VISIUM TECHNOLOGIES, INC. - Quarter Report: 2019 December (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2019

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

For the transition period from ___________ to ___________.

Commission file number 000-25753

VISIUM TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Florida		87-0449667
(State of Incorporation)		(IRS Employer Identification No.)

11325 RANDOM HILLS ROAD, Suite 360

FAIRFAX, VA 22030

(Address of principal executive offices)

(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

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

Yes [X] No [ ]

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

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

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

If an emerging growth company, indicate by check mark 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 number of shares outstanding of the registrant’s Common Stock, $0.0001 par value per share, as of February 12, 2020, was 177,193,421.

When used in this quarterly report, the terms “Visium,” “the Company,” “we,” “our,” and “us” refer to Visium Technologies, Inc., a Florida 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 registration statement on Form 10-K as filed with the Securities and Exchange Commission, or the SEC, on September 27, 2019. Readers are also urged to carefully review and consider the various disclosures we have made in this report and in our Form 10-K.

VISIUM TECHNOLOGIES, INC. AND SUBSIDIARIES

INDEX

PART I - FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Consolidated Balance Sheets – December 31, 2019 (unaudited) and June 30, 2019	3
Consolidated Statements of Operations - Three and Six Months ended December 31, 2019 and 2018 (unaudited)	4
Consolidated Statements of Changes in Stockholders’ Deficit (unaudited) – Three and Six Months ended December 31, 2019 and 2018	5
Consolidated Statements of Cash Flows - Six Months Ended December 31, 2019 and 2018 (unaudited)	7
Notes to Consolidated Financial Statements (unaudited)	8
Item 2. Management’s Discussion and Analysis and Results of Operations	20
Item 3. Quantitative and Qualitative Disclosures About Market Risk	26
Item 4. Controls and Procedures	26
PART II - OTHER INFORMATION	27
Item 1. Legal Proceedings.	27
Item 1A. Risk Factors.	27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	27
Item 3. Defaults Upon Senior Securities.	27
Item 4. Mine Safety Disclosures.	27
Item 5. Other Information.	27
Item 6. Exhibits	27
SIGNATURES	28

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Visium Technologies, Inc.

CONSOLIDATED BALANCE SHEETS

	December 31, 2019			June 30, 2019 (1)
	(Unaudited)
ASSETS
Current assets:
Cash	$	405		$	18,668

Total current assets		405			18,668

Total assets	$	405		$	18,668

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:
Accounts payable and accrued expenses	$	259,957		$	213,805
Accrued compensation		484,529			316,529
Accrued interest		633,397			593,838
Convertible notes payable to ASC Recap LLC		147,965			147,965
Convertible notes payable, net of discount of $47,818 and $158,333		974,233			917,095
Notes payable		205,000			205,000
Derivative liabilities		338,352			807,053
Due to officers		99,900			62,000
Total current liabilities		3,143,333			3,263,285

Commitments and Contingencies (Note 9)

Stockholders’ deficit:
Preferred stock, $0.001 par value, 100,000,000 shares authorized
Series A (65,000,000 shares designated, 13,992,340 shares issued and outstanding as of December 31, 2019 and June 30, 2019)		13,992			13,992
Series B (30,000,000 shares designated, 1,327,640 shares issued and outstanding as of December 31, 2019 and June 30, 2019)		1,328			1,328
Series AA Convertible Stock ($0.001 par value; 1 share authorized, 1 share issued and outstanding as of December 31, 2019 and June 30, 2019)		-			-
Common stock, $0.0001 par value, 10,000,000,000 shares authorized: 116,427,923 shares issued and 113,850,143 shares outstanding as of December 31, 2019 and 45,610,716 shares issued and 42,066,269 outstanding at June 30, 2019 (See Note 6)		11,385			4,207
Additional paid in capital		43,603,683			43,184,984
Accumulated deficit		(46,773,316	)		(46,449,128	)
Total stockholders’ deficit		(3,142,928	)		(3,244,617	)

Total liabilities and stockholders’ deficit	$	405		$	18,668

(1) Derived from audited financial statements

See Notes to Unaudited Consolidated Financial Statements.

Visium Technologies, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2019			2018			2019			2018
Net revenues	$	-		$	-		$	-		$	-

Operating expenses:
Selling, general and administrative		215,706			691,157			414,764			1,128,185
Development expense		-			-			35,500			-
Amortization expense		-			41,756			-			41,756
Total Operating Expenses		215,706			732,913			450,264			1,169,940

Loss from Operations		(215,706	)		(732,913	)		(450,264	)		(1,169,940	)

Other income (expenses):
Gain (loss) on change in fair value of derivative liabilities		207,556			372,977			485,568			(194,255	)
Derivative liability expense		(61,396	)		-			(61,396	)		-
Gain (loss) on settlement of debt		(58,407	)		10,985			(98,821	)		10,985
Interest expense		(98,794	)		(56,437	)		(199,275	)		(111,602	)
Total other income (expenses)		(11,041	)		327,525			126,076			(294,872	)

Net loss	$	(226,747	)	$	(405,388	)	$	(324,188	)	$	(1,464,812	)

Loss per common share basic and diluted	$	(0.003	)	$	(0.023	)	$	(0.005	)	$	(0.102	)

Weighted average common shares outstanding – basic and diluted		81,346,603			17,274,492			63,855,369			14,390,884

See Notes to Unaudited Consolidated Financial Statements.

VISIUM TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2019

(UNAUDITED)

For the three months ended December 31, 2019

	Preferred Stock - Series A $0.001 Par Value				Preferred Stock - Series B $0.001 Par Value				Preferred Stock - Series AA $0.001 Par Value				Common Stock $0.0001 Par Value				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Deficit
Balance at September 30, 2019		13,992,340	$	13,992		1,327,640	$	1,328		1	$	0		63,509,820	$	6,351	$	43,386,679	$	(46,546,569	)	$	(3,138,218	)

Shares issued for consulting services														10,483,333		1,048		62,951					64,000
Shares issued as compensation														8,000,000		800		27,200					28,000
Shares issued for conversion of notes payable														31,856,990		3,186		126,852					130,038
Net loss for the three months ended December 31, 2019																				(226,747	)		(226,747	)

Balance at December 31, 2019		13,992,340	$	13,992		1,327,640	$	1,328		1	$	0		113,850,143	$	11,385	$	43,603,682	$	(46,773,316	)	$	(3,142,928	)

For the six months ended December 31, 2019

	Preferred Stock - Series A $0.001 Par Value				Preferred Stock - Series B $0.001 Par Value				Preferred Stock - Series AA $0.001 Par Value				Common Stock $0.0001 Par Value				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Deficit
Balance at June 30, 2019		13,992,340	$	13,992		1,327,640	$	1,328		1	$	0		42,066,269	$	4,207	$	43,184,983	$	(46,449,128	)	$	(3,244,617	)

Shares issued for consulting services														10,966,667		1,096		91,904					93,000
Shares issued as compensation														8,000,000		800		27,200					28,000
Shares issued for conversion of notes payable														52,817,207		5,282		299,595					304,877
Net loss for the six months ended December 31, 2019																				(324,188	)		(324,188	)

Balance at December 31, 2019		13,992,340	$	13,992		1,327,640	$	1,328		1	$	0		113,850,143	$	11,385	$	43,603,682	$	(46,773,316	)	$	(3,142,928	)

See Notes to Unaudited Consolidated Financial Statements.

VISIUM TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2018

(UNAUDITED)

For the three months ended December 31, 2018

	Preferred Stock - Series A $0.001 Par Value				Preferred Stock - Series B $0.001 Par Value				Preferred Stock - Series AA $0.001 Par Value				Common Stock $0.0001 Par Value				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Deficit
Balance at September 30, 2018		13,992,340	$	13,992		1,327,640	$	1,328		1	$	0		13,379,511	$	1,338	$	40,658,654	$	(45,750,618	)	$	(5,075,306	)

Shares issued as compensation														1,799,966		180		482,612				$	482,792
Shares issued for consulting services														483,333		48		28,952					29,000
Shares issued for sale														1,177,000		118		117,582					117,700
Shares issued for conversion of notes payable														1,072,781		107		103,643					103,750
Acquisition of TSSG														1,538,387		154		499,846					500,000
Net loss for the three months ended December 31, 2018																				(405,388	)		(405,388	)

Balance at December 31, 2018		13,992,340	$	13,992		1,327,640	$	1,328		1	$	0		19,450,978	$	1,945	$	41,891,289	$	(46,156,007	)	$	(4,247,453	)

For the six months ended December 31, 2018

	Preferred Stock - Series A $0.001 Par Value				Preferred Stock - Series B $0.001 Par Value				Preferred Stock - Series AA $0.001 Par Value				Common Stock $0.0001 Par Value				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Deficit
Balance at June 30, 2018		13,992,340	$	13,992		1,327,640	$	1,328		1	$	0		9,376,441	$	938	$	40,160,699	$	(44,691,196	)	$	(4,514,240	)

Shares issued as compensation														3,079,153		308		721,734				$	722,042
Shares issued for consulting services														966,669		97		57,903					58,000
Shares issued for sale														2,505,000		251		250,250					250,500
Shares issued for conversion of notes payable														1,985,327		199		200,856					201,055
Acquisition of TSSG														1,538,387		154		499,846					500,000
Net loss for the six months ended December 31, 2018																				(1,464,812	)		(1,464,812	)

Balance at December 31, 2018		13,992,340	$	13,992		1,327,640	$	1,328		1	$	0		19,450,978	$	1,945	$	41,891,289	$	(46,156,007	)	$	(4,247,453	)

See Notes to Unaudited Consolidated Financial Statements.

Visium Technologies, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six-month period ended
	December 31,
	2019			2018
Cash flows from operating activities:
Net loss	$	(324,188	)	$	(1,464,812	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on change in fair value of derivative liability					194,255
Stock-based compensation		121,000			780,042
Amortization of debt discount		140,736			-
Amortization expense		-			41,756
Gain on change in derivative liability		(485,568	)		-
Derivative liability expense		61,396			-
Loss on extinguishment of debt		98,821			-
Changes in operating assets and liabilities:
Accounts payable		62,610			(28,328	)
Accrued interest		58,530			99,632
Accrued compensation		168,000			127,955
Net cash used in operating activities		(98,663	)		(249,500	)

Cash flows from investing activities:
Investment in cybersecurity curriculum		-			(28,050	)
Net cash used in investing activities		-			(28,050	)

Cash flows from financing activities:
Proceeds from issuance of convertible notes payable		42,500			-
Proceeds from sale of common stock		-			250,499
Advances from officers		37,900			19,000

Net cash provided by financing activities		80,400			269,499

Net decrease in cash		(18,263	)		(8,051	)

Cash, beginning of period		18,668			11,412

Cash, end of period	$	405		$	3,361

Supplemental disclosures of cash flow information:
Cash paid for interest	$	-		$	985
Cash paid for income taxes	$	-		$	-

Non-cash investing and financing activities:
Shares issued for acquisition	$	-		$	500,000
Issuance of common stock for conversion of notes payable and accrued interest	$	304,877		$	201,055

See Notes to Unaudited Consolidated Financial Statements.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

NOTE 1: ORGANIZATION, GOING CONCERN AND BASIS OF PRESENTATION

Visium Technologies, Inc. (“Visium”) 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 October 2015 the Company redomiciled from Nevada and became a Florida corporation. 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 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, data modeling, 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.

Going Concern

The accompanying financial statements have been prepared on a going concern basis. For the six months ended December 31, 2019 we had a net loss of $324,188, had net cash used in operating activities of $98,663, and had negative working capital of $3,142,928. 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 consolidated financial information furnished herein reflects all adjustments, consisting only of normal recurring items, which in the opinion of management are necessary to fairly state 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 consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended June 30, 2019, contained in the Company’s Annual Report on Form 10-K filed with the SEC on September 27, 2019. The results of operations for the six months ended December 31, 2019, are not necessarily indicative of results to be expected for any other interim period or the fiscal year ending June 30, 2020.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Fiscal Year

The fiscal year ends on June 30. References to fiscal year 2020, for example, refer to the fiscal year ending June 30, 2020.

Principles of Consolidation

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

Use of Estimates

The preparation of the consolidated 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, and derivative liabilities.

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 six months ended December 31, 2019 and June 30, 2019.

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 six months ended December 31, 2019 and 2018, the Company had not reached a bank balance exceeding the FDIC insurance limit.

Convertible Instruments and Derivative Liabilities

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

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

The Company assessed the potential classification of its derivative financial instruments as of December 31, 2019 and June 30, 2019, 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.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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.

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.

Business combinations

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

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

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.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

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 December 31, 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.

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 dilutive common shares would be as follows:

	December 31,		June 30,
	2019		2019
Weighted average common shares outstanding		63,855,369		22,992,865
Effect of dilutive securities-when applicable:
Convertible promissory notes		91,175,099		14,604,829
Preferred Stock		13,996,767		13,996,767
Warrants		500,000		500,000
Adjusted weighted-average shares and assumed conversions		169,527,235		52,094,461

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

NOTE 3: DERIVATIVE LIABILITIES

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

Derivative liability – convertible notes

The Company has certain convertible notes with variable price conversion terms. 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 December 31, 2019 and December 31, 2018 using the Cox, Ross & Rubinstein Binomial Tree valuation model.

The revaluation of the warrants and convertible debt at each reporting period, as well as the charges associated with issuing additional convertible notes, and warrants with price protection features, resulted in the recognition of a gain of $485,568 and a loss of $194,255 for the six months ended December 31, 2019 and 2018, respectively in the Company’s consolidated statements of operations, under the caption “Gain (loss) in change of fair value of derivative liability”. The fair value of the warrants at December 31, 2019 and June 30, 2019 was $950 and $37,200, respectively. The fair value of the derivative liability related to the convertible debt at December 31, 2019 and June 30, 2019 is $337,402 and $769,853, 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:

	Six Months Ended December 31,
	2019			2018
Effective exercise price	$	0.0012 - $ 0.0039		$	0.494 - 0.616
Effective market price	$	.0019		$	0.1014
Volatility		29.24% - 379.7	%		204.78	%
Risk-free interest		1.58% - 1.59	%		2.56	%
Terms		30 - 741+ days			30 days
Expected dividend rate		0.00	%		0.00	%

Changes in the derivative liabilities during the six months ended December 31, 2019 is follows:

Derivative liability at June 30, 2019	$	807,053
Derivative liability reduced as a result of note conversions		(92,529	)
Increase due to issuance of convertible note		109,396
Gain on change in fair value of derivative liability		(485,568	)
Derivative liability at December 31, 2019	$	338,352

NOTE 4: ACCRUED INTEREST PAYABLE

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

Accrued interest payable at June 30, 2019	$	593,838
Interest expense accrued for the six months ended December 31, 2019		58,539
Conversion of accrued interest into common stock		(18,980	)
Accrued interest payable at December 31, 2019	$	633,397

Interest expense for the six months ended December 31, 2019 was comprised of the following:

Interest expense for the six months ended December 31, 2019	$	58,539
Amortization of debt discount		140,736
Total interest expense for the six months ended December 31, 2019	$	199,275

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

NOTE 5: CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE

Convertible Notes Payable

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

	December 31,			June 30,
	2019			2019
Convertible notes payable	$	1,022,051		$	1,075,428
Discount on convertible notes		(47,818	)		(158,333	)
Convertible notes, net		974,233			917,095

Convertible notes payable to ASC Recap		147,965			147,965
Total	$	1,122,198		$	1,065,060

The Company had convertible promissory notes aggregating approximately $1.1 million and $1.1 million at December 31, 2019 and June 30, 2019, respectively. The related accrued interest amounted to approximately $481,000 and $430,000 at December 30, 2019 and June 30, 2019, 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 $0.0012 to $22,500 per share, as a result of the two reverse stock splits. At December 31, 2019, $890,000 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 9 – Commitments and Contingencies 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 six months ended December 31, 2019, the following summarizes the conversion of debt for common shares:

			Amount						Adjustment				Conversion
	Shares		Converted				Conversion		to				Price
Name	Issued		Principal		Interest		Expense		Fair Value		Total		Per Share
FirstFire Global Opportunities Fund LLC		14,813,286	$	41,204	$	-	$	4,200	$	54,375	$	99,779	$	0.00307
Auctus Funds, LLC		27,102,790		27,273		11,274		6,750		95,484		140,781	$	0.00167
Mark Lucky		10,901,131		32,900		7,707		-		23,710		64,317	$	0.00372
Total		52,817,207	$	101,377	$	18,981	$	10,950	$	168,239	$	304,877	$	0.0027

Notes Payable

The Company had promissory notes aggregating $205,000 at December 31, 2019 and June 30, 2019, respectively. The related accrued interest amounted to approximately $167,000 and $159,000 at December 31, 2019 and June 30, 2019, respectively. The notes payable bear interest at rates ranging from 8% to 16% per annum which is payable monthly. All promissory notes outstanding as of December 31, 2019 have matured, are in default, and remain unpaid.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

NOTE 6: STOCKHOLDERS’ DEFICIT

Common Stock

At December 31, 2019, the Company had 10,000,000,000 authorized common shares.

Issuances of Common Stock During the Six Months Ended December 31, 2019

Convertible Notes Payable

During the six months ended December 31, 2019 the Company issued 52,817,207 shares of its common stock related to the conversion of $304,877 of principal and accrued interest of its convertible notes payable, at an average contract conversion price of $0.00249 per share.

Stock Based Compensation

During the six months ended December 31, 2019 the Company issued 966,667 shares of its $0.0001 par value common stock vested to two consultants, as compensation under two separate consulting agreements. The shares were valued at $58,000, or $0.06 per share.

During the six months ended December 31, 2019 the Company issued 10,000,000 shares of its $0.0001 par value common stock were issued to three consultants, as compensation for services rendered. The shares were valued at $35,000, or $0.0035 per share.

During the six months ended December 31, 2019 the Company issued 8,000,000 shares of its $0.0001 par value common stock were issued to one of our Directors, as compensation for services rendered. The shares were valued at $28,000, or $0.0035 per share.

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

Convertible Notes Payable

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

Sale of Restricted Common Stock

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

Acquisition of Threat Surface Solutions Group, LLC

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

Stock Based Compensation

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

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

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

NOTE 6: STOCKHOLDERS’ DEFICIT, continued

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.

Common Stock Warrants

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

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

	Number of		Weighted Average
	Warrants		Exercise Price
Common Stock Warrants
Balance at beginning of year		500,000	$	0.15
Granted		-
Granted due to repricing		-		-
Exercised		-		-
Forfeited		-		-
Balance at end of period		500,000	$	0.15

Warrants exercisable at end of period		500,000	$	0.15

Weighted average fair value of warrants granted during the period			$	950

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

NOTE 6: STOCKHOLDERS’ DEFICIT, continued

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

Warrants Outstanding

Warrants Exercisable

Weighted

Average

Weighted

Range of

Number

Remaining

Average

Number

Average

Exercise

Outstanding at

Contractual

Exercise

Exercisable at

Exercise

Price

December 31, 2019

Life

Price

December 31, 2019

Price

0.15

500,000

2.03 Years

0.15

500,000

0.15

500,000

2.03 Years

0.15

500,000

0.15

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 six months ended December 31, 2019 is presented in the following table:

	For the six months ended
	December 31, 2019
				Weighted
				Average
				Grant Date
	Shares			Fair Value
Unvested at beginning of period		3,544,447		$	0.06
Granted		-		$	-
Forfeited		-			-
Vested		(966,667	)	$	0.06
Unvested at end of period		2,577,780		$	0.06

Unrecognized compensation expense related to outstanding restricted stock awards to employees and directors as of December 31, 2019 was $154,666 and is expected to be recognized over a weighted average period of 1.33 years.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

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 Executive Officer and from certain Directors, for working capital. The advances were payable upon demand and were interest free. At December 31, 2019 there was $99,900 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 December 31, 2019, and based on the assessment there are no probable loss contingencies requiring accrual or disclosures within its financial statements.

License Contingent Consideration

Our license agreements with the sellers of Threat Surface Solutions Group, LLC includes a provision for a royalty payment based on ten percent (10%) of sales generated by Threat Surface Solutions Group beginning on the Agreement Date and ending on October 12, 2021, capped at a maximum royalty of $2,500,000. As of December 31, 2019 we have not generated any revenue related to these license agreements.

Our license agreements with George Mason University and The MITRE Corporation include provisions for a royalty payment on revenues collected of 5% and 5%, respectively. As of December 31, 2019 we have not generated any revenue related to these license agreements.

Legal Claims

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.

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.

Note 10 – Fair Value Measurement

Fair value measurements

At December 31, 2019 and 2018, the fair value of derivative liabilities is estimated using the Cox, Ross & Rubinstein Binomial Tree valuation model using inputs that include the expected volatility, the implied risk-free interest rate, as well as the expected dividend rate. The derivative liabilities are the only Level 3 fair value measures.

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

NOTE 10 – FAIR VALUE MEASUREMENT, continued

At December 31, 2019 the estimated fair values of the liabilities measured on a recurring basis are as follows:

	Fair Value Measurements at
	December 31, 2019:
	(Level 1)		(Level 2)		(Level 3)
Derivative liability – Convertible notes	$		$		$	337,402
Derivative liability – Warrants		-		-		950
Total derivative liability	$	-	$	-	$	338,352

NOTE 11: SUBSEQUENT EVENTS

During January 2020 the Company issued 46,073,367 shares of its common stock related to the conversion of $20,547 of principal and accrued interest of its convertible notes payable, at an average contract conversion price of $0.00066 per share.

In January 2020 our consultants vested 161,111 shares of our $0.0001 par value common stock, at an average price per share of $0.06.

In January 2020 the Company issued 1,000,000 shares of our $0.0001 par value common stock to two consultants for services rendered, at an average price per share of $0.002095.

During February 2020 the Company issued 16,108,800 shares of its common stock related to the conversion of $12,475 of principal and accrued interest of its convertible notes payable, at an average contract conversion price of $0.00071 per 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 corporation with offices based in Fairfax, Virginia, 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 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.

Employees

At February 12, 2020, we had 5 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

Three and Six Month Periods Ended December 31, 2019 and 2018

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2019			2018			2019			2018
Operating expenses:
Selling, general and administrative	$	215,706		$	691,157		$	414,764		$	1,128,185
Development expense		-			-			35,500			-
Amortization expense		-			41,756						41,756
Total Operating Expenses		215,706			732,913			450,264			1,169,940

Loss from Operations		(215,706	)		(732,913	)		(450,264	)		(1,169,940	)

Other income (expenses):
Gain (loss) on change in fair value of derivative liabilities		207,556			372,977			485,568			(194,255	)
Derivative liability expense		(61,396	)		-			(61,396	)		-
Gain (loss) on settlement of debt		(58,407	)		10,985			(98,821	)		10,985
Interest expense		(98,794	)		(56,437	)		(199,275	)		(111,602	)
Total other income (expenses)		(11,041	)		327,525			126,076			(294,872	)

Net loss	$	(226,747	)	$	(405,388	)	$	(324,188	)	$	(1,464,812	)

Selling, General, and Administrative Expenses

Six Month Period Ended December 31, 2019

For the six months ended December 31, 2019, selling, general and administrative expenses were $414,764 as compared to $1,128,185 for the six months ended December 31, 2018. For the six month periods ended December 31, 2019 and 2018 selling, general and administrative expenses consisted of the following:

	Six Months Ended
	December 31,
	2019		2018
Accounting expense	$	4,984	$	22,750
Consulting fees		54,750		43,250
Salaries		168,000		160,000
Legal and professional fees		16,550		52,410
Travel expense		9,786		2,780
Occupancy expense		3,137		5,899
Telephone expense		1,800		1,800
Marketing expense		8,199		-
Website expense		1,531		1,959
Investor relations expense		20,000		28,500
Stock based compensation		121,000		780,042
Other		5,027		28,795
	$	414,764	$	1,128,185

The decrease in selling, general and administrative expenses of $714,421 during fiscal 2020, when compared with the prior year, is primarily due to a decrease in stock-based compensation of $659,042, lower legal and professional fees of $35,860, and lower accounting expense of $17,766, offset by higher consulting fees of $10,500, higher salaries of $8,000, higher travel expense of $7,006, and higher marketing expense of $8,199.

We believe that our selling, general, and administrative expenses will remain steady as we increase our business activity over the remainder of 2019, but anticipate incurring lower legal and consulting expenses.

Development Expense

	Six-Months Ended
	December 31,				%
	2019		2018		Change
Development expense	$	35,500	$	-		(100	)%

Development expense represents the expense to further enhance and commercialize CyGraph. We believe that will incur an additional $50,000 of development expense during the remainder of fiscal 2020.

Amortization Expense

	Six-Months Ended
	December 31,				%
	2019		2018		Change
Customer relationships	$	-	$	41,756		(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 2019.

Derivative Liability Expense

	Six-Months Ended
	December 31,				%
	2019		2018		Change
Derivative liability expense	$	61,396	$	-		100	%

Derivative liability expense represents the expense related to our convertible notes payable issued in October 2019 that include variable conversion features.

Change in Fair Value of Derivative Liabilities

	Six-Months Ended
	December 31,					%
	2019		2018			Change
Gain (loss) on change in fair value of derivative liabilities	$	485,568	$	(194,255	)		350.0	%

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

Interest Expense

	Six-Months Ended
	December 31,				%
	2019		2018		Change
Interest expense	$	199,275	$	111,602		78.6	%

Interest expense represents stated interest of notes and convertible notes payable as well as amortization of debt discount. Interest expense is higher for the six months ended December 31, 2019 due to higher debt discount amortization as compared to the prior year period.

Gain (Loss) on Settlement of Debt

	Six-Months Ended
	December 31,					%
	2019			2018		Change
Gain (loss) on settlement of debt	$	(98,821	)	$	10,985		(968.3	)%

Three Month Period Ended December 31, 2019

For the three months ended December 31, 2019, selling, general and administrative expenses were $215,706 as compared to $691,157 for the three months ended December 31, 2018. For the three months ended December 31, 2019 and 2018 selling, general and administrative expenses consisted of the following:

	Three Months Ended
	December 31,
	2019			2018
Accounting expense	$	972		$	8,893
Consulting fees		5,750			18,250
Salaries		84,000			92,000
Legal and professional fees		9,490			29,940
Travel expense		1,002			2,685
Occupancy expense		1,706			2,977
Telephone expense		900			900
Marketing expense		(1,749	)		-
Website expense		871			1,015
Investor relations expense		20,000			18,500
Stock based compensation		92,000			511,792
Other		764			4,206
	$	215,706		$	691,157

Amortization Expense

	Three-Months Ended
	December 31,				%
	2019		2018		Change
Customer relationships	$	-	$	41,756		100	%

Amortization expense in the prior year is due to the amortization of the customer relationships intangible asset resulting from the acquisition of Threat Surface Solutions Group, LLC in October 2019.

Change in Fair Value of Derivative Liabilities

	Three-Months Ended
	December 31,				%
	2019		2018		Change
Gain (loss) on change in fair value of derivative liabilities	$	207,556	$	372,977		(44.5	)%

Interest Expense

	Three-Months Ended
	December 31,				%
	2019		2018		Change
Interest expense	$	98,794	$	56,437		75.2	%

Interest expense represents stated interest of notes and convertible notes payable as well as amortization of debt discount. Interest expense is higher for the three months ended December 31, 2019 due to higher debt discount amortization as compared to the prior year period.

Liquidity and Capital Resources

	Balance at
	December 31, 2019		June 30, 2019
Cash	$	405	$	18,668
Accounts payable and accrued expenses		259,957		213,805
Accrued compensation		484,529		316,529
Notes, convertible notes, and accrued interest payable	$	1,960,595	$	1,863,898

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, 2020. 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 $98,663 and $249,500 during the six-month periods ended December 31, 2019 and 2018, respectively, and has a working capital deficit of approximately $3.1 million and $3.2 million at December 31, 2019 and June 30, 2019, 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 target. 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.

Six months ended December 31, 2019

Net cash used in operations during the six months ended December 31, 2019 decreased by approximately $151,000 or 60% from the same period during fiscal year 2018. The decrease in cash used in operations is primarily due to the decrease in consulting and business development expense and cash paid for legal and professional fees, and the decrease in cash paid for salaries to executives, offset by the increase in cash paid for audit and related services. This cash was obtained through the sale of a convertible note that netted the Company $42,500, and through advances of cash made to the Company by its officers and directors of $37,900.

Six months ended December 31, 2018

Net cash used in operations during the six months ended December 31, 2018 increased by $210,000 or 538% from the same period during fiscal year 2017. The increase in cash used in operations is primarily due to the increase in consulting and business development expense and cash paid for legal and professional fees of $97,250, and the increase in cash paid for salaries to executives of $23,200, offset by the decrease in cash paid for audit and related services of $9,000. 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 $250,500.

Capital Raising Transactions

Issuance of convertible notes payable

We generated net proceeds of $42,500 from the issuance of a convertible note payable during the six-month period ended December 31, 2019.

Other outstanding obligations at December 31, 2019

Convertible Notes Payable

The Company had convertible promissory notes aggregating $974,000 outstanding at December 31, 2019. The accrued interest amounted to approximately $481,000 as of December 31, 2019. 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 December 31, 2019, 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 $205,000 at December 31, 2019. The related accrued interest amounted to approximately $167,021 at December 31, 2019. 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 December 31, 2019.

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 December 31, 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 December 31, 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 consisted 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 and Chief Financial Officer, concluded that our internal control over financial reporting was not effective as of December 31, 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

During the quarter ended December 31, 2019, 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 December 31, 2019 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 27, 2019, 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 six months ended December 31, 2019 the Company issued 10,966,667 shares of its $0.0001 par value common stock to three consultants, as compensation. The shares were valued at $93,000, or $0.00848 per share.

During the six months ended December 31, 2019 the Company issued 8,000,000 shares of its $0.0001 par value common stock to one of its directors as compensation for services rendered. The shares were valued at $28,000, or $0.0035 per share.

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

31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

*	Filed herewith.

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.

	VISIUM TECHNOLOGIES, INC.

	By:	/S/ Mark B. Lucky
February 12, 2020		Mark B. Lucky
		CEO, principal executive officer

	By:	/S/ Mark Lucky
February 12, 2020		Mark Lucky
		CFO, principal accounting officer