NOTE 10. CONVERTIBLE NOTES

On December 19, 2022, the Company entered into a Securities Purchase Contract (the “Securities Purchase Contract”) with two institutional investors (each, an “Investor” and collectively, the “Investors”) for the issuance to the Investors of $15,000,000 in aggregate Convertible Notes (the "Convertible Notes") at a purchase price of $13,500,000. The Convertible Notes bore 4.5% interest per annum, payable, at the option of the Company, in kind or in cash, subject to certain conditions, and was convertible, at the option of the holders from time to time, into shares of the Company’s Common Stock, or repayable in cash at maturity. The Convertible Notes matured on June 19, 2024.

The Convertible Notes could be converted, at the option of the Investors, into shares of the Company’s Common Stock at a conversion price, which is equal to the lower of (1) a 30% premium to the average of the five most recent daily volume weighted average price (“VWAPs”) of the Common Stock as measured on the day prior to the issuance of the Registered Advance Notes (the “Fixed Conversion Price”) and (2) 92.5% of the three lowest VWAPs of the Common Stock on the 10 trading days preceding delivery of a Conversion Notice by an Investor. The conversion price could not be less than $11,400 in accordance with the rules and regulations of Nasdaq.

During the six months ended June 30, 2024, $400,000 of principal was converted for 6,184 shares of common stock. During the three months ended June 30, 2024 the Company had interest expense of $463, of which, $397 was due to accretion of discount on the note. During the six months ended June 30, 2024, the Company had interest expense of $463,397, of which, $19,260 was due to accretion of discount on the note. The note matured on June 19, 2024 and the Company paid the remaining principal and interest payable.

If the conversion price was less than the floor price, the Company recorded a Conversions Payable that represented the economic difference between the applicable conversion price of the Convertible Notes and floor price. This amount is payable either in shares valued as the VWAP on the conversion day or in cash. If the VWAP on the conversion day is less than the floor price, then the economic different between the conversion day VWAP and the floor price becomes payable in cash and was recorded as Cash payable. During the six months ended June 30, 2024, $1,279,782 of conversions payable was converted into 17,934 shares of common stock and $199,997 of Cash payable. The Cash payable was paid in April 2024.

In addition to the Convertible Notes, the Company also issued to the Investors certain common stock warrants (the “Warrants”). The Warrants have certain “full ratchet” anti-dilution adjustments that are triggered when the Company issued securities with a purchase or conversion, exercise or exchange price that is less than the exercise price of the Warrants then in effect at any time. Under the full ratchet anti-dilution adjustments, if the Company issued new securities at a price lower than the then applicable exercise price, (i) the exercise price is reduced to the lower new issue price and (ii) the number of warrant shares is proportionately increased. The Warrants have been previously adjusted following past issuances of Company securities. On April 18, 2024, there were approximately 67,000 Warrants exercisable at an exercise price of $147.27, that were repurchased for $3.6 million cash and subsequently cancelled. Additionally, on April 12, 2024, the Company issued approximately 85,500 warrants in aggregate at an exercise price of $11.68 per warrant in connection with repurchasing the

Warrants. The Company recorded an expense of $743,459 as Warrant settlement expense on the unaudited Condensed Statement of Operations and Comprehensive Income. The expense represents the estimated fair value of the warrants at the issuance date and was determined using the Black Scholes model using the following inputs: