Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. ISC8 INC. /DE (357108) 10-Q published on Jun 05, 2014 at 9:18 pm
Reporting Period: Mar 30, 2014
Our ability to raise additional capital may be limited because, as a company that is quoted on the OTCQB marketplace (“OTCQB”), we are no longer eligible to use Form S-3 to register the resale of securities issued in private financings. Even if available, financings can involve significant costs and expenses, such as legal and accounting fees, diversion of management’s time and efforts, or substantial transaction costs or break-up fees in certain instances. Financings may also involve substantial dilution to existing stockholders, and may cause additional dilution through adjustments to certain of our existing securities under the terms of their anti-dilution provisions. If adequate funds are unavailable on a timely basis on acceptable terms, or at all, our business and revenues may be adversely affected and we may be unable to continue our operations at current levels, develop or enhance our products, expand our sales and marketing programs, capitalize on our future opportunities or respond to competitive pressures.
To address our working capital needs, we sold a large portion of our patent portfolio in 2009 and assets relating to our former thermal imaging business (the “Thermal Imaging Business”) in January 2012. We may enter into agreements to sell other assets in the future. We also may wish to divest assets to focus our resources on selected business opportunities, as we did in March 2013 with the cessation of our government-focused business (the “Government Business”), and focus on our cyber-security business. We may not be able to complete other divestitures, if any, on acceptable terms, on a timely basis or at all, and such sales, if any, could materially adversely affect our future revenues. Furthermore, we have lenders with security interests in substantially all of our assets, and such sales would therefore require such lenders’ consent and are unlikely to generate any direct benefits to stockholders and could materially impair our ability to maintain our current operations.
We have historically generated substantial losses, which, if continued, could make it difficult to fund our operations or successfully execute our business plan, and could adversely affect our stock price.
Assuming conversion or exercise of all of our existing convertible securities currently authorized and outstanding as of March 31, 2014, approximately 1,231.3 million additional shares of Common Stock (or a total of approximately 1,486.3 million shares) would be outstanding, as compared to 255.1 million shares of Common Stock issued and outstanding as of March 31, 2014. From October 1, 2013 through March 31, 2014, we have issued approximately 49.5 million shares of Common Stock, largely to fund our operations, from warrant exercises and for convertible debt financings, resulting in dilution to our existing stockholders. Any future equity or convertible debt financings would likely result in further dilution to our stockholders. Existing stockholders likely would suffer significant dilution in ownership interests and voting rights, and our stock price could decline as a result of any potential future application of price anti-dilution features of the related debt instruments, if they are not waived.
Other companies may hold or obtain patents or inventions, or may otherwise claim proprietary rights to technology useful or necessary to our business. We cannot predict the extent to which we may be required to seek licenses under such proprietary rights of third parties and the cost or availability of these licenses. While it may be necessary or desirable in the future to obtain licenses relating to one or more proposed products or relating to current or future technologies, we cannot assure you that we will be able to do so on commercially reasonable terms, if at all. If our technology is found to infringe upon the rights of third parties, or if we are unable to obtain sufficient rights to use key technologies, our ability to compete would be harmed and our business, financial condition and results of operations would be materially and adversely affected.
We face strong competition from a wide variety of competitors, including large cyber-security and security technology firms. Most of our competitors have considerably greater financial, marketing and technological resources than we do, which may make it difficult for us to win new customers or to attract strategic partners. This competition impacts our ability to increase the average selling prices for our products. We cannot assure you that we will be able to compete successfully with these companies. Certain of our competitors have a presence in key markets, greater name recognition, larger customer bases and significantly greater financial, sales and marketing, distribution, technical and other resources than us. As a result, these competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements. They may also be able to devote greater resources to the promotion and sale of their products. Increased competition has, in the past, resulted in price reductions, reduced gross margins and loss of market share. This trend may continue in the future. We cannot assure you that we will be able to compete successfully or that competitive pressures will not materially and adversely affect our business, financial condition and results of operations.