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ERNEST ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 20 Note 9 - Line of Credit In December 2023, the Company entered into a line of credit agreement with a bank. Pursuant to the arrangement with the bank, the Company could borrow up to $3,000,000 immediately; this amount has automatically increased to $6,000,000 upon consummation of Series A funding on January 2, 2024. Interest is payable at 1.5% above the greater of (a) the prime rate or (b) 8.5%. The line matures in June 2025 and may automatically be extended for an additional 18 months under certain bank conditions. There was no balance on the line at December 31, 2023. In connection with the above agreement, a warrant to purchase stock was issued to the bank by the Company on January 8, 2024. The warrant certifies that the bank is entitled to purchase 73,680 shares of common stock at $0.27 cents per share. Note 10 - Stockholders’ Equity SAFE Note Investments The Company’s equity includes SAFE notes (Simple Agreement for Future Equity), which are agreements that allow investors to purchase equity at some point in the future. During the year ended December 31, 2023, SAFE notes in the amount of $3,610,000 were converted into 3,043,588 shares of the Seed Preferred Stock, of which 1,198,016 shares were designated as Series Seed-1 Preferred Stock and 1,845,572 shares were designated as Series Seed-2 Preferred Stock. The Preferred Stock has a par value of $0.00001 per share. At December 31, 2023, the SAFE notes balance was $115,500. In January 2024, these SAFE notes were converted into 45,387 shares of Series A-2 Preferred stock, with a par value $0.00001 per share and a price per share $2.5448, for the total amount of $115,500. Preferred Stock In May 2023, the Company issued 1,637,376 shares of Series Seed-1 Preferred Stock for gross proceeds of $3,000,000, or $1.832 per share. Amendment of Certificate of Incorporation On May 16, 2023, the Company amended and restated its certificate of incorporation to increase the total number of authorized shares of common stock from 10,000,000 shares of common stock to 17,000,000 shares of common stock.