VISM Visium Technologies Inc (PK)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018

NOTE 1: ORGANIZATION, GOING CONCERN AND BASIS OF PRESENTATION

Visium Technologies, Inc. (the “Company”), a Florida corporation, was originally incorporated in Nevada in October 1987. It was formerly known as Jaguar Investments, Inc. between October 1987 and May 2003, as Power2Ship, Inc. between May 2003 and November 2006, as Fittipaldi Logistics, Inc. between November 2006 and December 2007, and as Nustate Energy Holdings, Inc. between December 2007 and March 5, 2018, when it changed its name to Visium Technologies, Inc. to better reflect its business operations.

The Company is focused on cybersecurity, digital risk management, and technology services for network physical security, the Cloud, mobility solutions, and the Internet of Things (“IOT”).

The Company named Henry J. Holcombe as its Chief Executive Officer in August 2018 to provide strategic expertise in pursuing its business plans.

In July 2018 the Company formed a wholly-owned subsidiary, Visium Analytics, LLC.

In October 2018 the Company completed the acquisition of Threat Surface Solutions Group, LLC (“TSSG”) in exchange for 1,538,385 shares of Visium common stock valued at $500,000, the fair market value on the date of the acquisition, plus a 10% royalty on sales generated by TSSG for a period of three years on the first $25,000,000 in revenue.

See Note 5 for further description of the Company’s acquisition.

Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis. For the six months ended December 31, 2018 we had a net loss of $1,464,812, had net cash used in operating activities of $249,500, and had negative working capital of $4,782,720. These matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date of this filing. The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, to fund possible future acquisitions, and to generate profitable operations in the future. Management plans to provide for the Company’s capital requirements by continuing to issue additional equity and debt securities. The outcome of these matters cannot be predicted at this time and there are no assurances that, if achieved, the Company will have sufficient funds to execute its business plan or generate positive operating results. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis of Presentation

The unaudited interim consolidated financial information furnished herein reflects all adjustments, consisting only of normal recurring items, which in the opinion of management are necessary to fairly state the Company’s financial position, results of operations and cash flows for the dates and periods presented and to make such information not misleading. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”), nevertheless, management of the Company believes that the disclosures herein are adequate to make the information presented not misleading.

These unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended June 30, 2018, contained in the Company’s Annual Report on Form 10-K filed with the SEC on August 20, 2018. The results of operations for the six months ended December 31, 2018, are not necessarily indicative of results to be expected for any other interim period or the fiscal year ending June 30, 2019.

Reverse Stock Split

On March 5, 2018, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of the State of Florida to affect a 1-for-3,000 reverse stock split of the Company’s common stock (the “Reverse Split”). As a result of the Reverse Split, every 3,000 shares of the Company’s old common stock were converted into 1 share of the Company’s new common stock. Fractional shares resulting from the Reverse Split were rounded up to the nearest whole number. The Reverse Split automatically and proportionately adjusted, based on the one-for-3,000 split ratio, all issued and outstanding shares of the Company’s common stock. Share and per share data (except par value) for the periods presented reflect the effects of the Reverse Split. References to numbers of shares of common stock and per share data in the accompanying financial statements and notes thereto for periods ended prior to March 5, 2018 have been adjusted to reflect the Reverse Split on a retroactive basis.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Fiscal Year

The fiscal year ends on June 30. References to fiscal year 2019, for example, refer to the fiscal year ending June 30, 2019.

Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles and include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reporting amounts of revenues and expenses during the reported period. On an ongoing basis, management evaluates these estimates, including those related to allowances for doubtful accounts receivable, contingent consideration, the carrying value of intangible assets, and assumptions used in binomial valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Cash and Cash Equivalents

The Company considers all highly liquid, temporary, cash equivalents with an original maturity of three months or less when purchased, to be cash equivalents. The Company had no cash equivalents during the six months ended December 31, 2018 and 2017.

Accounts Receivable

Accounts receivable consists of normal trade receivables, which were obtained as part of the transaction to acquire Threat Surface Solutions Group, LLC in October 2018. We have no bad debt allowance as of December 31, 2018. Management performs ongoing evaluations of its accounts receivable. Management believes that all existing receivables are fully collectable. Bad debt expense amounted to $0 for the three and six months ended December 31, 2018.

Capitalized Curriculum Development Costs

Capitalized curriculum development costs represent the costs incurred by the Company to develop cybersecurity training courses. The Company capitalizes curriculum development costs incurred during the application development stage in accordance with Accounting Standards Codification (“ASC”) 350-30. The Company capitalizes curriculum development costs during the design and deployment phases of the project. As a result, a significant portion of the Company’s courseware development costs qualify for capitalization due to the concentration of its development efforts on the content of the courseware. Capitalization ends when a course is available for general release to its customers, at which time amortization of the capitalized costs begins. The period of time over which these development costs are amortized is generally two years. At December 31, 2018 the Company had three cybersecurity courses in development.

Intangible Assets

Intangible assets, net consists of the cost of acquired customer relationships. We capitalize and amortize the cost of acquired intangible assets over their estimated useful lives on a straight-line basis. The Company periodically reevaluates the carrying value of its intangible assets for events or changes in circumstances that indicate that the carrying value may not be recoverable. As part of this reevaluation, the Company estimates the future cash flows expected to result from the use of the asset. If the sum of the expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized to reduce the carrying value of the intangible asset to the estimated fair value of the asset.

Concentration of Credit Risks

The Company is subject to a concentration of credit risk from cash.

The Company’s cash account is held at a financial institution and is insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to $250,000. At December 31, 2018 and June 30, 2018, the Company had not reached a bank balance exceeding the FDIC insurance limit.

Derivative Liabilities

The Company assessed the potential classification of its derivative financial instruments as of December 31, 2018 and June 30, 2018, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract; (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur; and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

During the year ended June 30, 2017, the Company determined that there was no active market for the Company’s common stock, and because of this lack of liquidity and market value, there was no derivative liability associated with these convertible notes. The Company uses judgment in determining the fair value of derivative liabilities at the date of issuance and at every balance sheet thereafter and in determining which valuation method is most appropriate for the instrument (e.g., Black-Scholes-Merton), the expected volatility, the implied risk-free interest rate, as well as the expected dividend rate, if any. The derivate liability that had previously been recognized was recorded as a gain through the change in fair value of derivative liability on the statement of operations as of June 30, 2017. During the six months ended December 31, 2018 the Company determined that there was an active market for the Company’s common stock, and there is, therefore, a derivative liability associated with certain of its convertible notes. The Company recorded a derivative liability as of December 31, 2018.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Fair Value of Financial Instruments

The Company accounts, for assets and liabilities measured at fair value on a recurring basis, in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, or ASC 820. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements.

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

Additional Disclosures Regarding Fair Value Measurements

The carrying value of cash and cash equivalents, accounts payable and accrued expenses, accrued compensation, note and convertible promissory notes payable, approximate their fair value due to the short maturity of these items.

Business combinations

Business combinations are accounted for at fair value. Acquisition costs are expensed as incurred and recorded in selling, general and administrative expenses. The accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of finite-lived intangible assets, or the recognition of additional consideration which would be expensed. The fair value of contingent consideration is remeasured each period based on relevant information and changes to the fair value are included in the operating results for the period.

Convertible Instruments

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with ASC 470-20, Debt with Conversion and Other Options. Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.

ASC 815-40, Contracts in Entity’s own Equity, generally provides that, among other things, if an event is not within the entity’s control, such contract could require net cash settlement and shall be classified as an asset or a liability.

Income Taxes

The Company accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

The Company follows the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions”. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Income Taxes, continued

The Company has adopted ASC 740-10-25, “ Definition of Settlement” , which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. As of December 31, 2018, the Company had not filed tax returns for the tax years ending June 30, 2008 through 2017 and such returns, when filed, potentially will be subject to audit by the taxing authorities for a minimum of three years beyond the filing date under the three-year statute of limitations. The Company has not accrued any potential tax penalties associated with not filing these tax returns. Due to recurring losses, management believes such potential tax penalties, in any, would not be material in amount.

Share-Based Payment

The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Under the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period.

In July 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting , an accounting standard update to improve non-employee share-based payment accounting. The accounting standard update more closely aligns the accounting for employee and non-employee share based payments. The accounting standards update is effective as of the beginning of 2019 with early adoption permitted. We have elected to adopt this standard as of July 1, 2018, the beginning of our 2019 fiscal year.

The Company has elected to use the Black-Scholes-Merton, or BSM, option-pricing model to estimate the fair value of its options, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of stock option awards. Compensation expense recognized in the statements of operations is based on awards ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The ASU replaces the prior lease accounting guidance in its entirety. The underlying principle of the new standard is the recognition of lease assets and lease liabilities by lessees for substantially all leases, with an exception for leases with terms of less than twelve months. The standard also requires additional quantitative and qualitative disclosures. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842) - Land Easement Practical Expedient for Transition to Topic 842, which provides an optional transition practical expedient that allows companies to not evaluate (under Topic 842) existing or expired land easements that were not previously accounted for as leases (under Topic 840). Topic 842 is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. Topic 842 requires a modified retrospective approach, which includes several optional practical expedients. The Company is currently evaluating the impact of ASU 2018-02 on the Company’s consolidated financial statements.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Basic and Diluted Earnings Per Share

Basic earnings per share are calculated by dividing income available to stockholders by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share are computed using the weighted average number of shares of common stock and the dilutive common stock share equivalents outstanding during the period. Dilutive common stock share equivalents consist of shares issuable upon the exercise of in-the-money stock options and warrants (calculated using the modified-treasury stock method) and conversion of other securities such as convertible debt or convertible preferred stock. Potential common shares includable in the computation of fully-diluted per-share results are not presented in the consolidated financial statements for the three and six months ended December 31, 2018 and 2017 as their effect would be anti-dilutive.

NOTE 3: DERIVATIVE LIABILITY

The Company accounts for the embedded conversion features included in its convertible instruments as derivative liabilities. The aggregate fair value of derivative liabilities at December 31, 2018 and June 30, 2018 amounted to $194,255 and $0, respectively. For the six months ended December 31, 2018 and 2017, the Company recorded a loss related to the change in fair value of the derivative liability amounting to $194,255 and $0, respectively. The Company determined that all of the underlying convertible notes were past due and in default, and that there was no active market for the Company’s common stock. Because of this lack of liquidity and market value, there was no derivative liability associated with these convertible notes as of June 30, 2018. During the six months ended December 31, 2018 the Company determined that there was an active market for the Company’s common stock, and there is, therefore, a derivative liability associated with certain of its convertible notes. This change in determination of an active market was a result of the Company completing a reverse split of the Company’s common stock in April, 2018, and the initial success in our cybersecurity business. The Company recorded a derivative liability as of December 31, 2018. For purpose of determining the fair market value of the derivative liability for the embedded conversion features, the Company used the Binomial lattice valuation model. The significant assumptions used in the Binomial lattice valuation of the derivative are as follows:

Changes in the derivative liabilities during the six months ended December 31, 2018 was follows:

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018

NOTE 5: ACQUISITION

On September 4, 2018, the Company entered into a Membership Interest Purchase Agreement (the “TSSG Purchase Agreement”) with the members of Threat Surface Solutions Group, LLC (“TSSG”), a Virginia limited liability company, pursuant to which the Company purchased all of the issued and outstanding membership and/or economic interests of TSSG. The TSSG Purchase Agreement was amended on December 30, 2018, whereby the terms of the acquisition were modified such that the Company acquired 100% of the outstanding member interests of TSSG for 1,538,385 shares of Visium common stock valued at $500,000, the fair market value on the date of the acquisition, plus a 10% royalty on sales generated by TSSG for a period of three years on the first $25,000,000 in revenue. The acquisition was accounted for using the purchase method of accounting. The results of operations are included in the financial statements of operations from the date of acquisition. TSSG is a leading provider of cybersecurity services. The purchase of TSSG included the acquisition of assets of $10,435 and liabilities of $57,872. The aggregate purchase price consisted of the following:

The following table summarizes the estimated fair values of TSSG’s assets acquired and liabilities assumed at the date of acquisition:

The Company will account for the royalties liability related to the revenue generated by TSSG as a reduction of the contingent liability.

Intangible assets acquired from TSSG were assigned the following values: value of customer relationships with an assigned value of $601,287. This intangible asset is being amortized over 36 months, its estimated useful life.

We made an initial allocation of the purchase price at the date of acquisition based on our understanding of the fair value of acquired assets and assumed liabilities. The allocation of purchase price consideration is considered preliminary as of December 31, 2018 with the provisional amounts related to Customer Relationships, and is subject to change. We expect to finalize the allocation of purchase price as soon as possible, but no later than one year from the acquisition date.

The following table presents the unaudited pro forma condensed consolidated statements of operations for the six months ended December 31, 2018:

See accompanying notes to the condensed consolidated unaudited proforma financial information.

Proforma Note 1. — Basis of presentation

The unaudited pro forma condensed consolidated financial statements are based on Visium Technologies, Inc.’s (the “Company” or “VISM”) historical consolidated financial statements as adjusted to give effect to the acquisition of TSSG as if it had occurred on July 1, 2018.

Proforma Note 2 —Purchase price allocation

The unaudited pro forma condensed financial information includes various assumptions, including those related to the purchase price allocation of the assets acquired and liabilities assumed from TSSG based on management’s best estimates of fair value.

NOTE 6: INTANGIBLE ASSET

The Company acquired TSSG on October 12, 2018. At the time of the acquisition the purchase price exceeded the fair value of the assets acquired by $601,287 which we treated as customer relationships for accounting purposes. The purchase price was allocated to value of the customer relationships of TSSG. The Company is amortizing this asset over its estimated useful life of three years.

The Company had convertible promissory notes aggregating approximately $1.6 million and $1.8 million at December 31, 2018 and June 30, 2018, respectively. The related accrued interest amounted to approximately $1.5 million and $1.44 million at September 30, 2018 and June 30, 2018, respectively. The convertible notes payable bear interest at rates ranging from 0% to 18% per annum. The convertible notes are generally convertible, at the holders’ option, at rates ranging from $0.09 to $22,500 per share, as a result of the two reverse stock splits. At December 31, 2018, all $1.6 million of convertible promissory notes had matured, are in default and remain unpaid.

On July 22, 2013 and May 6, 2014, the Company issued to ASC Recap LLC (“ASC Recap”) two convertible promissory notes with principal amounts of $25,000 and $125,000, respectively. These two notes were issued as a fee for services under a Section 3(a)(10) transaction. While the Company continues to carry the balance of these notes on its balance sheet, management is disputing these notes and does not believe that the balances of these notes are owed. See Note 11 – Subsequent Events in the footnotes to the consolidated financial statements. The July 22, 2013 note matured on March 31, 2014 and a balance of $22,965 remains unpaid. The May 6, 2014 note matured on May 6, 2016 and a balance of $125,000 remains unpaid. The notes are convertible into the common stock of the Company at any time at a conversion price equal to (i) 50% of the lowest closing bid price of our common stock for the twenty days prior to conversion or (ii) fixed price of $0.15 or $0.30 per share.

For the six months ended December 31, 2018, the following summarizes the conversion of debt for common shares:

Notes Payable

The Company had promissory notes in the aggregate principal amount of $270,241 at December 31, 2018 and June 30, 2018, respectively. The related accrued interest amounted to approximately $257,000 and $245,200 at December 31, 2018 and June 30, 2018, respectively. The notes payable bear interest at rates ranging from 8% to 16% per annum which is payable monthly. All promissory notes outstanding as of December 31, 2018 have matured, are in default, and remain unpaid.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018

NOTE 8: STOCKHOLDERS’ DEFICIT

Common Stock

At December 31, 2018, the Company had 10,000,000,000 authorized shares of common stock.

Issuances of Common Stock During the Six Months Ended December 31, 2018

Convertible Notes Payable

During the six months ended December 31, 2018 the Company issued 1,985,327 shares of its common stock related to the conversion of $201,055 of principal and accrued interest of its convertible notes payable, at an average contract conversion price of $0.101 per share.

Sale of Restricted Common Stock

During the six months ended December 31, 2018 the Company issued 2,505,000 shares of its common stock related to the sale of its common stock resulting in proceeds of $250,500, at an average price of $0.10 per share.

Acquisition of Threat Surface Solutions Group, LLC

During the six months ended December 31, 2018 the Company issued 1,538,387 shares of its common stock related to its acquisition of Threat Surface Solutions Group, LLC, valued at $500,000, or an average price of $0.325 per share.

Stock Based Compensation

During the six months ended December 31, 2018 the Company issued 3,079,153 shares of its $0.0001 par value common stock as compensation to its directors and officers related to the vesting of restricted stock grants . The shares were valued at $722,042, or $0.234 per share.

During the six months ended December 31, 2018 the Company issued 966,669 shares of its $0.0001 par value common stock to four consultants, as compensation under four separate consulting agreements. The shares were valued at $58,000, or $0.06 per share.

Preferred Stock

The Company’s Series A Convertible Preferred Stock (“Series A Preferred Stock”) and Series B Convertible Preferred Stock (“Series B Preferred Stock”) issued and outstanding shares of the Company’s convertible preferred stock have a par value of $0.001. All classes rank prior to any class or series of the Company’s common stock as to the distribution of assets upon liquidation, dissolution or winding up of the Company or as to the payment of dividends. All preferred stock   shall have no voting rights except if the subject of such vote would reduce the amount payable to the holders of preferred stock upon liquidation or dissolution of the Company and cancel and modify the conversion rights of the holders of preferred stock as defined in the certificate of designations of the respective series of preferred stock.

Series A Convertible Preferred Stock

The Series A Preferred Stock, of which twenty million (20,000,000) shares are authorized, has a stated value of $750.00 per share. Each one share of Series A Preferred Stock is convertible into one (1) share of common stock. In the event the common stock price per share is lower than $0.10 (ten cents) per share then the conversion price shall be set at $0.035 per share. The common stock shares are governed by Lock-Up/Leak-Out Agreements.

Series B Convertible Preferred Stock

Thirty million (30,000,000) shares of preferred stock were designated as Series B Preferred stock in April 2016. This Series B Preferred Stock has a $0.001 par value, have a stated value of $375 per share, and each 300 shares are convertible into 1 share of the Company’s common stock.

Series AA Convertible Preferred Stock

In March 2018, the Company authorized and issued one share of Series AA Convertible Preferred Stock which provides for the holder to vote on all matters as a class with the holders of common stock and each share of Series AA Convertible Preferred Stock shall be entitled to 51% of the common votes on any matters requiring a shareholder vote of the Company. Each one share of Series AA Convertible Preferred Stock is convertible into one share of common stock. Mark Lucky, our CFO, is the holder of the one share of Series AA Convertible Preferred Stock.

Note 9 - STOCK-BASED COMPENSATION

Restricted Stock Awards

Restricted stock awards are awards of common stock that are subject to restrictions on transfer and to a risk of forfeiture if the holder leaves the Company before the restrictions lapse. The holder of a restricted stock award is generally entitled at all times on and after the date of issuance of the restricted shares to exercise the rights of a shareholder of the Company, including the right to vote the shares. The value of stock awards that vest over time was established by the market price on the date of its grant. A summary of the Company’s restricted stock activity for the six months ended December 31, 2018 and June 30, 2018 is presented in the following table:

Unrecognized compensation expense related to outstanding restricted stock awards to employees and directors as of December 31, 2018 was $865,125 and is expected to be recognized over a weighted average period of 2.58 years.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018

NOTE 10: RELATED PARTY TRANSACTIONS

Equity transactions with related parties are described in Note 8.

From time to time we have borrowed operating funds from Mr. Mark Lucky, our Chief Financial Officer, and from certain Directors, for working capital. The advances were payable upon demand and were interest free. At December 31, 2018 there was $40,000 outstanding of such advances made to the Company.

NOTE 11: COMMITMENTS AND CONTINGENCIES

Contingencies

The Company accounts for contingent liabilities in accordance with ASC Topic 450, Contingencies . This guidance requires management to assess potential contingent liabilities that may exist as of the date of the financial statements to determine the probability and amount of loss that may have occurred, which inherently involves an exercise of judgment. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. For loss contingencies considered remote, no accrual or disclosures are generally made. Management has assessed potential contingent liabilities as of December 31, 2018, and based on the assessment there are no probable loss contingencies requiring accrual or disclosures within its financial statements.

The consideration payable to the sellers of Threat Surface Solutions Group, LLC includes up to $2.5 million as a royalty payment on sales during the three year period ending October 12, 2021. The fair value of contingent consideration is remeasured each period based on relevant information and changes to the fair value are included in the operating results for the period. 

On July 24, 2018, Visium entered into a patent license agreement (the “GMRF License Agreement”) with George Mason Research Foundation, Inc, (“GMRF”) to commercialize and sell a network assessment and visualization tool that is backed by eight issued patents.   This technology allows customers to collect and analyze large amounts of IT security data, discover and prioritize vulnerabilities, and take remedial actions.

Under the GMRF License Agreement, the Company is required to make a first commercial sale of a “Licensed Product” and/or a first commercial performance of a “Licensed Process,” as defined in the GMRF License Agreement, on or before July 30, 2019. The 2019   minimum revenue target for the sale of products and services incorporating the GMRF technology is $100,000. This minimum revenue amount will increase in subsequent years. Also, within 30 days of July 20, 2018 (the “GMRF Effective date”), the Company was required to pay GMRF a non-refundable license issue fee of $20,000, which was included in general and administrative expense on our statement of operations. Pursuant to the GMRF License Agreement, the Company is required to pay GMRF a running royalty of 5% of “Net Sales,” as defined in the GMRF License Agreement.

Legal Claims

The Company is subject to litigation, claims, investigations and audits arising from time to time in the ordinary course of business. Although legal proceedings are inherently unpredictable, the Company believes that it has valid defenses with respect to any matters currently pending against the Company and intends to defend itself vigorously. The outcome of these matters, individually and in the aggregate, is not expected to have a material impact on the Company’s cash flows, results of operations, or financial position.

In July 2018 the Company was named as the defendant in a legal proceeding brought by Tarpon Bay Partners LLC (the “Plaintiff”) in the Judicial District Court of Danbury, Connecticut. Plaintiff asserts that the Company failed to convert two convertible notes held by Plaintiff. The Company is vigorously contesting this claim.