WITH THE ACCOUNT UPDATER SERVICES EXCEED AN AMOUNT EQUAL TO THE PREVIOUS FOUR (4) MONTHS OF FEES PAID BY YOU FOR THE ACCOUNT UPDATER SERVICES.

10.           DISCLAIMER. YOU ASSUME TOTAL RISK AND RESPONSIBILITY FOR YOUR USE OF THE SERVICE AND INFORMATION. NEITHER 2AP, BANK, THE CARD NETOWRKS NOR ANY OTHER DISSEMINATING PARTY WILL BE LIABLE IN ANY WAY TO YOU OR ANY THIRD PARTY FOR (A) ANY INACCURACY, ERROR OR DELAY IN, OR OMISSION OF (I) ANY DATA OR INFORMATION OR (II) THE TRANSMISSION OR DELIVERY OF ANY SUCH INFORMATION, OR (B) ANY LOSS OR DAMAGE ARISING FROM OR OCCASIONED BY (I) ANY SUCH INACCURACY, ERROR, DELAY OR OMISSION, (II) NON-PERFORMANCE, OR (III) INTERRUPTION IN ANY SUCH INFORMATION FOR ANY REASON, INCLUDING BUT NOT LIMITED TO ANY NEGLIGENT ACT OR OMISSION BY 2AP, BANK, THE CARD NETWORKS OR ANY DISSEMINATING PARTY. THE ACCOUNT UPDATER SERVICES, INCLUDING THE SOFTWARE, UPDATED DATA AND INFORMATION ARE PROVIDED “AS IS,” WITH ALL FAULTS, AND WITHOUT WARRANTY OF ANY KIND. 2AP, BANK AND THE DISSEMINATING PARTIES EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO, THE ACCURACY OF THE UPDATED DATA OR INFORMATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY, QUIET ENJOYMENT, QUALITY OF INFORMATION, TITLE/NON-INFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE. 2AP AND BANK MAKE NO WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED WITH REGARD TO ANY PRODUCTS, SOFTWARE, DATA, INFORMATION OR PROGRAMMING OBTAINED BY YOU FROM THIRD PARTIES (COLLECTIVELY, THE “THIRD PARTY ITEMS”) AND EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, QUIET ENJOYMENT, QUALITY OF INFORMATION, TITLE/NON- INFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE RELATED TO SUCH THIRD PARTY ITEMS.

10.          Termination. The provision of the Account Updater Services may be terminated by 2AP or Bank (a) without cause upon thirty (30) days’ notice or (b) immediately upon any breach of this Agreement by you, as expressly provided herein or in the event 2AP or Bank or no longer able to provide the Account Updater Service.

11.           Incorporation of Terms of Agreement. All terms of the Agreement, except those inconsistent with the terms of this Addendum are incorporated and included as part of this Addendum. All capitalized terms not defined in this Addendum shall have the meaning set forth in the Agreement.

11.           Survival. The terms and conditions of Sections 2 – 4, 6-9 and 11, above, shall survive any expiration or termination of this Agreement.

CONVENIENCE FEE PROGRAM

TERMS AND CONDITIONS

1.            Merchant shall, in accordance with all applicable Operating Regulations, charge a convenience fee in connection with any credit Card or signature debit Card transaction (the “Convenience Fee”). The amount of the convenience fee shall be equal to the fee set forth in Section 6 of the Merchant Processing Application (the “Service Fee”).

2.             Any credit Card or signature debit Card transaction shall result in two transactions being processed, a transaction equal to the sale amount plus any applicable taxes (the “Sale Transaction”) and a transaction equal to the Convenience Fee amount (the “Convenience Fee Transaction”). The proceeds of the Sale Transaction shall be deposited in the Merchant Account (defined below) and the proceeds of the Convenience Fee Transaction shall be deposited in an account in the name of 2AP (the “Convenience Fee Account”).

3.             The Service Fee shall be satisfied solely from the Convenience Fee Account. All amounts deposited in the Convenience Fee Account shall belong to 2AP and Merchant shall have no access to, or any ownership interest in, to amounts deposited into the Convenience Fee Account in accordance with the terms and conditions of this Agreement.

4.             2AP shall have the right by ACH debit, to deduct other amounts from the Merchant Account due under this Agreement, including without limitation the amount of any chargebacks. 2AP shall not be entitled to deduct any amounts from the Merchant Account to pay any Service Fees.

5.             Merchant agrees to cooperate with 2AP and Bank in connection with registering with any Card Network where registration is required to participate in the convenience fee program or where 2AP and/or Bank deems such registration desirable.

6.             Merchant represents and warrants that all of the transactions hereunder will fall within MCC codes 9311 (Tax), 9222 (Fine, 9211 (Court Costs) and 9399 (Miscellaneous) for government merchants and for education related merchants 8220(College Tuition), 8211 (Elementary and Second Schools), 8244 (Business) and 8249 (Trade Schools).

7.            Merchant agrees to (a) clearly and conspicuously disclose the Convenience Fee, and that it will be charged as a separate transaction, to all Cardholders prior to completing the transaction, (b) offer the Cardholder another form of payment or the opportunity to opt out of the sale, (c) accept credit and signature debit Cards as a means of payment for all channels pursuant to which payments are accepted and (d) feature the ability to pay with credit and signature debit Cards at least as prominently as other payment methods.

EX1A-11 CONSENT

Exhibit 11.1

CONSENT OF INDEPENDENT AUDITOR

We consent to the use, in this Offering Statement on Form 1-A, as it may be amended, of our independent auditors’ report dated June 21, 2018 related to the financial statements of Gab AI Inc. as of December 31, 2017 and 2016 and the related statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2017 and the period from Inception (September 9, 2016) to December 31, 2016, and the related notes to the financial statements.

/s/ dbbmckennon

Newport Beach, California

January 28, 2019