Amended Quarterly Report (10-q/a)

Date : 05/15/2019 @ 10:22PM
Source : Edgar (US Regulatory)
Stock : Visium Technologies, Inc. (VISM)
Quote : 0.0485  -0.0205 (-29.71%) @ 9:00PM

Amended Quarterly Report (10-q/a)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________.

 

Commission file number 000-25753

 

VISIUM TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Florida   87-0449667

(State or Other Jurisdiction of

Incorporation or Organization)

  (IRS Employer
Identification No.)

 

11325 RANDOM HILLS ROAD, SUITE 360   22030
Address of Principal Executive Offices   Zip Code

 

  (703) 225-3443  
  Registrant’s telephone number, including area code  

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [X] Smaller reporting company [X]
  Emerging growth company[  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange
on which registered
None   None   None

 

The number of shares outstanding of the registrant’s Common Stock, $0.0001 par value per share, as of May 12, 2019, was 41,582,936.

 

When used in this quarterly report, the terms “Visium,” “the Company,” “we,” “our,” and “us” refer to Visium Technologies, Inc., a Florida corporation.

 

 

 

 
 

 

EXPLANATORY NOTE

 

Visium Technologies, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A (this “Amendment No. 1”) to amend the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019, filed with the U.S. Securities and Exchange Commission on May 13, 2019 (the “Original Form 10-Q”). This Amendment No. 1 is being filed solely to correct scrivener’s errors with respect to disclosures under Item 2- Unregistered Sales of Equity Securities and Use of Proceeds.

 

     
 

 

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

 

This quarterly report on Form 10-Q contains certain forward-looking statements. Forward-looking statements may include our statements regarding our goals, beliefs, strategies, objectives, plans, including product and service developments, future financial conditions, results or projections or current expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of such terms, or other comparable terminology. These statements are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those contemplated by the forward-looking statements. These factors include, but are not limited to, our ability to implement our strategic initiatives, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. The business and operations of Visium Technologies, Inc. are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this report. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business is described under “Item 1A. Risk Factors” in our registration statement on Form 10-K as filed with the Securities and Exchange Commission, or the SEC, on August 20, 2018. Readers are also urged to carefully review and consider the various disclosures we have made in this report and in our Form 10-K.

 

 
 

 

VISIUM TECHNOLOGIES, INC. AND SUBSIDIARIES

 

INDEX

 

PART I - FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Consolidated Balance Sheets – March 31, 2019 (unaudited) and June 30, 2018 3
Consolidated Statements of Operations - Three and Nine Months ended March 31, 2019 and 2018 (unaudited) 4
Consolidated Statements of Changes in Stockholders’ Deficit (unaudited) - Three and Nine Months ended March 31, 2019 and 2018 5
Consolidated Statements of Cash Flows - Three and Nine Months Ended March 31, 2019 and 2018 (unaudited) 7
Notes to Unaudited Consolidated Financial Statements - March 31, 2019 8
Item 2. Management’s Discussion and Analysis and Results of Operations 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Item 4. Controls and Procedures 25
PART II - OTHER INFORMATION 26
Item 1. Legal Proceedings. 26
Item 1A. Risk Factors. 26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 26
Item 3. Defaults Upon Senior Securities. 26
Item 4. Mine Safety Disclosures. 26
Item 5. Other Information. 26
Item 6. Exhibits 26
SIGNATURES 27

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

Visium Technologies, Inc.

CONSOLIDATED BALANCE SHEETS

 

    March 31, 2019     June 30, 2018 (1)  
    (Unaudited)        
ASSETS                
Current assets:                
Cash   $ 32,398     $ 11,412  
Prepaid expenses     1,646       -  
Total current assets     34,044       11,412  
                 
Intangible asset, net of accumulated amortization of $91,863 at March 31, 2019, and $0 at June 30, 2018     509,424       -  
                 
Total assets   $ 543,468     $ 11,412  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
Current liabilities:                
Accounts payable and accrued expenses   $ 211,447     $ 626,583  
Accrued compensation     277,529       155,825  
Accrued interest     625,945       1,686,054  
Convertible notes payable to ASC Recap LLC     147,965       147,965  
Convertible notes payable, net of discount of $233,333 at March 31, 2019, and $0 at June 30, 2018     842,095       1,617,984  
Derivative liabilities     1,354,727       -  
Due to officers     -       21,000  
Notes payable     205,000       270,241  
Total current liabilities     3,664,708       4,525,652  
                 
Total liabilities     3,664,708       4,525,652  
                 
Commitments and Contingencies (Note 11)                
Contingent liability     52,315       -  
                 
Stockholders’ deficit:                
Preferred stock, $0.001 par value, 100,000,000 shares authorized                
Series A (20,000,000 shares designated, 13,992,340 shares issued and outstanding as of March 31, 2019 and June 30, 2018)     13,992       13,992  
Series B (30,000,000 shares designated, 1,327,640 shares issued and outstanding as of March 31, 2019 and June 30, 2018)     1,328       1,328  
Series AA Convertible Stock ($0.001 par value; 1 share authorized, 1 share issued and outstanding as of March 31, 2019 and June 30, 2018, respectively)     -       -  
Common stock, $0.0001 par value, 10,000,000,000 shares authorized: 45,610,716 shares issued and 41,582,936 shares outstanding as of March 31, 2019 and 23,212,549 shares issued and 9,376,441 outstanding at June 30, 2018 (See Note 9)     4,158       938  
Additional paid in capital     43,156,033       40,160,699  
Accumulated deficit     (46,349,066 )     (44,691,196 )
Total stockholders’ deficit     (3,173,555 )     (4,514,240 )
                 
Total liabilities and stockholders’ deficit   $ 543,468     $ 11,412  

 

(1) Derived from audited financial statements

 

See Notes to Unaudited Consolidated Financial Statements.

 

3
 

 

Visium Technologies, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    Three Months Ended     Nine Months Ended  
    March 31,     March 31,  
    2019     2018     2019     2018  
Net revenues   $ -     $ -     $ -     $ -  
                                 
Operating expenses:                                
Selling, general and administrative     1,445,550       280,173       2,573,734       491,243  
Amortization expense     50,107       -       91,863       -  
Total operating expenses     1,495,657       280,173       2,665,597       491,243  
                                 
Loss from operations     (1,495,657 )     (280,173 )     (2,665,597 )     (491,243 )
                                 
Other income (expenses):                                
Loss on change in fair value of derivative liabilities     (536,549 )     -       (730,804 )     -  
Derivative liability expense     (341,423 )     -       (341,423 )     -  
Gain on debt write off     2,292,162       15,918       2,303,147       15,918  
Other income     10,000       -       10,000       -  
Interest expense     (121,592 )     (48,045 )     (233,194 )     (222,201 )
Total other income (expenses)     1,302,598       (32,127 )     1,007,726       (206,283 )
                                 
Net loss   $ (193,059 )   $ (312,000 )   $ (1,657,871 )   $ (697,526 )
                                 
Earnings per share                                
Earnings (loss) per common share - basic and diluted   $ (0.01 )   $ (0.37 )   $ (0.10 )   $ (0.63 )
                                 
Weighted average common shares outstanding – basic     21,619,609       838,828       16,765,283       1,112,883  

 

See Notes to Unaudited Consolidated Financial Statements.

 

4
 

 

VISIUM TECHNOLOGIES, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2019

(UNAUDITED)

 

    Preferred
Stock -
Series A
$0.001
Par Value
    Preferred
Stock -
Series B
$0.001
Par Value
    Preferred
Stock -
Series AA
$0.001
Par Value
    Common
Stock
$0.0001
Par Value
    Additional Paid-in     Accumulated     Total Stockholders’  
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
Balance at June 30, 2018     13,992,340     $ 13,992       1,327,640     $ 1,328       1     $ 0       9,376,441     $ 938     $ 40,160,699     $ (44,691,196 )   $ (4,514,240 )
                                                                                         
Shares issued as compensation                                                     1,279,169       128       239,122             $ 239,250  
Shares issued for consulting services                                                     483,336       48       28,952               29,000  
Shares issued for sale                                                     1,328,000       133       132,667               132,800  
Shares issued for conversion of notes payable                                                     912,456       91       97,214               97,305  
Net loss for the three months ended September 30, 2018                                                                             (1,059,423 )     (1,059,423 )
                                                                                         
Balance at September 30, 2018     13,992,340     $ 13,992       1,327,640     $ 1,328       1     $ 0       13,379,402     $ 1,338     $ 40,658,654     $ (45,750,619 )   $ (5,075,307 )
                                                                                         
Shares issued as compensation                                                     1,799,984       180       482,612             $ 482,792  
Shares issued for consulting services                                                     483,333       48       28,952               29,000  
Shares issued for sale                                                     1,177,000       118       117,582               117,700  
Shares issued for conversion of notes payable                                                     1,072,871       107       103,643               103,750  
Acquisition of TSSG                                                     1,538,387       154       499,846               500,000  
Net loss for the three months ended December 31, 2018                                                                             (405,389 )     (405,389 )
                                                                                         
Balance at December 31, 2018     13,992,340     $ 13,992       1,327,640     $ 1,328       1     $ 0       19,450,977     $ 1,945     $ 41,891,289     $ (46,156,008 )   $ (4,247,454 )
                                                                                         
Shares issued as compensation                                                     20,348,601       2,035       1,177,423             $ 1,179,458  
Shares issued for consulting services                                                     1,783,339       178       87,322               87,500  
Net loss for the three months ended March 31, 2019                                                                             (193,059 )     (193,059 )
                                                                                         
Balance at March 31, 2019     13,992,340     $ 13,992       1,327,640     $ 1,328       1     $ 0       41,582,936     $ 4,158     $ 43,156,033     $ (46,349,066 )   $ (3,173,555 )

 

5
 

 

VISIUM TECHNOLOGIES, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2018

(UNAUDITED)

 

    Preferred
Stock -
Series A
$0.00
Par Value
    Preferred
Stock -
Series B
$0.00
Par Value
    Preferred
Stock -
Series AA
$0.00
Par Value
    Common
Stock
$0.00
Par Value
    Additional Paid-in     Accumulated     Total Stockholders’  
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
Balance at June 30, 2017     13,992,340   $ 13,992       1,327,640     $ 1,328       0     $ 0       499,152     $ 50     $ 38,356,155     $ (43,300,856 )   $ (4,929,331 )
                                                                                         
Shares issued for conversion of notes payable                                                     203,767       20       40,010               40,030  
Net loss for the three months ended September 30, 2017                                                                             (220,400 )     (220,400 )
Balance at September 30, 2017     13,992,340   $ 13,992       1,327,640     $ 1,328       0     $ 0       702,919     $ 70     $ 38,396,165     $ (43,521,256 )     (5,109,701 )
                                                                                         
Shares issued for conversion of notes payable                                                     79,333       8       11,892             $ 11,900  
Net loss for the three months ended December 31, 2017                                                                             (164,826 )     (164,826 )
                                                                                         
Balance at December 31, 2017     13,992,340   $ 13,992       1,327,640     $ 1,328       0     $ 0       782,252     $ 78     $ 38,408,057     $ (43,686,082 )     (5,262,627 )
                                                                                         
Shares issued as compensation                                                     166,667       17       49,983             $ 50,000  
Shares issued for consulting services                                                     441,667       44       132,456               132,500  
Shares issued for accrued payables                                                     95,238       10       59,990               60,000  
Shares issued due to reverse split -rounding)                                                     744                               0  
Net loss for the three months ended March 31, 2018                                                                             (312,300 )     (312,300 )
                                                                                         
Balance at March 31, 2018     13,992,340   13,992       1,327,640     $ 1,328       0     $ 0       1,486,568     $ 149     $ 38,650,486     $ (43,998,382 )   $ (5,332,427 )

 

6
 

 

Visium Technologies, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    N ine-Months Ended  
    March 31,  
    2019     2018  
Cash flows from operating activities:                
Net loss   $ (1,657,871 )   $ (697,526 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Loss on change in fair value of derivative liability     730,804       -  
Derivative liability expense     341,423          
Stock-based compensation     2,047,500       242,500  
Gain on debt write off     (2,303,147 )     (15,918 )
Amortization expense     91,863       -  
Amortization of debt discount     66,667       27,083  
Changes in operating assets and liabilities:                
Accounts payable     (93,106 )     25,171  
Prepaid insurance     (1,646 )     -  
Accrued interest     165,294       195,117  
Accrued compensation     121,704       178,699  
Net cash used in operating activities     (491,014 )     (44,874 )
                 
Cash flows from financing activities:                
Proceeds from issuance of convertible notes payable     282,500       37,500  
Proceeds from sale of common stock     250,500       -  
Repayment of a dvances from officers     (21,000 )     46,000  
                 
Net cash provided by financing activities     512,000       83,500  
                 
Net increase in cash     20,986       38,625  
                 
Cash, beginning of period     11,412       2,313  
                 
Cash, end of period   $ 32,398     $ 40,940  
                 
Supplemental disclosures of cash flow information:                
Cash paid for interest   $ 1,232     $ -  
Cash paid for income taxes   $ -     $ -  
                 
Non-cash investing and financing activities:                
Shares issued for acquisition   $ 500,000     $ -  
Accrued compensation exchanged for common stock     -       242,500  
Convertible debt exchanged for common stock   $ 201,055     $ 51,930  

 

See Notes to Unaudited Consolidated Financial Statements.

 

7
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

 

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.

 

Visium is a provider of cyber security automation, analytics and visualization, and a driving force behind the growing practice of SecOps. SecOps is the practice of aligning cyber security, IT, and DevOps teams so that security becomes an integral part of these teams’ daily operations to empower organizations to innovate faster and more securely. Visium’s CyGraph technology provides visibility, analytics and automation to help reduce risk, simplify cyber security and deliver better security outcomes.

 

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

 

In March 2019 the Company entered into a license agreement with Mitre Corporation to license a patented technology, known as CyGraph, a tool for cyber warfare analytics, visualization and knowledge management. Cygraph provides advanced analytics for cybersecurity situational awareness that is scalable, flexible and comprehensive.

 

The Company named Henry J. Holcombe as its Chief Executive Officer in August 2018 to provide strategic expertise in pursuing its business plans. Mr. Holcombe resigned in February 2019 to take the Chief Information Officer position at the United States Patent & Trademark Office, and Mark Lucky was named as Chief Executive Officer.

 

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 additional consideration in the form of 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 nine months ended March 31, 2019 we had a net loss of $1,657,871, had net cash used in operating activities of $491,014, and had negative working capital of $3,630,664. 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 nine months ended March 31, 2019, 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.

 

8
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

 

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 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 as of March 31, 2019 and June 30, 2018.

 

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 March 31, 2019 and June 30, 2018, the Company had not reached a bank balance exceeding the FDIC insurance limit.

 

9
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

 

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:

 

Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities.
   
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
   
Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

 

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 and Derivative Liabilities

 

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.

 

The Company assessed the potential classification of its derivative financial instruments as of March 31, 2019 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.

 

10
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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 Cox, Ross & Rubinstein Binomial Tree 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 was 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 currently has no lease agreements and therefore ASU 2018-02 has no impact on the Company’s consolidated financial statements.

 

11
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

 

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.

 

NOTE 3: DERIVATIVE LIABILITY

 

Derivative liability - warrants

 

The Company issued warrants in connection with convertible notes payable which were issued in January 2019. These warrants have price protection provisions that allow for the reduction in the exercise price of the warrants in the event the Company subsequently issues stock or securities convertible into stock at a price lower than the $0.15 per share exercise price of the warrants. Simultaneously with any reduction to the exercise price, the number of shares of common stock that may be purchased upon exercise of each of these warrants shall be increased or decreased proportionately, so that after such adjustment the aggregate exercise price payable for the adjusted number of warrants shall be the same as the aggregate exercise price in effect immediately prior to such adjustment. The Company accounted for its warrants with price protection in accordance with FASB ASC Topic 815.

 

Accounting for Derivative Warrant Liability

 

The Company’s derivative warrant instruments have been measured at fair value at March 31, 2019 using the Cox, Ross & Rubinstein Binomial Tree valuation model. The Company recognizes the derivative liability related to those warrants that contain price protection features in its consolidated balance sheet as liabilities. The liability is revalued at each reporting period and changes in fair value are recognized currently in the consolidated statements of operations. The initial recognition and subsequent changes in fair value of the derivative warrant liability have no effect on the Company’s cash flows.

 

Derivative liability – convertible notes

 

The Company has certain convertible notes with variable price conversion terms. U pon the issuance of these convertible notes and as a consequence of their conversion features, the convertible notes give rise to derivative liabilities. The Company’s derivative liabilities related to its convertible notes payable have been measured at fair value at March 31, 2019 and March 31, 2018 using the Cox, Ross & Rubinstein Binomial Tree valuation model.

 

The revaluation of the warrants and convertible debt at each reporting period, as well as the charges associated with issuing additional convertible notes, and warrants with price protection features, resulted in the recognition of expense of $730,804 and $0 for the nine months ended March 31, 2019 and 2018, respectively in the Company’s consolidated statements of operations, under the caption “Gain (loss) in change of fair value of derivative liability”. The fair value of the warrants at March 31, 2019 and June 30, 2018 is $38,750 and $0, respectively. The fair value of the derivative liability related to the convertible debt at March 31, 2019 and June 30, 2018 is $1,315,977 and $0, respectively, which is reported on the consolidated balance sheet under the caption “Derivative liability”.

 

The Company has determined its derivative liability to be a Level 3 fair value measurement. The significant assumptions used in the Cox, Ross & Rubinstein Binomial Treevaluation of the derivative are as follows:

 

    Nine Months Ended March 31,  
    2019     2018  
Effective exercise price   $ 0.0216 - $ 0.0616     $ -  
Effective market price   $ 0.08     $  -  
Volatility     222.61 %     - %
Risk-free interest     2.40% - 2.43 %     - %
Terms     30 - 286 days       -  
Expected dividend rate     0 %     - %

 

Changes in the derivative liabilities during the nine months ended March 31, 2019 was follows:

 

Derivative liability at June 30, 2018   $ -  
Derivative liability expense     341,423  
Loss on change in fair value of derivative liabilities     730,804  
Derivative liability attributed to discount on notes payable     282,500  
Derivative liability at March 31, 2019   $ 1,354,727  

 

NOTE 4: ACCRUED INTEREST PAYABLE

 

Changes in accrued interest payable during the nine months ended March 31, 2019, is as follows:

 

Accrued interest payable at June 30, 2018   $ 1,686,054  
Interest expense for the nine months ended March 31, 2019     166,524  
Gain on write off of accrued interest     (1,184,214 )
Cash paid for accrued interest     (1,232 )
Gain on forgiveness of accrued interest     (10,982 )
Conversion of accrued interest into common stock     (30,205 )
Accrued interest payable at March 31, 2019   $ 625,945  

 

Interest expense for the nine months ended March 31, 2019 was comprised of the following:

 

Interest expense for the nine months ended March 31, 2019   $ 166,527  
Amortization of debt discount     66,667  
Total interest expense for the nine months ended March 31, 2019   $ 233,194  

 

12
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

 

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:

 

Fair value of common stock issued to seller   $ 500,000  
Net liabilities assumed     48,972  
Contingent consideration     52,315  
    $ 601,287  

 

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

 

Cash   $ 451  
Accounts Receivable     9,984  
Accounts payable and accrued expenses     (59,407 )
    $ (48,972 )

 

The Company will account for the royalty 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 March 31, 2019 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.

 

13
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

 

The following table presents the unaudited pro forma condensed consolidated statement of operations for the nine months ended March 31, 2019:

 

    VISIUM     TSSG     ProForma
Adjustments
    ProForma Combined  
Sales, net   $ -     $ 9,984     $          -     $ 9,984  
Cost of goods sold     -       5,120               5,120  
Gross profit     -       4,864       -       4,864  
                                 
Operating expenses     2,665,597       119,194       -       2,784,791  
                                 
Net loss before other expenses     (2,665,597 )     (114,330 )     -       (2,779,927 )
                                 
Other income (expense)     1,007,726       (1,687 )     -       1,006,040  
                                 
Net loss   $ (1,657,871 )   $ (116,017 )   $ -     $ (1,773,888 )

 

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.

 

    Estimated Life   March 31, 2019     June 30, 2018  
Customer relationships   3 years   $ 601,287       -  
Less: accumulated amortization         (91,863 )     -  
                     
        $ 509,424     $ -  

 

NOTE 7: CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE

 

Convertible Notes Payable

 

At March 31, 2019 and June 30, 2018 convertible debentures consisted of the following:

 

    March 31, 2019     June 30, 2018  
Convertible notes payable   $ 1,075,425     $ 1,617,984  
Discount on notes payable     (233,330 )     -  
Subtotal     842,095       1,617,984  
Convertible notes payable to ASC Recap LLC     147,965       147,965  
Total   $ 990,060     $ 1,765,949  

 

The Company had convertible promissory notes aggregating $990,060 and $1,765,949 at March 31, 2019 and June 30, 2018, respectively. The related accrued interest amounted to $467,917 and $1,440,816 at March 31, 2019 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 March 31, 2019, $923,390 of the convertible promissory notes had matured, are in default and remain unpaid.

 

In January 2019 the Company entered into two securities purchase agreements whereby each Holder purchased from the Company, for a purchase price of $150,000 each, or $300,000 in total a (i) 8% senior convertible promissory note in the principal amount of $150,000 (the “Note”) convertible into shares of the Company’s common stock (the “Common Stock”); and (ii) a warrant to purchase 250,000 shares of the Company’s Common Stock, exercisable at a price of $0.15, subject to adjustment, per share over the course of a three year term (the “Warrant”, and together with the Note, the “Securities”). The Warrant provides for a cashless exercise provision. The closing occurred following the satisfaction of customary closing conditions.

 

14
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

 

The Notes mature twelve (12) months from the date of issuance and may be prepaid at any time pursuant to the terms of the Note. The Notes are convertible into shares of the Company’s Common Stock at a price (the “Conversion Price”) equal to the lower of (i) $0.15 per share or (ii) 65% multiplied by the lowest traded price of the Common Stock during the ten (10) consecutive Trading Day period (as defined in the Note) immediately preceding the Trading Day that the Company receives a notice of conversion (the “Variable Conversion Price”). The Conversion Price may further be adjusted in connection with the terms of the Note.

 

The Company records convertible notes net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the FASB ASC 470. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is amortized to interest expense over the life of the debt.

 

In March 2019 the Company obtained a legal opinion to extinguish aged debt totaling $2,292,162 as detailed in the following table. Each of the individual debt instruments were determined to be beyond the statute of limitations and it was determined that the Company has a complete defense to liability related to this debt under the applicable statute of limitations.

 

Accounts payable and accrued expenses   $ 371,001  
Convertible notes payable     671,706  
Short term promissory notes payable     65,241  
Accrued interest payable     1,184,214  
Total extinguished debt   $ 2,292,162  

 

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) financing 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 – Commitment and Contingencies 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, respectively.

 

For the nine months ended March 31, 2019, the following summarizes the conversion of debt for common shares:

 

                    Conversion  
              Amount Converted     Price  
Date   Name   Shares Issued     Principal     Interest     Total     Per Share  
07/31/2018   DWIGHT POWER     111,111       10,000       -       10,000     $ 0.09  
08/02/2018   ROYAL PALM CONSULTING SERVICES LLC     431,116       18,100       20,700       38,800     $ 0.09  
09/13/2018   LANCE QUARTIERI     370,319       42,500       6,005       48,505     $ 0.131  
10/12/2018   ENTERPRISE SOLUTIONS LLC     120,000       14,500       3,500       18,000     $ 0.15  
11/05/2018   FOWLER FAMILY TRUST V/A DTD 10/28/96     179,167       16,125       -       16,125     $ 0.09  
11/05/2018   ARTHUR NOTINI     277,778       25,000       -       25,000     $ 0.09  
11/05/2018   ROY D MITTMAN     27,778       2,500       -       2,500     $ 0.09  
11/05/2018   ROY D MITTMAN     111,112       10,000       -       10,000     $ 0.09  
11/05/2018   GARY DUQUETTE     55,556       5,000       -       5,000     $ 0.09  
11/05/2018   DUQUETTE FAMILY LIVING TRUST     55,556       5,000       -       5,000     $ 0.09  
11/05/2018   GARY DUQUETTE     245,834       22,125       -       22,125     $ 0.09  
                                             
    Total     1,985,327     $ 170,850     $ 30,205     $ 201,055     $ 0.101  

 

Notes Payable

 

The Company had promissory notes in the aggregate principal amount of $205,000 and $270,241 at March 31, 2019 and June 30, 2018, respectively. The related accrued interest amounted to approximately $155,000 and $245,200 at March 31, 2019 and June 30, 2018, respectively. The notes payable bear interest at rates ranging from 0% to 16% per annum which is payable monthly. All promissory notes outstanding as of March 31, 2019 have matured, are in default, and remain unpaid.

 

15
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

 

NOTE 8: STOCKHOLDERS’ DEFICIT

 

Common Stock

 

At March 31, 2019, the Company had 10,000,000,000 authorized shares of common stock.

 

Issuances of Common Stock During the Nine Months Ended March 31, 2019

 

Convertible Notes Payable

 

During the nine months ended March 31, 2019 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 nine months ended March 31, 2019 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 nine months ended March 31, 2019 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 nine months ended March 31, 2019 the Company issued 23,427,759 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 $1,901,500, or $0.081 per share, based on the share price at the time of the transactions.

 

During the nine months ended March 31, 2019 the Company issued and vested 2,750,008 shares of its $0.0001 par value common stock to four consultants, as compensation under four separate consulting agreements. The shares were valued at $145,500, or $0.052 per share, based on the share price at the time of the transactions.

 

Issuances of Common Stock During the Nine Months Ended March 31, 2018

 

During the nine months ended March 31, 2018 the Company issued 283,100 shares of its common stock related to the conversion of $51,930 of principal of its convertible notes payable, at an average contract conversion price of $0.18 per share.

 

During the quarter ended March 31, 2018 the Company issued a restricted share award of 166,667 shares of its $0.0001 par value common stock to its new CEO, Mark Lucky, as compensation. The shares were valued at $50,000, or $0.30 per share on a post reverse split basis. On a pre- reverse split basis, the shares were issued at par value as there was no active market in our common stock.

 

During the quarter ended March 31, 2018 the Company issued a restricted share award of 166,667 shares of its $0.0001 par value common stock to its new board member, Tom Grbelja, as compensation for services rendered. The shares were valued at $50,000, or $0.30 per share on a post reverse split basis. On a pre- reverse split basis, the shares were issued at par value as there was no active market in our common stock

 

During the quarter ended March 31, 2018 the Company issued a restricted share award of 83,334 shares of its $0.0001 par value common stock to its new board member, Paul Favata, as compensation for services rendered. The shares were valued at $25,000, or $0.30 per share on a post reverse split basis. On a pre- reverse split basis, the shares were issued at par value as there was no active market in our common stock

 

During the quarter ended March 31, 2018 the Company issued 191,669 shares of its $0.0001 par value common stock to four consultants, as compensation under four separate consulting agreements. The shares were valued at $57,500, or $0.30 per share on a post reverse split basis. On a pre- reverse split basis, the shares were issued at par value as there was no active market in our common stock

 

During the quarter ended March 31, 2018 the Company issued 95,238 shares of its $0.0001 par value common stock to satisfy a liability owed to a Company controlled by our CEO. The shares were valued at $60,000, or $0.63 per share on a post reverse split basis, the weighted average market price for the ten preceding days from the date that the shares were issued.

 

16
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

 

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 Chairman and CFO, is the holder of the one share of the Series AA Convertible Preferred Stock.

 

Common Stock Warrants

 

In January 2019 we issued 500,000 warrants with a three year life and a conversion price of $0.15 per share. These warrants have price protection provisions that allow for the reduction in the current exercise price upon the occurrence of certain events, including the Company s issuance of common stock or securities convertible into or exercisable for common stock, such as options and warrants, at a price per share less than the exercise price then in effect. For instance, if the Company issues shares of its common stock or options exercisable for or securities convertible into common stock at an effective price per share of common stock less than the exercise price then in effect, the exercise price will be reduced to the effective price of the new issuance. Simultaneously with any reduction to the exercise price, the number of shares of common stock that may be purchased upon exercise of each of these warrants shall be increased proportionately, so that after such adjustment the aggregate exercise price payable for the adjusted number of warrants shall be the same as the aggregate exercise price in effect immediately prior to such adjustment.

 

A summary of the status of the Company’s outstanding common stock warrants as of March 31, 2019 and changes during the period ending on that date is as follows:

 

    Number of     Weighted Average  
    Warrants     Exercise Price  
Common Stock Warrants                
Balance at beginning of year     -       -  
Granted     500,000     $ 0.15  
Granted due to repricing     -       -  
Exercised     -       -  
Forfeited     -       -  
Balance at end of period     500,000     $ 0.15  
                 
Warrants exercisable at end of period     500,000     $ 0.15  
                 
Weighted average fair value of warrants granted during the period           $ 38,750  

 

17
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

 

The following table summarizes information about common stock warrants outstanding at March 31, 2019:

 

      Warrants Outstanding     Warrants Exercisable  
            Weighted                  
            Average   Weighted           Weighted  
Range of     Number     Remaining   Average     Number     Average  
Exercise     Outstanding at     Contractual   Exercise     Exercisable at     Exercise  
Price     March 31, 2019     Life   Price     March 31, 2019     Price  
$ 0.15       500,000     2.84 Years   $ 0.15       500,000     $ 0.15  
          500,000     2.84 Years   $ 0.15       500,000     $ 0.15  

 

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.

 

In March 2019, the Company accelerated the vesting of 6,569,436 shares related to restricted stock awards to its directors and officers. The expense related to the acceleration of vesting totaled $533,957, or $0.081 per share and is included in Selling, general and administrative expenses in our Statement of Operations.

 

A summary of the Company’s restricted stock activity for the nine months ended March 31, 2019 and the year ended June 30, 2018 is presented in the following table:

 

    For the  
    Nine Months ended March 31, 2019     Year ended June 30, 2018  
          Weighted           Weighted  
          Average           Average  
          Grant Date           Grant Date  
    Shares     Fair Value     Shares     Fair Value  
Unvested at beginning of period     13,836,108     $ 0.06       -       -  
Granted     1,500,000     $ 0.38       14,650,000       .06  
Forfeited     (930,555 )     0.36       -       -  
Vested     (10,377,773 )   $ 0.078       (813,892 )     .06  
Unvested at end of period     4,027,780     $ 0.06       13,836,108       .06  

 

Unrecognized compensation expense related to outstanding restricted stock awards to consultants as of March 31, 2019 was $241,667 and is expected to be recognized over a weighted average period of 2.08 years.

 

18
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

 

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 Executive Officer, and from certain Directors, for working capital. The advances were payable upon demand and were interest free. At March 31, 2019 there were no outstanding 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 March 31, 2019, 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.

 

In March 2019 the Company entered into a software license agreement with Mitre Corporation (“MITRE”) to license a patented technology, known as CyGraph, a tool for cyber warfare analytics, visualization and knowledge management. Cygraph provides advanced analytics for cybersecurity situational awareness that is scalable, flexible and comprehensive.

 

Pursuant to the Agreement, the Company is required to have a marketable, demonstrable and saleable product or service using the Software within twelve (12) months of the date of the Agreement, and the Company is required to pay to MITRE a royalty fee based on gross fees charged to the Company’s customers. Additionally, the Company is required to pay to MITRE a non-refundable license issue fee.

 

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.

 

NOTE 12: SUBSEQUENT EVENTS

 

There are no events that management deems reportable that occurred after March 31, 2019.

 

19
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included elsewhere in this report. Certain statements in this discussion and elsewhere in this report constitute forward-looking statements. See ‘‘Cautionary Statement Regarding Forward Looking Information’’ elsewhere in this report. Because this discussion involves risk and uncertainties, our actual results may differ materially from those anticipated in these forward-looking statements .

 

Overview

 

Visium Technologies, Inc. is a Florida based company focused on building a global cybersecurity business by advancing technology and cybersecurity tools and services to support enterprises in protecting their most valuable assets - their data, on their networks, in the cloud, and Internet of Things (“IOT”).

 

Visium is a leading provider of cyber security automation, analytics and visualization, and a driving force behind the growing practice of SecOps. SecOps is the practice of aligning cyber security, IT, and DevOps teams so that security becomes an integral part of these teams’ daily operations to empower organizations to innovate faster and more securely. Visium’s CyGraph technology provides visibility, analytics and automation to help reduce risk, simplify cyber security and deliver better security outcomes.

 

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 effect a 1-for-3,000 Reverse 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.

 

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.

 

In March 2019 the Company entered into a software license agreement with Mitre Corporation (“MITRE”)to license a patented technology, known as CyGraph, a tool for cyber warfare analytics, visualization and knowledge management. Cygraph provides advanced analytics for cybersecurity situational awareness that is scalable, flexible and comprehensive.

 

Employees

 

At May 13, 2019, we had 3 full time employees.

 

Our principal offices are located at 11325 Random Hills Road, Suite 360, Fairfax, Virginia 22030. Our telephone number is (703) 225-3443.

 

Our common stock is quoted on the OTC Markets under the symbol “VISM”.

 

20
 

 

VISIUM TECHNOLOGIES, INC.

RESULTS OF OPERATIONS

 

Three and Nine Months Ended March 31, 2019 and 2018

 

    Three Months Ended     Nine Months Ended  
    March 31,     March 31,  
    2019     2018     2019     2018  
Operating expenses:                                
Selling, general and administrative   $ 1,445,550     $ 280,173     $ 2,573,734     $ 491,243  
Amortization expense     50,107       -       91,863       -  
Total operating expenses     1,495,657       280,173       2,665,597       491,243  
                                 
Loss from operations     (1,495,657 )     (280,173 )     (2,665,597 )     (491,243 )
                                 
Other income (expenses):                                
Loss on change in fair value of derivative liabilities     536,549 )     -       (730,804 )     -  
Derivative liability expense     (341,423 )     -       (341,423 )     -  
Gain on debt write off     2,292,162       15,918       2,303,147       15,918  
Other income     10,000       -       10,000       -  
Interest expense     (121,592 )     (48,045 )     (233,194 )     (222,201 )
Total other income (expenses)     1,302,598       (32,127 )     1,007,726       (206,283 )
                                 
Net income (loss)   $ (193,059 )   $ (312,000 )   $ (1,657,871 )   $ (697,526 )

 

Nine Month Period Ended March 31, 2019

 

For the nine months ended March 31, 2019, selling, general and administrative expenses were $ $2,573,734, as compared to $491,243 for the nine months ended March 31, 2018. For the nine months ended March 31, 2019 and 2018 selling, general and administrative expenses consisted of the following:

 

    Nine Months Ended  
    March 31,  
    2019     2018  
Accounting expense   $ 28,474     $ 108,294  
Consulting fees     97,500       8,843  
Salaries     236,000       180,000  
Legal and professional fees     71,330       5,240  
Travel expense     3,137       -  
Occupancy expense     7,867       1,218  
Telephone expense     2,700       300  
Website expense     2,103       200  
Investor relations expense     28,500       515  
Stock based compensation     2,047,000       182,500  
Other     49,123       4,133  
    $ 2,573,734     $ 491,243  

 

The increase in selling, general and administrative expenses for the nine months ended March 31, 2019, when compared with the prior year period, is primarily due to an increase in stock-based compensation of $1,864,500, higher legal and professional fees of $66,090, higher consulting fees of $88,657, higher investor relations expense of $27,985, higher salary expense of $56,000, and higher occupancy expense of $6,649, offset by lower accounting expense of $79,820. Excluding stock-based compensation expense, selling, general and administrative expenses for the nine months ended March 31, 2019 increased approximately 7.2%.

 

We believe that our selling, general, and administrative expenses will be significantly lower going forward as a result of lower stock based compensation expense and lower legal and consulting expenses.

 

Amortization Expense

 

    Nine-Months Ended        
    March 31,     %  
    2019     2018     Change  
Customer relationships   $ 91,863     $ -       100 %

 

The increase in amortization expense is due to the amortization of the customer relationships intangible asset resulting from the acquisition of Threat Surface Solutions Group, LLC in October 2018.

 

Change in Fair Value of Derivative Liabilities

 

    Nine-Months Ended        
    March 31,     %  
    2019     2018     Change  
Loss on change in fair value of derivative liabilities   $ 730,804     $ -       100 %

 

The change in fair value of derivative liabilities results from the changes in the fair value of the derivative liability due to the application of ASC 815, resulting in either income or expense, depending on the difference in fair value of the derivative liabilities between their measurement dates driven by the change in the per share price of the Company’s common stock.

 

During fiscal year 2018 the Company’s share price and lack of trading liquidity in the Company’s common stock, resulted in the convertible notes being determined to have no basis for applying a derivative liability to the conversion of these notes.

 

21
 

 

Interest Expense

 

    Nine-Months Ended        
    March 31,     %  
    2019     2018     Change  
Interest expense   $ 233,194     $ 222,201       4.9 %

 

Interest expense represents stated interest of notes and convertible notes payable as well as amortization of debt discount of $66,667 for the nine months ended March 31, 2019. We believe that our interest expense will be lower than the levels incurred in the first nine months of 2019 due to lower interest bearing note balances for the remainder of fiscal year 2019.

 

Derivative Liability Expense

 

    Nine-Months Ended        
    March 31,     %  
    2019     2018     Change  
Derivative liability expense   $ 341,423     $ -       100 %

 

Derivative liability expense represents the expense related to our convertible notes payable and outstanding warrants issued in January 2019 that include variable conversion features and price protection provisions, respectively.

 

Gain on Extinguishment of Debt

 

    Nine-Months Ended        
    March 31,     %  
    2019     2018     Change  
Gain on extinguishment of debt   $ 2,292,162     $ -       100 %

 

The Company extinguished aged debt totaling $2,292,162 in March 2019. The breakdown of the write-offs was as follows:

 

Accounts payable and accrued expenses   $ 371,001  
Accrued interest expense     1,184,214  
Convertible notes payable     671,706  
Promissory notes payable     65,241  
    $ 2,292,162  

 

Three Month Period Ended March 31, 2019

 

For the three months ended March 31, 2019, selling, general and administrative expenses were $ $1,028,615, as compared to $280,173 for the three months ended March 31, 2018. For the three months ended March 31, 2019 and 2018 selling, general and administrative expenses consisted of the following:

 

    Three Months Ended  
    March 31,  
    2019     2018  
Accounting expense   $ 5,724     $ 27,730  
Consulting fees     46,250       343  
Salaries     84,000       60,000  
Legal and professional fees     37,040       5,240  
Travel expense     357       -  
Occupancy expense     1,968       -  
Telephone expense     900       300  
Website expense     145       200  
Investor relations expense     -       -  
Stock based compensation     1,266,958       182,500  
Other     2,208       3,860  
    $ 1,445,550     $ 280,173  

 

The increase in selling, general and administrative expenses for the three months ended March 31, 2019, when compared with the prior year period, is primarily due to an increase in stock-based compensation of $1,084,458, higher legal and professional fees of $31,800, higher consulting fees of $45,907, higher salary expense of $24,000, and higher occupancy expense of $1,968, offset by lower accounting expense of $22,007.

 

We believe that our selling, general, and administrative expenses will be significantly lower going forward as a result of lower stock-based compensation expense and lower legal and consulting expenses.

 

Amortization Expense

 

    Three-Months Ended        
    March 31,     %  
    2019     2018     Change  
Customer relationships   $ 50,107     $ -       100 %

 

The increase in amortization expense is due to the amortization of the customer relationships intangible asset resulting from the acquisition of Threat Surface Solutions Group, LLC in October 2018.

 

Change in Fair Value of Derivative Liabilities

 

    Three-Months Ended        
    March 31,     %  
    2019     2018     Change  
Loss on change in fair value of derivative liabilities   $ 536,549     $ -       100 %

 

The change in fair value of derivative liabilities results from the changes in the fair value of the derivative liability due to the application of ASC 815, resulting in either income or expense, depending on the difference in fair value of the derivative liabilities between their measurement dates driven by the change in the per share price of the Company’s common stock.

 

During fiscal year 2018 the Company’s share price and lack of trading liquidity in the Company’s common stock, resulted in the convertible notes being determined to have no basis for applying a derivative liability to the conversion of these notes.

 

22
 

 

Interest Expense

 

    Three-Months Ended        
    March 31,     %  
    2019     2018     Change  
Interest expense   $ 121,592     $ 48,045       153.1 %

 

Interest expense represents stated interest of notes and convertible notes payable as well as amortization of debt discount. We believe that our interest expense will decrease due to lower interest-bearing liabilities as of March 31, 2019 from first nine months of 2019, for the remainder of fiscal year 2019.

 

Derivative Liability Expense

 

    Three-Months Ended        
    March 31,     %  
    2019     2018     Change  
Derivative liability expense   $ 341,423     $ -       100 %

 

Gain on Extinguishment of Debt

 

    Three-Months Ended        
    March 31,     %  
    2019     2018     Change  
Gain on extinguishment of debt   $ 2,292,162     $ -       100 %

 

The Company extinguished aged debt totaling $2,292,162 in March 2019. The breakdown of the write-offs was as follows:

 

Accounts payable and accrued expenses   $ 371,001  
Accrued interest expense     1,184,214  
Convertible notes payable     671,706  
Promissory notes payable     65,241  
    $ 2,292,162  

 

Liquidity and Capital Resources

 

    Balance at  
    March 31, 2019     June 30, 2018  
Cash   $ 32,398     $ 11,412  
Accounts payable and accrued expenses     211,447