Annual report pursuant to Section 13 and 15(d)

19. Commitments and Contingencies

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19. Commitments and Contingencies
12 Months Ended
Sep. 30, 2016
Notes  
19. Commitments and Contingencies

19.                Commitments and Contingencies

During fiscal 2015, the Company leased office space under a non-cancelable operating lease.  In February 2015, the Company entered into a sublease agreement for part of the office space under the non-cancelable operating lease through the end of the original lease period.  Payments under the sublease were made by the sublessee directly to the Company's landlord.  The non-cancelable operating lease was terminated during June 2015.

The Company's rent expense for facilities under the terminated operating lease for the nine months ended June 30, 2015, was approximately $226,000.

During June 2015, the Company entered into a new non-cancelable operating lease for its existing office space, excluding the previously subleased space, with payments beginning in July 2015.  Future minimum rental payments under the non-cancelable operating lease as of September 30, 2016, were as follows:

 

Years Ending September 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

$

130,036

 

2018

 

 

 

 

 

111,340

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

241,376

 

 

The Company's rent expense under the new non-cancelable operating lease for fiscal 2016 and 2015, was approximately $126,000 and $31,000, respectively.

During February 2016, the Company entered into an agreement with one if its vendors to purchase a minimum of $200,000 of inventory per quarter through January 2018.

During February 2016, the Company redeemed all of its Series F preferred stock in exchange for 10,000,000 shares of common stock and $5,900,000 of notes payable (see Note 9).  As part of the redemption, the Company exchanged warrants held by the Series F Preferred stockholders for the purchase of 5,534,097 shares of common stock for new warrants to purchase the same number of shares with different terms.  As part of the redemption, the Company may be required to issue additional warrants for the purchase of up to 8,000,000 shares of common stock upon three events of default on the notes payable (see Note 16).

During February 2016, the Company converted notes payable and accrued interest payable to an entity controlled by a former Executive Chairman of the Board of Directors into a convertible note payable (see Note 10).  The Company may be required to issue 734,489 shares of common stock if the note is not paid by maturity.

During February 2016, the Company amended notes payable to an entity controlled by an officer of the Company to subordinate to notes payable also issued during February 2016, reduced the conversion price per share to $0.06 per share and limited the shares into which it is convertible (see Note 10).  The Company may be required to issue 4,203,389 shares of common stock if the note is not paid by maturity.

During September 2016, the Company issued a note payable to a third party for up to $1,500,000.  The Company initially borrowed $500,000 under the note and may borrow up to $1,500,000 upon meeting certain milestones.  In the event the Company borrows additional amounts above initial $500,000, the Company will be required to issue additional warrants with an aggregate exercise amount equal to 100% of the additional amount borrowed with similar terms to warrants issued as part of the initial borrowing.  Subsequent to September 30, 2016, the Company borrowed the remaining $1,000,000 on the note (see Note 21).

During September 2016, the Company entered into a conditionally effective warrant cancellation agreement (the “Warrant Cancellation Agreement”) with certain warrant holders who were issued the warrants in connection with a secured note payable and line of credit. Pursuant to the terms of the Warrant Cancellation Agreement, upon the Company’s consummation of an equity financing of at least $15,000,000, the warrant holders agree to terminate and cancel the warrants they currently hold. As an inducement to enter into the Warrant Cancellation Agreement, the warrant holders will receive upon termination and cancelation of the warrants an aggregate of 5,400,000 shares of the Company’s common stock, which will be subject to a 6-month lock-up agreement. Additionally, if the warrant holders terminate and cancel the warrants, the Company will issue the related note holder a new unsecured promissory note with an initial principal amount of $180,000, no cash interest, and a three-year term. In lieu of cash interest, the principal of the note will increase in the amount $3,333 each month not to exceed a maximum of $300,000.

On May 28, 2015, an investor of the Company filed a lawsuit claiming damages of $1,000,000 exclusive of interest and costs against the Company, a former Executive Chairman, an entity controlled by another former Executive Chairman, and 4G Biometrics, a wholly owned subsidiary of the Company, for breach of contract.  The Company has engaged legal counsel regarding the matter.  It is not possible to predict the outcome of the matter at this time.  The Company intends to vigorously dispute the claims and believes it has meritorious defenses.

On November 4, 2015, the Company received a demand for payment of $275,000 from a former employee of the Company and former principal of 4G Biometrics whose employment was terminated for cause.  On December 4, 2015, the Company filed a complaint against the former owners of 4G Biometrics, including this former employee, seeking damages in excess of $300,000 related to alleged misrepresentations made to induce the Company to acquire 4G Biometrics.  Between February 4, 2016 and February 8, 2016, the Company settled the complaint with each of the former owners of 4G Biometrics and all parties released each other from all outstanding claims, including any current monetary obligations to each party, excluding one former owner of 4G Biometrics who continues to be employed by the Company.  A Stipulation for Order of Dismissal with Prejudice of all Claims and Counterclaims has been filed and is in the process of being approved.  The settlement resulted in the termination of $39,863 of related-party accounts payable.

Subsequent to September 30, 2016, the Company entered into additional contingent arrangements (see Note 21).