Asset Purchase Agreement with Bivio

On August 31, 2012, the Company entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with Bivio Networks, Inc. on behalf of itself and certain of its subsidiaries (collectively, "Bivio"), pursuant to which the Company agreed to acquire substantially all of the assets of Bivio's NetFalcon and Network Content Control System Business (the "Transaction"). The Asset Purchase Agreement and proposed Transaction are more fully described in the Company's Current Report on Form 8-K filed with the SEC on September 6, 2012 (the "Prior 8-K").

After 5:30 p.m. eastern daylight time on October 4, 2012, the Company entered into a Foreclosure Sale Agreement with GF AcquisitionCo 2012, LLC (the "Foreclosure Sale Agreement") under which the Company agreed to acquire the assets of Bivio which it had previously agreed to acquire directly from Bivio. GF AcquisitionCo 2012, LLC ("GFAC") (which could be deemed to be an affiliate of The Griffin Fund LP, a major stockholder and debt holder of the Company) was formed in order to facilitate the acquisition by the Company of the Bivio assets when the purchase of such assets by the Company under the Asset Purchase Agreement could not be completed. Bivio was in default under the loan and security agreement with its first priority secured lender. GFAC purchased the position of such secured lender and, in such capacity, will foreclose on the assets to be purchased by the Company from GFAC under the Foreclosure Sale Agreement. After entering into the Foreclosure Sale Agreement, the Company terminated the Asset Purchase Agreement.

The purchase price of the assets under the Foreclosure Sale Agreement is $600,000 in cash plus warrants to purchase either (i) up to that number of shares of the Company's securities issued in its next equity financing raising at least $10,000,000 in proceeds to the Company as $120,000 would purchase at the effective price to investors in such next equity financing, or (ii) if no such next equity financing has been effected by December 31, 2012, at the warrant holder's option, up to 1,000,000 shares of the Company's common stock, par value $.01 per share (the "Common Stock"), at $0.12 per share.

The Foreclosure Sale Agreement contains customary representations and warranties of the parties, as well as certain indemnification obligations. The statements set forth in those representations and warranties are made are made solely for purposes of the Foreclosure Sale Agreement and may be subject to important qualifications and limitations agreed to by the parties in connection with the negotiated terms of the Foreclosure Sale Agreement. Moreover, some of those representations and warranties may have been true only as of a certain date, may be subject to a contractual standard of materiality or may have been used for purposes of allocating risk between the Company and GFAC rather than establishing matters of fact. Investors are not third party beneficiaries under the Foreclosure Sale Agreement and should not rely on those representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or conditions of the Company or the NetFalcon and Network Content Control System Business.

The purchase of assets under the Foreclosure Sale Agreement has been approved by the Company's Board of Directors and is subject to customary conditions to closing. The Foreclosure Sale Agreement may be terminated by either the Company or GFAC if the closing under it does not occur by October 31, 2012.

Background and Issuance of 2012 Notes

Subordinated Notes

As previously reported in various of its periodic reports filed with the SEC, the Company has issued and may in the future issue up to $11,020,800 in aggregate principal amount of 12% Subordinated Secured Convertible Notes due 2015, pursuant to that certain Securities Purchase Agreement, dated as of December 23, 2010, among the Company and the initial holders of such notes (the "Securities Purchase Agreement"). The terms of such notes are set forth in the form of Subordinated Secured Convertible Note attached to the Securities Purchase Agreement (each of the promissory notes issued from time to time in such form, as amended by that certain Omnibus Amendment (the "Omnibus Amendment"), dated as of March 16, 2011, by and among the Company and the representative of the holders of such notes (the "Promissory Note Holder Representative"), as further amended by that certain Second Omnibus Amendment (the "Second Omnibus Amendment") by and among the Company and the Holder Representative and as further amended by that certain Third Omnibus Amendment (the "Third Omnibus Amendment"), dated as of December 14, 2011, by and among the Company and the Holder Representative, including certain Milestone Notes (as such term is defined in the Securities Purchase Agreement) and the 12% Subordinated Secured Convertible Notes due 2015, each a "Promissory Note" and collectively, the "Promissory Notes").

. . .

The information disclosed in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 2.03.

The information disclosed in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 3.02. The sales and issuances of shares of Common Stock described in Item 1.01 of this Current Report on Form 8-K (and the issuances of shares of Common Stock or Company Stock, as applicable, upon exercise of the 2012 Notes and/or Warrants) have been determined to be exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), in reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. Griffin, the Purchasers, PFG, and their respective affiliates, as applicable, have represented that (i) they are accredited investors as that term is defined in Regulation D, and (ii) they have acquired the securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof.

In addition, on July 13, 2012, the Company issued an aggregate of 4,458,000 shares of Common Stock to 26 accredited investors pursuant to the Company's election, according to the terms and conditions of those certain 12% Subordinated Secured Convertible Notes (the "12% Notes") issued by the Company to such investors on various dates between December 23, 2010 and July 19, 2011. These shares were issued in lieu of cash in order to pay the interest accrued on the 12%Notes for the fiscal quarter ended July 1, 2012. These issuances of shares of Common Stock has been determined to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. When the 12% Notes were issued, those transactions were determined to be exempt from registration under the Securities Act, in reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder as transactions by an issuer not involving a

The information disclosed in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 3.03. The issuances of shares of Common Stock or Company Stock, as applicable, upon exercise of the 2012 Notes and/or Warrants may result in significant dilution to the current stockholders of the Company.

(d) Exhibits.

Exhibit No.       Description

2.1               Foreclosure Sale Agreement dated October 4, 2012 between ISC8
                  Inc. and GF AcquisitionCo 2012, LLC.*

* Schedules and exhibits have been omitted pursuant to Item 6.01 of Regulation S-K. The Company hereby undertakes to furnish supplementally copies of any of the omitted schedules or exhibits upon request by the SEC.