NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
NOTE 1: ORGANIZATION, DESCRIPTION OF BUSINESS, 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 three months ended September 30, 2020 we had
a net loss of $345,673, had net cash used in operating activities
of $22,815, and had negative working capital of $3,420,814. 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.
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, 2020, contained in the Company’s
Annual Report on Form 10-K filed with the SEC on October 9, 2020.
The results of operations for the three months ended September 30,
2020, are not necessarily indicative of results to be expected for
any other interim period or the fiscal year ending June 30,
2021.
VISIUM TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The
fiscal year ends on June 30. References to fiscal year 2021, for
example, refer to the fiscal year ending June 30,
2021.
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 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
liability.
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 three months ended September 30, 2020 and
June 30, 2020.
Concentration of Credit Risks
The
Company is subject to a concentration of credit risk from
cash.
The
Company’s cash account is held at a financial institution and
is insured by the Federal Deposit Insurance Corporation, or FDIC,
up to $250,000. During the three months ended September 30, 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 September 30, 2020 and June 30, 2020,
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
SEPTEMBER 30, 2020
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, 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
SEPTEMBER 30, 2020
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Revenue Recognition
In May
2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic
606). The revenue recognition principle in ASU 2014-09 is
that an entity should recognize revenue to depict the transfer of
goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. In addition, new and enhanced
disclosures will be required. Companies may adopt the new standard
either using the full retrospective approach, a modified
retrospective approach with practical expedients, or a cumulative
effect upon adoption approach. This standard is effective for
reporting periods beginning after December 15, 2019. Early adoption
is permitted. The Company early adopted this standard effective
July 1, 2019. Since the Company has not earned any revenue to date,
there has been no impact to the financial statements upon
adoption.
Income Taxes
The
Company accounts for income taxes pursuant to the provisions of ASC
740-10, “Accounting for Income Taxes,” which requires,
among other things, an asset and liability approach to calculating
deferred income taxes. The asset and liability approach requires
the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities. A
valuation allowance is provided to offset any net deferred tax
assets for which management believes it is more likely than not
that the net deferred asset will not be realized.
The
Company follows the provisions of ASC 740-10, “Accounting for
Uncertain Income Tax Positions”. When tax returns are filed,
it is highly certain that some positions taken would be sustained
upon examination by the taxing authorities, while others are
subject to uncertainty about the merits of the position taken or
the amount of the position that would be ultimately sustained. In
accordance with the guidance of ASC 740-10, the benefit of a tax
position is recognized in the financial statements in the period
during which, based on all available evidence, management believes
it is more likely than not that the position will be sustained upon
examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or aggregated
with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50 percent likely
of being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax
positions taken that exceeds the amount measured as described above
should be reflected as a liability for uncertain tax benefits in
the accompanying balance sheet along with any associated interest
and penalties that would be payable to the taxing authorities upon
examination. The Company believes its tax positions are all highly
certain of being upheld upon examination. As such, the Company has
not recorded a liability for uncertain tax benefits.
The
Company has adopted ASC 740-10-25, “Definition of
Settlement”, which
provides guidance on how an entity should determine whether a tax
position is effectively settled for the purpose of recognizing
previously unrecognized tax benefits and provides that a tax
position can be effectively settled upon the completion of an
examination by a taxing authority without being legally
extinguished. For tax positions considered effectively settled, an
entity would recognize the full amount of tax benefit, even if the
tax position is not considered more likely than not to be sustained
based solely on the basis of its technical merits and the statute
of limitations remains open. As of September 30, 2020, the Company
had not filed tax returns for the tax years ending June 30, 2008
through 2020 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 2020-07, 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
SEPTEMBER 30, 2020
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Recent Accounting Pronouncements
In May
2019, the FASB issued ASU No. 2020-05, Income Taxes (Topic 740):
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 118, regarding the accounting implications of the
recently issued Tax Cuts and Jobs Act (the “Act”). This
standard is effective immediately. The update clarifies that in a
company’s financial statements that include the reporting
period in which the Act was enacted, the company must first reflect
the income tax effects of the Act in which the accounting under
GAAP is complete. These amounts would not be provisional amounts.
The company would also report provisional amounts for those
specific income tax effects for which the accounting under GAAP is
incomplete, but a reasonable estimate can be determined. The
Company has recorded a provisional amount which it believes is a
reasonable estimate of the effects of the Act on the
Company’s financial statements as of April 30, 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.
In July
2017, the FASB issued Accounting Standards Update
(“ASU”) No. 2017-11. “Earnings Per Share (Topic
260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): I. Accounting for Certain
Financial Instruments with Down Round Features, II. Replacement of
the Indefinite Deferral for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Non-controlling Interests with a Scope Exception
(“ASU 2017-11”) ASU 2017-11 revises the guidance for
instruments with down round features in Subtopic 815-40,
Derivatives and Hedging - Contracts in Entity’s Own Equity,
which is considered in determining whether an equity-linked
financial instrument qualifies for a scope exception from
derivative accounting. An entity still is required to determine
whether instruments would be classified in equity under the
guidance in Subtopic 815-40 in determining whether they qualify for
that scope exception. If they do qualify, freestanding instruments
with down round features are no longer classified as liabilities.
ASU 2017-11 is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2019, and
early adoption is permitted, including adoption in an interim
period. ASU 2017-11 provides that upon adoption, an entity may
apply this standard retrospectively to outstanding financial
instruments with a down round feature by means of a cumulative-
effect adjustment to the opening balance of accumulated deficit in
the fiscal year and interim period adoption. The Company has
adopted ASU 2017-11 retrospectively as of January 1, 2020. The
adoption of this ASU did not have any impact on its financial
statements.
Basic and Diluted Earnings Per Share
Basic
earnings per share are calculated by dividing income available to
stockholders by the weighted-average number of shares of Common
Stock outstanding during each period. Diluted earnings per share
are computed using the weighted average number of shares of Common
Stock and the dilutive Common Stock share equivalents outstanding
during the period. Dilutive Common Stock share equivalents consist
of shares issuable upon the exercise of in-the-money stock options
and warrants (calculated using the modified-treasury stock method)
and conversion of other securities such as convertible debt or
convertible preferred stock. Potential common shares that would be
as follows:
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
|
2020
|
|
|
2020
|
|
|
Weighted
average common shares outstanding
|
|
|
1,832,561,950
|
|
|
|
312,626,670
|
|
|
Effect
of dilutive securities-when applicable:
|
|
|
|
|
|
|
|
|
|
Convertible
promissory notes
|
|
|
768,576,702
|
|
|
|
1,014,701,330
|
|
|
Preferred
Stock
|
|
|
13,996,797
|
|
|
|
13,996,797
|
|
|
Warrants
|
|
|
500,000
|
|
|
|
500,000
|
|
|
Fully
diluted earnings per share—adjusted weighted-average shares
and assumed conversions
|
|
|
2,615,635,449
|
|
|
|
1,341,824,767
|
|
VISIUM TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
NOTE 3: DERIVATIVE LIABILITIES
Derivative liability - warrants
The
Company issued warrants in connection with convertible notes
payable which were issued in January 2020. 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 September 30, 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 September 30, 2020 and
September 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 the charges associated with issuing additional
convertible notes, and warrants with price protection features,
resulted in the recognition of a gain of $124,332 and $278,012 for
the three months ended September 30, 2020 and 2019, 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
September 30, 2020 and June 30, 2020 was $150 and $250,
respectively. The fair value of the derivative liability related to
the convertible debt at September 30, 2020 and June 30, 2020 is
$314,071 and $438,303, respectively, which is reported on the
consolidated balance sheet under the caption “Derivative
liability”.
The
Company has determined its derivative liability to be a Level 3
fair value measurement. The significant assumptions used in the
Cox, Ross & Rubinstein Binomial Tree valuation of the
derivative are as follows:
|
|
|
Three Months Ended September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Effective
exercise price
|
|
$
|
0.00024
- $0.00039
|
|
|
$
|
0.0033
- $ 0.15
|
|
|
Effective
market price
|
|
$
|
0.0007
|
|
|
$
|
0.006
|
|
|
Volatility
|
|
|
248.13%
- 297.1
|
%
|
|
|
267.4%
- 373.6
|
%
|
|
Risk-free
interest
|
|
|
0.08% -
0.12
|
%
|
|
|
1.58% -
1.90
|
%
|
|
Terms
|
|
|
60-467
days
|
|
|
|
30 -
833 days
|
|
|
Expected
dividend rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Changes
in the derivative liabilities during the three months ended
September 30, 2020 is follows:
|
Derivative
liability at June 30, 2020
|
|
$
|
438,553
|
|
|
Gain on
change in fair value of derivative liability
|
|
|
(124,332
|
)
|
|
Derivative
liability at September 30, 2020
|
|
$
|
314,221
|
|
VISIUM TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
NOTE 4: ACCRUED INTEREST PAYABLE
Changes
in accrued interest payable during the three months ended September
30, 2020 is as follows:
|
Accrued
interest payable at June 30, 2020
|
|
$
|
677,857
|
|
|
Interest
expense accrued for the three months ended September 30,
2020
|
|
|
26,908
|
|
|
Conversion
of accrued interest into common stock
|
|
|
(3,294
|
)
|
|
Accrued
interest payable at September 30, 2020
|
|
$
|
701,471
|
|
NOTE 5: CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE
Convertible Notes Payable
At
September 30, 2020 and June 30, 2020 convertible debentures
consisted of the following:
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
|
2020
|
|
|
2020
|
|
|
Convertible
notes payable
|
|
$
|
782,490
|
|
|
$
|
852,962
|
|
|
Discount
on convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
Convertible
notes, net
|
|
|
782,490
|
|
|
|
852,962
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
notes payable to ASC Recap
|
|
|
147,965
|
|
|
|
147,965
|
|
|
Total
|
|
$
|
930,455
|
|
|
$
|
1,000,927
|
|
The
Company had convertible promissory notes aggregating approximately
$930,000 and $1.0 million at September 30, 2020 and June 30, 2020,
respectively. The related accrued interest amounted to
approximately $522,000 and $501,000 at September 30, 2020 and June
30, 2020, 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 $0.00024 to $22,500 per share, as a result of the two
reverse stock splits. At September 30, 2020, approximately $900,000
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.
VISIUM TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
NOTE 5: CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE,
continued
For the
three months ended September 30, 2020, the following summarizes the
conversion of debt for common shares:
|
|
|
|
|
Amount of
|
|
|
Amount of
|
|
|
|
|
|
Adjustment
|
|
|
|
|
|
Conversion
|
|
|
Shares
|
|
|
Converted
|
|
|
Converted
|
|
|
Conversion
|
|
|
To
|
|
|
|
|
|
Price
|
|
Name
|
Issued
|
|
|
Principal
|
|
|
Interest
|
|
|
Expense
|
|
|
Fair Value
|
|
|
Total
|
|
|
Per Share
|
|
Auctus Funds, LLC
|
312,948,560
|
|
$
|
55,748
|
|
$
|
3,294
|
|
$
|
3,751
|
|
$
|
136,526
|
|
$
|
199,319
|
|
$
|
$0.00064
|
|
FirstFire Global Opportunities Fund LLC
|
49,000,000
|
|
|
14,725
|
|
|
-
|
|
|
1,200
|
|
|
18,375
|
|
|
34,300
|
|
|
$0.00070
|
|
TOTAL
|
361,948,560
|
|
$
|
70,473
|
|
$
|
3,294
|
|
$
|
4,951
|
|
$
|
154,901
|
|
$
|
233,619
|
|
$
|
$0.00064
|
The
adjustment to Fair Value column represents additional paid-in
capital recorded with the conversion based on the fair value of the
shares issued upon partial conversion of the note at the time of
conversion. The adjustment to fair value on each conversion
resulted in a loss on extinguishment of debt.
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 September 30, 2020 and subsequently, the
Company has not received any notice of default.
Notes Payable
The
Company had promissory notes aggregating $205,000 at September 30,
2020 and June 30, 2020, respectively. The related accrued interest
amounted to approximately $179,000 and $175,000 at September 30,
2020 and June 30, 2020, respectively. The notes payable bear
interest at rates ranging from 0% to 16% per annum and are payable
monthly. All promissory notes outstanding as of September 30, 2020
have matured, are in default, and remain unpaid.
NOTE 6: STOCKHOLDERS’ DEFICIT
Common Stock
At
September 30, 2020, the Company had 10,000,000,000 authorized
common shares.
Issuances of Common Stock During the Three Months Ended September
30, 2020
Convertible Notes Payable
During
the three months ended September 30, 2020 the Company issued
361,948,560 shares of its common stock related to the conversion of
$73,768 of principal and accrued interest of its convertible notes
payable, at an average contract conversion price of $0.00064 per
share. The conversions were recorded at fair value or at
$233,619.
VISIUM TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
NOTE 6: STOCKHOLDERS’ DEFICIT, continued
Stock Based Compensation
During
the three months ended September 30, 2020 the Company issued
90,000,000 shares of its $0.0001 par value common stock as
compensation to its directors and officers. The shares were valued
at $45,000, or $0.0005 per share, based on the share price at the
time of the transactions.
During
the three months ended September 30, 2020 30,200,001 shares of its
$0.0001 par value common stock vested to three consultants, as
compensation under three separate consulting agreements. The shares
were valued at $27,000, or $0.00096 per share.
Preferred Stock
Series
A and B issued and outstanding shares of the Company’s
convertible preferred stock have a par value of $0.001. All classes
rank(ed) prior to any class or series of the Company’s common
stock as to the distribution of assets upon liquidation,
dissolution or winding up of the Company or as to the payment of
dividends. All preferred stock shall have no voting rights except
if the subject of such vote would reduce the amount payable to the
holders of preferred stock upon liquidation or dissolution of the
company and cancel and modify the conversion rights of the holders
of preferred stock as defined in the certificate of designations of
the respective series of preferred stock.
Series A Convertible Preferred Stock
The
Series A Preferred Stock has a stated value of $750.00 per share.
Each one share of Series A Preferred Stock is convertible into one
(1) share of Common Stock. In the event the Common Stock price per
share is lower than $0.10 (ten cents) per share then the Conversion
shall be set at $0.035 per share. The Common Stock shares are
governed by Lock-Up/Leak-Out Agreements.
Series B Convertible Preferred Stock
Thirty
million (30,000,000) shares of preferred stock were designated as a
new Series B Preferred stock in April 2016. This new Series B
Preferred Stock has a $0.001 par value, and each 300 shares is
convertible into one share of the Company’s common stock,
with a stated value of $375 per share.
Series AA Convertible Preferred Stock
In
March 2018, the Company authorized and issued one share of Series
AA convertible preferred stock which provides for the holder to
vote on all matters as a class with the holders of Common Stock and
each share of Series AA Convertible Preferred Stock shall be
entitled to 51% of the common votes on any matters requiring a
shareholder vote of the Company. Each one share of Series AA
Convertible Preferred Stock is convertible into one (1) share of
Common Stock. Mark Lucky, our CFO, is the holder of the one share
of Series AA Convertible Preferred Stock.
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.
VISIUM TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
NOTE 6: STOCKHOLDERS’ DEFICIT, continued
A
summary of the status of the Company’s outstanding common
stock warrants as of September 30, 2020 and changes during the
three 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
|
|
|
|
|
|
$
|
2,950
|
|
The
following table summarizes information about common stock warrants
outstanding at September 30, 2020:
|
|
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
Range of Exercise Price
|
|
|
Number Outstanding at September 30,2020
|
|
|
Weighted Average Remaining Contractual Life
|
|
Weighted Average Exercise Price
|
|
|
Number Exercisable at September 30,2020
|
|
|
Weighted Average Exercise Price
|
|
|
$
|
0.15
|
|
|
|
500,000
|
|
|
1.28
Years
|
|
$
|
0.15
|
|
|
|
500,000
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
500,000
|
|
|
1.28
Years
|
|
$
|
0.15
|
|
|
|
500,000
|
|
|
$
|
0.15
|
|
NOTE 7 - STOCK-BASED
COMPENSATION
Restricted Stock Awards
Restricted
stock awards are awards of common stock that are subject to
restrictions on transfer and to a risk of forfeiture if the holder
leaves the Company before the restrictions lapse. The holder of a
restricted stock award is generally entitled at all times on and
after the date of issuance of the restricted shares to exercise the
rights of a shareholder of the Company, including the right to vote
the shares. The value of stock awards that vest over time was
established by the market price on the date of its grant. A summary
of the Company’s restricted stock activity for the three
months ended September 30, 2020 and June 30, 2020 is presented in
the following table:
|
|
|
For the Three months ended
|
|
|
|
September 30, 2020
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Unvested
at beginning of period
|
|
|
666,659
|
|
|
$
|
0.06
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
(200,000
|
)
|
|
$
|
0.06
|
|
|
Unvested
at end of period
|
|
|
466,659
|
|
|
$
|
0.06
|
|
Unrecognized
compensation expense related to outstanding restricted stock awards
to employees and directors as of September 30, 2020 was $28,000 and
is expected to be recognized over a weighted average period of 0.58
years. The recognition of expense related to vested shares is
accounted for as stock-based consulting expense.
VISIUM TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
NOTE 8: RELATED PARTY TRANSACTIONS
Equity
transactions with related parties are described in Note
6.
From
time to time we have borrowed operating funds from Mr. Mark Lucky,
our Chief Financial Officer and from certain Directors, for working
capital. The advances were payable upon demand and were interest
free. At September 30, 2020 there was $96,840 outstanding of such
advances made to the Company.
NOTE 9: COMMITMENTS AND CONTINGENCIES
Contingencies
The
Company accounts for contingent liabilities in accordance with
Accounting Standards Codification (“ASC”) Topic 450,
Contingencies. This
guidance requires management to assess potential contingent
liabilities that may exist as of the date of the financial
statements to determine the probability and amount of loss that may
have occurred, which inherently involves an exercise of judgment.
If the assessment of a contingency indicates that it is probable
that a material loss has been incurred and the amount of the
liability can be estimated, then the estimated liability would be
accrued in the Company’s financial statements. If the
assessment indicates that a potential material loss contingency is
not probable but is reasonably possible, or is probable but cannot
be estimated, then the nature of the contingent liability, and an
estimate of the range of possible losses, if determinable and
material, would be disclosed. For loss contingencies considered
remote, no accrual or disclosures are generally made. Management
has assessed potential contingent liabilities as of September 30,
2020, and based on the assessment there are no probable loss
contingencies requiring accrual or disclosures within its financial
statements.
License Contingent Consideration
Our
license agreements with the sellers of Threat Surface Solutions
Group, LLC includes a provision for a royalty payment based on ten
percent (10%) of sales generated by Threat Surface Solutions Group
beginning on the Agreement Date and ending on October 12, 2021,
capped at a maximum royalty of $2,500,000. As of September 30, 2020
we have not generated any revenue related to these license
agreements.
Our
license agreements with George Mason University and The MITRE
Corporation include provisions for a royalty payment on revenues
collected of 5% and 5%, respectively. As of September 30, 2020 we
have not generated any revenue related to these license
agreements.
Legal Claims
In July
2018, the Company was named as the defendant in a legal proceeding
brought by Tarpon Bay Partners LLC (the “Plaintiff”) in
the Judicial District Court of Danbury, Connecticut. Plaintiff
asserts that the Company failed to convert two convertible notes
held by Plaintiff. The Company is vigorously contesting this claim.
There are no other proceedings in which any of our directors,
officers or affiliates, or any registered or beneficial
stockholder, is an adverse party or has a material interest adverse
to our interest.
The
Company is subject to litigation, claims, investigations and audits
arising from time to time in the ordinary course of business.
Although legal proceedings are inherently unpredictable, the
Company believes that it has valid defenses with respect to any
matters currently pending against the Company and intends to defend
itself vigorously. The outcome of these matters, individually and
in the aggregate, is not expected to have a material impact on the
Company’s cash flows, results of operations, or financial
position.
VISIUM TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
NOTE 10 – FAIR VALUE MEASUREMENT
Fair value measurements
At
September 30, 2020 and June 30, 2020, the fair value of derivative
liabilities is estimated using the Cox, Ross & Rubinstein
Binomial Tree valuation model using inputs that include the
expected volatility, the implied risk-free interest rate, as well
as the expected dividend rate. The derivative liabilities are the
only Level 3 fair value measures.
At
September 30, 2020 the estimated fair values of the liabilities
measured on a recurring basis are as follows:
|
|
|
Fair Value Measurements at
|
|
|
|
|
September 30, 2020:
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivative
liability – Convertible notes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
314,071
|
|
|
Derivative
liability – Warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
150
|
|
|
Total
derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
314,221
|
|
NOTE 11: SUBSEQUENT EVENTS
In
October 2020, the Company entered into a securities purchase
agreement with three individual investors pursuant to which the
Company issued to each Investor an 8% Unsecured Promissory Note,
(collectively the “Notes”) in the total aggregate
principal amount of $225,000 in exchange for $225,000 cash and
135,000,000 shares of restricted common stock of the Company, par
value $0.0001 in the aggregate.
In
October 2020 our consultants vested 66,667 shares of our $0.0001
par value common stock, valued at $4,000, or at an average price
per share of $0.06
In
October 2020, the Company repaid and satisfied in full the
convertible notes payable to Auctus Funds, LLC and FirstFire Global
Opportunities Fund, LLC.
In
October 2020, the Company issued 101,195,600 shares of its common
stock upon the conversion of principal of $19,181, and $309 of
accrued interest on its outstanding convertible notes, valued at
$0.0002 per share.
In
October 2020, two warrant holders exercised 206,781,370 warrants on
a cashless basis and received 191,195,600 shares of common stock
and 13,492,747 shares were used to cover the exercise
price.
In November 2020, two warrant holders exercised 168,218,630
warrants on a cashless basis and received 157,065,934 shares of
common stock and 11,152,696 shares were used to cover the exercise
price.