NOTE 7.

COMMITMENTS AND CONTINGENCIES

Office Lease

As of June 30, 2016, the Company leases a 2,500 square foot office in Agoura Hills, California for approximately $2,500 per month which expires in December 2017.

Warrant Liability

The Company recorded the estimated settlement liability as of March 31, 2014 for the Warrant Shares issued and the Warrants that remain outstanding and unexercised that would be entitled to the same settlement based on the number of shares expected to be issued and the market price of the Company’s common stock on the dates of the actual settlements from $4.72 per share to $7.25 per share, and market price of the first settlement of $7.25 for the unsettled claims. The warrant liability expired during May 2016. As of June 30, 2016, the estimated liability is $0. The Company recorded a gain on the change in warrant liability of $31,401 and $2,156,203 during the nine months ended June 30, 2016 and 2015, respectively.

Settlement of Company Legal Claims

On December 15, 2014, the Company recorded a gain on settlement of $257,930 for a confidential settlement by and between the Company and certain shareholders and related parties as settlement for certain potential legal claims held by the Company. As a result of the settlement, the Company received net proceeds of $62,930 and vendor credits of $200,000 during the three months ended December 31, 2014. A total of $325,000 in vendor credits has been received in connection with the settlement and no further credits will be given. In January 2015, the Company received 440,625 shares from the settlement that was assigned to officers of the Company. The officers decided it was in the best interest of the Company to return these shares to the Company to be used for future strategic issuances. Accordingly, the 440,625 shares valued at $367,531 were recorded as treasury stock as of March 31, 2015. The Company recorded a gain on settlement of $0 and $0, and $0 and $625,461 during the three and nine months ended June 30, 2016 and 2015, respectively.

Settlement Liability

On or about December 1, 2016, the Company learned that LG Capital Funding, LLC (“LG Capital”), a plaintiff in a lawsuit pending in New York against the Company (Case 1:16-cv-02217-CBA-LB), obtained a judgment in the amount of $151,000. On or about December 10, 2016, the Company learned that LG Capital had placed a judgment lien on the Company’s operating account. The effect of the lien was that the Company’s operating account was frozen for an amount twice the judgment, or approximately $300,000. In or around December of 2016 and continuing into early January 2017, GHS Investments, LLC, a Nevada limited liability company (“GHS”) and LG Capital negotiated a transaction whereby GHS purchased the rights to the LG Capital Convertible Promissory Note and/or the right to collect on the LG Capital judgment. On or about January 10, 2017, GHS and the Company entered into a Convertible Promissory Note in the amount of $161,000 (the “GHS Convertible Note”) which represented that amount paid by GHS to LG Capital. The GHS Convertible Note carries a 10% interest rate, is due on October 15, 2017 and is convertible into common stock of the Company at a 45% discount off the lowest trading price for the Company’s common stock during the 20 trading days immediately preceding the conversion date. As of June 30, 2016, the Company recorded a settlement liability of $151,000.