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Subsequent Events
12 Months Ended
Sep. 30, 2013
Subsequent Events [Abstract]  
Subsequent Events

Creation of Series D Convertible Preferred

 

 On October 30, 2013, the Company filed the Certificate of Designations of Rights, Preferences, Privileges and Limitations of the Series D Convertible Preferred Stock (the "Certificate of Designations") with the Delaware Secretary of State to designate 4,000 shares of the Company's preferred stock as Series D Convertible Preferred Stock ("Series D Preferred"). The Series D Preferred votes alongside the Company's Common Stock, on an as converted basis, and ranks junior to the Company's Series B Convertible Cumulative Preferred Stock, but is senior to all other classes of the Company's preferred stock.

 

 Each share of Series D Preferred has a stated value of $10,000 (the "Stated Value"), and is convertible, upon expiration of the 20 calendar day period following the filing by the Company of an Information Statement on Schedule 14C relating to an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of the Company's Common Stock to permit the issuance of Common Stock in connection with the conversion of the Series D Preferred, into that number of shares of Common Stock (the "Conversion Shares") equal to the Stated Value divided by the Conversion Price set forth in the Certificate of Designations.

 

Series D Preferred Financing

 

 On October 31, 2013, the Company accepted subscription agreements (the "Subscription Agreements"), from certain accredited investors (the "Investors") to purchase 414 shares of Series D Preferred for $10,000 per share, resulting in gross proceeds to the Company of approximately $4.14 million (the "Series D Offering"). As additional consideration for the purchase of each share of Series D Preferred, Investors received one-year warrants to purchase 59,523 shares of Common Stock for $0.084 per share ("Warrant Shares") (the "Series D Warrants"). Proceeds derived from the Series D Offering are intended to be used for general working capital purposes.

 

 In connection with the Series D Offering, the Company and the Investors entered into the Investor Rights Agreement (the "Investor Rights Agreement"), pursuant to which the Company agreed to register the Conversion Shares and Warrant Shares under the Securities Act of 1933, as amended (the "Securities Act"), within 60 days after filing its Annual Report on Form 10-K for the year ended September 30, 2013. The Company and the Investors also entered into a Voting Agreement (the "Voting Agreement"), pursuant to which the Company agreed to, among other things, (i) amend the Company's Amended and Restated Bylaws (the "Bylaws") to decrease the fixed number of directors from ten to seven, and (ii) appoint two individuals designated by one of the Investors to the Company's Board of Directors ("Board"), after those designees are qualified and accepted by the Board.

 

Cancellation of Debt

 

 In connection with offer and sale of the Series D Preferred, certain holders of the Company's senior convertible debt issued in connection with previous debt financings ("Note Holders") agreed to exchange such debt, aggregating approximately $22.7 million principal amount and accrued interest, for the Series D Offering, resulting, upon execution of definitive documents, in the issuance of an additional approximately 2,200 shares of Series D Preferred and Series D Warrants to purchase approximately 135.0 million shares of the Company's Common Stock. Furthermore, certain holders of the Company’s junior subordinated convertible debt agreed to exchange an aggregate principal of approximately $14.4 million for approximately 100.5 million shares of restricted Common Stock that vests if the trading price of the Company’s Common Stock reaches $0.143.

 

 The Series D Preferred and Series D Warrants were offered and sold in transactions exempt from registration under the Securities Act, in reliance on Section 3(a)(9) and/or Section 4(2) thereof, and Rule 506 of Regulation D thereunder. Each of the Investors and Note Holders represented that it was an "accredited investor" as defined in Regulation D.

 

Modification of PFG Loan Agreement

 

 On November 1, 2013, the Company substantially modified its Loan Agreement with PFG to provide, among other things, for a one-year extension of the maturity date under the Loan Agreement, until December 13, 2014. In return, the Company has made a $2.0 million repayment on the loan and has agreed to deposit $500,000 with PFG as collateral for the loan. PFG also purchased shares of the Company's Series D Preferred, and modified its Guaranty Agreement with the Company to release Costa Brava Partnership III, LP from its guarantee of the Company's debt to PFG.

 

Amendments to Articles of Incorporation or Bylaws

 

 On October 7, 2013, the Company's Board of Directors approved an amendment to Article III, Section 2 of the Company's Bylaws to decrease the fixed number of directors from ten to seven (the "Bylaw Amendment"). The Bylaw Amendment became effective on October 31, 2013 with the execution of the Voting Agreement.

 

Increase of Authorized Number of Common Shares

 

 On September 10, 2013, upon written consent by the majority of our voting stock, the Board approved an amendment to the Company’s Articles of Incorporation to the increase of the total number of authorized shares of the Company’s Common Stock from 801,000,000 to 2,001,000,000, of which 2,000,000,000 will be available for issuance as Common Stock (the “Amendment”). The Amendment will become effective upon filing with the Delaware Secretary of State, which filing will occur following the 20 calendar day period following the Company’s filing of the Information Statement on Schedule 14C, filed with the SEC on December 20, 2013.

 

Increase of Shares Issuable under 2011 Omnibus Incentive Plan, Cancellation and Reissuance of Employee Incentive Stock Options

 

 On October 21, 2013, upon written consent by the majority of our voting stock, the Board approved the cancellation and reissuance of employee incentive stock options to purchase 145.0 million shares of the Company’s Common Stock with a strike price of $0.042 per share.  On October 31, 2013, upon written consent by the majority of our voting stock, the Board approved an amendment to the 2011 Omnibus Incentive Plan to the increase the number of shares of Common Stock issuable under the 2011 Omnibus Incentive Plan to 446,500,000, which amendment will become effective following the 20 calendar day period following the Company’s filing of the Information Statement on Schedule 14C, filed with the SEC on December 20, 2013.

 

New Location Established as ISC8 Malaysia

 

 On October 28, 2013, the Company announced the opening of a new office in Kuala Lumpur, Malaysia in support of the projected growth of business within South East Asia.  ISC8 Malaysia will serve as a regional hub for the Company in the multi-billion dollar market in South East Asia.

 

Senior Secured Revolving Credit Facility

 

 On November 5, 2013 the Company made significant modifications to its Loan and Security Agreement with PFG, updating loan covenants and extending the maturity date under the Loan Agreement to December 13, 2014.  PFG also purchased shares of the Company’s Series D Preferred and modified its Guaranty Agreement with the Company.

 

Dispute Over Maturity Date of Note

 

On December 6, 2013, a certain holder of Senior Subordinated Convertible Promissory Notes (the “Notes”) who chose not to convert into the Series D Offering (the “Non-Converting Note Holder”), totaling approximately $1.0 million, notified the Company that they interpreted the Notes to require the Company to use the net proceeds from the Qualified Financing dated November 1, 2013, to repay certain outstanding debts.   In August 2013, however, the Company and the Non-Converting Note Holder amended the terms of the Notes to extend the maturity date of the Notes to January 31, 2014 (the “Amendment”), regardless of the consummation of the Qualified Financing.  The Non-Converting Note Holder has objected to the Company’s interpretation of the Amendment, and has taken the position that the Notes are currently due and payable from proceeds of the Qualified Financing, notwithstanding the Company’s position that Amendment extended the maturity date of the Notes to January 31, 2014.

 

Although the Company disputes the Non-Converting Note Holder's position, and believes that the Amendment extended the maturity date of the Notes to January 31, 2014, we may not prevail. In the event we are unable to reach an accommodation or negotiated settlement with the Note Holders, and are otherwise unsuccessful in defending our position, the Notes may become immediately due and payable as of November 1, 2013, in which case we may be considered in default on the Notes.