HMNY Helios and Matheson Analytics Inc (CE)

Summary of Our Transactions with the Selling Security Holder

August 2017 Sale of Senior Secured Convertible Notes

Through this prospectus, the selling security holder is offering to sell up to 9,084,133 shares of our common stock that the selling security holder may acquire through (i) the conversion of principal and interest we may owe pursuant to Senior Secured Convertible Notes (the “Convertible Notes”) purchased by the selling security holder on August 16, 2017 and (ii) the exercise of a warrant for the purchase of 1,892,972 shares of our common stock. The Convertible Notes include an Initial Series A Note in the principal amount of $1,250,000, an Additional Series A Note in the principal amount of $8,800,000 and a Series B Note in the principal amount of $250,000. The Initial Series A Note does not bear interest; the Additional Series A Note and the Series B Note accrue interest at the rate of 6%. The Convertible Notes are due and payable on April 16, 2018.

The selling security holder paid for the Convertible Notes by giving us $220,000 in cash and a promissory note in the amount of $8,800,000 (the “Investor Note”). If not prepaid, the Investor Note must be paid on April 16, 2018. If the selling security holder converts any of the principal of the Additional Series A Note, it must prepay the Investor Note in an amount equal to the amount of principal converted. If we meet certain requirements, we may require the selling security holder to prepay some or all of the Investor Note.

Pursuant to the terms of the Convertible Notes, the selling security holder may convert the principal, accrued interest and late charges (if any) into shares of our common stock. The conversion price of the Initial Series A Note and the Additional Series A Note is $4.00 per share while the conversion price of the Series B Note is $3.00 per share. However, the selling security holder may also convert the principal, accrued interest and late charges at the Alternate Conversion Prices, as defined in the Convertible Notes. In certain instances, the Alternate Conversion Prices could be lower than the conversion prices.

As part of this transaction, we and our subsidiaries entered into Security and Pledge Agreements and our subsidiaries provided guarantees to the selling security holder.

More detailed information about the Convertible Notes can be found under the heading “Sale of Senior Secured Convertible Notes” on page 5 of this prospectus.

Prior Senior Secured Convertible Note Transactions

We have entered into transactions similar to this transaction with the selling security holder in the past.

On September 7, 2016 we issued senior secured convertible promissory notes to the selling security holder in the principal amount of $4,301,075 for consideration consisting of a cash payment by the selling security holder in the amount of $1,000,000 together with an investor note payable by the selling security holder in the principal amount of $3,000,000, which was prepaid prior to the maturity date. We paid these notes in full by issuing 887,707 shares of our common stock and making a cash payment of interest in the amount of $1,660.

On December 2, 2016 we issued senior secured convertible promissory notes to the selling security holder in the amount of $6,720,000 for consideration consisting of a cash payment by the selling security holder in the amount of $1,100,000 together with an investor note payable by the selling security holder in the principal amount of $4,900,000. As of September 14, 2017, the selling security holder has converted a total of $5,820,000 in principal amount and $44,765.45 in accrued interest under these notes into an aggregate of 1,481,064 shares of our common stock. The principal amount we owe under these notes is $900,000 while the principal amount still remaining to be paid under the investor note is $670,000.

On February 8, 2017 we issued senior secured convertible promissory notes to the selling security holder in the amount of $5,681,818 for consideration consisting of an investor note payable by the selling security holder to us in the principal amount of $5,000,000, which was prepaid prior to the maturity date. We paid these notes in full by issuing 1,852,886 shares of our common stock.

On August 27, 2017, we entered into a letter agreement with the selling security holder pursuant to which the selling security holder agreed to immediately convert $2,500,000 of the February notes at a price of $3.00 per share. In exchange for the conversion, we agreed that the selling security holder will have the right, until December 31, 2017, to elect to exchange up to 841,250 shares of our common stock for one or more senior secured convertible promissory notes, which would be due to be repaid within 45 days of the selling security holder’s election. Pursuant to the formula set forth in the letter agreement, if the selling security holder elected to exchange all 841,250 shares of common stock, we would be required to issue secured convertible promissory notes in an aggregate amount of $2,500,000.

More detailed information about the prior senior secured convertible note transactions can be found under the heading “Other Information” beginning on page 13 of this prospectus.

Sale of Senior Secured Convertible Notes

The Convertible Notes

On August 16, 2017 (the “Closing Date”), pursuant to a Securities Purchase Agreement (“SPA”) that we entered into on August 15, 2017 (the “Subscription Date”) with an institutional investor (the “Investor” and sometimes referred to in this prospectus as the “selling security holder”), we sold and issued Senior Secured Convertible Notes to the Investor which included a Series A Note in the principal amount of $1,250,000 (the “Initial Series A Note”), (ii) a second Series A Note in the principal amount of $8,800,000 (the “Additional Series A Note”, collectively with the Initial Series A Note, the “Series A Notes”), and (iii) a Series B Note in the principal amount of $250,000 for an aggregate principal amount of $10,300,000 (collectively, the “Convertible Notes”) and (iv) a warrant (the “Warrant”) for the purchase of 1,892,972 shares of our common stock. In exchange for the Convertible Notes and the Warrant, we received (y) a cash payment of $220,000, and (z) a secured promissory note payable by the Investor to us (the “Investor Note”) in the principal amount of $8,800,000 (collectively, the “Note Financing”). Furthermore, immediately prior to the closing of the Note Financing, the Investor prepaid (i) $5,000,000 of that certain promissory note issued by the Investor to us (the “February Investor Note”) as payment of the purchase price for the senior secured convertible notes (the “February Notes”) we issued to the Investor pursuant to a Securities Purchase Agreement dated February 7, 2017 and (ii) $230,000 of that certain promissory note issued by the Investor to us (the “December Investor Note”) as payment of the purchase price for the secured convertible notes (the “December Notes”) we issued to the Investor pursuant to a Securities Purchase Agreement dated December 1, 2016. In consideration of the prepayment, we agreed that the Series B Note, upon issuance, constitutes a Variable Price Security (as defined in the February Notes and the December Notes) and, from and after the closing, any holder of a February Note shall have the right to substitute the Alternate Conversion Price as defined in the Series B Note for the conversion price in the February Notes, and any holder of a December Note shall have the right to substitute the Alternate Conversion Price as defined in the Series B Note for the conversion price in the December Notes. We used a portion of the net proceeds from the sale of the Convertible Notes and the Warrant and the prepayment under the February Investor Note and the December Investor Note to pay $5,000,000 in cash to MoviePass upon signing the MoviePass SPA for which we received a convertible note issued to us by MoviePass. Any further proceeds from the Note Financing will be used (i) to pay up to $10,000,000 to MoviePass pursuant to a subordinated convertible promissory note to be issued by us to MoviePass upon the closing of the transactions contemplated by the MoviePass SPA and (ii) for general corporate purposes. Unless earlier converted or redeemed, the Convertible Notes mature 8 months from the Closing Date.

The Initial Series A Note does not accrue interest unless an Event of Default, as defined in the Convertible Notes, occurs and is not cured. The Additional Series A Note and the Series B Note bear interest at a rate of 6% per annum, subject to an increase to 12% during the first 30 days following the occurrence and continuance of an Event of Default, as defined in the Convertible Notes, and to 18% thereafter. Interest on the Additional Series A Note and the Series B Note will be payable in arrears commencing on October 1, 2017 and on the first Trading Day, as defined in the Convertible Notes, of each calendar quarter thereafter and, so long as no Equity Conditions Failure, as defined in the Convertible Notes, exists, may be paid in shares of our common stock, at our option. Interest on the Convertible Notes is computed on the basis of a 360-day year and twelve 30-day months.

The Investor may, at any time, elect to convert the Convertible Notes into shares of the Company’s common stock at the Conversion Price, subject to certain beneficial ownership limitations, provided that the conversion under the Additional Series A Note may not commence until no December Notes, February Notes, the Series B Note or the Initial Series A Note remain outstanding. The Conversion Price is $4.00 under the Series A Notes and $3.00 under the Series B Note. The Conversion Price of the Convertible Notes is subject to proportionate adjustment for stock splits, dividends and combinations. The Company may, at any time during the term of the Convertible Notes, with the prior written consent of the Investor, reduce the then current Conversion Price of each of the Convertible Notes to any amount equal to or greater than the Floor Price and for any period of time deemed appropriate by the Company’s Board of Directors. The Floor Price means $4.00 for the Series A Notes. However, for the limited purpose of making interest payments in shares of common stock during the existence of a Price Failure or a Volume Failure, as defined in the Convertible Notes, the Floor Price of the Series A Notes may be adjusted to $0.50 to the extent the Company chooses to pay interest with shares of its common stock. The Floor Price means, for the Series B Notes, (i) during the period commencing on the Closing Date through and including the Adjustment Date, $3.00 or (ii) from and after the Adjustment Date, $0.50. The Adjustment Date is defined as the period beginning on the Closing Date through and including October 5, 2017. The Company and the Investor may agree to reduce the Floor Price of the Convertible Notes.

The Investor also will have the right to convert the Convertible Notes into shares of our common stock at the Alternate Conversion Price, subject to certain beneficial ownership limitations. The Alternate Conversion Price is defined as the lowest of :

(1) (i) the Conversion Price of $4.00, and (ii) the Floor Price then in effect, for the Initial Series A Note;

(2) (i) the Conversion Price of $4.00, and (ii) the greater of (I) the Floor Price then in effect and (II) 85% of the quotient of (x) the sum of the volume weighted average price, or VWAP, of our common stock for each of the five consecutive Trading Days ending and including the Trading Day immediately preceding the delivery or deemed delivery of the applicable conversion notice, divided by (y) 5, for the Additional Series A Note;

(3) (i) the Conversion Price of $3.00, and (ii) during the period commencing on the Closing Date through the Adjustment Date, the greater of (A) the Floor Price of $3.00 and (B) 85% of the lowest VWAP of any Trading Day during the twenty consecutive Trading Day period ending and including the applicable Alternate Conversion Date, and (iii) after the Adjustment Date, the greater of (I) the Floor Price of $0.50 and (II) 85% of the quotient of (x) the sum of the VWAP of our common stock for each of the five consecutive Trading Days ending and including the applicable Alternate Conversion Date, divided by (y) 5, for the Series B Note.

If and to the extent the Investor elects to convert (i) the Series A Notes and (ii) during the period commencing from the Closing Date through and including the Adjustment Date (the “Initial Period”), the Series B Note, the Investor will elect to convert (i) the Series A Notes and (ii) during the Initial Period, the Series B Note, at their respective applicable Conversion Prices ($4.00 per share for the Series A Note and $3.00 per share for the Series B Note, which are the same as the respective Alternate Conversion Prices of the Series A Notes and, during the Initial Period, the Series B Note).

We expect that, if and to the extent the Investor elects to convert the Series B Note after the Adjustment Date, the Investor will elect to convert the Series B Note at the applicable Alternate Conversion Price if 85% of the preceding 5-Trading-Day average VWAP of our common stock is less than the Conversion Price ($3.00 per share for the Series B Note) unless the Company has, with the consent of the Investor, reduced the Conversion Price to a price lower than the applicable Alternate Conversion Price, whereas we expect that the Investor will convert the Series B Note after the Adjustment Date at the Conversion Price if 85% of the preceding 5-Trading-Day average VWAP of our common stock is equal to or greater than the Conversion Price. Accordingly, in the case of voluntary conversion of the Series B Note by the Investor, in effect, the Conversion Price serves as the ceiling price and the applicable Alternate Conversion Price serves as the floor price at which the Series B Note will be converted after the Adjustment Date.

If the Equity Conditions are satisfied, we may require the Investor to convert all or any part of the Convertible Notes, up to the Maximum Mandatory Share Amount and the Maximum Mandatory Conversion Amount (each, a “Mandatory Conversion”). If on the fifth Trading Day immediately following a Mandatory Conversion Date and on each fifth Trading Day thereafter through and including the fifteenth Trading Day immediately following such Mandatory Conversion Date (each, a “True-Up Date”), the True-Up Price is less than the applicable Mandatory Conversion Price, we must deliver to the Investor an additional number of shares of our common stock equal to the difference between the number of shares of our common stock delivered to the Investor as a result of the Mandatory Conversion and the number of shares determined by dividing the principal, interest and late charges converted by the True-Up Price. The “True-Up Price” is defined as 85% of the lowest VWAP of our common stock on the Trading Day with the lowest VWAP during the 15 consecutive Trading Days following the Mandatory Conversion.

“Mandatory Conversion Date” means the third Trading Day following our delivery of a Mandatory Conversion Notice.

“Mandatory Conversion Price” means, with respect to any Mandatory Conversion that price which shall be the lowest of (i) the applicable Conversion Price as in effect on the applicable Mandatory Conversion Date, and (ii) 80% of the sum of (A) the VWAP of our common stock for each of the 3 Trading Days with the lowest VWAP of our common stock during the 20 consecutive Trading Day period ending on and including the Trading Day immediately prior to the applicable Mandatory Conversion Date divided by (B) 3.

“Maximum Mandatory Share Amount” with respect to any Mandatory Conversion Date means 100% of the quotient of (x) the sum of the composite aggregate daily share trading volume of our common stock for each Trading Day during the 5 Trading Day period ending and including the Trading Day immediately prior to the applicable Mandatory Conversion Notice Date, divided by (y) 5.

“Maximum Mandatory Conversion Amount” with respect to any Mandatory Conversion Date means the difference of (x) $500,000 less (y) the sum of each Conversion Amount converted under the applicable Convertible Note during the 5 Trading Day period ending and including the applicable Mandatory Conversion Date. 

Provided there has been no Equity Conditions Failure, the Company has a right to redeem all, but not less than all, of the amounts remaining unpaid under a Convertible Note. The Company may exercise this right under the Initial Series A Note so long as no December Notes, February Notes or the Series B Note remain outstanding, the Company may exercise this right under the Additional Series A Note so long as no December Notes, February Notes, the Series B Note or the Initial Series A Note remain outstanding, and the Company may exercise this right under the Series B Note so long as no December Notes or February Notes remain outstanding The redemption right permits the Company to redeem all of the Conversion Amount then remaining under a Convertible Note in cash at a price equal to 115% of the Conversion Amount being redeemed. Additionally, any Restricted Principal may be offset and reduced on a dollar for dollar basis by the surrender for cancellation of the portion of the Investor Note equal to the amount of Restricted Principal included in the Company’s redemption under the Additional Series A Note. Restricted Principal is defined in the Series A Additional Note as, initially, $8,800,000, which amount is subject to certain reductions as described in the Series A Additional Note.

Under the terms of a Registration Rights Agreement, we are required to register for resale the shares of common stock that are issuable upon conversion of the Convertible Notes or upon exercise of the Warrant, additional shares that could be used as payment of monthly interest plus an additional number of shares so that the total number of shares of common stock registered equals 125% of (i) the sum of the maximum number of shares issuable upon conversion of the Convertible Notes and (ii) the sum of the maximum number of shares issuable upon exercise of the Warrant. The Registration Rights Agreement requires us to file the registration statement within 30 days after the Closing Date and to have the registration statement declared effective 90 days after the Closing Date (or 120 days after the Closing Date if the registration statement is subject to review by the SEC).

The Registration Rights Agreement provides for the payment of liquidated damages of 1.5% of the product of (x) the number of shares of common stock required by the Registration Rights Agreement to be included in the registration statement and (y) the Closing Sale Price, as defined in the Registration Rights Agreement, as of the Trading Day immediately prior to the date a Registration Delay Payment, defined as the failure to file the registration statement in the time required, the failure to have the registration statement declared effective in the time required, the failure to maintain the effectiveness of the registration statement or the failure to keep current public information in the marketplace.

We are required to keep the registration statement effective (and the prospectus contained therein available for use) pursuant to Rule 415 for resales on a delayed or continuous basis at then-prevailing market prices at all times until the earlier of (i) the date as of which the Investor may sell all of the common stock issuable pursuant thereto without restriction pursuant to Rule 144 or (ii) the date on which all of the common stock covered by the registration statement shall have been sold. 

The Investor Note

The Investor Note will be payable in full by the Investor on April 16, 2018, which is eight months from the Closing Date. The Investor’s obligation to pay the Investor Note is secured by $8,800,000, in the aggregate, in cash, cash equivalents, any Group of Ten (“G10”) currency and any notes or other securities issued by any G10 country belonging to the Investor and provides for full recourse against the Investor. The Company will receive a payment of principal and interest upon each voluntary or mandatory prepayment of the Investor Note. On or after August 31, 2017 (or earlier if the Company permits), the Investor may, at its option and at any time, voluntarily prepay the Investor Note, in whole or in part. The Investor Note is also subject to mandatory prepayment, in whole or in part, upon the occurrence of one or more of the following mandatory prepayment events:

(1) Mandatory Prepayment upon Conversion of Convertible Notes – At any time (i) if we receive a conversion notice from the Investor in which all, or any part of the Convertible Notes to be converted included any Restricted Principal and (ii) the Investor receives a confirmation from our transfer agent that it has been irrevocably instructed by us to deliver to the Investor the shares of our common stock to be issued pursuant to the conversion notice.

(2) Mandatory Prepayment upon Mandatory Prepayment Notices – We may require the Investor to prepay the Investor Note by delivering a mandatory prepayment notice to the Investor, subject to (i) the satisfaction of certain Equity Conditions, and (ii) the Investor’s receipt of a valid written notice by us electing to effect a mandatory conversion of Restricted Principal not in excess of the Maximum Mandatory Share Amount or the Maximum Mandatory Conversion Amount (each as defined above).

The Investor Note also contains certain optional offset rights in favor of us and the Investor, which if exercised, would reduce the amount outstanding under the Convertible Notes and the Investor Note by the same amount and, accordingly, the cash proceeds we receive from the Investor pursuant to the Note Financing. These offset rights are triggered by specific occurrences that could jeopardize the Investor’s investment and include the following:

Investor Optional Offset – The Investor may, on or after September 30, 2017, if an Equity Conditions Failure, as defined in the Convertible Notes, exists, satisfy any principal and related accrued and unpaid interest owed under the Investor Note in full by cancelling an equal amount of principal amount under the Additional Series A Note.

Event of Default and Bankruptcy Event of Default Offsets – The Investor may, at any time on or after the occurrence of any Event of Default under the Additional Series A Note, but prior to the date of cure thereof, at its sole discretion, satisfy all, or any part, of any principal and related accrued and unpaid interest owed under the Investor Note in full by cancelling an equal amount of principal under the Additional Series A Note. Furthermore, in the event of a Bankruptcy Event of Default, as defined in the Convertible Notes, all of the principal and related accrued and unpaid interest of the Investor Note will be automatically satisfied in full by the deemed automatic surrender and concurrent cancellation of the outstanding obligations under the Additional Series A Note equal to the portion of principal being satisfied.

Automatic Offset Upon Prohibited Transfers of the Additional Series A Note – If for any reason the Additional Series A Note or any interest therein is pledged, assigned or transferred to any person other than the Company without the prior written consent of the Investor, including by contract, operation of law, court order or otherwise, then, (i) all of the outstanding principal of the Investor Note will be automatically deemed satisfied in full, (ii) 75% of the remaining Restricted Principal will be automatically cancelled (with the remaining 25% of the Restricted Principal of the Additional Series A Note automatically becoming unrestricted principal thereunder), and (iii) the Investor Note will be deemed to be paid in full and will be null and void.

Upon any of the foregoing offsets, any accrued and unpaid interest under the Investor Note shall be automatically cancelled with respect to the portion of the principal of the Investor Note being offset.

The Investor Note also includes an offset right in favor of the Company. The Company, if it so chooses, is entitled to reduce the principal amount of the Investor Note, and any accrued but unpaid interest, by any cash amount then due and payable by the Company to the Investor under the Additional Series A Note. This offset right allows the Company to satisfy any redemption amount or any other cash obligations then due and payable under the Additional Series A Note.

As of September 14, 2017, $1,500,000 is the amount of unpaid unrestricted principal amount of the Convertible Notes that we owe to the selling security holder.

The Investor Warrant

In addition to the Convertible Notes, we issued a 5-year Warrant to the Investor on the Closing Date for the purchase of 1,892,972 shares of our common stock (the “Warrant Shares”), at an exercise price of $3.25 per share, subject to adjustment provided under the Warrant. If, after the six-month anniversary of the issuance date of the Warrant, there is no effective registration statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Investor, then the Warrant may also be exercised, in whole or in part, by means of a “cashless exercise.” The Warrant may not be exercised if, after giving effect to the exercise the Investor, together with its Attribution Parties (as defined in the Warrant), would beneficially own in excess of 9.99% of the number of shares of our common stock outstanding immediately after giving effect to the issuance of the Warrant Shares. At the Investor’s option, the ownership limitation blocker may be raised or lowered to any other percentage not in excess of 9.99%, as applicable, except that any raise will only be effective upon 61-days’ prior notice to us.

On or after the Subscription Date, if we issue or sell common stock, or convertible securities or options issuable or exchangeable into our common stock (a “New Issuance”), under which such common stock is sold for a consideration per share less than the exercise price then in effect, the exercise price of the Warrant will be adjusted to the New Issuance price in accordance with the formulas provided in the Warrant. Upon any adjustment to the exercise price, the number of Warrant Shares that may be purchased upon exercise of the Warrant will be increased or decreased proportionately, so that after such adjustment the aggregate exercise price payable for the adjusted number of Warrant Shares will be the same as the aggregate exercise price in effect immediately prior to such adjustment. In addition, if we sell Variable Price Securities (as defined in the Warrant) after the Subscription Date, the Investor will have a right to substitute the Variable Price (as defined in the Warrant) for the exercise price under the Warrant.

The above does not purport to be a complete description of the Note Financing and is qualified in its entirety by reference to the full text of the documents which are attached as exhibits 4.3, 4.4 and 10.10 through 10.13 to our Current Report on Form 8-K filed with the Commission on August 15, 2017 and exhibit 4.3 to our Current Report on Form 8-K filed with the Commission on August 22, 2017, and which are incorporated by reference herein. Capitalized terms not defined herein shall have the meanings set forth in the Convertible Notes.

Potential Profit from Conversion of the Convertible Notes at the Option of the Selling Security Holder

The following table sets forth the potential profit to be realized upon conversion by the selling security holder of the Convertible Notes based on the Conversion Price on the Closing Date and the closing price of our common stock on the Closing Date:

*Based on the principal amount of $1,250,000 of the Initial Series A Note and the principal amount of $8,800,000 of the Additional Series A Note (both converted at $4.00 per share) and the principal amount of $250,000 of the Series B Note (converted at $3.00 per share). This figure also includes interest in the amount of $362,000 accrued on the Additional Series A Note and the Series B Note at the rate of 6% for a period of 8 months. No interest accrues on the principal amount of the Initial Series A Note unless an Event of Default occurs and is not cured.

**Based on the per share market price as of August 16, 2017.

Alternate Right of Conversion: Number of Shares Issuable in Satisfaction of the Convertible Notes Based on Various Assumed Alternate Conversion Prices

The Conversion Price is designated in the Initial Series A Note and the Additional Series A Note as $4.00 and in the Series B Note as $3.00, therefore the number of shares of common stock that could be issued upon the conversion of principal and interest under the Convertible Notes will not change based on the market price of our common stock prior to each installment date. We have computed the number of shares of common stock that could be issued upon conversion of the principal and interest under the Series A Notes to be 2,600,500 (assuming there is no Price Failure or Volume Failure to trigger the application of a $0.50 conversion price for the Interest Shares) and the number of shares of common stock that could be issued upon conversion of the principal and interest under the Series B Note to be 86,668.

However, the definition of “Alternate Conversion Price” varies in the Initial Series A Note, the Additional Series A Note and the Series B Note. In the Initial Series A Note, Alternate Conversion Price means the price that is the lower of (i) the applicable Conversion Price then in effect and the Floor Price then in effect. In the Additional Series A Note, the Alternate Conversion Price means the price that is the lower of (i) the applicable Conversion Price then in effect and (ii) the greater of (I) the Floor Price then in effect and (II) 85% of the quotient of (x) the sum of the VWAP of the common stock for each of the 5 consecutive Trading Days ending and including the Trading Day immediately preceding the delivery of the Conversion Notice, divided by (y) 5. For purposes of the Series B Note, the Alternate Conversion Price means the lowest of (i) the Conversion Price then in effect, (ii) during the period commencing on the Closing Date through and including the Adjustment Date of October 5, 2017, the greater of (A) the Floor Price then in effect and (B) 85% of the lowest VWAP of any Trading Day during the 20 consecutive Trading Day period ending and including the applicable Alternate Conversion Date, and (iii) after the Adjustment Date, the greater of (I) the Floor Price then in effect and (II) 85% of the quotient of (x) the sum of the VWAP of the Company’s common stock for each of the 5 consecutive Trading Days ending and including the applicable Alternate Conversion Date, divided by (y) 5.

For purposes of the Series A Notes, the Floor Price means $4.00 (unless adjusted for the payment of interest with shares of common stock during the existence of a Price Failure or a Volume Failure when the Floor Price may be reset to $0.50). For purposes of the Series B Note, the Floor Price means (i) during the period commencing on the Closing Date through and including the Adjustment Date, $3.00 or (ii) from and after the Adjustment Date, $0.50.

The following table reflects changes in the number of shares of common stock that could be issued upon conversion of the principal and interest using the Alternate Conversion Price under the Additional Series A Note, assuming, that (i) the Alternate Conversion Price for the shares to be issued in payment of both the principal amount and the accrued interest is $4.00 and (ii) the Alternate Conversion Price for the shares to be issued in payment of the principal amount is $4.00 and the Alternate Conversion Price of the shares to be issued for the payment of interest is $0.50 due to a Price Failure or a Volume Failure.

(1) Based on the principal amount of $8,800,000 and interest in the amount of $352,000 accrued at the rate of 6% on the entire principal amount over a period of 8 months.

The following table reflects changes in the number of shares of common stock that could be issued upon conversion of the principal and interest using the Alternate Conversion Price (assuming the Floor Price applies as the Alternate Conversion Price) under the Series B Note, assuming, that (i) the conversion occurred during the period commencing on the Closing Date through and including the Adjustment Date or (ii) the conversion occurred from and after the Adjustment Date.

(1) Based on the principal amount of $250,000 and interest in the amount of $10,000 accrued at the rate of 6% on the entire principal amount over a period of 8 months.