17. Commitments and Contingencies

6 Months Ended

Mar. 31, 2017

17. Commitments and Contingencies

During the six months ended March 31, 2017, 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.

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 March 31, 2017, were as follows:

Years Ending September 30,

2017	$	65,817
2018		111,340

	$	177,157

The Company's rent expense under the new non-cancelable operating lease for six months ended March 30, 2017 and 2016, was approximately $64,000 and $62,000, 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 20,005 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 11,070 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 16,000 shares of common stock upon three events of default on the notes payable (see Note 15).

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 1,469 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 $30 per share and limited the shares into which it is convertible (see Note 10). The Company may be required to issue 8,407 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. The Company subsequently drew an additional $1,000,000 under the note and issued additional warrants for the purchase of 40,000 shares of common stock at similar terms to warrants issued as part of the initial borrowing. During March 2017, the note was amended to increase the maximum principal sum from $1,500,000 to $2,000,000 under which the Company borrowed an additional $200,000 in consideration and issued the lender a warrant to purchase up to 8,000 shares of common stock with the same terms as the warrants previously issued under the previous terms of the note. In the event the Company borrows any part of the remaining $300,000 available, 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.

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 10,800 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.

During November 2016, the Company and a lender entered into a forbearance and consent under a loan and security agreement (the "November Forbearance Agreement"). Pursuant to the terms of the November Forbearance Agreement, the lender will forbear from exercising remedies (the "November Forbearance") with regard to certain breaches of agreements between the Company and the lender, including the existing agreements as well as the September Forbearance Agreement. Additionally, pursuant to the November Forbearance Agreement, the lender has provided the Company with the consent required under the Existing Agreements and September Forbearance Agreement to make certain payments from the proceeds of the Offering. These payments include, but are not limited to (i) payments to holders of the Company's Series E Preferred, (ii) third party note and receivable payments and (iii) repayment of an unsecured note payable issued in September 2016. The lender also consented to the issuance of the Company's Series G Preferred Stock to certain affiliates of the Company. In consideration for the November Forbearance, the Company has agreed to issue the lender warrants to purchase 130,000 shares of common stock at an exercise price equal to the per share price of the common stock in the Offering, which shall be subject to a 12-month lock-up agreement. The $1,932,577 estimated fair value of the warrants has been included in accrued expenses as of March 31, 2017. The Forbearance set forth in the November Forbearance Agreement was in effect through December 31, 2016. Effective December 31, 2016, the Company and the lender entered into a forbearance and consent under loan and security agreement (the "December Forbearance"). Pursuant to the terms of the December Forbearance, the lender will forbear from exercising remedies with regard to certain breaches of agreements between the Company and the lender, including the existing agreements as well as the September Forbearance and November Forbearance. Additionally, pursuant to the December Forbearance, the lender has provided the Company with the consent required under the Existing Agreements, September Forbearance and November Forbearance to make certain payments from the proceeds of the Company’s Offering. In consideration for the December Forbearance, the Company has agreed to issue the lender warrants to purchase 10,000 shares of common stock at an exercise price equal to the per share price of the common stock in the Offering and $50,000 of common stock at 80% of the at the same issue price in of the Offering, which shall be subject to a lock-up agreement. The $148,677 estimated fair value of the warrants and $60,000 fair value of the stock has been included in accrued expenses as of March 31, 2017. The forbearance set forth in the December Forbearance was in effect through February 15, 2017. On February 15, 2017, the lender extended the December Forbearance period through March 31, 2017. On March 28, 2017, the lender extended the December Forbearance period through April 10, 2017. The Company is in the process of negotiating an extension to the letter agreement and lock-up agreement, however, there is no assurance that an extension will be agreed upon.

Effective November 1, 2016, the Board approved the 2016 Incentive Stock Option plan providing for the issuance of options to purchase up to 377,250 shares. No shares have been approved under the Plan as of March 31, 2017.

On January 12, 2017, the Company entered into letter agreements (together the “Note Holder Letter Agreements”) with eight (8) investors (each a “Note Holder” and together the “Note Holders”) holding convertible notes payable whereby the Note Holders agreed to convert all monies due them under the Notes into restricted shares of common stock (the “Note Conversion Shares”) and warrants to purchase common stock (the “Note Conversion Warrants” and together with the Note Conversion Shares, the “Note Conversion Securities”), all contingent upon the completion of the Company’s contemplated public Offering of securities. As incentive to enter into the Note Holder Letter Agreements, the Company agreed to add approximately $1,687,811 to the outstanding principal and interest as of October 31, 2016, effectively making the total obligation due to Note Holders an aggregate of $8,000,000 (the “Total Note Obligation”). Pursuant to the Note Holder Letter Agreements, the Total Note Obligation will automatically convert upon consummation of the Offering into the Note Conversion Securities at the combined price per share and warrant paid by investors in the Offering (the “Conversion Price”). The terms of the Note Conversion Warrants will be substantially similar to the Warrants being included in the Offering, except such Note Conversion Warrants will be a restricted security and will not publicly trade on NASDAQ. In addition, the Note Holders currently hold warrants to purchase an aggregate of 11,070 shares that will be terminated upon the consummation of the Offering. In consideration of such termination, the Note Holders will be issued new warrants to purchase an identical number of shares of Common Stock at an exercise price equal to the Conversion Price, as defined in the agreements. Each person entering into the Note Holder Letter Agreements have entered into lock-up agreements prohibiting the sale or other transfer of any securities of the Company owned by such persons for a period of 6 months. If such Offering is not completed by February 15, 2017, the Note Holder Letter Agreements and lock-up agreements will terminate. During February 2017, prior to the expiration of the existing agreements, the Note Holders signed amendments to their respective Note Holder Letter Agreements and lock-up agreements to extend the expiration dates to March 31, 2017. During March 2017, prior to the expiration of the existing agreements, the Note Holders signed amendments to their respective Note Holder Letter Agreements and lock-up agreements to extend the expiration dates to April 30, 2017. The Company is in the process of negotiating an extension to the letter agreement and lock-up agreement, however, there is no assurance that an extension will be agreed upon.

On January 12, 2017, the Company entered into a letter agreement with a third-party lender, whereby the lender agreed to convert all monies due under that certain subordinated promissory note into common stock of the Company, contingent upon the completion of the Offering. As of September 30, 2016, the aggregate amount of $101,814 was owed pursuant to the note. Pursuant to the letter agreement, the aggregate amount owed, together with interest accruing subsequent to September 30, 2016, will automatically convert upon consummation of the Offering into such number of restricted shares of the Company’s common stock calculated by dividing the aggregate amount owed by 80% of the per share price of the common stock in the Offering. The lender has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned for a period of 6 months. If such Offering is not completed by February 15, 2017, the letter agreement and lock-up agreement will terminate. On February 13, 2017, the Company signed an amendment to the letter agreement and signed a new lock-up agreement to extend the expiration dates to March 31, 2017. The Company is in the process of negotiating an extension to the letter agreement and lock-up agreement, however, there is no assurance that an extension will be agreed upon.

On January 12, 2017, the Company entered into a letter agreement with a third-party lender, whereby the lender agreed to convert all monies due him under that certain subordinated promissory note into common stock of the Company, contingent upon the completion of the Offering. As of September 30, 2016 the aggregate amount of $265,616 was owed pursuant to the note. Pursuant to the letter agreement, the aggregate amount owed, together with interest accruing subsequent to September 30, 2016, will automatically convert upon consummation of the Offering into such number of restricted shares of the Company’s common stock calculated by dividing the aggregate amount owed by 80% of the per share price of the common stock in the Offering. The lender has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by him for a period of 6 months. The letter agreement extends the due date of the note to the earlier of the completion of the Offering or February 15, 2017. On February 10, 2017, the Company signed an amendment to the letter agreement and lock-up agreement to extend the expiration dates to March 31, 2017. The Company is in the process of negotiating an extension to the letter agreement and lock-up agreement, however, there is no assurance that an extension will be agreed upon.

On January 12, 2017, the Company entered into a letter agreement with a third-party vendor, whereby such vendor agreed to convert all monies due from the Company pursuant to certain accounts payable into common stock of the Company, contingent upon the completion of the Offering. As of September 30, 2016, the aggregate amount of $73,667 was owed to the vendor. Pursuant to the letter agreement, the aggregate amount owed will automatically convert upon consummation of the Offering of securities into such number of restricted shares of the Company’s common stock calculated by dividing the aggregate amount owed by the per share price of the common stock in the Offering. The vendor has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by it for a period of 6 months. If such Offering is not completed by February 15, 2017, the letter agreement and lock-up agreement will terminate. On February 13, 2017, the Company signed an amendment to the letter agreement and signed a new lock-up agreement to extend the expiration dates to March 31, 2017. The Company is in the process of negotiating an extension to the letter agreement and lock-up agreement, however, there is no assurance that an extension will be agreed upon.

On January 12, 2017, the Company entered into a letter agreement with a director of the Company whereby the director agreed to convert a portion of monies due him from the Company from unpaid board service fees into common stock of the Company, contingent upon the completion of the Offering. As of October 31, 2016, the aggregate amount of $42,500 was owed to the director. Pursuant to the letter agreement, the unpaid fees will automatically convert upon consummation of the Offering into such number of restricted shares of the Company’s common stock calculated by dividing the unpaid fees by $17.50 or 2,426 shares. The director has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by him for a period of 12 months. If such Offering is not completed by February 15, 2017, the letter agreement and lock-up agreement will terminate. On February 10, 2017, the Company signed an amendment to the letter agreement and lock-up agreement to extend the expiration dates to March 31, 2017. On March 27, 2017, the Company signed an amendment to the letter agreement and lock-up agreement to extend the expiration dates to April 30, 2017. The Company is in the process of negotiating an extension to the letter agreement and lock-up agreement, however, there is no assurance that an extension will be agreed upon.

On January 12, 2017, the Company entered into a second letter agreement with the director, whereby the director agreed to convert 13,843 shares of Series E Preferred of the Company owned into common stock of the Company, contingent upon the completion of the Offering. As of September 30, 2016, the aggregate amount of $181,297 consisting of accrued dividends, royalty and interest was owed to the director with respect to his Series E Preferred. Pursuant to the second letter agreement, the aggregate amount will automatically convert upon consummation of the Offering into such number of restricted shares of the Company's common stock calculated by dividing the aggregate amount by $17.72 or 10,223 shares. The director has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned for a period of 12 months. If such Offering is not completed by February 15, 2017, the letter agreement and lock-up agreement will terminate. On February 10, 2017, the Company signed an amendment to the letter agreement and lock-up agreement to extend the expiration dates to March 31, 2017. On March 27, 2017, the Company signed an amendment to the letter agreement and lock-up agreement to extend the expiration dates to April 30, 2017. The Company is in the process of negotiating an extension to the letter agreement and lock-up agreement, however, there is no assurance that an extension will be agreed upon.

On January 12, 2017, the Company entered into a letter agreement with entities controlled by the Chief Executive Officer, whereby each of such parties agreed to convert all monies due pursuant to three separate promissory notes into common stock of the Company, contingent upon the completion of the Offering. As of September 30, 2016, the aggregate amount of $3,876,737 was owed to the holders pursuant to the notes payable. Pursuant to the letter agreement, the aggregate amount owed, together with interest accruing subsequent to September 30, 2016, will automatically convert upon consummation of the Offering into such number of restricted shares of the Company’s common stock calculated by dividing the aggregate amount owed by $22.50, or 172,300 shares, exclusive of interest accruing subsequent to September 30, 2016. Each of the parties subject to the letter agreement have entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by such parties for a period of 12 months. The letter agreement extends the due date of the notes to the earlier of the Offering or February 15, 2017. On February 10, 2017, the Company signed an amendment to the letter agreement and signed a new lock-up agreement to extend the expiration dates to March 31, 2017. On March 27, 2017, the Company signed an amendment to the letter agreement and lock-up agreement to extend the expiration dates to April 30, 2017. On March 27, 2017, the Company replaced the letter agreement with a new letter agreement where the redemption value will automatically convert upon consummation of the Offering into such number of restricted shares of the Company’s common stock calculated by dividing the redemption value by $6.00 per share. If the Offering is not completed by April 15, 2017, the letter agreement will terminate. The Company is in the process of negotiating an extension to the letter agreement and lock-up agreement, however, there is no assurance that an extension will be agreed upon.

On January 12, 2017, the Company entered into a letter agreement with an entity controlled by a former Executive Chairman and a current consultant to the Company, whereby the entity agreed to convert all monies due it under a promissory note into common stock of the Company, contingent upon the completion of the Offering. As of September 30, 2016, the aggregate amount of $602,145 was owed to the entity pursuant to the promissory note. Pursuant to the letter agreement, the aggregate amount owed, together with interest accruing subsequent to September 30, 2016, will automatically convert upon consummation of the Offering into such number of restricted shares of the Company’s common stock calculated by dividing the redemption value by 80% of the per share price of the common stock in the Offering, exclusive of interest accruing subsequent to September 30, 2016. The entity has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by it for a period of 6 months. If the Offering is not completed by February 15, 2017, the letter agreement and lock-up agreement will terminate. On February 13, 2017, the Company signed an amendment to the letter agreement and signed a new lock-up agreement to extend the expiration dates to March 31, 2017. The Company is in the process of negotiating an extension to the letter agreement and lock-up agreement, however, there is no assurance that an extension will be agreed upon.

On January 12, 2017, the Company entered into a letter agreement with a third-party investor, whereby the investor agreed to convert 20,000 shares of Series D Preferred of the Company owned into common stock of the Company based on current redemption value contingent upon the completion of the Offering. As of the date hereof, the current redemption value of such Series D Preferred was $72,000. Pursuant to the letter agreement, the redemption value will automatically convert upon consummation of the Offering into such number of restricted shares of the Company’s common stock calculated by dividing the redemption value by 80% of the per share price of the common stock in the Offering and all dividends cease accruing beginning July 1, 2016. The investor has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by him for a period of 12 months. If the Offering is not completed by February 15, 2017, the letter agreement and lock-up agreement will terminate. On February 13, 2017, the Company signed an amendment to the letter agreement and lock-up agreement to extend the expiration dates to March 31, 2017. On March 27, 2017, the Company signed an amendment to the letter agreement and lock-up agreement to extend the expiration dates to April 30, 2017. The Company is in the process of negotiating an extension to the letter agreement and lock-up agreement, however, there is no assurance that an extension will be agreed upon.

On January 12, 2017, the Company entered into a letter agreement with an entity affiliated with the Chief Executive Officer, whereby the entity agreed to convert 25,000 shares of Series D Preferred of the Company owned into common stock of the Company based on current redemption value, contingent upon the completion of the Offering. As of the date hereof, the current redemption value of such Series D Preferred was $300,000. Pursuant to the letter agreement, the redemption value will automatically convert upon consummation of the Offering into such number of restricted shares of the Company’s common stock calculated by dividing the redemption value by $22.50 or 13,334 shares and all dividends cease accruing beginning July 1, 2016. The entity has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by it for a period of 12 months. If the Offering is not completed by February 15, 2017, the letter agreement and lock-up agreement will terminate. On February 10, 2017, the Company signed an amendment to the letter agreement and lock-up agreement to extend the expiration dates to March 31, 2017. On March 27, 2017, the Company signed an amendment to the letter agreement and lock-up agreement to extend the expiration dates to April 30, 2017. On March 27, 2017, the Company replaced the letter agreement with a new letter agreement where the redemption value will automatically convert upon consummation of the Offering into such number of restricted shares of the Company’s common stock calculated by dividing the redemption value by $6.00 or 50,000 shares and all dividends cease accruing beginning July 1, 2016. If the Offering is not completed by April 15, 2017, the letter agreement and lock-up agreement will terminate. The Company is in the process of negotiating an extension to the letter agreement and lock-up agreement, however, there is no assurance that an extension will be agreed upon.

Effective April 1, 2017, the Company entered into a letter agreement (the “Telecare Letter Agreement”), with Telecare Medical Supply, LLC, the sole supplier of our cellular glucometers and other testing supplies (“Telecare”), and the payee of a certain Non-Negotiable Promissory Note in the original principal amount of approximately $2,524,000 (the “Amended and Restated Telecare Note”). Pursuant to the Telcare Letter Agreement, Telecare has agreed to convert all monies due it from the Company pursuant to the Telecare Note into restricted shares of common stock (the “Telecare Conversion Shares”), all contingent upon the completion of this offering. As of March 31, 2016, Telecare is owed the principal amount of $1,773,937 (“Telecare Principal Amount”), along with accrued interest of $3,675 through March 31, 2017 (the “Telecare Interest Amount” and, together with the Principal Amount, the “Telecare Note Obligation”). As incentive to enter into the Telecare Letter Agreement, the Company agreed to add approximately $502,388 to the Telecare Note Obligation effectively making the total obligation due to Telecare an aggregate of $2,280,000 (the “Total Telecare Obligation”). Pursuant to the Telecare Letter Agreement, the Total Telecare Obligation will automatically convert upon consummation of the Offering into the Telecare Conversion Shares at the combined price per share and warrant paid by investors in the Offering (the “Conversion Price”). If the Offering is not completed by April 30, 2017, the letter agreement and lock-up agreement will terminate. The Company is in the process of negotiating an extension to the letter agreement and lock-up agreement, however, there is no assurance that an extension will be agreed upon.

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.