VISIUM TECHNOLOGIES, INC. 10-Q

ITEM 2. Management’s Discussion and Analysis and Results of Operations The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included elsewhere in this report. Certain statements in this discussion and elsewhere in this report constitute forward-looking statements. See ‘‘Cautionary Statement Regarding Forward Looking Information’’ elsewhere in this report. Because this discussion involves risk and uncertainties, our actual results may differ materially from those anticipated in these forward-looking statements . Overview Visium Technologies, Inc. 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 March 2018, the Company brought in a new management team and changed its name to Visium Technologies, Inc. Visium is a provider of cyber security visualization, big data analytics, and automation that 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 is a military-grade highly scalable big data analytics tool for Cybersecurity, based on graph database technology. The development of the technology was sponsored by, and is currently in use by US Army Cyber Command. CyGraph provides advanced analytics for cybersecurity situational awareness that is scalable, flexible, and comprehensive. Visium has completed significant proprietary product development efforts to commercialize CyGraph which the Company as rebranded as TruContext. Plan of Operation Visium operates in the traditional cyber security space, and provides solutions, tools and services related to Security information and event management (SIEM). Our TruContext technology provides visualization, advanced cyber monitoring intelligence, data modeling, analytics and automation to help reduce risk, simplify cyber security and deliver better security outcomes. Visium currently plans to generate revenue in three primary ways – ● through a virtual appliance model , primarily targeted to the Federal government, charging a seat license ● through a SaaS model , charging a recurring monthly license fee for TruContext; and ● through professional services to support and deliver cybersecurity solutions and services to its customers The Company has developed integration partnerships with larger established technology companies and is using these partnerships as part of its go-to-market strategy. In addition, the Company has partnered with value-added resellers that sell to the federal government and commercial markets. The Company is focused on digital risk management, cybersecurity solutions, and technology services for network physical security, the Cloud, and mobility solutions. We solve mission-critical problems. Employees As of September 30, 2022, we had eight (8) full time employees. Third-Party Service Providers We are heavily reliant on our technology and infrastructure to provide our products and services to our customers. For example, we host many of our products using third-party data center facilities, and we do not control the operation of these facilities. In addition, we rely on certain technology that we license from third parties, including third-party commercial software and open source software, which is used with certain of our solutions. Governmental Regulation We collect, use, store or disclose an increasingly high volume, variety, and velocity of personal information, including from employees and customers, in connection with the operation of our business. The personal information we process is subject to an increasing number of federal, state, local, and foreign laws regarding privacy and data security. 22 Table of Contents Competition The markets for our solutions are highly competitive, and we expect both the requirements and pricing competition to increase, particularly given the increasingly sophisticated attacks, changing customer preferences and requirements, current economic pressures, and market consolidation. Competitive pressures in these markets may result in price reductions, reduced margins, loss of market share and inability to gain market share, and a decline in sales, any one of which could seriously impact our business, financial condition, results of operations, and cash flows. We may face competition due to changes in the manner that organizations utilize IT assets and the security solutions applied to them, such as the provision of privileged account security functionalities as part of public cloud providers’ infrastructure offerings, or cloud-based identity management solutions. Limited IT budgets may also result in competition with providers of other advanced threat protection solutions such as McAfee, LLC, Palo Alto Networks, Splunk Inc., and NortonLifeLock, Inc. (formerly known as Symantec Corporation acquired by Broadcom Inc.). We also may compete, to a certain extent, with vendors that offer products or services in adjacent or complementary markets to privileged access management, including identity management vendors and cloud platform providers such as Amazon Web Services, Google Cloud Platform, and Microsoft Azure. Available Information All reports of the Company filed with the SEC are available free of charge through the SEC’s website at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. Our principal offices are located at 4094 Majestic Lane, Suite 360, Fairfax, Virginia 22033. Our telephone number is (703) 273-0383. Our common stock is quoted on the OTC Pink under the symbol “VISM”. 23 Table of Contents VISIUM TECHNOLOGIES, INC. RESULTS OF OPERATIONS Discussion of Results for Three Month Period Ended September 30, 2022 and 2021 Increase/ Increase/ Three-month period ended (Decrease) (Decrease) September 30, in $ 2022 in % 2022 2022 2021 vs 2021 vs 2021 Operating expenses: Selling, general and administrative $ 359,639 $ 1,200,030 $ (840,391 ) (70.0 )% Development expense 54,892 110,413 (55,521 ) (50.3 )% Total operating expenses 414,531 1,310,443 (895,912 ) (68.4 )% Operating loss (414,531 ) (1,310,443 ) 895,912 (68.4 )% Other expense: Gain (loss) on change in fair value of derivative liabilities 11,731 (18,908 ) 30,639 (162.0 )% Loss on extinguishment of debt (504,925 ) - 504,925 N/A Interest expense (129,738 ) (486,464 ) 309,248 (63.6 )% (623,292 ) (505,372 ) (403,382 ) (79.8 )% Net loss $ (1,037,823 ) (1,815,815 ) $ 1,048,505 (57.7 )% 24 Table of Contents Selling, General, and Administrative Expenses For the three months ended September 30, 2022, selling, general and administrative expenses were $1,200,030as compared to $193,196 for the three months ended September 30, 2021, an increase of $1,024,335 or approximately 530%. For the three months ended September 30, 2022 and 2021 selling, general and administrative expenses consisted of the following: Three Months Ended September 30, Increase/ 2022 2021 Decrease % Change Accounting expense $ 20,534 $ 23,071 $ (2,537 ) (11.0 )% Consulting fees 10,000 7,500 2,500 33.3 % Salaries 276,662 158,981 117,681 74.0 % Legal and professional fees 700 267,530 (266,830 ) (99.7 )% Travel expense 249 - 249 - Occupancy expense 552 567 (15 ) (2.6 )% Telephone expense 1,088 1,149 (61 ) (5.3 )% Website expense 40 6,498 -6,458 (99.4 )% Marketing expense 172 1,156 (984 ) (85.1 )% Investor relations expense 288 - Stock based consulting expense 15,772 367,273 (351,467 ) (95.7 )% Stock based compensation 27,209 345,000 (317,791 ) (92.1 )% Other 6,661 21,305 (14,966 ) (70.2 )% $ 359,639 $ 1,200,030 $ (840,391 ) (70.0 )% The decrease in selling, general and administrative expenses during fiscal Q1 of 2022, when compared with the prior year, is primarily due to a decrease in stock-based consulting expense of $351,467, stock-based compensation expense of $317,791, legal and professional expenses of $273,830, offset by higher salaries expense of $117,681. We believe that our selling, general, and administrative expenses will increase as the stock based consulting and compensation expenses and legal and professional expenses may increase over the balance of the fiscal year. Other expenses may increase as we increase our business activity over the remainder of fiscal 2023. Development Expense Three-Months Ended September 30, % 2022 2021 Change Development expense $ 54,892 $ 110,413 (50.3 )% Development expense represents the expense of further enhancing and commercializing TruContext. We believe that our development expense will continue at a slightly higher expense rate for the remainder of fiscal 2022. Interest Expense Three-Months Ended September 30, % 2022 2021 Change Interest expense $ 129,728 $ 486,464 $ (63.6 )% Interest expense represents stated interest of notes and convertible notes payable, along with the amortization of debt discount. The decrease in interest expense during the three-month period ended September 30, 2022 is primarily due to the acceleration of interest expense related to the repayment of outstanding notes payable held by Labrys Fund, LP during fiscal 2022. In addition, there was a decrease in discount amortization expense primarily related to the repayment outstanding notes payable of $332,343. Loss on Extinguishment of Debt Three-Months Ended September 30, % 2022 2021 Change Loss on extinguishment of debt $ 504,925 $ - $ N/A The loss on extinguishment of debt expense during the three-month period ended September 30, 2022 is due to the extinguishment of debt related to the amendment to three convertible notes in September 2022. The Company issued 138,667 warrants with a five year life, and a fixed exercise price of $1.35 per share, as part of a modification to these three outstanding convertible notes payable. The Company evaluated these amendments under ASC 470-50, “ Debt - Modification and Extinguishment” , and the Company recorded a loss on extinguishment of debt related to this transaction of $504,925. Liquidity and Capital Resources Balance at September 30, 2022 June 30, 2022 Cash $ 22,524 $ 136,940 Accounts payable and accrued expenses 647,083 596,463 Accrued compensation 820,570 614,589 Notes, convertible notes, and accrued interest payable $ 1,861,415 $ 1,684,199 At September 30, 2022 and June 30, 2022, our total assets consisted of cash and prepaid expenses. 25 Table of Contents We do not have any material commitments for capital expenditures. The objective of liquidity management is to ensure that we have ready access to sufficient funds to meet commitments and effectively implement our growth strategy. Our primary sources are financing activities such as the issuance of notes payable and convertible notes payable. In the past, we have mostly relied on debt and equity financing to provide for our operating needs. We cannot ascertain that we have sufficient funds from operations to fund our ongoing operating requirements through June 30, 2022. We may need to raise funds to enhance our working capital and use them for strategic purposes. If such need arises, we intend to generate proceeds from either debt or equity financing. We intend to finance our operations using a mix of equity and debt financing. We do not anticipate incurring capital expenditures for the foreseeable future. We anticipate that we will need to raise approximately $180,000 per year in the near term to finance the recurring costs of being a publicly-traded company. In the long-term, we anticipate we will need to raise a substantial amount of capital to complete an acquisition. We are unable to quantify the resources we will need to successfully complete an acquisition. If these funds cannot be obtained, we may not be able to consummate an acquisition or merger, and our business may fail as a result. Going Concern The accompanying financial statements have been prepared on a going concern basis. The Company has used net cash in its operating activities of approximately $167,467 and $510,397 during the three-month periods ended September 30, 2022 and 2021, respectively, and has a working capital deficit of approximately $3.3 million and $2.8 million at September 30, 2022 and June 30, 2022, respectively. The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, to fund possible future acquisitions, and to generate profitable operations in the future, once a merger with an operating company is consummated. Management plans may continue to provide for its capital requirements by issuing additional equity securities and debt and the Company will continue to find possible acquisition targets. The outcome of these matters cannot be predicted at this time and there are no assurances that if achieved, the Company will have sufficient funds to execute its business plan or generate positive operating results. Three months ended September 30, 2022 Net cash used in operations during the three months ended September 30, 2022 decreased by $342,930 or 67% over the same period during fiscal year 2022. Capital Raising Transactions During the quarter ending September 30, 2022 the Company had no capital raising transactions. Other outstanding obligations at September 30, 2022 Convertible Notes Payable The Company had convertible promissory notes aggregating $1,487,431 outstanding at September 30, 2022. The accrued interest amounted to approximately $325,930 as of September 30, 2022. The Convertible Notes Payable bear interest at rates ranging between 0% and 18% per annum. Interest is generally payable monthly. The Convertible Notes Payable are generally convertible at rates ranging between $0.80 and $22,500 per share, at the holders’ option. At September 30, 2022, approximately $324,000 of the promissory notes have matured. Notes Payable The Company had promissory notes aggregating $205,000 at September 30, 2022. The related accrued interest amounted to approximately $222,900 at September 30, 2022. The Notes Payable bear interest at a rate of 16% per annum. Interest is payable monthly. All promissory notes have matured as of September 30, 2022. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. 26 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable to a smaller reporting company.