VISIUM TECHNOLOGIES, INC. - Quarter Report: 2018 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2018

For the transition period from ___________ to _________.

Commission file number 000-25753

VISIUM TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

11325 RANDOM HILLS ROAD, Suite 360

FAIRFAX, VA 22030

(Address of principal executive offices) (Zip Code)

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

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

Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes [  ] No [X]

Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 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 number of shares outstanding of the registrant’s Common Stock, $0.0001 par value per share, as of November 13, 2018, was 17,924,545.

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

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

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

VISIUM TECHNOLOGIES, INC.

INDEX

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Visium Technologies, Inc.

BALANCE SHEETS

(1) Derived from audited financial statements

See Notes to Unaudited Financial Statements.

Visium Technologies, Inc.

STATEMENTS OF OPERATIONS

(Unaudited)

See Notes to Unaudited Financial Statements.

Visium Technologies, Inc.

STATEMENTS OF CASH FLOWS

(Unaudited)

See Notes to Unaudited Financial Statements.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

NOTE 1: ORGANIZATION, DESCRIPTION OF BUSINESS, GOING CONCERN AND BASIS OF PRESENTATION

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

On March 5, 2018 a majority of the common shareholders approved certain corporate actions, and the Company filed an amendment to its Articles of Incorporation with the State Department of Corporations in the State of Florida to effect the following changes, effective March 1, 2018:

On September 4, 2018, the Company executed a definitive agreement to acquire Threat Surface Solutions Group, LLC, a cybersecurity company focused on network risk assessment, penetration testing, mobility security, and Internet of Things (“IoT”) security. On October 12, 2018, the Company completed the acquisition. See Note 10 – Subsequent Events.

Going Concern

The accompanying financial statements have been prepared on a going concern basis. For the three months ended September 30, 2018 we had a net loss of $1,059,423, had net cash used in operating activities of $137,732, and had negative working capital of $5,074,307. 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.

Basis of Presentation

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

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

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 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 the valuation of derivative liabilities, stock-based compensation, and deferred tax asset valuation allowance.

Cash and Cash Equivalents

The Company considers all highly liquid, temporary, cash equivalents with an original maturity of three months or less when purchased, to be cash equivalents. The Company had no cash equivalents during the three months ended September 30, 2018 and June 30, 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 three months ended September 30, 2018 and 2017, the Company had not reached a bank balance exceeding the FDIC insurance limit.

Derivative Liabilities

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

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

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

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Fair Value of Financial Instruments

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

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

Additional Disclosures Regarding Fair Value Measurements

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

Convertible Instruments

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

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

Income Taxes

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

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

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Income Taxes, continued

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

Share-Based Payments

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

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

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

Segment Reporting

The Company operates in one segment, which is to search for possible acquisition targets and merge with an operating company. The Company’s chief operating decision-maker evaluates the performance of the Company based upon expenses by functional areas as disclosed in the Company’s statements of operations.

Recent Accounting Pronouncements

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

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) (“ASU 2018-02”). The objective of the ASU is to allow a reclassification from accumulated comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“TCJA”) and will improve the usefulness of information reported to financial statement users. ASU 2018-02 is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Basic and Diluted Earnings Per Share

Basic earnings per share are calculated by dividing income available to stockholders by the weighted-average number of shares of Common Stock outstanding during each period. Diluted earnings per share are computed using the weighted average number of shares of Common Stock and dilutive Common Stock share equivalents outstanding during the period. Dilutive Common Stock share equivalents consist of shares issuable upon the exercise of stock options and warrants (calculated using the modified-treasury stock method), and shares underlying convertible promissory notes and convertible preferred stock. Potential common shares includable in the computation of fully-diluted per-share results are not presented in the financial statements as their affect would be anti-dilutive.

The weighted-average potentially dilutive common share equivalents outstanding for the three months ended September 30, 2018 and 2017 are as follows:

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

NOTE 3: DERIVATIVE LIABILITY

The Company accounts for the embedded conversion features included in its convertible instruments as derivative liabilities. The aggregate fair value of derivative liabilities at September 30, 2018 and June 30, 2018 amounted to $567,232 and $0, respectively. For the three months ended September 30, 2018 and 2017, the Company recorded a loss related to the change in fair value of the derivative liability amounting to $567,232 and $0, respectively. Management had a change in accounting estimate during the year ended June 30, 2017. The Company determined that all of the underlying convertible notes were past due and in default, and that there was no active market for the Company’s common stock. Because of this lack of liquidity and market value, there was no derivative liability associated with these convertible notes as of June 30, 2017. During the three months ended September 30, 2018 the Company determined that there was an active market for the Company’s common stock, and there is, therefore, a derivative liability associated with certain of its convertible notes. The Company recorded a derivative liability as of September 30, 2018. At each measurement date, the fair value of the embedded conversion features was based on the Black-Scholes-Merton method using the following assumptions:

Changes in the derivative liabilities during the three months ended September 30, 2018 is follows:

NOTE 4: ACCRUED INTEREST PAYABLE

Changes in accrued interest payable during the three months ended September 30, is as follows:

NOTE 5: CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE

Convertible Notes Payable

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

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 

NOTE 5: CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE, continued

The Company had convertible promissory notes aggregating approximately $1.7 million and $1.8 million at September 30, 2018 and June 30, 2018, respectively. The related accrued interest amounted to approximately $1.46 million and $1.44 million at September 30, 2018 and June 30, 2018, respectively. The convertible notes payable bear interest at rates ranging from 0% to 18% per annum. The convertible notes are generally convertible, at the holders’ option, at rates ranging from $0.09 to $22,500 per share, as a result of the two reverse stock splits. At September 30, 2018, all $1.7 million of convertible promissory notes had matured, are in default and remain unpaid.

On July 22, 2013 and May 6, 2014, the Company issued to ASC Recap LLC (“ASC”) 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 10 – Subsequent Events in the footnotes to the financial statements. The July 22, 2013 note matured on March 31, 2014 and a balance of $22,965 remains unpaid. The May 6, 2014 note matured on May 6, 2016 and remains unpaid. The notes are convertible into the common stock of the Company at any time at a conversion price equal to (i) 50% of the lowest closing bid price of our common stock for the twenty days prior to conversion or (ii) fixed price of $0.15 or $0.30 per share.

For the three months ended September 30, 2018, the following summarizes the conversion of debt for common shares:

Notes Payable

The Company had promissory notes aggregating $270,241 at September 30, 2018 and June 30, 2018, respectively. The related accrued interest amounted to approximately $251,000 and $245,000 at September 30, 2018 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, 2018 have matured, are in default, and remain unpaid.

NOTE 6: STOCKHOLDERS’ DEFICIT

Common Stock

At September 30, 2018, the Company had 10,000,000,000 authorized common shares.

Issuances of Common Stock During the Three Months Ended September 30, 2018

Convertible Notes Payable

During the three months ended September 30, 2018 the Company issued 912,5546 shares of its common stock related to the conversion of $97,305 of principal and accrued interest of its convertible notes payable, at an average contract conversion price of $0.107 per share.

Sale of Restricted Common Stock

During the three months ended September 30, 2018 the Company issued 1,328,000 shares of its common stock related to the sale of its common stock resulting in proceeds of $132,800, at an average price of $0.10 per share.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 

NOTE 6: STOCKHOLDERS’ DEFICIT, continued

Stock Based Compensation

During the three months ended September 30, 2018 the Company issued 1,306,947 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 $239,250, or $0.183 per share.

During the three months ended September 30, 2018 the Company issued 483,336 shares of its $0.0001 par value common stock to four consultants, as compensation under four separate consulting agreements. The shares were valued at $29,000, or $0.06 per share.

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 $750.00 per share. Each one share of Series A Preferred Stock is convertible into one (1) share of Common Stock. In the event the Common Stock price per share is lower than $0.10 (ten cents) per share then the Conversion 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 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 CFO, is the holder of the one share of Series AA Convertible Preferred Stock.

Series A Convertible Preferred Stock

The Series A Preferred Stock has a stated value of $750.00 per share. Each one share of Series A Preferred Stock is convertible into one (1) share of Common Stock. In the event the Common Stock price per share is lower than $0.10 (ten cents) per share then the Conversion 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

Prior to cancellation, the Series B Preferred Stock had a stated value of $5.00 per share. Each share of Series B Preferred Stock was convertible into 20 shares of the Company’s common stock. In addition, the holders of the preferred stock were entitled to receive annual cumulative dividends of 10% payable in cash or shares of the Company’s common stock, at the Company’s option. At March 31, 2018, the Company had not declared the payment of cumulative dividends aggregating approximately $673,200.

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.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 

Note 7 - STOCK-BASED COMPENSATION

Restricted Stock Awards

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

Unrecognized compensation expense related to outstanding restricted stock awards to employees and directors as of September 30, 2018 was $1,006,083 and is expected to be recognized over a weighted average period of 2.83 years.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

NOTE 8: RELATED PARTY TRANSACTIONS

Equity transactions with related parties are described in Note 6.

From time to time we have borrowed operating funds from Mr. Mark Lucky, our Chief Financial Officer and from certain Directors, for working capital. The advances were payable upon demand and were interest free. At September 30, 2018 there was $20,000 outstanding of such advances made to the Company.

NOTE 9: COMMITMENTS AND CONTINGENCIES

Contingencies

The Company accounts for contingent liabilities in accordance with Accounting Standards Codification (“ASC”) Topic 450, Contingencies. This guidance requires management to assess potential contingent liabilities that may exist as of the date of the financial statements to determine the probability and amount of loss that may have occurred, which inherently involves an exercise of judgment. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. For loss contingencies considered remote, no accrual or disclosures are generally made. Management has assessed potential contingent liabilities as of September 30, 2018, and based on the assessment there are no probable loss contingencies requiring accrual or disclosures within its financial statements.

The consideration payable to the sellers of Threat Surface Solutions Group, LLC includes up to $3.5 million as earnout consideration, which in contingent on the Company achieving mutually agreed-to revenue milestones. See Note 10 – Subsequent Events.

Legal Claims

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

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

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

NOTE 10: SUBSEQUENT EVENTS

On October 12, 2018, the Company completed the transaction to acquire Threat Surface Solutions Group, LLC (“TSSG”), pursuant to the Membership Interest Purchase Agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, each Seller assigned, transferred and sold to Purchaser, and Purchaser purchased from such Sellers, all of the issued and outstanding voting membership interests of TSSG (collectively, the “Transaction”).

The total consideration for the transaction is approximately $5 million, with up to $3.5 million of that amount payable as earnout consideration based on mutually agreed-to revenue milestones. At the closing of the Transaction, Purchaser paid (i) 1,538,385 shares of its $0.0001 par value common stock, valued at $500,000, or $0.325 per share and (ii) a Seller’s note in the amount of $1 million dollars. The note is interest-only, has a 5-year term and is subject to the earnout provisions in the Agreement. Subject to funding, cash consideration of $1,000,000 will be payable post-Closing (the “Closing Consideration”).

On October 10, 2018, the Company appointed Dr, Emmanuel Esaka to as a member of the Board of Directors of the Company.

In October 2018 our officers, directors and consultants vested 441,669 shares of our $0.0001 par value common stock, at an average price per share of $0.072.

In October 2018 the Company issued 1,565,000 shares of our $0.0001 par value common stock in exchange for $156,500, or an average price of $0.10/share.

In October 2018 the Company issued 1,000,000 shares of our $0.0001 par value common stock to Dr. Emmanuel Esaka as compensation for serving as a Director. The shares were valued at $390,000, or $0.39/share.

ITEM 2. Management’s Discussion and Analysis and Results of Operations

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

Overview

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

Visium is a world-class cybersecurity/digital risk management company. Through our acquisition in October 2018 of Threat Surface Solutions Group, LLC (“TSSG”), we now deliver comprehensive solutions to protect connected devices such as IoT products, and Industrial IoT (“IIOT”) systems from penetration, mitigating the liability of manufacturers and protecting the consumer from possible catastrophic loss. Our focus is on test and measurement (“T&M”) test and evaluation (“T&E”), the cybersecurity of software and hardware platforms, and risk mitigation.

The TSSG acquisition provides us with capabilities of securing industrial systems from external penetration and internal threats through the use of our proprietary IoT test platform, the Cyber Automated Test Bench (“CATB”). Our patented cyber toolsets and our world-class T&M and T&E platforms provide a visualization of threats which allows for timely and effective remediation of technology risks.

In July 2018 Visium 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.

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

Employees

At November 13, 2018, we had 3 full time employees.

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

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

VISIUM TECHNOLOGIES, INC.

RESULTS OF OPERATIONS

Discussion of Results for Three Month Period Ended September 30, 2018 and 2017

Selling, General, and Administrative Expenses

For the three months ended September 30, 2018, selling, general and administrative expenses were $382,640 as compared to $119,987 for the three months ended September 30, 2017, an increase of $262,872 or approximately 86%. For the three months ended September 30, 2018 and 2017 selling, general and administrative expenses consisted of the following:

The increase in selling, general and administrative expenses during fiscal Q1 of 2018, when compared with the prior year, is primarily due to an increase in stock based compensation of $268,250, legal and professional fees of $22,470, investor relations expense of $10,000, occupancy expense of $2,922 and other expenses of $24,460 related to increased business development activity, offset by a decrease in accounting expense of $2,500, and consulting fees of $18,500.

We believe that our selling, general, and administrative expenses will increase as we increase our business activity over the remainder of 2018.

Interest Expense

Interest expense represents stated interest of notes and convertible notes payable, along with the amortization of debt discount. The decrease in interest expense during the three-month period ended September 30, 2018 is primarily due to the decrease in interest bearing promissory notes during the three-month period ending September 30, 2018 when compared to the prior year period.

Liquidity and Capital Resources

At September 30, 2018 and June 30, 2018, 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 cannot ascertain that we have sufficient funds from operations to fund our ongoing operating requirements through June 30, 2019. 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 a mix of equity and debt 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. In the long-term, we anticipate we will need to raise a substantial amount of capital to complete an acquisition. We are unable to quantify the resources we will need to successfully complete an acquisition. 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.

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 approximately $137,732 and $39,488 during the thee-month periods ended September 30, 2018 and 2017, respectively, and has a working capital deficit of approximately $4.9 million and $4.5 million at September 30, 2018 and June 30, 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.

Three months ended September 30, 2018

Net cash used in operations during the three months ended September 30, 2018 increased by $98,244 or 249% over the same period during fiscal year 2017. This cash was obtained through the sale of 1,328,000 shares of the Company’s $0.0001 par value common stock, value at $132,800.

Cash generated from financing activities consists of proceeds of $132,800 from the issuance of the Company’s common stock during the three-month period.

Three months ended September 30, 2017

Net cash used in operations during the three months ended September 30, 2017 decreased by $2,826 or 6.7% over the same period during fiscal year 2016. This cash was obtained through the sale of $37,500 of convertible promissory notes.

Cash generated from financing activities consists of proceeds of $37,500 from the issuance of convertible notes during the three-month period.

Capital Raising Transactions

During the three months ended September 30, 2018 we received proceeds of $132,800 from the sale of 1,328,000 shares of the Company’s $0.0001 par value common stock.

Other outstanding obligations at September 30, 2018

Convertible Notes Payable

The Company had convertible promissory notes aggregating $1.7 million outstanding at September 30, 2018. The accrued interest amounted to approximately $1.47 million as of September 30, 2018. The Convertible Notes Payable bear interest at rates ranging between 0% and 18% per annum. Interest is generally payable monthly. The Convertible Notes Payable are generally convertible at rates ranging between $0.09 and $0.60 per share, at the holders’ option. At September 30, 2018, all convertible promissory notes have matured.

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. 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 $270,241 at September 30, 2018. The related accrued interest amounted to approximately $251,000 at September 30, 2018. 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 September 30, 2018.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable to a smaller reporting company.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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, 2018. 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 September 30, 2018, management identified the following material weaknesses:

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 and Chief Financial Officer, concluded that our internal control over financial reporting was not effective as of September 30, 2018.

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

During the quarter ended September 30, 2018, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

With the exception of the item described below, at September 30, 2018 the Company is not the subject of, or party to, any pending or threatened, legal actions.

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. The plaintiff asserts that the Company failed to convert two convertible notes held by the Plaintiff. The Company is vigorously contesting this claim.

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed under the heading “Risk Factors” in our Annual Report on Form 10-K filed on September 28, 2018, which could materially affect our business operations, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business operations and/or financial condition. There have been no material changes to our risk factors since the filing of our Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the fiscal first quarter we sold 1,328,000 shares of common stock, valued at $132,800 to eight accredited investors, 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.

During the fiscal first quarter we issued 912,546 shares of common stock related to the conversion of $97,305 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 October 2018 we issued 1,538,385 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(2) of that act.

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

Not applicable to our operations.

Item 5. Other Information.

None

Item 6. Exhibits

* Filed herein

SIGNATURES

Pursuant to the requirements 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.