arcee-ai/sec-data-full · Datasets at Hugging Face

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rate of 4.3 %; (iv) expected life of five years ; (v) estimated fair value of the common shares of $ 1.80 per share; (vi) exercise price
ranging from $ 0.01 to $ 5.25 ; and (vii) various probability assumptions related to down round price adjustments. The fair value of the
warrants was $ 1,323,774 and the fair value of the commitment shares was $ 521,590 , resulting in the amount allocated to the warrants and
commitment shares, based on their relative fair value of $ 879,829 , which was recorded as additional paid-in capital. The exercise prices
of all of the foregoing warrants were adjusted to $ 0.5948 on April 30, 2023 per the adjustment described below. On February 22, 2023 (as described in Note 10),
the Company entered into securities purchase agreement with one accredited investor, pursuant to which the Company issued to such investor
(i) a promissory note in the aggregate principal amount of $ 878,000 and (ii) five-year warrants for the purchase of an aggregate of 182,917 common shares at an exercise price of $ 4.20 per share (subject to adjustment) for total cash proceeds of $ 737,700 . As additional consideration,
the Company issued five-year warrants for the purchase of an aggregate of 198,343 common shares at an exercise price of $ 0.01 per share
(subject to adjustment) to the investor as a commitment fee. Additionally, the Company issued a five-year warrant to J.H. Darbie &
Co (the broker) for the purchase of 7,526 common shares at an exercise price of $ 5.25 (subject to adjustment). Accordingly, a portion
of the proceeds were allocated to the warrants based on their relative fair value using the Geometric Brownian Motion Stock Path Monte
Carlo Simulation. The assumptions used in the model were as follows: (i) dividend yield of 0 %; (ii) expected volatility of 161.6 %; (iii)
weighted average risk-free interest rate of 4.5 %; (iv) expected life of five years; (v) estimated fair value of the common shares of
$ 1.51 per share; (vi) exercise price ranging from $ 0.01 to $ 5.25 ; and (vii) various probability assumptions related to down round price
adjustments. The fair value of the warrants was $ 556,485 , resulting in the amount allocated to the warrants, based on their relative
fair value of $ 261,945 , which was recorded as additional paid-in capital. The exercise prices of all of the foregoing warrants were adjusted
to $ 0.5948 on April 30, 2023 per the adjustment described below. 21 1847 HOLDINGS LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2023 (UNAUDITED) As a result of the issuance of common shares
in settlement of series A senior convertible preferred shares accrued dividends on January 30, 2023, the exercise price of certain of
the Company’s outstanding warrants was adjusted to $ 1.53 pursuant to certain antidilution provisions of such warrants (down round
feature). As a result, the Company recognized a deemed dividend of approximately $ 1.2 million, which was calculated using a Black-Scholes
pricing model. As a result of the issuance of common shares
in settlement of series A senior convertible preferred shares accrued dividends on April 30, 2023, the exercise price of certain of the
Company’s outstanding warrants was adjusted to $ 0.5948 pursuant to certain antidilution provisions of such warrants (down round
feature). As a result, the Company recognized a deemed dividend of approximately $ 0.5 million, which was calculated using a Black-Scholes
pricing model. Below is a table summarizing the changes in warrants
outstanding during the six months ended June 30, 2023: Warrants Weighted- Average Exercise Price Outstanding at December 31, 2022 3,068,919 $ 4.14 Granted 1,711,188 3.98 Exercised ( 2,662,935 ) ( 0.58 ) Settled ( 33,334 ) ( 0.59 ) Outstanding at June 30, 2023 2,083,838 $ 1.34 Exercisable at June 30, 2023 1,675,966 $ 0.64 As of June 30, 2023, the outstanding warrants
have a weighted average remaining contractual life of 4.0 years and a total intrinsic value of $ 161,154 . NOTE 13—EARNINGS (LOSS) PER SHARE The computation of weighted average shares outstanding
and the basic and diluted loss per common share attributable to common shareholders for the three months ended June 30, 2023 and 2022
consisted of the followin Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net loss attributable to common shareholders $ ( 4,469,958 ) $ ( 352,733 ) $ ( 5,355,289 ) $ ( 1,360,978 ) Weighted-average common shares outstanding – basic and diluted 5,861,137 1,248,829 5,141,836 1,239,093 Loss per common share attributable to common shareholders – basic and diluted $ ( 0.76 ) $ ( 0.28 ) $ ( 1.04 ) $ ( 1.10 ) For the three and six months ended June 30, 2023,
there were 23,297,117 potential common share equivalents from warrants, convertible debt, and series A and B convertible preferred shares
excluded from the diluted earnings per share calculations as their effect is anti-dilutive. For the three and six months ended June 30, 2022,
there were 5,174,416 potential common share equivalents from warrants, convertible debt, and series A and B convertible preferred shares
excluded from the diluted earnings per share calculations as their effect is anti-dilutive. 22 1847
HOLDINGS LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2023 (UNAUDITED) NOTE 14—DEFERRED INCOME TAXES As of June 30, 2023, the Company has net operating
loss carry forwards of approximately $ 5.1 million that may be available to reduce future years’ taxable income indefinitely. Future
tax benefits which may arise as a result of these losses have not been recognized in these condensed consolidated financial statements,
as their realization is determined not likely to occur. Accordingly, the Company has recorded a valuation allowance for the deferred
tax asset relating to these tax loss carry-forwards. For the period ending June 30, 2023, the Company reflects a deferred tax liability
in the amount of $ 1.2 million due to the future tax liability from an asset with an indefinite life known as a “naked credit.”
The future tax liability from this indefinite lived asset can be offset by up to 80 % of net operating loss carryforwards created after
2017. The remaining portion of the future tax liability from indefinite lived assets cannot be used to offset definite lived deferred
tax assets. Deferred income taxes reflect the net tax effect
of temporary differences between amounts recorded for financial reporting purposes and amounts used for tax purposes. The Company has
a net cumulative long-term deferred tax liability of $ 1,217,000 . The major components of the deferred tax assets and liabilities at June
30, 2023 and December 31, 2022 consisted of the followin June 30, December 31, 2023 2022 Deferred tax assets Inventory obsolescence $ 289,000 $ 93,000 Reserves 142,000 - Business interest limitations 2,336,000 1,707,000 Lease liabilities 572,000 650,000 Other 45,000 75,000 Loss carryforward 1,296,000 285,000 Valuation allowance ( 2,854,000 ) - Total deferred tax asset 1,826,000 2,810,000 Deferred tax liabilities Fixed assets ( 286,000 ) ( 418,000 ) Right-of-use assets ( 548,000 ) ( 628,000 ) Intangibles ( 2,209,000 ) ( 2,363,000 ) Total deferred tax liability ( 3,043,000 ) ( 3,409,000 ) Total deferred tax liability, net $ ( 1,217,000 ) $ ( 599,000 ) NOTE 15—SUBSEQUENT EVENTS Public Offering On July 3, 2023, the Company entered into a securities
purchase agreement with certain purchasers and a placement agency agreement with Spartan Capital Securities, LLC, as placement agent
(“Spartan”), pursuant to which the Company agreed to issue and sell to such purchasers an aggregate of 3,845,000 common shares
and 5,500,000 pre-funded warrants for the purchase of 5,500,000 common shares at an offering price of $ 0.20 per common share and $ 0.19 per pre-funded warrant, pursuant to the Company’s effective registration statement on Form S-1 (File No. 333-272057). On July 7,
2023, the closing of this offering was completed. At the closing, the purchasers pre-paid the exercise price of the pre-funded warrants
in full. Therefore, the Company received total gross proceeds of $ 1,869,000 . Pursuant to the placement agency agreement, Spartan received a
cash transaction fee equal to 8 % of the aggregate gross proceeds and reimbursement of certain out-of-pocket expenses. After deducting
these and other offering expenses, the Company received net proceeds of approximately $ 1,494,480 . All of the purchasers exercised the pre-funded
warrants in full either at closing or shortly thereafter and the Company issued an aggregate of 5,500,000 common shares upon such exercise. Registered Direct Offering On July 14, 2023, the Company entered into a
securities purchase agreement with certain purchasers and a placement agency agreement with Spartan, which were amended pursuant to an
amendatory agreement, dated July 18, 2023, among the Company, Spartan and such purchasers. Pursuant to the foregoing, on July 18, 2023,
the Company issued and sold to such purchasers an aggregate of 4,000,000 common shares at a purchase price of $ 0.24 per share for total
gross proceeds of $ 960,000 , pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-269509).
Spartan received a cash transaction fee equal to 8 % of the aggregate gross proceeds and reimbursement of certain out-of-pocket expenses.
After deducting these and other offering expenses, the Company received net proceeds of approximately $ 858,200 . 23 1847
HOLDINGS LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2023 (UNAUDITED) Debt Offering On August 11, 2023, the Company entered into
a securities purchase agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”),
pursuant to which the Company issued and sold to the Investors 20 % OID subordinated promissory notes in the aggregate principal amount
of $ 3,125,000 (the “Notes”) and warrants for the purchase of an aggregate of 4,098,361 common shares (the “Warrants”)
for a total purchase price of $ 2,500,000 in a private placement transaction (the “Private Placement”). The Notes are due and payable on February 11,
2024. The Company may voluntarily prepay the Notes in full at any time. In addition, if the Company consummates any equity or equity-linked
or debt securities issuance, or enters into a loan agreement or other financing, other than certain Excluded Debt (as defined in the
Notes), then the Company must prepay the Notes in full. The Notes are unsecured and have priority over all other unsecured indebtedness
of the Company, except for certain Senior Indebtedness (as defined in the Notes). The Notes contain customary affirmative and negative
covenants and events of default for a loan of this type. Subject to Shareholder Approval (as defined below),
the Notes are convertible into common shares at the option of the holders at any time on or following the date that an Event of Default
(as defined in the Notes) occurs at a conversion price equal to 90 % of the lowest volume weighted average price of the Company’s
common shares on any trading day during the five (5) trading days prior to the conversion date; provided that such conversion price shall
not be less than $ 0.03 (subject to adjustments). The conversion price of the Notes is subject to standard adjustments, including a price-based
adjustment in the event that the Company issues any common shares or other securities convertible into or exercisable for common shares
at an effective price per share that is lower than the conversion price, subject to certain exceptions. The terms of the Warrants are set forth in a
warrant agency agreement, dated August 11, 2023 (the “Warrant Agreement”), between the Company and VStock Transfer, LLC,
the Company’s transfer agent. Subject to Shareholder Approval, the Warrants are exercisable for a period five (5) years at an exercise
price of $ 0.1830 (subject to standard adjustments for share splits, share combinations, share dividends, reclassifications, mergers,
consolidations, reorganizations and similar transactions) and may be exercised on a cashless basis if at the time of exercise there is
no effective registration statement registering, or the prospectus contained therein is not available for, the issuance of common shares
upon exercise thereof. Pursuant to the Purchase Agreement, the Company
is required to hold a special meeting of its shareholders on or before the date that is sixty (60) calendar days after the date of the
Purchase Agreement for the purpose of obtaining shareholder approval of the issuance of all common shares that may be issued upon conversion
of the Notes and exercise of the Warrants in accordance with NYSE American rules (the “Shareholder Approval”). In addition,
the Notes and the Warrants contain an ownership limitation, such that the Company shall not effect any conversion or exercise, and the
holders shall not have the right to convert or exercise, any portion of the Notes or the Warrants to the extent that after giving effect
to the issuance of common shares upon conversion or exercise, such holder, together with its affiliates and any other persons acting
as a group together with such holder or any of its affiliates, would beneficially own in excess of 4.99 % of the number of common shares
outstanding immediately after giving effect to the issuance of common shares upon conversion or exercise, which such percentage may be
increased or decreased by the holder, but not in excess of 9.99 %, upon at least 61 days’ prior notice to the Company. In connection with the Private Placement, the
Company also entered into a registration rights agreement (the “Registration Rights Agreement”) with the Investors, pursuant
to which the Company agreed to file a registration statement to register all common shares underlying the Notes and the Warrants under
the Securities Act of 1933, as amended (the “Securities Act”), within fifteen (15) days following an Event of Default and
use its best efforts to cause such registration statement to be declared effective within ninety (90) days after the filing thereof.
If the Company fails to meet these deadlines or comply with certain other requirements in the Registration Rights Agreement, then on
each date that the Company fails to comply, and on each monthly anniversary thereof, the Company shall pay to each Investor an amount
in cash, as partial liquidated damages and not as a penalty, equal to 1.0 % of the aggregate subscription amount paid by such Investor
pursuant to the Purchase Agreement, subject to an aggregate cap of 10 %. If the Company fails to pay any of these amounts in full within
seven (7) days after the date payable, the Company must pay interest thereon at a rate of 18 % per annum (or such lesser maximum amount
that is permitted to be paid by applicable law). Spartan Capital Securities, LLC (the “Placement

rate of 4.3 %; (iv) expected life of five years ; (v) estimated fair value of the common shares of $ 1.80 per share; (vi) exercise price

ranging from $ 0.01 to $ 5.25 ; and (vii) various probability assumptions related to down round price adjustments. The fair value of the

warrants was $ 1,323,774 and the fair value of the commitment shares was $ 521,590 , resulting in the amount allocated to the warrants and

commitment shares, based on their relative fair value of $ 879,829 , which was recorded as additional paid-in capital. The exercise prices

of all of the foregoing warrants were adjusted to $ 0.5948 on April 30, 2023 per the adjustment described below. On February 22, 2023 (as described in Note 10),

the Company entered into securities purchase agreement with one accredited investor, pursuant to which the Company issued to such investor

(i) a promissory note in the aggregate principal amount of $ 878,000 and (ii) five-year warrants for the purchase of an aggregate of 182,917 common shares at an exercise price of $ 4.20 per share (subject to adjustment) for total cash proceeds of $ 737,700 . As additional consideration,

the Company issued five-year warrants for the purchase of an aggregate of 198,343 common shares at an exercise price of $ 0.01 per share

(subject to adjustment) to the investor as a commitment fee. Additionally, the Company issued a five-year warrant to J.H. Darbie &

Co (the broker) for the purchase of 7,526 common shares at an exercise price of $ 5.25 (subject to adjustment). Accordingly, a portion

of the proceeds were allocated to the warrants based on their relative fair value using the Geometric Brownian Motion Stock Path Monte

Carlo Simulation. The assumptions used in the model were as follows: (i) dividend yield of 0 %; (ii) expected volatility of 161.6 %; (iii)

weighted average risk-free interest rate of 4.5 %; (iv) expected life of five years; (v) estimated fair value of the common shares of

$ 1.51 per share; (vi) exercise price ranging from $ 0.01 to $ 5.25 ; and (vii) various probability assumptions related to down round price

adjustments. The fair value of the warrants was $ 556,485 , resulting in the amount allocated to the warrants, based on their relative

fair value of $ 261,945 , which was recorded as additional paid-in capital. The exercise prices of all of the foregoing warrants were adjusted

to $ 0.5948 on April 30, 2023 per the adjustment described below. 21 1847 HOLDINGS LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2023 (UNAUDITED) As a result of the issuance of common shares

in settlement of series A senior convertible preferred shares accrued dividends on January 30, 2023, the exercise price of certain of

the Company’s outstanding warrants was adjusted to $ 1.53 pursuant to certain antidilution provisions of such warrants (down round

feature). As a result, the Company recognized a deemed dividend of approximately $ 1.2 million, which was calculated using a Black-Scholes

pricing model. As a result of the issuance of common shares

in settlement of series A senior convertible preferred shares accrued dividends on April 30, 2023, the exercise price of certain of the

Company’s outstanding warrants was adjusted to $ 0.5948 pursuant to certain antidilution provisions of such warrants (down round

feature). As a result, the Company recognized a deemed dividend of approximately $ 0.5 million, which was calculated using a Black-Scholes

pricing model. Below is a table summarizing the changes in warrants

outstanding during the six months ended June 30, 2023: Warrants Weighted- Average Exercise Price Outstanding at December 31, 2022 3,068,919 $ 4.14 Granted 1,711,188 3.98 Exercised ( 2,662,935 ) ( 0.58 ) Settled ( 33,334 ) ( 0.59 ) Outstanding at June 30, 2023 2,083,838 $ 1.34 Exercisable at June 30, 2023 1,675,966 $ 0.64 As of June 30, 2023, the outstanding warrants

have a weighted average remaining contractual life of 4.0 years and a total intrinsic value of $ 161,154 . NOTE 13—EARNINGS (LOSS) PER SHARE The computation of weighted average shares outstanding

and the basic and diluted loss per common share attributable to common shareholders for the three months ended June 30, 2023 and 2022

consisted of the followin Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net loss attributable to common shareholders $ ( 4,469,958 ) $ ( 352,733 ) $ ( 5,355,289 ) $ ( 1,360,978 ) Weighted-average common shares outstanding – basic and diluted 5,861,137 1,248,829 5,141,836 1,239,093 Loss per common share attributable to common shareholders – basic and diluted $ ( 0.76 ) $ ( 0.28 ) $ ( 1.04 ) $ ( 1.10 ) For the three and six months ended June 30, 2023,

there were 23,297,117 potential common share equivalents from warrants, convertible debt, and series A and B convertible preferred shares

excluded from the diluted earnings per share calculations as their effect is anti-dilutive. For the three and six months ended June 30, 2022,

there were 5,174,416 potential common share equivalents from warrants, convertible debt, and series A and B convertible preferred shares

excluded from the diluted earnings per share calculations as their effect is anti-dilutive. 22 1847

HOLDINGS LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2023 (UNAUDITED) NOTE 14—DEFERRED INCOME TAXES As of June 30, 2023, the Company has net operating

loss carry forwards of approximately $ 5.1 million that may be available to reduce future years’ taxable income indefinitely. Future

tax benefits which may arise as a result of these losses have not been recognized in these condensed consolidated financial statements,

as their realization is determined not likely to occur. Accordingly, the Company has recorded a valuation allowance for the deferred

tax asset relating to these tax loss carry-forwards. For the period ending June 30, 2023, the Company reflects a deferred tax liability

in the amount of $ 1.2 million due to the future tax liability from an asset with an indefinite life known as a “naked credit.”

The future tax liability from this indefinite lived asset can be offset by up to 80 % of net operating loss carryforwards created after

2017. The remaining portion of the future tax liability from indefinite lived assets cannot be used to offset definite lived deferred

tax assets. Deferred income taxes reflect the net tax effect

of temporary differences between amounts recorded for financial reporting purposes and amounts used for tax purposes. The Company has

a net cumulative long-term deferred tax liability of $ 1,217,000 . The major components of the deferred tax assets and liabilities at June

30, 2023 and December 31, 2022 consisted of the followin June 30, December 31, 2023 2022 Deferred tax assets Inventory obsolescence $ 289,000 $ 93,000 Reserves 142,000 - Business interest limitations 2,336,000 1,707,000 Lease liabilities 572,000 650,000 Other 45,000 75,000 Loss carryforward 1,296,000 285,000 Valuation allowance ( 2,854,000 ) - Total deferred tax asset 1,826,000 2,810,000 Deferred tax liabilities Fixed assets ( 286,000 ) ( 418,000 ) Right-of-use assets ( 548,000 ) ( 628,000 ) Intangibles ( 2,209,000 ) ( 2,363,000 ) Total deferred tax liability ( 3,043,000 ) ( 3,409,000 ) Total deferred tax liability, net $ ( 1,217,000 ) $ ( 599,000 ) NOTE 15—SUBSEQUENT EVENTS Public Offering On July 3, 2023, the Company entered into a securities

purchase agreement with certain purchasers and a placement agency agreement with Spartan Capital Securities, LLC, as placement agent

(“Spartan”), pursuant to which the Company agreed to issue and sell to such purchasers an aggregate of 3,845,000 common shares

and 5,500,000 pre-funded warrants for the purchase of 5,500,000 common shares at an offering price of $ 0.20 per common share and $ 0.19 per pre-funded warrant, pursuant to the Company’s effective registration statement on Form S-1 (File No. 333-272057). On July 7,

2023, the closing of this offering was completed. At the closing, the purchasers pre-paid the exercise price of the pre-funded warrants

in full. Therefore, the Company received total gross proceeds of $ 1,869,000 . Pursuant to the placement agency agreement, Spartan received a

cash transaction fee equal to 8 % of the aggregate gross proceeds and reimbursement of certain out-of-pocket expenses. After deducting

these and other offering expenses, the Company received net proceeds of approximately $ 1,494,480 . All of the purchasers exercised the pre-funded

warrants in full either at closing or shortly thereafter and the Company issued an aggregate of 5,500,000 common shares upon such exercise. Registered Direct Offering On July 14, 2023, the Company entered into a

securities purchase agreement with certain purchasers and a placement agency agreement with Spartan, which were amended pursuant to an

amendatory agreement, dated July 18, 2023, among the Company, Spartan and such purchasers. Pursuant to the foregoing, on July 18, 2023,

the Company issued and sold to such purchasers an aggregate of 4,000,000 common shares at a purchase price of $ 0.24 per share for total

gross proceeds of $ 960,000 , pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-269509).

Spartan received a cash transaction fee equal to 8 % of the aggregate gross proceeds and reimbursement of certain out-of-pocket expenses.

After deducting these and other offering expenses, the Company received net proceeds of approximately $ 858,200 . 23 1847

HOLDINGS LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2023 (UNAUDITED) Debt Offering On August 11, 2023, the Company entered into

a securities purchase agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”),

pursuant to which the Company issued and sold to the Investors 20 % OID subordinated promissory notes in the aggregate principal amount

of $ 3,125,000 (the “Notes”) and warrants for the purchase of an aggregate of 4,098,361 common shares (the “Warrants”)

for a total purchase price of $ 2,500,000 in a private placement transaction (the “Private Placement”). The Notes are due and payable on February 11,

2024. The Company may voluntarily prepay the Notes in full at any time. In addition, if the Company consummates any equity or equity-linked

or debt securities issuance, or enters into a loan agreement or other financing, other than certain Excluded Debt (as defined in the

Notes), then the Company must prepay the Notes in full. The Notes are unsecured and have priority over all other unsecured indebtedness

of the Company, except for certain Senior Indebtedness (as defined in the Notes). The Notes contain customary affirmative and negative

covenants and events of default for a loan of this type. Subject to Shareholder Approval (as defined below),

the Notes are convertible into common shares at the option of the holders at any time on or following the date that an Event of Default

(as defined in the Notes) occurs at a conversion price equal to 90 % of the lowest volume weighted average price of the Company’s

common shares on any trading day during the five (5) trading days prior to the conversion date; provided that such conversion price shall

not be less than $ 0.03 (subject to adjustments). The conversion price of the Notes is subject to standard adjustments, including a price-based

adjustment in the event that the Company issues any common shares or other securities convertible into or exercisable for common shares

at an effective price per share that is lower than the conversion price, subject to certain exceptions. The terms of the Warrants are set forth in a

warrant agency agreement, dated August 11, 2023 (the “Warrant Agreement”), between the Company and VStock Transfer, LLC,

the Company’s transfer agent. Subject to Shareholder Approval, the Warrants are exercisable for a period five (5) years at an exercise

price of $ 0.1830 (subject to standard adjustments for share splits, share combinations, share dividends, reclassifications, mergers,

consolidations, reorganizations and similar transactions) and may be exercised on a cashless basis if at the time of exercise there is

no effective registration statement registering, or the prospectus contained therein is not available for, the issuance of common shares

upon exercise thereof. Pursuant to the Purchase Agreement, the Company

is required to hold a special meeting of its shareholders on or before the date that is sixty (60) calendar days after the date of the

Purchase Agreement for the purpose of obtaining shareholder approval of the issuance of all common shares that may be issued upon conversion

of the Notes and exercise of the Warrants in accordance with NYSE American rules (the “Shareholder Approval”). In addition,

the Notes and the Warrants contain an ownership limitation, such that the Company shall not effect any conversion or exercise, and the

holders shall not have the right to convert or exercise, any portion of the Notes or the Warrants to the extent that after giving effect

to the issuance of common shares upon conversion or exercise, such holder, together with its affiliates and any other persons acting

as a group together with such holder or any of its affiliates, would beneficially own in excess of 4.99 % of the number of common shares

outstanding immediately after giving effect to the issuance of common shares upon conversion or exercise, which such percentage may be

increased or decreased by the holder, but not in excess of 9.99 %, upon at least 61 days’ prior notice to the Company. In connection with the Private Placement, the

Company also entered into a registration rights agreement (the “Registration Rights Agreement”) with the Investors, pursuant

to which the Company agreed to file a registration statement to register all common shares underlying the Notes and the Warrants under

the Securities Act of 1933, as amended (the “Securities Act”), within fifteen (15) days following an Event of Default and

use its best efforts to cause such registration statement to be declared effective within ninety (90) days after the filing thereof.

If the Company fails to meet these deadlines or comply with certain other requirements in the Registration Rights Agreement, then on

each date that the Company fails to comply, and on each monthly anniversary thereof, the Company shall pay to each Investor an amount

in cash, as partial liquidated damages and not as a penalty, equal to 1.0 % of the aggregate subscription amount paid by such Investor

pursuant to the Purchase Agreement, subject to an aggregate cap of 10 %. If the Company fails to pay any of these amounts in full within

seven (7) days after the date payable, the Company must pay interest thereon at a rate of 18 % per annum (or such lesser maximum amount

that is permitted to be paid by applicable law). Spartan Capital Securities, LLC (the “Placement