NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2019
NOTE
1: ORGANIZATION, GOING CONCERN AND BASIS OF PRESENTATION
Visium
Technologies, Inc. (the “Company”), a Florida corporation, was originally incorporated in Nevada in October 1987.
It was formerly known as Jaguar Investments, Inc. between October 1987 and May 2003, as Power2Ship, Inc. between May 2003 and
November 2006, as Fittipaldi Logistics, Inc. between November 2006 and December 2007, and as Nustate Energy Holdings, Inc. between
December 2007 and March 5, 2018, when it changed its name to Visium Technologies, Inc. to better reflect its business operations.
Visium
is a provider of cyber security automation, analytics and visualization, and a driving force behind the growing practice of SecOps.
SecOps is the practice of aligning cyber security, IT, and DevOps teams so that security becomes an integral part of these teams’
daily operations to empower organizations to innovate faster and more securely. Visium’s CyGraph technology provides visibility,
analytics and automation to help reduce risk, simplify cyber security and deliver better security outcomes.
In
July 2018 the Company formed a wholly-owned subsidiary, Visium Analytics, LLC.
In
March 2019 the Company entered into a license agreement with
Mitre
Corporation
to license a
patented technology, known as CyGraph, a tool for cyber warfare analytics,
visualization and knowledge management. Cygraph provides advanced analytics for cybersecurity situational awareness that is scalable,
flexible and comprehensive.
The
Company named Henry J. Holcombe as its Chief Executive Officer in August 2018 to provide strategic expertise in pursuing its business
plans. Mr. Holcombe resigned in February 2019 to take the Chief Information Officer position at the United States Patent &
Trademark Office, and Mark Lucky was named as Chief Executive Officer.
In
October 2018 the Company completed the acquisition of Threat Surface Solutions Group, LLC (“TSSG”) in exchange for
1,538,385 shares of Visium common stock valued at $500,000, the fair market value on the date of the acquisition, plus additional
consideration in the form of a 10% royalty on sales generated by TSSG for a period of three years on the first $25,000,000 in
revenue.
See
Note 5 for further description of the Company’s acquisition.
Going
Concern
The
accompanying consolidated financial statements have been prepared on a going concern basis. For the nine months ended March 31,
2019 we had a net loss of $1,657,871, had net cash used in operating activities of $491,014, and had negative working capital
of $3,630,664. These matters raise substantial doubt about the Company’s ability to continue as a going concern for a period
of one year from the date of this filing. The Company’s ability to continue as a going concern is dependent upon its ability
to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when
they come due, to fund possible future acquisitions, and to generate profitable operations in the future. Management plans to
provide for the Company’s capital requirements by continuing to issue additional equity and debt securities. The outcome
of these matters cannot be predicted at this time and there are no assurances that, if achieved, the Company will have sufficient
funds to execute its business plan or generate positive operating results. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Basis
of Presentation
The
unaudited interim consolidated financial information furnished herein reflects all adjustments, consisting only of normal recurring
items, which in the opinion of management are necessary to fairly state the Company’s financial position, results of operations
and cash flows for the dates and periods presented and to make such information not misleading. Certain information and footnote
disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted
in the United States of America have been omitted pursuant to rules and regulations of the Securities and Exchange Commission
(“SEC”), nevertheless, management of the Company believes that the disclosures herein are adequate to make the information
presented not misleading.
These
unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements
for the year ended June 30, 2018, contained in the Company’s Annual Report on Form 10-K filed with the SEC on August 20,
2018. The results of operations for the nine months ended March 31, 2019, are not necessarily indicative of results to be expected
for any other interim period or the fiscal year ending June 30, 2019.
Reverse
Stock Split
On
March 5, 2018, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of the
State of Florida to affect a 1-for-3,000 reverse stock split of the Company’s common stock (the “Reverse Split”).
As a result of the Reverse Split, every 3,000 shares of the Company’s old common stock were converted into 1 share of the
Company’s new common stock. Fractional shares resulting from the Reverse Split were rounded up to the nearest whole number.
The Reverse Split automatically and proportionately adjusted, based on the one-for-3,000 split ratio, all issued and outstanding
shares of the Company’s common stock. Share and per share data (except par value) for the periods presented reflect the
effects of the Reverse Split. References to numbers of shares of common stock and per share data in the accompanying financial
statements and notes thereto for periods ended prior to March 5, 2018 have been adjusted to reflect the Reverse Split on a retroactive
basis.
VISIUM
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2019
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal
Year
The
fiscal year ends on June 30. References to fiscal year 2019, for example, refer to the fiscal year ending June 30, 2019.
Principles
of Consolidation
The
accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting
principles and include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reporting amounts of revenues and expenses
during the reported period. On an ongoing basis, management evaluates these estimates, including those related to contingent consideration,
the carrying value of intangible assets, and assumptions used in binomial valuation methods, such as expected volatility, risk-free
interest rate, and expected dividend rate. Management bases these estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the
carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Cash
and Cash Equivalents
The
Company considers all highly liquid, temporary, cash equivalents with an original maturity of three months or less when purchased,
to be cash equivalents. The Company had no cash equivalents as of March 31, 2019 and June 30, 2018.
Intangible
Assets
Intangible
assets, net consists of the cost of acquired customer relationships. We capitalize and amortize the cost of acquired intangible
assets over their estimated useful lives on a straight-line basis. The Company periodically reevaluates the carrying value of
its intangible assets for events or changes in circumstances that indicate that the carrying value may not be recoverable. As
part of this reevaluation, the Company estimates the future cash flows expected to result from the use of the asset. If the sum
of the expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized to reduce the
carrying value of the intangible asset to the estimated fair value of the asset.
Concentration
of Credit Risks
The
Company is subject to a concentration of credit risk from cash.
The
Company’s cash account is held at a financial institution and is insured by the Federal Deposit Insurance Corporation (the
“FDIC”) up to $250,000. At March 31, 2019 and June 30, 2018, the Company had not reached a bank balance exceeding
the FDIC insurance limit.
VISIUM
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2019
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Fair
Value of Financial Instruments
The
Company accounts, for assets and liabilities measured at fair value on a recurring basis, in accordance with ASC Topic 820, Fair
Value Measurements and Disclosures, or ASC 820. ASC 820 establishes a common definition for fair value to be applied to existing
generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring
fair value, and expands disclosure about such fair value measurements.
ASC
820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
|
Level
1:
|
Observable
inputs such as quoted market prices in active markets for identical assets or liabilities.
|
|
|
|
|
Level
2:
|
Observable
market-based inputs or unobservable inputs that are corroborated by market data.
|
|
|
|
|
Level
3:
|
Unobservable
inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
|
Additional
Disclosures Regarding Fair Value Measurements
The
carrying value of cash and cash equivalents, accounts payable and accrued expenses, accrued compensation, note and convertible
promissory notes payable, approximate their fair value due to the short maturity of these items.
Business
combinations
Business
combinations are accounted for at fair value. Acquisition costs are expensed as incurred and recorded in selling, general and
administrative expenses. The accounting for business combinations requires estimates and judgment as to expectations for future
cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining
the estimated fair value for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets
acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions,
as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.
If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements
could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense
of finite-lived intangible assets, or the recognition of additional consideration which would be expensed. The fair value of contingent
consideration is remeasured each period based on relevant information and changes to the fair value are included in the operating
results for the period.
Convertible
Instruments and Derivative Liabilities
The
Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated
from their host instruments) in accordance with ASC 470-20, Debt with Conversion and Other Options. Accordingly, the Company records,
when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based
upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and
the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the
related debt to their earliest date of redemption. The Company also records deemed dividends for the intrinsic value of conversion
options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment
date of the note transaction and the effective conversion price embedded in the note.
ASC
815-40, Contracts in Entity’s own Equity, generally provides that, among other things, if an event is not within the entity’s
control, such contract could require net cash settlement and shall be classified as an asset or a liability.
The
Company assessed the potential classification of its derivative financial instruments as of March 31, 2019 and June 30, 2018,
which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives
meet the criteria for liability classification under ASC 815.
ASC
815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments
and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a)
the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic
characteristics and risks of the host contract; (b) the hybrid instrument that embodies both the embedded derivative instrument
and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with
changes in fair value reported in earnings as they occur; and (c) a separate instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception
to this rule when the host instrument is deemed to be conventional, as described.
VISIUM
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2019
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Share-Based
Payment
The
Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Under
the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the
fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the
vesting period.
In
July 2018, the FASB issued ASU 2018-07,
Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting
, an accounting standard update to improve non-employee share-based payment accounting. The accounting standard
update more closely aligns the accounting for employee and non-employee share based payments. The accounting standards update
is effective as of the beginning of 2019 with early adoption permitted. We have elected to adopt this standard as of July 1, 2018,
the beginning of our 2019 fiscal year.
The
Company has elected to use the Cox, Ross & Rubinstein Binomial Tree option-pricing model to estimate the fair value
of its options, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life,
and dividend yield to calculate the fair value of stock option awards. Compensation expense recognized in the statements of operations
is based on awards ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires forfeitures to be estimated
at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Recent
Accounting Pronouncements
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) (“ASU
2016-02”). The ASU replaces the prior lease accounting guidance in its entirety. The underlying principle of the new standard
is the recognition of lease assets and lease liabilities by lessees for substantially all leases, with an exception for leases
with terms of less than twelve months. The standard also requires additional quantitative and qualitative disclosures. In January
2018, the FASB issued ASU 2018-01, Leases (Topic 842) - Land Easement Practical Expedient for Transition to Topic 842, which provides
an optional transition practical expedient that allows companies to not evaluate (under Topic 842) existing or expired land easements
that were not previously accounted for as leases (under Topic 840). Topic 842 was effective for interim and annual reporting
periods beginning after December 15, 2018, and early adoption is permitted. Topic 842 requires a modified retrospective approach,
which includes several optional practical expedients. The Company currently has no lease agreements and therefore
ASU 2018-02 has no impact on the Company’s consolidated financial statements.
VISIUM
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2019
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Basic
and Diluted Earnings Per Share
Basic
earnings per share are calculated by dividing income available to stockholders by the weighted-average number of shares of common
stock outstanding during each period. Diluted earnings per share are computed using the weighted average number of shares of common
stock and the dilutive common stock share equivalents outstanding during the period. Dilutive common stock share equivalents consist
of shares issuable upon the exercise of in-the-money stock options and warrants (calculated using the modified-treasury stock
method) and conversion of other securities such as convertible debt or convertible preferred stock.
NOTE
3: DERIVATIVE LIABILITY
Derivative
liability - warrants
The
Company issued warrants in connection with convertible notes payable which were issued in January 2019. These warrants have price
protection provisions that allow for the reduction in the exercise price of the warrants in the event the Company subsequently
issues stock or securities convertible into stock at a price lower than the $0.15 per share exercise price of the warrants. Simultaneously
with any reduction to the exercise price, the number of shares of common stock that may be purchased upon exercise of each of
these warrants shall be increased or decreased proportionately, so that after such adjustment the aggregate exercise price payable
for the adjusted number of warrants shall be the same as the aggregate exercise price in effect immediately prior to such adjustment.
The Company accounted for its warrants with price protection in accordance with FASB ASC Topic 815.
Accounting
for Derivative Warrant Liability
The
Company’s derivative warrant instruments have been measured at fair value at March 31, 2019 using the Cox, Ross & Rubinstein
Binomial Tree valuation model. The Company recognizes the derivative liability related to those warrants that contain price protection
features in its consolidated balance sheet as liabilities. The liability is revalued at each reporting period and changes in fair
value are recognized currently in the consolidated statements of operations. The initial recognition and subsequent changes in
fair value of the derivative warrant liability have no effect on the Company’s cash flows.
Derivative
liability – convertible notes
The
Company has certain convertible notes with variable price conversion terms. U
pon the issuance
of these convertible notes and as a consequence of their conversion features, the convertible notes give rise to derivative liabilities.
The Company’s derivative liabilities related to its convertible notes payable have been measured at fair value at
March 31, 2019 and March 31, 2018 using the Cox, Ross & Rubinstein Binomial Tree valuation model.
The
revaluation of the warrants and convertible debt at each reporting period, as well as the charges associated with issuing additional
convertible notes, and warrants with price protection features, resulted in the recognition of expense of $730,804 and $0 for
the nine months ended March 31, 2019 and 2018, respectively in the Company’s consolidated statements of operations, under
the caption “Gain (loss) in change of fair value of derivative liability”. The fair value of the warrants at March
31, 2019 and June 30, 2018 is $38,750 and $0, respectively. The fair value of the derivative liability related to the convertible
debt at March 31, 2019 and June 30, 2018 is $1,315,977 and $0, respectively, which is reported on the consolidated balance sheet
under the caption “Derivative liability”.
The
Company has determined its derivative liability to be a Level 3 fair value measurement. The significant assumptions used in the
Cox, Ross & Rubinstein Binomial Treevaluation of the derivative are as follows:
|
|
|
Nine
Months Ended March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Effective exercise price
|
|
$
|
0.0216
- $ 0.0616
|
|
|
$
|
-
|
|
|
Effective market price
|
|
$
|
0.08
|
|
|
$
|
-
|
|
|
Volatility
|
|
|
222.61
|
%
|
|
|
-
|
%
|
|
Risk-free interest
|
|
|
2.40%
- 2.43
|
%
|
|
|
-
|
%
|
|
Terms
|
|
|
30
- 286 days
|
|
|
|
-
|
|
|
Expected dividend rate
|
|
|
0
|
%
|
|
|
-
|
%
|
Changes
in the derivative liabilities during the nine months ended March 31, 2019 was follows:
|
Derivative liability at June 30, 2018
|
|
$
|
-
|
|
|
Derivative liability
expense
|
|
|
341,423
|
|
|
Loss on change in fair value of derivative
liabilities
|
|
|
730,804
|
|
|
Derivative
liability attributed to discount on notes payable
|
|
|
282,500
|
|
|
Derivative liability at March
31, 2019
|
|
$
|
1,354,727
|
|
NOTE
4: ACCRUED INTEREST PAYABLE
Changes
in accrued interest payable during the nine months ended March 31, 2019, is as follows:
|
Accrued
interest payable at June 30, 2018
|
|
$
|
1,686,054
|
|
|
Interest
expense for the nine months ended March 31, 2019
|
|
|
166,524
|
|
|
Gain
on write off of accrued interest
|
|
|
(1,184,214
|
)
|
|
Cash
paid for accrued interest
|
|
|
(1,232
|
)
|
|
Gain
on forgiveness of accrued interest
|
|
|
(10,982
|
)
|
|
Conversion
of accrued interest into common stock
|
|
|
(30,205
|
)
|
|
Accrued
interest payable at March 31, 2019
|
|
$
|
625,945
|
|
Interest
expense for the nine months ended March 31, 2019 was comprised of the following:
|
Interest expense for the nine months ended
March 31, 2019
|
|
$
|
166,527
|
|
|
Amortization
of debt discount
|
|
|
66,667
|
|
|
Total interest expense for the
nine months ended March 31, 2019
|
|
$
|
233,194
|
|
VISIUM
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2019
NOTE
5: ACQUISITION
On
September 4, 2018, the Company entered into a Membership Interest Purchase Agreement (the “TSSG Purchase Agreement”)
with the members of Threat Surface Solutions Group, LLC (“TSSG”), a Virginia limited liability company, pursuant to
which the Company purchased all of the issued and outstanding membership and/or economic interests of TSSG. The TSSG Purchase
Agreement was amended on December 30, 2018, whereby the terms of the acquisition were modified such that the Company acquired
100% of the outstanding member interests of TSSG for 1,538,385 shares of Visium common stock valued at $500,000, the fair market
value on the date of the acquisition, plus a 10% royalty on sales generated by TSSG for a period of three years on the first $25,000,000
in revenue. The acquisition was accounted for using the purchase method of accounting. The results of operations are included
in the financial statements of operations from the date of acquisition. TSSG is a leading provider of cybersecurity services.
The purchase of TSSG included the acquisition of assets of $10,435 and liabilities of $57,872. The aggregate purchase price consisted
of the following:
|
Fair value of common
stock issued to seller
|
|
$
|
500,000
|
|
|
Net liabilities assumed
|
|
|
48,972
|
|
|
Contingent
consideration
|
|
|
52,315
|
|
|
|
|
$
|
601,287
|
|
The
following table summarizes the estimated fair values of TSSG’s assets acquired and liabilities assumed at the date of acquisition:
|
Cash
|
|
$
|
451
|
|
|
Accounts Receivable
|
|
|
9,984
|
|
|
Accounts payable
and accrued expenses
|
|
|
(59,407
|
)
|
|
|
|
$
|
(48,972
|
)
|
The
Company will account for the royalty liability related to the revenue generated by TSSG as a reduction of the contingent liability.
Intangible
assets acquired from TSSG were assigned the following values: value of customer relationships with an assigned value of $601,287.
This intangible asset is being amortized over 36 months, its estimated useful life.
We
made an initial allocation of the purchase price at the date of acquisition based on our understanding of the fair value of acquired
assets and assumed liabilities. The allocation of purchase price consideration is considered preliminary as of March 31, 2019
with the provisional amounts related to Customer Relationships, and is subject to change. We expect to finalize the allocation
of purchase price as soon as possible, but no later than one year from the acquisition date.
VISIUM
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2019
The
following table presents the unaudited pro forma condensed consolidated statement of operations for the nine months ended March
31, 2019:
|
|
|
VISIUM
|
|
|
TSSG
|
|
|
ProForma
Adjustments
|
|
|
ProForma
Combined
|
|
|
Sales, net
|
|
$
|
-
|
|
|
$
|
9,984
|
|
|
$
|
-
|
|
|
$
|
9,984
|
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
5,120
|
|
|
|
|
|
|
|
5,120
|
|
|
Gross profit
|
|
|
-
|
|
|
|
4,864
|
|
|
|
-
|
|
|
|
4,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
2,665,597
|
|
|
|
119,194
|
|
|
|
-
|
|
|
|
2,784,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before other expenses
|
|
|
(2,665,597
|
)
|
|
|
(114,330
|
)
|
|
|
-
|
|
|
|
(2,779,927
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense)
|
|
|
1,007,726
|
|
|
|
(1,687
|
)
|
|
|
-
|
|
|
|
1,006,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,657,871
|
)
|
|
$
|
(116,017
|
)
|
|
$
|
-
|
|
|
$
|
(1,773,888
|
)
|
Proforma
Note 1. — Basis of presentation
The
unaudited pro forma condensed consolidated financial statements are based on Visium Technologies, Inc.’s (the “Company”
or “VISM”) historical consolidated financial statements as adjusted to give effect to the acquisition of TSSG as if
it had occurred on July 1, 2018.
Proforma
Note 2 —Purchase price allocation
The
unaudited pro forma condensed financial information includes various assumptions, including those related to the purchase price
allocation of the assets acquired and liabilities assumed from TSSG based on management’s best estimates of fair value.
NOTE
6: INTANGIBLE ASSET
The
Company acquired TSSG on October 12, 2018. At the time of the acquisition the purchase price exceeded the fair value of the assets
acquired by $601,287 which we treated as customer relationships for accounting purposes. The purchase price was allocated to value
of the customer relationships of TSSG. The Company is amortizing this asset over its estimated useful life of three years.
|
|
|
Estimated
Life
|
|
March
31, 2019
|
|
|
June
30, 2018
|
|
|
Customer
relationships
|
|
3
years
|
|
$
|
601,287
|
|
|
|
-
|
|
|
Less: accumulated
amortization
|
|
|
|
|
(91,863
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
509,424
|
|
|
$
|
-
|
|
NOTE
7: CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE
Convertible
Notes Payable
At
March 31, 2019 and June 30, 2018 convertible debentures consisted of the following:
|
|
|
March
31, 2019
|
|
|
June
30, 2018
|
|
|
Convertible notes payable
|
|
$
|
1,075,425
|
|
|
$
|
1,617,984
|
|
|
Discount on
notes payable
|
|
|
(233,330
|
)
|
|
|
-
|
|
|
Subtotal
|
|
|
842,095
|
|
|
|
1,617,984
|
|
|
Convertible
notes payable to ASC Recap LLC
|
|
|
147,965
|
|
|
|
147,965
|
|
|
Total
|
|
$
|
990,060
|
|
|
$
|
1,765,949
|
|
The
Company had convertible promissory notes aggregating $990,060 and $1,765,949 at March 31, 2019 and June 30, 2018, respectively.
The related accrued interest amounted to $467,917 and $1,440,816 at March 31, 2019 and June 30, 2018, respectively. The convertible
notes payable bear interest at rates ranging from 0% to 18% per annum. The convertible notes are generally convertible, at the
holders’ option, at rates ranging from $0.09 to $22,500 per share, as a result of the two reverse stock splits. At March
31, 2019, $923,390 of the convertible promissory notes had matured, are in default and remain unpaid.
In
January 2019 the Company entered into two securities purchase agreements whereby each Holder purchased from the Company, for a
purchase price of $150,000 each, or $300,000 in total a (i) 8% senior convertible promissory note in the principal amount of $150,000
(the “Note”) convertible into shares of the Company’s common stock (the “Common Stock”); and (ii)
a warrant to purchase 250,000 shares of the Company’s Common Stock, exercisable at a price of $0.15, subject to adjustment,
per share over the course of a three year term (the “Warrant”, and together with the Note, the “Securities”).
The Warrant provides for a cashless exercise provision. The closing occurred following the satisfaction of customary closing conditions.
VISIUM
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2019
The
Notes mature twelve (12) months from the date of issuance and may be prepaid at any time pursuant to the terms of the Note. The
Notes are convertible into shares of the Company’s Common Stock at a price (the “Conversion Price”) equal to
the lower of (i) $0.15 per share or (ii) 65% multiplied by the lowest traded price of the Common Stock during the ten (10) consecutive
Trading Day period (as defined in the Note) immediately preceding the Trading Day that the Company receives a notice of conversion
(the “Variable Conversion Price”). The Conversion Price may further be adjusted in connection with the terms of the
Note.
The
Company records convertible notes net of debt discount for beneficial conversion features and warrants, on a relative fair
value basis. Beneficial conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the FASB ASC
470. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and as additional
paid-in-capital. Debt discount is amortized to interest expense over the life of the debt.
In
March 2019 the Company obtained a legal opinion to extinguish aged debt totaling $2,292,162 as detailed in the following
table. Each of the individual debt instruments were determined to be beyond the statute of limitations and it was determined that
the Company has a complete defense to liability related to this debt under the applicable statute of limitations.
|
Accounts payable and accrued
expenses
|
|
$
|
371,001
|
|
|
Convertible notes payable
|
|
|
671,706
|
|
|
Short term promissory notes payable
|
|
|
65,241
|
|
|
Accrued interest
payable
|
|
|
1,184,214
|
|
|
Total extinguished
debt
|
|
$
|
2,292,162
|
|
On
July 22, 2013 and May 6, 2014, the Company issued to ASC Recap LLC (“ASC Recap”) two convertible promissory notes
with principal amounts of $25,000 and $125,000, respectively. These two notes were issued as a fee for services under a Section
3(a)(10) financing transaction. While the Company continues to carry the balance of these notes on its balance sheet, management
is disputing these notes and does not believe that the balances of these notes are owed. See Note 11 – Commitment and Contingencies
in the footnotes to the consolidated financial statements. The July 22, 2013 note matured on March 31, 2014 and a balance of $22,965
remains unpaid. The May 6, 2014 note matured on May 6, 2016 and a balance of $125,000 remains unpaid. The notes are convertible
into the common stock of the Company at any time at a conversion price equal to (i) 50% of the lowest closing bid price of our
common stock for the twenty days prior to conversion or (ii) fixed price of $0.15 or $0.30 per share, respectively.
For
the nine months ended March 31, 2019, the following summarizes the conversion of debt for common shares:
|
|
|
|
|
|
|
|
|
|
|
Conversion
|
|
|
|
|
|
|
|
|
|
Amount
Converted
|
|
|
Price
|
|
|
Date
|
|
Name
|
|
Shares
Issued
|
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
|
Per
Share
|
|
|
07/31/2018
|
|
DWIGHT POWER
|
|
|
111,111
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
10,000
|
|
|
$
|
0.09
|
|
|
08/02/2018
|
|
ROYAL PALM CONSULTING SERVICES LLC
|
|
|
431,116
|
|
|
|
18,100
|
|
|
|
20,700
|
|
|
|
38,800
|
|
|
$
|
0.09
|
|
|
09/13/2018
|
|
LANCE QUARTIERI
|
|
|
370,319
|
|
|
|
42,500
|
|
|
|
6,005
|
|
|
|
48,505
|
|
|
$
|
0.131
|
|
|
10/12/2018
|
|
ENTERPRISE SOLUTIONS LLC
|
|
|
120,000
|
|
|
|
14,500
|
|
|
|
3,500
|
|
|
|
18,000
|
|
|
$
|
0.15
|
|
|
11/05/2018
|
|
FOWLER FAMILY TRUST V/A DTD 10/28/96
|
|
|
179,167
|
|
|
|
16,125
|
|
|
|
-
|
|
|
|
16,125
|
|
|
$
|
0.09
|
|
|
11/05/2018
|
|
ARTHUR NOTINI
|
|
|
277,778
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
25,000
|
|
|
$
|
0.09
|
|
|
11/05/2018
|
|
ROY D MITTMAN
|
|
|
27,778
|
|
|
|
2,500
|
|
|
|
-
|
|
|
|
2,500
|
|
|
$
|
0.09
|
|
|
11/05/2018
|
|
ROY D MITTMAN
|
|
|
111,112
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
10,000
|
|
|
$
|
0.09
|
|
|
11/05/2018
|
|
GARY DUQUETTE
|
|
|
55,556
|
|
|
|
5,000
|
|
|
|
-
|
|
|
|
5,000
|
|
|
$
|
0.09
|
|
|
11/05/2018
|
|
DUQUETTE FAMILY LIVING TRUST
|
|
|
55,556
|
|
|
|
5,000
|
|
|
|
-
|
|
|
|
5,000
|
|
|
$
|
0.09
|
|
|
11/05/2018
|
|
GARY DUQUETTE
|
|
|
245,834
|
|
|
|
22,125
|
|
|
|
-
|
|
|
|
22,125
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,985,327
|
|
|
$
|
170,850
|
|
|
$
|
30,205
|
|
|
$
|
201,055
|
|
|
$
|
0.101
|
|
Notes
Payable
The
Company had promissory notes in the aggregate principal amount of $205,000 and $270,241 at March 31, 2019 and June 30,
2018, respectively. The related accrued interest amounted to approximately $155,000 and $245,200 at March 31, 2019 and June 30,
2018, respectively. The notes payable bear interest at rates ranging from 0% to 16% per annum which is payable monthly.
All promissory notes outstanding as of March 31, 2019 have matured, are in default, and remain unpaid.
VISIUM
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2019
NOTE
8: STOCKHOLDERS’ DEFICIT
Common
Stock
At
March 31, 2019, the Company had 10,000,000,000 authorized shares of common stock.
Issuances
of Common Stock During the Nine Months Ended March 31, 2019
Convertible
Notes Payable
During
the nine months ended March 31, 2019 the Company issued 1,985,327 shares of its common stock related to the conversion of $201,055
of principal and accrued interest of its convertible notes payable, at an average contract conversion price of $0.101 per share.
Sale
of Restricted Common Stock
During
the nine months ended March 31, 2019 the Company issued 2,505,000 shares of its common stock related to the sale of its common
stock resulting in proceeds of $250,500, at an average price of $0.10 per share.
Acquisition
of Threat Surface Solutions Group, LLC
During
the nine months ended March 31, 2019 the Company issued 1,538,387 shares of its common stock related to its acquisition of Threat
Surface Solutions Group, LLC, valued at $500,000, or an average price of $0.325 per share.
Stock
Based Compensation
During
the nine months ended March 31, 2019 the Company issued 23,427,759 shares of its $0.0001 par value common stock as compensation
to its directors and officers related to the vesting of restricted stock grants. The shares were valued at $1,901,500, or $0.081
per share, based on the share price at the time of the transactions.
During
the nine months ended March 31, 2019 the Company issued and vested 2,750,008 shares of its $0.0001 par value common stock to four
consultants, as compensation under four separate consulting agreements. The shares were valued at $145,500, or $0.052 per share,
based on the share price at the time of the transactions.
Issuances
of Common Stock During the Nine Months Ended March 31, 2018
During
the nine months ended March 31, 2018 the Company issued 283,100 shares of its common stock related to the conversion of $51,930
of principal of its convertible notes payable, at an average contract conversion price of $0.18 per share.
During
the quarter ended March 31, 2018 the Company issued a restricted share award of 166,667 shares of its $0.0001 par value common
stock to its new CEO, Mark Lucky, as compensation. The shares were valued at $50,000, or $0.30 per share on a post reverse split
basis. On a pre- reverse split basis, the shares were issued at par value as there was no active market in our common stock.
During
the quarter ended March 31, 2018 the Company issued a restricted share award of 166,667 shares of its $0.0001 par value common
stock to its new board member, Tom Grbelja, as compensation for services rendered. The shares were valued at $50,000, or $0.30
per share on a post reverse split basis. On a pre- reverse split basis, the shares were issued at par value as there was no active
market in our common stock
During
the quarter ended March 31, 2018 the Company issued a restricted share award of 83,334 shares of its $0.0001 par value common
stock to its new board member, Paul Favata, as compensation for services rendered. The shares were valued at $25,000, or $0.30
per share on a post reverse split basis. On a pre- reverse split basis, the shares were issued at par value as there was no active
market in our common stock
During
the quarter ended March 31, 2018 the Company issued 191,669 shares of its $0.0001 par value common stock to four consultants,
as compensation under four separate consulting agreements. The shares were valued at $57,500, or $0.30 per share on a post reverse
split basis. On a pre- reverse split basis, the shares were issued at par value as there was no active market in our common stock
During
the quarter ended March 31, 2018 the Company issued 95,238 shares of its $0.0001 par value common stock to satisfy a liability
owed to a Company controlled by our CEO. The shares were valued at $60,000, or $0.63 per share on a post reverse split basis,
the weighted average market price for the ten preceding days from the date that the shares were issued.
VISIUM
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2019
Preferred
Stock
The
Company’s Series A Convertible Preferred Stock (“Series A Preferred Stock”) and Series B Convertible Preferred
Stock (“Series B Preferred Stock”) issued and outstanding shares of the Company’s convertible preferred stock
have a par value of $0.001. All classes rank prior to any class or series of the Company’s common stock as to the distribution
of assets upon liquidation, dissolution or winding up of the Company or as to the payment of dividends. All preferred stock shall
have no voting rights except if the subject of such vote would reduce the amount payable to the holders of preferred stock upon
liquidation or dissolution of the Company and cancel and modify the conversion rights of the holders of preferred stock as defined
in the certificate of designations of the respective series of preferred stock.
Series
A Convertible Preferred Stock
The
Series A Preferred Stock, of which twenty million (20,000,000) shares are authorized, has a stated value of $750.00 per share.
Each one share of Series A Preferred Stock is convertible into one (1) share of common stock. In the event the common stock price
per share is lower than $0.10 (ten cents) per share then the conversion price shall be set at $0.035 per share. The common stock
shares are governed by Lock-Up/Leak-Out Agreements.
Series
B Convertible Preferred Stock
Thirty
million (30,000,000) shares of preferred stock were designated as Series B Preferred stock in April 2016. This Series B Preferred
Stock has a $0.001 par value, have a stated value of $375 per share, and each 300 shares are convertible into 1 share of the Company’s
common stock.
Series
AA Convertible Preferred Stock
In
March 2018, the Company authorized and issued one share of Series AA Convertible Preferred Stock which provides for the holder
to vote on all matters as a class with the holders of common stock and each share of Series AA Convertible Preferred Stock shall
be entitled to 51% of the common votes on any matters requiring a shareholder vote of the Company. Each one share of Series AA
Convertible Preferred Stock is convertible into one share of common stock. Mark Lucky, our Chairman and CFO, is the holder of
the one share of the Series AA Convertible Preferred Stock.
Common
Stock Warrants
In
January 2019 we issued 500,000 warrants with a three year life and a conversion price of $0.15 per share.
These
warrants have price protection provisions that allow for the reduction in the current exercise price upon the occurrence of certain
events, including the Company
’
s issuance of common stock or securities convertible
into or exercisable for common stock, such as options and warrants, at a price per share less than the exercise price then in
effect. For instance, if the Company issues shares of its common stock or options exercisable for or securities convertible into
common stock at an effective price per share of common stock less than the exercise price then in effect, the exercise price will
be reduced to the effective price of the new issuance. Simultaneously with any reduction to the exercise price, the number of
shares of common stock that may be purchased upon exercise of each of these warrants shall be increased proportionately, so that
after such adjustment the aggregate exercise price payable for the adjusted number of warrants shall be the same as the aggregate
exercise price in effect immediately prior to such adjustment.
A
summary of the status of the Company’s outstanding common stock warrants as of March 31, 2019 and changes during the period
ending on that date is as follows:
|
|
|
Number
of
|
|
|
Weighted
Average
|
|
|
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
Common Stock
Warrants
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
-
|
|
|
|
-
|
|
|
Granted
|
|
|
500,000
|
|
|
$
|
0.15
|
|
|
Granted due to repricing
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Balance at end of period
|
|
|
500,000
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable
at end of period
|
|
|
500,000
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of
warrants granted during the period
|
|
|
|
|
|
$
|
38,750
|
|
VISIUM
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2019
The
following table summarizes information about common stock warrants outstanding at March 31, 2019:
|
|
|
|
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
Range
of
|
|
|
Number
|
|
|
Remaining
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
Exercise
|
|
|
Outstanding
at
|
|
|
Contractual
|
|
Exercise
|
|
|
Exercisable
at
|
|
|
Exercise
|
|
|
Price
|
|
|
March
31, 2019
|
|
|
Life
|
|
Price
|
|
|
March
31, 2019
|
|
|
Price
|
|
|
$
|
0.15
|
|
|
|
500,000
|
|
|
2.84
Years
|
|
$
|
0.15
|
|
|
|
500,000
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
500,000
|
|
|
2.84 Years
|
|
$
|
0.15
|
|
|
|
500,000
|
|
|
$
|
0.15
|
|
Note
9
-
STOCK-BASED COMPENSATION
Restricted
Stock Awards
Restricted
stock awards are awards of common stock that are subject to restrictions on transfer and to a risk of forfeiture if the holder
leaves the Company before the restrictions lapse. The holder of a restricted stock award is generally entitled at all times on
and after the date of issuance of the restricted shares to exercise the rights of a shareholder of the Company, including the
right to vote the shares. The value of stock awards that vest over time was established by the market price on the date of its
grant.
In
March 2019, the Company accelerated the vesting of 6,569,436 shares related to restricted stock awards to its directors and
officers. The expense related to the acceleration of vesting totaled $533,957, or $0.081 per share and is included in
Selling, general and administrative expenses in our Statement of Operations.
A
summary of the Company’s restricted stock activity for the nine months ended
March
31, 2019
and the year ended June 30, 2018 is presented in the following table:
|
|
|
For
the
|
|
|
|
|
Nine
Months ended March 31, 2019
|
|
|
Year
ended June 30, 2018
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Grant
Date
|
|
|
|
|
|
Grant
Date
|
|
|
|
|
Shares
|
|
|
Fair
Value
|
|
|
Shares
|
|
|
Fair
Value
|
|
|
Unvested at beginning of period
|
|
|
13,836,108
|
|
|
$
|
0.06
|
|
|
|
-
|
|
|
|
-
|
|
|
Granted
|
|
|
1,500,000
|
|
|
$
|
0.38
|
|
|
|
14,650,000
|
|
|
|
.06
|
|
|
Forfeited
|
|
|
(930,555
|
)
|
|
|
0.36
|
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
(10,377,773
|
)
|
|
$
|
0.078
|
|
|
|
(813,892
|
)
|
|
|
.06
|
|
|
Unvested at end of period
|
|
|
4,027,780
|
|
|
$
|
0.06
|
|
|
|
13,836,108
|
|
|
|
.06
|
|
Unrecognized
compensation expense related to outstanding restricted stock awards to consultants as of
March
31, 2019
was $241,667 and is expected to be recognized over a weighted average period of 2.08 years.
VISIUM
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2019
NOTE
10: RELATED PARTY TRANSACTIONS
Equity
transactions with related parties are described in Note 8.
From
time to time we have borrowed operating funds from Mr. Mark Lucky, our Chief Executive Officer, and from certain Directors, for
working capital. The advances were payable upon demand and were interest free. At March 31, 2019 there were no outstanding advances
made to the Company.
NOTE
11: COMMITMENTS AND CONTINGENCIES
Contingencies
The
Company accounts for contingent liabilities in accordance with ASC Topic 450,
Contingencies
. This guidance requires management
to assess potential contingent liabilities that may exist as of the date of the financial statements to determine the probability
and amount of loss that may have occurred, which inherently involves an exercise of judgment. If the assessment of a contingency
indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the
estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature
of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
For loss contingencies considered remote, no accrual or disclosures are generally made. Management has assessed potential contingent
liabilities as of March 31, 2019, and based on the assessment there are no probable loss contingencies requiring accrual or disclosures
within its financial statements.
The
consideration payable to the sellers of Threat Surface Solutions Group, LLC includes up to $2.5 million as a royalty payment on
sales during the three-year period ending October 12, 2021. The fair value of contingent consideration is remeasured each period
based on relevant information and changes to the fair value are included in the operating results for the period.
On
July 24, 2018, Visium entered into a patent license agreement (the “GMRF License Agreement”) with George Mason Research
Foundation, Inc., (“GMRF”) to commercialize and sell a network assessment and visualization tool that is backed
by eight issued patents. This technology allows customers to collect and analyze large amounts of IT security data, discover and
prioritize vulnerabilities, and take remedial actions.
Under
the GMRF License Agreement, the Company is required to make a first commercial sale of a “Licensed Product” and/or
a first commercial performance of a “Licensed Process,” as defined in the GMRF License Agreement, on or before July
30, 2019. The 2019 minimum revenue target for the sale of products and services incorporating the GMRF technology is $100,000.
This minimum revenue amount will increase in subsequent years. Also, within 30 days of July 20, 2018 (the “GMRF Effective
date”), the Company was required to pay GMRF a non-refundable license issue fee of $20,000, which was included in general
and administrative expense on our statement of operations. Pursuant to the GMRF License Agreement, the Company is required to
pay GMRF a running royalty of 5% of “Net Sales,” as defined in the GMRF License Agreement.
In
March 2019 the Company entered into a software license agreement with
Mitre
Corporation
(“MITRE”) to license a
patented technology, known as CyGraph, a tool for cyber
warfare analytics, visualization and knowledge management. Cygraph provides advanced analytics for cybersecurity situational awareness
that is scalable, flexible and comprehensive.
Pursuant
to the Agreement, the Company is required to have a marketable, demonstrable and saleable product or service using the Software
within twelve (12) months of the date of the Agreement, and the Company is required to pay to MITRE a royalty fee based on gross
fees charged to the Company’s customers. Additionally, the Company is required to pay to MITRE a non-refundable license
issue fee.
Legal
Claims
The
Company is subject to litigation, claims, investigations and audits arising from time to time in the ordinary course of business.
Although legal proceedings are inherently unpredictable, the Company believes that it has valid defenses with respect to any matters
currently pending against the Company and intends to defend itself vigorously. The outcome of these matters, individually and
in the aggregate, is not expected to have a material impact on the Company’s cash flows, results of operations, or financial
position.
In
July 2018 the Company was named as the defendant in a legal proceeding brought by Tarpon Bay Partners LLC (the “Plaintiff”)
in the Judicial District Court of Danbury, Connecticut. Plaintiff asserts that the Company failed to convert two convertible notes
held by Plaintiff. The Company is vigorously contesting this claim.
NOTE
12: SUBSEQUENT EVENTS
There
are no events that management deems reportable that occurred after March 31, 2019.