Annual Report (10-k)

Date : 09/27/2019 @ 8:27PM
Source : Edgar (US Regulatory)
Stock : Visium Technologies, Inc. (VISM)
Quote : 0.0029  -0.00095 (-24.68%) @ 9:00PM
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Annual Report (10-k)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended June 30, 2019

 

or

[  ] 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   7371   87-0449667

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Number)

 

(I.R.S. Employer

Identification Number)

 

11325 Random Hills Road, Suite 360

Fairfax, VA 22030

(Address of Principal Executive Office)(Zip Code)

 

(703) 225-3443

(Registrant’s telephone number, including area code)

 

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

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.0001

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [X] No [  ]

 

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 shorter period that the registrant as 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 [  ]   Smaller reporting company [X]
    Emerging growth company [  ]

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

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

 

The aggregate market value of the common equity voting shares of the registrant held by non-affiliates on December 31, 2018 was $1,613,237, at a share price of $0.10 on that date. For purposes of this calculation, an aggregate of 16,132,373 shares of Common Stock were held by non-affiliates of the registrant on December 31, 2018 and have been included in the number of shares of Common Stock held by affiliates.

 

The number of the registrant’s shares of Common Stock outstanding as of September 27, 2019: 63,384,709

 

In this Annual Report on Form 10-K, the terms the “Company,” “Visium,” “we,” “us” or “our” refers to Visium Technologies, Inc., unless the context indicates otherwise.

 

 

 

     
 

 

WARNING CONCERNING FORWARD LOOKING STATEMENTS

 

CERTAIN STATEMENTS IN THIS ANNUAL REPORT CONTAIN OR MAY CONTAIN FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS WERE BASED ON VARIOUS FACTORS AND WERE DERIVED UTILIZING NUMEROUS ASSUMPTIONS AND OTHER FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO, OUR ABILITY TO IMPLEMENT OUR BUSINESS MODEL, RAISE SUFFICIENT CAPITAL TO FUND OUR OPERATING LOSSES AND PAY OUR ONGOING OBLIGATIONS, ECONOMIC AND MARKET CONDITIONS AND FLUCTUATIONS, GOVERNMENT AND INDUSTRY REGULATION, 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. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS AND READERS SHOULD CAREFULLY REVIEW THIS ANNUAL REPORT IN ITS ENTIRETY, INCLUDING THE RISKS DESCRIBED IN PART I. DESCRIPTION OF BUSINESS - RISK FACTORS. EXCEPT FOR OUR ONGOING OBLIGATIONS TO DISCLOSE MATERIAL INFORMATION UNDER THE FEDERAL SECURITIES LAWS, WE UNDERTAKE NO OBLIGATION TO RELEASE PUBLICLY ANY REVISIONS TO ANY FORWARD-LOOKING STATEMENTS, TO REPORT EVENTS OR TO REPORT THE OCCURRENCE OF UNANTICIPATED EVENTS. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS ANNUAL REPORT, AND YOU SHOULD NOT RELY ON THESE STATEMENTS WITHOUT ALSO CONSIDERING THE RISKS AND UNCERTAINTIES ASSOCIATED WITH THESE STATEMENTS AND OUR BUSINESS.

 

  2  
 

 

VISIUM TECHNOLOGIES, INC.

2019 ANNUAL REPORT ON FORM 10-K

 

Table of Contents

 

PART I 4
   
Item 1. Business. 4
Item 1A. Risk Factors. 4
Item 1B. Unresolved Staff Comments. 7
Item 2. Properties. 7
Item 3. Legal Proceedings. 7
Item 4. Mine Safety Disclosures. 7
   
PART II 8
   
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 8
Item 6. Selected Financial Data. 9
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 14
Item 8. Financial Statements and Supplementary Data. 14
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 14
Item 9A. Controls and Procedures. 14
Item 9B. Other Information. 15
   
PART III 16
   
Item 11. Executive Compensation. 19
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters. 20
Item 13. Certain Relationship and Related Party Transactions, and Director Independence. 20
Item 14. Principal Accountant Fees and Services. 22
   
PART IV 23
   
Item 15. Exhibits and Financial Statement Schedules. 23

 

  3  
 

 

PART I

 

Item 1. Business

 

Overview

 

Visium Technologies, Inc. was incorporated in Nevada as Jaguar Investments, Inc. during October 1987. During March 2003, a wholly owned subsidiary of the Company merged with Freight Rate, Inc., a development stage company in the logistics software business. During May 2003, the Company changed its name to Power2Ship, Inc. During October 2006, the Company merged with a newly formed, wholly owned subsidiary, Fittipaldi Logistics, Inc., a Nevada corporation, with the Company surviving but its name changed to Fittipaldi Logistics, Inc. effective November 2006. During December 2007, the Company merged with a newly formed, wholly owned subsidiary, NuState Energy Holdings, Inc., a Nevada corporation, with the Company surviving but renamed NuState Energy Holdings, Inc. effective December 2007. In March 2018 the Company changed its name to Visium Technologies, Inc.

 

Visium is a provider of cyber security automation, analytics and visualization. Visium operates in the traditional cyber security space, as well as in the cloud-based technology and Internet of Things (“IOT”) spaces. Visium provides cybersecurity technology solutions, tools and services to support commercial enterprises and governments ability to protect their data. Visium’s CyGraph technology provides visibility, advanced cyber monitoring intelligence, analytics and automation to help reduce risk, simplify cyber security and deliver better security outcomes.

 

In March 2019, Visium entered into a software 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.

 

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. As of June 30, 2019 TSSG has not generated any revenues.

 

Employees

 

At September 27, 2019, we had 4 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 Pink under the symbol “VISM”.

 

Item 1A. Risk Factors

 

The common shares of our Company are considered speculative. You should carefully consider the following risks and uncertainties in addition to other information in this annual report in evaluating our Company and our business before purchasing our common shares. Our business, operating or financial condition could be harmed due to any of the following risks:

 

Management and our auditors have raised substantial doubts as to our ability to continue as a going concern.

 

Our financial statements have been prepared assuming we will continue as a going concern. Since inception we have experienced recurring net losses which losses caused an accumulated deficit of approximately $46.4 million as of June 30, 2019. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

We currently have a working capital deficit and negative cash flow from operations and are uncertain if and when we will be able to pay our current liabilities.

 

Our working capital deficit was approximately $3.2 million as of June 30, 2019. This deficit consists of $18,668 in current assets, offset by $3,263,285 in current liabilities. In addition, we had negative cash flow from operations for the year ended June 30, 2019 of approximately $567,000. We do not have any liquid or other assets that can be liquidated to pay our current liabilities while we continue to incur additional liabilities to our officer and certain service providers who are working to prepare the documents required to be filed with the Securities and Exchange Commission to enable our common shares to be registered for trading. Since we currently have limited operations, the only ways we have of paying our current liabilities are to issue our common or preferred shares to our creditors or to issue unsecured promissory notes which may include certain features such as convertibility into common or preferred shares or warrants to purchase additional common or preferred shares in the future.

 

We currently do not have sufficient capital to finance the anticipated recurring costs of being a publicly traded company.

 

As of September 27, 2019, we had approximately $60,000 cash on hand. We anticipate incurring incremental annual costs of approximately $180,000 related to maintaining a publicly traded company. We will need to raise additional capital to support our public-company-related activities.

 

  4  
 

 

We had $1,863,898 of convertible notes, notes payable, and accrued interest payable as of June 30, 2019, of which $1,623,505 of this amount is past due, and we do not have the funds necessary to pay these obligations.

 

In addition to funding our operating expenses, we need capital to pay various debt obligations totaling approximately $1.9 million as of June 30, 2019 which are either currently past due or which are due in the current fiscal year. Currently, there is $923,393 principal amount of the convertible notes payable which is past due, $205,000 principal of the notes payable which is past due, and $593,838 of accrued interest which is past due. The interest on the past due principal amounts will continue to accrue monthly at their stated rates. Holders of past due notes do not have a security interest in our assets. The existence of these obligations provides additional challenges to us in our efforts to raise capital to fund our operations.

 

In the event we consummate a transaction with a profitable company, we may not be able to utilize our net operating loss carryover which may have a negative impact on your investment.

 

If we enter into a combination with a business that has operating income, we cannot assure you that we will be able to utilize all or even a portion of our existing net operating loss carryover for federal or state tax purposes following such a business combination. If we are unable to make use of our existing net operating loss carryover, the tax advantages of such a combination may be limited, which could negatively impact the price of our stock and the value of your investment. These factors will substantially increase the uncertainty, and thus the risk, of investing in our shares.

 

Economic conditions may affect our ability to obtain financing and to complete a merger or acquisition.

 

Due to general economic conditions, rapid technological advances being made in some industries, and shortages of available capital, our management believes that there are numerous firms seeking even the limited additional capital which we will need. In the presence of these economic conditions, we may have difficulty raising sufficient capital to support the investigation of potential business opportunities, and to consummate a merger or acquisition. These factors substantially increase the uncertainty, and thus the risk, of investing in our shares.

 

There are a number of factors related to our common stock which may have an adverse effect on our shareholders.

 

Shareholders’ interests in our Company will be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities. In the event that we are required to issue additional shares, enter into private placements to raise financing through the sale of equity securities or acquire business interests in the future from the issuance of shares of our common stock to acquire such interests, the interests of existing shareholders in our Company will be diluted and existing shareholders may suffer dilution in their net book value per share depending on the price at which such securities are sold. If we do issue additional shares, it will cause a reduction in the proportionate ownership and voting power of all existing shareholders.

 

We have certain provisions in our Articles of Incorporation and Bylaws, and there are other provisions under Florida law, that may serve to make a takeover of our Company more difficult.

 

Provisions of our articles of incorporation and bylaws may delay or prevent a takeover which may not be in the best interests of our stockholders. Provisions of our articles of incorporation and bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. In addition, certain provisions of Florida law also may be deemed to have certain anti-takeover effects which include that control of shares acquired in excess of certain specified thresholds will not possess any voting rights unless these voting rights are approved by a majority of a corporation’s disinterested stockholders.

 

  5  
 

 

Voting power of our shareholders is highly concentrated by insiders.

 

Our officers and directors control, either directly or indirectly, a substantial portion of our voting securities. As of June 30, 2019, our executive officer and directors beneficially owns 28,605,551 shares of Common Stock, or approximately 68% of our outstanding shares of Common Stock. In addition, our executive officer owns the only issued and outstanding share of Series AA Convertible Preferred Stock which entitles him to 51% of the Common votes on any matter requiring a shareholder vote. Therefore, our management may significantly affect the outcome of all corporate actions and decisions for an indefinite period of time including the election of directors, amendment of charter documents and approval of mergers and other significant corporate transactions.

 

Our common stock is quoted in the over the counter market on the OTC Pink.

 

Our common stock is quoted on the OTC Pink. OTC Pink offers a quotation service to companies that are unable to list their securities on an exchange or for companies, such as ours, whose securities are not eligible for quotation on the OTC Bulletin Board. The requirements for quotation on the OTC Pink are considerably lower and less regulated than those of the OTC Bulletin Board or an exchange. Because our common stock is quoted on the OTC Pink, it is possible that even fewer brokers or dealers would be interested in making a market in our common stock which further adversely impacts its liquidity.

 

The tradability of our common stock is limited under the penny stock regulations which may cause the holders of our common stock difficulty should they wish to sell their shares.

 

Because the quoted price of our common stock is less than $5.00 per share, our common stock is considered a “penny stock,” and trading in our common stock is subject to the requirements of Rule 15g-9 under the Exchange Act. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. The broker/dealer must make an individualized written suitability determination for the purchaser and receive the purchaser’s written consent prior to the transaction. SEC regulations also require additional disclosure in connection with any trades involving a “penny stock,” including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of securities in the secondary market because few broker or dealers are likely to undertake these compliance activities and this limited liquidity will make it more difficult for an investor to sell his shares of our common stock in the secondary market should the investor wish to liquidate the investment. In addition to the applicability of the penny stock rules, other risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market.

 

  6  
 

 

Item 1B. Unresolved Staff Comments.

 

Not applicable.

 

Item 2. Properties.

 

We rent our principal executive offices from an unrelated third party on a month-to-month basis for a monthly rental of $496.

 

Item 3. Legal Proceedings.

 

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. There are no other proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

  7  
 

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

 

Our common shares are quoted on the OTC Pink Quotation System under the symbol “VISM,” but trade infrequently.

 

The high and low bid prices of our common stock for the periods indicated below are as follows:

 

Fiscal Year Ended June 30, 2019   High     Low  
             
Quarter Ended September 30, 2018   $ 1.44       0.16  
Quarter Ended December 31, 2018   $ 0.47       0.06  
Quarter Ended March 31, 2019   $ 0.30       0.01  
Quarter Ended June 30, 2019   $ 0.23       0.04  

 

Fiscal Year Ended June 30, 2018   High     Low  
             
Quarter Ended September 30, 2017   $ 0.909     $ 0.303  
Quarter Ended December 31, 2017   $ 0.606     $ 0.303  
Quarter Ended March 31, 2018   $ 0.909     $ 0.303  
Quarter Ended June 30, 2018   $ 0.303     $ 0.060  

 

Stockholders

 

As of September 27, 2019, there were 930 stockholders of record of our Common Stock.

 

Dividend Policy

 

We have not paid any cash dividends and do not anticipate or contemplate paying dividends in the foreseeable future.

 

Recent Sales of Unregistered Securities

 

On January 7, 2019 we issued a convertible note with a principal amount of $150,000 together with a warrant to purchase 250,000 shares of the Company’s common stock pursuant to a securities purchase agreement.

 

On December 28, 2018, we issued a convertible note with a principal amount of $150,000 together with a warrant to purchase 250,000 shares of the Company’s common stock pursuant to a securities purchase agreement.

 

During the fiscal year ended June 30, 2019 we sold 2,505,000 shares of common stock, valued at $250,501 to eleven accredited investors, and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(a)(2) of that act.

 

During October 2018 we issued 1,538,387 shares of common stock related to the acquisition of Threat Surface Solutions Group, LLC. The issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(a)(2) of that act.

 

During the fiscal year ended June 30, 2019 we issued 1,985,327 shares of common stock related to the conversion of $201,055 of convertible notes and accrued interest, to three accredited investors. The issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.

 

During the fiscal year ended June 30, 2019 we issued 23,427,754 shares of its common stock to its directors and officers, as compensation. The shares were valued at $0.081, the market price on the date of issuance for a total value of $1,901,500. The expense is included in general and administrative expenses and was recognized on the date the stock was issued. See Note 8 – Related Party Transactions.

 

During the fiscal year ended June 30, 2019 we issued 3,233,341 shares of its common stock to consultants, as compensation. The shares were valued at $0.054, the market price on the date of issuance for a total value of $174,500. The expense is included in general and administrative expenses and was recognized on the date the stock was issued or vested.

 

  8  
 

 

Rule 10B-18 Transactions

 

During the year ended June 30, 2019, there were no repurchases of the Company’s common stock by the Company

 

Item 6. Selected Financial Data.

 

As a “smaller reporting company”, we are not required to provide information required by this item.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following information should be read in conjunction with our financial statements and accompanying notes included in this Annual Report on Form 10-K.

 

Overview

 

The Company was incorporated in Nevada as Jaguar Investments, Inc. during October 1987. During March 2003, a wholly owned subsidiary of the Company merged with Freight Rate, Inc., a development stage company in the logistics software business. During May 2003, the Company changed its name to Power2Ship, Inc. During October 2006, the Company merged with a newly formed, wholly owned subsidiary, Fittipaldi Logistics, Inc., a Nevada corporation, with the Company surviving but its name changed to Fittipaldi Logistics, Inc. effective November 2006. During December 2007, the Company merged with a newly formed, wholly owned subsidiary, NuState Energy Holdings, Inc., a Nevada corporation, with the Company surviving but renamed NuState Energy Holdings, Inc. effective December 2007. In March 2018 the Company changed its name to Visium Technologies, Inc.

 

Since February 12, 2018 Mark Lucky has served as Chairman and CFO. He currently also serves as CEO. The Company’s headquarters is located at 11325 Random Hills Road, Suite 360, Fairfax, VA 22124. Since February 2019, the Company has focused on creating a world-class cybersecurity/digital risk management company, with a focus on network security, threat visualization, Internet of Things, (“IoT”), mobile security, pinpoint threat identification, and big-data analytics. Our solutions address the growing security and compliance complexities and risks resulting from the increasing adoption of cloud computing and the proliferation of geographically dispersed IT assets.

 

In July 2018 the Company entered into a license agreement with George Mason University 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 license agreement with The MITRE Corporation to commercialize and sell CyGraph, a cybersecurity application that is a tool for cyber warfare analytics, visualization and knowledge management.

 

Results of Operations

 

Selling, General, and Administrative Expenses

 

For the year ended June 30, 2019, selling, general and administrative expenses were $2,721,467 as compared to $1,043,230 for the year ended June 30, 2018, an increase of $1,678,237 or approximately 161%. For the years ended June 30, 2019 and 2018 selling, general and administrative expenses consisted of the following:

 

    2019     2018    

Increase/

(Decrease)

    % Change  
Accounting expense   $ 11,000     $ 13,854     $ (2,854 )     (20.6 )%
Consulting fees     125,500       108,843       16,657       15.3 %
Salaries     320,000       240,000       80,000       33.3 %
Legal and professional fees     82,630       9,240       73,390       794.3 %
Travel expense     3,342       0       3,342       N/A  
Occupancy expense     9,319       2,200       7,119       323.6 %
Telephone expense     3,600       1,200       2,400       200.0 %
Website expense     2,555       904       1,651       182.6 %
Investor relations expense     28,500       515       27,985       5,434.0 %
Stock based consulting expense     174,500       299,595       (125,995 )     (41.8 )%
Stock based compensation     1,901,500       358,500       1,543,000       430.4 %
Other     59,021       8,378       50,643       604.5 %
                                 
    $ 2,721,467     $ 1,043,230     $ 1,678,237       160.9 %

 

The increase in selling, general and administrative expenses during fiscal 2019, when compared with the prior year, is primarily due to an increase in stock-based compensation, legal expenses, and salaries, offset by increases in accounting expenses.

 

  9  
 

 

Amortization Expense

 

    Years Ended        
    June 30,     %  
    2019     2018     Change  
Customer relationships   $ 141,970     $ -       (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 Liability

 

    Years ended  
    June 30,  
    2019     2018  
Loss on change in fair value of derivative liabilities   $ 183,130     $ -  

 

Changes 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. The increase in fair value of derivative liabilities recognized during fiscal 2019 is primarily due to a change in accounting estimate related to the accounting for derivative liabilities.

 

Derivative Liability Expense

 

    Years Ended        
    June 30,     %  
    2019     2018     Change  
Derivative liability expense   $ 341,423     $ -       100 %

 

The Company issued convertible notes in January 2019 which provisions contained variable price conversion terms, resulting in a derivative liability expense, measured as of the issuance date of the notes.

 

Interest Expense

 

    Years Ended        
    June 30,     %  
    2019     2018     Change  
Interest Expense   $ 276,087     $ 275,975       (0.0 )%

 

Interest expense represents the stated interest of notes and convertible notes payable as well as the amortization of debt discount. The increase in interest expense during fiscal 2019 is primarily due to higher amortization of debt discount of $141,667.

 

Gain on Debt Write-Off

 

    Years Ended  
    June 30,  
    2019     2018  
Gain on debt write off   $ 2,303,147     $ 25,137  

 

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  
Accrued interest expense     1,184,214  
Convertible notes payable     671,706  
Promissory notes payable     65,241  
    $ 2,292,162  

 

The Company also recognized a gain on the forgiveness of accrued interest of $10,985 in October 2018.

 

  10  
 

 

Loss on impairment

 

    Years Ended  
    June 30,  
    2019     2018  
Loss on impairment   $ 407,002     $ -  

 

In June 2019 Management determined that the intangible asset attributed to the purchase of Threat Surface Solutions Group, LLC had no future benefit to the Company. As a result, the net book value of the asset was written off in full, as follows:

 

Net intangible asset as of date of impairment   $ 459,317  
Reversal of contingent liability     (52,315 )
Loss on impairment   $ 407,002  

 

Debt Conversion Expense

 

    Years Ended  
    June 30,  
    2019     2018  
Debt conversion expense   $ -     $ 96,272  

 

During the year ended June 30, 2018, the Company amended the conversion terms for twelve convertible noteholders. The amended notes totaled $139,225 in principal and were amended such that the conversion price is fixed at $0.09 per share, from conversion terms that were priced at a 50% discount of the average closing bid price per share of Common Stock during the ten consecutive trading days immediately prior to any such conversion. For those notes that were converted immediately after the amendment, the Company recorded a debt conversion expense of $96,272, in accordance with guidance in ASC-470 for induced debt conversions. The Company recorded an expense of $96,272 as a loss on conversion of debt related to the amendments to these notes.

 

Liquidity and Capital Resources

 

    Balance at June 30,  
    2019     2018  
Cash   $ 18,668     $ 11,412  
Accounts payable and accrued expenses     (213,805 )     (626,584 )
Accrued compensation     (316,529 )     (155,825 )
Notes, convertible notes, and accrued interest     (1,863,898 )     (3,722,242 )

 

At June 30, 2019 and 2018, 100% of our total assets consisted of cash.

 

We do not have any material commitments for capital expenditures.

 

The objective of liquidity management is to ensure that we have ready access to sufficient funds to meet commitments and effectively implement our growth strategy. Our primary sources are financing activities such as the issuance of notes payable and convertible notes payable. In the past, we have mostly relied on debt and equity financing to provide for our operating needs.

 

We were unable to generate sufficient funds from operations to fund our ongoing operating requirements through June 30, 2019. As of September 27, 2019, we had approximately $60,000 on hand. We may need to raise funds to enhance our working capital and use them for strategic purposes. If such need arises, we intend to generate proceeds from either debt or equity financing.

 

We intend to finance our operations using equity financing. We do not anticipate incurring capital expenditures for the foreseeable future. We anticipate that we will need to raise approximately $180,000 per year in the near term to finance the recurring costs of being a publicly traded company, and from $2 to $5 million to implement a plan of operation. We anticipate we will need to raise up to $2 million to complete the acquisitions that we have identified. If these funds cannot be obtained, we may not be able to consummate an acquisition or merger, and our business may fail as a result.

 

  11  
 

 

Going Concern

 

The accompanying financial statements have been prepared on a going concern basis. The Company has used net cash in its operating activities of $566,745 and $59,401 during the years ended June 30, 2019 and 2018, respectively, and has a working capital deficit of approximately $3.2 million and $4.5 million at June 30, 2019 and 2018, respectively. 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, once a merger with an operating company is consummated. Management plans may continue to provide for its capital requirements by issuing additional equity securities and debt and the Company will continue to find possible acquisition targets. 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.

 

    Years Ended  
    June 30,  
    2019     2018  
Cash flows from operating activities:                
Net loss   $ (1,757,932 )   $ (1,390,340 )
Non-cash Adjustments:                
Gain on debt write off     (2,303,147 )     (25,137 )
Debt conversion expense     -       96,272  
Stock based compensation     2,076,000       658,095  
Amortization of debt discount     283,637       27,083  
Derivative liability expense     341,423       -  
Loss on change in derivative liability     183,130       -  
Impairment expense     407,002       -  
Changes in assets and liabilities                
Accrued interest     133,189       239,670  
Accrued compensation     160,704       240,000  
Accounts payable and accrued expenses     (90,751 )     94,956  
Net cash used in operations     (566,745 )     (59,401 )
                 
Cash flows from financing activities:                
Advance from officers     41,000       21,000  
Proceeds from sale of common stock     250,501       10,000  
Proceeds from issuance of convertible notes payable, net of debt issuance costs     282,500       37,500  
Net cash provided by financing activities     574,001       68,500  
                 
Net increase in cash   $ 7,256     $ 9,099  

 

  12  
 

 

Year ended June 30, 2019

 

Net cash used in operations in fiscal year 2019 increased by $504,328 or 840% from fiscal year 2018. This cash was obtained through the sale of 2,505,500 shares of the Company’s $0.0001 par value common stock, at a per share price of $0.10, or $250,501, the sale of convertible notes totaling $300,000, which netted the Company $282,500, and advances from directors of $41,000.

 

Year ended June 30, 2018

 

Net cash used in operations in fiscal year 2018 totaled $59,401. This cash was obtained through the sale of $37,500 of convertible promissory notes, the sale of $10,000 of the Company’s $0.0001 par value common stock, and advances from directors of $21,000.

 

Capital Raising Transactions

 

Issuance of Convertible Notes Payable

 

We generated net proceeds of $282,500 and $37,500 during fiscal 2019 and 2018, respectively, from the issuance of convertible notes payable and promissory notes.

 

Convertible Notes Payable

 

The Company had convertible promissory notes aggregating approximately $1.1 million and $1.6 million outstanding at June 30, 2019 and 2018, respectively. The accrued interest amounted to approximately $435,000 and $1,442,000 at June 30, 2019 and 2018, respectively. There is no provision in the note agreements for adjustments to the interest rates on these notes in the event of default. The convertible notes payable bear interest at rates ranging between 10% and 18% per annum. Interest is generally payable monthly. The Convertible Notes Payable are generally convertible at rates ranging between $0.09 and $22,500 per share, at the holders’ option. At June 30, 2019, all convertible promissory notes have matured.

 

    Balance at     Balance at  
    June 30, 2019     June 30, 2018  
Convertible Notes Payable   $ 1,075,428     $ 1,617,984  
Discount on convertible notes     (158,333 )     -  
Notes Payable, net of discount   $ 917,095     $ 1,617,984  

 

Convertible notes payable to ASC Recap LLC

 

On July 22, 2013 and May 6, 2014, the Company issued to ASC Recap LLC (“ASC”) two convertible promissory notes with principal amounts of $25,000 and $125,000, respectively. The Company recorded a derivative liability on the warrants on the warrants issued… These two notes were issued as a fee for services under a 3(a)10 transaction that was never consummated and therefore there was no performance by ASC to earn the notes. As a result, while the Company continues to carry the balance of these notes on its balance sheet, it does not believe the notes payable balances are owed. 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 remains unpaid. The notes are convertible into the common stock of the Company at any time at a conversion price equal to 50% of the lowest closing bid price of our common stock for the twenty days prior to conversion.

 

Notes Payable

 

The Company had promissory notes aggregating approximately $205,000 and $270,241 at June 30, 2019 and 2018, respectively. The related accrued interest amounted to approximately $159,000 and $245,237 at June 30, 2019 and 2018, respectively. There is no provision in the note agreements for adjustments to the interest rates on these notes in the event of default. The notes payable bear interest at rates ranging between 8% and 16% per annum. Interest is generally payable monthly. All promissory notes have matured as of June 30, 2019.

 

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 Companys 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. Because it is indeterminate whether there is a sufficient number of authorized and unissued shares exists at the assessment date, the Company calculates a derivative liability associated with the warrants in accordance with FASB ASC Topic 815-40-25.

 

A summary of the status of the Company’s outstanding common stock warrants as of June 30, 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 June 30, 2018     -       -  
Granted     500,000     $ 0.15  
Exercised     -       -  
Forfeited     -       -  
Balance at June 30, 2019     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  

 

Derivative Liability

 

The Company recognizes all derivative financial instruments on its balance sheet at fair value.

 

  13  
 

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Climate Change

 

Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.

 

Critical Accounting Policies

 

The Company’s critical accounting policies are as follows:

 

Convertible Instruments - The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with 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 in accordance with EITF 00-19. 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 that term is described).

 

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 the provisions of ASC 470 20 “Debt with Conversion 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 when necessary 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.

 

The Company believes the certain conversion features embedded in convertible notes payable are not clearly and closely related to the economic characteristics of the Company’s stock price. Accordingly, the Company has recognized derivative liabilities in connection with such instruments. The Company uses judgment in determining the fair value of derivative liabilities at the date of issuance at every balance sheet thereafter. The Company uses judgment in determining which valuation is most appropriate for the instrument (e.g., Cox, Ross & Rubinstein Binomial Tree valuation model), the expected volatility, the implied risk-free interest rate, as well as the expected dividend rate.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

Item 8. Financial Statements and Supplementary Data.

 

The information required by this item is included in Item 15 of this Annual Report on Form 10-K.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer, who at June 30, 2019 was also our principal executive and financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon that evaluation, our Chief Executive Officer concluded that, as of June 30, 2019, our disclosure controls and procedures were not effective in ensuring that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such material information is accumulated and communicated to our Chief Executive Officer to allow timely decisions regarding required disclosure.

 

  14  
 

 

Management Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2019. In making this assessment, our management used criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Over Financial Reporting – Guidance for Smaller Public Companies.

 

During our assessment of the design and the effectiveness of internal control over financial reporting as of June 30, 2019, management identified the following material weaknesses:

 

  While we have processes in place, there are no formal written policies and procedures related to certain financial reporting processes;
     
  There is no formal documentation in which management specified financial reporting objectives to enable the identification of risks, including fraud risks;
     
  Our Board of Directors consists of four members, however we lack the resources and personnel to implement proper segregation of duties or other risk mitigation systems.

 

A material weakness is “a significant deficiency, or a combination of significant deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected by us in a timely manner.” A significant deficiency is a deficiency or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant’s financial reporting.

 

We intend to gradually improve our internal control over financial reporting to the extent that we can allocate resources to such improvements. We intend to prioritize the design of our internal control over financial reporting starting with our control environment and risk assessments and ending with control activities, information and communication activities, and monitoring activities. Although we believe the time to adapt in the next year will help position us to provide improved internal control functions into the future, in the interim, these changes caused control deficiencies, which in the aggregate resulted in a material weakness. Due to the existence of these material weaknesses, our management, including our Chief Executive Officer, concluded that our internal control over financial reporting was not effective as of June 30, 2019.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the SEC that permit smaller reporting companies to provide only the management’s report in this annual report.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting during the fiscal quarter ended June 30, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

 

None.

 

  15  
 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

The following table sets forth the names, ages and principal position of our executive officers and directors as of June 30, 2019:

 

Name   Age   Position
Mark Lucky   60   Chairman of the Board, Chief Executive Office, Chief Financial Officer
Thomas Grbelja (1)(2)   60   Director
Emmanuel Esaka, MD   46   Director
Paul Favata (1)(2)   54   Director

 

(1) Member of the Compensation Committee

(2) Member of the Audit Committee

 

Mr. Mark Lucky has served as the Company’s Chief Executive Officer, Treasurer, Secretary, and Chairman of the Company’s Board of Directors since February 2018. Mr. Lucky has been a certified public accountant and has more than 15 years of experience serving as a public company chief financial officer. His professional experience includes working with start-ups, development-stage and mature companies in a wide variety of industries. From May 2014 until February 2018 Mr. Lucky has worked as a consultant to various public and private companies, including Visium Technologies, Inc., Intelligent Living America, Inc. (OTCBB: ILIV), and Ronn Motor Group, Inc. Prior to that, Mr. Lucky served as the CFO for IceWeb Inc. (OTCBB: IWEB) from March 2007 to May 2014. From 2004 to 2005 he served as Vice President of Finance and Administration at Galt Associates, Inc., a Sterling, Virginia informatics/ technology and medical research services company and from 2001 to 2004 he was Vice President of Finance and Administration of MindShare Design, Inc., a San Francisco, California based internet technology company. During his career Mr. Lucky has also been employed by Axys Pharmaceuticals, Inc (NASDAQ: AXPH) a San Francisco, California-based early stage drug discovery biotech company, PriceWaterhouseCoopers, LLC, COMPASS Management and Leasing, Inc., Mindscape, Inc., The Walt Disney Company and KPMG. Mr. Lucky formerly served as a member of the board of directors of Intelligent Living America, Inc., VOIS Inc. and HASCO Medical, Inc. Mr. Lucky received a B.A. degree in Economics from the University of California, Los Angeles.

 

We believe that Mr. Lucky’s extensive senior management and operational experience brings valuable knowledge to our board of directors and that these experiences, qualifications and attributes have led to our conclusion that Mr. Lucky should be serving as a member of our board of directors.

 

Mr. Thomas Grbelja previously served as a director of Realbiz Media Group, Inc. (OTCBB: RBIZ), and served as their Chief Financial Officer from June 19, 2015 to January 2, 2017. Mr. Grbelja has spent over 30 years as a Certified Public Accountant providing a wide variety of professional accounting, tax and financial consulting services to professional service, manufacturing, and construction industry participants. Since 1990 he has served as the President and a Founding Member of Burke Grbelja & Symeonides, LLC, Certified Public Accountants, an accounting firm based in Rochelle Park, New Jersey. In addition, between 1983 and 1990, Mr. Grbelja worked as an accountant at Coopers & Lybrand, where he was responsible for the overall audit engagement, including filings with the SEC, for certain large, publicly traded companies. He received his undergraduate degree in accounting at Fairleigh Dickinson University and is a Certified Public Accountant.

 

Based on his business experience the Company believes that Mr. Grbelja is well-qualified to serve on the Company’s Board of Directors.

 

Mr. Paul Favata is a 29-year Wall Street veteran who began his career on the American Stock Exchange (AMEX), working for two smaller member firms, before moving to the New York Stock Exchange (NYSE). After five years with one of the largest specialist firms on the floor, Mr. Favata left the exchange in 1992 to work on the sell-side. Mr. Favata spent the bulk of the 1990’s with a small boutique firm working in both the retail and institutional sales areas. Mr. Favata held the position of Senior Vice President of Finance at a small, privately held consulting firm that advised clients on acquisitions and long-term financing strategies. Since 2008, Mr. Favata has held various C-level executive positions including; as Chief Financial Officer of a $60 million annual revenue telecom provider having management oversight and responsibility for all financial functions while overseeing all revenues, costs, capital expenditures, investments and debt. Most recently, President of a publicly traded company specializing in the acquisition and integration of IT and Cloud Technology service providers and Internet and web technologies. Mr. Favata resides, with his family, in Saint Petersburg, Florida.

 

We believe that Mr. Favata’s extensive senior management and operational experience brings valuable knowledge to our board of directors and that these experiences, qualifications and attributes have led to our conclusion that Mr. Favata should be serving as a member of our board of directors.

 

Dr. Emmanuel Esaka. Dr. Esaka brings decades of experience as a successful surgeon. He has earned an MBA from Auburn University, and graduated Cum Laude with Highest Honors from Università Degli Studi di Bologna, Italy School of Medicine and Surgery. He is the Founder, Owner, and CEO of Advanced Care Obstetrics and Gynecology PA in Wilmington, Delaware, Co-Founder and Managing Director of 3N Pharma USA, Inc., Founder and CEO of Cameroon American Health System, Inc., and Co-Founder of Caritas Home Health Services, Inc. Dr. Osaka also served as attending obstetrics and gynecology at Irwin Army Community Hospital, and serves as a Director of Meiger Health, Inc.

 

We believe that Dr. Esaka’s extensive experience and business background adds valuable knowledge to our board of directors and that these experiences, qualifications and attributes have led to our conclusion that Dr. Esaka should be serving as a member of our board of directors.

 

There are no family relationships among our directors or executive officers.

 

  16  
 

 

Committees of the Board of Directors

 

Our Board of Directors has established an Audit Committee, and a Compensation Committee, and meet as a whole to fulfill the functions of the Nominating Committee.

 

Audit Committee. Mr. Favata and Mr. Grbelja are members of the Audit Committee. The Audit Committee of our Board of Directors was formed to assist the Board of Directors in fulfilling its oversight responsibilities for the integrity of our consolidated financial statements, compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, and the performance of our internal audit function and independent auditors. The Audit Committee will also prepare the report that SEC rules require be included in our annual proxy statement. The Audit Committee has adopted a charter which sets forth the parameters of its authority The Audit Committee Charter provides that the Audit Committee is empowered to:

 

  Appoint, compensate, and oversee the work of the independent registered public accounting firm employed by our company to conduct the annual audit. This firm will report directly to the audit committee;
     
  Resolve any disagreements between management and the auditor regarding financial reporting;
     
  Pre-approve all auditing and permitted non-audit services performed by our external audit firm;
     
  Retain independent counsel, accountants, or others to advise the committee or assist in the conduct of an investigation;
     
  Seek any information it requires from employees - all of whom are directed to cooperate with the committee’s requests - or external parties;
     
  Meet with our officers, external auditors, or outside counsel, as necessary; and
     
  The committee may delegate authority to subcommittees, including the authority to pre-approve all auditing and permitted non-audit services, provided that such decisions are presented to the full committee at its next scheduled meeting.

 

Each Audit Committee member is required to:

 

  satisfy the independence requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934, and all rules and regulations promulgated by the SEC as well as the rules imposed by the stock exchange or other marketplace on which our securities may be listed from time to time, and
     
  meet the definitions of “non-employee director” for purposes of SEC Rule 16b-3 and “outside director” for purposes of Section 162(m) of the Internal Revenue Code.

 

Each committee member is required to be financially literate and at least one member is to be designated as the “financial expert,” as defined by applicable legislation and regulation. No committee member is permitted to simultaneously serve on the audit committees of more than two other public companies. As we expand our Board of Directors with additional independent directors the number of directors serving on the Audit Committee will also increase.

 

A copy of the Audit Committee Charter is available on our website at www.visiumtechnologies.com under “Investor Relations”.

 

Compensation Committee. Mr. Favata and Mr. Grbelja are members of the Compensation Committee. The Compensation Committee was appointed by the Board to discharge the Board’s responsibilities relating to:

 

  compensation of our executives,
     
  equity-based compensation plans, including, without limitation, stock option and restricted stock plans, in which officers or employees may participate and
     
  arrangements with executive officers relating to their employment relationships with our company, including employment agreements, severance agreements, supplemental pension or savings arrangements, change in control agreements and restrictive covenants.

 

The Compensation Committee has adopted a charter. The Compensation Committee charter provides that the Compensation Committee has overall responsibility for approving and evaluating executive officer compensation plans, policies and programs of our company, as well as all equity-based compensation plans and policies. In addition, the Compensation Committee oversees, reviews and approves all of our ERISA and other employee benefit plans which we may establish from time to time. The Compensation Committee is also responsible for producing an annual report on executive compensation for inclusion in our proxy statement and assisting in the preparation of certain information to be included in other periodic reports filed with the SEC.

 

  17  
 

 

 

Each Compensation Committee member is required to:

 

  satisfy the independence requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934, and all rules and regulations promulgated by the SEC as well as the rules imposed by the stock exchange or other marketplace on which our securities may be listed from time to time, and
     
  meet the definitions of “non-employee director” for purposes of SEC Rule 16b-3 and “outside director” for purposes of Section 162(m) of the Internal Revenue Code.

 

Pursuant to our Compensation Committee Charter, the Compensation Committee is charged with evaluating and recommending for approval by the Board of Directors the compensation of our executive officers. In addition, the Compensation Committee also evaluates and makes recommendations to the entire Board of Directors regarding grants of options which may be made as director compensation. The Compensation Committee does not delegate these authorities to any other persons nor does it use the services of any compensation consultants.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires that our executive officers, directors and persons who own more than ten percent of a registered class of our equity securities file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC. Such executive officers, directors and ten percent stockholders are also required by the SEC rules to furnish to us copies of all Section 16(a) reports that they file. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons that they were not required to file a Form 5, we believe that, during the fiscal year ended June 30, 2019, our executive officers, directors and ten percent stockholders complied with all Section 16(a) filing requirements applicable to such persons.

 

Code of Ethics

 

We have adopted a Code of Ethics and Business Conduct to provide guiding principles to our principal executive officer, principal financial officer, and principal accounting officer or controller of our company in the performance of their duties. Our Code of Ethics and Business Conduct also strongly recommends that all directors and employees of our company comply with the code in the performance of their duties. Our Code of Ethics and Business Conduct provides that the basic principle that governs all of our officers, directors and employees is that our business should be carried on with loyalty to the interest of our stockholders, customers, suppliers, fellow employees, strategic partners and other business associates. We believe that the philosophy and operating style of our management are essential to the establishment of a proper corporate environment for the conduct of our business.

 

Generally, our Code of Ethics and Business Conduct provides guidelines regarding:

 

  conflicts of interest,
     
  financial reporting responsibilities,
     
  insider trading,
     
  inappropriate and irregular conduct,
     
  political contributions, and
     
  compliance with laws.

 

  18  
 

 

Item 11. Executive Compensation.

 

The following table sets forth, for the last two completed fiscal years, all compensation paid, distributed or accrued for services rendered to us by (i) all individuals serving as our principal executive officer or acting in a similar capacity during the last completed fiscal year, regardless of compensation level; (ii) our two most highly compensated executive officers other than the principal executive officer who were serving as executive officers at the end of the last completed fiscal year and whose total compensation exceeded $100,000; and (iii) up to two additional individuals for whom disclosure would have been provided pursuant to (ii) above but for the fact that the individual was not serving as our executive officer at the end of the last completed fiscal year:

 

Summary Compensation Table

 

Name and
Principal Position
  Year   Salary
($)(2)(3)
    Bonus
($)
    Stock
Awards
    Option
Awards
($)
    Non-Equity
Incentive Plan
Compensation
($)
    Non-Qualified
Deferred
Compensation
Earnings
    All Other
Compensation
($)(1)
    Total ($)  
Mark Lucky   2019     320,000       -       565,000                                       885,000  
Chief Executive Officer and Chief Financial Officer   2018     90,000       -       110,000       -               -              -       -       200,000  
                                                                     
Henry Holcombe   2019                     205,000                                       205,000  
Former Chief Executive Officer   2018     -       -       -       -       -       -       -       -  
                                                                     
Kevin Yates,   2019     -       -                                       -       -  
Former Chief Executive Officer   2018     150,000       -                                       8,843       158,843  

 

  (1) Other compensation for Mr. Yates during fiscal 2018 represented funds paid to C3i Services, LLC, a related party by means of common ownership and management of the Company. The related parties provided assistance to Mr. Yates in his duties. In addition, Mr. Yates was issued a convertible note in the amount of $480,000 during fiscal 2018 in conjunction with his severance pay related to his resignation as Chief Executive Officer. This note was subsequently forgiven by Mr. Yates when he departed the Company.
     
  (2) Amounts represent accrued compensation for Mr. Lucky and Mr. Yates. Actual amounts paid to Mr. Lucky were $74,296 and $0 for 2019 and 2018, respectively. Actual amounts paid to Mr. Yates totaled $9,000 for fiscal 2018.
     
  (3) Amounts represent accrued compensation for Mr. Lucky. Actual amounts paid totaled $30,000 for the year ended June 30, 2018 and $159,295 for the year ended June 30, 2019.

 

Employment Agreements

 

Currently no employees are party to any employment agreement with the Company. We anticipate that as we complete certain acquisition transactions, the Company will enter into employment agreements with key executives.

 

Pension, Retirement or Similar Benefit Plans

 

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and executive officers may receive stock options at the discretion of our Board in the future.

 

Outstanding Equity Awards at Fiscal Year-End

 

There are no outstanding equity awards held as of June 30, 2019 by our Executive Officers and Directors.

 

Director Compensation

 

Our Board of Directors is comprised of Mr. Paul Favata, Mr. Tom Grbelja, Dr. Emmanuel Esaka, and Mr. Mark Lucky, who is also an executive officer of our company. In February and April 2018 Messrs. Favata and Grbelja each received restricted stock grants as compensation for their Board services. In October 2018 Dr. Esaka received a restricted stock grant as compensation for his Board services. The restricted stock grants vest over thirty-six months. In March 2019, the remaining unvested restricted shares issued to the directors were vested and the corresponding expense was recognized as stock based compensation and included in general and administrative expense in the statement of operations for the year ended June 30, 2019. The following table sets forth the restricted stock grants issued to Messrs. Favata, Grbelja, and Dr. Esaka as compensation for their Board service:

 

    FY2019     FY2018  
    Common Shares           Common Shares        
Name   Granted/Vested     Expense     Granted/Vested     Expense  
Tom Grbelja     4,416,666     $ 220,000       1,250,000     $ 115,000  
Paul Favata     4,275,000       211,500       1,058,333       83,500  
Emmanuel Esaka     1,500,000     $ 675,000       -     $ -  
      10,191,666     $ 1,106,500       2,308,333     $ 198,500  

 

  19  
 

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.

 

At September 27, 2019, we had 63,384,709 shares of our Common Stock outstanding. The following table sets forth information regarding the beneficial ownership of our Common Stock as of September 27, 2019 by:

 

each person known by us to be the beneficial owner of more than 5% of our Common Stock;
our director;
each of our executive officers named in the compensation tables in Item 11; and
all of our executive officers and director as a group.

 

Amount and Nature of Beneficial Ownership
    COMMON STOCK     Series AA Preferred Stock Ownership        
    AMOUNT OF           AMOUNT OF          

% OF

VOTING

 
    BENEFICIAL     % OF     BENEFICIAL     % OF    

CONTROL

 
NAME   OWNERSHIP     CLASS     OWNERSHIP     CLASS     (1)  
Mark Lucky     24,006,682       37.90 %     1       100 %     58.9 %
Tom Grbelja     5,666,667       8.95 %                     5.9 %
Emmanuel Esaka     4,500,000       7.10 %                     4.7 %
Paul Favata     5,333,333       8.42 %                     5.6 %
Officers and directors as a group     39,506,682       62.36 %     1       100 %     75.1 %
                                         
Total     39,506,682       62.36 %     1       100 %     75.1 %

 

(1)

Percent of Voting Control is based upon the number of issued and outstanding shares of our common stock and our Series AA Preferred Stock as of September 27, 2019. On that date, we had 63,384,709 outstanding shares of common stock with one vote per share, and 1 share of Series AA Preferred Stock outstanding with voting rights equal to 51% of the outstanding common shares.

 

The following table sets forth securities authorized for issuance under any equity compensation plans approved by our stockholders as well as any equity compensation plans not approved by our stockholder as of June 30, 2019.

 

Plan category   Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights (a)
    Weighted-average
exercise price of
outstanding options,
warrants and rights (b)
    Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a)) (c)
 
Equity compensation plans approved by security holders                                           
2012 Employee Stock Compensation Plan     -       -       -  
Equity compensation plans not approved by security holders     -       -       -  
Total     -       -       -  

 

Item 13. Certain Relationship and Related Party Transactions, and Director Independence.

 

Other than compensation arrangements, we describe below, transactions during our last fiscal year, to which we were a party, in which:

 

  The amounts involved exceeded or will exceed the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years; and
     
  Any of our directors, executive officers, or holders of more than 5% of our common stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.

 

  20  
 

 

Common Stock

 

Issuances of Common Stock During 2019

 

During fiscal 2019 we issued shares of our common stock as follows:

 

Convertible Notes Payable

 

During the year ended June 30, 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 year ended June 30, 2019 the Company issued 2,505,000 shares of its common stock related to the sale of its common stock resulting in proceeds of $250,501, at an average price of $0.10 per share.

 

Acquisition of Threat Surface Solutions Group, LLC

 

During the year ended June 30, 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 year ended June 30, 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 year ended June 30, 2019 the Company issued and vested 3,233,341 shares of its $0.0001 par value common stock to four consultants, as compensation under four separate consulting agreements. The shares were valued at $174,500, or $0.054 per share, based on the share price at the time of the transactions.

 

Issuances of Common Stock During 2018

 

During the year ended June 30, 2018, the Company issued 1,277,546 shares of its common stock upon the conversion of $141,430 of principal of its outstanding convertible notes, at an average price of $0.111 per share.

 

During the year ended June 30, 2018 the Company issued 4,308,353 shares of its common stock to its directors and officers, as compensation. The shares were valued at $0.083, the average market price on the dates of issuances for a total value of $358,500. The expense is included in general and administrative expenses and was recognized on the dates the stocks were issued. See Note 10 – Related Party Transactions.

 

During the year ended June 30, 2018 the Company issued 3,095,241 shares of its common stock to four consultants, as compensation for consulting services. The shares were valued at $0.097, the market price on the dates of issuances for a total value of $299,595. The expense is included in general and administrative expenses and was recognized on the dates the stocks were issued.

 

During May 2018 we sold 100,000 shares of common stock, valued at $10,000 to an accredited investor, and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.

 

  21  
 

 

Director Independence

 

Although our common stock is not listed on any national securities exchange, for purposes of independence we use the definition of independence applied by The Nasdaq Stock Market. The Board has determined that each of Paul Favata, Tom Grbelja, and Dr. Emmanuel Esaka are “independent” in accordance with such definition.

 

Item 14. Principal Accountant Fees and Services

 

During the two most recent fiscal years and through the Engagement Date, neither the Company, nor any one on its behalf, consulted with Assurance Dimensions, Inc. in regard to the application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, or any other matters or reportable events as defined in Item 304(a)(2)(i) and (ii) of Regulation S-K.

 

The following table summarizes the fees of Assurance Dimensions, Inc., our independent registered public accounting firm billed for each of the last two fiscal years for audit services and other services:

 

Fee Category   2019     2018  
Audit Related Fees Paid to Assurance Dimensions, Inc. (1)   $ 30,000     $ 30,000  
Tax Fees (2)     -       -  
All Other Fees     9,500       -  
                 
Total Fees   $ 39,500     $ 30,000  

 

(1) Consists of fees for professional services rendered in connection with the financial statements included in our Annual Report on Form 10-K and quarterly reports on Form 10-Q.

 

(2) Consists of fees relating to any tax compliance and tax planning.

 

  22  
 

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules

 

a. Index to Financial Statements and Financial Statement Schedules

 

  Page
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of June 30, 2019 and 2018 F-3
Consolidated Statements of Operations for each of the two years in the period ended June 30, 2019 F-4
Consolidated Statements of Changes in Stockholders’ Deficit for each of the two years in the period ended June 30, 2019 F-5
Consolidated Statements of Cash Flows for each of the two years in the period ended June 30, 2019 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 - F-21

 

All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, or are inapplicable, and therefore have been omitted.

 

b. Exhibits

 

Exhibit No.   Description of Exhibit
     
2.1   Merger Agreement Between Jaguar Investments, Inc., Freight Rate, Inc., and Jag2 Corporation (1)
     
2.2   Agreement and Plan of Merger Between Fittipaldi Logistics, Inc. and State Petroleum Distributors, Inc. (30)
     
2.3   Membership Interest Purchase Agreement by and Among Threat Surface Solutions Group, LLC, Acquired Data Solutions, Inc., Ramparts, LLC, and Kevin Anderson, an Individual, and Visium Technologies, Inc. (36)
     
2.4   Amendment to Membership Interest Purchase Agreement (37)
     
3.1   Articles of Incorporation (2)
     
3.2   Certificate of Amendment to Articles of Incorporation (3)
     
3.3   Certificate of Amendment to the Articles of Incorporation (4)
     
3.4   Certificate of Voting Powers, Designations, Preferences and Rights to Series B Convertible Preferred Stock (10)
     
3.5   Certificate of Voting Powers, Designations, Preferences and Rights to Series C Convertible Preferred Stock (10)
     
3.6   Certificate of Voting Powers, Designations, Preferences and Rights to Series Y Preferred Stock (5)
     
3.7   Certificate of Correction of Certificate of Voting Powers, Designations, Preferences and Right to Series Y Preferred Stock (5)
     
3.8   Certificate of Amendment to Articles of Incorporation Increasing Authorized Shares of Common Stock to 250,000,000 filed on August 13, 2004 (9)
     
3.9   Certificate of Voting Powers, Designations, Preferences and Rights to Preferred Stock of Series X Convertible Preferred Stock (5)
     
3.10   Bylaws (2)
     
3.11   Amended Bylaws dated March 31, 2003 (5)
     
3.12   Certificate to Set Forth Designations, Preferences and Rights to Series D Convertible Preferred Stock (23)
     
3.13   Certificate to Set Forth Designations, Preferences and Rights to Series E Convertible Preferred Stock (29)
     
3.14   Certificate to Set Forth Designations, Preferences and Rights to Series F Convertible Preferred Stock (29)
     
3.15   Certificate to Set Forth Designations, Preferences and Rights to Series G Convertible Preferred Stock (29)
     
3.16   Certificate to Set Forth Designations, Preferences and Rights to Series H Convertible Preferred Stock (29)
     
3.17   Certificate to Set Forth Designations, Preferences and Rights to Series I Convertible Preferred Stock (29)
     
3.18   Certificate to Set Forth Designations, Preferences and Rights to Series J Convertible Preferred Stock (35)
     
4.1   Form of Common Stock Purchase Warrant to Newbridge Securities Corporation for Business Advisory Agreement (10)
     
4.2   Form of 14.25% secured convertible debenture (35)
     
4.3   $100,000 principal amount promissory note pursuant to settlement agreement with Stokes Logistics Consulting, LLC (35)

 

  23  
 

 

4.4   $100,000 principal amount 8% secured convertible promissory note (35)
     
4.5   Letter of agreement dated February 8, 2008 evidencing $25,000 principal promissory note to Canberra Financial Services II, Inc. (35)
     
4.6   $14,000 principal 12.5% promissory note for services (35)
     
4.7   Form of unsecured promissory note (35)
     
4.8   Form of non-plan option agreement (10)
     
4.9   Form of common stock purchase warrant (10)
     
4.10   Form of Common Stock Purchase Warrant re: 14.25% secured convertible debentures (10)
     
4.11   Form of Common Stock Purchase Warrant issued to Newbridge Securities Corporation as Placement Agent for 14.25% secured convertible debentures (10)
     
4.12   Form of Series C 10% unsecured convertible debenture (20)
     
4.13   Form of Warrant for Series C 10% unsecured convertible debenture offering (35)
     
4.14   Form of Series D 8% unsecured convertible debenture (35)
     
4.15   Form of 10% convertible debenture (35)
     
4.16   Form of Warrant for Series D 8% unsecured convertible debenture (22)
     
4.17   Articles of Merger between Power2Ship, Inc. and Fittipaldi Logistics, Inc. (25)
     
4.18   Form of Term Sheet for Purchase of Outstanding Debentures (Version 2) (28)
     
4.19   Form of Term Sheet for Purchase of Outstanding Debentures (Version 1) (28)
     
4.20   Form of Non-Plan Stock Option Agreement for Employees (29)
     
4.21   Form of Non-Plan Stock Options Agreement for Executives (29)
     
4.22   Articles of Merger between Fittipaldi Logistics, Inc. and Visium Technologies, Inc. (31)
     
4.23   $10,000 principal amount 12% convertible promissory note (35)
     
4.24   $5,000 principal amount 12% convertible promissory note (35)
     
4.25   $25,000 principal amount 12% convertible promissory note (35)
     
4.26   $25,000 principal amount 12% convertible promissory note (35)
     
4.27   $20,000 principal amount 12% convertible promissory note (35)
     
4.28   $20,000 principal amount 12% convertible promissory note (35)
     
4.29   $5,000 principal amount 12% convertible promissory note (35)
     
4.30   $20,000 principal amount 12% convertible promissory note (35)
     
4.31   $25,000 principal amount 12% convertible promissory note (35)
     
4.32   $25,000 principal amount 18% convertible promissory note (35)
     
4.33   $12,000 principal amount 12% convertible promissory note (35)
     
4.34   $10,000 principal amount 12% convertible promissory note (35)
     
4.35   $20,000 principal amount 12% convertible promissory note (35)
     
4.36   $18,000 principal 12.5% promissory note for services (35)
     
4.37   $30,000 principal amount 12% convertible promissory note (35)

 

  24  
 

 

4.38   $15,000 principal amount 12% convertible promissory note (35)
     
4.39   $10,000 principal amount 12% convertible promissory note (35)
     
4.40   $25,000 principal amount 18% convertible promissory note (35)
     
4.41   $25,000 principal amount 18% convertible promissory note (35)
     
4.42   $15,000 principal amount 12% convertible promissory note (35)
     
4.43   $25,000 principal amount 12% convertible promissory note (35)
     
4.44   $10,000 principal amount 12% convertible promissory note (35)
     
4.45   $25,000 principal amount 12% convertible promissory note (35)
     
4.46   $10,000 principal amount 12% convertible promissory note (35)
     
4.47   Form of Promissory Note issued to FirstFire Global Opportunities Fund, LLC (37)
     
4.48   Form of Warrant issued to FirstFire Global Opportunities Fund, LLC (37)
     
4.49   Form of Promissory Note issued to Auctus Fund, LLC (38)
     
4.50   Form of Warrant issued to Auctus Fund, LLC (38)
     
10.1   Securities Purchase Agreement (6)
     
10.2   Investor Registration Rights Agreement (6)
     
10.3   2001 Employee Stock Compensation Plan (3)
     
10.4   Employment Agreement with Richard Hersh (8)
     
10.5   Form of Intellectual Property Assignment Agreement between Power2Ship, Inc. and each of Richard Hersh, Michael J. Darden and John Urbanowicz (10)
     
10.6   Security Agreements for 14.25% secured convertible debentures (10)
     
10.7   Registration Rights Agreement for 14.25% secured convertible debentures (10)
     
10.8   Asset Purchase Agreement with GFC, Inc. (14)
     
10.9   Mutual Agreement with Commodity Express Transportation, Inc. (15)
     
10.10   Asset Purchase Agreement with GFC, Inc. (16)
     
10.11   Form of Unsecured Promissory Note (13)
     
10.12   Separation and Severance Agreement with Richard Hersh (23)
     
10.13   Consulting Agreement with Richard Hersh (23)
     
10.14   Consulting Agreement with David S. Brooks and S. Kevin Yates (as amended) (23)
     
10.15   Software Transaction Agreement Between Visium Technologies, Inc., Rentar Environmental Solutions, Inc. and the organizers of a new company to be formed (33)
     
10.16   Capital Contribution Agreement Between Rentar Logic, Inc., Rentar Environmental Solutions, Inc. and Visium Technologies, Inc. (33)
     
10.17   Rentar Logic, Inc. Shareholders Agreement (33)
     
10.18   Voting Trust Agreement Between Rentar Logic, Inc., Rentar Environmental Solutions, Inc. and Visium Technologies, Inc. (33)
     
10.19   Visium/Rentar Agreement April 2010 (35)
     
10.20   Employment Agreement with Kevin Yates (35)
     
10.21   Consulting Agreement with Will Williams (35)
     
10.22   Consulting Agreement with Mobile Software Team, LLC (35)
     
10.23   Consulting Agreement with C3i Sports, LLC (35)
     
10.24   Exclusive License Agreement between George Mason Research Foundation, Inc. and Visium Technologies, Inc.(36)
     
10.25   Securities Purchase Agreement by and between the Company and FirstFire Global Opportunities Fund, LLC (37)
     
10.26   Securities Purchase Agreement by and between the Company and Auctus Fund, LLC (38)
     
14.1   Code of Ethics (11)
     
21.1   Subsidiaries of Registrant (20)
     
31.1   Section 302 Certificate of Chief Executive Officer.*
     
31.2   Section 302 Certificate of Principal Financial Officer.*
     
32.1   Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
     
32.2   Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
     
101.   The following materials from the Company’s Annual Report on Form 10-K for the year ended June 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows, and (iv) related notes to these financial statements.**

 

  25  
 

 

* Filed herewith.
   
** Furnished herewith.
   
(1) Incorporated by reference to Current Report on Form 8-K filed on March 26, 2003.
   
(2) Incorporated by reference to registration statement on Form 10-SB, as amended.
   
(3) Incorporated by reference to definitive Schedule 14C Information Statement filed on February 2, 2001.
   
(4) Incorporated by reference to definitive Schedule 14C Information Statement filed on April 22, 2003.
   
(5) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 2002.
   
(6) Incorporated by reference to Current Report on Form 8-K filed on July 8, 2004.
   
(7) Incorporated by reference to Current Report on Form 8-K filed on January 3, 2002.
   
(8) Incorporated by reference to Quarterly Report on Form 10-QSB for the period ended March 31, 2003.
   
(9) Incorporated by reference to Preliminary Information Statement on Schedule 14C filed on July 8, 2004.
   
(10) Incorporated by reference to registration statement on Form SB-2, SEC File No. 333-118792, filed on September 3, 2004.
   
(11) Incorporated by reference to Amendment No. 1 to registration statement the Form SB-2, SEC File No. 333-118792, filed on October 20, 2004.
   
(12) Incorporated by reference to Amendment No. 3 to the registration statement on Form SB-2, SEC File No. 333-118792, filed on December 15, 2004.
   
(13) Incorporated by reference to Quarterly Report on Form 10-QSB for the period ended December 31, 2004 filed on February 14, 2005.
   
(14) Incorporated by reference to Current Report on Form 8-K/A filed on February 25, 2005.
   
(15) Incorporated by reference to Current Report on Form 8-K filed on March 25, 2005.
   
(16) Incorporated by reference to Current Report on Form 8-K filed on March 28, 2005.
   
(17) Incorporated by reference to Quarterly Report on Form 10-QSB for the period ended March 31, 2005.
   
(18) Incorporated by reference to Current Report on Form 8-K filed on June 3, 2005.
   
(19) Incorporated by reference to Current Report on Form 8-K filed on July 28, 2005.
   
(20) Incorporated by reference to registration statement on Form SB-2, SEC File No. 333-131832 filed on February 14, 2006.
   
(21) Incorporated by reference to Current Report on Form 8-K filed on February 17, 2006.
   
(22) Incorporated by reference to Amendment No. 1 to registration statement the Form SB-2, SEC File No. 333-131832 filed on May 5, 2006.
   
(23) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 2006 filed on October 13, 2006.
   
(24) Incorporated by reference to Current Report on Form 8-K filed on October 17, 2006.
   
(25) Incorporated by reference to Current Report on Form 8-K filed on October 24, 2006.
   
(26) Incorporated by reference to Current Report on Form 8-K filed on January 26, 2007.
   
(27) Incorporated by reference to Current Report on Form 8-K filed on April 30, 2007.
   
(28) Incorporated by reference to Current Report on Form 8-K filed on July 25, 2007.
   
(29) Incorporated by reference to Annual Report on Form 10-KSB filed on October 15, 2007.
   
(30) Incorporated by reference to Current Report on Form 8-K filed on November 15, 2007.
   
(31) Incorporated by reference to Current Report on Form 8-K filed on December 31, 2007.
   
(32) Incorporated by reference to Current Report on Form 8-K filed on March 25, 2008.
   
(33) Incorporated by reference to Current Report on Form 8-K filed on June 13, 2008.
   
(34) Incorporated by reference to Current Report on Form 8-K filed on October 16, 2008.
   
(35) Incorporated by reference to Registration Statement on Form 10-12G/A filed on June 14, 2013.
   
(36) Incorporated by reference to Current Report on Form 8-K filed on July 27, 2018.
   
(37) Incorporated by reference to Current Report on Form 8-K filed on January 10, 2019.
   
(38) Incorporated by reference to Current Report on Form 8-K filed on January 16, 2019.

 

  26  
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

VISIUM TECHNOLOGIES, INC.

 

By: /s/ Mark Lucky  
  Mark Lucky  
  Chief Executive Officer  

 

Date: September 27, 2019

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

SIGNATURE   TITLE   DATE
           
By: /s/ Mark Lucky   Chief Executive Officer and Chief Financial Officer   September 27, 2019
      (principal accounting officer)    

 

  27  
 

 

TABLE OF CONTENTS

 

Report of Independent Registered Public Accounting Firm F-2
   
Financial Statements:  
   
Consolidated Balance Sheets F-3
   
Consolidated Statements of Operations F-4
   
Consolidated Statements of Changes in Stockholders’ Deficit F-5
   
Consolidated Statements of Cash Flows F-6
   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 - F-21

 

  F-1  
 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and

Stockholders of Visium Technologies, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Visium Technologies, Inc (the Company) as of June 30, 2019 and 2018, and the related statements of income, stockholders’ deficit and cash flows for each of the years in the two-year period ended June 30, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph- Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses for the year ended June 30, 2019. The Company had a net loss of $1,757,932, had net cash used in operating activities of $566,745, and had negative working capital of $3,244,617. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Assurance Dimensions  
   
We have served as the Company’s auditor since 2017.  
Coconut Creek, Florida  
September 27, 2019  

 

  F-2  
 

 

VISIUM TECHNOLOGIES, INC.

Consolidated BALANCE SHEETS

 

    June 30,  
    2019     2018  
ASSETS                
Current assets:                
Cash   $ 18,668     $ 11,412  
                 
Total current assets     18,668       11,412  
                 
Total assets   $ 18,668     $ 11,412  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
Current liabilities:                
Accounts payable and accrued expenses   $ 213,805     $ 626,583  
Accrued compensation     316,529       155,825  
Accrued interest     593,838       1,686,054  
Convertible notes payable to ASC Recap LLC     147,965       147,965  
Convertible notes payable, net of discount of $158,333 and $0, respectively     917,095       1,617,984  
Derivative liability     807,053       -  
Notes payable     205,000       270,241  
Due to officers     62,000       21,000  
Total current liabilities     3,263,285       4,525,652  
                 
Commitments and contingencies (Note 12)                
                 
Stockholders’ deficit:                
Preferred stock                
Series A Convertible Stock ($0.001 par value; 20,000,000 shares authorized, 13,992,340 shares issued and outstanding as of June 30, 2019 and 2018, respectively)     13,992       13,992  
Series B Convertible Stock ($0.001 par value 30,000,000 shares authorized, 1,327,640 shares issued and outstanding as of June 30, 2019 and 2018, respectively)     1,328       1,328  
Series AA Convertible Stock ($0.001 par value; 1 share authorized, 1 share issued and outstanding as of June 30, 2019 and 2018)     0       0  
Common stock, $0.0001 par value, 10,000,000,000 shares authorized: 45,610,716 shares issued and 42,066,269 outstanding at June 30, 2019, and 23,212,549 shares issued and 9,376,442 outstanding at June 30, 2018, respectively (See Note 8)     4,207       937  
Additional paid in capital     43,184,984       40,160,698  
Accumulated deficit     (46,449,128 )     (44,691,196 )
Total stockholders’ deficit     (3,244,617 )     (4,514,240 )
                 
Total liabilities and stockholders’ deficit   $ 18,668     $ 11,412  

 

See accompanying notes to consolidated financial statements.

 

  F-3  
 

 

VISIUM TECHNOLOGIES, INC.

Consolidated STATEMENTS OF OPERATIONS

 

    FOR THE YEAR ENDED  
    June 30, 2019     June 30, 2018  
             
Net revenues   $ -     $ -  
                 
Operating expenses:                
Selling, general and administrative     2,721,467       1,043,230  
Amortization expense     141,970       -  
Total operating expenses     2,863,437       1,043,230  
                 
Loss from operations     (2,863,437 )     (1,043,230 )
                 
Other income (expense)                
Loss on change in fair value of derivative liabilities     (183,130 )     -  
Derivative liability expense     (341,423 )     -  
Interest expense     (276,087 )     (275,975 )
Debt conversion expense     -       (96,272 )
Gain on debt write off     2,303,147       25,137  
Impairment expense     (407,002 )     -  
Other income     10,000       -  
Total other income (expense)     1,105,505       (347,110 )
                 
Net loss   $ (1,757,932 )   $ (1,390,340 )
                 
Weighted average common shares                
Basic and diluted     22,992,865       1,999,018  
                 
Net loss Per Common Share –Basic and Diluted:   $ (0.076 )   $ (0.70 )

 

See accompanying notes to consolidated financial statements.

 

  F-4  
 

 

VISIUM TECHNOLOGIES, INC.

Consolidated STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED JUNE 30, 2019 AND 2018

 

    Preferred     Preferred     Preferred                          
    Stock -     Stock -     Stock -     Common                    
    Series A     Series B     Series AA     Stock                    
    $0.001     $0.001     $0.001     $0.0001     Additional           Total  
    Par Value     Par Value     Par Value     Par Value     Paid-in     Accumulated     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 as compensation                                                     4,308,335       431       358,069               358,500  
                                                                                         
Shares issued for consulting services                                                     3,095,241       310       299,285               299,595  
                                                                                         
Shares issued for accrued payables                                                     95,238       10       59,990               60,000  
                                                                                         
Shares issued due to reverse split (rounding)                                                     930                               0  
                                                                                         
Proceeds from sale of common stock                                     1       0       100,000       10       9,990               10,000  
                                                                                         
Shares issued for conversion of notes payable                                                     1,277,546       126       141,304               141,430  
                                                                                         
Debt conversion expense                                                                     96,272               96,272  
                                                                                         
Forgiveness of debt due to former officer                                                                     839,634               839,634  
                                                                                         
Net loss for the year ended June 30, 2018                                                                             (1,390,340 )     (1,390,340 )
                                                                                         
Balance at June 30, 2018     13,992,340     $ 13,992       1,327,640     $ 1,328       1     $ 0       9,376,442     $ 937     $ 40,160,699     $ (44,691,196 )   $ (4,514,240 )
                                                                                         
Shares issued as compensation to directors and officers                                                     23,427,772       2,343       1,899,157               1,901,500  
Shares issued for consulting services                                                     3,233,341       323       174,177               174,500  
Proceeds from sale of common stock                                                     2,505,000       251       250,250               250,501  
Shares issued for conversion of notes payable                                                     1,985,327       199       200,855               201,054  
                                                                                         
Acquisition of TSSG                                                     1,538,387       154       499,846               500,000  
Net loss for the year ended June 30, 2019                                                                             (1,757,932 )     (1,757,932 )
                                                                                         
Balance at June 30, 2019     13,992,340     $ 13,992       1,327,640     $ 1,328       1     $ 0       42,066,269     $ 4,207     $ 43,184,984     $ (46,449,128 )   $ (3,244,617 )

 

See accompanying notes to consolidated financial statements.

 

  F-5  
 

 

VISIUM TECHNOLOGIES, INC.

Consolidated STATEMENTS OF CASH FLOWS

 

    FOR THE YEAR     FOR THE YEAR  
    ENDED     ENDED  
    June 30, 2019     June 30, 2018  
             
Cash flows from operating activities:                
Net loss   $ (1,757,932 )   $ (1,390,340 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Amortization expense related to intangible asset     141,970       -  
Amortization of debt discounts     141,667       27,083  
Stock based payments for consultants, directors and officers     2,076,000       658,095  
Gain on debt write off     (2,303,147 )     (25,137 )
Loss on change in fair value of derivative liabilities     183,130       -  
Derivative liability expense     341,423       -  
Impairment expense     407,002       -  
Debt conversion expense     -       96,272  
Changes in operating assets and liabilities:                
Accounts payable and accrued expenses     (90,751 )     94,956  
Accrued compensation     160,704       240,000  
Accrued interest    

133,189

      239,670  
Net cash used in operating activities     (566,745 )     (59,401 )
                 
Cash flows from financing activities:                
Advance from officers     41,000       21,000  
Proceed from sale of common stock     250,501       10,000  
Proceeds from convertible notes payable     282,500       37,500  
Net cash provided by financing activities     574,001       68,500  
                 
Net increase in cash     7,256       9,099  
                 
Cash at beginning of year     11,412       2,313  
                 
Cash at end of year   $ 18,668     $ 11,412  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Cash paid for:                
Interest   $ 1,235     $ -  
Income taxes   $ -     $ -  
                 
Issuance of common stock for conversion of debt   $ 201,055     $ 141,430  
Issuance of common stock for acquisition of Threat Surface Solutions Group   $ 500,000       -  
Shares issued for accounts payable   $ -     $ 60,000  
Derivative liability attributable to debt discount on notes payable   $ 282,500       -  

 

See accompanying notes to consolidated financial statements.

 

  F-6  
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND 2018

 

NOTE 1: ORGANIZATION, DESCRIPTION OF BUSINESS AND GOING CONCERN

 

Visium Technologies, Inc., or the Company, is currently a Florida corporation that was originally incorporated in Nevada in October 1987. It was formerly known as Jaguar Investments, Inc. between October 1987 and May 2003, Power2Ship, Inc. between May 2003 and November 2006, Fittipaldi Logistics, Inc. between November 2006 and December 2007, and as NuState Energy Holdings, Inc. between December 2007 and March 5, 2019 when it changed its name to Visium Technologies, Inc.

 

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

 

The Company named Mark Lucky as its Chief Executive Officer in February 2018 to provide strategic expertise in pursuing its business plans.

 

Going Concern

 

The accompanying financial statements have been prepared on a going concern basis. For the year ended June 30, 2019 we had a net loss of $1,757,932, had net cash used in operating activities of $566,745, and had negative working capital of $3,244,617. 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 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Management is in the process of acquiring an operating entity actively engaged in a business that generates sustained revenues. We are also considering several additional potential acquisitions and are investigating various candidates to determine whether they would have the potential to add value to us for the benefit of our stockholders.

 

We intend to restrict our consideration of potential business to communications, services, or technology. Because we have limited resources, the scope and number of suitable candidates to merge with is relatively limited. Because we may participate in a business opportunity with a newly formed firm, a firm that is in the development stage, or a firm that is entering a new phase of growth, we may incur further risk due to the inability of the target’s management to have proven its abilities or effectiveness, or the lack of an established market for the target’s products or services, or the inability to reach profitability in the next few years.

 

Any business combination or transaction may result in a significant issuance of shares and substantial dilution to our present stockholders.

 

  F-7  
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND 2018

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

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. Actual results will differ from those estimates. Included in these estimates are assumptions used in Cox, Ross & Rubinstein Binomial Tree stock-based compensation valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate and in the valuation allowance of deferred tax assets.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid, temporary, cash equivalents or investments with an original maturity of three months or less when purchased, to be cash equivalents. The Company had no cash equivalents during the years ended June 30, 2019 and 2018.

 

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, or FDIC, up to $250,000. During the years ended June 30, 2019 and 2018, the Company had not reached a bank balance exceeding the FDIC insurance limit.

 

Derivative Liabilities

 

The Company assessed the classification of its derivative financial instruments as of June 30, 2019 and 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.

 

  F-8  
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND 2018

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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, the expected volatility, the implied risk-free interest rate, as well as the expected dividend rate, if any. The Company recorded a derivative liability as of June 30, 2019 of $807,054.

 

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, accounts payable and accrued expenses, accrued compensation, notes payable and convertible promissory notes payable, approximate their fair value due to the short maturity of these items or the use of market interest rates.

 

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.

 

The Company determines whether the instruments issued in the transactions are considered indexed to the Company’s own stock. During fiscal years 2014 through 2019 the Company’s issued convertible securities with variable conversion provisions that resulted in derivative liabilities. See discussion above under derivative liabilities that resulted in a change in derivative liability accounting.

 

  F-9  
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND 2018

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Revenue Recognition

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The revenue recognition principle in ASU 2014-09 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, new and enhanced disclosures will be required. Companies may adopt the new standard either using the full retrospective approach, a modified retrospective approach with practical expedients, or a cumulative effect upon adoption approach. This standard is effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company early adopted this standard effective July 1, 2018. Since the Company has not earned any revenue to date, there has been no impact to the financial statements upon adoption.

 

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.

 

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 June 30, 2019, the Company had not filed tax returns for the tax years ending June 30, 2008 through 2019 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, if any, would not be material in amount.

 

Share-Based Payments

 

The Company accounts for stock-based compensation in accordance with ASU 2019-07, Compensation – Stock Compensation (Topic 718). This update is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees (for example, service providers, external legal counsel, suppliers, etc.). The ASU expands the scope of Topic 718, Compensation—Stock Compensation, which currently only includes share-based payments issued to employees, to also include share-based payments issued to non-employees for goods and services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned.

 

Under ASC Topic 718, “Compensation - Stock Compensation”. 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.

 

The Company has elected to use the Cox, Ross & Rubinstein Binomial Tree valuation 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.

 

Segment Reporting

 

The Company operates in one business segment which technologies are focused on cybersecurity.

 

  F-10  
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND 2018

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Recent Accounting Pronouncements

 

In May 2018, the FASB issued ASU No. 2019-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, regarding the accounting implications of the recently issued Tax Cuts and Jobs Act (the “Act”). This standard is effective immediately. The update clarifies that in a company’s financial statements that include the reporting period in which the Act was enacted, the company must first reflect the income tax effects of the Act in which the accounting under GAAP is complete. These amounts would not be provisional amounts. The company would also report provisional amounts for those specific income tax effects for which the accounting under GAAP is incomplete, but a reasonable estimate can be determined. The Company has recorded a provisional amount which it believes is a reasonable estimate of the effects of the Act on the Company’s financial statements as of April 30, 2019. Technical corrections or other forthcoming guidance could change how the Company interprets provisions of the Act, which may impact its effective tax rate and could affect its deferred tax assets, tax positions and/or its tax liabilities.

 

In July 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-11. “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features, II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception (“ASU 2017-11”) ASU 2017-11 revises the guidance for instruments with down round features in Subtopic 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity, which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. An entity still is required to determine whether instruments would be classified in equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities. ASU 2017-11 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption is permitted, including adoption in an interim period. ASU 2017-11 provides that upon adoption, an entity may apply this standard retrospectively to outstanding financial instruments with a down round feature by means of a cumulative- effect adjustment to the opening balance of accumulated deficit in the fiscal year and interim period adoption. The Company has adopted ASU 2017-11 retrospectively as of January 1, 2019. The adoption of this ASU did not have any impact on its financial statements.

 

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 financial statements for the year ended June 30, 2019 and 2018 as their effect would be anti-dilutive. Potential common shares that would be as follows:

 

    For the Years ended June 30,  
    2019     2018  
Weighted average common shares outstanding     22,992,865       1,999,018  
Effect of dilutive securities-when applicable:                
Convertible promissory notes     14,604,829       10,052,242  
Preferred Stock     13,996,767       13,996,767  
Warrants     500,000       -  
Fully diluted earnings per share—adjusted weighted-average shares and assumed conversions     52,094,461       26,048,027  

 

  F-11  
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND 2018

 

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. Because it is indeterminate whether there is a sufficient number of authorized and unissued shares exists at the assessment date, the Company calculates a derivative liability associated with the warrants in accordance with FASB ASC Topic 815-40-25.

 

Accounting for Derivative Warrant Liability

 

The Company’s derivative warrant instruments have been measured at fair value at June 30, 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. Upon 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 June 30, 2019 and June 30, 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 a loss of $183,130 and $0 for the years ended June 30, 2019 and 2018, respectively in the Company’s consolidated statements of operations, under the caption “Loss in change of fair value of derivative liability”. The fair value of the warrants at June 30, 2019 and June 30, 2018 was $37,200 and $0, respectively. The fair value of the derivative liability related to the convertible debt at June 30, 2019 and June 30, 2018 is $769,853 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 Tree valuation of the derivative are as follows:

 

    Year Ended June 30,  
    2019     2018  
Effective exercise price   $ 0.0355 - $ 0.0449     $ -  
Effective market price   $ 0.0745     $ -  
Expected volatility     329.6% to 411.42 %        - %
Risk-free interest     1.92% - 2.18 %     - %
Expected terms     92 - 946 days       -  
Expected dividend rate     0 %     - %

 

Changes in the derivative liabilities during the year ended June 30, 2019 was follows:

 

Derivative liability at June 30, 2018   $ -  
Derivative liability expense     341,423  
Gain on change in fair value of derivative liabilities     183,130  
Derivative liability attributed to discount on notes payable     282,500  
Derivative liability at June 30, 2019   $ 807,053  

 

  F-12  
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND 2018

 

NOTE 4: CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE

 

Convertible Notes Payable

 

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

 

    June 30,  
    2019     2018  
Convertible notes payable   $ 1,075,428     $ 1,617,984  
Discount on convertible notes     (158,333 )     -  
Convertible notes, net     917,095       1,617,984  
                 
Convertible notes payable to ASC Recap     147,965       147,965  
Total   $ 1,065,060     $ 1,765,949  

 

The Company had convertible promissory notes aggregating approximately $1.1 million and $1.8 million at June 30, 2019 and June 30, 2018, respectively. The related accrued interest amounted to approximately $434,835 and $1.44 million at June 30, 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 $0.0355 to $22,500 (as a result of two reverse stock splits) per share. At June 30, 2019, $765,000 of convertible promissory notes had matured, are in default and remain unpaid. There is no provision in the note agreements for adjustments to the interest rates on these notes in the event of default.

 

On July 22, 2013 and May 6, 2014, the Company issued to ASC Recap LLC (“ASC”) 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 3(a)10 transaction. While the Company continues to carry the balance of these notes on its balance sheet, management is disputing the notes and does not believe that the balances of these notes are owed (see Note 12). 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 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.

 

During the year ended June 30, 2018, the Company amended the conversion terms for twelve convertible noteholders. The amended notes totaled $139,225 in principal and were amended such that the conversion price is fixed at $0.09 per share, from conversion terms that were priced at a 50% discount of the average closing bid price per share of Common Stock during the ten consecutive trading days immediately prior to any such conversion. For those notes that were converted immediately after the amendment, the Company recorded a debt conversion expense of $96,272, in accordance with guidance in ASC-470 for induced debt conversions.

 

For the year ended June 30, 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  

 

Transactions

 

Convertible Notes Payable

 

In January, 2019 we issued convertible notes to two investors, with a face value totaling $300,000 which generated net proceeds of $282,500. The notes bear interest at 8% and have a term of one year.

 

Notes Payable

 

The Company had promissory notes aggregating $205,000 and $270,241 at June 30, 2019 and June 30, 2018, respectively. The related accrued interest amounted to approximately $159,000 and $245,000 at June 30, 2019 and June 30, 2018, respectively. The notes payable bear interest at rates ranging from 0% to 16% per annum and are payable monthly. All promissory notes outstanding as of June 30, 2019 have matured, are in default, and remain unpaid. There is no provision in the note agreements for adjustments to the interest rates on these notes in the event of default.

 

The Company recognized interest expense of approximately $276,000 and $276,000 during the fiscal years 2019 and 2018, respectively.

 

  F-13  
 

 

NOTE 5: ACCRUED INTEREST PAYABLE

 

Changes in accrued interest payable during the year ended June 30, 2019, is as follows:

 

Accrued interest payable at June 30, 2018   $ 1,686,054  
Interest expense on notes payable for the year ended June, 2019     134,420  
Gain on write off of accrued interest     (1,184,214 )
Cash paid for accrued interest     (1,235 )
Gain on forgiveness of accrued interest     (10,982 )
Conversion of accrued interest into common stock     (30,205 )
Accrued interest payable at June 30, 2019   $ 593,838  

 

Interest expense for year ended June 30, 2019 was comprised of the following:

 

Interest expense for the year ended June 30, 2019   $ 134,420  
Amortization of debt discount     141,667  
Total interest expense for the year ended June 30, 2019   $ 276,087  

 

NOTE 6: Gain on Debt Write-Off

 

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  
Accrued interest expense     1,184,214  
Convertible notes payable     671,706  
Promissory notes payable     65,241  
    $ 2,292,162  

 

The Company also recognized a gain on the forgiveness of accrued interest of $10,985 in October 2018.

 

  F-14  
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND 2018

 

NOTE 7: ACQUISITION AND INTANGIBLE ASSET

 

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 was to 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. As of June 30, 2019, the Company determined that there was no future value related to the acquisition and wrote off the net book value of the intangible assets, as follows:

 

Net intangible asset as of date of impairment   $ 459,311  
Reversal of contingent liability     (52,315 )
Impairment expense   $ 407,002  

 

  F-15  
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND 2018

 

NOTE 8: STOCKHOLDERS’ DEFICIT

 

Common Stock

 

At June 30, 2019, the Company had 10,000,000,000 authorized common shares. At June 30, 2019 the Company has 45,610,716 common shares issued of which 42,066,270 were outstanding, which is net of 3,544,446 unvested shares issued for the restricted stock awards granted during the year. See Note 8.

 

Issuances of Common Stock During 2019

 

Convertible Notes Payable

 

During the fiscal year ended June 30, 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 fiscal year ended June 30, 2019 the Company issued 2,505,000 shares of its common stock related to the sale of its common stock resulting in proceeds of $250,501, at an average price of $0.10 per share.

 

Acquisition of Threat Surface Solutions Group, LLC

 

During the fiscal year ended June 30, 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 fiscal year ended June 30, 2019 the Company issued 23,427,772 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 fiscal year ended June 30, 2019 we issued 3,233,341 shares of its common stock to consultants, as compensation. The shares were valued at $0.054, the market price on the date of issuance for a total value of $174,500. The expense is included in general and administrative expenses and was recognized on the date the stock was issued or vested.

 

Issuances of Common Stock During the Year ended June 30, 2018

 

Convertible Notes Payable

 

During the year ended June 30, 2018, the Company issued 1,277,546 shares of its common stock upon the conversion of $141,430 of principal of its outstanding convertible notes, at an average price of $0.111 per share.

 

  F-16  
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND 2018

 

NOTE 8: STOCKHOLDERS’ DEFICIT, continued

 

Stock Based Compensation

 

During May 2018 the Company issued 1,500,000 shares of its common stock to its CEO, Mark Lucky, as compensation. The shares were valued at $0.06, the market price on the date of issuance for a total value of $90,000. The expense is included in general and administrative expenses and was recognized on the date the stock was issued. See Note 10 – Related Party Transactions.

 

During May 2018 the Company issued 1,000,000 shares of its common stock to Tom Grbelja, as compensation for his service on the Board of Directors. The shares were valued at $0.06, the market price on the date of issuance for a total value of $60,000. The expense is included in general and administrative expenses and was recognized on the date the stock was issued. See Note 10 – Related Party Transactions.

 

During May 2018 the Company issued 900,000 shares of its common stock to Paul Favata, as compensation for his service on the Board of Directors. The shares were valued at $0.06, the market price on the date of issuance for a total value of $54,000. The expense is included in general and administrative expenses and was recognized on the date the stock was issued. See Note 10 – Related Party Transactions.

 

During May 2018 the Company issued 1,450,000 shares of its common stock to two consultants, as compensation for consulting services. The shares were valued at $0.06, the market price on the date of issuance for a total value of $87,000. The expense is included in general and administrative expenses and was recognized on the date the stock was issued.

 

During May 2018 the Company issued 1,131,350 shares of its common stock to three consultants, as compensation for consulting services. The shares were valued at $0.12, the market price on the date of issuance for a total value of $135,762. The expense is included in general and administrative expenses and was recognized on the date the stock was issued.

 

Sale of Restricted Common Stock

 

During May 2018 we sold 100,000 shares of common stock, valued at $10,000 to an accredited investor, and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.

 

Grants of Restricted 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 CEO, Mark Lucky, as compensation. The shares were valued at $50,000, or $0.30 per share on a post reverse split basis.

 

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.

 

  F-17  
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND 2018

 

NOTE 8: STOCKHOLDERS’ DEFICIT, continued

 

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.

 

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.

 

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.

 

Preferred Stock

 

Series A and B issued and outstanding shares of the Company’s convertible preferred stock have a par value of $0.001. All classes rank(ed) 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 has a stated value of $750 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 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 a new Series B Preferred stock in April 2016. This new Series B Preferred Stock has a $0.001 par value, and each 300 shares is convertible into one share of the Company’s common stock, with a stated value of $375 per share.

 

Series AA Convertible Preferred Stock

 

In March 2018, the Company authorized and issued one (1) 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 (1) share of Common Stock. Mark Lucky, our Chief Executive Officer, is the holder of the one (1) share of Series AA Convertible Preferred Stock.

 

  F-18  
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND 2018

 

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 year ended June 30, 2019 and 2018 is presented in the following table:

 

    For the Year ended  
    June 30, 2019     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     $ 0.37       14,650,000     $ 0.06  
Forfeited     (930,955 )     0.36                  
Vested     (10,861,106 )   $ 0.08       (813,892 )   $ 0.06  
Unvested at end of period     3,544,447     $ 0.06       13,836,108     $ 0.06  

 

Unrecognized compensation expense related to outstanding restricted stock awards to employees and directors as of June 30, 2019 was $212,667 and is expected to be recognized over a weighted average period of 1.83 years.

 

NOTE 10: INCOME TAXES

 

The Company has not filed its corporate tax returns since fiscal 2007.

 

Due to recurring losses, the Company’s tax provision for the years ended June 30, 2019 and 2018 was $0.

 

The difference between the effective income tax rate and the applicable statutory federal income tax rate is summarized as follows:

    2019     2018  
Statutory federal rate     (21.0 )%     (35.0 )%
State income tax rate, net of federal benefit     (3.6 )%     (3.5 )%
Permanent differences, including stock-based compensation     8.6 %     (5.6 )%
Change in valuation allowance     16.0 %     44.1 %
Effective tax rate     0.0 %     0.0 %

 

At June 30, 2019 and 2018 the Company’s deferred tax assets were as follows:

 

    June 30, 2019     June 30, 2018  
Tax benefit of net operating loss carry forward   $ 6,961,000     $ 10,704,000  
Intangible     85,000       -  
Total deferred tax assets     7,046,000       10,704,000  
                 
Less: valuation allowance     (7,046,000 )     (10,704,000 )
Net deferred tax assets   $ -     $ -  

 

As of June 30, 2019, the Company had unused net operating loss carry forwards of approximately $33.2 million available to reduce future federal taxable income. Net operating loss carryforwards expire through fiscal years ending 2037. Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by carryforwards after a change in control (generally a greater than 50% change in ownership).

 

  F-19  
 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND 2018

 

NOTE 10: INCOME TAXES, continued