Document_and_Entity_Informatio
Document and Entity Information | 6 Months Ended | |
Mar. 31, 2014 | Jun. 04, 2014 | |
Document And Entity Information | ' | ' |
Entity Registrant Name | 'ISC8 INC. /DE | ' |
Entity Central Index Key | '0000357108 | ' |
Document Type | '10-Q | ' |
Document Period End Date | 31-Mar-14 | ' |
Amendment Flag | 'false | ' |
Document Fiscal Year Focus | '2013 | ' |
Document Fiscal Period Focus | 'Q2 | ' |
Current Fiscal Year End Date | '--09-30 | ' |
Entity a Well-known Seasoned Issuer | 'No | ' |
Entity a Voluntary Filer | 'No | ' |
Entity's Reporting Status Current | 'Yes | ' |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Common Stock, Shares Outstanding | ' | 256,580,728 |
Condensed_Consolidated_Balance
Condensed Consolidated Balance Sheets (Unaudited) (USD $) | Mar. 31, 2014 | Sep. 30, 2013 | ||
Current assets: | ' | ' | ||
Cash and cash equivalents | $147,000 | $136,000 | [1] | |
Accounts receivable, net | ' | 119,000 | [1] | |
Deposit on PFG Credit Line | 523,000 | 1,000,000 | [1] | |
Prepaid expenses and other current assets | 335,000 | 561,000 | [1] | |
Total current assets | 1,005,000 | 1,816,000 | [1] | |
Restricted cash | 75,000 | 75,000 | [1] | |
Property and equipment, net | 553,000 | 753,000 | [1] | |
Goodwill | 393,000 | 393,000 | [1] | |
Intangible assets, net | 727,000 | 790,000 | [1] | |
Deferred financing costs | 51,000 | 715,000 | [1] | |
Other assets | 32,000 | 126,000 | [1] | |
Non-current assets from discontinued operations | 290,000 | 297,000 | [1] | |
Total assets | 3,126,000 | 4,965,000 | [1] | |
Current liabilities: | ' | ' | ||
Accounts payable | 1,331,000 | 1,024,000 | [1] | |
Accrued expenses | 1,837,000 | 3,066,000 | [1] | |
Deferred revenue | 17,000 | 221,000 | [1] | |
Senior secured revolving credit facility loan, net of discount | 3,054,000 | 4,908,000 | [1] | |
Senior subordinated secured convertible promissory notes, net of discount | 1,623,000 | 15,793,000 | [1] | |
Senior subordinated secured convertible bridge notes, net of discount | 1,155,000 | ' | [1] | |
Subordinated secured convertible promissory notes, net of discount | 843,000 | ' | [1] | |
Senior subordinated secured promissory notes | ' | 5,392,000 | [1] | |
Capital lease obligations, current portion | 329,000 | 447,000 | [1] | |
Other current liabilities | 75,000 | ' | [1] | |
Current liabilities from discontinued operations | 624,000 | 678,000 | [1] | |
Total current liabilities | 10,888,000 | 31,529,000 | [1] | |
Subordinated secured convertible promissory notes, net of discount | ' | 8,570,000 | [1] | |
Capital lease obligations, less current portion | 67,000 | 77,000 | [1] | |
Derivative liability | 797,000 | 19,245,000 | [1] | |
Executive Salary Continuation Plan liability | 910,000 | 957,000 | [1] | |
Other liabilities | ' | 139,000 | [1] | |
Total liabilities | 12,662,000 | 60,517,000 | [1] | |
Stockholders' deficit | ' | ' | ||
Convertible preferred stock, $0.01 par value, 1,000,000 shares authorized, 900 shares of Series B Convertible Cumulative Preferred Stock issued and outstanding as of March 31, 2014 and September 30, 2013, liquidation preference of $866,000, and 2,800 and 0 shares of Series D Convertible Preferred Stock issued and outstanding, liquidation preference of $27,820,000 and $0, as of March 31, 2014 and September 30, 2013, respectively(2) | ' | [2] | ' | [1],[2] |
Common stock, $0.01 par value, 2,000,000,000 and 800,000,000 shares authorized; 255,080,000 and 205,581,000 shares issued and outstanding at March 31, 2014 and September 30, 2013, respectively (3) | 2,551,000 | [3] | 2,056,000 | [1],[3] |
Paid-in capital | 231,910,000 | 181,443,000 | [1] | |
Accumulated other comprehensive income (loss) | 46,000 | -123,000 | [1] | |
Accumulated deficit | -244,367,000 | -239,252,000 | [1] | |
ISC8 stockholders' deficit | -9,860,000 | -55,876,000 | [1] | |
Noncontrolling interest | 324,000 | 324,000 | [1] | |
Total stockholders' deficit | -9,536,000 | -55,552,000 | [1] | |
Total liabilities, non-controlling interest, and stockholders' deficit | $3,126,000 | $4,965,000 | [1] | |
[1] | The condensed consolidated balance sheet as of September 30, 2013 was derived from the audited consolidated financial statement included in the Company's 2013 Annual Report on Form 10-K, filed with the SEC on December 24, 2013 adjusted to reflect discontinued operations. In March 2013, the Company ceased operations of its government focused business, including Secure Memory Systems, Cognitive Systems and Microsystems business units (the "Government Business"). In accordance with the provisions of the Presentation of Financial Statements Topic 205 of the Accounting Standards Codification ("ASC"), the assets and liabilities related to the Government Business are now presented as discontinued operations for all periods presented in the consolidated financial statements. | |||
[2] | The number of shares of Convertible Preferred Stock issued and outstanding has been rounded to the nearest one hundred (100). | |||
[3] | The number of shares of common stock issued and outstanding has been rounded to the nearest one thousand (1000). |
Condensed_Consolidated_Balance1
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) | Mar. 31, 2014 | Sep. 30, 2013 |
Common stock, par value | $0.01 | $0.01 |
Common stock, shares authorized | 2,000,000,000 | 800,000,000 |
Common stock, shares issued | 255,080,000 | 205,581,000 |
Common stock, shares outstanding | 255,080,000 | 205,581,000 |
Convertible preferred stock, par value | $0.01 | ' |
Convertible preferred stock, shares authorized | 1,000,000 | ' |
Series D Preferred Stock [Member] | ' | ' |
Convertible preferred stock, shares issued | 2,800 | 0 |
Convertible preferred stock, shares outstanding | 2,800 | 0 |
Convertible preferred Stock, Liquidation Preference, Value | $27,820,000 | $0 |
Series B Preferred Stock Shares Issued (1) | ' | ' |
Convertible preferred stock, shares issued | 900 | 900 |
Convertible preferred stock, shares outstanding | 900 | 900 |
Condensed_Consolidated_Stateme
Condensed Consolidated Statements of Operations (Unaudited) (USD $) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2014 | Mar. 31, 2013 | Mar. 31, 2014 | Mar. 31, 2013 | |
Income Statement [Abstract] | ' | ' | ' | ' |
Revenues | $78,000 | $102,000 | $171,000 | $196,000 |
Cost of revenues | 45,000 | 44,000 | 93,000 | 81,000 |
Gross profit | 33,000 | 58,000 | 78,000 | 115,000 |
Operating expenses: | ' | ' | ' | ' |
General and administrative expense | 2,532,000 | 2,320,000 | 4,907,000 | 4,290,000 |
Research and development expense | 1,223,000 | 1,799,000 | 3,121,000 | 3,464,000 |
Total operating expenses | 3,755,000 | 4,119,000 | 8,028,000 | 7,754,000 |
Operating Loss | -3,722,000 | -4,061,000 | -7,950,000 | -7,639,000 |
Interest and other (income) expense | ' | ' | ' | ' |
Interest expense | 621,000 | 3,806,000 | 4,549,000 | 5,793,000 |
Change in fair value of derivative liability | 261,000 | 466,000 | -7,073,000 | -4,481,000 |
Gain on extinguishment of debt | ' | ' | -316,000 | ' |
Other (income) expense | -2,000 | -64,000 | 2,000 | 63,000 |
Total interest and other (income) expenses | 880,000 | 4,336,000 | -2,838,000 | 1,375,000 |
Loss from continuing operations before provision for income taxes | -4,602,000 | -8,397,000 | -5,112,000 | -9,014,000 |
Provision for income taxes | ' | 3,000 | 3,000 | 3,000 |
Loss from continuing operations | -4,602,000 | -8,400,000 | -5,115,000 | -9,017,000 |
Loss from discontinued operations | ' | -1,191,000 | ' | -2,738,000 |
Net loss | ($4,602,000) | ($9,591,000) | ($5,115,000) | ($11,755,000) |
Basic and Diluted net loss per share: | ' | ' | ' | ' |
Loss from continuing operations | ($0.02) | ($0.05) | ($0.02) | ($0.06) |
Loss from discontinued operations | ' | ($0.01) | ' | ($0.02) |
Net loss per share | ($0.02) | ($0.06) | ($0.02) | ($0.08) |
Basic and diluted weighted average number of common shares outstanding | 245,122,000 | 153,688,000 | 234,858,000 | 147,541,000 |
Condensed_Consolidated_Stateme1
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (USD $) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2014 | Mar. 31, 2013 | Mar. 31, 2014 | Mar. 31, 2013 | |
Two Thousand and Ten Non Qualified Stock Option Plan [Member] | ' | ' | ' | ' |
Net loss | ($4,602,000) | ($9,591,000) | ($5,115,000) | ($11,755,000) |
Foreign currency translation adjustments | 23,000 | ' | 169,000 | ' |
Comprehensive loss | ($4,579,000) | ($9,591,000) | ($4,946,000) | ($11,755,000) |
Condensed_Consolidated_Stateme2
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) | 6 Months Ended | ||
Mar. 31, 2014 | Mar. 31, 2013 | ||
Cash flows from operating activities: | ' | ' | |
Net loss | ($5,115,000) | ($11,755,000) | |
(Income) loss from discontinued operations | ' | 2,738,000 | |
Loss from continuing operations | -5,115,000 | -9,017,000 | |
Adjustments to reconcile loss from continuing operations to net cash used in operating activities: | ' | ' | |
Depreciation and amortization | 339,000 | 95,000 | |
Provision for bad debt | 174,000 | ' | |
Non-cash interest expense | 3,790,000 | 5,255,000 | |
Gain on extinguishment of debt | -316,000 | ' | |
Change in fair value of derivative liability | -7,073,000 | -4,481,000 | |
Non-cash stock-based compensation | 2,539,000 | 300,000 | |
Loss on disposal of property and equipment | 4,000 | ' | |
Accounts receivable | -55,000 | -127,000 | |
Prepaid expenses and other assets | 194,000 | 60,000 | |
Other Assets | 262,000 | ' | |
Accounts payable and accrued expenses | 1,029,000 | 643,000 | |
Other current liabilities | 75,000 | ' | |
Deferred revenue | -204,000 | 67,000 | |
Executive Salary Continuation Plan liability | -47,000 | -7,000 | |
Net cash used in operating activities | -4,404,000 | -7,332,000 | |
Cash flows from investing activities: | ' | ' | |
Property and equipment expenditures | ' | 45,000 | |
Proceeds from sale of Thermal assets | ' | 1,200,000 | |
Net cash related to acquisition of Bivio | ' | -569,000 | |
Net cash used in investing activities | ' | 586,000 | |
Cash flows from financing activities | ' | ' | |
Proceeds from unsecured convertible promissory notes | 1,738,000 | 7,380,000 | |
Proceeds from Series D Convertible Preferred Stock | 4,533,000 | ' | |
Proceeds from options and warrants exercised | 16,000 | 103,000 | |
Net change in deposit on PFG credit line | 477,000 | ' | |
Principal payments on PFG credit line | -2,070,000 | ' | |
Principal payments of notes payable | 25,000 | 9,000 | |
Principal payments of capital leases | 208,000 | 8,000 | |
Net cash provided by financing activities | 4,461,000 | 7,466,000 | |
Cash flows from discontinued operations: | ' | ' | |
Net cash used in operating activities | -47,000 | -1,965,000 | |
Net cash used in investing activities | ' | -8,000 | |
Net cash used in discontinued operations | -47,000 | -1,973,000 | |
Effect of exchange rate changes on cash | 1,000 | 163,000 | |
Net increase (decrease) in cash and cash equivalents | 11,000 | -1,416,000 | |
Cash and cash equivalents at beginning of period | 136,000 | [1] | 1,738,000 |
Cash and cash equivalents at end of period | 147,000 | 322,000 | |
Non-cash investing and financing activities: | ' | ' | |
Equipment financed with capital leases | 80,000 | ' | |
Conversion of notes and accrued interest to Series D Preferred Stock | 23,056,000 | ' | |
Conversion of notes to restricted stock | 14,503,000 | ' | |
Employee stock based plan contribution | 272,000 | ' | |
Conversion of notes and accrued interest to common stock | ' | 30,000 | |
Common stock issued to pay accrued interest and operating expenses | 556,000 | 963,000 | |
Issuance of warrants to acquire Bivio Software assets | ' | 85,000 | |
Senior Subordinated Note issued to settle accrued interest | ' | 291,000 | |
Issuance of warrants in connection with Forbearance agreements | 34,000 | 721,000 | |
Non-cash conversion of preferred stock to common stock | ' | 60,000 | |
Non-cash conversion of 2012 Notes to 2013 Notes, including paid in kind interest | ' | 5,571,000 | |
Supplemental cash flow information: | ' | ' | |
Cash paid for interest | 257,000 | 303,000 | |
Cash paid for income taxes | $3,000 | $3,000 | |
[1] | The condensed consolidated balance sheet as of September 30, 2013 was derived from the audited consolidated financial statement included in the Company's 2013 Annual Report on Form 10-K, filed with the SEC on December 24, 2013 adjusted to reflect discontinued operations. In March 2013, the Company ceased operations of its government focused business, including Secure Memory Systems, Cognitive Systems and Microsystems business units (the "Government Business"). In accordance with the provisions of the Presentation of Financial Statements Topic 205 of the Accounting Standards Codification ("ASC"), the assets and liabilities related to the Government Business are now presented as discontinued operations for all periods presented in the consolidated financial statements. |
General
General | 6 Months Ended |
Mar. 31, 2014 | |
Accounting Policies [Abstract] | ' |
Note 1 - General | ' |
The information contained in the following Notes to Condensed Consolidated Financial Statements is derived from that which appears in the accompanying unaudited condensed consolidated financial statements for ISC8 Inc. (“ISC8”), and its subsidiaries (together with ISC8, the “Company”), and do not include certain financial presentations normally required under accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, the unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2013 (“Fiscal 2013”), filed with the SEC on December 24, 2013, including the risk factors contained therein, as updated in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2014. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results expected for the entire year. | |
The consolidated financial information for the three month periods ended March 31, 2014 and 2013 included herein is unaudited but includes all normal recurring adjustments which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company at March 31, 2014, and the results of its operations and its cash flows for the three month periods ended March 31, 2014 as compared to the same period ended March 31, 2013. | |
The accompanying September 30, 2013 balance sheet was derived from the audited fiscal 2013 financial statements. | |
Recent Developments | |
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”). ISC8 Malaysia, a wholly owned subsidiary of the Company, will serve as a regional hub in South East Asia. | |
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 shares of the Company's common stock, par value $0.01 per share (“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 currently convertible, at the option of the holder, into that number of shares of Common Stock equal to the Stated Value divided by the Conversion Price set forth in the Certificate of Designations (the "Conversion Shares"). | |
Series D Preferred Financing. On October 31, 2013, the Company accepted subscription agreements from certain accredited investors (the "Investors") to purchase shares of Series D Preferred (the "Series D Offering") for $10,000 per share. As additional consideration, each Investor received one-year warrants to purchase 59,523 shares of Common Stock for $0.084 per share ("Warrant Shares") for every share of Series D Preferred purchased (the "Series D Warrants"). Through March 31, 2014, investors have purchased 477 shares of Series D Preferred, resulting in gross proceeds of approximately $4.77 million. | |
Cancellation of Debt. In connection with the offer and sale of the Series D Preferred, certain holders of the Company's outstanding senior convertible debt agreed to exchange such debt, in the aggregate total of approximately $23.1 million in principal and accrued interest, for shares of Series D Preferred and Series D Warrants on substantially similar terms to the Series D Offering (the “Senior Note Conversion”). The Senior Note Conversion resulted in the issuance of approximately 2,300 shares of Series D Preferred and Series D Warrants to purchase approximately 137.2 million shares of Common Stock. Furthermore, certain holders of the Company’s junior subordinated convertible debt agreed to exchange an aggregate total of approximately $14.5 million in principal and accrued interest for approximately 101.4 million shares of Restricted Stock Units (“RSU”) that vests in the event the trading price of the Company’s Common Stock reaches $0.143 (the “Junior Note Conversion”). | |
Amendments to Articles of Incorporation or Bylaws. On October 31, 2013, the Company amended Article III, Section 2 of the Company's Bylaws to decrease the fixed number of directors from ten to seven (the "Bylaw Amendment"). On June 5, 2014, the Company further amended Article III, Section 2 of the Company’s Bylaws to decrease the fixed number of directors from seven to three, and decrease the size of the Company’s Board of Directors to no less than three, but no more than seven directors. | |
Modification of PFG Loan Agreement. On November 1, 2013, the Company substantially modified its Loan Agreement with Partners for Growth III, L.P. (“PFG”) to provide, among other things, for a one-year extension of the maturity date under the Loan Agreement to December 31, 2014 (the “PFG Loan Modification”). In return, the Company made a $2.0 million repayment on the loan, deposited $500,000 with PFG as collateral for the loan, and, in the event the Company consummates a debt or equity financing, the Company agreed to pay to PFG 25% of the proceeds from such financing (“Financing Guarantee Fund”). PFG and the Company also modified the Guaranty Agreement executed in connection with the Loan Agreement in order to: (i) release Costa Brava Partnership III, LP (“Costa Brava”) from its guarantee of the Company's debt to PFG, (ii) reduce the maximum guarantee amount to $1.0 million, and (iii) affirm the obligations of the Griffin Fund LP, one of the Company’s related party investors (“Griffin”), under the Guaranty Agreement. | |
On February 7, 2014, the Company and PFG made further modification to the Loan Agreement by reducing the Financing Guarantee Fund payment from 25% of 10% and required the Company to make a $70,000 monthly payment toward the principal balance of the loan effective April 1, 2014 and a back end fee of 15% on any capital raise. See Note 3 under the heading Revolving Credit Facility. | |
Increase of Authorized Number of Common Shares. On January 16, 2014, the Company filed with the Delaware Secretary of State an amendment to its Certificate of Incorporation to the increase of the total number of authorized shares of capital 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”). | |
Amendment to 2011 Omnibus Incentive Plan and Option Exchange Program. On January 16, 2014, the Company implemented an amendment to its 2011 Omnibus Incentive Plan (the “2011 Plan”) to increase the number of shares of Common Stock issuable under the 2011 Plan to 446,500,000 (the “Plan Amendment”). In October 2013, in anticipation of stockholder approval of the Plan Amendment, the Company commenced an option exchange program (the “Option Exchange Program”) wherein holders of stock options previously issued under the Company’s equity compensation plans could, at the option of the holder, exchange outstanding options for new options to purchase shares of Common Stock for $0.042 per share. To date, the Company has canceled outstanding stock options to purchase 28.6 million shares of Common Stock, and issued new options under the 2011 Plan to purchase approximately 146.9 million shares of Common Stock for $0.042 per share. | |
Issuance of Senior Subordinated Secured Convertible Bridge Notes. On February 6, 2014, the Company’s Board of Directors approved the issuance of senior subordinated secured convertible bridge notes in the aggregate principal amount of up to $3.5 million (the “2014 First Bridge Notes”), of which, $1.5 million may be issued in exchange for the cancellation of certain outstanding senior notes. The 2014 First Bridge Notes mature on July 31, 2014. As of March 31, 2014, the Company has issued 2014 First Bridge Notes in the aggregate principal amount of $0.6 million. See Note 5 for further information regarding the 2014 First Bridge Notes. | |
On February 28, 2014, the Company’s Board of Directors approved the issuance of senior subordinated secured convertible bridge notes in the aggregate principal amount of up to $6.0 million (the “2014 Second Bridge Notes”), of which, $1.5 million may be issued in exchange for the cancellation of certain outstanding senior notes. The 2014 Second Bridge Notes mature on July 31, 2014. As of June 5, 2014, the Company has issued 2014 Second Bridge Notes in the aggregate principal amount of $3.0 million. See Note 5 and Note 11 for further information regarding the 2014 Second Bridge Notes. | |
Forbearance Agreement. As of March 31, 2014, $0.9 million of the outstanding Senior Subordinated Convertible Notes (as defined below in Note 3-Senior Subordinated Secured Convertible Promissory Notes) had matured. The Company entered into a Forbearance Agreement with the respective holders of these Notes to extend the maturity date to July 31, 2014. See Note 11 for further information regarding the Forbearance Agreement, and other information regarding the Senior Subordinated Secured Convertible Notes. | |
Summary of Significant Accounting Policies | |
There have been no significant changes to the Company’s significant accounting policies during the three months ended March 31, 2014. For a comprehensive description of the Company’s significant accounting policies, see Note 1 to the Company’s Consolidated Financial Statements included in the Company’s 2013 Annual Report on Form 10-K, filed with the SEC on December 24, 2013. | |
Consolidation. The consolidated financial statements include the accounts of ISC8 and its subsidiaries, Novalog, Inc. (“Novalog”), MicroSensors, Inc. (“MSI”), RedHawk Vision Systems, Inc. (“RedHawk”) iNetWorks Corporation (“iNetWorks”), ISC8 Europe Limited (“ISC8 Europe”) and ISC8 Malaysia SDN.BMD (“ISC8 Malaysia”). Of the Company’s subsidiaries, only ISC8 Europe and ISC8 Malaysia presently have operating activities and assets, separate employees and facilities. All significant intercompany transactions and balances have been eliminated in the consolidation. None of the Company’s subsidiaries accounted for more than 10% of the Company’s total assets at March 31, 2014 or March 31, 2013. | |
Reclassifications. Certain amounts in the consolidated financial statements have been reclassified in order to conform to the current year presentation. | |
Reportable Segments. The Company is presently managing its continuing operations as a single business segment. The Company is continuing to evaluate the current and potential business derived from sales of its products and, in the future, may present its consolidated statement of operations in more than one segment if the Company segregates the management of various product lines in response to business and market conditions. | |
Use of Estimates. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Management prepares estimates for a number of factors, including derivative liability, stock-based compensation, warrants valuation, revenue recognition, valuation of goodwill and other intangible assets, allowance for doubtful accounts and notes receivable, and deferred tax assets and liabilities. The Company believes its estimates of derivative liabilities, and warrants valuation to be the most sensitive estimates impacting financial position and results of operations in the near term. | |
Subsequent Events. Management has evaluated events subsequent to March 31, 2014 through the date of this Quarterly Report on Form 10-Q for transactions and other events that may require adjustment of and/or disclosure in such financial statements. See Note 11 for a discussion of events occurring subsequent to March 31, 2014. | |
Going_Concern
Going Concern | 6 Months Ended |
Mar. 31, 2014 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' |
Note 2 - Going Concern | ' |
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of obligations in the normal course of business. The Company generated significant net losses in previous fiscal years. For the six months ended March 31, 2014 and 2013, the Company had a loss from continuing operations of $5.1 million and $9.0 million, respectively, and negative cash flows from operations of $4.4 million and $7.3 million, respectively. As of March 31, 2014, the Company also had negative working capital of approximately $9.9 million and stockholders’ deficit of $9.5 million. | |
Management believes that the Company’s losses in recent years have primarily been the result of increased research and development expenditures related to the cyber technology and efforts to productize those technologies and bring them to market. These losses were augmented by insufficient revenue to support the Company’s skilled and diverse technical staff, who are considered necessary to support commercialization of the Company’s technologies, and significant financing costs. Unsuccessful commercialization efforts in past fiscal years have contributed to the stockholders’ deficit as of March 31, 2014. | |
We currently have insufficient cash to execute our business plan and continue as a going concern, in the absence of securing additional financing, and we have significant debt coming due within 12 months. Management is therefore currently focused on raising additional capital to fund the Company’s working capital requirements, managing costs in line with estimated total revenues, including contingencies for cost reductions if projected revenues are not fully realized, as well as negotiating the restructuring of certain indebtedness currently due and payable. However, there can be no assurance that management will be successful, that anticipated revenues will be realized, or that the Company will be able to successfully implement its plans. In the event management is not successful in raising additional capital, or otherwise implementing its restructuring plan, the Company will be unable to continue as a going concern. | |
The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. |
Debt_Instruments
Debt Instruments | 6 Months Ended | ||||||||||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' | ||||||||||||||||||||||||
Note 3 - Debt Instruments | ' | ||||||||||||||||||||||||
The following table summarizes debt instrument activity during the six months ended March 31, 2014: | |||||||||||||||||||||||||
Principle Balance, Net of Discount at September 30, 2013 | New Debt Issued (Principle Repayment), Net | Debt Converted to Series D Preferred Shares | Debt Converted to Restricted Stock | Debt Discount Amortization, Extinguishment or (Additions), Net | Principle Balance, Net of Discount at March 31, 2014 | ||||||||||||||||||||
Senior Secured Revolving Credit Facility | $ | 4,908,000 | $ | (2,070,000 | ) | $ | - | $ | - | $ | 216,000 | $ | 3,054,000 | ||||||||||||
Senior Subordinated Secured Convertible Promissory 2013 Notes | 15,793,000 | 175,000 | (16,199,000 | ) | - | 1,854,000 | 1,623,000 | ||||||||||||||||||
Senior Subordinated Secured Convertible Bridge Notes | - | 1,858,000 | - | - | (703,000 | ) | 1,155,000 | ||||||||||||||||||
Senior Subordinated Secured Promissory Notes | 5,392,000 | - | (5,392,000 | ) | - | - | - | ||||||||||||||||||
Subordinated Secured Convertible Promissory Notes | 8,570,000 | - | (381,000 | ) | (14,357,000 | ) | 7,011,000 | 843,000 | |||||||||||||||||
Total Gross Debt | $ | 34,663,000 | $ | (37,000 | ) | (21,972,000 | ) | $ | (14,357,000 | ) | $ | 8,378,000 | $ | 6,675,000 | |||||||||||
Accrued interest converted to equity | (1,084,000 | ) | (146,000 | ) | |||||||||||||||||||||
Gross adjustment to paid-in capital(1) | $ | (23,056,000 | ) | $ | (14,503,000 | ) | |||||||||||||||||||
(1) The net amount presented excludes the impact of unamortized debt discount, derivative liability and deferred issuance costs. | |||||||||||||||||||||||||
Revolving Credit Facility | |||||||||||||||||||||||||
In December 2011, the Company entered into the Loan Agreement with PFG to obtain the Revolving Credit Facility. The Revolving Credit Facility was originally set to mature on December 14, 2013, however, in connection with the PFG Loan Modification, the maturity date was extended to December 31, 2014. Interest on the Revolving Credit Facility accrues at the rate of 12% per annum, payable monthly, with the principal balance payable on the Maturity Date. As additional consideration for entering into the Revolving Credit Facility, the Company issued to PFG and two PFG affiliated entities seven year warrants to purchase, for $0.11 per share, an aggregate of 15.0 million shares of the Company’s Common Stock (the “PFG Warrants”). | |||||||||||||||||||||||||
To secure the payment of the Company’s obligations under the Loan Agreement, the Company granted to PFG a first position, continuing security interest in substantially all of the Company’s assets, including substantially all of its intellectual property. In addition, Costa Brava, Griffin and certain other existing creditors of the Company have agreed that, while any obligations remain outstanding by the Company to PFG under the Loan Agreement, their security interests in and liens on the Company’s assets shall be subordinated and junior to those of PFG. During July 2013, Costa Brava deposited $1.0 million into an escrow account held by PFG (the “PFG Guarantee Fund”), which was used for the partial repayment of the $5.0 million revolving credit facility issued by PFG to the Company in December 2011 (the “Revolving Credit Facility”). Costa Brava irrevocably transferred the rights, title and interest of the PFG Guarantee Fund to the Company. In exchange for funding the PFG Guarantee Fund, the Company issued a $1.0 million Senior Secured Convertible Note (defined below) to Costa Brava. In October 2013, the Company deposited $1.5 million of the proceeds received from the Series D Offering into the PFG Guarantee Fund, and, in turn, made a $2.0 million payment on the Revolving Credit Facility. Further during the quarter ended March 31, 2014, the Company made an additional repayment of $0.1 million, leaving the Revolving Credit Facility with a $2.9 million outstanding balance, excluding discounts and accrued fees. | |||||||||||||||||||||||||
On February 7, 2014 the Company entered into a second loan modification (the "Second Modification”) with an effective date of October 28, 2013, (the “Second Modification Effective Date”). In accordance with the terms of the Second Modification, in the event the Company consummates a debt or equity financing on or after the Second Modification Effective Date, the Company must pay to PFG 10% of the gross proceeds received from such financing and $70,000 monthly principal payment effective April 1, 2014. PFG, however, waived the deposit requirement for the month of January 2014. In consideration for the Second Modification, the Company has agreed to pay PFG a back-end fee of 15% on any capital transaction consummated on or after February 1, 2014. | |||||||||||||||||||||||||
As of and prior to the quarter ended March 31, 2014, the Company was not in compliance with certain debt covenants of the Revolving Credit Facility. As such, the table below summarizes the various waiver and forbearance extensions and all warrants (the “Waiver Warrants”) issued to PFG. The exercise price of the Waiver Warrants is equal to the lower of the next equity financing effective price (the "NEFEP") or a stated price per share determined on the date of issuance of each forbearance extension. Prior to the consummation of the Series D Offering, the exercise price of the Waiver Warrants was not fixed, causing each Waiver Warrant to be accounted for as a derivative liability. However, upon consummation of the Series D Offering, the exercise price of each Waiver Warrant became fixed at $0.042 per share and the Company reclassified the fair value of the derivative liability totaling $2,834,000 to paid-in capital. In connection with the PFG Loan Modification, PFG waived its rights with respect to debt covenant compliance through December 31, 2014. | |||||||||||||||||||||||||
Forbearance | Extension Through Date | Exercise Price per share | Exercisable Shares | ||||||||||||||||||||||
Waiver | 30-Sep-12 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Forbearance Extension | 31-Oct-12 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Second Forbearance Extension | 15-Dec-12 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Third Forbearance Extension | 31-Jan-13 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Fourth Forbearance Extension | 28-Feb-13 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Fifth Forbearance Extension | 31-Mar-13 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Sixth Forbearance Extension | 30-Apr-13 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Seventh Forbearance Extension | 31-May-13 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Eighth Forbearance Extension | 30-Jun-13 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Ninth Forbearance Extension | 28-Oct-13 | $0.01 | 2,232,142 | ||||||||||||||||||||||
Total | 20,641,237 | ||||||||||||||||||||||||
As of March 31, 2014, PFG has not exercised any Waiver Warrants. See Note 11 for further discussion of events subsequent to the quarter ended March 31, 2014 related to the Revolving Credit Facility. | |||||||||||||||||||||||||
Senior Subordinated Secured Convertible Promissory | |||||||||||||||||||||||||
Through October 31, 2013, we issued Senior Subordinated Secured Convertible Promissory Notes (the “Senior Subordinated Convertible Notes”) in the aggregate principal amount of $17.8 million to certain accredited investors, including Griffin. The Senior Subordinated Convertible Notes accrue interest at a rate of 12% per annum, and are secured by all of the Company’s assets. The Senior Subordinated Convertible Notes are convertible, at the option of each respective holder, into that number of shares of Common Stock equal to the outstanding principal and accrued interest of the Senior Subordinated Notes, divided by the conversion price set forth in the note (the “Conversion Price”). The Senior Subordinated Convertible Notes had a conversion price until October 31, 2013 when the price was fixed at $0.042 as a result of the Series D Offering. | |||||||||||||||||||||||||
On October 31, 2013, pursuant to the Senior Note Conversion, Senior Subordinated Convertible Notes in the aggregate total of approximately $17.2 million of principal and accrued interest (the “Outstanding Balance”) were canceled and exchanged for approximately 1,720 shares of Series D Preferred. The Company accounted for the conversion of these Senior Subordinated Convertible Notes, which was deemed an extinguishment of debt, in one of two methods. For the Senior Subordinated Convertible Notes in the aggregate principal amount of $5.5 million held by investors not otherwise related to the Company, the Company removed the net carrying value of the debt, including accrued interest, deferred financing cost and the derivative liability, and recorded the fair value of the shares of Series D Preferred issued in exchange for the cancellation thereof. The resulting difference of $0.4 million was recognized as a gain on debt extinguishment. The remaining Senior Subordinated Convertible Notes in the aggregate total of $11.7 million, which notes were held by related parties, were accounted for as capital transactions whereby the net carrying value of the debt, including accrued interest, deferred financing cost and the derivative liability, totaling $13.1 million, was recorded as an increase to paid-in capital. | |||||||||||||||||||||||||
During Fiscal 2013, the Company and each respective holder of remaining Senior Subordinated Convertible Notes, including those sold to clients of J.P. Turner & Company, L.L.C. (“J.P. Turner”), entered into an amendment to extend the maturity date of the notes to January 31, 2014 (the “Amended Senior Subordinated Convertible Notes”). As additional consideration for this extension, the Company issued warrants to those holders of the Amended Senior Subordinated Convertible Notes to purchase an aggregate total of 63.8 million shares of Common Stock for $0.001 per share. On December 6, 2013, holders of certain Amended Senior Subordinated Convertible Notes in the aggregate principal amount of approximately $0.9 million notified the Company of their position that the Series D Offering meets the definition of a Qualified Financing, as such term is defined in the Amended Senior Subordinated Convertible Notes, and, as a result, the Amended Senior Subordinated Convertible Notes matured on November 1, 2013, a position the Company disputed. However, on April 11, 2014 the Company entered into a Forbearance Agreement with the respective holders of these notes to extend the maturity date to July 31, 2014. See Note 11 for further information regarding subsequent events relating to these Amended Senior Subordinated Convertible Notes. | |||||||||||||||||||||||||
Senior Subordinated Secured Convertible Bridge Notes | |||||||||||||||||||||||||
In February 2014, the Company’s Board of Directors approved the issuance of two distinct offerings of senior subordinated secured convertible bridge notes commonly referred to as the 2014 Bridge Notes. These notes are comprised of (i) the 2014 First Bridge Notes and (ii) the 2014 Second Bridge Notes and are described further below. | |||||||||||||||||||||||||
2014 First Bridge Notes. On February 6, 2014, the Board of Directors approved the issuance of senior subordinated secured convertible bridge notes in the aggregate principal amount of up to $3.5 million, of which, $1.5 million may be issued in exchange for the cancellation of certain outstanding senior notes. The 2014 First Bridge Notes mature on July 31, 2014 and accrue interest at 12%. In the event the Company completes a $4.0 million equity financing, the 2014 First Bridge Notes will convert into shares of Series D Preferred at a fixed price of $0.042 at the election of the holder thereof in the event 50% or more of the holders elect to convert. As of March 31, 2014, the Company has issued 2014 First Bridges Notes in the aggregate principal amount of $0.6 million. | |||||||||||||||||||||||||
As additional consideration, each holder of 2014 First Bridge Notes will receive one share of Common Stock and a two year warrant to purchase one share of Common Stock at $0.042 for every $0.168 invested. During the quarter ended March 31, 2014, the Company issued approximately 3,422,000 shares of Common Stock and warrants to purchase 3,422,000 shares of Common Stock in connection with the issuance of the 2014 First Bridge Notes. The Company allocated the proceeds to the warrants based on their relative fair values and recorded a discount of $0.2 million to the 2014 First Bridge Notes. | |||||||||||||||||||||||||
2014 Second Bridge Notes. On February 28, 2014, the Board of Directors approved the issuance of senior subordinated secured convertible bridge notes in the aggregate principal amount of up to $6.0 million, of which, $1.5 million may be issued in exchange for the cancellation of certain outstanding senior notes. The 2014 Second Bridge Notes mature on July 31, 2014 and accrue interest at 12% annually. | |||||||||||||||||||||||||
The 2014 Second Bridge Notes were sold at an original issue discount of 25%. Through March 31, 2014, the Company issued 2014 Second Bridge Notes in the aggregate principal amount of $1.3 million and received cash proceeds of approximately $1.0 million. To date, the Company has issued 2014 Second Bridge Notes in the aggregate principal amount of approximately $3.0 million for cash proceeds of approximately $2.3 million. The principal amount of the 2014 Second Bridge Notes, plus all accrued interest will convert into securities offered in our next capital raise that meets any one of the following two conditions: (i) gross proceeds to the Company of at least $4.0 million or (ii) the majority of the outstanding principal amount of the 2014 Second Bridge Notes convert into our next capital raise. Due to the 2014 Second Bridge Notes’ floating conversion price, the Company recorded a $413,000 derivative liability to the related debt discount. | |||||||||||||||||||||||||
Subordinated Secured Convertible Promissory Notes | |||||||||||||||||||||||||
In December 2010, the Company entered into a Securities Purchase Agreement with Costa Brava and Griffin, pursuant to which the Company issued and sold to Costa Brava and Griffin 12% Subordinated Secured Convertible Notes due December 23, 2015 (the “Subordinated Notes”) in the aggregate principal amount of $7.8 million and, in March 2011, the Company sold additional Subordinated Notes to Costa Brava and Griffin for an aggregate purchase price of $1.2 million. Subsequently, in July 2011, the Company sold Subordinated Notes to five accredited investors, including Costa Brava and Griffin, in the aggregate principal amount of $5.0 million. In addition, holders of certain of the Company’s then outstanding debt, with a principal balance of $1.1 million, converted such debt into Subordinated Notes during the year ended September 30, 2011. | |||||||||||||||||||||||||
As of March 31, 2014, the principal and accrued but unpaid interest of the remaining unconverted Subordinated Notes was convertible at the option of the holder into shares of Common Stock at an initial conversion price of $0.07 per share. The conversion price is subject to a full price adjustment feature for certain price dilutive issuances of securities by the Company, and proportional adjustment for events such as stock splits, dividends, combinations, etc., and as such, are considered to be derivatives. Upon completion of the Series D Offering, the conversion price was adjusted to $0.042 per share. The Company may force the conversion of the Subordinated Notes into Common Stock if certain customary equity conditions have been satisfied and the volume weighted average price of the Common Stock is $0.25 or greater for 30 consecutive trading days. As of March 31, 2014, the Company has not met the equity conditions to force the conversion of the Subordinated Notes. | |||||||||||||||||||||||||
On October 31, 2013, Subordinated Notes in the aggregate total of $14.5 million in principal and accrued interest due to Costa Brava and Griffin were cancelled in exchange for approximately 101.5 million RSUs. The RSUs will vest in the event the trading price of the Company’s Common Stock reaches $0.143. Because the managing members of Costa Brava and Griffin served on the Company’s board of directors at the time of the exchange, the exchange was treated as a related party transaction, and the canceled $14.5 million principal and accrued interest and the related discount and derivative liability were treated as a contribution to paid-in capital. | |||||||||||||||||||||||||
Also, on October 31, 2013, the holder of a Subordinated Note totaling $0.4 million in principal and accrued interest, not otherwise related to the Company, exchanged such note for approximately 40 shares of Series D Preferred. The Company removed the net carrying value of the debt including accrued interest, deferred financing cost and the derivative liability, recorded the fair value of the Series D Preferred and the resulting difference of $37,000 was recognized as a loss on debt extinguishment. | |||||||||||||||||||||||||
As of March 31, 2014, Subordinated Notes in the aggregate principal amount of $1.4 million remain outstanding, of which $0.2 million mature during December 2015, $0.2 million mature during January 2016, $0.1 million mature during April 2016 and $0.9 million mature during July 2016. The balance of the unconverted Subordinated Notes, net of unamortized discounts at March 31, 2014 was $0.9 million. The debt discounts will be amortized over the term of the unconverted Subordinated Notes, unless such amortization is accelerated due to earlier conversion of the Subordinated Notes pursuant to their terms. | |||||||||||||||||||||||||
Senior Subordinated Secured Promissory Notes | |||||||||||||||||||||||||
In March 2011, the Company issued and sold 12% Senior Subordinated Secured Promissory Notes (the “Senior Subordinated Notes”) to Costa Brava and Griffin. In July 2011, the Senior Subordinated Notes were amended to permit the holders to demand repayment any time on or after July 16, 2012, in partial consideration for permitting the issuance of additional Subordinated Secured Convertible Promissory Notes. The Senior Subordinated Notes are secured by substantially all of our assets pursuant to Security Agreements dated March 16, 2011 and March 31, 2011 between the Company and Costa Brava as representative of the Senior Subordinated Note holders. However, the liens securing the Senior Subordinated Notes are subordinate to the liens securing the Company’s indebtedness to PFG under the Revolving Credit Facility. Interest is calculated by adding the amount of such interest to the outstanding principal amount of the Senior Subordinated Notes as paid-in-kind interest. As a result of the addition of such interest, the outstanding principal amount of the Senior Subordinated Notes at October 31, 2013 was $5.4 million. | |||||||||||||||||||||||||
On October 31, 2013, the outstanding Senior Subordinated Notes were converted to approximately 545 shares of Series D Preferred. Since the holders of the remaining Senior Subordinated Notes were related parties to the Company at the time of the conversion, the Company accounted for the conversion of these notes as a capital transaction whereby the net carrying value of the debt including accrued interest was recorded as an increase to contributed capital. | |||||||||||||||||||||||||
Priority of Outstanding Debt | |||||||||||||||||||||||||
As of March 31, 2014, our outstanding debt is ranked as follows: (i) the Revolving Credit Facility is senior to all other debt; (ii) the Senior Subordinated Convertible Notes and Subordinated Secured Notes rank pari passu with each other; and (iii) the 2014 Bridge Notes rank junior to all other debt. | |||||||||||||||||||||||||
Derivative Liability | |||||||||||||||||||||||||
Certain instruments, including the embedded conversion feature in certain of the Company's outstanding debt and warrants, contain provisions that adjust the respective conversion or exercise prices in the event of certain dilutive issuances of securities, or exercise/conversion prices that are not fixed. These provisions required the Company to record a derivative liability upon issuance. The Company re-measured the fair value of the derivative liability to be $0.8 million as of March 31, 2014 and $19.2 million as of September 30, 2013 (see Note 11 below for a description of the Company's fair value measurements). | |||||||||||||||||||||||||
The Company estimated the fair value of the derivative liability using the Binomial Lattice pricing model with the following significant inputs, as outlined below, to estimate the fair value of the derivative liability as of March 31, 2014 and September 30, 2013: | |||||||||||||||||||||||||
31-Mar-14 | 30-Sep-13 | ||||||||||||||||||||||||
Risk free interest rate | 0.36% | 0.40% | |||||||||||||||||||||||
Expected volatility | 147% - 150% | 94.80% | |||||||||||||||||||||||
Expected dividends | None | None | |||||||||||||||||||||||
Convertible_Preferred_Stock
Convertible Preferred Stock | 6 Months Ended | ||||||||||||
Mar. 31, 2014 | |||||||||||||
Equity [Abstract] | ' | ||||||||||||
Note 4 - Convertible Preferred Stock | ' | ||||||||||||
Series B Preferred | |||||||||||||
The Series B Preferred is non-voting, except to the extent required by law. With respect to distributions upon a deemed dissolution, liquidation or winding-up of the Company, the Series B Preferred ranks senior to the Common Stock and Series D Preferred. The liquidation preference per share of Series B Preferred equals its stated value, $1,000 per share. The Series B Preferred is not entitled to any preferential cash dividends; however, the Series B Preferred is entitled to receive, pari passu with the Company’s Common Stock, such dividends on the Common Stock as may be declared from time to time by the Company’s Board of Directors. | |||||||||||||
Approximately 866 shares of Series B Preferred were outstanding at March 31, 2014, convertible into approximately 1,732,000 shares of the Company’s Common Stock. | |||||||||||||
Series D Preferred | |||||||||||||
On October 30, 2013, we filed the Certificate of Designations with the Delaware Secretary of State to designate 4,000 shares of the Company's preferred stock as Series D Preferred. Each share of Series D Preferred has a Stated Value of $10,000 and votes alongside our Common Stock on an as-converted basis. The Series D Preferred ranks junior to our Series B Preferred, but is senior to all future classes of our preferred stock. The Series D Preferred is not redeemable at the election of the holder, but the Company may redeem the Series D Preferred, in whole or in part, in exchange for a cash payment equal to the Stated Value of the shared of Series D Preferred redeemed. The holders of the Series D Preferred may elect, at any time, to convert the Series D Preferred into that number of shares of Common Stock equal to the Stated Value, divided by the current conversion price of $0.042 (the “Conversion Price”). The Series D Preferred also has a mandatory conversion provision that allows the Company to require conversion of all outstanding shares of Series D Preferred in the event the Company sells shares of Common Stock for at least $0.084 per share in a private financing or series of financings that result in aggregate gross proceeds of at least $10.0 million. | |||||||||||||
As of March 31, 2014, there were 2,782 shares of Series D Preferred issued and outstanding. | |||||||||||||
The following table summarizes equity activity for the quarter ended March 31, 2014 related to the sale of, and exchange of debt for, Series D Preferred and other equity activity. | |||||||||||||
Series D Preferred Stock | |||||||||||||
Shares | Amount | Paid-in Capital | |||||||||||
Balance, September 30, 2013 | - | - | 181,443,000 | ||||||||||
Cash Proceeds from sale of Series D Preferred Stock and warrants, net of issuance costs of $234,000 | 477 | 5 | 4,531,000 | ||||||||||
Convertible debt exchanged for Series D Preferred stock | 2,305 | 23 | 24,705,000 | ||||||||||
Total Series D activity | 2,782 | 28 | 29,236,000 | ||||||||||
All other equity activity: | |||||||||||||
Convertible debt exchanged for restricted stock | - | - | 13,111,000 | ||||||||||
Stock based compensation | - | - | 2,539,000 | ||||||||||
Warrant derivatives reclassified to equity | - | - | 2,834,000 | ||||||||||
Other equity activity, net | - | - | 2,764,000 | ||||||||||
Balance, March 31, 2014 | 2,782 | 28 | 231,910,000 | ||||||||||
Common_Stock_Warrants_Stock_Op
Common Stock Warrants, Stock Options, and Employee Stock Benefit Plan | 6 Months Ended | ||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||
Senior Secured Revolving Credit Facility Loan Net Of Unamortized Discount Of | ' | ||||||||||||||||
Note 5 - Common Stock Warrants and Stock Based Compensation | ' | ||||||||||||||||
Common Stock Warrants. As of March 31, 2014, warrants to purchase a total of 282.2 million shares of the Company’s Common Stock were outstanding, with a weighted average exercise price of $0.07 per share and exercise prices ranging from $0.001 per share to $0.55 per share. | |||||||||||||||||
Stock Incentive Plans. The Company’s stockholders approved the Company’s 2006 Omnibus Incentive Plan (the “2006 Plan”), which is designed to serve as a comprehensive equity incentive program to attract and retain the services of individuals essential to the Company’s long-term growth and financial success. Upon approval of the 2006 Plan, the Company’s 2003 Stock Incentive Plan (the “2003 Plan”), 2001 Non-Qualified Stock Option Plan (the “2001 Non-Qualified Plan”), was terminated, but existing options issued pursuant to the Prior Plans remain outstanding in accordance with the terms of their original grants. | |||||||||||||||||
As of March 31, 2014, there were 74,000 outstanding and exercisable options to purchase the Company’s Common Stock under the 2003 Plan with exercise prices ranging from $17.00 to $26.40. | |||||||||||||||||
As of March 31, 2014, there were 441,000 outstanding and exercisable options to purchase the Company’s Common Stock under the 2006 Plan with exercise prices ranging from $0.16 to $13.00. | |||||||||||||||||
In December 2010, the Company’s Board adopted the Company’s 2010 Non-Qualified Stock Option Plan (the “2010 Plan”) under which the Company’s eligible officers, directors and employees, consultants and advisors who qualify as “accredited investors” within the meaning of Rule 501 under the Securities Act, may be granted non-qualified stock options. 18,500,000 shares of the Company’s Common Stock were reserved for issuance under the 2010 Plan, and options to purchase 18,500,000 shares of the Company’s Common Stock at an exercise price of $0.09 per share were issued to certain of the Company’s officers and directors in December 2010 pursuant to the 2010 Plan. As of March 31, 2014, there are 9,000,000 outstanding and exercisable options to purchase the Company’s Common Stock under the 2010 Plan at an exercise price of $0.09 per share. No further grants may presently be made under the 2010 Plan. | |||||||||||||||||
In March 2011, the Company’s stockholders approved the Company’s 2011 Omnibus Incentive Plan (the “2011 Plan”). The number of shares reserved for issuance under the 2011 Plan was increased to 646,500,000 shares, effective January 16, 2014. The 2011 Plan is designed to promote the interests of the Company and its stockholders by serving as a comprehensive equity incentive program to attract and retain the services of individuals capable of assuring the future success of the Company and to afford such persons an opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Company. The 2011 Plan permits grants of stock options (including both incentive and non-qualified stock options), stock-only appreciation rights, restricted stock, restricted stock units, dividend equivalents, performance awards of cash, stock or property, other stock grants and other stock-based awards. As of March 31, 2014, there were options to purchase 142,717,000 shares of the Company’s Common Stock outstanding under the 2011 Plan, of which options to purchase 91,917,000 shares were exercisable, at exercise prices ranging from $0.042 to $0.150 per share. The aggregate number of shares of Common Stock issuable under all stock-based awards that may be made under the 2011 Plan at March 31, 2014 is 503,027,000 shares. | |||||||||||||||||
Below is a summary of stock option transactions during the six months ended March 31, 2014: | |||||||||||||||||
Number of Shares | Weighted Average Exercise Price per Share | Weighted Average Remaining Contractual Life (yrs) | Aggregate Intrinsic Value | ||||||||||||||
Outstanding at September 30, 2013 | 51,752,000 | $ | 0.2 | 7.7 | $ | - | |||||||||||
Granted | 149,438,000 | 0.04 | 9.6 | - | |||||||||||||
Exercised | - | - | - | - | |||||||||||||
Forfeited/Cancelled | (48,958,000 | ) | 0.1 | 8.3 | - | ||||||||||||
Outstanding at March 31, 2014 | 152,232,000 | 0.07 | 9.2 | - | |||||||||||||
Vested and expected to vest, March 31, 2014 | 129,398,000 | 0.07 | 9.2 | - | |||||||||||||
Exercisable, March 31, 2014 | 101,432,000 | 0.08 | 9 | - | |||||||||||||
For the six months ended March 31, 2014 and 2013, the Company utilized the Black-Scholes valuation model for estimating the fair value of share-based compensation with the following assumptions: | |||||||||||||||||
Six Months Ended March 31, | |||||||||||||||||
2014 | 2013 | ||||||||||||||||
Expected life | 5.4 years | 6.7 years | |||||||||||||||
Expected volatility | 169% | 88.1% -99.3% | |||||||||||||||
Expected dividend | None | None | |||||||||||||||
Risk-free rate | 1.60% | 1.1%-1.3% | |||||||||||||||
The Company issues new shares of Common Stock to satisfy option exercises. Based on historical experience of option cancellations, the Company has estimated an annualized forfeiture rate of 15% and 7% for employee options for the three months ended March 31, 2014 and 2013, respectively. Forfeiture rates are adjusted over the requisite service period when actual forfeitures differ, or are expected to differ, from the estimate. | |||||||||||||||||
During the six months ended March 31, 2014, a total of 149.4 million options to purchase shares of the Company’s Common Stock were granted under the 2011 Plan, with an exercise price of $0.042. Of the total options granted, 146.9 million were issued in exchange for the cancellation of previously granted options to purchase 27.1 million shares of Common Stock that were both vested and unvested, pursuant to the Option Exchange Program. One-third of the grant vests immediately and the remaining two thirds vest in equal monthly installments over two years and expire on October 21, 2023. The Company treated these exchanges as a modification to the existing options. The Company recorded the incremental cost of the modification measured by the excess of the fair value of the modified award over the fair value of the original award immediately before the modification as additional compensation cost recognized over the requisite service period. For the six months ended March 31, 2014, $1.5 million in stock option expense was recognized related to these transactions under the Option Exchange Program. | |||||||||||||||||
Employee Stock Benefit Plan. The Company has established an employee retirement plan (the “ESBP”). This plan provides for annual contributions to the Company’s Employee Stock Bonus Trust (“SBT”) to be determined by the Board of Directors and which will not exceed 15% of total payroll. As of March 31, 2014, the Company has not made any contributions to the SBT for the year ended September 30, 2014. In Fiscal 2013, the Company made a contribution of 9.1 million shares of Common Stock with an estimated market value of $272,000 to the SBT. | |||||||||||||||||
Deferred Compensation Plan. In September 2002, the Company established a deferred compensation plan, the Non-Qualified Deferred Compensation Plan, for certain key employees with long-term service with the Company. Annual contributions of Common Stock of the Company were made to a Rabbi Trust under such plan to be held for the benefit of the deferred compensation plan participants. During Fiscal 2013 the Board of Directors authorized a contribution of 14,000 shares to the Non- Qualified Deferred Compensation Plan. Participants’ potential distributions from the Rabbi Trust represent unsecured claims against the Company. The Rabbi Trust was established by the Company and is subject to creditors’ claims. Shares in this plan may be distributed to each plan beneficiary when they retire from service with the Company. At March 31, 2014, and September 30, 2013 there were 44,000 shares of the Company’s Common Stock were in the Rabbi Trust. |
Loss_per_Share
Loss per Share | 6 Months Ended | ||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||
Earnings Per Share [Abstract] | ' | ||||||||||||||||
Note 6 - Loss per Share | ' | ||||||||||||||||
Since the Company had a net loss from continuing operations for the six months ended March 31, 2014 and 2013, there was no difference between basic and diluted loss per share in each of these fiscal years. | |||||||||||||||||
The following table sets forth the computation of basic and diluted loss per common share: | |||||||||||||||||
Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Net Loss Numerator: | |||||||||||||||||
Loss from continuing operations | $ | (4,602,000 | ) | $ | (8,400,000 | ) | $ | (5,115,000 | ) | $ | (9,017,000 | ) | |||||
Loss from discontinued operations | - | (1,191,000 | ) | - | (2,738,000 | ) | |||||||||||
Net loss | $ | (4,602,000 | ) | $ | (9,591,000 | ) | $ | (5,115,000 | ) | $ | (11,755,000 | ) | |||||
Net Loss Denominator: | |||||||||||||||||
Weighted average number of common shares outstanding, basic and diluted | 245,122,000 | 153,688,000 | 234,858,000 | 147,541,000 | |||||||||||||
Basic and diluted loss per share | |||||||||||||||||
Loss from continuing operations | $ | (0.02 | ) | $ | (0.05 | ) | $ | (0.02 | ) | $ | (0.06 | ) | |||||
Earnings (loss) from discontinued operations | $ | - | $ | (0.01 | ) | $ | - | $ | (0.02 | ) | |||||||
Net loss per common share | $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.02 | ) | $ | (0.08 | ) | |||||
Options, warrants and convertible instruments outstanding at March 31, 2014 and September 30, 2013 to purchase approximately 1,123,686,000 and 594,951,000 shares of the Company’s Common Stock, respectively, were not included in the above computation because they were anti-dilutive. |
Discontinued_Operations
Discontinued Operations | 6 Months Ended | ||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||
Business Combinations [Abstract] | ' | ||||||||||||||||
Note 7 - Discontinued Operations | ' | ||||||||||||||||
On March 19, 2013, the Company announced that it had discontinued the Government Business, and instead focus on the Company’s cyber-security business. As a result of the Company’s decision, the Company’s Government Business is classified as a discontinued operation in the consolidated financial statements of the Company. | |||||||||||||||||
The following summarized financial information relates to discontinued operations, consisting of the Government Business: | |||||||||||||||||
Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Total revenues | $ | - | $ | 732,000 | $ | - | $ | 1,514,000 | |||||||||
Cost of revenues | - | 1,278,000 | - | 2,606,000 | |||||||||||||
General and administrative expense | - | 323,000 | - | 882,000 | |||||||||||||
Research and development expense | - | 322,000 | - | 764,000 | |||||||||||||
Total costs and expenses | - | 1,923,000 | - | 4,252,000 | |||||||||||||
Net (loss) from discontinued operations (net of $0 tax) | $ | - | $ | (1,191,000 | ) | $ | - | $ | (2,738,000 | ) | |||||||
Included in the consolidated balance sheets are the following major classes of assets and liabilities associated with the Government Business as of March 31, 2014 and September 30, 2013: | |||||||||||||||||
March 31, | September 30, | ||||||||||||||||
2014 | 2013 | ||||||||||||||||
Accounts receivable, net | $ | - | $ | - | |||||||||||||
Prepaid expenses and other current assets | - | - | |||||||||||||||
Current assets of discontinued operations | - | - | |||||||||||||||
Unbilled revenues on uncompleted contracts | 290,000 | 290,000 | |||||||||||||||
Property and equipment, net | - | 7,000 | |||||||||||||||
Other assets | - | - | |||||||||||||||
Non-current assets of discontinued operations | 290,000 | 297,000 | |||||||||||||||
Accounts payable | 87,000 | 141,000 | |||||||||||||||
Accrued expenses | 438,000 | 438,000 | |||||||||||||||
Advance billings on uncompleted contracts | 99,000 | 99,000 | |||||||||||||||
Current liabilities from discontinued operations | $ | 624,000 | $ | 678,000 | |||||||||||||
Commitments_and_Contingencies
Commitments and Contingencies | 6 Months Ended | ||||||||
Mar. 31, 2014 | |||||||||
Commitments and Contingencies Disclosure [Abstract] | ' | ||||||||
Note 8 - Commitments and Contingencies | ' | ||||||||
The Company leases certain facilities and equipment under cancelable and non-cancelable operating leases, with escalating rent provisions for facility and caiptal leases. Future minimum payments under capital lease obligations and operating lease commitments for the next five years as of March 31, 2014 are as follows: | |||||||||
Fiscal Year | Capital Leases | Operating Leases | |||||||
2014 (remaining six months) | $ | 242,000 | $ | 135,000 | |||||
2015 | 128,000 | 251,000 | |||||||
2016 | 42,000 | 238,000 | |||||||
2017 | 25,000 | 175,000 | |||||||
2018 | - | 149,000 | |||||||
2019 and beyond | - | - | |||||||
Less amounts representing interest | (41,000 | ) | - | ||||||
Future minimum lease payments | $ | 396,000 | $ | 948,000 | |||||
Total rent expense for operating leases amounted to $136,000 and $495,000 for the six months ended March 31, 2014 and 2013, respectively. Rent expense is recognized on a straight-line basis over the lease period. Deferred rent amounts are immaterial. | |||||||||
Litigation | |||||||||
The Company has been, and may from time to time, become a party to various other legal proceedings arising in the ordinary course of its business. The Company does not presently know of any such other matters, the disposition of which would be likely to have a material effect on the Company’s consolidated financial position, results of operations or liquidity. | |||||||||
Disputes | |||||||||
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 $0.9 million, notified the Company that they interpreted the Notes to require the Company to use the net proceeds from the Series D Offering, 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 a Qualified Financing, as such term is defined in the Notes. The Non-Converting Note Holders objected to the Company’s interpretation of the Amendment, and took the position that the Notes were then 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. The Company, however, failed to pay all amounts due and owing under the terms of the Notes on January 31, 2014. On April 11, 2014, the Company entered into a Forbearance Agreement with the respective holders of the Notes to extend the maturity date of the Notes to July 31, 2014. See Note 11- Subsequent Events below. | |||||||||
On November 15, 2013 the Company failed to meet a contractual first year minimum payment obligation of $100,000 with a certain vendor resulting in a contractual breach, which requires that we pay all fees and guarantee payment of totaling $1.8 million (the “Guarantee Payment”) immediately. We have not cured the breach of contract, but we have successfully negotiated a payment plan (the “Payment Plan”) with this vendor which consists of four equal monthly payments of $25,000 plus interest beginning February 2014. Due to our limited working capital, if we are unable to meet the requirements of the Payment Plan, we will be required to pay the Guarantee Payment in full, which could have a materially adverse impact on our business, financial condition and results of operations. |
Fair_Value_Measurements
Fair Value Measurements | 6 Months Ended | |||||||||||||||||||||
Mar. 31, 2014 | ||||||||||||||||||||||
Fair Value Disclosures [Abstract] | ' | |||||||||||||||||||||
Note 9 - Fair Value Measurements | ' | |||||||||||||||||||||
The Company measures the fair value of applicable financial and non-financial assets and liabilities based on the following levels of inputs. | ||||||||||||||||||||||
• | Level 1 inputs: Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date. | |||||||||||||||||||||
• | Level 2 inputs: Level 2 inputs are from other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. | |||||||||||||||||||||
• | Level 3 inputs: Level 3 inputs are unobservable and should be used to measure fair value to the extent that observable inputs are not available. | |||||||||||||||||||||
The hierarchy noted above requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. There were no transfers between Level 1, Level 2 and/or Level 3 during the six months ended March 31, 2014. Financial liabilities carried at fair value as of March 31, 2014 are classified below: | ||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Derivative liabilities | $ | - | $ | - | $ | 797,000 | $ | 797,000 | ||||||||||||||
The table below sets forth a summary of changes in the fair value of our Level 3 financial instruments for the six months ended March 31, 2014: | ||||||||||||||||||||||
Recorded | Warrant Derivatives Reclassified | Conversion of Debt to Series D Preferred and RSUs | Change in | 31-Mar-14 | ||||||||||||||||||
New Derivative | to Equity | Estimated | ||||||||||||||||||||
30-Sep-13 | Liabilities | Fair Value Recognized | ||||||||||||||||||||
in Results of Operations | ||||||||||||||||||||||
Derivative liabilities | $ | 19,245,000 | $ | 445,000 | $ | (2,833,509 | ) | $ | (8,383,000 | ) | $ | (7,676,000 | ) | $ | 797,000 | |||||||
Fair Value of Financial Instruments. The Company estimates the fair value of financial instruments that are not required to be carried in the condensed consolidated balance sheet at fair value on either a recurring or non-recurring basis as follows: | ||||||||||||||||||||||
31-Mar-14 | 30-Sep-13 | Level in Fair Value Hierarchy | ||||||||||||||||||||
Carrying amount | Fair Value | Carrying amount | Fair value | |||||||||||||||||||
Cash and cash equivalents | $ | 147,000 | $ | 147,000 | $ | 136,000 | $ | 136,000 | 1 | |||||||||||||
Accounts Receivable, net | $ | - | $ | - | $ | 119,000 | $ | 119,000 | 2 | |||||||||||||
Accounts Payable | $ | 1,331,000 | $ | 1,331,000 | $ | 1,024,000 | $ | 1,024,000 | 2 | |||||||||||||
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and approximated fair value due to their short-term nature. |
NonControlling_Interest_in_Sub
Non-Controlling Interest in Subsidiaries | 6 Months Ended |
Mar. 31, 2014 | |
Noncontrolling Interest [Abstract] | ' |
Note 10 - Non-Controlling Interest in Subsidiaries | ' |
At March 31, 2014, the Company owned 96% of Novalog’s common stock, 98% of MSI’s common stock, 81% of RedHawk’s common stock, and 95% of iNetWorks’ common stock. | |
For the three and six months ended March 31, 2014 and 2013, Novalog, MSI, RedHawk, and iNetWorks did not have any operating activities. |
Subsequent_Events
Subsequent Events | 6 Months Ended |
Mar. 31, 2014 | |
Subsequent Events [Abstract] | ' |
Note 11 - Subsequent Events | ' |
Forbearance Agreement. On December 6, 2013, a disagreement arose between the Company and the Non-Converting Note Holders regarding the maturity date of the Notes held by the Non-Converting Note Holders. On April 11, 2014, the Company entered into a forbearance agreement with the Non-Converting Note Holders to extend the maturity date of the Notes to July 31, 2014. As consideration for the forbearance, the Company issued to the Non-Converting Note Holders five-year warrants to purchase an aggregate total of 43.1 million shares of Common Stock for $0.001 per share | |
Griffin Advisory Agreement. On April 11, 2014, the Company entered into an advisory agreement with Griffin, wherein Griffin will offer certain advisory and consulting services to the Company pertaining to the Company’s current capital restructuring. As compensation for Griffin’s services, the Company agreed to pay Griffin and aggregate total of $100,000, to be paid periodically, in order to enable the Company to effectively manage its ongoing cash requirement. Griffin is affiliated with the Griffin Fund, LP, a principal shareholder of the Company. | |
Revolving Credit Facility Payment. In May 2014, the Company failed to pay to PFG amounts due for April 2014 interest, and 10% of the gross proceeds received from the issuance of the 2014 Bridge Notes and the $70,000 principal payment, as required by the Second Modification. | |
Issuance of Additional 2014 Second Bridge Notes. Since March 31, 2014, the Company has issued 2014 Second Bridge Notes in the aggregate principal amount of approximately $1.7 million, resulting in gross proceeds to the Company of approximately $1.29 million. | |
General_Policies
General (Policies) | 6 Months Ended |
Mar. 31, 2014 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' |
Consolidation | ' |
Consolidation. The consolidated financial statements include the accounts of ISC8 and its subsidiaries, Novalog, Inc. (“Novalog”), MicroSensors, Inc. (“MSI”), RedHawk Vision Systems, Inc. (“RedHawk”) iNetWorks Corporation (“iNetWorks”), ISC8 Europe Limited (“ISC8 Europe”) and ISC8 Malaysia SDN.BMD (“ISC8 Malaysia”). Of the Company’s subsidiaries, only ISC8 Europe and ISC8 Malaysia presently have operating activities and assets, separate employees and facilities. All significant intercompany transactions and balances have been eliminated in the consolidation. None of the Company’s subsidiaries accounted for more than 10% of the Company’s total assets at March 31, 2014 or March 31, 2013. | |
Reclassifications | ' |
Reclassifications. Certain amounts in the consolidated financial statements have been reclassified in order to conform to the current year presentation. | |
Reportable Segments | ' |
Reportable Segments. The Company is presently managing its continuing operations as a single business segment. The Company is continuing to evaluate the current and potential business derived from sales of its products and, in the future, may present its consolidated statement of operations in more than one segment if the Company segregates the management of various product lines in response to business and market conditions. | |
Use of Estimates | ' |
Use of Estimates. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Management prepares estimates for a number of factors, including derivative liability, stock-based compensation, warrants valuation, revenue recognition, valuation of goodwill and other intangible assets, allowance for doubtful accounts and notes receivable, and deferred tax assets and liabilities. The Company believes its estimates of derivative liabilities, and warrants valuation to be the most sensitive estimates impacting financial position and results of operations in the near term. | |
Subsequent Events | ' |
Subsequent Events. Management has evaluated events subsequent to March 31, 2014 through the date of this Quarterly Report on Form 10-Q for transactions and other events that may require adjustment of and/or disclosure in such financial statements. See Note 13 for a discussion of events occurring subsequent to March 31, 2014. |
Debt_Instruments_Tables
Debt Instruments (Tables) | 6 Months Ended | ||||||||||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' | ||||||||||||||||||||||||
Senior Note Conversion and Junior Note Conversion activity | ' | ||||||||||||||||||||||||
The following table summarizes debt instrument activity during the six months ended March 31, 2014: | |||||||||||||||||||||||||
Principle Balance, Net of Discount at September 30, 2013 | New Debt Issued (Principle Repayment), Net | Debt Converted to Series D Preferred Shares | Debt Converted to Restricted Stock | Debt Discount Amortization, Extinguishment or (Additions), Net | Principle Balance, Net of Discount at March 31, 2014 | ||||||||||||||||||||
Senior Secured Revolving Credit Facility | $ | 4,908,000 | $ | (2,070,000 | ) | $ | - | $ | - | $ | 216,000 | $ | 3,054,000 | ||||||||||||
Senior Subordinated Secured Convertible Promissory 2013 Notes | 15,793,000 | 175,000 | (16,199,000 | ) | - | 1,854,000 | 1,623,000 | ||||||||||||||||||
Senior Subordinated Secured Convertible Bridge Notes | - | 1,858,000 | - | - | (703,000 | ) | 1,155,000 | ||||||||||||||||||
Senior Subordinated Secured Promissory Notes | 5,392,000 | - | (5,392,000 | ) | - | - | - | ||||||||||||||||||
Subordinated Secured Convertible Promissory Notes | 8,570,000 | - | (381,000 | ) | (14,357,000 | ) | 7,011,000 | 843,000 | |||||||||||||||||
Total Gross Debt | $ | 34,663,000 | $ | (37,000 | ) | (21,972,000 | ) | $ | (14,357,000 | ) | $ | 8,378,000 | $ | 6,675,000 | |||||||||||
Accrued interest converted to equity | (1,084,000 | ) | (146,000 | ) | |||||||||||||||||||||
Gross adjustment to paid-in capital(1) | $ | (23,056,000 | ) | $ | (14,503,000 | ) | |||||||||||||||||||
(1) The net amount presented excludes the impact of unamortized debt discount, derivative liability and deferred issuance costs. | |||||||||||||||||||||||||
Forbearance extenstions and warrants | ' | ||||||||||||||||||||||||
Forbearance | Extension Through Date | Exercise Price per share | Exercisable Shares | ||||||||||||||||||||||
Waiver | 30-Sep-12 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Forbearance Extension | 31-Oct-12 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Second Forbearance Extension | 15-Dec-12 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Third Forbearance Extension | 31-Jan-13 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Fourth Forbearance Extension | 28-Feb-13 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Fifth Forbearance Extension | 31-Mar-13 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Sixth Forbearance Extension | 30-Apr-13 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Seventh Forbearance Extension | 31-May-13 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Eighth Forbearance Extension | 30-Jun-13 | $0.04 | 2,045,455 | ||||||||||||||||||||||
Ninth Forbearance Extension | 28-Oct-13 | $0.01 | 2,232,142 | ||||||||||||||||||||||
Total | 20,641,237 | ||||||||||||||||||||||||
Fair value of derivative liability | ' | ||||||||||||||||||||||||
31-Mar-14 | 30-Sep-13 | ||||||||||||||||||||||||
Risk free interest rate | 0.36% | 0.40% | |||||||||||||||||||||||
Expected volatility | 147% - 150% | 94.80% | |||||||||||||||||||||||
Expected dividends | None | None |
Convertible_Preferred_Stock_Ta
Convertible Preferred Stock (Tables) | 6 Months Ended | ||||||||||||
Mar. 31, 2014 | |||||||||||||
Convertible Preferred Stock Tables | ' | ||||||||||||
Equity activity related Series D Preferred | ' | ||||||||||||
Series D Preferred Stock | |||||||||||||
Shares | Amount | Paid-in Capital | |||||||||||
Balance, September 30, 2013 | - | - | 181,443,000 | ||||||||||
Cash Proceeds from sale of Series D Preferred Stock and warrants, net of issuance costs of $234,000 | 477 | 5 | 4,531,000 | ||||||||||
Convertible debt exchanged for Series D Preferred stock | 2,305 | 23 | 24,705,000 | ||||||||||
Total Series D activity | 2,782 | 28 | 29,236,000 | ||||||||||
All other equity activity: | |||||||||||||
Convertible debt exchanged for restricted stock | - | - | 13,111,000 | ||||||||||
Stock based compensation | - | - | 2,539,000 | ||||||||||
Warrant derivatives reclassified to equity | - | - | 2,834,000 | ||||||||||
Other equity activity, net | - | - | 2,764,000 | ||||||||||
Balance, March 31, 2014 | 2,782 | 28 | 231,910,000 |
Common_Stock_Warrants_and_Stoc
Common Stock Warrants and Stock Based Compensation (Tables) | 6 Months Ended | ||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||
Common Stock Warrants And Stock Based Compensation Tables | ' | ||||||||||||||||
Summary of stock option transactions | ' | ||||||||||||||||
Number of Shares | Weighted Average Exercise Price per Share | Weighted Average Remaining Contractual Life (yrs) | Aggregate Intrinsic Value | ||||||||||||||
Outstanding at September 30, 2013 | 51,752,000 | $ | 0.2 | 7.7 | $ | - | |||||||||||
Granted | 149,438,000 | 0.04 | 9.6 | - | |||||||||||||
Exercised | - | - | - | - | |||||||||||||
Forfeited/Cancelled | (48,958,000 | ) | 0.1 | 8.3 | - | ||||||||||||
Outstanding at March 31, 2014 | 152,232,000 | 0.07 | 9.2 | - | |||||||||||||
Vested and expected to vest, March 31, 2014 | 129,398,000 | 0.07 | 9.2 | - | |||||||||||||
Exercisable, March 31, 2014 | 101,432,000 | 0.08 | 9 | - | |||||||||||||
Fair value of share-based compensation | ' | ||||||||||||||||
Six Months Ended March 31, | |||||||||||||||||
2014 | 2013 | ||||||||||||||||
Expected life | 5.4 years | 6.7 years | |||||||||||||||
Expected volatility | 169% | 88.1% -99.3% | |||||||||||||||
Expected dividend | None | None | |||||||||||||||
Risk-free rate | 1.60% | 1.1%-1.3% |
Loss_per_Share_Tables
Loss per Share (Tables) | 6 Months Ended | ||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||
Earnings Per Share [Abstract] | ' | ||||||||||||||||
Basic and diluted loss per common share | ' | ||||||||||||||||
Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Net Loss Numerator: | |||||||||||||||||
Loss from continuing operations | $ | (4,602,000 | ) | $ | (8,400,000 | ) | $ | (5,115,000 | ) | $ | (9,017,000 | ) | |||||
Loss from discontinued operations | - | (1,191,000 | ) | - | (2,738,000 | ) | |||||||||||
Net loss | $ | (4,602,000 | ) | $ | (9,591,000 | ) | $ | (5,115,000 | ) | $ | (11,755,000 | ) | |||||
Net Loss Denominator: | |||||||||||||||||
Weighted average number of common shares outstanding, basic and diluted | 245,122,000 | 153,688,000 | 234,858,000 | 147,541,000 | |||||||||||||
Basic and diluted loss per share | |||||||||||||||||
Loss from continuing operations | $ | (0.02 | ) | $ | (0.05 | ) | $ | (0.02 | ) | $ | (0.06 | ) | |||||
Earnings (loss) from discontinued operations | $ | - | $ | (0.01 | ) | $ | - | $ | (0.02 | ) | |||||||
Net loss per common share | $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.02 | ) | $ | (0.08 | ) |
Discontinued_Operations_Tables
Discontinued Operations (Tables) | 6 Months Ended | ||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||
Discontinued Operations Tables | ' | ||||||||||||||||
Summarized financial information related to discontinued operations, consisting of Government Business | ' | ||||||||||||||||
The following summarized financial information relates to discontinued operations, consisting of the Government Business: | |||||||||||||||||
Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Total revenues | $ | - | $ | 732,000 | $ | - | $ | 1,514,000 | |||||||||
Cost of revenues | - | 1,278,000 | - | 2,606,000 | |||||||||||||
General and administrative expense | - | 323,000 | - | 882,000 | |||||||||||||
Research and development expense | - | 322,000 | - | 764,000 | |||||||||||||
Total costs and expenses | - | 1,923,000 | - | 4,252,000 | |||||||||||||
Net (loss) from discontinued operations (net of $0 tax) | $ | - | $ | (1,191,000 | ) | $ | - | $ | (2,738,000 | ) | |||||||
Included in the consolidated balance sheets are the following major classes of assets and liabilities associated with the Government Business as of March 31, 2014 and September 30, 2013: | |||||||||||||||||
March 31, | September 30, | ||||||||||||||||
2014 | 2013 | ||||||||||||||||
Accounts receivable, net | $ | - | $ | - | |||||||||||||
Prepaid expenses and other current assets | - | - | |||||||||||||||
Current assets of discontinued operations | - | - | |||||||||||||||
Unbilled revenues on uncompleted contracts | 290,000 | 290,000 | |||||||||||||||
Property and equipment, net | - | 7,000 | |||||||||||||||
Other assets | - | - | |||||||||||||||
Non-current assets of discontinued operations | 290,000 | 297,000 | |||||||||||||||
Accounts payable | 87,000 | 141,000 | |||||||||||||||
Accrued expenses | 438,000 | 438,000 | |||||||||||||||
Advance billings on uncompleted contracts | 99,000 | 99,000 | |||||||||||||||
Current liabilities from discontinued operations | $ | 624,000 | $ | 678,000 | |||||||||||||
Commitments_and_Contingencies_
Commitments and Contingencies (Tables) | 6 Months Ended | ||||||||
Mar. 31, 2014 | |||||||||
Commitments And Contingencies Tables | ' | ||||||||
Future minimum payments under capital lease obligations | ' | ||||||||
Fiscal Year | Capital Leases | Operating Leases | |||||||
2014 (remaining six months) | $ | 242,000 | $ | 135,000 | |||||
2015 | 128,000 | 251,000 | |||||||
2016 | 42,000 | 238,000 | |||||||
2017 | 25,000 | 175,000 | |||||||
2018 | - | 149,000 | |||||||
2019 and beyond | - | - | |||||||
Less amounts representing interest | (41,000 | ) | - | ||||||
Future minimum lease payments | $ | 396,000 | $ | 948,000 |
Fair_Value_Measurements_Tables
Fair Value Measurements (Tables) | 6 Months Ended | |||||||||||||||||||||
Mar. 31, 2014 | ||||||||||||||||||||||
Fair Value Disclosures [Abstract] | ' | |||||||||||||||||||||
Financial liabilities recurring basis | ' | |||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Derivative liabilities | $ | - | $ | - | $ | 797,000 | $ | 797,000 | ||||||||||||||
Derivative liability changes | ' | |||||||||||||||||||||
Recorded | Warrant Derivatives Reclassified | Conversion of Debt to Series D Preferred and RSUs | Change in | 31-Mar-14 | ||||||||||||||||||
New Derivative | to Equity | Estimated | ||||||||||||||||||||
30-Sep-13 | Liabilities | Fair Value Recognized | ||||||||||||||||||||
in Results of Operations | ||||||||||||||||||||||
Derivative liabilities | $ | 19,245,000 | $ | 445,000 | $ | (2,833,509 | ) | $ | (8,383,000 | ) | $ | (7,676,000 | ) | $ | 797,000 | |||||||
Fair Value Measurements, Recurring and Nonrecurring | ' | |||||||||||||||||||||
31-Mar-14 | 30-Sep-13 | Level in Fair Value Hierarchy | ||||||||||||||||||||
Carrying amount | Fair Value | Carrying amount | Fair value | |||||||||||||||||||
Cash and cash equivalents | $ | 147,000 | $ | 147,000 | $ | 136,000 | $ | 136,000 | 1 | |||||||||||||
Accounts Receivable, net | $ | - | $ | - | $ | 119,000 | $ | 119,000 | 2 | |||||||||||||
Accounts Payable | $ | 1,331,000 | $ | 1,331,000 | $ | 1,024,000 | $ | 1,024,000 | 2 |
General_Details_Narrative
General (Details Narrative) (USD $) | 6 Months Ended | |
Mar. 31, 2014 | Sep. 30, 2013 | |
Preferred stock designated as Series D Convertible, shares | 1,000,000 | ' |
Series D shares purchased by investors | 477 | ' |
Gross proceeds from purchase of Series D Preferred shares | $4,770,000 | ' |
Senior note conversion amount | 23,100,000 | ' |
Senior note conversion, preferred share amount | 2,300 | ' |
Senior note conversion, common stock share amount | 137,200,000 | ' |
principal accrued interest exchange amount | 14,500,000 | ' |
Restricted common stock exchange amount, shares | 101,400,000 | ' |
Vesting price of restricted common stock | $0.14 | ' |
Total number of authorized shares of capital stock, previous | 801,000,000 | ' |
Total number of authorized shares of capital stock, amended | 2,001,000,000 | ' |
Common stock, shares authorized | 2,000,000,000 | 800,000,000 |
Amendment to increase the number of shares of Common Stock issuable under the 2011 Plan | 446,500,000 | ' |
Option Exchange Plan share purchase price | $0.04 | ' |
outstanding stock options cancelled through Option Exchange Plan | 28.6 | ' |
Options granted, shares | 149,438,000 | ' |
Convertible 2014 Notes [Member] | ' | ' |
Aggregate principal of debt authorized | 3,500,000 | ' |
Available for exchange for cancellation of debt | 1,500,000 | ' |
Maturity date | 31-Jul-14 | ' |
Aggregate principal of debt issued | 600,000 | ' |
Notes matured | 1,500,000 | ' |
Convertible 2014 Notes 2 [Member] | ' | ' |
Aggregate principal of debt authorized | 6,000,000 | ' |
Available for exchange for cancellation of debt | 1,500,000 | ' |
Maturity date | 31-Jul-14 | ' |
Aggregate principal of debt issued | 3,000,000 | ' |
Notes matured | 1,500,000 | ' |
PCF LOC [Member] | ' | ' |
Repayment of debt | 2,000,000 | ' |
Collateral amount | 500,000 | ' |
Maximum guarantee amount | $1,000,000 | ' |
Series D Preferred Stock [Member] | ' | ' |
Subscription agreements from certain accredited investors, price | $10,000 | ' |
Warrant price per share | $0.08 | ' |
Going_Concern_Details_Narrativ
Going Concern (Details Narrative) (USD $) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2014 | Mar. 31, 2013 | Mar. 31, 2014 | Mar. 31, 2013 | |
Going Concern Details Narrative | ' | ' | ' | ' |
Loss from continuing operations | ($4,602,000) | ($8,400,000) | ($5,115,000) | ($9,017,000) |
Negative working capital | 9,900,000 | ' | 9,900,000 | ' |
Stockholders deficit | 9,500,000 | ' | 9,500,000 | ' |
Negative cash flows from operations | ' | ' | $4,400,000 | $7,300,000 |
Debt_Instruments_Details
Debt Instruments (Details) (USD $) | 6 Months Ended |
Mar. 31, 2014 | |
Debt Instrument 1 [Member] | ' |
Balance at beginning of period, net of unamortized discount | $4,908,000 |
New Debt Issued (Principal Repayment), Net | -2,070,000 |
Debt converted into Series D Preferred | ' |
Debt converted to restricted Common Stock | ' |
Debt Discount Amortization, Extinguishment or (Additions), Net | 216,000 |
Net Balance | 3,054,000 |
Debt Instrument 2 [Member] | ' |
Balance at beginning of period, net of unamortized discount | 15,793,000 |
New Debt Issued (Principal Repayment), Net | 175,000 |
Debt converted into Series D Preferred | -16,199,000 |
Debt converted to restricted Common Stock | ' |
Debt Discount Amortization, Extinguishment or (Additions), Net | 1,584,000 |
Net Balance | 1,623,000 |
Debt Instrument 3 [Member] | ' |
Balance at beginning of period, net of unamortized discount | ' |
New Debt Issued (Principal Repayment), Net | 1,858,000 |
Debt converted into Series D Preferred | ' |
Debt converted to restricted Common Stock | ' |
Debt Discount Amortization, Extinguishment or (Additions), Net | -703,000 |
Net Balance | 1,155,000 |
Debt Instrument 4 [Member] | ' |
Balance at beginning of period, net of unamortized discount | 5,392,000 |
New Debt Issued (Principal Repayment), Net | ' |
Debt converted into Series D Preferred | -5,392,000 |
Debt converted to restricted Common Stock | ' |
Debt Discount Amortization, Extinguishment or (Additions), Net | ' |
Net Balance | ' |
Debt Instrument 5 [Member] | ' |
Balance at beginning of period, net of unamortized discount | 8,570,000 |
New Debt Issued (Principal Repayment), Net | ' |
Debt converted into Series D Preferred | -381,000 |
Debt converted to restricted Common Stock | -14,357,000 |
Debt Discount Amortization, Extinguishment or (Additions), Net | 7,011,000 |
Net Balance | 843,000 |
Debt Instrument 6 [Member] | ' |
Balance at beginning of period, net of unamortized discount | 34,663,000 |
New Debt Issued (Principal Repayment), Net | -37,000 |
Debt converted into Series D Preferred | -21,972,000 |
Debt converted to restricted Common Stock | -14,357,000 |
Debt Discount Amortization, Extinguishment or (Additions), Net | 8,378,000 |
Net Balance | 6,675,000 |
Accrued interest converted to equity, preferred | -1,084,000 |
Accrued interest converted to equity, common stock | -146,000 |
Gross adjustment to paid-in capital, preferred conversion | -23,056,000 |
Gross adjustment to paid-in capital, common stock conversion | ($14,503,000) |
Debt_Instruments_Details_1
Debt Instruments (Details 1) (USD $) | 6 Months Ended |
Mar. 31, 2014 | |
Exercise price per share equal to NEFEP or price | $0.04 |
Exercisable Forbearance extension warrant shares | 20,641,237 |
Subordinated Notes 5 [Member] | ' |
Extension date | '2012-09-30T00:00:00 |
Exercisable Forbearance extension warrant shares | 2,045,455 |
Forbearance 1 [Member] | ' |
Extension date | '2012-10-31T00:00:00 |
Exercise price per share equal to NEFEP or price | $0.04 |
Exercisable Forbearance extension warrant shares | 2,045,455 |
Forbearance 2 [Member] | ' |
Extension date | '2012-12-15T00:00:00 |
Exercise price per share equal to NEFEP or price | $0.04 |
Exercisable Forbearance extension warrant shares | 2,045,455 |
Forbearance 3 [Member] | ' |
Extension date | '2013-01-31T00:00:00 |
Exercise price per share equal to NEFEP or price | $0.04 |
Exercisable Forbearance extension warrant shares | 2,045,455 |
Forbearance 4 [Member] | ' |
Extension date | '2013-01-28T00:00:00 |
Exercise price per share equal to NEFEP or price | $0.04 |
Exercisable Forbearance extension warrant shares | 2,045,455 |
Forbearance 5 [Member] | ' |
Extension date | '2013-03-31T00:00:00 |
Exercise price per share equal to NEFEP or price | $0.04 |
Exercisable Forbearance extension warrant shares | 2,045,455 |
Forbearance 6 [Member] | ' |
Extension date | '2013-04-30T00:00:00 |
Exercise price per share equal to NEFEP or price | $0.04 |
Exercisable Forbearance extension warrant shares | 2,045,455 |
Forbearance 7 [Member] | ' |
Extension date | '2013-05-31T00:00:00 |
Exercise price per share equal to NEFEP or price | $0.04 |
Exercisable Forbearance extension warrant shares | 2,045,455 |
Forbearance 8 [Member] | ' |
Extension date | '2013-06-30T00:00:00 |
Exercise price per share equal to NEFEP or price | $0.04 |
Exercisable Forbearance extension warrant shares | 2,045,455 |
Forbearance 9 [Member] | ' |
Extension date | '2013-10-28T00:00:00 |
Exercise price per share equal to NEFEP or price | $0.01 |
Exercisable Forbearance extension warrant shares | 2,232,142 |
Debt_Instruments_Details_2
Debt Instruments (Details 2) (USD $) | Mar. 31, 2014 | Sep. 30, 2013 |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' | ' |
Risk free interest rate | 0.36% | 0.40% |
Expected volatility | 147.00% | 94.80% |
Expected volatility, maximum | 150.00% | ' |
Expected dividends | ' | ' |
Debt_Instruments_Details_Narra
Debt Instruments (Details Narrative) (USD $) | 1 Months Ended | 3 Months Ended | 6 Months Ended | |||
12-May-14 | Mar. 31, 2014 | Mar. 31, 2013 | Mar. 31, 2014 | Mar. 31, 2013 | Sep. 30, 2013 | |
Warrant exercise price | $0.00 | ' | ' | ' | ' | ' |
Exercise price per share equal to NEFEP or price | ' | ' | ' | $0.04 | ' | ' |
Derivative liability | ' | $800,000 | ' | $800,000 | ' | $19,200,000 |
Gain on extinguishment of debt | ' | ' | ' | -316,000 | ' | ' |
Paid in Kind Interest | ' | ' | ' | 3,790,000 | 5,255,000 | ' |
Monthly principal payment | ' | 70,000 | ' | 70,000 | ' | ' |
Revolving Credit Facility issued by PFG | ' | 5,000,000 | ' | 5,000,000 | ' | ' |
Senior secured convertible note issued in exchange for PFG Guarantee Fund | ' | ' | ' | 1,000,000 | ' | ' |
proceeds from Series D Offering deposited into PFG Guarantee Fund | ' | ' | ' | 1,500,000 | ' | ' |
Payment on Revolving Credit Facility | ' | ' | ' | 2,000,000 | ' | ' |
Revolving Credit Facility outstanding balance | ' | 2,900,000 | ' | 2,900,000 | ' | ' |
PCF LOC Modification [Member] | ' | ' | ' | ' | ' | ' |
Percent of proceeds payable from financing | ' | 10.00% | ' | 10.00% | ' | ' |
Capital transaction fee payable | ' | 15.00% | ' | 15.00% | ' | ' |
Derivative liability | ' | 2,834,000 | ' | 2,834,000 | ' | ' |
CB Griffon Notes 2013 [Member] | ' | ' | ' | ' | ' | ' |
Warrants issued | ' | ' | ' | 63,800,000 | ' | ' |
Warrant exercise price | ' | ' | ' | $0.00 | ' | ' |
Rate of interest | ' | ' | ' | 12.00% | ' | ' |
Debt instrument principal amount | ' | 17,800,000 | ' | 17,800,000 | ' | ' |
Note conversion price | ' | $0.12 | ' | $0.12 | ' | ' |
Qualified Financing minimum | ' | 900,000 | ' | 900,000 | ' | ' |
Notes cancelled and exchanged | ' | 17,200,000 | ' | 17,200,000 | ' | ' |
Preferred stock issued for conversion of notes | ' | 1,720 | ' | 1,720 | ' | ' |
Gain on extinguishment of debt | ' | ' | ' | 400,000 | ' | ' |
Increase to paid-in capital | ' | ' | ' | 13,100,000 | ' | ' |
Remaining to maturity | ' | ' | ' | '1 year 7 months | ' | ' |
Notes matured | ' | 900,000 | ' | 900,000 | ' | ' |
Subordinated Notes [Member] | ' | ' | ' | ' | ' | ' |
Debt instrument principal amount | ' | 7,800,000 | ' | 7,800,000 | ' | ' |
Note conversion price | ' | $0.12 | ' | $0.12 | ' | ' |
Weighted average price of common stock conversion trigger | ' | ' | ' | $0.25 | ' | ' |
Notes cancelled and exchanged | ' | 14,500,000 | ' | 14,500,000 | ' | ' |
Restricted stock issued for conversion of notes | ' | ' | ' | 101,500,000 | ' | ' |
Increase to paid-in capital | ' | ' | ' | 14,500,000 | ' | ' |
Remaining to maturity | ' | ' | ' | '1 year 8 months | ' | ' |
Subordinated Notes 2 [Member] | ' | ' | ' | ' | ' | ' |
Debt instrument principal amount | ' | 1,200,000 | ' | 1,200,000 | ' | ' |
Note conversion price | ' | $0.12 | ' | $0.12 | ' | ' |
Notes cancelled and exchanged | ' | 400,000 | ' | 400,000 | ' | ' |
Preferred stock issued for conversion of notes | ' | 40 | ' | 40 | ' | ' |
Gain on extinguishment of debt | ' | ' | ' | -37,000 | ' | ' |
Outstanding principal amount including paid in kind interest | ' | 1,400,000 | ' | 1,400,000 | ' | ' |
Remaining to maturity | ' | ' | ' | '1 year 11 months | ' | ' |
Subordinated Notes 3 [Member] | ' | ' | ' | ' | ' | ' |
Debt instrument principal amount | ' | 500,000 | ' | 500,000 | ' | ' |
Note conversion price | ' | $0.07 | ' | $0.07 | ' | ' |
Remaining to maturity | ' | ' | ' | '2 years 1 month | ' | ' |
Subordinated Notes 4 [Member] | ' | ' | ' | ' | ' | ' |
Note conversion price | ' | $0.04 | ' | $0.04 | ' | ' |
Notes cancelled and exchanged | ' | 1,100,000 | ' | 1,100,000 | ' | ' |
Subordinated Notes 5 [Member] | ' | ' | ' | ' | ' | ' |
Debt instrument principal amount | ' | 5,400,000 | ' | 5,400,000 | ' | ' |
Notes cancelled and exchanged | ' | 5,400,000 | ' | 5,400,000 | ' | ' |
Preferred stock issued for conversion of notes | ' | 545 | ' | 545 | ' | ' |
Convertible 2012 Notes [Member] | ' | ' | ' | ' | ' | ' |
Debt instrument principal amount | ' | 1,200,000 | ' | 1,200,000 | ' | ' |
Note conversion price | ' | $0.12 | ' | $0.12 | ' | ' |
Notes cancelled and exchanged | ' | 1,100,000 | ' | 1,100,000 | ' | ' |
CBandGriffinNote4 [Member] | ' | ' | ' | ' | ' | ' |
Debt instrument principal amount | ' | 5,000,000 | ' | 5,000,000 | ' | ' |
Convertible 2014 Notes [Member] | ' | ' | ' | ' | ' | ' |
Warrant exercise price | ' | ' | ' | $0.04 | ' | ' |
Debt instrument, maturity date | ' | ' | ' | 31-Jul-14 | ' | ' |
Debt instrument principal amount | ' | 600,000 | ' | 600,000 | ' | ' |
Notes matured | ' | 1,500,000 | ' | 1,500,000 | ' | ' |
Convertible 2014 Notes 2 [Member] | ' | ' | ' | ' | ' | ' |
Warrant exercise price | ' | ' | ' | $0.04 | ' | ' |
Debt instrument, maturity date | ' | ' | ' | 31-Jul-14 | ' | ' |
Debt instrument principal amount | ' | 3,000,000 | ' | 3,000,000 | ' | ' |
Derivative liability | ' | 413,000 | ' | 413,000 | ' | ' |
Paid in Kind Interest | ' | ' | ' | 0.12 | ' | ' |
Notes matured | ' | $1,500,000 | ' | $1,500,000 | ' | ' |
PFG [Member] | ' | ' | ' | ' | ' | ' |
Warrants issued | ' | ' | ' | 15,000,000 | ' | ' |
Warrant exercise price | ' | ' | ' | $0.11 | ' | ' |
Debt instrument, maturity date | ' | ' | ' | 31-Dec-14 | ' | ' |
Rate of interest | ' | ' | ' | 12.00% | ' | ' |
Convertible_Preferred_Stock_De
Convertible Preferred Stock (Details) (USD $) | 6 Months Ended |
Mar. 31, 2014 | |
Series D Preferred Stock, Shares | ' |
Balance at beginning of period | ' |
Cash Proceeds from sale of Series D Preferred Stock and warrants, net of issuance costs of $219,000 | 477 |
Convertible debt exchanged | 2,305 |
Total Series D activity | 2,782 |
Balance at end of period | 2,782 |
Series D Preferred Stock, Amount | ' |
Balance at beginning of period | 0 |
Cash Proceeds from sale of Series D Preferred Stock and warrants, net of issuance costs of $291,000 | $5 |
Convertible debt exchanged | 23 |
Total Series D activity | 28 |
Balance at end of period | 28 |
Series D Preferred Stock, Paid-in Capital | ' |
Balance at beginning of period | 181,443,000 |
Cash Proceeds from sale of Series D Preferred Stock and warrants, net of issuance costs of $291,000 | 4,531,000 |
Convertible debt exchanged for Series D Preferred stock | 24,705,000 |
Convertible debt exchanged for restricted stock | 13,111,000 |
Total Series D activity | 29,236,000 |
Stock based compensation | 2,539,000 |
Warrant derivatives reclassified to equity | 2,834,000 |
Other equity activity, net | 2,764,000 |
Balance at end of period | $231,910,000 |
Convertible_Preferred_Stock_De1
Convertible Preferred Stock (Details Narrative) (USD $) | Mar. 31, 2014 |
Stated value of Series D Preferred | $0.01 |
Series D [Member] | ' |
Shares designated as Series D Preferred | 4,000 |
Stated value of Series D Preferred | $10,000 |
mandatory conversion provision price per share | $0.08 |
mandatory conversion provision aggregate gross proceeds | $10,000,000 |
Series D Preferred issued and outstanding | 2,782 |
Series B [Member] | ' |
FY 2013 Series B Shares converted | 866 |
FY 2013 common stock shares converted from Series B | 1,732,000 |
Liquidation preference | $1,000 |
Common_Stock_Warrants_and_Stoc1
Common Stock Warrants and Stock Based Compensation (Details) (USD $) | 6 Months Ended |
Mar. 31, 2014 | |
Common Stock Warrants And Stock Based Compensation Details | ' |
Outstanding shares, Beginning of period | 51,752,000 |
Options granted, shares | 149,438,000 |
Options exercised | ' |
Options forfeited, shares | -48,958,000 |
Outstanding shares, End of period | 152,232,000 |
Vested and expected to vest, End of period | 129,398,000 |
Exercisable, End of period | 101,432,000 |
Outstanding weighted average exercise price, beginning | $0.20 |
Options granted, weighted average exercise price | $0.04 |
Options exercised, weighted average exercise price | ' |
Options forfeited, weighted average exercise price | $0.10 |
Outstanding weighted average exercise price, ending | $0.07 |
Vested and expected to vest, weighted average exercise price, End of period | $0.07 |
Exercisable, weighted average exercise price, End of period | $0.08 |
Outstanding at beginning of period | '7 years 8 months 12 days |
Options granted, shares | '9 years 7 months 6 days |
Options forfeited, shares | '8 years 3 months 18 days |
Outstanding shares, End of period | '9 years 2 months 12 days |
Vested and expected to vest, End of period | '9 years 2 months 12 days |
Exercisable, End of period | '9 years |
Common_Stock_Warrants_and_Stoc2
Common Stock Warrants and Stock Based Compensation (Details 1) | 6 Months Ended | |
Mar. 31, 2014 | Mar. 31, 2013 | |
Expected life | '5 years 4 months 24 days | '6 years 8 months 12 days |
Expected volatility | 169.00% | ' |
Expected dividend | ' | ' |
Risk-free rate | 1.60% | ' |
Minimum [Member] | ' | ' |
Expected volatility | 88.10% | ' |
Expected dividend | ' | ' |
Risk-free rate | 1.10% | ' |
Maximum [Member] | ' | ' |
Expected volatility | 99.30% | ' |
Expected dividend | ' | ' |
Risk-free rate | 1.30% | ' |
Common_Stock_Warrants_and_Stoc3
Common Stock Warrants and Stock Based Compensation (Details Narrative) (USD $) | 6 Months Ended | 6 Months Ended | 6 Months Ended | |||||||||||||||
Mar. 31, 2014 | Mar. 31, 2014 | Mar. 31, 2014 | Mar. 31, 2014 | Mar. 31, 2014 | Mar. 31, 2014 | Mar. 31, 2014 | Mar. 31, 2014 | Mar. 31, 2014 | Mar. 31, 2014 | Sep. 30, 2013 | Mar. 31, 2014 | Sep. 30, 2013 | Mar. 31, 2014 | Sep. 30, 2013 | Mar. 31, 2014 | Sep. 30, 2013 | Mar. 31, 2014 | |
2006 Plan [Member] | 2006 Plan [Member] | 2006 Plan [Member] | The 2010 Plan [Member] | 2011 Plan [Member] | 2011 Plan [Member] | 2011 Plan [Member] | Employee Stock Benefit Plan [Member] | Common Stock Warrants [Member] | Common Stock Warrants [Member] | Common Stock Warrants [Member] | Common Stock Warrants [Member] | Common Stock Warrants [Member] | Common Stock Warrants [Member] | Employee Stock Benefit Plan [Member] | Employee Stock Benefit Plan [Member] | RabbiTrust [Member] | ||
Minimum [Member] | Maximum [Member] | Minimum [Member] | Maximum [Member] | Minimum [Member] | Minimum [Member] | Maximum [Member] | Maximum [Member] | |||||||||||
Shares authorized | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 14,000 |
Shares outstanding | ' | 74,000 | ' | ' | 18,500,000 | 142,717,000 | ' | ' | ' | 282,200,000 | 71,194,000 | ' | ' | ' | ' | ' | ' | 44,000 |
Weighted average exercise price per share, warrants | ' | ' | ' | ' | ' | ' | ' | ' | ' | $0.07 | $0.10 | ' | ' | ' | ' | ' | ' | ' |
Exercise price | ' | ' | $17 | $26.40 | $0.09 | ' | $0.04 | $0.15 | ' | ' | ' | $0.00 | $0.00 | $0.55 | $0.55 | ' | ' | ' |
Shares reserved for issuance | ' | ' | ' | ' | 18,500,000 | 646,500,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Options exercisable | 101,432,000 | ' | ' | ' | 9,000,000 | 91,917,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Shares exercisable | ' | 441,000 | ' | ' | 9,000,000 | 503,027,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Shares exercisable, exercise price | $0.08 | ' | $0.16 | $13 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Share increase FY 2010 | ' | 485,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Share increase FY 2011 | ' | 1,250,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Share increase FY 2012 | ' | 1,250,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Options granted | ' | ' | ' | ' | ' | 149,400,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
option exercise price | $0.04 | ' | ' | ' | ' | $0.04 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
stock option expense related to the OEP | ' | ' | ' | ' | ' | $1,500,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Exchange options granted | ' | ' | ' | ' | ' | 146,900,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Shares of common stock cancelled by issuance of options | ' | ' | ' | ' | ' | 27,100,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Contribution, common stock | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 0 | 9,100,000 | ' |
Contribution market value | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | $0 | $272,000 | ' |
Maximum payroll limit contribution plan | ' | ' | ' | ' | ' | ' | ' | ' | 15.00% | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Loss_per_Share_Details
Loss per Share (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2014 | Mar. 31, 2013 | Mar. 31, 2014 | Mar. 31, 2013 | |
Basic Net Income (Loss) Numerator: | ' | ' | ' | ' |
Loss from continuing operations | ($4,602,000) | ($8,400,000) | ($5,115,000) | ($9,017,000) |
Loss from discontinued operations | ' | -1,191,000 | ' | -2,738,000 |
Net loss | -4,602,000 | -9,591,000 | -5,115,000 | -11,755,000 |
Diluted Net Income (Loss) Numerator: | ' | ' | ' | ' |
Loss from continuing operations | -4,602,000 | -8,400,000 | -5,115,000 | -9,017,000 |
Loss from discontinued operations | ' | -1,191,000 | ' | -2,738,000 |
Net Loss | ($4,602,000) | ($9,591,000) | ($5,115,000) | ($11,755,000) |
Net Income (loss) Denominator: | ' | ' | ' | ' |
Weighted average number of common shares outstanding, basic | 245,122,000 | 153,688,000 | 234,858,000 | 147,541,000 |
Weighted average number of common shares outstanding, diluted | 245,122,000 | 153,688,000 | 234,858,000 | 147,541,000 |
Basic income (loss) per share: | ' | ' | ' | ' |
Loss from continuing operations | ($0.02) | ($0.05) | ($0.02) | ($0.06) |
Net Income from discontinued operations | ' | ($0.01) | ' | ($0.02) |
Basic net loss per share | ($0.02) | ($0.06) | ($0.02) | ($0.08) |
Diluted income (loss) per share: | ' | ' | ' | ' |
Loss from continuing operations | ($0.02) | ($0.05) | ($0.02) | ($0.06) |
Net Income from discontinued operations | ' | ($0.01) | ' | ($0.02) |
Diluted net loss per share | ($0.02) | ($0.06) | ($0.02) | ($0.08) |
Loss_per_Share_Details_Narrati
Loss per Share (Details Narrative) | Mar. 31, 2014 | Sep. 30, 2013 |
Loss Per Share Details Narrative | ' | ' |
Options, warrants and convertible instruments outstanding | 1,123,686,000 | 594,951,000 |
Discontinued_Operations_Detail
Discontinued Operations (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2014 | Mar. 31, 2013 | Mar. 31, 2014 | Mar. 31, 2013 | |
Summarized financial information related to discontinued operations, consisting of Government Business | ' | ' | ' | ' |
Total revenues | ' | $1,514,000 | ' | $732,000 |
Cost and expenses | ' | ' | ' | ' |
Cost of revenues | ' | 2,606,000 | ' | 1,278,000 |
General and administrative expense | ' | 882,000 | ' | 323,000 |
Research and development expense | ' | 764,000 | ' | 322,000 |
Total costs and expenses | ' | 4,252,000 | ' | 1,923,000 |
Net loss from discontinued operations (net of $0 tax) | ' | ($2,738,000) | ' | ($1,191,000) |
Discontinued_Operations_Detail1
Discontinued Operations (Details 1) (USD $) | Mar. 31, 2014 | Sep. 30, 2013 | |
Accounts receivable, net | ' | $119,000 | [1] |
Prepaid expenses and other current assets | 335,000 | 561,000 | [1] |
Property and equipment, net | 553,000 | 753,000 | [1] |
Other assets | 32,000 | 126,000 | [1] |
Government Business [Member] | ' | ' | |
Accounts receivable, net | ' | ' | |
Prepaid expenses and other current assets | ' | ' | |
Current assets of discontinued operations | ' | ' | |
Unbilled revenues on uncompleted contracts | 290,000 | 290,000 | |
Property and equipment, net | ' | 7,000 | |
Other assets | ' | ' | |
Non-current assets of discontinued operations | 290,000 | 297,000 | |
Accounts payable | 87,000 | 141,000 | |
Accrued expenses | 438,000 | 438,000 | |
Advance billings on uncompleted contracts | 99,000 | 99,000 | |
Current liabilities from discontinued operations | $624,000 | $678,000 | |
[1] | The condensed consolidated balance sheet as of September 30, 2013 was derived from the audited consolidated financial statement included in the Company's 2013 Annual Report on Form 10-K, filed with the SEC on December 24, 2013 adjusted to reflect discontinued operations. In March 2013, the Company ceased operations of its government focused business, including Secure Memory Systems, Cognitive Systems and Microsystems business units (the "Government Business"). In accordance with the provisions of the Presentation of Financial Statements Topic 205 of the Accounting Standards Codification ("ASC"), the assets and liabilities related to the Government Business are now presented as discontinued operations for all periods presented in the consolidated financial statements. |
Commitments_and_Contingencies_1
Commitments and Contingencies (Details) (USD $) | Mar. 31, 2014 |
FY 2014 [Member] | ' |
Capital Leases | $242,000 |
Operating Leases | 135,000 |
FY 2015 [Member] | ' |
Capital Leases | 128,000 |
Operating Leases | 251,000 |
FY 2016 [Member] | ' |
Capital Leases | 42,000 |
Operating Leases | 238,000 |
FY 2017 [Member] | ' |
Capital Leases | 25,000 |
Operating Leases | 175,000 |
FY 2018 [Member] | ' |
Capital Leases | ' |
Operating Leases | 149,000 |
FY 2019 [Member] | ' |
Capital Leases | ' |
Operating Leases | ' |
Interest [Member] | ' |
Capital Leases | -41,000 |
Operating Leases | ' |
Future Min Lease Payments [Member] | ' |
Capital Leases | 396,000 |
Operating Leases | $948,000 |
Commitments_and_Contingencies_2
Commitments and Contingencies (Details Narrative) (USD $) | 6 Months Ended | |
Mar. 31, 2014 | Mar. 31, 2013 | |
Commitments And Contingencies Details Narrative | ' | ' |
Total rent expense for operating leases | $136,000 | $495,000 |
Non-converting note holder share amount | 900,000 | ' |
first year minimum payment obligation failed to pay | 100,000 | ' |
Guarantee payment | 1,800,000 | ' |
Quarterly payment amount | $25,000 | ' |
Fair_Value_Measurements_Detail
Fair Value Measurements (Details) (USD $) | Mar. 31, 2014 | Sep. 30, 2013 |
Liabilities, Fair Value Disclosure [Abstract] | ' | ' |
Derivative liabilities | $797,000 | $19,245,000 |
Fair Value, Inputs, Level 2 [Member] | ' | ' |
Liabilities, Fair Value Disclosure [Abstract] | ' | ' |
Derivative liabilities | ' | ' |
Fair Value, Inputs, Level 1 [Member] | ' | ' |
Liabilities, Fair Value Disclosure [Abstract] | ' | ' |
Derivative liabilities | ' | ' |
Fair Value, Inputs, Level 3 [Member] | ' | ' |
Liabilities, Fair Value Disclosure [Abstract] | ' | ' |
Derivative liabilities | $797,000 | ' |
Fair_Value_Measurements_Detail1
Fair Value Measurements (Details 1) (USD $) | 6 Months Ended |
Mar. 31, 2014 | |
Fair Value Measurements Details 1 | ' |
Derivative liabilities, beginning of period | $19,245,000 |
Recorded new derivative liabilities | 445,000 |
Warrant Derivatives Reclassified to equity | -2,833,509 |
Extinguished in Conversion of debt to Series D Preferred and RSUs | -8,383,000 |
Change in estimated fair value recognized in results of operations | -7,676,000 |
Derivative liabilities, end of period | $797,000 |
Fair_Value_Measurements_Detail2
Fair Value Measurements (Details 2) (USD $) | Mar. 31, 2014 | Sep. 30, 2013 |
Cash and Cash Equivalents [Member] | ' | ' |
Carrying amount | $147,000 | $136,000 |
Fair value | 147,000 | 136,000 |
Level in fair value heirarchy | '1 | '1 |
Accounts Receivable [Member] | ' | ' |
Carrying amount | ' | 119,000 |
Fair value | ' | 119,000 |
Level in fair value heirarchy | '2 | '2 |
Accounts Payable [Member] | ' | ' |
Carrying amount | 1,331,000 | 1,024,000 |
Fair value | $1,331,000 | $1,024,000 |
Level in fair value heirarchy | '2 | '2 |
NonControlling_Interest_in_Sub1
Non-Controlling Interest in Subsidiaries (Details Narrative) | Mar. 31, 2014 |
Novalog [Member] | ' |
Percentage of ownership by investor | 96.00% |
MSI [Member] | ' |
Percentage of ownership by investor | 98.00% |
RedHawk [Member] | ' |
Percentage of ownership by investor | 81.00% |
iNetWorks [Member] | ' |
Percentage of ownership by investor | 95.00% |
Subsequent_Events_Details_Narr
Subsequent Events (Details Narrative) (USD $) | 1 Months Ended |
12-May-14 | |
Subsequent Events Details Narrative | ' |
Warrants issued as consideration for forbearance | 43,100,000 |
Warrant exercise price | $0.00 |
Griffin payment amount | $100,000 |
Principal payment, PFG Default | 70,000 |
Second Bridge Notes, principal amount | 1,700,000 |
Second Bridge Notes, gross proceeds | $1,290,000 |