VISIUM TECHNOLOGIES, INC. - Quarter Report: 2020 March (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 March 31, 2020

 

[  ]	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.)

 

4094 Majestic Lane, Suite 360

FAIRFAX, VA 22033

(Address of principal executive offices)

 

(703) 273-0383

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 June 27, 2020, was 1,452,260,121.

 

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 – March 31, 2020 (unaudited) and June 30, 2019	3
Consolidated Statements of Operations - Three and Nine Months ended March 31, 2020 and 2019 (unaudited)	4
Consolidated Statements of Changes in Stockholders’ Deficit (unaudited) – Three and Nine Months ended March 31, 2020 and 2019	5
Consolidated Statements of Cash Flows - Nine Months Ended March 31, 2020 and 2019 (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

 

	March 31, 2020	June 30, 2019 (1)
	(Unaudited)
ASSETS
Current assets:
Cash	$326	$18,668
Total current assets	326	18,668
Total assets	$326	$18,668
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$282,376	$213,805
Accrued compensation	568,529	316,529
Accrued interest	661,313	593,838
Convertible notes payable to ASC Recap LLC	147,965	147,965
Convertible notes payable, net of discount of $27,142 and $158,333	897,490	917,095
Notes payable	205,000	205,000
Derivative liabilities	361,671	807,053
Due to officers	101,840	62,000
Total current liabilities	$3,226,184	$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 March 31, 2020 and June 30, 2019)	$13,992	$13,992
Series B (30,000,000 shares designated, 1,327,640 shares issued and outstanding as of March 31, 2020 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 March 31, 2020 and June 30, 2019)	-	-
Common stock, $0.0001 par value, 10,000,000,000 shares authorized: 326,023,957 shares issued and 323,929,510 shares outstanding as of March 31, 2020 and 45,610,716 shares issued and 42,066,269 outstanding at June 30, 2019 (See Note 6)	32,393	4,207
Additional paid in capital	43,953,989	43,184,984
Accumulated deficit	(47,227,560)	(46,449,128)
Total stockholders’ deficit	(3,225,858)	(3,244,617)
Total liabilities and stockholders’ deficit	$326	$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		Nine Months Ended
	March 31,		March 31,
	2020	2019	2020	2019
Net revenues	$-	$-	$-	$-
Operating expenses:
Selling, general and administrative	189,675	1,445,550	604,439	2,573,734
Development expense	-	-	35,500	-
Amortization expense	-	50,107	-	91,863
Total Operating Expenses	189,675	1,495,657	639,939	2,665,597
Loss from Operations	(189,675)	(1,495,657)	(639,939)	(2,665,597)
Other income (expenses):
Gain (loss) on change in fair value of derivative liabilities	(23,319)	(536,549)	462,249	(730,804)
Derivative liability expense	-	(341,423)	(61,396)	(341,423)
Gain (loss) on settlement of debt	(169,060)	2,292,162	(267,881)	2,303,147
Other income	-	10,000	-	10,000
Interest expense	(72,190)	(121,592)	(271,465)	(233,194)
Total other income (expenses)	(264,569)	1,302,598	(138,493)	1,007,726
Net loss	$(454,244)	$(193,059)	$(778,432)	$(1,657,871)
Loss per common share basic and diluted	$(0.002)	$(0.01)	$(0.007)	$(0.10)
Weighted average common shares outstanding – basic and diluted	191,033,101	21,619,609	105,939,637	16,765,283

 

See Notes to Unaudited Consolidated Financial Statements.

 

VISIUM TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2020

(UNAUDITED)

 

For the three months ended March 31, 2020

 

	Preferred Stock -Series A $0.001 Par Value		PreferredStock - 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 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)	$(3,142,929)
Shares issued for consulting services							8,683,333	868	38,867		39,735
Shares issued as compensation							20,000,000	2,000	22,000		24,000
Shares issued for conversion of notes payable							181,396,034	18,140	289,440		307,580
Net loss for the three months ended March 31, 2020										(454,244)	(454,244)
Balance at March 31, 2020	13,992,340	$13,992	1,327,640	$1,328	1	$0	323,929,510	$32,393	$43,953,989	$(47,227,560)	$(3,225,858)

 

For the Nine Months Ended March 31, 2020

 

	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	$43,184,984	$(46,449,128)	$(3,244,617)
Shares issued for consulting services							19,650,000	1,965	130,770		132,735
Shares issued as compensation							28,000,000	2,800	49,200		52,000
Shares issued for conversion of notes payable							234,213,241	23,421	589,035		612,456
Net loss for the Nine Months Ended March 31, 2020										(778,432)	(778,432)
Balance at March 31, 2020	13,992,340	$13,992	1,327,640	$1,328	1	$0	323,929,510	$32,393	$43,953,989	$(47,227,560)	$(3,225,858)

 

See Notes to Unaudited Consolidated Financial Statements.

 

 

VISIUM TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2019

(UNAUDITED)

 

For the three months ended March 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 December 31, 2018	13,992,340	$13,992	1,327,640	$1,328	1	$0	19,450,977	$1,945	$41,891,289	$(46,156,008)	$(4,247,454)
Shares issued as compensation							20,348,601	2,035	1,177,423		$1,179,458
Shares issued for consulting services							1,783,339	178	87,322		87,500
Net loss for the three months ended March 31, 2019										(193,059)	(193,059)
Balance at March 31, 2019	13,992,340	$13,992	1,327,640	$1,328	1	$0	41,582,917	$4,158	$43,156,034	$(46,349,067)	$(3,173,555)

 

For the Nine Months Ended March 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, 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							23,427,759	2,343	1,899,157		$1,901,500
Shares issued for consulting services							2,750,008	274	145,226		145,500
Shares issued for sale							2,505,000	251	250,249		250,500
Shares issued for conversion of notes payable							1,985,327	198	200,857		201,055
Acquisition of TSSG							1,538,387	154	499,846		500,000
Net loss for the Nine Months Ended March 31, 2019										(1,657,871)	(1,657,871)
Balance at March 31, 2019	13,992,340	$13,992	1,327,640	$1,328	1	$0	41,582,917	$4,158	$43,156,034	$(46,349,067)	$(3,173,555)

 

See Notes to Unaudited Consolidated Financial Statements.

 

 

VISIUM TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

	Nine-month period ended
	March 31,
	2020	2019
Cash flows from operating activities:
Net loss	$(778,432)	$(1,657,871)
Adjustments to reconcile net loss to net cash used in operating activities:
(Gain) loss on change in fair value of derivative liability	(462,249)	730,804
Stock-based compensation	184,735	2,047,000
Amortization of debt discount	179,106	66,667
Amortization expense	-	91,863
Derivative liability expense	61,396	341,423
(Gain) loss on extinguishment of debt	267,881	(2,303,147)
Changes in operating assets and liabilities:
Accounts payable	121,907	(93,106)
Prepaid insurance	-	(1,646)
Accrued interest	67,475	165,294
Accrued compensation	252,000	121,705
Net cash used in operating activities	(106,181)	(491,014)
Cash flows from financing activities:
Proceeds from issuance of convertible notes payable	48,000	282,500
Proceeds from sale of common stock	-	250,500
Advances from officers, net	39,840	(21,000)
Net cash provided by financing activities	87,840	512,000
Net increase (decrease0 in cash	(18,341)	20,986
Cash, beginning of period	18,668	11,412
Cash, end of period	$326	$32,398
Supplemental disclosures of cash flow information:
Cash paid for interest	$-	$1,232
Cash paid for income taxes	$-	$-
Non-cash investing and financing activities:
Shares issued for acquisition	$-	$500,000
Issuance of common stock for conversion of notes payable and accrued interest (fair value of the shares issued - $612,456)	$223,679	$201,055

 

See Notes to Unaudited Consolidated Financial Statements.

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2020

 

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 visualization, analytics and automation. 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 government’s ability to protect their data. Visium’s CyGraph technology provides visualization, 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 nine months ended March 31, 2020 we had a net loss of $778,432, had net cash used in operating activities of $106,181, and had negative working capital of $3,225,858. 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.

 

A novel strain of coronavirus, the COVID-19 virus, may adversely affect our business operations and financial condition.

 

In December 2019, an outbreak of the COVID-19 virus was reported in Wuhan, China. On March 11, 2020, the World Health Organization declared the COVID-19 virus a global pandemic and on March 13, 2020, President Donald J. Trump declared the virus a national emergency in the United States. This highly contagious disease has spread to most of the countries in the world and throughout the United States, creating a serious impact on customers, workforces and suppliers, disrupting economies and financial markets, and potentially leading to a world-wide economic downturn. It has caused a disruption of the normal operations of many businesses, including the temporary closure or scale-back of business operations and/or the imposition of either quarantine or remote work or meeting requirements for employees, either by government order or on a voluntary basis. The pandemic may adversely affect our potential customers’ operations, our employees and our employee productivity. It may also impact the ability of our subcontractors, partners, and suppliers to operate and fulfill their contractual obligations, and result in an increase in costs, delays or disruptions in performance. These supply chain effects, and the direct effect of the virus and the disruption on our employees and operations, may negatively impact both our ability to meet customer demand and our revenue and profit margins. Our employees are working remotely and using various technologies to perform their functions. We might experience delays or changes in customer demand, particularly if customer funding priorities change. Further, in reaction to the spread of COVID-19 in the United States, many businesses have instituted social distancing policies, including the closure of offices and worksites and deferring planned business activity. The disruption and volatility in the global and domestic capital markets may increase the cost of capital and limit our ability to access capital. Both the health and economic aspects of the COVID-19 virus are highly fluid and the future course of each is uncertain. For these reasons and other reasons that may come to light if the coronavirus pandemic and associated protective or preventative measures expand, we may experience a material adverse effect on our business operations, revenues and financial condition; however, its ultimate impact is highly uncertain and subject to change.

 

The board of directors and management of Visium Technologies, Inc., a Florida corporation (the “Company”), determined that, in light of the circumstances and uncertainty surrounding the effects of the COVID-19 coronavirus pandemic on the Company’s business, employees, consultants and service providers, the Company delayed the filing of its quarterly report on Form 10-Q for the period ended March 31, 2020 (the “Quarterly Report”) by up to 45 days in accordance with the SEC’s March 25, 2020 Order (Release No. 34-88465) (the “Order”), which allowed for the delay of certain filings required under the Securities and Exchange Act of 1934, as amended.  As a result, the Company is filing its Quarterly Report by no later than June 29, 2020, 45 days after the original due date of its Quarterly Report. 

 

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 nine months ended March 31, 2020, 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

 MARCH 31, 2020

 

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 nine months ended March 31, 2020 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 nine months ended March 31, 2020 and 2019, 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 March 31, 2020 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

 MARCH 31, 2020

 

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

 MARCH 31, 2020

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Revenue Recognition

 

Effective July 1, 2018, the Company adopted the requirements of ASU 2014-09 (ASC 606- Revenue from contracts with Customers). The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The Company has not yet earned any revenue to date and will recognize future revenues in accordance with this standard. All revenues will be recognized when: (i) a contract with a client has been identified, (ii) the performance obligation(s) in the contract have been identified, (iii) the transaction price has been determined, (iv) the transaction price has been allocated to each performance obligation in the contract, and (v) the Company has satisfied the applicable performance obligation over time or at a point in time.

 

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

 MARCH 31, 2020

 

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 March 31, 2020. 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:

 

	March 31,	June 30,
	2020	2019
Weighted average common shares outstanding	105,939,637	22,992,865
Effect of dilutive securities-when applicable:
Convertible promissory notes	676,820,102	14,604,829
Preferred Stock	13,996,767	13,996,767
Warrants	500,000	500,000
Adjusted weighted-average shares and assumed conversions	797,256,506	52,094,461

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 MARCH 31, 2020

 

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 March 31, 2020 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 March 31, 2020 and June 30, 2019 using the Cox, Ross & Rubinstein Binomial Tree valuation model.

 

The revaluation of the warrants and convertible debt at each reporting period, as well as charges associated with issuing additional convertible notes, and warrants with price protection features, resulted in the recognition of a gain of $462,249 and a loss of $730,804 for the nine months ended March 31, 2020 and 2019, respectively in the Company’s consolidated statements of operations, under the caption “Gain (loss) on change in fair value of derivative liabilities”. The fair value of the warrants at March 31, 2020 and June 30, 2019 was $350 and $37,200, respectively. The fair value of the derivative liability related to the convertible debt at March 31, 2020 and June 30, 2019 is $361,671 and $807,053, respectively, which is reported on the consolidated balance sheet under the caption “Derivative liability”.  The Company accounts for the conversions of the notes at fair valu and records the difference as Gain (Loss) on settlement of debt in the Income Statement.

 

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:

 

		Nine Months Ended March 31,
		2020				2019
Effective exercise price		$	0.00049 $ 0.0033			$	0.0216 0.0616
Effective market price		$	.009			$	0.08
Volatility			223% - 521	%			222.61	%
Risk-free interest			0.05% - 1.68	%			2.40% - 2.43	%
Terms			30 - 650 days				30-286 days
Expected dividend rate			0.00	%			0.00	%

 

Changes in the derivative liabilities during the Nine Months Ended March 31, 2020 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	(462,249)
Derivative liability at March 31, 2020	$361,671

 

NOTE 4: ACCRUED INTEREST PAYABLE

 

Changes in accrued interest payable during the Nine Months Ended March 31, 2020 is as follows:

 

Accrued interest payable at June 30, 2019	$593,838
Interest expense accrued for the nine months ended March 31, 2020	92,359
Conversion of accrued interest into common stock	(24,884)
Accrued interest payable at March 31, 2020	$661,313

 

Interest expense for the nine months ended March 31, 2020 was comprised of the following:

 

Interest expense for the nine months ended March 31, 2020	$92,359
Amortization of debt discount	179,106
Total interest expense for the nine months ended March 31, 2020	$271,465

  

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2020

 

NOTE 5: CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE

 

Convertible Notes Payable

 

At March 31, 2020 and June 30, 2019 convertible debentures consisted of the following:

 

	March 31,	June 30,
	2020	2019
Convertible notes payable	$924,632	$1,075,428
Discount on convertible notes	(27,142)	(158,333)
Convertible notes, net	897,490	917,095
Convertible notes payable to ASC Recap	147,965	147,965
Total	$1,045,455	$1,065,060

 

The Company had convertible promissory notes aggregating approximately $1.05 million and $1.06 million at March 31, 2020 and June 30, 2019, respectively. The related accrued interest amounted to approximately $486,000 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 March 31, 2020, $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 nine months ended March 31, 2020, 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	106,613,286	$108,116	$-	$14,200	$128,723	$251,039	$0.00235
Auctus Funds, LLC	116,698,824	57,779	17,177	14,250	207,893	297,100	$0.00255
Mark Lucky	10,901,131	32,900	7,707	-	23,710	64,317	$0.00590
TOTAL	234,213,241	$198,795	$24,884	$28,450	$360,326	$612,456	$0.00261

 

Covenants and Other Matters

 

Certain of our convertible loan agreements contain customary covenants and events of default and termination, including cross-default provisions, whereby a default under one loan and security agreement triggers a default under those certain other convertible notes. The Auctus Funds note has a provision whereby a default annual interest rate of 24% applies after the one year anniversary of the note, and the FirstFire note has a provision whereby the default annual interest rate of 15% applies after the one year anniversary of the note, both of which occurred in January, 2020.  The Auctus Funds note contains a 150% payoff provision if the note is in default, and is due and payable only when the Company receives a notice of default from the noteholder.  As of March 31, 2020 and subsequently, the Company has not received any notice of default.

 

Notes Payable

 

The Company had promissory notes aggregating $205,000 at March 31, 2020 and June 30, 2019, respectively. The related accrued interest amounted to approximately $171,000 and $159,000 at March 31, 2020 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 March 31, 2020 have matured, are in default, and remain unpaid.

 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2020

 

NOTE 6: STOCKHOLDERS’ DEFICIT

 

Common Stock

 

At March 31, 2020, the Company had 10,000,000,000 authorized common shares.

 

Issuances of Common Stock During the Nine Months Ended March 31, 2020

 

Convertible Notes Payable

 

During the nine months ended March 31, 2020 the Company issued 234,213,241 shares of its common stock related to the conversion of $223,679 of principal and accrued interest of its convertible notes payable, at an average contract conversion price of $0.00095 per share.  The fair value of the shares issued was $612,456.

 

Stock Based Compensation and Stock Based Consulting Services Expense

 

During the nine months ended March 31, 2020 the Company issued 19,650,000 shares of its $0.0001 par value common stock to five consultants, as compensation for services rendered. The shares were valued at $132,735, or $0.006 per share.

 

During the nine months ended March 31, 2020 the Company issued 28,000,000 shares of its $0.0001 par value common stock to two of our Directors, as compensation for services rendered. The shares were valued at $52,000, or $0.00186 per share.

 

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

 

Convertible Notes Payable

 

During the nine months ended March 31, 2019 the Company issued 1,985,327 shares of its common stock related to the conversion of $201,055 of principal and accrued interest of its convertible notes payable, at an average contract conversion price of $0.101 per share.

 

Sale of Restricted Common Stock

 

During the nine months ended March 31, 2019 the Company issued 2,505,000 shares of its common stock related to the sale of its common stock resulting in proceeds of $250,500, at an average price of $0.10 per share.

 

Acquisition of Threat Surface Solutions Group, LLC

 

During the nine months ended March 31, 2019 the Company issued 1,538,387 shares of its common stock related to its acquisition of Threat Surface Solutions Group, LLC, valued at $500,000, or an average price of $0.325 per share.

 

Stock Based Compensation

 

During the nine months ended March 31, 2019 the Company issued 23,427,759 shares of its $0.0001 par value common stock as compensation to its directors and officers related to the vesting of restricted stock grants. The shares were valued at $1,901,500, or $0.081 per share, based on the share price at the time of the transactions.

 

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

 

 

VISIUM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2020

 

NOTE 6: STOCKHOLDERS’ DEFICIT, continued

 

Preferred Stock

The 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 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 CEO, 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 March 31, 2020 and changes during the nine 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

MARCH 31, 2020

 

NOTE 6: STOCKHOLDERS’ DEFICIT, continued

 

The following table summarizes information about common stock warrants outstanding at March 31, 2020:

 

Warrants Outstanding

Warrants Exercisable

Weighted

Average

Weighted

Weighted

Range of

Number

Remaining

Average

Number

Average

Exercise

Outstanding at

Contractual

Exercise

Exercisable at

Exercise

Price

March 31, 2020

Life

Price

March 31, 2020

Price

$

0.15

500,000

1.78 Years

$

0.15

500,000

$

0.15

500,000

1.78 Years

$

0.15

500,000

$

0.15